FAR 1.03

Question 1

1.03 - Full set of Financial Statements

Answer 1

• Statement of Financial Position (Balance Sheet)
• Statement of Earning Financial & Comprehensive Income (Income Statement)
• Statement of Cash Flows
• Statement of Changes in Owners’ Equity (Statement of Investments by and Distributions to Owners)

Question 2

1.03 - 10 Key elements that make up all the Financial Statements

Answer 2

Assets, Liabilities, Equity, Investments by owners, Distribution to owners, Comprehensive Income, Revenue, Expenses, Gains and Losses

Question 3

1.03 - Assets

Answer 3

an economic resource that has a probable future benefit, one can obtain the benefit, and the transaction creating the benefit has already occurred

Question 4

1.03 - Liabilities

Answer 4

an economic obligation in which one needs to use or transfer an asset, it can’t be avoided and the transaction has already occurred

Question 5

1.03 - Equity (Net Assets)

Answer 5

assets left over after deducting liabilities

Question 6

1.03 - 3 Elements of Equity

Answer 6

• Contributions/ Investments by owners
• Distributions to owners - (Dividends)
• Comprehensive Income - all changes in equity other than “owner” sources. These items affect. Comp Inc. but not net Income (DENT) NI - DENT = Comp Income

Question 7

1.03 - DENT

Answer 7

• Derivative Cash Flow Hedges
• Excess adjustment of PBO and FV of plan assets at year end
• Net unrealized gains or losses on “available-for-sale” securities
• Translation adjustments for foreign currency

Question 8

1.03 - Physical capital maintenance concept

Answer 8

only recognize an event when an asset is sold or a liability is settled (measures the effect of price changes in nominal or constant dollars)

• use for fixed assets which are not adj to market value

Question 9

1.03 - Financial Capital maintenance concept

Answer 9

recognize an event as a change in the value of an asset or liability occurs (Recognize holding gains and losses - current GAAP)

• use for most marketable securities which are reported at market value, except in limited cases.
• meets the Enhancing Qualitative Characteristics of Verifiability

Question 10

1. 03 - Accounting Rules and Concepts (that go along with the key elements:
   - Consistency

Answer 10

Same principle each year

Question 11

1. 03 - Accounting Rules and Concepts (that go along with the key elements:
   - Conservatism

Answer 11

Considering all risks inherent in the business (accruing a contingent loss)

Question 12

1. 03 - Accounting Rules and Concepts (that go along with the key elements:
   - Cost/Benefit

Answer 12

Costs don’t exceed benefits to be derived

Question 13

1. 03 - Accounting Rules and Concepts (that go along with the key elements:
   - Matching

Answer 13

recognize a cost as an expense in the same period as the benefit (usually a revenue) is recognized

Question 14

1. 03 - Accounting Rules and Concepts (that go along with the key elements:
   - Allocation

Answer 14

spreading a cost over more than one period

Question 15

1. 03 - Accounting Rules and Concepts (that go along with the key elements:
   - Full Disclosure

Answer 15

providing all useful info in the financial statements

Question 16

1. 03 - Accounting Rules and Concepts (that go along with the key elements:
   - Recognition

Answer 16

booking an item in the financial statements

Question 17

1. 03 - Accounting Rules and Concepts (that go along with the key elements:
   - Realization

Answer 17

Converting non-cash resources into cash or a claim to cash

Question 18

1.03 - 4 elements of Comprehensive Income

Revenues

Answer 18

• Revenues, Expenses, Gains, Losses

- Revenues - inflows from an entity’s primary operation

Question 19

1.03 - 4 elements of Comprehensive Income

Expenses

Answer 19

• Revenues, Expenses, Gains, Losses

- Expenses - outflows due to an entity’s primary operation

Question 20

1.03 - 4 elements of Comprehensive Income

Gains

Answer 20

• Revenues, Expenses, Gains, Losses

- Gains - increases in equity from incidental transactions

Question 21

1.03 - 4 elements of Comprehensive Income

Losses

Answer 21

• Revenues, Expenses, Gains, Losses

- Losses - decreases in equity from incidental transactions

Question 22

1.03 Recognition and Measurement

When to recognize a financial statement element and how to measure it

Answer 22

• Meets the definition of an element (asset, liability, etc.
• Element is capable of being measured in monetary terms
• The item is Relevant and Faithful Representation (useful)

Question 23

1.03 To measure in Monetary Terms

Historical Cost

Answer 23

amount you paid for it

Question 24

1.03 To measure in Monetary Terms

Replacement Cost

Answer 24

Element is capable of being measured in monetary terms

Question 25

1.03 To measure in Monetary Terms

Fair Market Value

Answer 25

(FMV) - Per ASC 820, “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”

Question 26

1.03 To measure in Monetary Terms

Net realizable value

Answer 26

(NRV) - amount expected to be converted to (A/R)

Question 27

1.03 To measure in Monetary Terms

Present Value

Answer 27

(PV) - discounted cash flows due to the time value of money (Notes/Receivable, Bonds/Payable, Leases)