FAR 1 Flashcards
Lessees are permitted to apply the leasing guidance to leases of intangible assets, other than those under licensing arrangements, under:
Under IFRS 16, Leases, lessees are allowed (but not required) to apply the leasing guidance to leases of intangible assets, other than those under licensing arrangements. U.S. GAAP does not include this option.
Where are issuance fees for securities charged to?
paid-in-capital
NFP: An analysis of expenses by both functional and natural classifications can be disclosed?
either in the notes or on the face of the statement of financial position.
Lessees initially measure variable lease payments based on an index or a rate; they must prepare their financial statements in accordance with:
Under both IFRS (International Financial Reporting Standards) and U.S. GAAP, lessees initially measure variable lease payments based on an index (e.g., Consumer Price Index) or a rate (e.g., LIBOR (London Interbank Offered Rate)).
When collectibility is reasonably assured, the excess of the subscription price over the stated value of the no par common stock subscribed should be recorded as:
additional paid-in capital when the subscription is recorded.
For a public business entity, the goodwill impairment test is required to be performed:
any time during the fiscal year, provided that it is performed at the same time every year.
The initial test in FASB ASC 360-10-35 for determining whether an impairment of the carrying amount of a long-lived asset is indicated is
carrying amount exceeds undiscounted future cash flows.
Under U.S. GAAP, an exception is allowed for the “impracticality” of calculating the impact of changes in accounting principles. For which category does IFRS allow an exception of “impracticality”?
IFRS allows an exception of reporting the impact of both changes in accounting principles and correction of errors.
In a sale/leaseback transaction, the seller-lessee measures the right-of-use asset at the present value of the lease payments; only a loss can be recognized, based on the difference between the sale proceeds and the carrying amount of the underlying asset. Gain recognition is permitted under:
IFRS and GAAP. For a sale/leaseback transaction accounted for under U.S. GAAP, the seller-lessee measures the right-of-use asset at the present value of the lease payments; a gain or loss is recognized for the difference between the sale proceeds and the carrying amount of the underlying asset. Under IFRS (International Financial Reporting Standards), the seller-lessee measures the right-of-use asset at the retained portion of the previous carrying amount of the underlying asset (i.e., at cost); only the amount of any gain or loss related to the rights transferred to the buyer-lessor is recognized.
Which funds of a local government would report transfers to other funds as an Other Financing Use?
General
Gem City’s internal service fund received $50,000 cash from the general fund that does not need to be repaid. This should be reported in Gem’s internal service fund as a credit to:
Inflows of assets from other funds without a requirement for repayment are considered interfund transfers. In proprietary funds (which include internal service funds), transfers should be reported separately after nonoperating revenues and expenses in the statement of revenues, expenses and changes in fund net position. An interfund transfer to/from a governmental fund should be reported as “other financing sources or uses” in the governmental fund.
An entity with preferred stock that has a preference in involuntary liquidation “considerably” in excess of par shall:
Liquidation preferences must be disclosed. When a company has preferred stock outstanding, certain items such as cumulative dividends in arrears must be disclosed.
Monies held in trust for the benefit of parties who are not a part of government are accounted for in which type of fund?
Private-purpose trust funds represent resources held in trust for the benefit of parties that are not a part of the government, rather than for the benefit of government programs.
Gem City’s internal service fund received $50,000 cash from the general fund that does not need to be repaid. This should be reported in Gem’s internal service fund as a credit to:
Inflows of assets from other funds without a requirement for repayment are considered interfund transfers. In proprietary funds (which include internal service funds), transfers should be reported separately after nonoperating revenues and expenses in the statement of revenues, expenses and changes in fund net position. An interfund transfer to/from a governmental fund should be reported as “other financing sources or uses” in the governmental fund.
Land and other real estate held as investments by endowments in a government’s permanent fund should be reported at:
Fair Value
In which situation(s) should property taxes due to a governmental unit be recorded as deferred revenue?
- Property taxes receivable are recognized in advance of the year for which they are levied.
- Property taxes receivable are collected in advance of the year in which they are levied.
Both
Under IFRS, which of the following measurements is allowed to estimate and report the liability for the cost of settling a lawsuit?
When a range of amounts that may be lost in a lawsuit are established, the best number in the range must be chosen to accrue. The chosen amount must always be discounted to present value.
With respect to the statement of changes in equity, which of the following statements is correct?
Both U.S. GAAP and IFRS use the term “retained earnings.”
IFRS uses the same stock account titles as U.S. GAAP.
U.S. GAAP and IFRS account for treasury stock in the same manner.
IFRS uses “Paid-in Capital” to account for revaluation of property, plant, and equipment; mineral resources; and intangible assets.
Both GAAP and IFRS (International Financial Reporting Standards) use the term “retained earnings.” IFRS includes a “revaluation surplus” related to revaluation of property, plant, and equipment; mineral resources; and intangible assets.
IFRS uses different stock account titles than U.S. GAAP. Instead of “Common Stock,” IFRS uses an account titled “Share Capital.”
IFRS accounts for treasury stock retirements only by charging an excess in purchase price and issue cost to paid-in capital.
Pine City owned a vacant plot of land zoned for industrial use. Pine gave this land to Medi Corp. solely as an incentive for Medi to build a factory on the site. The land had a fair value of $300,000 at the date of the gift. This nonmonetary transaction should be reported by Medi as:
Only additional paid-in capital is an acceptable way to account for this donated land. The land has to be added to the assets, so a memo entry is not sufficient.
During the year, Bay Co. constructed machinery for its own use and for sale to customers. Bank loans financed these assets both during construction and after construction was complete. How much of the interest incurred should be reported as interest expense in the year-end income statement?
Interest incurred for machinery for own use: interest incurred after completion; Interest incurred for machinery held for sale: all interest incurred
Chase City imposes a 2% tax on hotel charges. Revenues from this tax will be used to promote tourism in the city. Chase should record this tax as what type of nonexchange transaction?
Derived tax revenue
Imposed nonexchange revenue
Government-mandated transaction
Voluntary nonexchange transaction
Derived tax revenues result from taxes assessed on exchange transactions. The tax on hotel charges fits this description. Other examples are sales taxes, personal and corporate income taxes, and motor fuel taxes.
Marta City’s school district is a legally separate entity, but two of its seven board members are also city council members and the district is financially dependent upon the city. The school district’s financial activity should be reported in the city’s financial statements by:
Because the school district is financially dependent on the city, it is considered a component unit, not a separate primary government. Component unit financial information is generally included in the financial statements of the primary government but presented separately from the financial data of the primary government. Because only two of the seven school board seats are occupied by council members, the governing body of the school board is not “substantially the same” as the city council. Thus, the blending method is not required. Discrete presentation should be used unless the financial activities of the two entities are so intertwined as to make them substantially the same entity.
Which of the following accounts would never be included in the statements prepared for a fiduciary fund?
Additions
Net position
Fund balance
Cash
Fiduciary funds use the economic resource measurement focus and the accrual basis of accounting. Revenues and expenses are not reported. The difference between assets plus deferred outflows and liabilities plus deferred inflows is referred to as “net position.” A change in net position is calculated as the difference between additions and deductions.
Fiduciary funds do not report fund balance.
What is a primary purpose and focus of the statement of activities for a nongovernmental, not-for-profit organization?
The statement of activities for a not-for-profit entity (NFP) is the financial statement that an NFP issues in lieu of a business entity’s income statement. Unlike the statement of financial position, the statement of activities is more of a period-of-time measurement of the NFP instead of a point-in-time measurement.
The statement of activities provides important information about (1) the effects of transactions and other events and circumstances that change the amount and nature of net assets; (2) the relationships of those transactions and other events and circumstances to each other; and (3) how the NFP’s resources are used in providing various programs or services.
FASB ASC 270-10-45-1 concluded that interim financial reporting should be viewed primarily in which of the following ways?
The Financial Accounting Standards Board in FASB ASC 270-10-45-1 noted that “each interim period should be viewed primarily as an integral part of an annual period.”
Spring Corp. entered into a 5-year lease agreement with Fall Corp. Spring, the lessee, paid an additional $5,000 nonrefundable lease bonus to Fall upon signing the operating lease agreement. When would Spring recognize in expense the nonrefundable lease bonus paid by Fall?
Over the life of the lease.
The exercise price of a purchase option is considered when determining lease classification and measurement if it is deemed “reasonably certain” that the option will be exercised. “Reasonably certain” is generally quantified as:
A: 75%-80%
90% or more of the fair value of the underlying asset amounts to “substantially all.”
Which of the following is a practical expedient for recognizing revenue on an individual contract with a customer?
FASB ASC 606 includes a practical expedient that allows an entity to use a “portfolio approach” to apply the revenue recognition guidance. An entity may apply the guidance to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts (or performance obligations) within that portfolio.
Peel Co. received a cash dividend from a common stock investment. Peel should report an increase in the investment account if it uses which method of accounting?
Neither the equity or cash method.
A lessee measures their right-of-use asset at the present value of lease payments, less any guaranteed residual value; they must prepare their financial statements in accordance with:
Lessees measure the right-of-use assets under both IFRS (International Financial Reporting Standards) and U.S. GAAP. Right-of-use (ROU) assets under both start with the lease liability measurement, which adds guaranteed residual values to the liability and ROU, rather than subtracting it.
Cash receipts from grants and subsidies to decrease deficits should be classified in which of the following sections of the statement of cash flows for governmental not-for-profit entities?
Non-capital Financing
Under FASB Topic 842 lease accounting guidance, which of the following is most likely to be accounted for as an operating lease?
For most leases of property (e.g., land or building), a lessee would classify the lease as an operating lease if none of the five lease criteria are met.
A company has a long-lived asset with a carrying value of $120,000, expected future cash flows of $130,000, present value of expected future cash flows of $100,000, and a market value of $105,000. What amount of impairment loss should be reported?
Since the estimated future cash flows ($130,000) are not less than the carrying value ($120,000), no impairment loss must be recognized.
A not-for-profit voluntary health and welfare entity should report a contribution for the construction of a new building as cash flows from which of the following in the statement of cash flows?
According to FASB ASC 958-230-55-3, a contribution to a not-for-profit restricted to long-term purposes like construction shall be reported as a cash flow from financing activities. Cash flows received from investment income restricted by donor stipulation to the same purposes also are reported as financing activities, not as operating activities.
