F2 - Financial Reporting and disclosures Flashcards by Kenneth Urquhart-Green

When a customer pays for services in advance, how should the company recognize revenue?

A) end of fiscal year
B) evenly over the contract year as services are performed
C) at the end of the contract when all services have been performed
D) cash is collected

B) evenly over contract year as services are performed - under Accrual basis of GAAP

How well did you know this?

Not at all

Perfectly

Percentage complete formula for contracts

Percentage complete = costs to date / total costs

How well did you know this?

Not at all

Perfectly

Deferred revenue is…

a liability until service has been performed
revenue that has been RECEIVED IN CASH, but NOT YET EARNED
prepaid expense on the books
billing for services that have not yet been performed

How well did you know this?

Not at all

Perfectly

If a contract modification occurs, what condition must be present for the modification to be accounted for as a “separate contract”?

A) price of original contract remains the same
B) scope of original contract increases through addition of distinct goods or services
C) performance obligations of original contract are partially satisfied
D) original contract is terminated

B) scope of original contract increases through addition of distinct goods or services

How well did you know this?

Not at all

Perfectly

Performance obligation example and definition

Definition: promise to transfer a good or service to customer
Example: Contractual agreement/commitment by company to provide distinct service

How well did you know this?

Not at all

Perfectly

Revenue recognition - “output” example?

A) resource consumed
B) Costs incurred to total expected costs
C) labor hours expended
D) milestones achieved

D) Milestones achieved

How well did you know this?

Not at all

Perfectly

Revenue recognition - “Input” example?

A) resource consumed
B) Costs incurred to total expected costs
C) labor hours expended
D) milestones achieved

A, B and C

How well did you know this?

Not at all

Perfectly

When to recognize revenue when the following scenarios are written in play…

A) product sold, shipped on day 1 - day of sale

B) Customer is obligated to pay within 6 months

C) Customer is given 12 months to return item for refund

D) Customer is given 18 months to exchange item

C) recognize revenue after 12 month mark, when client can no longer return item for refund. Here the entity recognizes a refund liability, with the anticipation that a return/refund may occur. After 12 month period has passed, now entity can recognize revenue

How well did you know this?

Not at all

Perfectly

For two separate performance obligations, (1 for item and one for warranty), if the items are sold separately and the values are different from one another, how should warranty be allocated?

A) by dollar amount allocation
B) by dollar adjustment
C) by percentage allocation

C) by percentage allocation

How well did you know this?

Not at all

Perfectly

If an item was sold for $55,000 and an obligation is made to repurchase, what would result in this transaction to be a financing arrangement?

Price of repurchase has to be…
Price of market value has to be…

Repurchase price is equal to or greater than $55k (OG sale price), and Expected Market value is greater than OG sale price, but less than repurchase price

How well did you know this?

Not at all

Perfectly

When revenue is recognized at a “point in time”, and the contractor knows early on as the project begins that there will be losses, losses are recognized…

in full in the year of discovery. Revenue is recognized as soon as the contract is completed

How well did you know this?

Not at all

Perfectly

When revenue is recognized “over time”…

income previously recognized would be used to calculate income recognized in subsequent year

How well did you know this?

Not at all

Perfectly

What qualifies as a financing arrangement?

When the repurchase price is equal to or greater than the original sale price and the expected market value

How well did you know this?

Not at all

Perfectly

The effect of new estimate of costs from one year Y1 to Y2 will be reported as…

A) Accounting change, net of tax, below Y2 income from continuing operations
B) Accounting change, requiring Y1 financial statements to be restated
C) Correction of an error requiring Y1 financial statements to be restated
D) In Y2, as income from continuing operations

D) in Y2, as income from continuing operations

How well did you know this?

Not at all

Perfectly

At which instance should financial statements be restated for all prior periods?

When there’s a Change in entity

A) Changing company in consolidated financial statements
B) Consolidated financial statements versus previous financial statements

How well did you know this?

Not at all

Perfectly

If the effect of a change in accounting principle is inseparable from effect of change in accounting estimates, how should this be reported?

A) Component of income from continuing operations
B) Footnote disclosure
C) Correction of an error
D) Restating financial statements of all prior periods presented

A) Component of income from continuing operations

How well did you know this?

Not at all

Perfectly

In a situation where it is impossible to determine whether a “change in accounting estimate” or a “change in accounting principles” has occurred, the change should be…

A change in estimate

How well did you know this?

Not at all

Perfectly

If a company changed their accounting inventory method from LIFO to FIFO in Y3, how should the company present Y1 effect of change in Y3?

A) part of income from continuing operations in Y2
B) Note disclosure only
C) extraordinary item in Y2 income statement
D) Adjustment to beginning Y2 inventory balance with offsetting adjustment to beginning Y2 retained earnings

D) Adjustment to beginning Y2 inventory balance with offsetting adjustment to beginning Y2 retained earnings

How well did you know this?

Not at all

Perfectly

If a change in reporting entity, how should it be reported in the financial statements?

A) Prospectively, with note disclosures
B) Note disclosure only,
C) Currently, with note disclosures
D) Retrospectively including note disclosures and application to all prior period FS presented

D) Retrospectively including note disclosures and application to all prior period FS presented

How well did you know this?

Not at all

Perfectly

If a company changed from cash basis to accrual basis of accounting during the year, the cumulative affect of this change would be?

A) Component of income from continuing operations, net of tax
B) prior period adjustment resulting from correction of an error
C) Component of income from continuing operations
D) Prior period adjustment resulting from change in accounting principle

B) prior period adjustment resulting from correction of an error

How well did you know this?

Not at all

Perfectly

If a company prepares 3 year comparative FS, and in Y3, they find an error trailing back to Y1, how to report the error?

FS for both Y1 and Y2 should be restated: cumulatively effect of the error on Y1 and Y2 should be reflected in the carrying amounts of assets and liabilities as of the beginning of Y3

How well did you know this?

Not at all

Perfectly

For example, if there are two contracts Y1 and Y2, with the number of contracts outstanding being the same, the deferred revenue balance for Y2 was significantly less than balance on Y1. What could’ve caused this?

Most Y2 contracts were signed earlier in the calendar year than were the Y1 contracts

How well did you know this?

Not at all

Perfectly

Reporting treatment for change in accounting estimate?

a) period of change and future periods

b) period of change with no future consideration

c) restating amounts reported in FS in prior periods

d) reporting pro forma amounts for prior periods

a) period of change and future periods

What examples would require a restatement of prior year’s financial statements?

a) calculation change of warranty obligations based on updated claim info for prior year

b) change from income tax basis of accounting to accrual basis

c) insurance premium that was due in prior year but that lapsed because policy was not paid

d) intangible asset with remaining estimated amortization period of two years, which is determined to be obsolete

b) change from income tax basis of accounting to accrual basis

Following transactions will cause a decrease in stockholders equity, except: a) loss from a foreign currency translation adjustment b) declaration of cash dividend c) los of sale of discontinued segment d) sale of treasury stock at less than cost

d) sale of treasury stock at less than cost

Which of the following should be disclosed in summary of significant accounting policies? A) guarantees of indebtedness of others B) refinancing of debt subsequent to the balance sheet C) criteria for determining which investments are treated as cash equivalents D) adequacy of pension plan assets relative to vested benefits

C) criteria for determining which investments are treated as cash equivalents

Purpose of information presented in notes to the financial statements? A) correct improper presentation in financial statements B) provide disclosures required by generally accepted accounting principles C) provide recognition of amounts not included in totals of the financial statements D)present managements responded to auditor comments

B) provide disclosures required by generally accepted accounting principles

Another example of information that should be included in summary of significant accounting policies? A) during period, component was sold B) PP&E is recorded at cost with depreciation computed principally by straight line method C) business segment sales are $1M for xxx and $2M for xxx D) future common share dividends are expected to approximate 60% of earnings

B) PP&E is recorded at cost with depreciation computed principally by straight line method

What should be disclosed in summary of significant accounting policies? A) future minimum lease payments in aggregate and for each of the 5 succeeding fiscal years B) basis of profit recognition on LT construction contracts C) depreciation expense D) composition of sales by segment

B) basis of profit recognition on LT construction contracts

What should be included in summary of significant accounting policies in notes to FS? A) summary of LT debt outstanding B) description of CY equity transactions C) schedule of fixed assets D) revenue recognition policies

D) revenue recognition policies

Which is correct concerning FS disclosure of accounting policies? A) disclosure of accounting policies is an integral part of FS B) disclosure should be limited to principles and methods peculiar to industry in which it operates C) format and location of accounting policy disclosures are fixed by GAAP D) disclosures should duplicate details disclosed in FS

A) disclosure of accounting policies is an integral part of FS

What to be disclosed in summary of significant accounting policies? A) concentration of credit risk of FS B) basis of consolidation C) composition of plant assets D) adequacy of pension plan asset in relation to vested benefits

B) basis of consolidation

Which is a criterion in determining whether to disclose information in footnotes to the financial statements about vulnerability to a concentration? A)concentration exists as of FS date B)concentration makes the entity vulnerable to the risk of near term severe impact C) at least reasonably possible that the events that could cause a severe impact from the vulnerability will occur in the near term D) pertains to a specific geographic region E) concentration with respect to a customer or specific supplier F) A, B, C, and E

F) A, B, C, and E

Which of the following should be disclosed in the footnotes to the financial statements? a) information about changes in stockholders equity b) managements estimate of sales for the upcoming year c) Analysis of company's major competitors d) projection of future market conditions

a) information about changes in stockholders equity

For instance, if there was a warehouse fire that destroys an estimated $250k in inventory, how should this be treated on the FS? a) record a AJE with no associated disclosure b) disclose the nature of the event along with estimated financial impact c) record AJE with a disclosure d) disclose the nature of the event with no estimated financial impact

b) disclose the nature of the event along with estimated financial impact

If there is no principal market, you calculate the fair value as...

Quoted stock price - transaction costs = Net FMV = most advantageous market with the highest net Answer will be the quoted stock price

True statement about Fair value measurement is... a) does not consider restrictions b) entity specific measurement c) market based measurement d) does not consider risk

b) FV is a market based measurement

A company that has elected the FV measurement option must apply the accounting measurement based on a) entity level b) instrument by instrument c) portion of asset or liability d) type by type basis

b) instrument by instrument

When the recoverability of a building's carrying amount is determined to be impaired, the building's fair value is best measured as the: a) price determined using internal cost estimates to construct a similar building b) selling price less transaction cost to complete the sale c) price the building can be sold for in an advantageous market d) price that would be received for this type of building based on observable inputs in its principal market

d) price that would be received for this type of building based on observable inputs in its principal market

Example of transaction involving market participant? a) company sells land to local government to satisfy tax lein b) company purchases commercial rental property that is owned by same shareholders c) company purchases real estate zoned for recreational use d) judge orders a company to sell machinery during bankruptcy proceeding

c) company purchases real estate zoned for recreational use

If an investment company's portfolio is recorded at fair value using matrix pricing (current pricing spreads on similar securities), which valuation technique? a)Income approach b) market approach c) cost approach d) exchange approach

b) market approach

The 3 different valuation techniques used to measure fair value are

-market approach -income approach -cost approach or combination of all

If when using company's internal present value of cash flows model, and the historical cost, identical investment, and similar investment are given, the best way to determine value is by...

Identical investment

Quoted market prices on a stock exchange for "identical asset" are considered

Level 1 input

Which is a Level 3 input to valuation techniques to measure FV a) inputs other than quoted prices that are observable b) quoted prices for similar assets in active markets c) quoted prices in active markets for identical assets d) "unobservable" inputs for the asset

d) unobservable inputs for the asset

-Interest rates that are observable at commonly quoted intervals -Quoted prices for similar assets and liabilities in markets that are active -quoted prices for identical assets and liabilities in markets that are not active Are all characteristics for...

Level 2 input

If a subsequent event occurred "Before the Balance sheet YE date" this will be...

Recognized on the Financial Statements

If a subsequent event occurred "After the Balance sheet YE date", but before the FS are issued, this will be...

Non-recognized, only as a note disclosure. Events that are likely to be significant due to nature of the event, will need to be disclosed to keep the FS presented properly

For a company that "DOES FILE through the SEC" that same company must evaluate subsequent events/footnote disclosures up until... a) date when company receives approval for issuance of GAAP compliance/available to be issued b) date when FS is distributed to all board users

b) date when FS is distributed to all board users

For a company that "DOES NOT FILE through the SEC" that same company must evaluate subsequent events/footnote disclosures up until... a) date when company receives approval for issuance of GAAP compliance/available to be issued b) date when FS is distributed to all board users

a) date when company receives approval for issuance of GAAP compliance/available to be issued

Presentation guidelines for Other Comprehensive basis of accounting (OCBOA) is the following: a) FS disclosures are less detailed than GAAP b) explanation of changes in equity is not required because OCBOA does not report equity interest c) FS titles should differentiate OCBOA FS from accrual basis financial statements d) OCBOA FS should include FS equivalent to accrual basis BS, IS and CF

c) FS titles should differentiate OCBOA FS from accrual basis financial statements

Modified cash basis of accounting is a basis of accounting that presents FS in accordance with: a) Generally accepted accounting principles b) International Financial Reporting Standards c) governmental accounting standards d) Special purpose framework

d) Special purpose framework

To convert from cash basis to accrual basis incorporates the following:

-Add ending accounts receivable -Subtract beginning accounts receivable -Subtract ending unearned (deferred) / contract liability Add beginning unearned (deferred) / contract liability