F2

Question 1

Earned an realized or realizable. The following four criteria must be met before revenue can be recognize: 1. Persuasive and evidence of an arrangement exists, 2. Delivery has occurred or services have been rendered., 3. The price is fixed and determinable, 4. Collection is reasonably assured.

Answer 1

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 2

1. Sale of goods, 2. Rendering of services, 3. Revenue from interest, royalties, and dividends, 4. Construction contracts. Common revenue recognition criteria include: Revenue and costs can be reliably measured. It is probable that economic benefits will flow to the entity. Each category has additional criteria.

Answer 2

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 3

U.S. GAAP : In the period in which the service have been rendered and are able to be billed. IFRS: Using the percentage of completion method when the outcome of the transaction can be estimated.

Answer 3

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 4

The sale price is substantially fixed at the time of sale. The buyer assumes all risks of loss because the goods are considered in the buyer’s possession. The buyer has paid some form of consideration. The product sold is substantially complete. The amount of future returns can be reasonably estimated.

Answer 4

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 5

The percentage of completion method or long term construction accounting is an example of accelerated revenue recognition. The installment method (or cost recovery method) is an example of deferred revenue recognition.

Answer 5

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 6

Purchased intangible assets: Recorded at costs, including legal and registration fees, under U.S. GAAP and IFRS. Internally developed intangible assets: Legal fees, costs of successful defense, registration fees, consulting fees, and design fee be capitalized under U.S. GAAP and IFRS. Under U.S. GAAP, research and development costs must be expensed. Under IFRS, research costs must be expensed, but development costs may be capitalized if they meet certain criteria.

Answer 6

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 7

U.S GAAP: Required at cost less amortization (finite life intangibles only) and impairment. IFRS: Reported using the cost model (same as U.S. GAAP) or the revaluation model. Under the revaluation model, reported at fair value on revaluation date less subsequent amortization and impairment.

Answer 7

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 8

They should be recorded at their present value as unearned revenue by the franchisor until earned and as an intangible asset by the franchisee.

Answer 8

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 9

Cost incurred for one-time activities to start a new operation. Start-up costs incurred in the formation of a corporation. Start up costs are expensed in the period incurred.

Answer 9

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 10

Excess of the fair value of a subsidiary over the fair value of the subsidiary’s net assets. Costs of maintaining and/or developing goodwill cannot be capitalized.

Answer 10

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 11

The shorter of its estimated, useful economic life and its legal life (as in a copyright, franchise, or patent). Goodwill is not amortized, but med be tested at least annually for impairment.

Answer 11

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 12

U.S. GAAP: Research and development costs should be expensed as incurred unless an expenditure is for capital assets that have alternative future uses, or for research and development undertaken on behalf of others under a contractual agreement. IFRS: Research cost must be expensed. Development costs may be capitalized if they meet certain criteria.

Answer 12

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 13

Routine periodic design changes; Marketing research; Quality control testing; Reformation of a chemical compound

Answer 13

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 14

After technological feasibility has been established and before the product is released for sale.

Answer 14

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 15

Annual amortization is the greater of: Percent of Revenue Method: Total capitalized amount times (Current gross revenue for the period divided by Total projected gross revenue for product); Straight Line Method: Total capitalized amount times (1 divided by Estimate of economic life)

Answer 15

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 16

Expense costs incurred in the preliminary project state and costs incurred in training and maintenance. Capitalize costs incurred after preliminary project state and for upgrades and enhancements. Capitalized costs should be amortized on a straight-line basis.

Answer 16

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 17

Finite Life: If undiscounted future cash flows expected from use of asset and eventual disposal is less than the carrying value, recognize loss on impairment. Indefinite Life: If fair value is less than carrying value, recognize loss on impairment

Answer 17

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 18

Compare the carrying value of the asset to the asset’s recoverable amount. The recoverable amount is the greater of the asset’s fair value less costs to sell and the asset’s value in use (PV of future cash flows).

Answer 18

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 19

U.S. GAAP: The amount by which the carrying amount exceeds the fair value of the asset. IFRS:The amount by which the carrying amount exceeds the asset’s recoverable amount.

Answer 19

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 20

Goodwill impairment is analyzed at the reporting unit level using a 2 step process: 1. Identify potential impairment by comparing the fair value each reporting unit with its carrying value, including goodwill. 2. Measure the amount of goodwill impairment by comparing the implied fair value of the reporting unit’s goodwill to its carrying amount.

Answer 20

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 21

Goodwill impairment testing is done at the cash generating unit (CGU) level using a one-step test that compares the carrying value of the CGU to the CGU’s recoverable amount. Impairment losses are first allocated to goodwill and then allocated on a pro rata basis to the other CGU assets.

Answer 21

Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 22

U.S. GAAP: Percentage of completion and Completed contract; IFRS: Percentage of completion and Cost recovery

Answer 22

Long-Term Construction Contracts

Question 23

Immediately when discovered, regardless of the method used for revenue recognition.

Answer 23

Long-Term Construction Contracts

Question 24

(Total cost to date divided by Total estimated cost of contract) times Total estimated gross profit ) minus Gross profit recognized to date.

Answer 24

Long-Term Construction Contracts

Question 25

Cash received times (total gross profit divided by Sales price)

Answer 25

Long-Term Construction Contracts

Question 26

Profits are recognized only after all costs have been recovered.

Answer 26

Long-Term Construction Contracts

Question 27

Exchange has commercial substance - always recognize gains and losses on the exchange equal to the difference between the fair value of what is given up and the carrying value of what is given up. Exchange does not have commercial substance or the new asset’s fair value is not determinable (and the fair value of the asset given up is unknown)-NO GAIN on exchange is recognized unless boot is received, and losses are recognized in full ( if losses exist because an impairment loss was not previously recognized). If boot received is greater than 25% of total consideration, gain is recognized just as in a monetary transaction that have commercial substance.

Answer 27

Long-Term Construction Contracts

Question 28

Exchange of similar assets - No gain recognized. Losses is recognized in full. Exchange of the dissimilar assets- All gains and losses recognized.

Answer 28

Accounting for Nonmonetary Transactions

Question 29

An asset generally has commercial substance when the entity expects a change in future cash flows as a result of the exchange and that’s expected changes material relative to the fair value of the staff that exchanged. [Note that the FASB has not provided specific guidance, nor has it provided examples of transactions that would meet the criteria for commercial substance. Although it is not certain what will occur on the CPA exam it is suspected that it will be clear in the question whether the exchange has or lacks commercial substance.]

Answer 29

Accounting for Nonmonetary Transactions

Question 30

In an exchange that has commercial substance (or an exchange when boot received exceeds 25% of the total consideration), record at fair value of assets given up plus cash paid (or minus cash received), or the fair value of the asset received if it is more clearly evident. In an exchange that lacks commercial substance, record at the net book value of the asset given up plus cash paid (or minus cash received ) unless adjustments are needed for a gain recognized (if boot is received).

Answer 30

Accounting for Nonmonetary Transactions

Question 31

Assets and liabilities that are fixed in amount by contract or in terms of number of dollars. Examples include cash, accounts and notes receivable, accounts and notes payable. These items are already stated in constant dollars.

Answer 31

Changing Prices

Question 32

All assets and liabilities are not monetary. Examples are inventories, property, plant and equipment and capital stock. These items need to be restated to constant dollars.

Answer 32

Changing Prices

Question 33

Foreign currency translations, Foreign currency transactions

Answer 33

Foreign Currency

Question 34

The functional currency is the currency is the currency of the primary economic environment in which the entity operates. All of the following condition must be met: The foreign operations are relatively self- contained an integrated within the country. The day to day operations do not depend on the parent’s or investor’s functional currency. The local economy of the foreign entity’s is not highly inflationary.

Answer 34

Foreign Currency

Question 35

Translation is used to restate financial statements denominated in the functional currency the reporting.

Answer 35

Foreign Currency

Question 36

Remeasurement is used to restate financial statements from the foreign currency to that entity’s functional currency when: The reporting currency is the functional currency, The financial statements must be restated an entity’s functional of currency prior to translating from functional currency to the reporting currency.

Answer 36

Foreign Currency

Question 37

Assets and Liabilities- Current exchange rate, Common Stock and APIC- Historical rate, Revenues and Expenses- Weighted-average exchange rate for the period.

Answer 37

Foreign Currency

Question 38

Balance Sheet: Monetary-current exchange rate. Nonmonetary-historical rate. Income Statement: Balance sheet related-historical rate. Non-balance sheet related-weighted-average.

Answer 38

Foreign Currency

Question 39

Remeasurement gains or losses are recognized on the income statement.

Answer 39

Foreign Currency

Question 40

Translation gains or losses are reported in other comprehensive income. They are treated unrealized gains and losses

Answer 40

Foreign Currency

Question 41

Operating transactions, such as importing, exporting, borrowing, lending, and investing transactions. Forward exchange contracts, which are agreements to exchange two different currencies at a specific future date and at a specific rate.

Answer 41

Foreign Currency

Question 42

Foreign currency transaction gains or losses are included in determining net income for the period.

Answer 42

Foreign Currency

Question 43

Record original transaction at exchange or spot rate on date of transaction. At balance sheet date, compute gain/loss on the transaction by recalculating using the current exchange or spot rate. On payment date, compute gain/loss on the transaction by using the exchange rate on payment date.

Answer 43

Foreign Currency

Question 44

Different titles from accrual basis financial statements. Required financial statements are the equivalent of the accrual basis balance sheet and income statement. Financial statements should explain changes in equity accounts. A statement of cash flows is not required. Disclosures should be similar to GAAP financial statement disclosures.

Answer 44

Other Financial Statement Presentations

Question 45

Same generally accepted accounting principles are established operating enterprises, with additional disclosures; Identify statements as those of developments-stage enterprises. Accumulated losses identified as deficit accumulated during development stage; In the income statement, show revenue and expenses, and cumulative total of both amounts from company’s inception; In the SCF, include cumulative amounts of cash inflows and outflows from enterprise’s inception, and current amounts of cash inflows and outflows for each presented.; Issue a separate statement of stockholders equity, indicating shares issued, date of issuance dollar amounts assigned, and noncash consideration, if any.

Answer 45

Development-Stage Enterprises

Question 46

The date of the opening balance sheet.

Answer 46

First Time Adoption to IFRS

Question 47

Form 10-K: Filed annually by U.S. registered companies. Includes a summary of financial data, MD&A, and audited financial statements prepared using U.S. GAAP. Form 10-Q Filed quarterly by U.S. registered companies. Includes reviewed financial statements, interim MD&A, and certain disclosures.

Answer 47

SEC Reporting Requirements