FAR 1

Question 1

How to reconcile cash basis expenses to accrual basis expenses:

Answer 1

Take cash basis expenses - increase (+ decrease) in prepaid expenses (asset) - decrease (+ increase) in accrued expenses and/or accrued liabilities.

Question 2

How do uncollectible A/R write-offs affect cash basis sales?

Answer 2

These write-offs deduct cash basis sales.

Question 3

How to reconcile accrual basis expenses to cash basis expenses:

Answer 3

Take accrual basis expenses + increase (- decrease) in prepaid expenses (asset) + decrease (- increase) in cash basis expenses and/or cash basis liabilities.

Question 4

How is recovery of accounts written off?

Answer 4

As an adjustment (increase) to allowance for uncollectible accounts (does not affect revenue)

Question 5

The two primary qualitative characteristics of financial information:

Answer 5

Relevance and faithful representation (same with IASB framework)

Question 6

Ingredients of relevance:

Answer 6

Predictive value, confirmatory value, materiality (same with IASB framework)

Question 7

Ingredients of faithful representation:

Answer 7

Completeness, neutrality, freedom from material error

Question 8

Enhancing qualitative characteristics:

Answer 8

Comparability, verifiability, timeliness, understandability

Question 9

In determining the fair value of an asset in the most advantageous market, the market-based exit price should be adjusted for:

Answer 9

Transportation cost

Question 10

If no principal market for an asset, the most advantageous market is determined by:

Answer 10

Higher exit (selling) price

Question 11

Cost approach to determining fair value:

Answer 11

When the fair value of an asset is determined as the amount that currently would be required to replace the service capacity of an asset.

Question 12

A held-to-maturity debt investment can be measured and reported by:

Answer 12

Amortized cost (traditionally done) or by fair value (per the fair value option)

Question 13

Five elements of IASB framework:

Answer 13

Asset, liability, equity, income, expense

Question 14

Are EPS and information by segment required under IFRS for SMEs in financial statements?

Answer 14

No. SMEs are not traded on public exchanges nor are required to file with regulatory agencies.

Question 15

How to calculate ending retained earnings:

Answer 15

Revenue - expenses = net income before taxes > Net income before taxes - taxes = current retained earnings > Current retained earnings + beginning retained earnings = ending retained earnings

Question 16

Other Comprehensive Income (OCI) items:

Answer 16

Unrealized gain/loss on available-for-sale debt securities, unrealized gain/loss on pension costs, foreign currency translation adjustments, unrealized gain/loss on certain derivative transactions.

Question 17

Are cumulative effects of changes in accounting principles or common stock changes in comprehensive income?

Answer 17

No. Not part of net income or OCI (instead are balance sheet items).

Question 18

Cash flows from financing activities can include:

Answer 18

Payment of dividends, proceeds from common stock issuance, borrowings under a line of credit, proceeds from issuance of bonds, mortgage (or other debt) principal (but not interest) payments

Question 19

Is gain on sale of a plant asset included on the cash flow statement?

Answer 19

Yes, under the indirect method, as a noncash activity used to reconcile net income to cash flow from operations (subtracts from income)

Question 20

Disclosures are required when events of risk and uncertainty pertaining to concentration are:

Answer 20

At least reasonably possible (does not have to be probable)