F1 Flashcards
1
Q
FASB and IASB conceptual frameworks indicates that the following are primary users:
A
- creditors
- lenders
- investors
2
Q
The fundamental qualitative characteristics of useful financial info are:
A
- faithful representation
- relevance
3
Q
enhancing qualitative characteristics of useful financial information:
A
- understandability
- timeliness
- verifiability
- comparability
4
Q
Neutrality, freedom from error, and completeness are components of:
A
faithful representation
5
Q
Materiality, predictive value, and confirming value are components of:
A
relevance
6
Q
____ is the process of recording an item in the FS of an entity
A
recognition
7
Q
_____ is the accounting process of assigning or distributing an amount according to a plan or a formula
A
allocation
8
Q
______ is simultaneous or combined recognition of the revenues and expenses that result directly and jointly from the same transactions or other events
A
matching of costs and revenues
9
Q
_____ is the process of converting noncash resources and rights into money
A
realization
10
Q
Financial information provided in general purpose financial reports should include information about:
A
- the resources of the entity
- the claims against the entity
- how effectively and efficiently the entity’s management and governing board have discharged their responsibilities to use the entity’s resources
11
Q
_______ is the single source of US GAAP.
A
FASB accounting standards codification
12
Q
SFAC defines the following elements of present value measurement:
A
- the Price for Bearing uncertainty
- expectations about timing variations of future cash flows
- other factors (liquidity issues and market imperfections)
- time value of money (the risk free rate of interest)
- estimate of future cash flow
13
Q
Differences between managerial and financial accounting:
A
- financial must follow GAAP, managerial doesn’t
- financial focus on reporting past results, managerial focus on future
- financial is more precise
- emphasis of financial is providing useful info to FS users, emphasis of managerial is providing timely info to management decision makers
14
Q
_____ is the quality of info that helps users forecast future outcomes
A
predictive value
15
Q
______ provides feedback about evaluations previously made by users
A
confirming value
16
Q
_____ is the depiction of financial info that is free from bias in selection or presentation
A
neutrality
17
Q
_________ means that money is the common denominator for economic activity and provides an appropriate basis for accounting measurements and analysis
A
monetary unit assumption
18
Q
______ is that economic activity can be accounted for when considering an identifiable set of activities
A
economic entity assumption
19
Q
________ is that economic activity can be divided into meaningful time periods
A
periodicity assumption
20
Q
_______ presumes that an entity will continue to operate in the foreseeable future
A
going concern assumption
21
Q
______ is defined as the amount of cash or its equivalent that would be paid to acquire or replace an asset currently.
A
replacement cost
22
Q
_______ is the selling price of an asset less any disposal costs
A
net realizable value
23
Q
______ is the amount paid by a company to acquire an asset
A
historical cost
24
Q
________ is the price to sell (not aquire) an asset
A
current market value, fair value
25
An accounting standards update is issued only after:
majority vote of the members of the FASB
26
Interim financial reporting should be viewed as reporting for:
an integral part of an annual period
27
according to the FASB conceptual framework, assets are:
probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
28
Revenues are inflows or other enhancements of assets and/or settlements (decreases) in:
liabilities resulting from the entity's ongoing major operations
29
The primary objective of finanical reporting:
to provide info that is useful for economic decision making
30
The FASB updates the Accounting standards codification for new US GAAP issued by the FASB, and for any changes o existing GAAP, with:
Accounting Standards Updates
31
______ are issued by the SEC and are a summarization of the views of the SEC's staff regarding how GAAP are to be applied
Staff Accounting Bulletins
32
______, a precodification term, were used to provide FASB staff guidance on implemenation and practice problems that would assist in the application of GAAP
technical bulletins
33
Under US GAAP, a material transaction that is infrequent in occurence and or unusual in nature should be presented separately as a component of income from continuing operations when the transaction results in:
a gain or loss
34
Under US GAAP, a material transaction that is infrequent in occurence and or unusual in nature should be presented separately as a component of income from continuing operations when the transaction results in:
a gain or loss (NOT net of tax)
35
In the single step income statement, what is included in total revenue? What is not included?
included: total revenues all sales of goods, services, and rentals
not included: purchase discounts (reduce COGS), recovery of accounts written off
36
When accounts written off are recovered, what are the journal entries?
1. AR
AFUA
2. Cash
AR
37
The adjustment for the prior year understatement of amortization expense is a prior period adjustment that will be reflected in:
beginning RE
38
unrealized gain on the available for sale debt security would be reported in:
OCI
39
If storms are considered frequent, the damage is not considered unusal. Thus, the damages would be reported by:
showing the actual loss in continuing operations
| no separate disclosure
40
What is freight out?
selling expense
41
gains and losses from fixed asset sales are reported using:
the net concept (proceeds less carrying amount), showing the total gain or loss as part of continuing operations, NOT net of income taxes
42
items included in OCI:
- pension adjustments
- unrealized gains or loss
- foreign currency items
- the effective portion of cash flow hedges
43
What is freight in?
COGS expense
44
the loss on abandonment of equipment is treated like:
a sale reported in income from continuing operations (loss)
45
gain on reacquistion and retirement of bonds that is infrequent and unusal is reported in:
income from continuing operations
46
the minimum operating cycle for purposes of reporting a prepaid current asset is:
one year
47
segregated bank account to be used to pay a current maturity of a long term bond sinking fund debt should be classified as:
noncurrent asset
48
an overdraft in a bank account should be reported as:
current liability (because no legal right of offset exists at different banks)
49
if included in AR is a receivable from a customer with an agreement to payments that extend for more than one year than how is it reported?
current asset for the amount to be received in the next year
noncurrent asset for the remaining amount
50
interest expense is classified as:
separate line item on income statement (NOT admin expense)
51
deposits received by customers and unearned rent represent:
liabilities
52
under IFRS, the following would be included in income from continuing operations:
- a large loss from a foreign currency transaction
- a union strike that shuts down operations for three months
- a foreign government takes possession of a company's only plant
- damage to a factory due to an earthquake in an area that had not previously experienced earthquakes
53
the line item income (loss) from operations is shown:
gross (before taxes)
54
income from continuing operations is displayed:
net of taxes in either a single step or multiple step income statement. only used in the event that the reporting organization is required to report discontinued operations
55
Service revenue is recognized with ___________ under US GAAP and using the percentage of completion method under IFRS, not at the time of original sale
GAAP: the passage of time over the life of the service contracts,
IFRS: using the percentage of completion method
56
how should unearned rent that has already been paid by tenants for the next 8 months of occupancy be reported in landlord's FS?
current liability (unearned rev)
57
how should unearned rent that has already been paid by tenants for the next 8 months of occupancy be reported in tenants FS?
current asset (prepaid rent)
58
output method to recognize revenue:
milestones achieved
59
input methods to recognize revenue:
- resources consumed
- costs incurred to total expected costs
- labor hours expended
60
any discount that exists in a contract (based on the total value of the contract versus the standalone value of each obligation summed within the contract) should be allocated:
proportionally across all obligations within the contract
61
when ________________, this would indicate that the services can be combined into a single performance obligation
the services are all very similar in nature and can be provided to the buyer in a similar manner
62
when __________________-, then the performance obligation overall can be split apart into distinct components
the buyer can benefit from each service independently or in conjunction with her own available resources and when the promise to deliver each service is separately identifiable from the other services
63
For percentage of completion and completed contract, the entire estimated loss is recorded for:
a loss contract in progress (not only the loss incurred to date)
64
under the completed contract method, revenue is recognized when the contract is compete, however expected losses are recognized:
immediately in their entirety
65
when a company uses the __________ method of accounting for a 5 year construction contract, income previously recognized would be used to calculate the income recognized in the second year
percentage of completion
66
When a company uses the US GAAP ____________ method to account for a long term construction contract, revenue is recognized when the job is completed, NOT when progress billings are collected or when they exceed recorded costs
completed contract
67
when the _____________ method of recording revenue is used, engineering estimates of completion or costs incurred to date vs. total estimated costs is the basis for recognizing revenue, not progress billings
percentage of completion
68
under percentage of completion method, annual gross profit equals:
(total cost incurred/total expected cost) * (total expected gross profit) - total gross profit previously recognized
69
The accumulated costs + estimated earnings > related billings will represent:
current asset
| subtract from billings to get amount
70
A ______ exists when progress billings > accumulated costs + estimated earnings
liability
| subtract from costs and estimated earnings to get amount
71
costs that would not have been incurred if the contract had not been obtained can be recognized as:
an asset (part of incremental cost of obtaining contract)
72
design costs and printing costs should be ___________ related to the contract
expensed as cost of sales
73
an entity should recognize a __________ if it receives or expects to receive consideration from a customer and anticipates having to refund a portion or all of that consideration
refund liability
74
the entity cannot book revenue at the time of sale because it cannot _________. Once the period ____________, then the entity can recognize revenue.
reasonably estimate returns, given to refund has passed
75
once the decision has been made to displose of a component of a business and that component meets the criteria to be classified as held for sale, the operating results should be reported:
separately from continuing operations, net of tax
76
Since the fair value of the component's assets is less than the carrying value, there has been an impairment of the assets of the component, and the impairment loss is recognized:
in the year in which the component is classified as held for sale
77
If there had been a loss on disposal larger than what had been estimated as the difference between the fair value and carrying value of the component's assets (reported in the year component is classified as held for sale), that additional loss would have been included in: _______
the year in which it occurred
78
examples of costs associated with the decision to dispose that should be included in the loss from discontinued operations:
- employee relocation costs
- additional pension costs
- operating losses of the current period that the decision to dispose of the segment was made
79
the earliest period that a component of an entity can be reported in discontinued operations is when:
the component meeting held for sale criteria
80
held for sale criteria:
1. management commits to a plan to sell the component
2. the component is available for immediate sale in its present condition
3. an active program to locate a buyer has been initiated
4. the sale of the component is probable and the sale is expected to be completed within one year
5. the sale of the component is being actively marketed
6. it is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn
81
______ may be functional in nature, like a major product category or service division, or they can be geographical as well.
segments
82
to qualify as a discontinued operation, the sale must represent:
a strategic shift and must have a significant effect on its operations and financial results
83
assets held for sale are no longer:
depreciated
84
the building being actively marketed for sale will be valued at the lower of its:
book value or net realizable value (fair value - costs to sell)
85
items that are unusal in nature and/or infrequently occurring are reported:
separately as a component of income from continuing operations
86
when the effect of a change in accounting principle is inseparable from the effect of a change in accounting estimate, the reporting treatment for the overall effect is:
as a change in estimate (effect is reported propsepectively as a component of income from continuing operations)
87
correction of an error is given retroactive treatment as:
a prior period adjustment to retained earnings with restatement of prior periods
88
restatement of all prior periods is the retroactive accounting treatment that is applied to:
- correction of an error
| - changes in accounting principle
89
the cash basis for financial reporting is not:
GAAP so it is an error needing a prior period adjustment
90
the cumulative effect of a change in accounting principle is shown as:
adjustment to beginning RE
91
a change in accounting estimate affects:
only the current and subsequent (future periods), if the change affects both.
92
a change in depreciation is considered to be:
both change in method and change in estimate.
| accounted for prospectively
93
the new depreciation method should be used as of the beginning of the year of change and should start with:
current book value of the underlying asset
94
under IFRS, when an entity records a change in accounting principle, the entity must present three balance sheets (______________________) and two of each other FS (____________________). the cumulative effect adjustement is shown as an adjustement to beginning RE on the balance sheet for the beginning of:
end of current period, end of prior period, and beginning of prior period,
current period and prior period
prior period (Jan 1)
95
If only Year 2 FS are presented, the error should be corrected by:
restating the opening balance of RE for Year 2.
96
if year 1 and 2 FS are presented, the error should be corrected to reflect:
proper year 1 dep expense
97
if comparative FS are presented and a change of reporting entity has occurred, all previous FS that are presented in the comparative FS should be:
restated
98
examples of disclosure requirements under IFRS when a material prior period error is being reported:
- the impact of the correction on basic and diluted earnings per share for each period presented
- the amount of the correction at the beginning of the earliest period presented
- the nature of the error
99
the cumulative effect of a change in accounting principle equals that difference between RE at the beginning of the period of the change and what RE would have been if the change was applied to all affected prior periods, assuming comparative FS are:
NOT presented
100
unrealized losses or gains resulting from changes in market value of available for sale debt investments should be reported as:
component of OCI
101
unrealized losses or gains on debt investments held for trading debt securities and equity investments should be reported as:
gain or loss in net income
102
Under US GAAP, when making a change to LIFO, it is generally considered:
impracticable to calculate the cumulative effect of the change (the beginning inventory dollar amount becomes the first LIFO layer) no adjustment is made. accounted for prospectively
103
inventory is a balance sheet item, so the change based on balances at the end of the last year the prior method should be used:
to make a prior period adjustment
104
if income statement amounts of cost of goods sold need a cummulative prior period adjustment then you would:
have to look at all the past years in the aggregate
105
compensation expense reduces retained earnings resulting in:
debt adjustment to beginning RE
106
financial statements of all prior periods presented should be restated when there is a change in entity resulting from:
- changing companies in consolidated FS
| - consolidated FS versus previous individual FS
107
A change from the _____ method to the _____ method requires a restatement; however a change from the _____ method to the _____ method does not require restatement and is accounted for prospectively.
cost, equity
equity, cost
108
Per IFRS, an entity's first FS should include at least:
- 3 BS
- 2 statements of comprehensive income
- 2 separate IS
- 2 statements of cash flows
- 2 statements of changes in equity
- related notes, including comparative info
109
foreign currency translation adjustment gain is in:
OCI
110
comprehensive income is the change in equity of a business during a period from transactions and other events and circumstances from non-owner sources. it includes all changes in equity except:
if it results from
- investments by owners
- distributions to owners
111
comprehensive income is equal to:
current period net income + current period OCI
112
gains from extinguishment of debt are:
component of NI
113
the minimum pension liability adjustment:
no longer required under GAAP
114
OCI include changes in:
- funded status of a pension plan:
due to gains/losses, prior service
costs, and net transition assets or
obligations
-unrealized gains and losses:
unrealized holding gains/losses on
available for sale debt securities,
unrealized holding gains/losses on
debt securities transferred from the
held to maturity to available for sale
classification
- foreign currency items, including translation adjustments
- effectived portion of cash flow hedges
115
accumulated OCI is a component of:
SE on BS
116
stock transactions and dividends are not included in:
comprehensive income
117
comprehensive income can be reported in:
- a seperate statement of comprehensive income or in a statement of income and comprehensive income
- interim FS and year end FS
118
Under IFRS, the revaluation loss will be reported in:
net income
119
Under IFRS, what is reported in OCI?
- pension gain
- foreign currency transation
- revaluation surplus (gain)
- unrealized gain or loss on available for sale debt security
120
Under IFRS, unrealized gain or loss on trading securities is reported in:
net income
121
regarding the presentation of comprehensive income, the income tax expense or benefit allocated to components must be:
disclosed, either on the face of the statement or in notes to the statement
122
reclassification entries may be necessary to:
avoid double counting an item previously reported as comprehensive income
123
purpose of reporting comprehensive income:
to summarize all changes in equity from nonowner sources
124
prior period error correction is a change in SE included in:
comprehensive income
125
accumulated OCI is reported in which FS?
BS because it is a BS account
| current OCI can be reported in statement of comprehensive income, this is asking from accumulated OCI
126
prior service cost would be a ______ addition to comprehensive income in the year that it was amortized to net periodic pension cost. If it's not being recognized in net periodic pension cost, then it would be a _______ addition
positive, negative
127
what would cause earnings to differ from comprehensive income?
OCI changes
128
a change in accounting principle doesn't result in a restatement becuase the effect on the FS would not change a user's decision. What is the qualitivate characteristic, assumption or principle best explaining the scenerio?
relevance, materiality
129
entity assumption:
economic activity can be accounted for when considering an identifiable set of activities (separate corporation or division)
130
the primary reason discontinued operations are reported separately from continuing operations in the income statement. What is the qualitivate characteristic, assumption or principle best explaining the scenerio?
predictive value
131
a company reports land on its BS at historical cost even though the FV of the land is significantly higher at the BS date. What is the qualitivate characteristic, assumption or principle best explaining the scenerio?
measurement principle
132
dividend expense is not on an income statement. it is subtracted from:
RE
133
prepaid insurance should be adjusted for the month that has expired on:
renewed policy
| expense it
134
the current asset for interest receivable is the:
interest to be received within one year
135
If year 2 contracts were signed earlier in the year than before, more warranty work would have been performed by year-end, thus:
reducing the deferred revenue balance more than in prior years
136
Contacts signed later in the year than before would create fewer opportunities for warranty work to be done. Thus, the balance in the deferred revenue account would be:
greater than in prior years
137
unbilled fees for the year should be accrued:
in the year the service was provided
138
investment interest receivable equation:
Beginning balance + accrued interest revenue - collections of interest = ending balance
139
since the unrecorded liability affects WIP. inventory (rather than cost of sales/RE), there is _____ effect on RE, but accrued liabilities (and inventory) are ________.
no, understated
140
accrued salaries payable formula
beginning balance + salaries expense during the year - salaries paid during the year = ending balance
141
accrued interest payable equation:
note payable balance at year end 1 - first payment made in year 2 = note payable balance at date in year 2 * annual interest rate = annual interest * adjustment factor out of 12 months = accrued interest payable
142
As interest payments are made periodically for both notes, the interest must be prorated based on:
the number of months outstanding
143
Both GAAP and IFRS prohibit the presentation of comprehensive income _______.
per share
144
The statement of financial accounting concepts (SFAC) that requires a statement of comprehensive income is:
SFAC 5, dealing with recognition and measurement
145
SFAC 5 requires a statement of comprehensive income as a part:
of a full set of FS
146
correction of the failure to accrue warranty costs is treated as:
correction of an error (prior period adjustment)
147
Regardless of the method used, companies can choose to report other comprehensive income items:
net of tax or before related taxes, with one amount shown for the aggregate
148
Though unrealized, investments in _________ are carried at fair value through net income.
equity securities
Unrealized holding gains and losses on equity securities are included in earnings as they occur.
149
impairment gain/loss calculation on disposal of business:
Assets-liabiliities = company BV
Company BV -Fair value estimate = impairment loss / gain
150
Gain / loss on disposal sale calculation
Sales price - FV estimate
151
The tax accrual adjustment was identified in Year 3, and since it is a change in accounting estimate, it will impact:
Year 3 and beyond.
152
A change in accounting principle will be reflected by:
adjusting beginning retained earnings in the earliest year presented
153
A new FASB standard is implemented in year 3, which requires jones to change how it accounts for probable future changes. Years 2 and 3 are presented. what is the impact in year 2?
its a change in accounting principle so year 2's beginning RE and current earnings are affected
154
The depreciation calculation is an error associated with Year 2. Since Year 2 is presented along with Year 3, the adjustment can be made directly to:
Year 2 current earnings
155
A change in accounting entity occurs when an entity has changed composition as a result of consolidation or a business combination. When Goose presents its consolidated financial statements that include Gosling, it will restate any prior period financial statements presented for comparative purposes to also reflect the consolidation of Gosling. Under U.S. GAAP, this restatement is referred to as:
retrospective adjustment.
156
The income tax basis of accounting is a non-GAAP method. A change from a non-GAAP method of accounting to a GAAP method of accounting is considered to be an error correction under GAAP. An error correction is accounted for by:
restating all prior periods presented and adjusting the beginning retained earnings of the earliest period presented.
157
While the change in reporting construction contracts is a change in accounting principle, an accounting principle may be changed only if: _______________________. A change in accounting principle is not acceptable if it is done in order to increase earnings and the stock price of the company.
required by GAAP or if the alternative is preferable and more fairly presents the information.
158
The effective portion of the cash flow hedge would be recorded in ___________. The ineffective portion of the cash flow hedge should have been reported in ___________.
other comprehensive income, the income statement
159
Under IFRS, the company can choose to use the ____ or _______ model.
cost or revaluation
160
Under _____, the actuarial gain should remain in other comprehensive income without being reclassified to the income statement.
IFRS
161
other comprehensive income should be closed to _______________, which is a component of stockholders’ equity.
accumulated other comprehensive income account
162
Accounting for changes in accounting estimates under IFRS:
- recognized prospectively by including it in profit or loss in the period of change (if the change affects that period only)
or
- the period of change and future periods (if the change affects both).
To the extent a change in accounting estimate results in changes in assets and liabilities, or relates to an item of equity, the change is recognized by adjusting the carrying amount of the asset, liability or equity item in the period of change.
163
The following disclosures are required for changes in accounting estimates: (under IFRS)
* The nature and amount of a change in an accounting estimate that affects the current and future periods.
* Where the effect on future periods is not estimable, that fact should be disclosed.
164
The general principle in IFRS is that an entity must correct all material prior period errors retrospectively in:
in the first set of financial statements authorized for issuance after their discovery.
If the error occurred in prior periods presented in the financial statements, the comparative amounts for the prior periods should be restated.
If the error occurred before the earliest prior period presented, the opening balances on the balance sheet should be corrected for the earliest prior period presented.
165
Disclosures related to prior period errors include: (under IFRS)
* The nature of the prior period error.
* For each prior period presented, the amount of the correction for the financial statement line item affected and for earnings per share.
* The amount of the correction at the beginning of the earliest period presented.
166
JE for costs incurred under percentage of completion method
Construction in process
| cash
167
JE for recording billings on contract under percentage of completion method
contracts receivable
| progress billings
168
JE for recording payments received under percentage of completion method
cash
| contracts receivable
169
JE for recording revenue / cost during construction period under percentage of completion method
construction expense
construction in progress
revenue
170
net construction in progress (current asset)
(positive) construction in progress - progress billings
171
net construction in progress (current liability)
(negative) construction in progress - progress billings
172
In Year 2, the cumulative loss must be $200,000 (2,800,000-3,000,000). To accomplish this, a loss in Year 2 of $500,000 must be recognized. Why? (under percentage of completion method)
The gross profit in Year 1 of $300,000 added to the Year 2 loss of $500,000 yields the cumulative loss of $200,000 through the end of Year 2.
173
JE for costs incurred under completed contract method
Construction in process
| cash
174
JE for recording billings on contract under completed contract method
contracts receivable
| progress billings
175
JE for recording payments received under completed contract method
cash
| contracts receivable
176
JE for recording revenue / cost during construction period under completed contract method
construction expense
construction in progress
revenue
NO ENTRY in years before completion
177
JE for recording revenue / cost after construction period under completed contract method
progress billings
revenue
construction expense
construction in progress
178
In Year 2, the cumulative loss must be $200,000 (2,800,000-3,000,000). To accomplish this, a loss in Year 2 of $200,000 must be recognized. Why?
under completed contract method (only recognize losses before completion)
179
loss on write down of inventory goes into:
other expenses and losses
