FAR 2

Question 1

the budgetary control account of a governmental-type fund is increased when

Answer 1

appropriations are recorded

Question 2

rowe inc. owns 80% of cowan co.’s outstanding capital stock. on nov. 1 rowe, advanced $100,000 in cash to cowan. what amount should be reported related to the advance in rowe’s consolidation balance sheet as of dec. 31?

Answer 2

$0
all intercompany transactions (loans, advances, etc.) should be eliminated upon consolidation. percentage of ownership is irrelevant.

Question 3

the tax collection fund of geaty county accounts for receipts of taxes levied and collected on behalf of cities and districts within its borders. state laws allow the county to withhold a fee from the collections made on behalf of each city and district for this administrative service. the county’s tax collection fund would account for the fee as

Answer 3

additions

to record fees for tax collections:

cash XX
additions–fees XX

Question 4

on jan 1, Y1 alpha co. signed an annual maintenance agreement with a software provider for $15,000 & the maintenance period begins on mar 1, Y1. alpha also incurred $5,000 of costs on jan 1, y1 related to software modification requests that will increase functionality of the software. alpha depreciates and amortizes its comp and software assets over 5yrs using straight line method. what amount is the total expense that alpha should recognize related to the maintenance agreement and software modifications for the year ended 12/31/y1

Answer 4

$13,500

software maintenance costs are expensed and the software modification costs are capitalized and amortized using the SL method over 5 years

15,000 / 12 = 1,250 per month x 10 months

+ 1,000 amortization exp (5,000 / 5yrs)

Question 5

which of the following costs is unique to postretirement health care benefits

Answer 5

per capita claims

Question 6

park co.’s wholly owned sub, schnell co. maintains its accounting records in euros. because all of schnell’s branch offices are in Switzerland, its functional currency is the swiss franc. remeasurement of schnell’s year 4 financial statement resulted in a $7,600 gain and translations of its financial statements resulted in an $8,100 gain. what amount should park report as a foreign exchange gain in its income statement for the year ended 12/31/y4

Answer 6

$7,600 gain from remeasurement

rule: translations adjustments are not included in determining net income for the period but are disclosed and accumulated as a component of OCI in consolidated equity until disposed of.

gains and losses from remeasuring the foreign sub’s fin. statements from the local currency to the functional currency should be included in income from cont. ops. of the parent company

Question 7

which form is used for major corporate events, such as acquisitions

Answer 7

Form 8-K

Question 8

hann school, a nongovernmental not-for-profit org, spent $1 million of cash with donor restrictions to acquire land and building in a manner consistent with the donor’s stipulations. how should this be reported in the statement of activities

Answer 8

increase in net assets without donor restrictions

Question 9

which of the following situations would require that the seller recognize revenue over time rather than at a point in time

Answer 9

benefits are received by the buyer as the seller performs

Question 10

how would the declaration of a 15% stock dividend by a corporation affect retained earnings and total stockholder’s equity

Answer 10

retained earnings = decrease

total stockholder’s equity = no effect

Question 11

which of the following should be disclosed in the footnotes to the financial statements

Answer 11

information about changes in stockholder’s equity

Question 12

the premium on a 3-year insurance policy expiring on Dec. 31 Year 3 was paid in total on Jan 2 Year 1. if the company has a six-month operating cycle, then on Dec 31, Y1, the prepaid insurance reported as a current asset would be for

Answer 12

12 months

Question 13

which of the following funds of a governmental unit uses the modified accrual basis of accounting

Answer 13

special revenue funds

Question 14

on january 1 year 2 oak co. issued 400 of its 8%, $10,000 bonds at 97 plus accrued interest. the bonds are dated oct 1, year 1 and mature on October 1, year 11. interest is payable semiannually on april 1 and oct 1. accrued interest for the period oct 1 year 1 to jan 1 year 2 amounted to $8,000. on jan 1 year 2 what amount should oak report as bonds payable, net of discount?

Answer 14

$388,000

400,000 x 97% = 388,000

Question 15

which of the following statements are required to be presented for special purpose governments engaged only in business-type activities (such as utilities)

Answer 15

the financial statements required for enterprise funds, including MD&A and RSI

MD&A = management’s discussion and analysis

RSI = required supplementary info.

Question 16

a balance arising from the translation or remeasurement of a sub’s foreign currency financial statements is reported in the consolidated income statement when the sub’s functional currency is the

Answer 16

reporting currency, NOT the foreign currency

Question 17

financial statement required of both defined pension plans and defined contribution plans

Answer 17

statement of changes in net assets available for benefits

Question 18

which of the following would be the best way to determine whether the fair value of its investment is properly stated in the balance sheet

Answer 18

quoted market prices on a stock exchange for an identical asset

Question 19

on January 2 year 1 nast co. issued 8% bonds with a face amount of $1,000,000 that mature on jan 2 year 7. the bonds were issued to yield 12% resulting in a discount of $150,000. nast incorrectly used the straight line method instead of the effective interest method to amortize the discount. how is the carrying amount of the bonds affected by the error

Answer 19

at December 31 year 1 they are UNDERSTATED and at January 2 year 7 they are OVERSTATED

Question 20

how much expense should be recorded for donated/volunteered services/contributed services

Answer 20

$0

Question 21

what category would be used to classify cash receipts from property taxes in an enterprise fund statement of cash flows

Answer 21

noncapital financing activities

Question 22

water owns 80% of the outstanding common stock of fire. on dec 31 year 1 fire sold equipment to water at a price in excess of fires carrying amount, but less than its original cost. on a consolidated balance sheet at dec 31 year 1, the carrying amount of the equipment should be reported at

Answer 22

water’s original cost less fire’s recorded gain

Question 23

when do you book a transaction as a financing arrangement

Answer 23

when the repurchase price is equal to or greater than the original sale price and the expected market value

Question 24

a loss is only recorded under a purchase commitment when

Answer 24

the purchaser is obligated to purchase a fixed number of units

Question 25

when a capital lease of a governmental unit represents the acquisition of a general fixed asset, the acquisition should be reflected in fund financial statements as

Answer 25

both an expenditure and an other financing source

Question 26

assuming that no direct costs are involved, what are the components of the lease receivable for a lessor involved in a direct-financing lease

Answer 26

the minimum lease payments PLUS residual value

Question 27

farmer joe is trying to determine the fair value of his corn inventory. which of the following would be considered a level 3 input in this process?

Answer 27

the discount rate farmer joe uses in determining the discounted cash flow value of his corn inventory

level 3 = an assumed discount rate (unobservable)

Question 28

which of the following items is recognized for governmental activities in the government-wide statement of activities and not the statement of revenues, expenditures, and changes in fund balance for governmental revenue

Answer 28

property tax revenue for an amount deferred because it was not available

Question 29

miro began business on 1/2/y1. miro used the double-declining balance method of depreciation for financial statement purposes for its building and the SL method for income taxes. this was the only difference between tax and financial statement accounting. on 1/16/y3 mire switched from the SL method for financial statement and tax purposes. miros tax rate is 40%

Answer 29

there should be no increase in miro’s deferred tax asset

Question 30

on 4/1/y2 hill corp. issued 200 of its $1,000 face value bonds at 101 plus accrued interest. the bonds were dated 11/1/y1 and bear interest at an annual rate of 9% payable semiannually on 11/1 and 5/1 . what amount did hill receive from the bond issuance?

Answer 30

$209,500

(200 bonds x $1,000 x 101%) = 202,000

($200,000 x 9% x 5/12)= $7,500

202,000+7,500=209,500

Question 31

roth inc received from a customer a one-year $500,000 note bearing annual interest of 8%. after holding the note for 6 months, roth discounted the note at regional bank at an effective rate of 10%. what amount of cash did roth receive from the bank?

Answer 31

$513,000

face value $500,000
int rate x 8%
interest = 40,000

maturity value (500,000+40,000) 
= 540,000

bank disc = 10% x 1/2 yr = 5%
540,000 x 5%
= (27,000)

540,000 - 27,000
= $513,000

Question 32

state university assessed its students’ tuition and fees totaling $50,000,000 for the year ended June 30. however, its net cash collections were only $42,000,000 as a result of the following reductions:

scholarship/tuition remissions/fellowship- $6,500,000
tuition refunds - 1,500,000

in this situation, revenue without donor restrictions from tuition and fees for the year ended june 30 for state university would be

Answer 32

$48,500,000

refunds of tuition reduce tuition revenue

total 50,000,000
refunds (1,500,000)
=48,500,000