FAR 2

Question 1

Fair value Hierarchy. LOWEST LEVEL SIGNIFICANT INPUT. INSTRUMENT BY INSTRUMENT BASIS. CHANGE IN ESTIMATE. База для сравнения за вычетом transactions cost, но fair value INCLUDING transactions cost

Answer 1

Level 1 Active and Identical
Level 2 Similar in active /or identical in not active
Level 3 Non observable Entities assumption

Question 2

Valuation techniques:

Answer 2

Market approach - market transactions
Income approach - future value
Cost approach - replacement

Question 3

FAIR VALUE - EXIT PRICE, NOT ENTER ORICE
Available for sale security - Market price. Investing infliw. Fair value. Level 1
If hold to maturity securities - You buy. Investing outflow. Amortized cost. Fair value not applicable.
Derivatives (forwards, futures, options,swaps) -market value at BS date. Gain/loss go to income statement.

Answer 3

Goodwiill- Historical cost
Cash and cash- equivalent maturity date less than 3 months of date of purchase
Bonds bought at pair value - no discount or premium, held to maturity. Report on pair value, at what it was bought

Question 4

Segment sales. What to report?

Answer 4

Step 1. Do 10% test. Revenue incl ALL, profit/loss different columns (keep profit and lost separate, which one is greater, take 10%, don’t count loss), assets.
Step 2. All reportable segments from step 1 check for reporting sufficientsy (75% or external segments, if not enough reportable segments from step1, add additional biggest segments one by one till 75% achieved).

Question 5

SEC reporting

US- Need to present 2BS and 3 Income statement, change equity and CF
IFRS 2 BS, 2 Comprehensive income, change of eq and CF
XBRL links doesn’t required for forms 3,4,5, MD&A

Answer 5

10k Annual US registered companies, annually Audited FS, Notes, MD&A
10Q Quoterly US registered, unaudited review FS, MD&A,
11k employee benefit plan, Annual
20F-Non Us 10k & 40F Canadian 10 K
6K-semiannual by foreign private isduers
1S -initial registration

8k major events
Form 3,4,5 filed by officers 10% of equity

Question 6

Convert cash to accrual basis:

Answer 6

REVENUE
Cash revenue
+Ending AR (not collected cash)
-Beginning AR (collected cash)
-Ending unearthed revenue (cash collected but not earned)
+Beginning unearthed revenue( cash collected in prior period earned current period)
_——————————————-
Accrual basis revenue

COGS
Cash paid
+Ending AP (Expenses incurred but not paid yet)
-Beginning AP (expenses of prior period paid in current period)
-Ending inventory (Purchased in current period not yet sold)
+Beginning inventory Purchased in prior period sold in current period)
———————————-
COGS

Operating expenses
Cash paid for operating expenses
+Ending accrued liabilities (incurred in period but not paid yet)
-Beginning accrued liabilities (incurred prior, paid current)
-Ending prepaid expenses( paid in current, benefit future)
+Beginning prepaid expenses (paid in prior period, benefit current)
————————
Accrual basis operating expenses

Question 7

Cash basis revenue from accrued revenue:

Answer 7

Plus unearthed fee

Plus ( Accrued revenue minus AR ending)

Question 8

To convert expenses from cash to accrual bases:

Answer 8

Cash
Plus beginning prepaid expense (incurred now, paid last year
Minus ending prepaid expense (cash paid now, incurred next year)
Plus ending accrued expense (this year expense paid next year)
Minus beginning balance accrued expense (expensed last year, will be paid in cash this year)

Question 9

Remember when converting to cash basis accounting/payments:

Answer 9

DR Operating Expenses
CR Accrued Liabilities

-Minus If Accrued liabilities increase, means were not paid
+Plus increase in prepaid expense Paid not yet incurred

Question 10

Rental revenue under accrual basis

Answer 10

Rent receivable begin
Plus Accrued rev
Minus cash revenue
Minus write offs

Question 11

Cash basis to accrual basis

Answer 11

Company has goods cost 12k left in warehouse at year end. It was not paid for. On cash basis purchases are not recorded till invoiced is paid.

Inventory 12k
Accounts Payable 12k

And company owes 2k for prior sold shipment adj JE:
COGS 2K
AP 2k

Question 12

Remember to include in JE adjustment calculation

Answer 12

ALL ADJUSTMENTS MADE BEFORE THE CURRENT QUESTION

Question 13

Ratios

Answer 13

Operating cash flow = Cash from operations/Current liabilities

Return on Equity= Net income/Avg Total Equity
Return on Assets=Net Income/Avg Assets
Return on Dales=EBIT exclude interest income/Sales
Working capital turnover=Sales/Avg working capital

Question 14

Partnership

Answer 14

Additional paid in capital:

Fair value - liabilities - par value common stock

Question 15

Partnersip liquidation

Answer 15

1. Sell other assets for cash not counting other cash
2. Use this cash to pay AP
3. If other assets were sold for loss, allocate this loss to partners in proportion
4. Offset partners loss against his capital account
5. Distribute remaining cash to partners

Question 16

Partner retired from partnership. His settlement based on new goodwill plus carting amount of other net assets. Capital accounts of other partners were decreased. In Accounting partners withdrawal partnership could use

Answer 16

Bonus method Yes. It increases individual partner accounts without changing total net assets. Goodwill method changes net assets as well

Question 17

Calculate the amount of paid Expenses:

Answer 17

Beginning balance MINUS increase in accrued liabilities (expenses incurred but not paid), PLUS increase in prepaid Expenses

Question 18

Loss for discontinued operations calculate starting from beginning of the calendar year.

Answer 18

THE DATE WHEN DECISION TO SELL DOESNT MATTER

Question 19

From CASH TO ACCRUAL BASIS

Answer 19

• Less AP in the end of the year is GOOD (PLUS to cash)
• More AP in the end of the year is BAD (MINUS from cash)
• Increase in Unearned revenue by the end of year MUNUS
• More prepaid rent in the end of the year (Minus difference from cash beginning balance)
• Less AR in the end of the year - BAD. Substract from beginning cash balance

Question 20

Calculate cash distribution to partners after liquidation

Answer 20

1. Sell assets for cash
2. Pay AP
3. Cash on hand= adjusted capital balances
4. Allocate loss of sale of assets according to basis %
5. Offset loan according partner accounts
6. Sum if Capital account minus loan minus loss s/b equal to cash after assets sold

Question 21

Financing arrangement if

Answer 21

Repurchase price is more than purchase price and expected market value

Question 22

Company change LIFO to weighted average. Balances for the 3 years given. What s/b reported as cumulative change in accounting principle?

Answer 22

The cumulative effect of change in accounting principle is determined as of the beginning of the year of change if comparative financial statements are not presented. In this case, the year of change is Year 4, so the cumulative effect is the difference in inventory as of the end of Year 3.

Question 23

Variable interest Entity test

Answer 23

1. You have a variable interest
2. In V.I.E. they lack basic equity items (owners put money, make decision, get profit)
3. You are the primary beneficiary.

Question 24

Rental revenue from cash to accrual

Answer 24

Beginning AR
\+X
-Cash collected (Cash Rev)
-Write Off
---------------------------------
AR end

Question 25

Uncollectible accounts expense

Answer 25

Allowance for uncollectible accounts:

Beginning balance

30,000

Uncollectible accounts written off

(18,000)

Written off accounts now collectible

2,000

Uncollectible accounts expense

?

Year end balance

25,000

Question 26

Note amount $500,000,rate 8%, 1 year. After 6 months note was discounted to the bank

Answer 26

Cash received from the bank:

1. $500K*8%=$40K interest per year
2. Maturity value of the note $540
3. Discount rate 10%*1/2=5%
4. $540K*5%=$27k to the bank
5. Cash received= Maturity value-discount

Question 27

Impairment loss is if undiscounted CF is less then Caring Value

Answer 27

Caring amount-FV amount