FAR 2

Question 1

A change in method of depreciation is considered to be __________ and should be accounted for as _____________.

Answer 1

a. a change in method and a change in estimate.
b. changes in estimate and handled prospectively. The new depreciation method should be used as of the beginning of the year change and should start with the current book value of the underlying asset. Therefore, no retrospective or retroactive calculations should be made.

Question 2

A change in accounting estimate should be accounted for _______________.

Answer 2

In the period of change and future periods if the change affects both.

Question 3

What is the earliest period that a component of an entity can be reported in discontinued operations?

Answer 3

When the component meets the “held for sale” criteria.

Question 4

Losses on nonmonetary transactions must be ________________.

Answer 4

Recognized in full.

Question 5

Research and Development costs, which are reimburseable should be _________________ as opposed to ____________.

Answer 5

Capitalized; expensed.

Question 6

Patent costs should be capitalized or expensed?

Answer 6

Capitalized.

Question 7

Research and development costs are expensed as incurred under U.S. GAAP except if for:

Answer 7

1. Costs to be reimbursed by another company.

2. Costs for a long lived tangible asset with alternate uses.

Question 8

What is the Equity method of accounting formula with regards to joint ventures?

Answer 8

B-Beginning Investment
A-Add Sub Income
S-Subtract Sub Dividends/Withdrawals
E-Ending Investment

Question 9

How should stock dividends in common stock be accounted for?

Answer 9

By reallocating the investment account balance (either by cost or equity method) over more shares so that the value per share decreases.

Question 10

GAAP addresses which three aspects of financial reporting?

Answer 10

1. Recognition
2. Measurement
3. Disclosure

Question 11

FASB has what mission?

Answer 11

to improve the usefulness of financial reporting, address deficiencies, and promote international convergence.

Question 12

What are the 6 steps in the Standard Setting Process for FASB?

Answer 12

1. A project gets added to the agenda
2. Research is conducted and a discussion memorandum is issued
3. Public meetings are held on the topic
4. Research is evaluated and then an Exposure draft is issued
5. Additional comments are solicited and the exposure draft is modified if needed
6. New accounting guidance is finalized by majority vote (4 of 7), if approved the Accounting Standard Update is issued.

Question 13

SEC was formed by whom and when?

Answer 13

By congress in the 1933 Act.

Question 14

How is inventory measured under GAAP and IFRS different?

Answer 14

Under U.S. GAAP, inventory is valued at the lower of cost or market. Under IFRS, inventory is valued at the lower of cost or net realizable value. Net realizable value is equal to the net selling price less the costs to complete and dispose, which is equivalent to the market ceiling under U.S. GAAP.