F1M1

Question 1

Asset

Answer 1

probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Question 2

Liability

Answer 2

probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

Question 3

Equity

Answer 3

Residual interest in the assetsy of a particular entity that remains after deducting its liabilities

Question 4

Investments by owners

Answer 4

increases in the equity of an entity resulting from transfers of cash, property or services from owners

Question 5

Distribution to owners

Answer 5

decreases in the equity of an entity resulting from transfers of cash, property or services, or the incurrence of liabilities to owners

Question 6

Comprehensive Income

Answer 6

any changes in equity other than investments by owners or distributions to owners. Equation: Net Income + OCI

Question 7

What account does purchase discounts reduce? (F1M2 CPA-06565)

Answer 7

COGS (not Revenue)

Question 8

What account does Recovery of accounts written off effect? (F1M2 CPA-06565)

Answer 8

DR. AR
CR. Allowance for Doubtful Accounts

(does not effect revenues and does not hit IS for the period,

Question 9

Unrealized gains on AFS securities effect what account? (F1M2 CPA-06959)

Answer 9

OCI, not the IS…

Question 10

How are gains/losses from discontinued operations presented on the IS? (F1M2 CPA-06959)

Answer 10

In the following format:

1. Income from continuing operations
2. (Income Tax Exp.)
3. Income before discontinued operations
4. Gain (Loss) from Dis. operations (after tax)
5. Net Income

Question 11

How to calculate Discontinued operations after tax: (F1M2 CPA-06959)

Answer 11

Gain * (1 - tax rate)

Loss ??? How do companies receive the tax benefit?

Question 12

Regarding expenses that could be apart of continuing operations vs. non-operating, what is the key to classifying them?

Answer 12

It isn’t the nature of the expense, but the frequency the expense occurs. Example: If hail damage is a common repair cost for a business, it’s classified as an operating expense. It’s nature as a natural disaster isn’t important.

Question 13

In a single step IS, total revenues include ___ and do not include ___. (F1M2 CPA-00198)

Answer 13

Include: all revenue items from continuing operations, including gains.

Does not include: Any item from discontinued operations. This is still reported separately.

Question 14

When a fixed asset is sold, it is reported as a G/L in:

(1) Continuing operations
(2) Discontinued operations

Answer 14

Continued operations

Question 15

The descriptive language, disposing a “component of a business” is

Answer 15

Discontinuing a section of the business, NOT disposing of a fixed asset

Question 16

The minimum operating cycle for purposes of reporting a prepaid current asset is period for a prepaid asset is ___, which means that ___. (F1M2 CPA-00359)

Answer 16

12 months … which means that … even if an entities operating cycle is less than 12 months, 12 months of prepaid must be allocated to that period as a current asset.

Question 17

If a bank account (as in the question) or cash is segregated solely for a bond sinking fund, it is classified as a: (F1M2 CPA-00362)

Answer 17

non-current asset, NOT cash. Even if it’s expected to be paid within the next period.

Question 18

Interest expense

(1) is a selling or admin expense
(2) is not a selling or admin expense

Answer 18

(2) Is not a selling or admin expense.

Question 19

Is interest expense an operating or non-operating expense?

Answer 19

Non-operating Expense (but why???)

Question 20

On the IS, the line item that appears right before income tax expense is:

Answer 20

Income (loss) from operations
(NOT Income (loss) from continuing operations, this appears after the income tax line and only if there are discontinued operations to report that period).