Deck #3 (F1)

Question 1

when is a component of an entity “held for sale”

Answer 1

1. MGMT commits to a plan to sell the component
2. Component is available for immediate sale
3. Active program to locate a buyer
4. Sale is probable within one year
5. Sale of the component is marketed actively

Question 2

what are 3 examples of strategic shift for a company? (discontinued ops)

Answer 2

disposal of:

1. major geographic area
2. major equity method investment
3. major line of business

Question 3

when is the earliest period a component can be considered discontinued?

Answer 3

when it is classified as held for sale

Question 4

how do you calculate an impairment loss?

Answer 4

fair value less carrying (book) value

Question 5

how should you depreciate a held for sale asset?

Answer 5

YOU DON’T

Question 6

How do you treat the conversion from cash basis to accrual basis?

Answer 6

prior period adjustment as a result of an error correction

Question 7

How do you treat a change in accounting principle? (i.e. going from FIFO to Weighted Average)

Answer 7

adjustment to BEGINNING retained earnings

Question 8

How do you treat a change in accounting estimate?

Answer 8

account for the current period as well as future period if change affects both (DO NOT RESTATE)

Question 9

Examples of estimate changes

Answer 9

• change in life of a FA
• settlement of litigation
• write down of obsolete inventory

Question 10

What are the components of OCI (PUFIER)

Answer 10

Pension adjustments
Unrealized gains and losses (only available for sale)
Foreign currency items (gains/loss, or TRANSLATION)
Instrument specific credit risk
Effective portion of cash flow hedges
Revaluation Surplus (ONLY IFRS)

Question 11

what is the nature of accumulated OCI?

Answer 11

what goes in will always come out

Question 12

ENTRY:

1. recording unearned revenue
2. adjusting entry once revenue is earned

Answer 12

DR: Cash
CR: Unearned Revenue

DR: Unearned Revenue
CR: Revenue

Question 13

ENTRY:

1. recording prepaid expense
2. adjusting entry once expense is incurred

Answer 13

DR: Prepaid Expense
DR: Cash

DR: Expense
CR: Prepaid Expense

Question 14

ENTRY:

1. recording accrued revenue

Answer 14

DR: AR

CR. Revenue

Question 15

ENTRY:

1. recording accrued expense

Answer 15

DR: Expense
CR: Accrued Liability

Question 16

what is important to know about adjusting entries (3 things)?

Answer 16

1. never involves a cash account
2. must be recorded by the end of the fiscal year
3. they will always hit one IS account and one BS account

Question 17

ENTRY:

1. recording a loan from a bank
2. recording interest accrued from that loan

Answer 17

DR: Cash
CR: Note payable

DR: Interest Expense
CR: Interest Payable

Question 18

Examples of error correction

Answer 18

• nonGAAP to GAAP policy

- corrections of error recognition, misuse of facts, etc.

Question 19

Is change in depreciation method a change in estimate or a change in principle

Answer 19

ITS BOTH. Estimate supersedes. Only affects future periods.

Question 20

how is a correction of an error reported?

Answer 20

net of tax, on the statement of retained earnings (affects the opening balance)

Question 21

Under IFRS how many balance sheets must be present after an accounting principle change is reported

Answer 21

3

Question 22

when a change in accounting entity is present, how is it treated?

Answer 22

retrospectively, including note disclosures, to all prior period statements presented

Question 23

under GAAP, the effect of an inventory pricing change on prior years exists when

Answer 23

LIFO to weighted average