F-7 Simulations

Question 1

Property Dividend Journal Entry

Answer 1

Dr. Retained earnings
Cr. Inventory/Property

Recorded at FV so if above BV, the gain increases income is less then loss decreases income

Question 2

Declaring dividends

Answer 2

Small
Dr. Retained earnings-market value
Cr. Common stock
Cr. Apic

Large
Dr. Retained earnings-PAR
Cr. Common stock

Question 3

Property Dividend accounting

Answer 3

PP&E should be restated to FV and gain or loss should be in income statement

Dr. Retained earnings -FV
Dr. Loss
Cr. PP&E or inventory - CV
Cr. Gain

Question 4

Property Dividend accounting

Answer 4

PP&E should be restated to FV and gain or loss should be in income statement

Dr. Retained earnings -FV
Dr. Loss
Cr. PP&E or inventory - CV
Cr. Gain

Question 5

Grant Date Journal entry for stock compensation

Answer 5

No entry

Question 6

Compensation expense journal entry

Answer 6

Dr. Compensation Expense
Cr. APIC-Stock Options

Take FV of stock options and divide by number of years

Question 7

Journal entry to exercise stock options

Answer 7

Dr. Cash - Strike price
Dr. APIC-Stock options - what’s recorded in compensation expense
Cr. Common Stock - Par
Cr. APIC - Common Stock - Plug

Question 8

Journal entries for stock compensation not exercised

Answer 8

Dr. APIC - stock options

Cr. APIC - expired stock options

Question 9

Cash Flow direct method note about expenses

Answer 9

A negative balance for a decrease in an expense means the expense was paid so you have a decrease in cash

Question 10

Direct method notes about how to calculate numbers

Answer 10

1. Revenues uses A/R & Unearned Revenue

2. CCGS uses inventory and A/P

Question 11

What to look for in liabilities section for financing activities cash flow

Answer 11

1. Short term borrowings

2. Current portion of long term debt: net against long term debt

Question 12

Retained earnings & financing cash flows

Answer 12

Beginning retained earnings + Net Income - Dividends = Ending retained earnings

Question 13

Statement of cash flows supplemental disclosures

Answer 13

Cash paid for income taxes & interest paid go into supplemental disclosures and don’t need to be a negative number because they’re disclosures

Question 14

EPS and discounted operations

Answer 14

Must be shown on the face or in the notes

Question 15

Treasury stock method for Diluted EPS

Answer 15

• Multiply the number of options by the exercise price and divide by the market price then add to the denominator

Question 16

If converted method for Diluted EPS - convertible bonds

Answer 16

Numerator - multiply face amount by “1 - tax rate” then multiply by interest rate

Denominator - Divide face amount by value of each bond to get the number of bonds them multiply by conversion rate

Question 17

If converted method for Diluted EPS - convertible preferred stock

Answer 17

Numerator - add back deferred dividends

Denominator - Add conversion ratio

Question 18

What does the Statement of Accumulated Plan Benefits show?

Answer 18

• effect of changes in actuarial assumptions
• effect of plan amendments
• amount of benefits paid to beneficiaries

Question 19

Statements required for pension plans

Answer 19

1. Statement of Net Assets Available for Benefits

2. Statement of Changes in Net Assets Available for Benefits

Question 20

Statement of Net Assets Available for Benefits example

Answer 20

Assets

• Investments at FV
• Receivables
  1. Employer contributions
  2. Employee contributions
  3. Interest, dividends, other

Liabilities
- Admin expenses & other payables

Question 21

Statement of Changes in Net Assets Available for Benefits ADDITIONS example

Answer 21

Additions

• Investment Income
  1. Realized & unrealized appreciation in FV of investments
  2. Interest & Dividends
• Contribution
  1. employer
  2. participants
  3. rollover
• Interest income on notes receivable from participants

Question 22

Statement of Changes in Net Assets Available for Benefits DEDUCTIONS example

Answer 22

Deductions

• Benefits paid directly to participants
• Admin expenses

Question 23

Defined Benefit Plan

Answer 23

1. Employer defines amount of monthly benefit the employee will receive
2. Employer bears risk of making sure there are enough assets for retired benefit obligations

Question 24

Defined Contribution Plan

Answer 24

1. Employer contributes set amount each month
2. The amount is invested and when the employee retires he may draw money from the balance
3. Employee bears risk because employer sets the contribution amount and not the max benefit amount

Question 25

Statement of Accumulated Plan benefits

Answer 25

Future benefit payments attributable to the employee’s service rendered to the benefit information date

• retired or terminated employees and their beneficiaries
• beneficiaries of deceases employees
• present employees or their beneficiaries

Question 26

Statement of Changes in Accumulated Plan Benefits

Answer 26

Shows increases & decreases in

• plan amendments - add if favorable if not subtract
• change in actuarial assumption - add if favorable if not subtract
• benefits accumulated
• [benefits paid]

Question 27

How to calculate book value per share for common stock

Answer 27

1. Add up everything in stockholder’s equity
2. Subtract everything that doesn’t have to do with common stock including dividends in arrears and other shit with preferred stock, except for retained earnings

Question 28

Cash flow direct method - Cash received from customers

Answer 28

Revenues
(Increases in receivables)
Decrease in receivables
Increase in unearned revenue
(Decrease in unearned revenue)

Question 29

Things that directly increase cash

Answer 29

Interest received
Dividends received
Receipts from lawsuits
Sale of trade securities

Question 30

Cash paid from other expenses

Answer 30

(Decrease in prepaid expenses)
Increase in prepaid expenses
Decrease in accrued liabilities
(increase in accrued liabilities)