FAR 1 Flashcards
The underlying assumption of financial statement prep and presentation under IASB is..
Under the IASB framework, going concern is the underlying assumption of financial statement preparation and presentation.
Which regulation sets forth the form and content of and requirements for interim and annual financial statements to be filed with the SEC?
Regulation S-X
Which of the following is not a characteristic that is used to determine the primary beneficiary of a variable interest entity (VIE) under U.S. GAAP?
Under the VIE model, the primary beneficiary is not required to have greater than 50% ownership of the VIE
Under IFRS, an entity may not elect to use fair value to report:
Inventory. It must be recorded at lower of cost or NRV, with cost determined using an IFRS method (specific identification, FIFO, weighted/moving average).
What are the 3 sections of a comprehensive annual financial report?
Introductory, Financial, and Statistical
How are patent litigation costs treated?
If successfully defended, these costs are capitalized. Otherwise the litigation costs would be expensed
What is the criteria for something to be considered R and D?
R and D that goes towards the development of establishing a product is considered R and D. Once commercial production has started, or anything to do with an existing product, it’s no longer R and D.
What is considered a discontinued operation of a business?
- When a major component of a business is disposed of, AND
- The disposal has a significant effect on the entity. (The planned and approved sale of a segment is a discontinued operation)
All intercompany payables and receivables are eliminated in consolidated statements (T or F)
TRUE. NONE are reported on the consolidated financial statements
Gross Profit=
Net sales- COGS. Don’t get confused by other TB accounts they provide
When are contingent gains recorded?
Contingent gains are NEVER recorded until money is actually received
Brand Co. incurred the following research and development project costs at the beginning of the current year:
Equipment purchased for current and future projects $100,000
Equipment purchased for current projects only 200,000
Research and development salaries for current project 400,000
Equipment has a five-year life and is depreciated using the straight-line method. What amount should Brand record as depreciation for research and development projects at December 31?
Only the equipment for current AND future projects would be capitalized and depreciated. All other R&D costs are expensed in the period incurred (they are for only the year they are incurred, not for subsequent years)
$100,000 / 5 years = $20,000 depreciation
If a city government is the primary reporting entity, which of the following is an acceptable method to present component units in its combined financial statements?
Discrete presentation. It is the term for how component units are presented on government-wide financial statements. The other way that component units can be reported is “blended” with the primary government.
Encumbrances would not appear in a:
Capital projects fund
Special revenue fund
General fund
Enterprise fund
Enterprise fund. Encumbrances are a specific type of budget transaction used in governmental fund types. Enterprise funds – which are business type programs or transactions – don’t use encumbrance accounting.
Neron Co. has two derivatives related to two different financial instruments, instrument A and instrument B, both of which are debt instruments. Derivative related to instrument A is a fair value hedge, and derivative related to instrument B is a cash flow hedge. Neron experienced gains in the value of instruments A and B due to a change in interest rates. Which of the gains should be reported by Neron in its income statement?
On a fair value hedge, gains or losses are recognized in current income.
On a cash flow hedge, gains or losses are recognized in other comprehensive income.
Gain in A, yes. Gain in B, no
Inventory equation=
Beg inventory +purchases=GAFS
GAFS-ending inventory=COGS
debt to equity ratio
total liabilities/shareholders equity
next carrying value of bond payment
old carrying value- (Principal payment- interest payment)
Assuming constant inventory quantities, which of the following inventory-costing methods will produce a lower inventory turnover ratio in an inflationary economy?
FIFO,
Inventory turnover ratio=COGS/average inventory
if inventory is increasing in cost during the year, FIFO would have the lowest COGS and the highest ending inventory. The highest-priced batches of inventory would make up ending inventory at the end of the year.
What is the proper treatment of the cost of equipment used in research and development activities that will have alternative future uses?
Capitalized and depreciated over its useful life, just like any ordinary business asset
Which of the following assets or transactions is an element of comprehensive income?
Investments by owners Sales revenue Distributions to owners Deferred revenue Comprehensive income (all income) is net income plus other comprehensive income. So from these choices, sales revenue is the only element of comprehensive income. The other 3 choices are all balance sheet items.
How do non-profits report investments?
At fair value
Which of the following local government funds uses the accrual basis of accounting?
Enterprise funds use accrual accounting. These are the funds that run business-like services, where the government provides a service and gets paid by customers.
Personal financial statements usually consist of:
A statement of financial condition and a statement of changes in net worth
When is goodwill capitalized?
ONLY when incurred in the purchase of another entity.
Note: Costs incurred for maintaining or developing goodwill are expensed.
