FAR 2

Question 1

How does management evaluate going concern

Answer 1

An entity cannot continue as a going concern if:

• substantial doubt exists and that it is probable that the company cannot meet its obligation within one year of the date the financial statements are issued.
• steps must be taken to solve mitigating factors that may prevent a company from continuing as a going concern. We should consider whether it is probable that the plans will be implemented effectively and whether it is probable that the plans will be successful.
• If the doubt is alleviated, entity is fine and should be evaluated under the going concern basis but footnote disclosures are required. If doubt is not alleviated, entity will be under going concern basis but the footnote disclousre will state that there is substantial doubt.

Question 2

Subsequent Events recognition

Answer 2

Recognized subsequent events provide additional info about conditions that existed at the balance sheet date.

Question 3

Principal Markets

Answer 3

The principal market is the market with the greatest volume of activity for the asset or liability. The price in that market will be the FV even if there is a better price available.

Question 4

No Principal Market

Answer 4

Determined by most advantageous market which will be the selling price - transaction costs and the highest is the market you choose. The FV measurement does not include transaction costs only selling price of most advantageous market.

Question 5

Market, Income, and Cost Approach

Answer 5

Income Approach: converts future amounts to a single discounted amount to measure FV.
Market Approach: Uses prices and other relevant info from market transactions involving identical or comparable assets to measure FV.
Cost Approach: Uses replacement cost to measure FV.

Question 6

Level 1,2,3 Inputs

Answer 6

Level 1: quoted prices of identical assets in the market
Level 2: quoted prices of similar assets in the market
Level 3: unobservable inputs for the asset, (best info available)

Question 7

Segment Reporting tests

Answer 7

• 10% of all sales (external & intersegment)
• 10% of total assets
• If the total % of operating segments is less than 75% than more operating segments need to be identified

Question 8

11-K, 20-F, 40-F, 6-K, 8-K, Forms 3,4,5

Answer 8

11-K: annual report of employee benefit plan
20-F: filed annually by foreign companies
40-F: filed annually by Canadian companies
6-K: filed semiannually by foreign companies
8-K:report major corporate events
Forms 3,4,5: required to be filed by directors and officers who own more than 10% of the company.

Question 9

Regulation S-X

Answer 9

Requirements SEC creates for interim and annual reporting.

Question 10

Bonus Method (explain how to solve a problem)

Answer 10

add up the new total capital balance to find new total. Multiple the percent interest in partnership of new partner by the total amount in the partnership. If they paid to much, allocate proportionally to existing partners the difference as a bonus. If they paid to little, take the bonus proportionally out of the existing partners accounts

Ex: new partner contribs $30K for 25%, existing partners have $45K and $25K

1. (45+25+30)=100*.25= $25K
2. 30-25=5 ($5K distributed as bonus to original partners)

Question 11

Goodwill method (explain)

Answer 11

Multiply the dollar amount the new partner is contributing by the % of the partnership they are receiving. This is the basis of what the partnership is worth at that moment in time. Now add the total capital accounts of all partners and goodwill equals the new basis- total $ in capital account.

Ex: new partner contributes $30K for 25%, existing partners have $45K & $25K.
New basis= 30/0.25= 120
Total cap accts= 45+25+30= 100
GW=20 (120-100)