F2-Matching, Foreign Currency, Other FS Presentations

Question 0

When are estimated liabilities accrued?

Answer 0

When PROBABLE.

Question 1

The primary difference of general revenue recognition between GAAP and IFRS?

Answer 1

IFRS requires % of completion for rendering of services - i.e. construction contracts. GAAP allows % of completion or completed contract for construction contracts.

Question 2

When does franchisor recognize franchise rev? Notate JE.

Answer 2

After SUBSTANTIAL COMPLETION

Dr:
Cash, if any
Notes Receivable (nominal)

Cr:
Discount on Notes Receivable (plug)
Unearned/earned franchise (NPV)

Question 3

How does franchisee treat franchise fee? Notate JE.

Answer 3

Intangible asset at NPV and amortized over expected period of benefit.

Dr:
Franchise fee (intangible, NPV)
Discount on note payable (plug)

Cr:
Note payable (nominal franchise fee)
Cash, if any

Question 4

What R&D costs are capitalized under GAAP?

Answer 4

Intangible assets that have alternative future uses. Capitalize over asset’s useful life.

R&D costs of any nature undertaken on behalf of others.

Question 5

Difference in goodwill impairment testing under IFRS and GAAP?

Answer 5

GAAP - tested at reporting unit level

IFRS - tested at cash generating unit level.

Question 6

Foreign currency exchange gains and losses on single transactions can occur only after….

Answer 6

The purchase/sale is officially contracted.

Question 7

When are a foreign subsidiary’s financial statements re-measured?

Answer 7

When the sub’s reporting currency doesn’t match its functional currency due to:

1) Sub relying on parent’s financial/investment resources
2) Highly-inflationary environment (100% over last 3 years)

1 & 2 re-measured in parent’s reporting currency

3) The sub’s reporting currency doesn’t match the currency in which it conducts its primary business operations.

Question 8

Describe steps to re-measure foreign financial statements, including exchange rates used.

Answer 8

1) Balance Sheet

Monetary items = current rate
Non-monetary = historical rate
Plug must match plug to NI in step 2.

2) Income Statement
BS-related items = historical
Non-BS-related items = weighted avg

3) The plug should match plug to RE. Once it does, report gain in income statement.

Question 9

Describe steps in translating a subsidiary’s functional statements, including exchange rates used.

Answer 9

1) Income Statement

All income = weighted avg
Transfer plug to Retained Earnings

2) Balance Sheet

Assets and liabilities = current rate
Common Stock/APIC = historical rate
RE are rolled forward from step 1 and parked in Cumulative Translation Adjustment Account, and that’s OCI.

Question 10

What must be done first before any financial statement translation steps are taken?

Answer 10

The sub’s financial statements must be presented in accordance with the parent’s method of accounting.

US parent = statementS in GAAP

IFRS parent = statementS in IFRS

Question 11

What is the Balance Sheet presentation pertaining to progress billings and accumulated costs for construction projects under Completed Contract?

Answer 11

A: “Progress BILLINGS” and “Construction in Progress” are shown net of their related contra accounts as either a current asset/current liability.

If billings less than construction costs = asset

If billings more than construction costs = liability

Question 12

What is the Balance Sheet presentation pertaining to progress billings and accumulated costs for construction projects under Percentage of Completion?

Answer 12

A: “Progress BILLINGS” and “Construction in Progress” are shown net of their related contra accounts as either a current asset/current liability.

If billings less than construction costs = asset

If billings more than construction costs = liability

“Costs and estimated earnings” often used in the asset’s account title.

Question 13

What are the two differences between installment sales and cost recovery methods of revenue recognition?

Answer 13

Installment method is used only when there is no reasonable basis for estimating the DEGREE OF COLLECTIBILITY, while the cost recovery method is used when there is NO REASONABLE BASIS FOR ESTIMATING THEIR COLLECTIBILITY.

Profit is not recognized under cost recovery method until ALL OF THE COSTS (revenues) have been recovered on the sale.

Question 14

When does a nonmonetary exchange have commercial substance?

Answer 14

When there are significant changes to future cash flows AND the fair values of the assets in the exchange can be determined.

Question 15

What is the JE for a nonmonetary exchange with commercial substance?

Answer 15

Dr:
New Asset (FV of consideration GIVEN UP; fair value approach)
Accumulated depreciation of asset given up
Cash received (if any)
Loss (if any)

Cr:
Old asset at historical cost
Cash given
Gain (if any)

Question 16

What are the equivalent terminology classifications under IFRS for nonmonetary exchanges?

Answer 16

Dissimilar assets are exchanges that don’t generate revenue = commercial substance

Similar assets are exchanges that generate revenue = lacks commercial substance

Question 17

What are the gain/loss rules for nonmonetary exchanges that have commercial substance?

Answer 17

Recognize all gains and losses in full.

Question 18

What are the gain/loss rules for nonmonetary exchanges that lack commercial substance?

Answer 18

Gains:

If no boot is received = no gain

If boot paid = no gain

If boot is received and boot is less than 25% of consideration received, recognize proportional gain. If boot is more than 25% of consideration received, recognize full gain.

Losses:
All losses are fully recognized in nonmonetary exchanges that lack commercial substance.

Question 19

JE for nonmonetary exchange lacking commercial substance when no boot is received?

Answer 19

Dr:
New asset (at net book value of asset given up)

Cr:
Old asset (at net book value)

Question 20

JE for nonmonetary exchange lacking commercial substance when no boot is paid?

Answer 20

Dr:
New asset (at net book value of asset given up + cash paid)

Cr:
Cash paid
Old asset (at net book value)

Question 21

JE for nonmonetary exchange lacking commercial substance when a gain is recognized w/ boot received in transaction that is less than 25% of consideration received?

Answer 21

Dr:
New asset (plug)
Cash received

Cr:
Old asset (at net book value)
Gain (proportional percentage)

Question 22

JE for nonmonetary exchange lacking commercial substance when a gain is recognized w/ boot received in transaction that is more than 25% of consideration received?

Answer 22

Dr:
New asset (plug)
Cash received

Cr:
Old asset (at net book value)
Gain (full gain recognized)

Question 23

What are the involuntary conversion gain/loss rules?

Answer 23

Recognize full gain or loss

Question 24

What is the difference between monetary and non-monetary assets and liabilities?

Answer 24

Monetary ones are fixed, while non-monetary assets/liabilities fluctuate in value w/ inflation and deflation.

Question 25

What are the differences between OCBOA financial statement guidelines than GAAP?

Answer 25

The titles of the statements should differentiate the OCBOA financial statements from accrual basis financial statements.

They should explain changes in equity accounts

A statement of cash flows is not required.

Question 26

What do you need to keep in mind with cash basis financial statements?

Answer 26

Cash is the only asset and equity = cash

Also present a Statement of Cash Receipts and Disbursements

Question 27

Under Modified Cash Basis Financial Statements, what are some common modifications?

Answer 27

Capitalizing/depreciating fixed assets

Accrual of income taxes

Recording liabilities for long-term and short-term borrowings and the related interest expense

Capitalizing inventory

Reporting investments at fair value and recognizing unrealized gains and losses

Question 28

How are nontaxable revenues and expenses reported under the income tax basis of reporting?

Answer 28

As either…

Separate line items in the revenue and expense sections of the statement of revenues and expenses

Additions or deductions to net income, or

A note disclosure

Question 29

What are the general rules of personal financial statements?

Answer 29

Statement of Financial Condition = Balance Sheet

Assets (fair value):
Life insurance loans payable netted against cash surrender value of policy
Business interest that constitutes a large portion of an individual’s total assets should be presented as a single amount at estimated current value separately from other investments
Vested pension plan benefits reported at fair value

LESS: Liabilities reported at estimated current amount

LESS: Deferred tax liability for the amount as if all assets/liabilities were disposed of at fair value

EQUALS NET ASSETS