FAR 1

Question 1

Can the internal development of goodwill be capitalized?

Answer 1

No.

Question 2

How do you report contest prize expense?

Answer 2

First payment plus present value of total subsequent payments.

Question 3

How are R&D contracted out to a third party, pre-production prototypes and costs for searching for new products reported?

Answer 3

As expenses.

Question 4

Under IFRS, how is goodwill impairment calculated?

Answer 4

One step test at the cash generating unit level.
The carrying value of the cash generating unit is compared to the cash generating unit recoverable amount. The impairment loss is first allocated to goodwill and any remaining is allocated pro rata to the other assets.

Question 5

Compared to the accrual basis of accounting, the cash basis of accounting understates income by the net decrease during the accounting period of?

Answer 5

Accrued expenses.

Question 6

The cost of a trademark is amortized over?

Answer 6

Its economic life.

Question 7

Is market research considered research and development?

Answer 7

No.

Question 8

If software is for internal use, is it considered r and d?

Answer 8

No.

Question 9

Once a patent is established, should legal costs to successfully defend the patent be capitalized?

Answer 9

Yes, and amortized over the lesser of the patent’s useful economic life or its legal life.

Question 10

Going from cash basis to accrual basis, how is an increase in A/R treated?

Answer 10

Added back because the cash is used to pay down prior payables.

Question 11

Going from cash basis to accrual basis, how is a reduction in A/P treated?

Answer 11

It is added back because a reduction in A/P means cash is used to pay down prior payables.

Question 12

How do you compute sales revenue and sales taxes payable?

Answer 12

Credits to sales revenue / sales tax rate plus one = sales revenue

Question 13

When there is an unlimited right of return, when do you record sales revenue?

Answer 13

Four conditions must be satisfied:

1) The sales price is substantially fixed
2) The buyer assumes all risk of loss
3) The buyer has paid some form of consideration
4) The amount of returns can be reasonably estimated.

Question 14

What kind of cost is development or improvement of techniques and processes?

Answer 14

A research and development cost.

Question 15

What type of expense is research and development performed under contract for others?

Answer 15

Do not expense.

Question 16

Market research is

Answer 16

not an R AND D COST.

Question 17

How do you record maintenance of goodwill?

Answer 17

Expense.

Question 18

When computing net sales

Answer 18

Subtract allowance for sales return.

Question 19

How does a decrease in accounts receivable affect income going from cash basis to accrual basis?

Answer 19

Decrease in A/R represents cash paid in the current period on A/R from prior periods.

Question 20

How does a decrease in accounts payable affect income going from cash basis to accrual basis?

Answer 20

A/P means there is an expense that has not yet been paid. Dr. Office Supplies Cr. A/P…..No cash has been paid so cash basis would be higher net income than accrual. Therefore, decrease the accrual basis income.

Question 21

How do you calculate unearned franchise fees?

Answer 21

Unearned franchise fees: Cash payment + PV of future payments.

Question 22

How are amounts for current and future projects accounted for?

Answer 22

Not expensed becasue projects have alternate future uses. However, the equipment will be capitalized and the related depreciation expense with be allocated to R&D.

Question 23

How are legal fees to obtain a patent accounted for?

Answer 23

Capitalized as an intangible asset.

Question 24

The matching principle:

Answer 24

Matches expenses again revenues in the same accounting period.

Question 25

For GAAP purposes, costs to develop computer software for ultimate sale:

Answer 25

Should be expensed if they are relevant design costs incurred before technological feasibility is established.

Question 26

Under IFRS, how does an entity recognize a patent asset?

Answer 26

The capitalized costs of the patent include:

1) The purchase price of the patent
2) VAT tax
3) The legal costs to register the patent.

Question 27

Revaluation gains are recorded where?

Answer 27

First to losses on the income statement, remaining in OCI.

Question 28

Under IFRS, how do you test goodwill impairment?

Answer 28

Impairment loss= Recoverable amount-Carrying Value (The recoverable amt is the greater of the CGU’s FV less cost to sell and its value in use)

Question 29

Increase in prepaid expenses does what to cash basis net income?

Answer 29

Decreases.

Question 30

Increase in accrued expenses does what to net income?

Answer 30

Add back to operating net income. Accrued expenses are not recognized in cash basis.

Question 31

Marketing research is

Answer 31

not classified as R&D.

Question 32

When converting from cash-basis to accrual-basis, how does a decrease in A/R affect it?

Answer 32

When A/R decrease, cash basis counted it as revenue when the cash was collected, but under accrual basis, income was recognized in a prior period and should not be recognized during this period.

Question 33

When converting from cash basis to accrual basis, and there are increases in current assets?

Answer 33

Add back to net income.

Question 34

When converting from cash basis to accrual basis, and there are decrease in current assets

Answer 34

Subtract from net income.

Question 35

When converting from cash basis to accrual basis, and there are decreases in current liabilities

Answer 35

.Add back to net income.

Question 36

When converting from cash basis to accrual basis, and there are increases in current liabilities

Answer 36

Subtract from net income.

Question 37

When a gift certificate is redeemed or lapsed, the revenue is

Answer 37

earned and deferred revenue decreases.

Question 38

How are software maintenance costs accounted for?

Answer 38

Expensed.

Question 39

How are software modification costs accounted for?

Answer 39

Capitalized.

Question 40

Equipment used in research and development activities that has alternative future uses is?

Answer 40

Capitalized and depreciated over its useful life.

Question 41

Quality control during commercial production, including routine testing is?

Answer 41

NOT RESEARCH AND DEVELOPMENT.

Question 42

Research and development services performed on behalf of someone else?

Answer 42

Not research and development.