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1
Q

Unrealized gains and losses on available-for-sale securities are reported in ______ under U.S. GAAP.

A

Other comprehensive income.

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2
Q

Where are cumulative unrealized gains and losses on available-for-sale securities reflected on the financial statements?

A

Other comprehensive income.

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3
Q

What is reported in accumulated other comprehensive income (AOCI)?

A

Unrealized gains and losses on available-for-sale debt securities.

Foreign currency translation adjustments.

Gains and losses on cash flow hedges.

Pension adjustments (e.g., actuarial gains/losses, prior service costs).

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4
Q

Pension adjustments, unrealized gains/losses on available-for-sale securities, and ______ are reported in AOCI.

A

Foreign currency translation adjustments

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5
Q

How are total cash proceeds from a bond issuance calculated?

A
  1. Bond Issue Price: Face Value × Issue Price (% of face).
  2. Accrued Interest: Face Value × Coupon Rate × Time Since Last Interest Payment (as a fraction of the year).
  3. Add the two together for total proceeds.
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6
Q

Accrued interest on bonds is calculated as ______ × ______ × ______.

A

Accrued interest on bonds is calculated as Face Value × Coupon Rate × Fraction of the Year Since the Last Interest Payment.

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7
Q

Define “issue price” of a bond.

A

The issue price of a bond is the percentage of the bond’s face value at which it is sold (e.g., 99% of face value means the bond is issued at a discount or 101% of face value means it was sold at a premium)

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8
Q

How is the adjustment to depreciation calculated in an intercompany sale of equipment?

A

The depreciation adjustment is calculated by comparing:

1.The depreciation calculated by the buyer based on the intercompany sale price and its useful life.

  1. The depreciation that would have been calculated by the seller if it had kept the equipment.

The difference is the amount the depreciation expense should be decreased by in the consolidation worksheet.

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9
Q

In an intercompany transaction, depreciation expense should be adjusted based on the difference between the buyer’s depreciation and the seller’s depreciation, which is calculated as ______.

A

The difference in asset values divided by the buyer’s depreciation period

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10
Q

When should capitalized equipment be depreciated by the lessee?

A

Capitalized equipment should be depreciated using the lessee’s policy, not exceeding the estimated useful life, if the lease:

  1. Transfers ownership.
  2. Contains a purchase option.
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11
Q

If a lease transfers ownership or contains a purchase option, capitalized equipment should be depreciated in accordance with the ______.

A

lessee’s normal depreciation policy

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12
Q

How is depreciation calculated using the double-declining balance method?

A

The double-declining balance method applies a factor of 2/n (where n is the asset’s useful life) to the adjusted cost each year.

Salvage value is not included in the formula but should be manually ensured to prevent the asset value from falling below it.

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13
Q

The formula for double-declining balance depreciation is:

A

Depreciation Expense = (2 / n) × Book Value at Beginning of Year

Where:

n = Useful life of the asset.

Book Value at Beginning of Year = Asset cost minus accumulated depreciation from previous years.

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14
Q

How should an enterprise fund account for fixed assets?

A

An enterprise fund accounts for fixed assets in a manner similar to a for-profit organization, using accrual basis accounting.

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15
Q

A special revenue fund is used to account for revenues and taxes dedicated to ______.

A

specific activities of the government.

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16
Q

Define “capital projects fund.”

A

A capital projects fund is used to account for the acquisition or construction of major capital assets, except those financed by an enterprise fund.

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17
Q

How are purchases and sales of available-for-sale securities classified in the cash flow statement?

A

Investing activities in the cash flow statement.

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18
Q

Treasury bills classified as cash equivalents are part of the overall ______ on the balance sheet and are ______ included in cash flows from operations, investing, or financing.

A

Cash equivalents, Not

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19
Q

How is amortization handled with the straight-line method for a discount bond?

A

Amortization is equal each period, and the journal entries remain the same each year.

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20
Q

For a bond issued at a discount, interest expense is calculated as ______ plus the amortization of the discount.

A

Interest payable

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21
Q

What are the journal entries for a bond issued at a discount using the straight-line method?

A

D; Interest Expense (for the total expense including discount amortization).

Cr: Interest Payable (for the fixed interest payment).

Cr: Amortization of Discount (to reduce the discount over time).

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22
Q

How is interest payable calculated for a bond?

A

Face Value × Coupon Rate

This is the fixed interest payment due each period.

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23
Q

How is interest expense calculated for a bond issued at a discount?

A

Interest Payable (fixed coupon payment) + Amortization of Discount.

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24
Q

How is the amortization of a bond discount calculated?

A

Total Discount ÷ Number of Periods.

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25
How is the total discount on a bond calculated?
Total Discount = Face Value − Issue Price.
26
How should short-term debt expected to be refinanced be classified?
As long-term to the extent sufficient support exists for the refinancing.
27
How are unrecognized prior service cost and unrecognized net gains or losses reported under U.S. GAAP?
Reported in accumulated other comprehensive income (OCI), net of tax, until recognized as part of pension expense through amortization.
28
How is the sales tax payable liability calculated based on activity in the account?
Beginning balance + Increase from sales tax collected − Amount paid during the year.
29
What information should be disclosed in the summary of significant accounting policies?
Basis of presentation (e.g., accrual or cash basis). Accounting principles (e.g., revenue recognition, inventory valuation). Depreciation methods used. Amortization policies for intangible assets. Criteria for consolidating subsidiaries. Other significant accounting policies relevant to the financial statements.
30
Why is the summary of significant accounting policies important?
Provides transparency and helps users of financial statements understand the methods and assumptions used by the company in preparing its financial statements.
31
What should the effective income tax rate for operations reflect?
Anticipated foreign tax rates. Available tax planning alternatives. Tax credits (e.g., foreign tax credits). Capital gains rates.
32
Why should the effective income tax rate consider foreign tax rates and tax credits?
The effective income tax rate should consider these factors to more accurately reflect the tax impact of international operations and available tax-saving opportunities.
33
______ in current assets are added back to net income.
Decreases, because the company converted current assets (AR, Inventory, Prepaid expenses) to cash creating cash inflow.
34
______ in current liabilities are added back to net income.
Increases, because the company delayed liability payments, thus conserving cash, creating cash inflow.
35
Gains are _____ from net income to determine net cash from operating activities.
Subtracted, because it does not directly have anything to do with the core operating business operations.
36
Losses are _____ from net income to determine net cash from operating activities.
Added, because it does not directly have anything to do with the core operating business operations.
37
How would a 5% stock dividend affect Assets, SE, and Retained Earnings?
No effect on Assets and SE because when a stock dividend is declared, Retained Earnings decrease and capital stock and APIC are affected. These accounts are already located within SE.
38
Based on the current expected credit losses (CECL) model for held-to-maturity debt securities, a loss is recorded when...
The amortized cost exceeds the present value of the principal and interested expected to be collected.
39
Annuity due
Payment begins at the beginning of each period.
40
Ordinary annuity due
Payment begins at the end of each period.
41
The balance in accumulated other comprehensive income from one period to the next will change as a result of changes in:
Other comprehensive income only.
42
Shipping costs incurred by a consignor on transfer of goods to a consignee should be considered as:
Inventory cost to the consignor (seller). The seller still holds title to the goods, therefore should still be included in the seller's inventory until it is expensed to the buyer.
43
A conditional promise to give is _______ as revenue until all of the pertinent conditions are met.
not recognized
44
Governmental Funds: Generally Special Debt Capitalize Permanently
General Funds Special Revenue Funds Debt Service Funds Capital Projects Funds Permanent Funds
45
Proprietary Funds: Internal Enterprise
Internal Service Funds Enterpise Funds
46
Fiduciary Funds: Custodial Investors Privately Pension
Custodial Funds Investment Trust Funds Private Purpose Trust Funds Pension & Other Employee Benefit Trust
47
Significant estimates should be disclosed when it is _____ that the estimate will change in the near term and that the effect of the change will be material.
Reasonably possible
48
Statement of Cash Flows: Cash proceeds from sale of investment
Investing activities
49
Statement of Cash Flows: Dividends received
Operating activities
50
Statement of Cash Flows: Common stock purchased
Investing activities
51
Which method of recording credit loss expense is consistent with accrual accounting?
Allowance
52
Is the direct write-off method consistent with accrual accounting?
No, because it violates the matching principle used by the current expected credit loss (CECL) method
53
No _____ would be recognized for conditional promises to give.
Revenue
54
The development costs of a new product idea are ______.
Not capitalized, but expensed as incurred
55
The costs incurred to successfully defend the patent are ______.
Capitalized
56
The legal costs of applying for a patent license are _____.
Capitalized
57
The costs incurred to un successfully defend the patent are _____.
Not capitalized, but expensed as incurred
58
Product Costs
Raw materials, direct labor, factory overhead.
59
Period costs
Costs expensed in the period incurred (e.g., selling, general, and administrative expenses).
60
What triggers a credit loss for a held-to-maturity (HTM) debt security under the CECL model?
When the amortized cost exceeds the present value of expected principal and interest collections.
61
What amounts are not relevant when calculating credit losses for HTM debt securities?
Original cost and current fair value.
62
How is the credit loss for an HTM security calculated under the CECL model?
Amortized cost - Present value of expected cash flows.
63
If the amortized cost is between the fair value and present value, what must be true?
Amortized cost is higher than present value, meaning a credit loss is recorded.
64
When a lease is capitalized because of transfer of title or written purchase option, amortization is based on the _____.
Life of the asset, not the lease.
65
When an available-for-sale debt security has a fair value that is below amortized cost, the asset must be written down to the lower fair value by _____.
Recording a credit loss that is recognized on the income statement.
66
Return on Equity
Net Income (After Taxes)/Average Equity
67
How is capitalized interest determined?
It is the smaller of total interest incurred and avoidable interest.
68
What formula is used to calculate the weighted amount for each expenditure?
Expenditure × (Months outstanding / 12)
69
Where is the Unrealized loss on available-for-sale equity security captured?
In Net Income
70
Unrealized gains and losses for equity securities (like stocks) are reported in...
Net Income
71
GAAP requires that start-up costs, including organizational costs, be...
Expensed as incurred
72
Which classifications are required for reporting of expenses by all not-for-profit organizations?
Functional classification in the statement of activities and natural classification analyzed by function in the notes to the financial statements.
73
A change in estimate is handled _____.
Prospectively
74
How should a nongovernmental, not-for-profit organization report amounts paid for interest in a statement of cash flows prepared using the indirect method?
As a supplemental disclosure of cash flow information because interest payments are not presented as a separate line
75
Contingent shares (that are dilutive) are ____ in the calculation of basic earnings per share (EPS).
Included, if all conditions for issuance are met.
76
Once donated materials and supplies are consumed in an NFP, they become ____.
Expenses
77
If COGS is overstated, net income must be ____.
Understated
78
What journal entries should the company record on the declaration date of dividends?
D: Retained Earnings CR: Dividends Payable
79
Tangible net worth
Total stockholders' equity less intangible assets.
80
When is profit recognized under the COMPLETED CONTRACT METHOD?
The entire amount at the end of the contract.
81
How do you calculate the effective tax rate?
First, compute the taxable income multiplied by the enacted tax rate to get Income Tax expense. Then, Income Tax Expense divided Pretax Income = Effective Tax Rate
82
What is a common modification used to prepare the modified cash basis FS?
Capitalizing inventory
83
Quick Ratio
Cash + Net A/R + Marketable Securities / Current Liabilities
84
Under the lower of cost or market method, how do you determine the market value?
Market value is the middle of (highest to lowest): Replacement Cost NRV NRV Less Normal Profit Margin
85
When should a nonprofit recognize contribution revenue?
When a donor makes an unconditional promise to give.
86
When should a nonprofit recognize a liability instead of revenue?
When the contribution has donor-imposed conditions that have not been met.
87
How do restrictions differ from conditions in NFP accounting?
Restrictions affect how funds are used but don’t prevent revenue recognition. Conditions must be met before revenue is recognized.
88
How do you classify a lease as a finance lease?
💡 If it meets at least one of the following: 1️⃣ Ownership transfers at the end 2️⃣ Written purchase option (reasonably certain to exercise) 3️⃣ Lease term ≥ 75% of asset’s useful life 4️⃣ PV of lease payments ≥ 90% of asset’s fair value 5️⃣ The asset is specialized with no alternative use
89
How do you calculate Basic EPS?
Net Income - Preferred Dividends ÷ Weighted Avg. Shares Outstanding
90
How do you calculate Noncontrolling Interest (NCI) at Year-End?
Beginning NCI + NCI share of net income - NCI share of dividends
91
What is eliminated in intercompany transactions?
100% of: Intercompany sales and COGS Intercompany payables/receivables Intercompany profits on unsold inventory
92
How is Goodwill calculated under Acquisition Accounting?
Goodwill = Consideration Transferred + FV of NCI - FV of Net Assets Acquired
93
Journal entry for an operating lease payment by lessee
Dr. Lease Liability Dr. Lease Expense Cr. Cash
94
Journal entry for a finance lease interest and amortization expense
Dr. Interest Expense Dr. Lease Liability Cr. Cash
95
General Fund
Purpose: The primary operating fund used to account for all activities not required to be accounted for in another fund. Use for: Day-to-day operations like public safety, education, and public health.
96
Special Revenue Fund
Purpose: Used to account for specific revenues that are legally restricted or committed to expenditure for a particular purpose. Use for: Projects funded by specific taxes or grants, like road repairs or health programs.
97
Capital Projects Fund
Purpose: Used to account for financial resources used for the acquisition or construction of major capital assets like infrastructure or buildings. Use for: Major long-term investments such as building schools or constructing bridges.
98
Debt Service Fund
Purpose: Used to account for the accumulation of resources for the payment of long-term debt principal and interest. Use for: Paying off governmental bonds or other long-term liabilities.
99
Permanent Fund
Purpose: Used to account for resources that are restricted to the extent that only earnings (not principal) can be used for governmental purposes. Use for: Endowments, where the principal must be preserved and only the earnings can be spent (e.g., a scholarship fund).
100
Enterprise Fund
Purpose: Used to account for activities where services are provided to the public for a fee (e.g., public utilities, transportation). Use for: Services like water, sewer, electric, or transportation systems.
101
Internal Service Fund
Purpose: Used for government services provided to other governmental departments or agencies on a cost-reimbursement basis. Use for: Services like printing, fleet maintenance, or IT support for other departments.
102
Pension Trust Fund
Purpose: Used to account for resources held in trust for pension benefits to government employees. Use for: Paying pensions to retired employees.
103
Investment Trust Fund
Purpose: Used to account for external investments made by other governments (often pooled funds for local governments). Use for: Investments made by one government on behalf of others, such as pension funds.
104
Private-Purpose Trust Fund
Purpose: Used to account for resources held in trust for individuals, private organizations, or other governments. Use for: Specific trusts where the government holds assets for individuals, such as a scholarship fund or a burial trust.
105
Agency Fund
Purpose: Used to account for resources held by the government as an agent for others. Use for: Collecting and distributing funds for others, like taxes withheld for another jurisdiction or a bail bond fund.
106
Contribution revenue is ____ in the year the pledge is made.
Recognized
107
Discount or premium on the sale of bonds as well as the _____ are included in the carrying value of the bonds on the balance sheet.
Bond issuance costs
108
When calculating amortization expense for an intangible asset, which value is used? Recorded value or Fair Value?
Recorded Value less any residual value
109
Financial statements for NFPs report expenses by:
Functional and Natural Classifications
110
Donor-imposed restrictions that are met in the same period they are received may be recorded as
support (contribution revenue) without donor restrictions

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