FAR Flashcards
TF: Completeness is an ingredient of relevance
False; faithful representation; others include neutrality and freedom of error
_____ and gains are realized when assets are exchanged for cash or claims to cash
Revenues
What are the enhancing qualitative characteristics?
Timeliness, understandability, comparability, and verifiability
TF: Managerial accounting need not follow generally accepted accounting principles (GAAP) while financial accounting must follow them.
True
To be relevant, information should have ____ value and/or ____ value and be material
predictive; confirming
What are the fundamental qualitative characteristics?
Relevance and faithful representation
Going concern and ____ ____ are the two underlying assumptions of financial statement preparation and presentation
accrual accounting
TF: Changing from cash basis accounting to accrual accounting results in prior period adjustment resulting from the correction of an error
True; cash basis accounting is not a generally accepted accounting basis
TF: Benefits related to voluntary employee termination is an exit and disposal activity
False; costs to relocate employees is
TF: A change from direct recognition to the installment method is a change in accounting principle ONLY
False; it’s a change in accounting principle INSEPARABLE FROM A CHANGE IN ACCOUNTING ESTIMATE
_____ _____ does not include all changes in equity resulting from investments by owners and distributions to owners
comprehensive income
____ ____ ____ _____ is a balance sheet account and is reported in the statement of financial position
accumulated other comprehensive income (AOCI)
TF: Information presented in notes to the financial statements have the purpose of providing disclosures required by generally accepted accounting principles
True
Under ____, loans to officers and key management compensation would require disclosure
IFRS; under GAAP only loans to officers require disclosure
TF: Segment cash flow is reported under IFRS (or U.S. GAAP).
NOT reported
TF: On the opening IFRS balance sheet, inventory must be reported at the lower of cost or net realizable value
True; do NOT use FV
TF: MD&A is required to be presented in an exhibit prepared using XBRL when submitting Form 10-K
False
TF: The franchisor should not report revenue from initial franchise fees when all material conditions of the sale have been “substantially performed.”
False; they SHOULD
TF: Under U.S. GAAP, subsequent reversal of intangible asset impairment losses is prohibited unless the intangible asset is held for sale.
True
TF: Goodwill is recognized in the balance sheet when it has been created from a business acquisition.
True
TF: Equipment used in research and development activities that has alternative future uses is capitalized and depreciated over the term of the R&D project.
False; capitalized and depreciated over its useful life.
What is the equation for gross profit?
Sale - COGS
What is the gross profit % equation?
GP/Sales price
What is the earned GP equation?
Cash collections*gross profit percentage
Deferred gross profit equals
installment receivable* gross profit percentage
TF: Deferred GP is a contra asset
True
TF: Under IFRS, unrealized G/L on foreign exchange debt securities are included in OCI
False; NOT included; ONLY for equity securities
TF: You should report an increase in the investment account under the cost method or the equity method of accounting when receiving a cash dividend
False; dividend is recorded as income under the cost method; dividend is a decrease in the investment account under the equity method
____ _____ is the difference between total assets and total liabilities after deducting estimated income taxes on the difference between the estimated values of assets and liabilities and their tax bases
Net worth
TF: Treasury bills are considered an outflow in the financing activities
False; T-bills are a cash equivalent in the operating activities; other examples include: commercial paper, money market funds, and federal funds sold (for an enterprise with banking operations).
TF: Incidental transactions result in gains and losses
True
EQ for rate of return on assets:
Net Income/ Average Assets
EPS:
Net Income- Div. on CUMULATIVE Preferred Stock/ Weighted Avg. number of common shares
TF: When a bargain purchase option exists or ownership of the leased asset reverts to the lessee, depreciation should be computed over the lease life of the assets using estimated salvage value at the end of that life
False; useful life
TF: Income statement items use the current rate to convert US dollars to year end
False; weighted average
Unrestricted contributions are reported as _____activities while contributions restricted for long-term purposes (i.e., plant acquisitions) are reported as ______ activities.
operating; financing
______ contributions are recognized as revenue when received or promised
restricted
Primary government criteria:
1: It has a separately elected governing body. 2: It is legally separate. 3: It is fiscally independent of other state and local governments.
TF: Governments are not required to present a statement of cash flows for proprietary funds using the direct method of presenting cash flows from operating activities.
False; they SHOULD
TF: Membership dues are an expense for not for profit entities
False
What are the subcategories of the supporting services category?
Management and general activities, fundraising activities, and membership development activities
TF: Expenses decrease unrestricted assets
True
What are the F/S required for a not for profit entity?
statement of financial position (like a balance sheet), statement of activities, statement of cash flows, and for voluntary health and welfare entities, a statement of functional expenses.
TF: Contribution revenues and assets or expenses should be reported for donated services ONLY if:
special skills are required to perform the service, and
the individual providing the service has those special skills, and
False; include on more: the organization would have to buy the services if they were not donated
TF: Under IFRS, you estimate a liability from a lawsuit as the smallest number in the range given
False; use the best number in the range; the chosen amount must always be discounted to present value.
Supporting services include management and general expenses, membership development expenses, and ____ ____
fundraising expenses
Unrestricted contributions are reported as ______ activities
operating
Cash contributions of $200,000 to be restricted to acquisition of property are considered ____ activities
financing
TF: Non controlling interest appears in the liability section on the BS
False; it’s in the equity section
TF: When a corporation own less than 100% of another corporation, add the noncontrolling interest of the subsidiary’s total SE to the parent’s total SE
True
TF: Costs incurred to develop software for internal use are expensed after the application development stage is reached
False; capitalized over the benefit period (economic useful life)
TF: Technological feasibility is established on completion of a detailed program design or completion of a working model.
True
F/S for not for profits are statement of activities, stmt of financial position, and stmt of ____
cash flows
Amortization is recorded with a debit to _____ _____ and a credit to ____ _____
accretion expense; ARO liability
3 characteristics from faithful representation:
complete, neutral, free from error
Net Income + ______= CI
Other Comprehensive Income
G/L on a forward contract uses the ___ rate at the B/S date and the end of the year
spot
3 exceptions to record nonmonetary exchange at book value NOT FV: FV is not determinable, exchange transaction to facilitate sales to customers, and _____
exchange transactions LACKS commercial substance
TF: Commercial substances means when the receiver feels as if his/her future cash flows will not significantly change
False; WILL significantly change
Revenues, expenses, gains, and losses use the ____ exchange rate
weighted average
Assets and liabilities use the ___ rate
spot
ROA: _____/ Average Assets
Net Income!
Quick ratio: Cash+ marketable equity securities+______ divided by CL
Accounts Receivable; INVENTORY NOT INCLUDED IN CALCULATION
Stated interest rate exceeds market rate leads to a ___ on bonds
premium
Market rate exceeds stated interest rate leads to a ___ on bonds
discount
TF: Under the par value method, when the stock is reacquired, the credits to common stock and additional paid-in capital must be credited to undo the original issuance.
Falser; DEBITED; undo the original JE which usually looks like –> DR Cash CR CS CR APIC; if APIC cannot cover the remaining balance use R/E
TF: A permanent decline in the value of an AFS security results in a write down included in earnings
True
Annual lease payment: ____/ PV factor
FV
Total lease amount collected: Annual lease payments * _____
years
Interest revenue: Lease amount collected - _____
FV
TF: Discrete information must be available for an operating segment
True
The intrinsic method for call options is the market price over the _____ price
exercise
Accumulated benefit obligation is based upon _____ compensation. Project benefit obligation is based on ______ compensation.
prior; future
Stock dividends are accounted for by reclassifying a portion of retained earnings as ____ ______
contributed capital
TF: Indefinite live assets are amortized
False; only finite lives
Book value per share: Total equity - ________ / # of shares outstanding
liquidation value to preferred
Preferred value: Par+Premiums+_______
dividends in arrears
TF: Freight out is a cost of goods sold item
False; it is NOT
Gross profit %: GP/_____
Sales
TF: Registration and issuance costs reduce Additional Paid-in Capita
True
TF: Leasehold improvements need to be amortized over the remaining term of the lease at the time of the improvement or the improvement’s own useful life, whichever is shorter
True
TF: A nonpublic entity must disclose permanent differences
False
The types and tax effects of temporary differences and carryforwards must be disclosed by a nonpublic entity
False; the tax affect is not required to be disclosed
Which cost flow method does IFRS disallow?
LIFO
The noncontrolling interest appears in the ____ section on the balance sheet
owner’s equity
Current income tax expense: ______ * tax rate
taxable income
Gains from cash flow hedges go into the _______
other comprehensive income
Gains from fair value hedges are recorded in _____
income
As cash surrender value increases, insurance expense ________.
decreases
The excess of expenses and losses over revenues would be shown as a reduction in _______ net assets.
unrestricted
Actual return on plan assets: FV of plan assets at ____ - (FV of plan assets at ____ + Employer contributions - Benefits paid)
EOY; BOY
The increase in the cash surrender value of an insurance policy is the difference between the annual premiums and the _____ _____
insurance expense; if the company is the beneficiary then the value is an asset to the company
Billings for transportation services from the internal service fund to other funds are recorded as ____ ____
operating revenues
General and fiduciary funds have the _______ as their measurement focus
change in current financial resources
TF: Subsequent reversal of a previously recognized impairment loss of goodwill or other intangible assets is allowed
False; prohibited
TF: Use the risk free interest rate when calculating the accretion expense
False; use the credit adjusted risk free rate
Organizations having the power to enact and enforce a tax levy are considered ______
governments
TF: Prepaid assets are included in the quick ratio equation
False; NOT included along with inventory
Governments should present a statement of cash flows for _______ funds using the direct method of presenting cash flows from operating activities
proprietary
TF: The SEC issues its own rules for publicly traded companies
False; the SEC delegates power to FASB to issue rules
All intercompany ____ are eliminated in consolidated financial statements
liabilities
Cash basis income is higher when ____ _____ decrease and lower when ____ ____ decrease
A/R; accrued expenses
Differences in the application of GAAP and IFRS must be recognized as adjustments directly to ____ _____
retained earnings; this happens at the date of transition to IFRS
The amount to be charged to expense is the amount of such premiums paid less the ______ in cash surrender value during the period.
increase
TF: Not accepting a supplier’s good is disclosed in the financial statements at the present value of the future required payments.
True
TF: Liquidation preferences must not be disclosed
False; MUST be disclosed
Tf: Liquidating dividends count as income under the cost method
False; they are NOT income; they are simply a return of investment to owners
TF: Dividends in arrears are liabilities whether declared or not
FALSE; dividends are not liabilities unless they are declared; however, use div in arrears when calculating EPS- subtract from NI
TF: General long-term liabilities should be reported in the governmental activities column of the government-wide statement of net position
True
Enterprise and internal service funds are _____ funds
proprietary
TF: Governmental hospitals do not record provision for bad debts from patient revenue service and neither do non-governmental hospitals
False; governmental DO and NON-governmental DO NOT
Government wide F/S use the current financial resources measurement focus and the accrual basis of accounting
False; economic resources measurements focus
Changes in ____contracts are recognized immediately in net income
speculative
TF: Under IFRS, a lawsuit uses the the best estimate to settle and discount amounts of estimated loss to present value
True
Contributions restricted for long term purposes are
_____ activities
financing
Direct costs of combination, other than registration and issuance costs of equity securities, should be deducted in determining the ___ ___ of the combined corporation for the period in which the costs were incurred
net income
TF: Under IFRS, a decrease in the FV of an asset is recorded as a decrease in the revaluation surplus account
False; the loss is recorded in income from operations
Reclassification ____ trading securities is recognized immediately and _____trading securities is not recognized immediately
TO; FROM
TF: A corporation does not recognize gain or loss on treasury stock transactions.
True
TF: T- stock will always be issued but not outstanding
True
General and administrative expenses include accounting and legal fees, ___ ___, and insurance
officers salaries
Gain on troubled debt restructuring: Principal + Accrued interest - (Restructured principal
+ ____ _____)
required interest
Special items are unusual and infrequent and under _____ control
management’s
The assets and liabilities account balances for the internal service fund that are not eliminated normally should be reported in the government-wide statement of net assets as:
governmental activities
TF Sales taxes are recognized when the money is distributed
False; they’re recognized when the underlying transaction has taken place
TF: Governmental funds do NOT account for noncurrent assets or liabilities
True
The government-wide statement of activities is prepared using full accrual accounting and the __________
measurement focus
economic resources
Capital projects, special revenue, general, and enterprise: Which one is NOT a governmental fund?
Enterprise
_________ is a “snapshot” in time of the financial condition of the entity
Balance sheet
An interfund transfer to/from a ______ fund should be reported as “other financing sources or uses” in the governmental fund.
governmental
Discounts or premiums on convertible bonds are reported as contra accounts to the ___________
bond liability
The _______ would be the total tax due divided by the total income earned
effective tax rate
TF: Employer’s payroll taxes include amounts withheld from employee pay.
False; do NOT
Only the _____ fund can have an unassigned fund balance
general
TF: Not for profit entities can present the functional classification for expenses in the notes or in the stmt of activities
True
Voluntary health and welfare entities are required to present expenses in the natural classification
True
In U.S. GAAP, PP&E may be presented first
False; IFRS
Registration and issuance costs _____ Additional Paid-in Capital
reduce
The exercise of the incentive stock options would be _____since the exercise price exceeds the market price of the stock
anti-dilutive
Cash proceeds from the sale of an investment is an ___ activity
investing
Revenues from state appropriations for other than capital-asset-related purposes are recorded as __________ revenues
nonoperating
GAAP requires that governments prepare the combined statement of revenues, expenditures, and changes in fund balance on the ______ _____basis
modified accrual
Form ___ must be filed quarterly
10-Q
The lessor shall measure the gross investment in a direct financing lease initially as the sum of: The minimum lease payments PLUS
___________
The unguaranteed residual value accruing to the benefit of the lessor
TF: Extraordinary items should be recognized totally in the period in which they occur
True
TF: Executory costs are included in the amount capitalized as minimum lease payments receivable by the lessor or obligation under capital lease by the lessee
False; NOT
__ ___ ___ are unique to postretirement health care benefits
per capita claims
___ ____ is recognized at the inception of the lease
rental expense
IFRS uses the lower of cost or ____
NRV - net realizable value
TF: On a consolidated balance sheet intercompany receivables (or payables) would appear
False! They are eliminated in the consolidation process
An unconditional redemption feature on stock must be reported as a ____
liability
When warrants are detachable, the proceeds from the bond issue must be allocated between the bonds (debt) and the warrants (under stockholder’s equity) on the basis of ___ ____ ____
fair market values
The costs of one-time termination benefits be recognized and measured at its fair value on the _______ date
communication
TF: for issuances of additional shares less than 20% or 25%, the issuing corporation should transfer from earned surplus (retained earnings) “an amount equal to the fair value of the additional shares issued
True
if a change in the provisions of a capital lease gives rise to a new agreement classified as an operating lease, the transaction shall be accounted for under the ______ requirements
sale-leaseback
TF: Under a capital lease, the lease is depreciated using the life of the lease if the 75% or 90% of fair market value criteria are met
True
Inventories carried at cost are remeasured at the ___ exchange rate
historical
TF: The interest cost component of net periodic pension cost is interest on the projected benefit obligation
True
If the enterprise is the beneficiary, the cash surrender value of the policy is an____of the enterprise.
asset
Salaries are paid (as an expense) to the partners _____partnership earnings are allocated
BEFORE
Guaranteed residual value is ____ in the PV of minimum lease pymts
included; AND are capitalized as an asset by the lessor and as a liability by the lessee.
Development of software for _____ use is likely excluded from the applicability of FASB ASC 730-10-15-5
internal
A Rabbi Trust is a type of ____ compensation
deferred; the trust agreement must explicitly state that the assets of the trust are available to satisfy the claims of general creditors in the event of bankruptcy of the employer.
Amortization for an ARO is recorded with a debit to ____ expense and a credit to _____ liability.
accretion; ARO
Costs of start-up activities, including ______ costs, should be expensed as incurred
organization
Nongovernmental not-for-profit hospitals do not record charity services as _____ and deduct contractual adjustments from gross patient services revenues
revenue
The government-wide statement of activities explains changes in total ___ ____
net position
TF: The purchase of U.S. Treasury bills would have no effect on the statement of cash flows
True
TF: Assets not being used in operations and land are depreciated
FALSE; NOT depreciated
Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services is:
interperiod equity
TF: Bank service charges are deducted from the bank stmt balance
False; deduct from the book balance
Deposits in transit are added to the bank stmt balance and outstanding checks are ____ from the balance
deducted
An intangible asset with a finite
_____ life should be amortized over its useful life
useful
TF: When unconditional promises are recognized, you should record uncollectible expenses
True
A company that is a large accelerated filer must file its Form 10-Q with the U.S. Securities and Exchange Commission within how many days after the end of the period:
40 days!
An agency fund is a ____ fund
fiduciary
Fiduciary funds are agency funds, private purpose funds, investment funds, and ___ ___ funds
pension trust
Interest paid to bank on note is a ____ activity
operating
TF: Under the equity method, an investment in preferred stock does not result in dividend income
False; it does result in dividend income
Grant expenses would be accounted for within the ______activities category for a nongovernmental NFP
Program
TF: The sum of the years digits depreciation method does not use the salvage value
False; it does in order to calculate the depreciable base
Amortization of bond discount is noncash interest _____. Net income must be _______ by noncash ______ that did not result from a cash outflow.
expense; increased; expenses
_______ funds are used to report any activities for which a fee is charged
Enterprise
TF:Budgetary comparison statements are listed among the items to be included in management’s discussion and analysis (MD&A).
NOT listed
An expense is not reported in a governmental fund because the term “expense” relates to accrual accounting and the governmental fund uses ____ ___accounting.
modified accrual
All taxes, even those levied for a specific purpose, are____ revenues
general
TF: Investment trust funds and private-purpose trust funds are both fiduciary funds that should be used to hold resources held in trust for others and not for gifts received by the government itself.
True
TF: Long term liabilities appear on the governmental funds balance sheets
False; do NOT
TF: Fiduciary funds are included in the government wide F/S
False; NOT included
GASB 1800.102 states that an interfund transfer without requirement for repayment must be recorded as __ ___ ___ (or sources to the recipient)
other financing uses
The statement of net position reports the financial position of ____ funds
proprietary
Capital assets and related depreciation expenses are accounted for in proprietary funds and _____ funds.
fiduciary
The measurement focus of governmental funds is on _____, not _____
expenditures; expenses
TF: Principal and interest on general long-term liabilities of state and local governments must be reported in the period in which they become legally due and payable.
True
An _____ fund must be used if the activity is financed with debt solely, not partially, secured by a pledge of the activity’s revenues.
enterprise
Any fund balance in excess of the amount of the encumbrance would be considered _____ by being accounted for in a separate governmental fund—a capital projects fund.
assigned
TF: Expenditures for insurance and similar services (prepaid items) extending over more than one accounting period need not be allocated between or among accounting periods, but may be accounted for as expenditures of the period of acquisition
True
Governmental accounting uses a 5% test for the total of government and _____ accounts
enterprise
Other financing sources and uses” is not an appropriate category for ______ funds
proprietary
TF: The inception of a capital lease should be reported in the governmental fund from which the lease payments will be made. This activity has an effect on the fund balance.
FALSE; does NOT have an effect on the fund balance
The NFP account equation uses the term “net assets” for _____.
equity
_____ represents an amount that can be recovered if the policy is canceled
cash surrender value
Imposed nonexchange revenues include: derived tax revenues, imposed nonexchange revenues, government mandated nonexchange transactions, and ________
voluntary nonexchange transactions
TF: A statement of revenues, expenditures, and changes in fund balances is a required financial statement for the governmental funds, but not a government-wide financial statement.
True
The GASB has prescribed that fines and forfeitures are included in charges for ______
services
Nonspendable fund balance would reflect resources such as ______ that cannot be spent
inventories
Restricted fund balance would reflect external constraints such as those imposed by ________
creditors/grantors
The basic government-wide financial statements include the statement of net position and the statement of activities, but not a ____ ____ statement
cash flow
The fund financial statements include statements of cash flows for proprietary funds but not for ______ funds
governmental
TF: Separate columns distinguish the primary government and its discretely presented component units
True
Private-purpose trust funds represent resources held in trust for the benefit of parties that are a part of the government
FALSE; NOT part of the government
If the predominant customer of an activity is the primary government, an ____ ____ fund, a different proprietary fund, would be used.
internal service
The resources received in excess of qualifying expenditures would be considered ______ ______
deferred revenues
TF: Enterprise funds may (are permitted to) be used to report any activity for which a fee is charged to external users for goods or services
True
JE for Encumbrances:
DR Encumbrances
CR Fund Balance - Reserved
______ are always general revenues, even if restricted to a particular program
Taxes
Financing provided by the government itself is usually a _____ revenue
general
Charges for services is a _____ revenue
program
TF: Fines and forfeitures are included in charges for services
True
TF: Reciprocal interfund activities are activities that affect two funds resulting from loans or services provided and received
True
Amounts expected to be collectible during the first ___ days of the following year can be recorded as revenues of the current year if they are legally usable to pay current liabilities of the current year; that is, if they are available.
60
TF: The statistical section of a government’s comprehensive annual financial report is always considered part of required supplementary information
True
The agency fund accounting equation is Assets =
Liabilities
Governments should present a statement of cash flows for ________ funds using the direct method of presenting cash flows from operating activities
proprietary
Property taxes and fines are examples of ____ ____ revenues
imposed nonexchange
Which is the most appropriate financial statement to use to determine if a company obtained financing during a year by issuing debt or equity securities?
Stmt of CF
TF: This designation of the board as to use of the income from investments is neither a change in restrictions nor a change in revenue/expenses.
True
Special-purpose governments engaged only in business-type activities are required to report by presenting the financial statements required for _____ funds (enterprise funds and internal service funds) including notes, MD&A, and RSI.
proprietary
Retained earnings + _______ - dividends = EOY R/E
Net Income
TF: Interest expense on general long-term debt should not be reported in the government-wide statement of activities.
False; should be
Restricted capital grants are reported as ____contributions
capital
Proprietary funds of governments, including enterprise funds, report _______ grants and restricted operating grants as nonoperating revenues
unrestricted
When software costs are capitalized, yearly amortization of these costs is based on the _______of the ratio of current sales to expected total sales or the straight-line method over the useful life of the asset
greater
When qualifying expenditures was less than the amount of the advance, the ____ ____ would be equal to the difference.
deferred revenues
______ fund balance would result from an action of the highest level of the government and assigned fund balance would reflect action by a government designee
Committed
Both supplies inventory and prepaid expenses are not _____
spendable
Colleges and universities report grants as _____ revenues
nonoperating
The secondary constraints of financial reporting: consistency and _____
comparability
primary constraints of financial reporting: materiality and ___ __ ___`
cost vs benefit
TF: Costs of developing, maintaining, or restoring goodwill should be deducted from income when incurred
True
TF: Discretely presented component unit information is shown as part of the governmental and business-like activities portions on the government-wide financial statements.
FALSE; separate
TF: Government wide financial statements report long term liabilities
True
TF: Governmental funds report long term liabilities
False; does NOT report LT liabilities
A capital projects fund is a ______ fund
governmental
______ funds are used to report any activities for which a fee is charged
Enterprise
Under the ______ method, a cash dividend is considered dividend income and NOT a reduction of the investment account
cost
Registration fees for equity securities issued decrease _________
APIC (stockholder’s equity)
To find the NCI, use: Acquisition cost = _______ * NCI%
FV of subsidiary
Consolidated equity equals:
the parent’s equity PLUS the FV of any noncontrolling interest (if less than 100% owned)
Consolidated net income is the same as:
the PARENT’s net income
Goodwill: Fair value of subsidiary - _____________
FV of subsidiary’s net assets
The purchase by the member of a consolidated group of stock of another member of the consolidated group is treated as:
a treasury stock transaction
