FAR 1 Flashcards

Question 1

Q

Q

Answer

A

A

Question 2

Q

How are changes in accounting principle applied?

Answer

A

<p class="large" style="text-align:center";>Retrospective Application:
-Prior Periods adjusted
-Retained Earnings adjusted
-Completed Contract to % Completion
Ex: LIFO to FIFO</p>

Question 3

Q

What is a serial bond?

Answer

A

Any bond that matures in installments

Question 4

Q

When is the fair value method used for recording interest in a separate company?

Answer

A

20% Ownership or Less

Accounted for as a purchase

If amount paid is less than fair value; results in a gain in current period

Question 5

Q

What is a current asset?

Answer

A

Cash plus other assets that are expected to be sold or converted to cash during the current operating cycle

Includes: Demand deposits; cash equivalents; accounts receivable; inventory; pre-paids; and short-term investments

Question 6

Q

What is a temporary difference related to deferred taxes?

Answer

A

GAAP says to recognize a revenue/expense in one period and tax laws say to recognize it in another

Example: Dividends from a subsidiary accounted for using the Equity Method; tax income but not book income

Question 7

Q

How are derivatives recorded?

Answer

A

At cost when acquired re-valued to fair value each period on Balance Sheet.

Question 8

Q

What is the primary objective of accounting?

Answer

A

To measure income

Question 9

Q

Which personal financial statements are required?

Answer

A

Statement of Financial Condition

Statement of Changes in Net Worth

Question 10

Q

What expenditures are included in the cost of equipment?

Answer

A

All expenditures to get the asset into working condition and ready for use:

Purchase price + liabilities assumed
Shipping
Taxes
Insurance
Installation
Testing
Legal fees
Construction loan interest

Any alterations to existing facilities or equipment necessary for the new purchase and installation that extend the life or increase the efficiency of these assets are capitalized.

Question 11

Q

What is the primary objective of governmental accounting?

Answer

A

To provide information that is useful and benefits a wide range of users including:

Costs of services provided

Sufficiency of revenues to cover costs

Financial position of entity

Question 12

Q

Which organization’s standards are the most authoritative in the hierarchy of international accounting?

Answer

A

The International Accounting Standards Board (IASB)

Question 13

Q

Which costs are inventoriable?

Answer

A

Purchases - net of discounts

Freight - FOB Shipping point costs go to buyer; FOB Destination costs charged to seller

Warehouse expenditures

Question 14

Q

How are trading securities recorded?

Answer

A

On the balance sheet at Fair Value- as current assets

Unrealized gains/losses are recorded on the Income Statement

If they are reclassified as held-to-maturity or available-for-sale- there is no effect upon transfer.

Question 15

Q

What are the characteristics of a capital lease for a lessee?

Answer

A

Risk of ownership passes to lessee by:

Title

Bargain Purchase Option (BPO)

Substance: Lease is more than 75% of asset’s useful life or PV of minimum lease payments are more than 90% of fair value

Question 16

Q

Which financial statements are required for not-for-profit organizations?

Answer

A

Statement of Financial Position

Statement of Activities

Statement of Cash Flows

Statement of Functional Expense (Volunteer Health Organizations Only)

Question 17

Q

At what value should assets contributed to a partnership be recorded? What value for liabilities assumed by the partnership?

Answer

A

Fair Value for assets contributed.

Present value of remaining cash flows for liabilities assumed.

Question 18

Q

What items are included in operating activities on the Statement of Cash Flows?

Answer

A

Cash received from Customers- Interest & Dividends- Trading Securities

Cash paid to Vendors- Suppliers- Interest- Taxes- Trading Securities

Question 19

Q

When common stock and preferred stock are issued in a lump sump purchase- how is APIC allocated?

Answer

A

APIC for each is allocated by its respective % of the total FMV of the shares x the proceeds.

Question 20

Q

Would a change from Completed Contract to Percentage of Completion be a change in accounting principle- or a change of estimate?

How would it be applied?

Answer

A

A change of principle.

Applied retrospectively.

Question 21

Q

What is a term bond?

Answer

A

Any bond that matures on a single date

Question 22

Q

When is the equity method used when purchasing another company’s stock? How is it recorded?

Answer

A

Ownership 21% to 50%

Gives significant influence

Purchase Price - Par Value = Goodwill

Dividends received from the investee reduce the investment account and are not income

Question 23

Q

What is a current liability?

Answer

A

A liability expected to be paid within 12 months or less

Question 24

Q

What is a deferred tax asset?

Answer

A

Deduction will reduce future income taxes expense.

Question 25

Q

How are unrealized gains/losses on trading securities recorded?

Answer

A

Recorded on income statement

Question 26

Q

What is the most authoritative set of accounting pronouncements?

Answer

A

The FASB Codification

All pronouncements fall under the Codification umbrella

Question 27

Q

How are assets and liabilities valued in a personal financial statement?

Answer

A

Estimated current value

Question 28

Q

How are Research and Development costs recorded?

Answer

A

They are expensed in the period incurred and are not capitalized.

Question 29

Q

What are the three major types of funds in governmental accounting?

Answer

A

Governmental

Proprietary

Fiduciary

Question 30

Q

Where is the first place management should look for guidance on international recognition and accounting policies?

Answer

A

The International Financial Reporting Standards (IFRS) issued by the IASB

Question 31

Q

When does ownership of goods transfer when shipped FOB Shipping Point?

Answer

A

FOB Shipping Point puts the inventory into the hands of the buyer from the loading dock

Question 32

Q

How are Available-For-Sale securities recorded?

Answer

A

On the balance sheet- at fair value as either current or non-current assets.

Unrealized gains/losses are included in OCI (Other Comprehensive Income)

If reclassified as held-to-maturity- unrealized G/L go to Stockholder’s Equity

If reclassified as trading securities- unrealized G/L recognized in current period.

Question 33

Q

How is a capital lease recorded?

Answer

A

Capitalize at cost:

Asset & Liability Recorded at Present Value of Future Lease Payments

Discount Rate = Lesser of Implicit Rate in the Lease or Market Rate

Question 34

Q

What are the major classifications found on a Statement of Financial Position?

Answer

A

Similar to Balance Sheet:

Assets
Liabilities
Net Assets
Unrestricted Assets 
Permanently Restricted Assets
Temporarily Restricted Assets</p>

Question 35

Q

How are capital contributions with a mortgage attached recorded in a partnership for financial statement purposes?

Answer

A

Unlike in Regulation where the partner’s tax basis is reduced by the amount of the mortgage that the other partners absorb- calculating the capital balance when property contributed has a mortgage results in the FV of the Asset being netted against the Liability

Example: If you contribute a $100-000 building with a 20-000 loan- your capital account is increased by $80-000- instead of allocating the liability to the other partners according to their ownership %.

Question 36

Q

What items are included in investing activities on a Statement of Cash Flows?

Answer

A

Cash received: Sale of PP&E- Sale of Investments- Loan Principle

Cash paid: Loans- Acquisitions- AFS or HTM Securities- Taxes- Trading Securities

Question 37

Q

When is APIC recorded on a stock subscription?

Answer

A

APIC increases on date subscription is recorded – not on the date paid for or issued

Question 38

Q

Would a change from LIFO to FIFO be a change in accounting principle or a change of estimate?

How would this change be applied?

Answer

A

A change in accounting principle.

Applied retrospectively.

Question 39

Q

What is a debenture bond?

Answer

A

A bond not secured by any collateral

Question 40

Q

When are companies required to file consolidated financials? How is it recorded?

Answer

A

Ownership of other company is greater than 50%

Investment account is eliminated

Only parent company prepares consolidated statements; not subsidiary.

Acquired assets/liabilities are recorded at Fair Value on acquisition date.

Eliminating entries for inter-company sales of inventory & PPE; also inter-company investments

Question 41

Q

How is the Quick Ratio calculated?

Answer

A

(Cash + A/R + Trading Securities) / Current Liabilities

Question 42

Q

What is a deferred tax liability?

Answer

A

Income will be taxable in a future period and will increase future tax expense

Question 43

Q

How are gains and losses on Available for Sale (AFS) securities recorded?

Answer

A

They are included in Other Comprehensive Income.

Question 44

Q

What are the 2 Levels of Authority within the FASB codification?

Answer

A

Authoritative and Non-Authoritative

Question 45

Q

How are estimated taxes that would be paid if all assets were converted into cash and all liabilities paid presented on a personal financial statement?

Answer

A

Presented on Statement of Financial Condition between Liabilities and Net Worth

Question 46

Q

Which expenditures are included in the cost of a building?

Answer

A

All expenditures to get the building into working condition are ready for use

Question 47

Q

Which two accounting bases are used in governmental accounting?

Answer

A

Accrual basis - current economic resources focus (revenues recognized when earned)

Modified accrual basis - current financial resources focus (revenues recognized when available and measurable)

Question 48

Q

Which framework helps to develop standards for international accounting?

Answer

A

The IASB Framework

The framework is NOT a standard itself
The framework does not supersede any standard’s authority

Question 49

Q

When does ownership transfer when goods are sent FOB Destination?

Answer

A

FOB Destination keeps the items in the seller’s inventory until it reaches the buyer

Question 50

Q

How are held-to-maturity securities recorded?

Answer

A

On the balance sheet at amortized cost as current or non-current assets.

Unrealized gains or losses are not applicable.

If reclassified as available-for-sale- unrealized G/L go to Stockholder’s Equity

If reclassified as trading securities- unrealized G/L recognized in current period

Question 51

Q

What footnote disclosures are required for a capital lease?

Answer

A

Future minimum rental commitments

By year – for 5 years

All remaining years as a group

Question 52

Q

What are the major classifications in a Statement of Activities?

Answer

A

Similar to an Income Statement- organization-wide:

Revenues
Expenses - ONLY deducted from Unrestricted Revenues
Gains and Losses
Changes in Net Asset classes
Unrestricted
Permanently Restricted
Temporarily Restricted</p>

Question 53

Q

If no goodwill is recorded upon admission of a new partner- which method is used for recording the new partner’s interest?

Answer

A

The bonus method:

Old Partnership Equity
\+ New Partner Contribution
= New Partnership Equity
x New Partner %
= New Partner Equity Amount

New Partner Contribution
- New Partner Equity Amount
= Bonus to Prior Partners using same allocation as P/L

Question 54

Q

What items are included in Financing Activities in a Statement of Cash Flows?

Answer

A

Cash received: Issuance of Stock- Issuance of Debt

Cash paid: Dividends

Question 55

Q

To what extent is retained earnings restricted if legally restricted due to Treasury Stock?

Answer

A

It will be restricted to the extent of the balance in the Treasury Stock account.

Question 56

Q

How is a change in accounting estimate applied?

Answer

A

A change in accounting estimate is applied prospectively (going forward).

No backwards adjustment is made.

Question 57

Q

What is a sinking fund bond?

Answer

A

Cash is held in a sinking fund for repayment of bond at maturity

5 years of requirements and maturity details should be disclosed

Question 58

Q

When is consolidation not required?

Answer

A

Ownership less than 50%

OR

Majority owner does not control - i.e. bankruptcy or foreign bureaucracy

Question 59

Q

How is the Current Ratio calculated?

Answer

A

Currents Assets / Current Liabilities

Question 60

Q

Which period’s tax rate is used to calculate a deferred tax asset or liability?

Answer

A

The FUTURE enacted tax rate not the current one.

It is never discounted to present value.

Question 61

Q

What is a Fair Value Hedge? How is it recorded?

Answer

A

Fair Value Hedge offsets exposure to changes in the value of a recognized asset/liability or of an unrecognized commitment

Initially recorded on Balance Sheet at Fair Value

Gains/Losses recorded on Income Statement

Question 62

Q

How does managerial accounting differ from financial accounting?

Answer

A

Managerial Accounting has a “timeliness” focus

Managerial Accounting is not required to follow GAAP

Question 63

Q

What is the general presentation on a statement of financial condition?

Answer

A

Assets
- Liabilities
- Estimated taxes on assets sold
= Net Worth

Question 64

Q

Which expenditures are included in the cost of land?

Answer

A

All expenditures to get the land ready for its intended use:

Title & County Fees

Clearing of Land - Dirt work etc.

Demolition and removal of old buildings (minus any scrap or salvage)

Note: capitalized land costs are not depreciated

Answer 65

A

The highest amount allowed for a particular expenditure under a budget.

Answer 66

A

To provide users with information on international accounting.

Answer 67

A

Sales Commissions

Interest on liabilities to vendors

Shipping expense to customers

Answer 68

A

Same as for lessee (Title- BPO or Substance)- PLUS:

Collectibility of lease payments is predictable

No uncertainties about the lessor reimbursing the lessee for costs incurred

Answer 69

A

Both direct and indirect methods are OK

Operating Activities - Unrestricted Revenues and Unrestricted Expenses

Investing Activities

Financing Activities - Endowments and restricted contributions

Answer 70

A

Using the goodwill method:

New Contribution / New Equity % = Partnership Value

Implied Value of Partnership
- Capital Accounts of all partners
= Goodwill to Old Partners

Under the Goodwill Method- the new Partner is paying an amount for a certain percentage stake in the partnership. For instance if they pay $1000 for a 25% stake- then it is assumed that the Partnership is worth $4-000 ($1-000/25%)

Answer 71

A

Starts with Income from Continuing Operations

Adjusts for changes in accounts like A/R- A/P- Inventory and non-cash revenues- expenses- gains- losses

If used- the Indirect Method must also be shown

Answer 72

A

They are not accrued until declared.

Answer 73

A

Change in depreciation method would be a change in accounting estimate.

It is applied prospectively.

Answer 74

A

Present Value of the principal payment at maturity
+ Present Value of Interest Payments made
= Market Value of Bond Proceeds

Answer 75

A

Acquirer held previous shares accounted for under Fair Value Method or Equity Method; and are now re-valued to Fair Value

Results in a Gain or Loss in current period

Answer 76

A

Currents Assets - Current Liabilities

Answer 77

A

If it is “probable” that not all of a Deferred Tax Asset (debit) will be realized then the Deferred Tax Asset account must be written down (credit) to reflect this

Answer 78

A

Cash flow hedges protect from exposure to fluctuations in cash flows.

Initially recorded on Balance Sheet at Fair Value

Gains/Losses going to OCI

Example: A cereal company enters into a futures contract on grain purchases to offset the risk that grain will go up in price.

Answer 79

A

Form 10K - Annual and Audited
Form 10Q - Quarterly and Reviewed

Answer 80

A

Only shown if there is cash surrender value

It is shown net of loans against the policy

Answer 81

A

If the cash flows from the assets exchanged are not significantly different no gain or loss is recognized on a non-monetary exchange as it lacks commercial substance.

The new asset is recorded at the book value of the asset given up.

The only gain that can be recognized is any boot (cash) received.

Answer 82

A

Records purchase and reserves it for the encumbrance.

Answer 83

A

Entity is a Going Concern
Entity uses the accrual basis of accounting.

Answer 84

A

Under the gross method; discounts are recorded only when used.

Answer 85

A

Risk of ownership does NOT pass

No asset or liability is recorded on the financial statements

Leasehold improvements - capitalized and depreciated over the lesser of lease life or leasehold improvement’s life.

Answer 86

A

Volunteer Health Organizations

Answer 87

A

Starts with Net Income

Adjusts for changes in accounts like A/R- A/P- Inventory and non-cash revenues- expenses- gains- losses

Answer 88

A

If a year passes and no Cumulative Preferred Stock is declared- then the dividends in arrears are included as a disclosure – not an accrual in the Financial Statements.

Answer 89

A

Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements.

The correction of the error must be included in the footnotes.

Answer 90

A

Step 1: PV of $1 @ Yield Rate (not Stated Rate)
x Bond Face Value

PLUS

Step 2: PV of an Ordinary Annuity of $1 for Term @Yield
x (Stated Rate x Face)

Answer 91

A

Acquired companies continue to exist as a legal entity – their books are just consolidated with the parent company in the parent’s financial statements

Merged companies cease to exist and only the parent remains

Answer 92

A

Credit Sales / Average A/R

Answer 93

A

They have no tax impact.

When calculating the total differences between book and tax income subtract the permanent differences from the total before applying a future enacted tax rate

Answer 94

A

In Other Comprehensive Income (OCI)

Answer 95

A

Focus is on the needs of users to help them make decisions and assessments about the company

Does not make assessments of the economy

Answer 96

A

Business Interests that constitute a large percentage of total assets should be separated from other investments

Answer 97

A

If resulting cash flows are significantly different then the transaction has commercial substance and a gain/loss is recorded on the exchange.

The new asset is recorded at the FAIR VALUE of the assets given up unless the asset acquired has a fair value that is easier to determine.

Answer 98

A

Dr Estimated Revenues Control
Cr Appropriations Control
Dr/Cr Budgetary Fund Balance (plug)

Answer 99

A

Relevance & Faithful Representation

Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions

Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions

Answer 100

A

Under the net method; discounts are recorded whether used or not.

Unused discounts are allocated to financing expense.

Answer 101

A

Rent revenue recorded

Leased property remains an asset and depreciated by lessor

If payments fluctuate over the term of the lease- rent revenue recognized on a straight line basis

Answer 102

A

<p class="large" style="text-align:center";>Balance Sheet
Statement of Operations
Statement of Changes in Net Assets
Statement of Cash Flows
Financial Statement Notes</p>

Answer 103

A

The gain or loss is the difference between the FMV of the asset distributed at the date of distribution and its carry amount on the company’s books

Answer 104

A

Effect is Material

Is identifiable in Prior Period

Couldn’t be estimated in Prior Periods

Answer 105

A

Include Engraving; Printing; Legal; Underwriter; Registration

Debited to a deferred charge account and amortized over life of Bond using S/L

Bond Proceeds –Bond Issuance Costs = Net Bond Proceeds

Time of amortization begins when issued

Answer 106

A

Expensed in period incurred – i.e. NOT capitalized:
Accounting; Legal; Valuation; Consulting; Professional

Netted against stock proceeds:
Stock registration and issuance costs

Answer 107

A

COGS / Average Inventory

Answer 108

A

The sum of Net Changes in Deferred Tax Assets and Deferred Tax Liabilities

GAAP Method for calculating is the “Asset and Liability Approach”

Note: IFRS uses the Liability approach only

Answer 109

A

Objectives and Strategies

Context to help investor understand the instrument

Risk Management Policies

Complete List of Hedged Instruments

Answer 110

A

Cost vs. Benefit

Materiality

Answer 111

A

Interim period is a separate accounting period - not GAAP

Same accounting principles used for annual reporting should be used.

Answer 112

A

Recorded at Fair Value + costs associated with getting the property into working condition for its designed purpose

Exam Tip - Think of a charity holding a “fair” and then donating the property which is then recorded at “fair value”

Answer 113

A

Dr Appropriations Control
Dr/Cr Budgetary Fund Balance (plug)
Cr Estimated Revenues Control

Answer 114

A

Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand

Answer 115

A

Gross Margin = Sales – COGS (BI + P – EI)

Answer 116

A

Interest Revenue (or expense for lessor) decreases with passage of time

Principal amount increases with each payment

Carrying amount of Lease decreases

Answer 117

A

Accrual basis of accounting is used

Only external parties can restrict the use of assets (permanent or temporary)

Assets earmarked internally by management are still classified as unrestricted

Answer 118

A

The effect on Retained Earnings is the Carrying Amount of the asset

RE will be debited when the dividend is declared for the FMV of the asset- which is more (or less) than the carrying amount

Gain/Loss recorded when the asset is distributed will offset the original effect of the debt to RE and will be a wash

The net effect of the entry is that RE will decrease by the CV of the asset

Answer 119

A

It is treated as a correction of an accounting error.

Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements

Correction of the error must be included in the footnotes

Answer 120

A

Reported at FMV with unreleased gains and losses being included in earnings

Answer 121

A

365 / Inventory Turnover

Answer 122

A

“Current” Deferred Tax Assets and Liabilities will impact income tax expense within 12 months. All current amounts are netted and reported as a single amount on the Balance Sheet

“Non-Current” Deferred Tax Assets and Liabilities will impact income tax expense 12 months or more fromt he Balance Sheet Date. All non-current amounts are netted and reported as a single amount on the Balance Sheet

Answer 123

A

Fluctuations in that currency cause a gain or loss that must be recognized on the income statement as Income from Continuing Operations

Answer 124

A

Consistency - Year vs. Year

Comparability - Company vs. Company

Answer 125

A

Interim period is a part of the annual period - GAAP

Gross profit method may be used to estimate COGS and inventory

Temporary declines in inventory aren’t recognized

Answer 126

A

Recorded at Fair Value of asset given up.

Gain or Loss is recorded.

Answer 127

A

<p class="large" style="text-align:center";>General Fund
Special Revenue Fund
Permanent Fund
Capital Projects Fund
Debt Service Fund

Answer 128

A

Comparative information from prior year is required under IFRS.

GAAP requires that if multiple years are presented they are consistently prepared however it doesn’t require prior year comparative statements.

Answer 129

A

Inventory is counted at certain times throughout the period

Weighted-average cost flow method is used.

Answer 130

A

Any profit on the sale is deferred and amortized

Exception: If PV of lease payments is 10% or less of the asset’s FMV- the gain is recognized

If PV of lease payments is greater than 10% of FMV and the lease is operating- all of the gain is recognized except the amount of the PV of the lease payments

Answer 131

A

No restrictions or conditions placed on entity in order to use the resources

Note: assets earmarked internally by management are still unrestricted

Answer 132

A

When Stock Dividend is less than 25% of Common Stock outstanding

Answer 133

A

Effect on Ending Inventory = Effect on Net Income

If one is overstated- both overstated. If one is understated- both understated.

Misstating inventory corrects itself after TWO periods.

Answer 134

A

Both discount and premium amortization amounts increase each year

Answer 135

A

Average A/R / Average Sales per Day

Answer 136

A

The current translation rate as of the balance sheet date is used to report assets and liabilities.

Answer 137

A

Relevance & Faithful Representation

Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions

Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions

Answer 138

A

Aren’t prorated

Fully recognized in Interim Period as incurred

If it occurs in Q3- it’s recognized in Q3

Answer 139

A

1 / (Useful Life x 2 x Book Value)

Ignore salvage value.

Answer 140

A

The operating fund of the governmental unit

Records Significant Revenues: Taxes; Tickets; Fines; Licenses

Records Significant Expenditures: Police; Education; Fire Dept

Answer 141

A

Cost vs. Benefit

Answer 142

A

Inventory count continually updated

Uses a moving-average cost flow method

Answer 143

A

Payments begin at the start of the lease period

Think: Rent/Mortgage payments are Due at the first of the month

Answer 144

A

Revenues on contributions are recognized in the year received- not the year the contribution is spent and are recorded at Fair Value on the date received

Answer 145

A

When Stock Dividend is greater than 25% of common stock outstanding

Answer 146

A

Applied retrospectively.

All prior periods presented for comparative purposes must reflect the change

Footnote disclosures must be made

Changing to Consolidated Statements

Answer 147

A

No gain or loss recognized

APIC is the plug for the difference between the Bond’s Book Value and the Par Value of the Common Stock

Answer 148

A

They are NOT accrued due to Conservatism

Answer 149

A

Use the weighted average exchange rate for the current year.

Answer 150

A

Comparability Verifiability Timeliness and Understandability

Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand

Answer 151

A

Reported as if they occurred in the first quarter

Answer 152

A

(Cost - Salvage Value) x (Remaining Useful Life / SYD) = Depreciation expense

For example the depreciation factor for the third year of a 10-year asset would be:

= 8 / (10+9+8+7+6+5+4+3+2+1) = 8/55 = 14.5%

Remaining useful life = 8 SYD = 55

Answer 153

A

Restricted for a specific purpose such as street repair.

Answer 154

A

<p class="large" style="text-align:center";>Asset
Liability
Equity
Income
Expense</p>

Answer 155

A

Under the FIFO system; periodic and perpetual inventory methods will both have the same ending inventory.

Answer 156

A

Payments begin after the end of the first year

Think: An annuity that pays you at the end of each year

Answer 157

A

If the organization would have otherwise paid for them

or

They increase the value of a non-monetary asset

Answer 158

A

Stock dividends and stock splits both have no effect on Total Shareholder Equity

Answer 159

A

Rate on the face of the bond

Answer 160

A

If Probable - they are accrued (if estimable) and disclosed

If Reasonably Possible - they are disclosed

If Remote - don’t accrue or disclose

Answer 161

A

Foreign Currency Financial Statements are remeasured into the Reporting Currency (Dollar) using the weighted-average exchange rate

Answer 162

A

When an estimate is necessary due to uncertainty conservatism chooses the best option that won’t overstate the financial position of the company

Answer 163

A

If inventory experiences a decline in value during an interim period- the loss is recognized in the interim period

If the loss is expected to be only temporary- no loss is recognized

Answer 164

A

(Cost - Salvage Value) / Useful life = depreciation expense

Answer 165

A

Legally restricted fund; where only earnings can be used to fund programs.

Principal remains intact.

Answer 166

A

Probable future economic benefit

Can be measured reliably

If the value or outcome cannot be measured reliably IFRS requires the use of the Cost Recovery Method.

Answer 167

A

COGS / Average Inventory

Answer 168

A

NO.

It is disclosed in the notes to the financial statements only.

Answer 169

A

Stock splits only affect par value - APIC remains the same.

Answer 170

A

Rate that bonds are currently selling for

Answer 171

A

On the income statement as Other Income.

Answer 172

A

Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet

Answer 173

A

The matching principle gets messed up – Expenses incurred in one period may benefit future periods

Answer 174

A

When the un-discounted future cash flows are less than the carrying value of the asset.

Carrying Value - Fair Value = Impairment Loss

Note: impaired assets that recover their value can’t be written back up once written down

Answer 175

A

Used to acquire and build facilities.

Answer 176

A

A full comparative statement using IFRS.

Answer 177

A

365 / Inventory Turnover

Answer 178

A

Classified as revenue in the current year only - multi-year future contributions fall under Temporarily Restricted.

Answer 179

A

Compensation expense is recorded at the time of grant if options are exercisable immediately

They are based on past service.

Expense recognized = FV Stock Option x # of Shares

Answer 180

A

Bond will need to sell at a discount in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for less than par value

Answer 181

A

Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense)

Answer 182

A

Publicly traded companies

Answer 183

A

If the patent is SUCCESSFULLY defended the legal fees are amortized over the patent’s economic life.

If unsuccessful they are expensed immediately.

Answer 184

A

Handles repayment of long-term debt and related interest.

Answer 185

A

January 1 2011 because a full year of comparative statements is required from the previous year

Answer 186

A

The CONSIGNOR holds the consigned items in their inventory count. The cost includes the shipping to the consignee.

Answer 187

A

Expenses ONLY deducted from Unrestricted Revenues- not Temporary or Permanently Restricted Revenues/Assets

Answer 188

A

The risk-free interest rate

Answer 189

A

Bond will need to sell at a premium in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for more than par value

Answer 190

A

When an item is recorded and included in the financial statements

Answer 191

A

Revenue of segment is 10% or more of total

Profit is 10% or more of total

Segment assets are 10% or more of total

75% Test - All segment revenues must equal 75% of total external revenues

Answer 192

A

Compare the CV to the FV. If FV is greater than CV no impairment exists you’re done.

If impairment appears to exist the assets and liabilities should be compared to the total value of the reporting unit. The difference is Goodwill. Compare this amount to the CV of the Goodwill and write it down accordingly.

Answer 193

A

Balance Sheet

Statement of Revenues; Expenditures; and Changes in Fund Balance

Answer 194

A

The Fair Value election

Answer 195

A

No. Consignment goods are maintained in the inventory of the consignor; not the consignee.

Answer 196

A

Use is restricted to a future time- which could then convert to unrestricted - Class: Temp. Restricted Revenue

Unrestricted contributions promised (including multi-year contributions)- but not yet received are actually restricted by “time” and are therefore classified as Temporarily Restricted Assets - Multi-year contributions are recorded at the present value of the future contributions

Answer 197

A

The settlement date.

Answer 198

A

The total cash that seller receives will be MORE than they normally would (set aside any considerations for premium or discount; they are irrelevant for this point).

Basically; the purchaser of the bonds must give the bond issuer the amount of accrued interest up front.

Answer 199

A

The price you would receive if you sold the asset

Assumes asset is at its highest and best value

Assumes asset is sold at its most advantageous market to get the best price possible

Answer 200

A

If 10% or more of enterprise revenue comes from one customer- the segment making the sales must be disclosed

Answer 201

A

Expenses prior to technological feasibility are expensed as R&D.

After technological feasibility but prior to production costs are capitalized.

Expenses incurred during production are charged to inventory.

Expenses incurred training on internal use software are expensed.

Answer 202

A

When it is BOTH available and measurable; regardless of when it is spent.

Answer 203

A

In the entity’s retained earnings or equity

Answer 204

A

Misstatement of beginning inventory does NOT have an effect on ending retained earnings.

Misstatement of ENDING inventory does have an effect on retained earnings.

Answer 205

A

Use of investment is restricted- but income from investment could be either restricted or unrestricted

Must be under control of receiving entity (Quasi Endowment) in order to be recorded in unrestricted net assets

Otherwise- a memo entry is recorded

Answer 206

A

Compensation costs for share-based payments classified as liabilities are measured by the change in the fair value of the instrument for each reporting period

Answer 207

A

When the bonds are issued

Answer 208

A

Buyer and Seller are not Related

Buyer and Seller are Knowledgeable

Buyer and Seller are able to transact – i.e. This isn’t a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you’re trying to value at $10M

Buyer and Seller are both motivated to buy/sell

Answer 209

A

Money collected from people doing things:

Sales tax (buying cars) or income tax (people working)

Answer 210

A

Going Concern is an assumption under IFRS

Answer 211

A

EI Over = COGS Under = ERE Over

EI Under = COGS Over = ERE Under

Answer 212

A

Not recognized as assets or contribution revenue if they are held of display or education – or their sale results in the purchase of similar items

Answer 213

A

Net increase to SHE = Gain on settlement of debt + Credit to SHE from stock issuance

Answer 214

A

Cash for payment = Stated rate x Face amount

Answer 215

A

Price quotes or market prices

For example NYSE or NASDAQ

Answer 216

A

Tax assessed just because things exist

Example: property tax on a car (even if it’s never driven); real estate tax

Recorded as a revenue when BUDGETED.

Estimated uncollectible property tax revenues don’t offset revenues; so don’t net them.

Answer 217

A

IFRS doesn’t allow extraordinary items.

Answer 218

A

The first (oldest) inventory you have in stock is the first inventory you record for COGS purposes. If your oldest inventory on the shelf cost you $1 when you bought it; COGS is $1

This is just for inventory pricing. It has nothing to do with physically selling the oldest item on the shelf - It is purely for accounting purposes

Answer 219

A

Temporarily restricted assets are used before Unrestricted assets.

Answer 220

A

To eliminate a deficit balance in RE by restating its assets to Fair Value

It does not directly protect a company from its creditors

Answer 221

A

Interest expense = effective yield x carrying value

Any difference between expense and cash payment is applied as amortization against premium/discount

Answer 222

A

Interest rates

Prime rate

Answer 223

A

Internal Service Funds - to serve the needs of other governmental units (i.e. motor pool)

Enterprise Funds - provide goods or services to external users (i.e. post office)

Answer 224

A

Completed contract method is not allowed under IFRS.

Answer 225

A

The last (newest) inventory you have in stock is the first inventory you record for COGS purposes. If your newest inventory on the shelf cost you $1.50 when you bought it; COGS is $1.50

Answer 226

A

Classified as a Liability

Promise to contribute assets pending on certain conditions being met

Becomes unconditional once the possibility that it won’t happen is remote

Answer 227

A

(Net Income - P/S Dividends) / Average Common Stockholders Equity

Note: Average CSE = Common Stock + RE

Answer 228

A

Bonds that can be converted to stock

Book value method used if no gain or loss

Market value method used if there is a gain or loss

Answer 229

A

Unobservable inputs such as assumptions or forecasts

Lowest priority for valuation

Answer 230

A

Restricted - Restricted by Contributor
Committed - Restricted by Government
Assigned - Intended for a purpose
Unassigned - Available to be spent
Non-spendable - Not in a spendable state

Answer 231

A

IFRS does not allow LIFO.

Answer 232

A

COGAS / Total Units = Weighted Average Cost Per Unit

Answer 233

A

Fair Value is mostly used

Exception - Equity method used when significant influence exists

Answer 234

A

<p class="large" style="text-align:center";>Total Common Stock
- Total Preferred Stock
- P/S Dividends in Arrears
- P/S Liquidation Premium
=Total Book Value

Book Value per Share = Total Book Value / Shares outstanding

Answer 235

A

Gain or Loss is Ordinary

Extraordinary if both unusual and infrequent

Answer 236

A

Market approach - uses market transactions and prices to value the asset

Income approach - uses present value discounts earnings

Cost approach - uses replacement cost to value the asset

Answer 237

A

Agency Fund - government acts as an agent or custodian

Pension Trust Fund - Government is a trustee for a pension plan

Investment Trust Fund - Government is a trustee over a series of investments

Private Purpose Trust - Trust that benefits various individuals and entities

Answer 238

A

Statement of Comprehensive Income

Statement of Changes in Equity

Answer 239

A

FIFO’s relationship to COGS will be opposite LIFO’s relationship to COGS in periods of falling/rising prices.

Answer 240

A

As a reduction of revenue- netted against college’s tuition

Answer 241

A

Dividends per share / earnings per share

Answer 242

A

If terms are modified; and future payments are now less than the carrying amount of the debt; then a Gain is recognized

Answer 243

A

Cash

Inventory or Assets expected to be converted or consumed during a business’ operating cycle

Deferred Gross Profit on Installment Sales (Contra Asset)

Receivables expected to be collected in 12 months or less

Answer 244

A

<p class="large" style="text-align:center";>Assets (Current & Non-Current)
 Deferred Outflows of Resources
 Liabilities (Current & Non-Current)
 Deferred Inflows of Resources
</p>

Answer 245

A

Income is used instead of revenue and encompasses BOTH revenue and gains.

Answer 246

A

FIFO has the Lowest COGS

FIFO is a cat that sees a mouse…starts Low and is Rising

If COGS is Low; that means EI is High

Answer 247

A

Depreciation expense is allocated proportionately to various functions

Answer 248

A

(Net Income – Preferred Dividends) / Average C/S Outstanding

Note – If cumulative- subtract the P/S dividend regardless of whether or not they’re declared.

Answer 249

A

Gain recognized:

Difference between cash paid and carrying amount of debt

Difference between non-cash asset given and re-valued at FMV and debt carrying amount

Answer 250

A

Liabilities that will use current assets during the present operating cycle

Answer 251

A

They are shown net of debt

Asset Cost - Accumulated Depreciation - Asset Liabilities = Net Assets

Answer 252

A

In IFRS the term profit is used instead of Net Income.

Answer 253

A

FIFO has the Highest COGS

Remember: FIFO; that silly cat; got High from Catnip and is Falling off the couch

If COGS is High; that means EI is Low

Answer 254

A

For EPS purposes- treat C/S stock splits or stock dividends as if they occurred at the beginning of the year- regardless of when actually issued during the year

Answer 255

A

If future cash flows discounted at loan’s Effective Interest Rate are less than Carrying Value:

Effective Rate calculated using original rate; not modified rate

Answer 256

A

Expense that has been incurred but not paid

Example: rents payable

Answer 257

A

Modified approach:

Reported at cost; no accumulated depreciation

Answer 258

A

They are treated the same as revenue and are not separated on the financial statements.

Answer 259

A

Market Ceiling = Net Realizable Value = Selling Price - Selling Costs

Market = Replacement Cost

Market Floor = Net Realizable Value - Normal Profit

Answer 260

A

EPS is only required to be shown for Income from Continuing Operations and Net Income.

All others (discontinued operations- extraordinary items) can be shown on the Financial Statements or in the notes

Answer 261

A

A type of current liability

Payments that have been received but cannot be recorded as revenue yet

Example: Tenant pre-pays rent – Landlord still must “perform” to earn it and is a liability until this happens

Answer 262

A

Into Governmental Activities and Business Activities

Answer 263

A

In IFRS losses are treated the same as expenses but they ARE separated on the financial statements.

Answer 264

A

Only if they are dilutive.

Their exercise price is LESS than the market value

If not- you ignore them in the calculation

Answer 265

A

When they have been earned; i.e. company has performed

Answer 266

A

They are divided by function

If the activities of a component are distinguishable from the rest of the governmental entity; then discreet presentation is required

If the activities of the component cannot be identified and separated from the rest of the governmental activities; then blended presentation is warranted.

Component units are reported in the Entity-Wide Financial Statements and not the Fund Financial Statements.

Answer 267

A

Under IFRS current liabilities can only be refinanced into a non-current liability if the refinance agreement is EXECUTED prior to the balance sheet date.

GAAP requires only intent to refinance not actual execution.

Answer 268

A

[Net Income + Bond Interest (Net of Tax)] / (Average Common Stock Shares + Convertible Equivalents)

Bond interest is added back because if converted- there would be no bond interest expense

Contingent Issue Agreements are included in Diluted EPS if contingency is met

Answer 269

A

Increase in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

Answer 270

A

Under GAAP there are three classifications of contingent liabilities - Probable Reasonably Possible and Remote.

Under IFRS contingencies are uncertain future events and are classified as a provision if probable and measurable even if uncertain in timing or amount.

Answer 271

A

Decrease in equity from an activity or event that is not central to the main activities of the business

Can be operating or non-operating

Answer 272

A

Bonds may be recorded on the Statement of Financial Position using one of two methods

Fair Value through profit or loss

Liability revalued at the end of each period
Gain or Loss recognized in period

Amortized Cost
*Using Effective Interest Method

Answer 273

A

Average time it takes to turn materials or services into Cash

Answer 274

A

They use the liability method - all deferred tax liabilities must be reported but only probable deferred tax assets can be reported.

They are non-current on the statement of financial position.

Answer 275

A

Valuation method - the current value of a future amount of money using a specific interest rate

Answer 276

A

ONLY if they are related to the same country/taxing authority

For example China Deferred Tax Assets can’t offset Japan Deferred Tax Liabilities

Answer 277

A

How much an asset cost - (net of depreciation and amortization)

Answer 278

A

The enacted rate or substantially enacted tax rate.

(GAAP is the enacted tax rate only)

Answer 279

A

How much it would cost to reacquire an asset today (Entrance Cost)

Answer 280

A

Income
Finance Costs
Tax Expense
Discontinued Ops
Profit/Loss
Non-controlling interest in Profit/Loss
Net profit/loss attributable from equity

Answer 281

A

The sale price of an asset (Exit Cost)

Answer 282

A

Recorded at cost

Valued using either:

Cost model - asset carried at cost less accumulated depreciation and impairment loss

Revaluation model - asset adjusted to fair value less accumulated depreciation

Answer 283

A

Sale Price of an Asset - Selling/Disposal Fee

Answer 284

A

Asset must be able to be reliably measured

Must be applied to whole class of assets not just one asset

No guidance on how often assets should be revalued under IFRS

Answer 285

A

Recognized when earned

If the royalty % is applied against net sales then subtract the estimated return amount from the gross sales first and then apply the royalty rate

Answer 286

A

Initially recorded at cost

Revalued using either Fair Value model or Cost model

Answer 287

A

Revenue recognized upon receipt of cash

Only used when cash collection is uncertain

Answer 288

A

Recorded on the Income Statement

Investment P/L = IS

PP&E P/L = OCI

Answer 289

A

Gross Profit that can’t be recognized until cash is received

D.GP = Gross Profit % x Accounts Receivable

Pay attention to the year if GP% varies

Answer 290

A

Carried at Cost minus Accumulated Depreciation

Fair Value must still be disclosed in the notes to the financial statements

Answer 291

A

No revenue recognized until all costs are recovered from purchase of the asset

Most conservative method of revenue recognition when collection of sale price is uncertain

Answer 292

A

Operating Leases can be recorded as Investment Property if measured at Fair Value

All other investment property must use Fair Value Model if one asset uses it

Answer 293

A

Payment has been received but performance is not complete.

As company performs revenue is recognized.

Recorded as a Deferred Revenue (Liability) on Balance Sheet

Answer 294

A

Using either the Cost Model (cost less Accumulated Depreciation and Impairment Loss)

or

the Revaluation Model (Fair Value less Accumulated Depreciation)

Answer 295

A

Franchiser - Startup franchise fee revenue deferred until franchisee has completed substantial performance

Franchisee – Costs are deferred until corresponding revenue is recognized

Answer 296

A

It is not recognized.

Answer 297

A

Mnemonic: SPEAR-BAR

Sales (i.e. Customer Payments)
+ Ending Accounts Receivable
– Beginning Accounts Receivable
= Sales Revenue on an Accrual Basis

Answer 298

A

If asset has a finite life it is amortized over useful life.

If asset has indefinite life it is not amortized but is tested for impairment at the reporting date.

Answer 299

A

Mnemonic: CRAP-I

Cash Remitted (i.e. paid) 
\+Increase in Accounts Payable
–Increase in Inventory
=COGS on an Accrual Basis
</p>

Answer 300

A

If the substantial risks of ownership have passed to the Lessee then the Lease must be accounted for as a Finance Lease

Answer 301

A

Reported Net of Tax after Continuing Operations but before Extraordinary Items

Company decides to cease operating a segment of its business

Includes Income (or loss) from the period plus the gain (or loss) from disposal 
</p>

Answer 302

A

Project-unit-credit method calculates the PV of the defined benefit obligation

Answer 303

A

Both unusual AND infrequent

Reported Net of Tax after Discontinued Operations

Note: Usual or Infrequent Items are reported as part of Continuing Operations

Answer 304

A

They can be classified as either Operating or Financing

Once a classification is chosen all future costs must be classified there

Answer 305

A

Adjusts assets to reflect a consistent level of purchasing power due to inflation

Uses the Consumer Price Index (CPI)

Answer 306

A

They must be included in the notes to the financial statements.

Answer 307

A

When they are incurred. Accrue if not yet paid.

Answer 308

A

Those incurred but not paid.

Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale)

Period costs - Expenses amortized and recognized with the passage of time

Answer 309

A

Immediately.

Answer 310

A

Office staff salaries

Office/building rent

Office supplies

Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense not G&A

Answer 311

A

One-time costs for opening a new business

Expensed as they are incurred

Answer 312

A

Interest on projects (software) for internal use is not expensed but is instead capitalized

Answer 313

A

Net Income + Other Comprehensive Income (OCI):

Revenues/Expenses

Gains/Losses

Cumulative accounting adjustments

Reclassifications adjustments

Non-owner changes in equity

Answer 314

A

Foreign Currency Translation Adjustments

Unrealized gains on AFS Securities

Minimum Pension Liability adjustment for defined benefit plans

Answer 315

A

Avoids double counting items that were included in both Net Income and OCI

Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement

Answer 316

A

Reported in Stockholder’s Equity on Balance Sheet or in a Statement of Income and Comprehensive Income

Note: Earnings Per Share is not required for OCI

Answer 317

A

Accounting Principles used

Basis of Consolidation

Inventory Pricing Methods

Depreciation Method

Amortization of Intangibles

Answer 318

A

Nature of Operations

Use of Estimates and listing of Significant Estimates

Concentration vulnerability

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