External Financial Statements And Revenue Recognition

Question 1

Two components of Discontinued Operations

Answer 1

1) Income or loss from operations of the division from the first day of the reporting period until the date of disposal
2) Gain or loss in the disposal of the divisions

Question 2

Non cash investing activities on the statement of cash flows

Answer 2

1) Conversion of debt to equity
2) Acquisition of assets either by assuming directly related liabilities or by means of a capital lease
3) Exchange of a no cash asset or liability for another

Question 3

Five step model for recognizing revenue from contracts with customers

Answer 3

1) Identify the contracts with a customer
2) Identify the performance obligations in the contract
3) Determine the transaction price
4) Allocate the transaction price to the performance obligations in the contract
5) Recognize the revenue when or as performance obligation is satisfied

Question 4

Cost-to-cost input method to measure progress of completion on contract

Answer 4

Contract Price - Actual Cost - Estimated Remaining Cost

Question 5

Operating Activities of Cash Flows

Answer 5

Principal revenue producing activities of the entity

Inflows:

1) Cash receipts from the sale of goods and services (AR) (Inventory)
2) Cash receipts from royalties, fees, commissions and other revenue
3) Cash received from interest or dividends

Outflows:

1) Cash payments to suppliers for goods and services (AP) (inventory)
2) Cash payment to employees
3) Cash payments for taxes, duties, fines, fees, penalties
4) Payments of interest on debt

Question 6

Investing Activities of Cash Flows

Answer 6

Resources intended to generate future income and cash flows

1) Cash payments/receipts for property, plant, equipment, intangible assets, and other long-lived assets
2) Cash payments/receipts for equity and debt instruments of other entities for investing purposes
3) Cash advances and loans made to other parties

Question 7

Financing Activities of Cash Flows

Answer 7

Issuance, settlement, or reacquisition of the entity’s debt and equity instruments

1) Cash proceeds from issuing shares and other equity instruments
2) Cash proceeds from issuing loans, notes, bonds, and other short term or long term borrowings

Question 8

Operating Activities Added to Net Income

Answer 8

1) Increase in current operating liabilities
2) Decrease in current operating assets
3) Noncash losses and expenses included in net income (Depreciation)
4) Losses and expenses whose cash effects are related to investing or financing cash flows (ex Sale of Asset, securities)

Question 9

Operating Activities Subtracted from Net Income

Answer 9

1) Decrease in current operating liabilities
2) Increase in current operating assets
3) Noncash gains and revenues included in net income (Depreciation)
4) Gains and revenues whose cash effects are related to investing or financing cash flows (ex Sale of Asset, securities)

Question 10

Current Assets include:

Answer 10

1) Cash and cash equivalents
2) Certain individual trading, available for sale, and held to maturity debt securities
3) Receivables
4) Inventories
5) Prepaid expenses

Question 11

Treasury stock at cost

Answer 11

1) Reported at its repurchase cost

2) Subtracted from the total of the other equity accounts

Question 12

Ratio used in calculating income for progress to completion contract

Answer 12

1) Total costs incurred to date to total estimated costs

Question 13

Cost of Goods Sold

Answer 13

1) Beg Inventory + Cost of Manufacturing - End Inventory

Question 14

Transactions of Issuance of Stock

Answer 14

1) Cash is increased (debited)
2) Stock is increased (credited) for par value
3) Additional paid-in capital is increased (credited)

Question 15

Transactions of Cash Dividend

Answer 15

1) Declaration of dividend decreases (debits) retained earnings

(Calculated using par value for preferred stock at dividend % declared)

Question 16

Transactions of Property Dividend

Answer 16

1) Property remeasured to fair value as of date of declaration and gain/loss is recognized on the statement of income
2) Carrying amount of retained earnings is decreased
3) Property is distributed as a dividend

Question 17

Transaction of Stock Dividend

Answer 17

1) Issuance of shares less than 20-25%
2) Fair value of the additional shares issued is reclassified from retained earnings to common stock (at par value) and the difference to additional paid in capital

Question 18

Transaction of Stock Split

Answer 18

1) Issuance of shares more than 20-25%
2) Reduces the par value of each stock and increases the number of shares outstanding
3) No entry is made, no transfer from retained earnings

Question 19

Cost of Goods Sold Formula

Answer 19

Purchases + Beg Inventory - End Inventory

Question 20

Gross Profit Recognized in the last year of a contract using the cost-to-cost method

Answer 20

Contract Price - Actual Total Costs - Gross Profit previously recognized

Question 21

Changes in equity balances on the statement of changes in equity include

Answer 21

1) Net Income = Increase (decrease) retained earnings
2) Cash or property dividends paid = Decrease retained earnings
3) issuance of common stock = Increase common stock and additional paid in capital
4) Total change in other comprehensive income
5) Repurchase of one stock = Decrease in equity

Question 22

Statement of Changes in Equity

Answer 22

Presents a reconciliation for the accounting period of the beginning balance for each component of equity to the ending balance