FAR 3-5 - Sheet1

Question 1

Q1001. For PFS, a statement of financial position

Answer 1

A1001. must be prepared. It presents assets, liabilities, estimated income taxes, and net worth

Question 2

Q1002. For PFS, assets should be presented at ___________ and liabilities, including payables are present at ___________

Answer 2

A1002. their estimated current values their estimated current amounts at the date of the statement

Question 3

Q1003. For PFS, estimated income taxes are calculated as if

Answer 3

A1003. the assets had been realized or the liabilities liquidated

Question 4

Q1004. For PFS, a statement of changes in net worth and comparative financial statements

Answer 4

A1004. may be presented.

Question 5

Q1005. When an entity first publishes financial statements using IFRSs, the statements must include an

Answer 5

A1005. explicit and unreserved statement to the effect that they are in compliance with IFRSs

Question 6

Q1006. An entity adopting IFRSs must prepare an

Answer 6

A1006. opening IFRSs statement of financial position as of the date of transition that will serve as the starting point

Question 7

Q1007. The standards applied to the opening IFRSs balance sheet must be those

Answer 7

A1007. in effect on the reporting date of the first full set of financial statements. Application of earlier versions of IFRSs is not allowed.

Question 8

Q1008. Exemptions to First-Time IFRS Adopters Business Combinations - The entity should employ

Answer 8

A1008. the same method as that used prior to the transition date

Question 9

Q1009. Exemptions to First-Time IFRS Adopters Revaluation to Fair Value - The entity may remeasure any item of PPE to

Answer 9

A1009. it’s fair value as of the transition date and use that as its deemed cost. An entity may revalue assets but not liabilities. Assets include - Investment Properties and Intangible Assets

Question 10

Q1010. Exemptions to First-Time IFRS Adopters Employee Benefit Plans - The entity may recognize and report

Answer 10

A1010. all cumulative actuarial gains and losses on employee benefit plans as of the transition date rather than splitting them into a recognized portion and unrecognized portion

Question 11

Q1011. Exemptions to First-Time IFRS Adopters Cumulative Translation Differences - The entity may measure the cumulative differences arising from foreign currency translation at

Answer 11

A1011. zero on the transition date rather than as a separate component of equity

Question 12

Q1012. Exemptions to First-Time IFRS Adopters Compound Financial Instruments - The entity need not separate compound financial instruments into

Answer 12

A1012. separate liability and equity components if the liability component is no longer outstanding at the transition date

Question 13

Q1013. Exemptions to First-Time IFRS Adopters Subsidiary Accounting - If a subsidiary adopts IFRSs for the first time later than its parent, it can adopt one of two accounting treatments to measure its assets and liabilities.

Answer 13

A1013. 1. The subsidiary may use the carrying amounts that would be included in the parent’s consolidated statements as of the parents transition date, with no adjustments made for consolidation procedures or for the effects of the business combination 2. The subsidiary may use the carrying amounts that would result from employing the other allowed exemptions as of the subsidiary’s transition date

Question 14

Q1014. Exemptions to First-Time IFRS Adopters Subsidiary Accounting - If a parent adopts IFRSs for the first time later than a subsidiary, it measures the subsidiary’s assets and liabilities in its consolidated financial statements at

Answer 14

A1014. the same amounts as those in the subsidiary’s statements, adjusted for consolidation procedures and for the effects of the business combination

Question 15

Q1015. Exemptions to First-Time IFRS Adopters Financial Instruments - Financial instruments that were not designated as financial assets or liabilities upon initial recognition

Answer 15

A1015. may be so recognized at the transition date

Question 16

Q1016. Exemptions to First-Time IFRS Adopters Share-based Payment Transactions - First time adopters are encouraged, but not required, to apply

Answer 16

A1016. the provisions of IFRSs to share-based payment transactions

Question 17

Q1017. Exemptions to First-Time IFRS Adopters Insurance Contracts - First time adopters are allowed to apply

Answer 17

A1017. the transitional provisions of IFRSs with regard to insurance contracts

Question 18

Q1018. Exceptions to Retrospective Application of Other IFRSs Retrospective application is prohibited for the following

Answer 18

A1018. 1. Derecognition of financial assets and liabilities 2. Hedges 3. Estimates 4. Assets classified as held for sale and discontinued operations

Question 19

Q1019. First time financial statements prepared using IFRSs must present at least

Answer 19

A1019. 1 year of comparative information

Question 20

Q1020. Historical summaries that include information before the transition date

Answer 20

A1020. need not be restated to be in conformity with IFRSs - they must be clearly labeled as such and the nature of any adjustments necessary to bring them into conformity must be described, not necessarily quantified

Question 21

Q1021. The first full set of financial statements prepared using IFRSs must include

Answer 21

A1021. a reconciliation of equity reported under previous GAAP to equity reported under IFRSs as of the transition date and the end of the latest period presented under previous GAAP

Question 22

Q1022. The first full set of financial statements prepared using IFRSs must include a

Answer 22

A1022. reconciliation of profit or loss reported under previous GAAP to profit and loss reported under IFRSs

Question 23

Q1023. The entity may have recognized or reversed impairment losses for the first time in preparing its opening IFRSs balance sheet. In this case, the first full set of financial statement prepared using IFRSs must disclose

Answer 23

A1023. the information that would have been required if the entity had recognized those impairment losses or reversals in the period beginning with the transition date.

Question 24

Q1024. How are donated assets recorded?

Answer 24

A1024. At FV along with any incidental costs incurred. When received from government entity , no income is recognized, off setting CR is to an OE acct. Additional-PIC-Donated Assets

Question 25

Q1025. What’s the difference between Group & Composite depreciation?

Answer 25

A1025. 1 Group-Assets have similar service lives, no G or L’s recognized, CR asset DR ad for same amount less any proceeds received in disposition. 2. Composite-have a wider range of service lives. Determined by calculating the annual depreciation expense for each asset, adding them up, and putting as a % of total cost of assets.

Question 26

Q1026. Financially what does recording Bad Debts Expense do?

Answer 26

A1026. Decreases NI, Net A/R, current assets & working capital.

Question 27

Q1027. What’s the PV of a note issued for cash?

Answer 27

A1027. It’s equal to the cash proceeds received.

Question 28

Q1028. What are two parts of factoring?

Answer 28

A1028. 1 With recourse 2 Without recourse

Question 29

Q1029. How do you record non-interest bearing notes or “other” notes?

Answer 29

A1029. At PV or value of the property, good or service exchanged, whichever is more clearly determinable.

Question 30

Q1030. What is a non-interest bearing note?

Answer 30

A1030. Interest is included in the face amount.

Question 31

Q1031. How do you record a note that is exchanged for cash & promise to provide merchandise at a discount?

Answer 31

A1031. AT PV. The difference between the FV & cash payments is recognized as interest revenue over the contract life and is recorded as part of the cost of the related merchandise.

Question 32

Q1032. What are the 3 methods of measuring impairment?

Answer 32

A1032. 1 PV Method - PV of future principal & interest cash inflows. 2 Market Price Method - loans observable market price 3 FV of collateral method - FV of collateral pledged, if the loan is collateral dependent, if foreclosure use this method.

Question 33

Q1033. Where are changes in FV reported for Trading Securities?

Answer 33

A1033. Current Inc

Question 34

Q1034. What kind of equity securities are usually treated using the cost method?

Answer 34

A1034. Trading & AFS

Question 35

Q1035. How are all securities initially recorded?

Answer 35

A1035. At Cost

Question 36

Q1036. What is a financial instrument?

Answer 36

A1036. Cash, evidence of an ownership interest in an entity or contract that does both: obligation & right

Question 37

Q1037. How are dividends received accounted for in Trading or AFS Securities?

Answer 37

A1037. In current income

Question 38

Q1038. Where are changes in FV reported for AFS securities?

Answer 38

A1038. OCI

Question 39

Q1039. When a company owns stock in another corp, what are the 3 methods to account for the investment?

Answer 39

A1039. 1. Cost 2. Equity 3. Consolidated

Question 40

Q1040. When disposing an equity method investment should you recognize a G or L?

Answer 40

A1040. Yes. Difference between the carrying amount of the investment and its sale price.

Question 41

Q1041. When changing from equity method to cost method, what’s the cost basis?

Answer 41

A1041. Carrying amount of the investment at the date of the change.

Question 42

Q1042. When is the only time a loss in value of an equity method investment should be recognized?

Answer 42

A1042. If other than temporary

Question 43

Q1043. HTM are what kind of securities?

Answer 43

A1043. Debt

Question 44

Q1044. What is a liquidating dividend?

Answer 44

A1044. Dividend distributions in excess of earnings subsequent to acquisition.

Question 45

Q1045. A valuation allowance account is used for unrealized holding G/L’s for what kind of securities?

Answer 45

A1045. Trading or AFS

Question 46

Q1046. When are realized G/L’s recognized under the cost method?

Answer 46

A1046. Upon disposal to the extent that the proceeds received differ from the carrying amount of the investment.

Question 47

Q1047. What’s the JE for dividend declared under the equity method?

Answer 47

A1047. Dr Receivable Cr Investment

Question 48

Q1048. Do you have to allocate the carrying amount of an investment when stock rights are received?

Answer 48

A1048. Yes. Between the investment and the rights. Based on the ratio of the market value of the stock & the market value of the rights.

Question 49

Q1049. Do you ever adjust the investment acct for earnings or dividend distributions under the cost method?

Answer 49

A1049. No. except for liquidating dividend

Question 50

Q1050. What’s the JE for recognizing share of income under the equity method?

Answer 50

A1050. Debit: Investments Credit: Inv Inc

Question 51

Q1051. Do changes in the market value of the investees stock affect the investment under the equity method?

Answer 51

A1051. No

Question 52

Q1052. Is the equity or cost method more consistent with accrual accounting?

Answer 52

A1052. Equity

Question 53

Q1053. In lump sum purchases, how various securities priced?

Answer 53

A1053. Relative to their FV’s.

Question 54

Q1054. Is accrued interest part of the cost of debt securities?

Answer 54

A1054. No

Question 55

Q1055. Are HTM securities adjusted for unrealized holding G & L’s?

Answer 55

A1055. No. But FV must be disclosed!!

Question 56

Q1056. What’s the credit side of a JE to record the FV increase in an AFS security and where is it on the I/S?

Answer 56

A1056. Unrealized holding gain & its in OCI

Question 57

Q1057. How is a decline in FV that is other than temporary accounted for under AFS or HTM?

Answer 57

A1057. Write the investment down to FV & a realized loss is recognized in current earnings.

Question 58

Q1058. When changing from the cost method to the equity method do you adjust prior periods?

Answer 58

A1058. Yes

Question 59

Q1059. If a partial disposal of an Equity Method investment makes it less than 20%, should you stop accruing your share of the investee income?

Answer 59

A1059. Yes. Change in the method of accounting must be made to the cost method.

Question 60

Q1060. Trading & AFS Securities can be either what type?

Answer 60

A1060. Equity or Debt

Question 61

Q1061. How are HTM securities reported?

Answer 61

A1061. Amortized cost

Question 62

Q1062. If you transfer a security from the trading category should any previously recognized unrealized holding G or L be reversed?

Answer 62

A1062. No

Question 63

Q1063. what’s the credit side of a JE to record the FV increase in a Trading Security and where is it on the I/S?

Answer 63

A1063. Unrealized holding gain & it’s in current income.

Question 64

Q1064. What is the account called that holds adjustments in FV for Trading & AFS securities?

Answer 64

A1064. Market Adjustment Account

Question 65

Q1065. How are debt securities initially recorded?

Answer 65

A1065. At cost

Question 66

Q1066. When determining the G or L on a security sale, do we care about market adjustments or previously recognized unrealized losses or recoveries?

Answer 66

A1066. No

Question 67

Q1067. What are reclassification adjustments when selling securities?

Answer 67

A1067. They are made to avoid double counting in regular income G or L’s realized previously included in OCI as unrealized G or L’s.

Question 68

Q1068. How are changes in FV of non-hedge derivatives reported?

Answer 68

A1068. G or L’s in earnings.

Question 69

Q1069. What are derivatives on the f/s?

Answer 69

A1069. A or L, FV is used to measure them.

Question 70

Q1070. What’s the main difference between Trading & AFS for accounting purposes?

Answer 70

A1070. Change in FV is either recorded in income or OCI.

Question 71

Q1071. What are the 2 methods of estimating uncollectible receivables?

Answer 71

A1071. 1 Percentage of sales method. 2 Percentage of outstanding receivables method.

Question 72

Q1072. Why are derivatives assets or liabilities?

Answer 72

A1072. Because they are rights & obligations.

Question 73

Q1073. When you sell a debt or equity security what is the realized G or L?

Answer 73

A1073. Difference between the net proceeds & the cost or unamortized cost of the security . NOT FV!!!!

Question 74

Q1074. Can Trading, AFS or HTM all be considered debt securities?

Answer 74

A1074. Yes

Question 75

Q1075. What is hedging?

Answer 75

A1075. A risk management strategy to protect against the possibility of loss, such as from price fluctuations.

Question 76

Q1076. What’s a notional amount?

Answer 76

A1076. A number of currency units, shares, bushels, pounds or other units. sometimes called a face amount in some contracts.

Question 77

Q1077. Who is responsible for shipping charges when shipped FOB shipping point?

Answer 77

A1077. The Buyer

Question 78

Q1078. Example of a trade discount?

Answer 78

A1078. Trade Disc = 20%, 10% List Price $100 $100-20%($100)=$80 $80-10%($80)=$72

Question 79

Q1079. Why does a reinstatement of a written of A/R cause an in & out of A/R entry? 2 JE’s

Answer 79

A1079. Reinstatement AR Allowance Payment Cash AR

Question 80

Q1080. Who is responsible for shipping charges when shipped FOB destination?

Answer 80

A1080. The Seller

Question 81

Q1081. Describe the 3 types of Hedging Derivatives?

Answer 81

A1081. 1 FV Hedge - a hedge of the exposure to changes in FV of an A or L, or an unrecognized firm commitment. 2 CF Hedge - “ “ variable cash flows on an existing, recognized A or L. 3 Foreign Currency Hedge

Question 82

Q1082. How are unrealized G or L’s from changes in FV of hedge derivatives accounted for?

Answer 82

A1082. Depends on which of the following 3: 1 FV Hedge - reported in earnings 2 Cash Flow Hedge - effective portion reported in OCI, ineffective portions reported in earnings 3 Hedge of a Net Inv in Foreign Operation - same as 2

Question 83

Q1083. What’s a derivative instrument?

Answer 83

A1083. Has 3 Characteristics a. Underlying & Notional Amount or Payment Provision b. Zero or small investment c. Net Settlement

Question 84

Q1084. When you transfer a security into the trading category, what should you do with any unrealized holding G or L?

Answer 84

A1084. Recognize in earnings immediately!

Question 85

Q1085. If a debt security is transferred from AFS to HTM, what should you do with any unrealized holding G or L?

Answer 85

A1085. Report in OCI account & amortize over the security’s remaining life.

Question 86

Q1086. What are net proceeds received from a sale?

Answer 86

A1086. Gross selling price of the security less brokerage commissions & taxes.

Question 87

Q1087. When you transfer debt security from HTM to AFS, what should you do with any unrealized holding G or L?

Answer 87

A1087. Recognize in OCI

Question 88

Q1088. What’s an underlying?

Answer 88

A1088. It’s a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates or other variable.

Question 89

Q1089. Is the impact of FIFO B/S oriented?

Answer 89

A1089. Yes

Question 90

Q1090. What is the relative sales method?

Answer 90

A1090. When a group of varying items are purchased at a single lump sum (basket purch), allocation based on their relative sales value.

Question 91

Q1091. When the utility of inv is impaired or decline in value, what should it be charged against?

Answer 91

A1091. Revenue

Question 92

Q1092. When an inv item is impaired what should the price be?

Answer 92

A1092. LCM

Question 93

Q1093. What must be included in finished goods inventory as far as cost?

Answer 93

A1093. Cost of DM, DL, both variable & fixed manufacturing OH.

Question 94

Q1094. Is freight out ever included in cost of inv?

Answer 94

A1094. No, its a selling expense.

Question 95

Q1095. What should be included in the cost of merchandise inventory?

Answer 95

A1095. trade/cash disc, freight in, taxes, insurance while in transit, warehouse costs & similar charges paid to bring to its existing condition & location.

Question 96

Q1096. How is a layer of inventory added in DVL?

Answer 96

A1096. Every time the EI stated at base year dollars exceeds the BI stated at base year dollars.

Question 97

Q1097. With FOB destination, when do you mark in inventory from vendor?

Answer 97

A1097. When received!

Question 98

Q1098. Should interest costs be capitalized for inventories that are routinely manufactured or otherwise produced on a repetitive basis?

Answer 98

A1098. NO

Question 99

Q1099. How is the base year dollar cost determined in DVL?

Answer 99

A1099. In year of adoption Total Inv Cost / # of units

Question 100

Q1100. Do perpetual & periodic systems result in same dollar value under FIFO?

Answer 100

A1100. Yes

Question 101

Q1101. What is NRV?

Answer 101

A1101. Estimated selling price less reasonably predictable costs of completion & disposal

Question 102

Q1102. Does inv need to be LCM?

Answer 102

A1102. Yes

Question 103

Q1103. Which LIFO method requires that records of separate lot prices be kept?

Answer 103

A1103. Quantity LIFO

Question 104

Q1104. What is the price index in DVL?

Answer 104

A1104. EI valued at current year costs / EI at base year costs

Question 105

Q1105. When you do weighted average retail method, do you add markdowns as part of the denominator?

Answer 105

A1105. No, add markups, markdowns & sales are subtracted from retail to get ending inv at retail.

Question 106

Q1106. When using the retail method, do you need to know BI & Purchases for the period at both cost & retail?

Answer 106

A1106. Yes

Question 107

Q1107. Which retail method requires 2 ratios to be computed (one for BI & one for purchases)?

Answer 107

A1107. LIFO Retail

Question 108

Q1108. How can using LCM compute the lowest possible inv balance?

Answer 108

A1108. If LCM is applied item by item to each component of inventory.

Question 109

Q1109. Why do we not include markdowns in the denominator in the ratio of WA retail method?

Answer 109

A1109. To have a lower ratio to ending inv, it helps approximate lower of average cost or market?

Question 110

Q1110. 3 methods of retail method?

Answer 110

A1110. 1. Weighted Average, LCM 2. LIFO Retail 3. DVL Retail

Question 111

Q1111. What is the floor?

Answer 111

A1111. NRV - normal profit

Question 112

Q1112. How is EI in DVL retail determined?

Answer 112

A1112. Same as LIFO retail.

Question 113

Q1113. Which retail method includes both net mark ups & mark downs in the denominator of the purchases ratio & why?

Answer 113

A1113. LIFO retail, results in a smaller denominator for the ratio, & thus a higher ratio is obtained.

Question 114

Q1114. Two ways to estimate inventory?

Answer 114

A1114. 1. Gross Margin Method (not GAAP) 2. Retail Method

Question 115

Q1115. How do you get the selling price of serial bonds?

Answer 115

A1115. Compute the PV of the principal & interest payments for each series separately

Question 116

Q1116. What’s the six part amortization table?

Answer 116

A1116. Period Cash Interest Payments Interest Expense Premium Amortized Unamortized Premium Carrying Value

Question 117

Q1117. How are proceeds allocated between a debt security & stock warrants?

Answer 117

A1117. Based on relative FV’s. Note: If the FV of one security is not determinable, the proceeds are assigned based on the FV of the other security. Warrants are accounted for as Paid In Capital

Question 118

Q1118. What are the two methods of accounting for convertible bonds & how are they different?

Answer 118

A1118. Book Value Method (No G or L recognized) Market Value Method

Question 119

Q1119. Is an additional amount paid for interest when purchasing a bond part of the cost of the investment?

Answer 119

A1119. No

Question 120

Q1120. Is G or L in sale of bonds held for investments an extraordinary item?

Answer 120

A1120. No

Question 121

Q1121. Name some bond issue costs.

Answer 121

A1121. Legal Fees, accounting fees, underwriting commissions, registration, printing & engraving & other costs incurred in preparing and selling a bond issue.

Question 122

Q1122. What’s the difference between extinguishment & refunding?

Answer 122

A1122. Extinguishment includes the reacquisition of debt securities. Refunding - you’re using proceeds from issuing other securities for the reacquisition.

Question 123

Q1123. When does a bond sell at par?

Answer 123

A1123. When stated interest rate = market rate

Question 124

Q1124. What are the five types of bond (debt) securities?

Answer 124

A1124. 1. HTM Securities 2. Serial & Term Bonds 3. Debenture 4. Callable 5. Convertible

Question 125

Q1125. How does a premium affect the bond investment and investment income over time?

Answer 125

A1125. It decreases them

Question 126

Q1126. When amortizing bond issue costs when a bond is sold between interest dates, when does the period begin?

Answer 126

A1126. Amortize over the period from the date of sale to the maturity date!!

Question 127

Q1127. How does a lessee record a BPO?

Answer 127

A1127. Capitalized at its PV.

Question 128

Q1128. What’s the B/S classification of a capital lease for a lessee?

Answer 128

A1128. Both current & noncurrent. Current portion being money being paid on prin the next year.

Question 129

Q1129. What’s considered a BPO?

Answer 129

A1129. When the lessee can purchase the leased prop for significantly less than the expected FV of the prop at the date option becomes exercisable.

Question 130

Q1130. How does a lessee amortize the lease liability?

Answer 130

A1130. By the effective interest method or allocation of lease payments method.

Question 131

Q1131. How does a lessee account for impairment loss of a capital leased asset?

Answer 131

A1131. If carrying amount of the asset may not be recoverable. Estimate the future net cash flows; & without discounting or considering interest charges, if future cash flows is less than the carrying amount, impairment loss is recognized. Impairment loss recognized is the amount by which the carrying amount of the asset exceeds the FV of the asset.

Question 132

Q1132. How does a lessee record a Guarantee of Residual Value?

Answer 132

A1132. Has to be a guarantee by a the lessee or a third party RELATED, & should be capitalized at its PV.

Question 133

Q1133. When does a lessee amortized the leased asset over the remaining est economic life of the asset?

Answer 133

A1133. When it’s a capital lease meeting either first two lease classification criteria - transfer of ownership or BPO. If not, amortize over lease term

Question 134

Q1134. What are the 4 things that one condition needs to be met to classify as a capital lease?

Answer 134

A1134. 1. TO Transfer of ownership at end of lease 2. BOP Barg Purchase Option 3. 75 75% of asset economic life is committed in lease term 4. 90 90% of leased property FMV is less or equal to PV of future lease payments

Question 135

Q1135. What’s the lessor’s Net Investment in the Lease? What’s it’s equation form?

Answer 135

A1135. Present Value of lessor’s Gross Investment in the lease. Equation Form: NIL = PV of (MLP + Unguaranteed Residual Value)

Question 136

Q1136. What’s the difference between Sales Type Leases & Direct Financing Leases?

Answer 136

A1136. Sales Type Leases are, in substance, Sales of Assets on an installment basis. STL contain a manufacturer or dealers profit (or loss) at inception & interest inc. Direct Financing only interest income arises.

Question 137

Q1137. Is the factor “PV of ordinary annuity” & “PV of annuity in arrears” the same thing?

Answer 137

A1137. Yes You pay at the end of the period

Question 138

Q1138. Is the factor “PV of annuity in advance” & “PV of annuity due” the same thing?

Answer 138

A1138. Yes Pay in beginning of period

Question 139

Q1139. How does a lessee record a capital lease?

Answer 139

A1139. In an amount equal to the FV of the leased property at inception date or PV of the MLP’s, whichever is lower. Debit: Leased Under Capital Assets Credit: Obligations Under Capital Leases

Question 140

Q1140. What’s an operating Lease?

Answer 140

A1140. A lease that does not meet the 4 criteria of a capital lease. The leased property is not transferred from the books of the lessor to the lessee.

Question 141

Q1141. Lessor’s classify leases as either sales-type or direct- financing leases if all of what 3 criteria are met?

Answer 141

A1141. 1. The lease is a capital lease for the lessee 2. Collectability of the MLP is reasonably predictable. 3. No important uncertainties exist regarding the unreimbursable costs yet to be incurred by the lessor under the lease.

Question 142

Q1142. What is Guaranteed Residual Value?

Answer 142

A1142. A specifically determinable amount payable at termination of the lease.

Question 143

Q1143. What’s a manufacturer’s or dealer’s profit? What’s it’s equation form?

Answer 143

A1143. Equal to the PV of the MLP reduced by the cost of sales & by the initial direct costs. Equation Form: Profit = PV of MLP - (Cost of Sales + Initial Direct Costs)

Question 144

Q1144. What’s the Lessor’s Sales Price in the lease in Capital Leases?

Answer 144

A1144. It’s equal to the PV of the lessor’s minimum lease payments.

Question 145

Q1145. What are a Lessor’s Initial Direct Costs?

Answer 145

A1145. Costs incurred by the lessor that are directly associated with negotiating & consummating completed leasing transactions. Examples: commissions, legal fees, cost of preparing documents & the applicable portion of the compensation of employees directly involved with completed transactions.

Question 146

Q1146. What’s a Sale Leaseback Transaction?

Answer 146

A1146. A trans that involves the sale of property to a purchaser- lessor & a lease of the same property back to the seller- lessee.

Question 147

Q1147. what’s the lessor’s Gross Investment in Lease?

Answer 147

A1147. Equal to the sum of Lessor’s MLP & Unguaranteed Residual Value accruing to lessor.

Question 148

Q1148. What’s the lessor’s cost of sales? What’s it’s equation form?

Answer 148

A1148. BV (carrying amount) of asset leased out reduced by the PV of the unguaranteed residual value accruing to the lessor. Equation Form: Cost of Sales= BV - PV of unguaranteed residual value

Question 149

Q1149. What’s the lessor’s unearned interest income?

Answer 149

A1149. Difference between the Gross Investment in the lease and the Net Investment in the Lease. It’s a contra-asset and is amortized by the “interest method” over the lease term.

Question 150

Q1150. What disclosure requirements are there for Lessee’s?

Answer 150

A1150. For capital leases: Gross amount of capital leases as of each B/S date & the PV of future MLP as of the date of the latest B/S in the aggregate and for each of the 5 succeeding years. For Operating leases greater than 1 year: disclose the future minimum rental payments required, in aggregate and for each of next 5 years & a general description of leasing arrangements.

Question 151

Q1151. Are Sale-Leaseback trans accounted for the same as other leasing trans?

Answer 151

A1151. Yes

Question 152

Q1152. How is deffed G or L deferred & amortized under a capital lease under sale-leaseback trans. for the lessee/seller?

Answer 152

A1152. It will be deferred & amortized in proportion to the amortization of the leased asset. For instance, in a capital lease where there is no ownership transfer and the asset is amortized in a straight-line manner, the deferred G or L will be amortized in a straight-line manner over the term of the lease. If ownership transfers then it will be amortized over the estimated life of the asset.

Question 153

Q1153. What are 3 Deferment Requirement Exceptions?

Answer 153

A1153. 1. Minor Portion Retained 2. Excess Gains 3. Economic Losses

Question 154

Q1154. What’s the purpose of Sale-Leaseback Transaction?

Answer 154

A1154. The seller-lessee obtains financing for the use of the property & the purchaser-lessor (usually a financial institution or investor) obtains interest income.

Question 155

Q1155. With a Sale-Leaseback transaction, there is generally a G or L, what happens to it?

Answer 155

A1155. A G or L on the sale of the asset will be deferred & amortized.

Question 156

Q1156. How is a deferred G or L deferred & amortized under an operating lease under Sale-Leaseback transaction for the lessee/seller?

Answer 156

A1156. The G or L will be deferred & amortized in proportion to the related gross rentals charged to expense during the period. This usually will result in SL amortization. At the time of sale, a deferred gain should be reported as a deferred credit.

Question 157

Q1157. How does a Purchaser/Lessor account for a Sale- Leaseback transaction?

Answer 157

A1157. In the same manner as for other leases, that is, as if the property had been purchased from and leased to two separate parties.

Question 158

Q1158. What disclosure is required for Lessor’s for sales-type leases?

Answer 158

A1158. Sales Type & Direct Financing Leases: The Lessor must disclose the net investment components, including the future MLP, unguaranteed residual value, unearned income & the future MLP to be received in each of the succeeding 5 years.

Question 159

Q1159. What disclosure is required for Lessor’s for operating leases?

Answer 159

A1159. Disclose the cost & carrying amount, if different, of property leased or held for leasing, by major class & total AD; the minimum future rentals on noncancelable leases, in aggregate, & for each of the next 5 years; & a general description of leasing arrangements.

Question 160

Q1160. What’s a lease term?

Answer 160

A1160. The noncancelable term of the lease plus the following 4 things: 1. All periods covered by bargain renewal options 2. All periods for which failure to renew the lease imposes a penalty on the lessee in an amount such as to make renewal reasonably assured. 3. All periods preceding the date that a BPO becomes exercisable. 4. All periods representing renewals or extensions of the lease term or lessors option.

Question 161

Q1161. What are executory costs?

Answer 161

A1161. Costs that are expenditures such as insurance, maintenance & taxes required to be paid on the assets economic life.

Question 162

Q1162. What’s a PV discount rate?

Answer 162

A1162. The lessee uses the incremental borrowing rate in computing the PV of the minimum lease payments. However if the implicit interest rate is lower than the lessees incremental borrowing rate, lessee will use implicit rate & discount the lease payments. Implicit rate is lessor’s rate

Question 163

Q1163. If a lease does not contain a BPO, what 5 things are included in MLP?

Answer 163

A1163. 1. Minimum rental payments called for by the lease ov the lease term. 2. Any guarantees of a residual value of leased asset at the end of the lease. 3. Any penalty that the lessee may be required to pay upon failure to renew the lease. 4. For lessors, in addition to above, MLP also include any guarantee of the residual value. 5. MLP’s do not include executory costs paid by either party, no do they include any contingent rentals.

Question 164

Q1164. If a lease contains a BPO, what included in the MLP?

Answer 164

A1164. Only the minimum rental payments over the lease term up to the date at which the BPO becomes exercisable & the payment called for by the BPO.

Question 165

Q1165. What’s residual value?

Answer 165

A1165. The estimated FV of the leased property at the end of the lease term.

Question 166

Q1166. How should a lease that transfers substantially all of the benefits and risks incidental to the ownership of property be handled?

Answer 166

A1166. Should be accounted for as an acquisition of an asset and the incurrence of a liability by the lessee, & as a sale or financing agreement by the lessor. All other leases should be accounted for as operating leases.

Question 167

Q1167. Should the lease term ever extend beyond the date at which a BPO becomes exercisable?

Answer 167

A1167. No

Question 168

Q1168. hat’s a plan asset actual return?

Answer 168

A1168. This component of net periodic pension cost reduces the pension cost for the period. It is based on the FV of plan assets at the beginning & end of the period, adjust for contributions & benefits paid.

Question 169

Q1169. What’s G or L’s on Plan Assets?

Answer 169

A1169. The difference between the actual return on assets during the period & the expected return on assets for the period.

Question 170

Q1170. What’s actuarial present value?

Answer 170

A1170. The value, as of a specified date, of an amount or series of amounts payable or receivable thereafter, with each amount adjusted to reflect 2 things. 1. The time value of money 2. The probability of payment between the specified date & the expected date of payment.

Question 171

Q1171. What is Attribution?

Answer 171

A1171. The process of assigning benefits or costs to periods of employee service.

Question 172

Q1172. What’s an accumulated benefit obligation?

Answer 172

A1172. The actuarial PV of benefits (whether vested or not) attributed by the pension benefit formula to employee services rendered before a specified date and based on employee services & compensation prior to that date.

Question 173

Q1173. What are the 2 methods for dealing with the contribution of unidentifiable assets in the formation of a partnership?

Answer 173

A1173. Bonus Method Goodwill Method

Question 174

Q1174. In a partnership, how are assets & liabilities originally recorded?

Answer 174

A1174. Assets - FV Liabilities - PV’s

Question 175

Q1175. Give two examples of unidentifiable assets.

Answer 175

A1175. 1. Management Expertise 2. Personal Business Reputation

Question 176

Q1176. What does RUPA stand for?

Answer 176

A1176. Revised Uniform Partnership Act

Question 177

Q1177. Explain the Par Value Method for Treasury Stock.

Answer 177

A1177. The Par Value Method views the purchase & subsequent disposition as 2 different transactions. Acquisition of the shares is viewed as a constructive retirement of the stock. Treasury stock is recorded at PAR.

Question 178

Q1178. What are 3 things to remember with Treasury Stock under the PAR Value Method.

Answer 178

A1178. 1. If the acquisition cost of the TS is less than the price the stock was originally issued the difference is credited to APIC from TS. 2. If TS is more than the original, debit APIC from TS, ONLY to extent of any existing balance, excess is debited to RE. 3. The reissuance of TS under the Par Value Method is accounted for in the same manner as an org stock issuance. However, any reissuance of TS at less than par value, debit APIC - from TS until that balance is exhausted, debit RE for any excess.

Question 179

Q1179. What are the 2 types of Stock Option Plans?

Answer 179

A1179. 1. Compensatory 2. Noncompensatory

Question 180

Q1180. What’s the three criteria under SFAS 123 to classify a stock option plan as a noncompensatory plan?

Answer 180

A1180. 1 The plan contains no options features except that employees may be permitted to enroll in the plan during a short period, no more than 31 days after purchase price has been established. 2 The discount rules (5%) 3 Substantially all full-time employees that meet limited employment qualifications may participate on an equitable basis.

Question 181

Q1181. Explain the cost method for Treasury Stock.

Answer 181

A1181. The cost method views the purchase & subsequent disposition of stock as one transaction. 1. Reissued in Excess of Acquisition Cost - excess is credited to an appropriately titled PIC acct. 2. Reissued at less than acquisition cost - the deficit is 1st charged to any existing balance in the additional PIC from TS trans acct then remaining against RE. 3. B/S presentation - Presented on the B/S as an unallocated reduction of total stockholders equity (i.e.) contributed capital & RE.

Question 182

Q1182. Explain retirement of Treasury Stock.

Answer 182

A1182. A corp may decide to retire some or all of its TS. Retired stock is classified as authorized & unissued (like it never had been issued). Accounting for the retirement of TS depends on the method used initially to record it.

Question 183

Q1183. What’s the four criteria under APB 25 to classify a stock option plan as a noncompensatory plan?

Answer 183

A1183. 1. Substantially all full-time employees may participate. 2. Stock is offered to employees equally or based on a uniform percentage of salary. 3. The time permitted for exercise is limited to a reasonable period. 4. The disc from market price of the stock is no greater than would be reasonable in an offer to stockholders or others.

Question 184

Q1184. What’s the Black-Scholes pricing model used in a stock option compensatory plan?

Answer 184

A1184. D - dividends expected on stock E - exercise price V - volatility of the stock I - interest rate (risk free rate)for the expected term of the option L - life of the option S - stock current price

Question 185

Q1185. Define Dividends!

Answer 185

A1185. Dividends represent the distribution to stockholders of a proportionate share of RE or as in the case of a liquidating dividend, a return of capital. Dividends (except stock dividends) reduce stockholders equity through the distribution of assets or the incurrence of a liability.

Question 186

Q1186. How are property dividends recorded?

Answer 186

A1186. At the date of declaration, property dividends are recorded at the FV of assets given up & any difference between FV & carrying amount of the asset is recorded as a G or L as a component of income from continuing operations.

Question 187

Q1187. What’s a stock dividend?

Answer 187

A1187. Issuance by a corporation of it’s own common shares to it’s common shareholders in proportion to their existing holdings.

Question 188

Q1188. What is treasury stock?

Answer 188

A1188. Treasury Stock is the corporations common or preferred stock that has been reacquired by purchase, by settlement of an obligation to the corporation, or through donation. Acquisition of treasury stock reduces assets & total stockholders equity (unless donated) while the reissuance of treasury stock increases assets & total stockholders equity.

Question 189

Q1189. What are two methods to account for Treasury Stock?

Answer 189

A1189. Cost Method Par Value Method

Question 190

Q1190. Explain Stock Splits!

Answer 190

A1190. They increase the number of shares outstanding & proportionally decreases the par or stated value of the stock. There is no change in the dollar amount of capital stock, additional PIC, RE or total stockholders equity.

Question 191

Q1191. What is a liquidating dividend?

Answer 191

A1191. Distributions in excess of retained earnings and, therefore, represent a return of investment rather than a share in profits.

Question 192

Q1192. There are 3 significant dates that have to do with dividends. What are they?

Answer 192

A1192. 1. Declaration - date that the dividends are formally declared by the BOD & the declared dividends (except stock dividends) become a liability. 2. Record - the date of record is the date used to establish those stockholders who will receive the declared dividends. No JE is required unless the # of shares outstanding have changed from the date of declaration. 3. Payment - The distribution of assets is made on the date of payment.

Question 193

Q1193. There is essentially only 2 things that can increase RE. What are they?

Answer 193

A1193. Net income & Prior Period Adjustment

Question 194

Q1194. What are the 3 steps involved in a quasi-reorganization?

Answer 194

A1194. 1. Assets are revalued at NRV, but there is no net asset increase. (any loss on revaluation increases the deficit). 2. A minimum of the amount of the adjusted deficit must be available in PIC. This might be created by donation of stock from shareholders or reduction of the par value. 3. The deficit is charged against PIC and thus is eliminated.

Question 195

Q1195. What are the 4 things that Retained Earnings should not include?

Answer 195

A1195. 1. Gains from treasury stock transactions. 2. Gifts of property 3. Additions to owners equity attributable to reappraisals of property 4. Accumulated balance of OCI

Question 196

Q1196. There are about six things that can decrease Retained Earnings. What are they?

Answer 196

A1196. 1. Dividends 2. Net Losses 3. Treasury Stock Transactions 4. Certain Stock Splits 5. Prior Period Adjustment 6. Certain special changes in accounting principle

Question 197

Q1197. What’s a Quasi-Reorganization?

Answer 197

A1197. A reorganization or revision of the capital structure. This procedure eliminates an accumulated deficit as if the company had been legally reorganized without much of the cost & difficulty of a legal reorganization. Thus, the corp will be able to pay dividends again.

Question 198

Q1198. What is appropriated Retained Earnings?

Answer 198

A1198. The portion unavailable for dividends. Some reasons for appropriation are to create a reserve for plant expansion, to satisfy legal requirements of a bond indenture or to provide a cushion for expected future losses.

Question 199

Q1199. What are the 2 allocation methods in a lump-sum purchase price?

Answer 199

A1199. 1. Proportional Method - Allocation of the lump sum between the classes of stock in accordance with their relative FV’s. 2. Incremental Method - Allocation of the lump sum based on the known FV of one security with the remainder of the lump sum being allocated to the other security.

Question 200

Q1200. What is the entry for when stock rights are exercised?

Answer 200

A1200. Debit: Cash (number of shares x exercise price) Credit: Common Stock (shares x par/stated value) Credit: APIC (balance)

Question 201

Q1201. How are the Assets & Liabilities recorded in a Going Concern Incorporation?

Answer 201

A1201. The assets are recorded at FV’s current liabilities assumed generally are recorded at face amount & LT Liabilities at their V. The issued stock is recorded at par or stated value. Any excess of net assets acquired over par or stated value of the capital stock is credited to APIC.

Question 202

Q1202. How do you record stock issued for property other than cash?

Answer 202

A1202. The property received & the amount of contributed capital should be recorded at the FV of the property received or the market value of the stock, whichever is clearer. Assets (FV) Common Stock (Par/Stated) PIC - Common Stock (bal)

Question 203

Q1203. What would the JE be for stock issuance of 500 shares of $10 par value common stock is sold for $30 a share?

Answer 203

A1203. Cash (500 x $30) Common Stock (500 x $10) APIC - Comm Stock (bal)

Question 204

Q1204. What happens when stock rights are issued?

Answer 204

A1204. No entry is required, just a memo entry. Common Stock & additional PIC increases when stock rights are exercised. RE is not affected when stock rights are exercised.

Question 205

Q1205. What 4 things require disclosure in f/s?

Answer 205

A1205. 1. Rights & Privileges of Securities Outstanding ex: dividend & liquidation preferences, participation rights, call prices & dates, conversion or exercise prices or rates & pertinent dates.

Question 206

Q1206. What’s a lump-sum purchase price?

Answer 206

A1206. When a corporation sells two or more classes of stock for a lump sum, the proceeds are allocated among several classes of stock by one of two methods.

Question 207

Q1207. What’s a subscription?

Answer 207

A1207. A contract to purchase one or more shares of stock in the future. Usually, shares of stock are not issued until the full subscription price is paid.

Question 208

Q1208. What are the 3 main components of a corp’s equity?

Answer 208

A1208. 1. Contributed capital which includes capital stock & APIC. 2. Retained Earnings 3. OCI

Question 209

Q1209. What is legal capital?

Answer 209

A1209. The portion of contributed capital required by statute to be retained in the business for protection of creditor’s.

Question 210

Q1210. What are 3 features of Preferred Stock?

Answer 210

A1210. 1. Redeemable - Shareholders may redeem shares, at their option, at a specified price per share. 2. Convertible - may exchange for common stock. 3. Callable - Corp may purchase the preferred stock back to cancel it.

Question 211

Q1211. What are stock rights?

Answer 211

A1211. Represent privileges extended by corporations to acquire additional shares of capital stock under prescribed within a stated time period.

Question 212

Q1212. What are the 4 main OCI classes?

Answer 212

A1212. 1. Foreign Currency Items 2. Pension Adjustments 3. Unrealized G & L’s on certain investments in debt securities & equity securities. 4. G & L’s on certain hedging activities.

Question 213

Q1213. What is contributed capital?

Answer 213

A1213. The injections of capital by stockholders. a. Cap Stock - the par or stated value of the stock purchased by owners b. APIC - PIC in excess of par or stated value

Question 214

Q1214. What are the 3 capital stock values?

Answer 214

A1214. 1. Par Value - Stock with a specified par value per share printed on the certificate. 2. No-Par Value 3. No-Par with stated value

Question 215

Q1215. What are the 5 types of preferred stock dividends?

Answer 215

A1215. 1. Cumulative 2. Noncumulative 3. Fully Participating 4. Partially Participating 5. Non Participating

Question 216

Q1216. What’s a development stage enterprise?

Answer 216

A1216. An enterprise that’s in the development stage if “substantially all” of its efforts are devoted to establishing a new business & either principal operations have not begun or has begun & revenue produced is insignificant.

Question 217

Q1217. What RPT’s disclosures are not required?

Answer 217

A1217. Compensation arrangements, expense allowances & similar items in the ordinary course of business

Question 218

Q1218. What’s a definition of a deferral?

Answer 218

A1218. A deferral represents a transaction that has been reflected in the cash accts of the period but has not yet affected the determination of income for that period.

Question 219

Q1219. What are 4 things that RPT disclosures should include?

Answer 219

A1219. 1) Nature of the relationship (s) involved 2) a description of the trans, including trans to which no amounts or nominal amounts were ascribed, for each of the periods for which f/s are presented. 3) Dollar amounts of the trans 4) Amounts due from or to related parties as of B/S date.

Question 220

Q1220. What are six examples of RPT’s?

Answer 220

A1220. 1. Sales, purchase & transfers of realty & personal property 2. Service received or furnished 3. Use of property & equip by lease or otherwise 4. Borrowings, lendings & guarantees 5. Intercompany billings based on allocations of common costs 6. Filings of consolidated tax returns

Question 221

Q1221. What’s a change in reporting entity basically?

Answer 221

A1221. a) presenting consolidated f/s b) changing specific sub’s that make up the group of for consolidated f/s. c) changing the entities included in combined f/s

Question 222

Q1222. What’s a change in accounting estimate?

Answer 222

A1222. A change that has the effect of adjusting the carrying amount of an existing asset or liabilities or altering the subsequent accounting for existing or future assets or liabilities.

Question 223

Q1223. What’s an indirect effect of a change in Accounting principle?

Answer 223

A1223. Any changes to current or future cash flows of an entity that result from making a change in accounting principle that is applied retrospectively.

Question 224

Q1224. How are prior period adjustments handled?

Answer 224

A1224. As adjustments to the beginning bal of R/E.

Question 225

Q1225. What’s a direct effect of a change in Accounting prin?

Answer 225

A1225. Those recognized changes in A or L’s necessary to effect a change in accounting principle. An ex. is an adjustment to an inventory balance to effect a change in inventory valuation method.

Question 226

Q1226. Give an example of a change in accounting estimate affected by a change in accounting principle.

Answer 226

A1226. Change in method of depreciation, amortization, or depletion for long-lived, nonfinancial assets.

Question 227

Q1227. What’s an accounting change?

Answer 227

A1227. 1) Change in an accounting prin. 2) Change in an accounting estimate. 3) Change in a reporting entity.

Question 228

Q1228. What are the 2 concepts of income?

Answer 228

A1228. Current operating concept - normal recurring operations in evaluating the performance of the entity. All inclusive concept - F/S should include unusual & nonrecurring items in order to measure the long range operating performance of the enterprise. Method required now reflects a compromise between the two.

Question 229

Q1229. What’s basically comprehensive income.

Answer 229

A1229. All changes in equity during a period except those resulting from investments by owners & distributions to owners.

Question 230

Q1230. Where are extraordinary items reported on I/S?

Answer 230

A1230. If mat’l, presented net of related income tax after discontinued operations. Also, has to be BOTH unusual & infrequent of occurrence.

Question 231

Q1231. Are assets classified as Held for Sale depreciated or amortized?

Answer 231

A1231. No!

Question 232

Q1232. How are non-component assets reported?

Answer 232

A1232. Income from continuing operations includes G or L’s from an asset that is classified as held for sale. If disposal will not occur for more than 12 months, costs to sell are discounted to PV.

Question 233

Q1233. Who doesn’t comprehensive income apply to?

Answer 233

A1233. Entities that have no items of other OCI in any period presented nor to not for profits!

Question 234

Q1234. What’s the rule for recognizing lease termination costs & specified employee severance plan costs?

Answer 234

A1234. SFAS 146 requires recognizing lease termination costs & specified employee severance plan costs related with exit or disposal activities in periods in which obligations to others exists, not necessarily in the period of commitment to a plan.

Question 235

Q1235. Do you record a liabilities for future operating losses?

Answer 235

A1235. No!

Question 236

Q1236. How would unusual or infrequent items be reported?

Answer 236

A1236. As a separate component of income from continuing operations. Nature & financial effects should be disclosed. These items should NOT be reported net of income taxes.

Question 237

Q1237. Define errors in F/S!

Answer 237

A1237. Errors in F/S result from mathematical mistakes, mistakes in the application of accounting principles, or the oversight or misuse of facts that existed at the time the f/s were prepared.

Question 238

Q1238. How should a change in estimate be disclosed?

Answer 238

A1238. The effects of the change in estimate on income before extra items, NI, & related per share amounts s/b disclosed in the period of the change or in future periods if the change affects those periods.

Question 239

Q1239. When a change in estimate is inseparable from the change in principle how should the change be accounted for?

Answer 239

A1239. As a change in estimate.

Question 240

Q1240. What’s the rule with accumulated balance of OCI?

Answer 240

A1240. An entity is required to display the accumulated balance of OCI separately from RE, Capital Stock & APIC.

Question 241

Q1241. How do you account for a change in reporting entity?

Answer 241

A1241. By retrospectively applying the change to the f/s of all prior periods presented to reflect the financial info for the new reporting entity for the periods.

Question 242

Q1242. What are 4 examples of changes in estimate?

Answer 242

A1242. 1) Useful lives & salvage value of depreciable assets. 2) Recovery periods benefited by a deferred cost. 3) Expected losses on receivables. 4) Warranty costs.

Question 243

Q1243. What 4 disclosures are needed when a change in accounting principle is made?

Answer 243

A1243. 1) Nature & reason for the change & method of applying the change. 2) A description of prior period info that has been retrospectively adjusted, if any. 3) The effect of the change on income before extras, NI & the related per share amounts. 4) Cumulative effect of the change on RE or other components of equity or net assets.

Question 244

Q1244. What’s a brief explanation of OCI?

Answer 244

A1244. Items that are included in the equity section as a separate component of owners equity.

Question 245

Q1245. What’s the 4 groups of RPT’s?

Answer 245

A1245. 1) Parent co & it’s sub’s 2) Sub’s of common parent 3) Enterprise & it’s principal owners, management or members of immediate families 4) Affiliates

Question 246

Q1246. What is a counterbalancing error?

Answer 246

A1246. Errors that will “correct” themselves over 2 consecutive accounting periods.

Question 247

Q1247. What disclosures are required when restating prior periods?

Answer 247

A1247. SFAS 154 requires an entity to disclose as of the beginning of the earliest period presented that previously issued f/s have been restated along with a desc of the nature of the error, the effect of the correction on each f/s & the per share amounts effected, the cum effect of the change on RE & other components of equity of net assets. F/S of subsequent periods need not repeat the disclosures.

Question 248

Q1248. What are 5 errors commonly found f/s?

Answer 248

A1248. 1) Estimates based on unreasonable assumptions, ex. unrealistic depreciation rate 2) Recording erroneous amounts for assets & equities, ex. incorrect footing of inventory totals 3) Failure to record PPD & accrued expenses 4) The improper classification of assets as expenses and vice versa. 5) The change from an accounting prin that is NOT accepted to one that is, is viewed as a correction of an error.

Question 249

Q1249. How are errors classified?

Answer 249

A1249. By time of discovery or according to their effect on the B/S, I/S or both.

Question 250

Q1250. What is a non-counterbalancing error?

Answer 250

A1250. Errors that cause successive B/S amounts & NI to be incorrectly stated until the errors are discovered & corrected.

Question 251

Q1251. How do you deal with restating prior periods?

Answer 251

A1251. The cumulative effect of the error on periods prior to those presented shall be reflected in the carrying amount of A & L’s as of the beginning of the first period presented. Any offsetting adjustment shall be made to the opening bal. of RE.

Question 252

Q1252. What happens if you notice an error subsequent to the issuance of the f/s.

Answer 252

A1252. Should be reported as a prior period adjustment by restating the prior period f/s.

Question 253

Q1253. What are 3 examples of assets requiring individual analysis?

Answer 253

A1253. 1) Preferred Stock & Convertible Bonds ( if the market values the security primarily as a bond, it is monetary, if it values the security primarily as a stock, it is nonmonetary 2) Inventories used on contracts 3) Pension, sinking & other fund under an enterprises control

Question 254

Q1254. What are the 2 ways a recoverable amount is measured?

Answer 254

A1254. Value in use or market value 1) Value in use - used if immediate sale of the asset is not intended 2) current market value - used only if the asset is about to be sold

Question 255

Q1255. What’s a cost recovery expense?

Answer 255

A1255. Depreciation, depletion & amortization expense on the basis of the AVERAGE current cost of the assets, service potential or lower recoverable amount during the period of use.

Question 256

Q1256. Does holding nonmonetary items during a period of changing prices give rise to purchasing power G & L’s?

Answer 256

A1256. No

Question 257

Q1257. What’s the definition of nonmonetary assets?

Answer 257

A1257. 1) Goods held primarily for resale or assets held primarily for direct use in providing services for the business 2) Claims to cash in amounts dependent on future prices of specific goods or services 3) Residual rights such as goodwill or equity interests

Question 258

Q1258. What is recoverable amount?

Answer 258

A1258. The current worth of the net amount of cash expected to be recoverable from the use or sale of an asset.

Question 259

Q1259. How do you calculate COGS at average current cost?

Answer 259

A1259. Average Current Cost Per Unit x Units Sold During The Year

Question 260

Q1260. What are 2 examples of purchasing power gains that result from holding?

Answer 260

A1260. 1. Holding monetary liabilities during a period of inflation. 2. Holding monetary assets during a period of deflation.

Question 261

Q1261. When is the cost recovery method of revenue recognition accepted?

Answer 261

A1261. 1. Collectability of proceeds is doubtful 2. An investment is very speculative in nature 3. Where the final sale price is to be determined by future events

Question 262

Q1262. Are selling & admin expenses used to compute the GP rate?

Answer 262

A1262. No

Question 263

Q1263. What are the 3 conditions that need to be present in order to recognize revenue at the completion of production?

Answer 263

A1263. 1. There must be a relatively stable market for the product. 2. Marketing costs must be nominal. 3. The units must be homogeneous.

Question 264

Q1264. What’s the formula for income recognition under % of completion method?

Answer 264

A1264. (Actual Cost / Estimated Total cost x Total Estimated Contract Income) less income previously recognized

Question 265

Q1265. What is basically the installment method?

Answer 265

A1265. Deferring & recognizing revenue in each year in proportion to the receivables collected during that year.

Question 266

Q1266. When an installment receivable extends beyond one year how should it be recorded?

Answer 266

A1266. At PV of the payments discounted at the market interest rate

Question 267

Q1267. What are 2 characteristics of the cost recovery method?

Answer 267

A1267. 1. It’s the most conservative revenue recognition method. This method is used when the uncertainty of collection is so great that the use of the installment method is precluded. 2. All amounts collected are treated as a recoupment of the cost of the item sold until the entire cost associated with the trans. has been recovered. Only at this point is profit recognized.

Question 268

Q1268. When can you recognize revenue at the time of sale when right of return exists? 6 conditions must be met!

Answer 268

A1268. 1. The sellers price to the buyer is substantially fixed or determinable at the date of sale. 2. The buyer has paid the seller, or the B is obligated to pay the s, & the obligation is not contingent on resale of the product. 3. The B’s obligation to the S would not change in the event of theft, physical destruction, or damage of the product. 4. B has economic substance apart from S 5. S does not have significant obligation to help B resell it. 6. The amount of future returns can be reasonably estimated.

Question 269

Q1269. What’s the 5 basic entries in construction accounting?

Answer 269

A1269. 1. Record the costs of construction 2. Record progress billings 3. Record collections 4. Recognize Revenue & GP 5. Record Completion of the contract

Question 270

Q1270. When should a franchisor defer income?

Answer 270

A1270. If it’s probable continuing franchise fees will not cover the cost of the continuing services provided by the franchisor and also allow reasonable profit.

Question 271

Q1271. When are services considered to be substantially performed?

Answer 271

A1271. 1. The franchisor has no remaining obligation or intent to refund any cash received or forgive any unpaid notes or receivables. 2. Substantially all initial services of the franchisor required by the agreement have been performed 3. No other mat’l conditions or obligations related to the determination of substantial performance exist.

Question 272

Q1272. Do royalties follow the accrual basis of accounting?

Answer 272

A1272. Yes

Question 273

Q1273. What kind of account is progress billings?

Answer 273

A1273. Contra Account to Construction in Progress

Question 274

Q1274. When can installment & cost recovery methods be used to account for franchise fee revenue?

Answer 274

A1274. Only when revenue is collectible over an extended period and no reasonable basis exists for estimating collectability.

Question 275

Q1275. What’s the definition of a monetary asset?

Answer 275

A1275. Money or a claim to receive money, the amount of which is fixed or determinable without reference to future prices of specific goods or services.

Question 276

Q1276. When is consignment sales revenue recognized?

Answer 276

A1276. At the time of the sale at the sales price. Commission paid to the consignee is reported as a selling expense NOT netted against sales revenue.

Question 277

Q1277. How is Goodwill handled in a business combo?

Answer 277

A1277. A DTL or DTA is recognized for the differences between the assigned values and the tax bases of the assets & liabilities recognized in a business purchase combo.

Question 278

Q1278. Do any temporary difference’s arise from cost method investments?

Answer 278

A1278. No! Basis for income recognition on cost method investments is dividends received for both financial & tax purposes.

Question 279

Q1279. What causes a temporary difference in Equity Method Investments?

Answer 279

A1279. An equity methods undistributed income. The tax effect of this temporary difference depends on whether the investor ultimately expects to receive the undistributed income as dividends or as a realized gain upon disposal of the investment. If dividends, computation of temporary difference should allow for dividend rec deduction.

Question 280

Q1280. What’s a permanent diff?

Answer 280

A1280. An event recognized in the f/s that does not have a tax consequence under the regular U.S. tax system. Certain revenues are exempt from taxation & certain expenses are not deductible.

Question 281

Q1281. What are 3 examples of permanent differences resulting from expenses?

Answer 281

A1281. 1. Expenses incurred in generating tax-exempt income. 2. Premiums paid for life ins. on officers when the enterprise is the beneficiary. 3. Fines, penalties & other costs incurred from activities that are a violation of the law.

Question 282

Q1282. How do you deal with a DTL or DTA for different jurisdictions?

Answer 282

A1282. They are separately computed for each tax jurisdiction (i.e., fed, state, local or foreign) because the tax attributes related to one tax authority cannot be used to directly offset tax attributes related to a different taxing authority.

Question 283

Q1283. What are 2 examples of items that are deductible before being included in financial income?

Answer 283

A1283. 1. Prepaid Expense 2. Depreciation Expense These situations will result in future taxable amounts!

Question 284

Q1284. What’s an example of a temporary difference that is not linked to a particular item?

Answer 284

A1284. A LT-Contract that is accounted for by the % of completion method for financial reporting & the completed contract method for tax purposes. The temporary difference is deferred income for tax purposes that becomes taxable when the contract is completed.

Question 285

Q1285. What are 3 examples of permanent differences resulting from revenues?

Answer 285

A1285. 1. Interest earned on state & municipal obligations. 2. Life ins proceeds received by an enterprise on one of it’s officers. 3. Dividends received by one US corp from another that are excluded from taxable income due to the dividends received deduction.

Question 286

Q1286. What’s a deferred tax expense or benefit?

Answer 286

A1286. The change during the year in an enterprise’s deferred tax liabilities & assets.

Question 287

Q1287. What’s a valuation allowance?

Answer 287

A1287. Reduce deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not (more than 50%) that some or all of the DTA will not be realized. The allowance must reduce the DTA to an amount that is more likely than not to be realized.

Question 288

Q1288. What’s an income tax benefit?

Answer 288

A1288. When a loss situation results in a tax refund or tax savings.

Question 289

Q1289. What is income taxes currently payable (refundable)?

Answer 289

A1289. Income taxes currently payable (refundable) is also called current tax expense (or benefit) & is determined by applying the provisions of the tax law to the taxable income or taxable loss for period. ex. taxable income x tax rate / income taxes currently payable

Question 290

Q1290. What are some other names for pretax financial income?

Answer 290

A1290. Pretax accounting income, book income, financial income, accounting income, or income for financial accounting purposes.

Question 291

Q1291. What’s the calculation to figure Net Loss when you got an NOL?

Answer 291

A1291. Operating loss before income taxes (XXX) + Benefits of loss carryback xxx + Benefits of loss carryforward xxx —- Net Loss (XXX)

Question 292

Q1292. Financial vs Taxable Income Comparison

Answer 292

A1292. For FINANCIAL: Revenues Earned - Expenses incurred = Pretax Financial income (loss) - Income Tax Expense (benefit) = NI (Loss) for TAXABLE: Taxable Amounts - deductible amounts = taxable income (loss)

Question 293

Q1293. What is income tax expense (benefit)?

Answer 293

A1293. ITE (benefit)is the sum of the current tax expense (benefit) and deferred tax expense (benefit). In the rare instances where taxable income is the same amount as pretax financial inc, total income tax expense will equal income taxes currently payable.

Question 294

Q1294. What would be the 2 JE’s when you got on NOL going back then forward?

Answer 294

A1294. 1st Entry For years going back Debit: Income Tax Refund Received Credit: Benefits of Loss Carryback 2nd Entry (to record carryforward) Debit: Deferred Tax Asset Credit: Benefits of Loss Carryforward

Question 295

Q1295. Why can a DTA be either a current asset or non current?

Answer 295

A1295. Depends on whether the benefits of the NOL Carryforward are expected to be realized in the following year or in a later year.

Question 296

Q1296. What’s the formula for the reconciliation between financial income & taxable income?

Answer 296

A1296. (6 Parts) Pretax fin income (loss) XXX + excess of taxable rev’s over rev’s per books XXX - excess of deductible amounts over expenses per books (XXX) - excess rev’s per books over taxable rev’s (XXX) + excess of expenses per books over ded expenses XXX — Taxable income (loss) XXX

Question 297

Q1297. What would the JE be after the year of NOL?

Answer 297

A1297. Income Tax Expense - Current Income Tax Expense - Def (this was benefits of loss carryforward) Income Taxes Payable DTA

Question 298

Q1298. What’s a taxable temporary difference?

Answer 298

A1298. Temporary difference’s that will result in taxable amounts in future years when the related assets are recovered.

Question 299

Q1299. When are some certain items such as warranty expense & loss contingencies deductible for tax purposes?

Answer 299

A1299. When they are realized.

Question 300

Q1300. Show a brief part of the I/S presentation for taxes.

Answer 300

A1300. Income before income taxes XXX Current tax expense XXX Deferred tax expense XXX Total Income Tax Expense XXX NI XXX

Question 301

Q1301. What’s the asset & liability method?

Answer 301

A1301. Difference between (1) the amount of taxable income & pretax financial income for a year & (2)the tax bases of A & L’s & their reported amounts in f/s as temporary differences.

Question 302

Q1302. What’s the definition of a temporary diff?

Answer 302

A1302. It’s the difference between the tax basis of an asset or liabilities & it’s reported amount in the f/s that will result in taxable or deductible amounts in future years when the reported amount of the asset is recovered or the liabilities is settled.

Question 303

Q1303. What’s a deductible temporary difference?

Answer 303

A1303. Temporary difference’s that will result in deductible amounts in future years when related liabilities are settled.

Question 304

Q1304. 2 ways to deal with future tax rates & DTA’s & DTL’s.

Answer 304

A1304. 1. If taxable income is expected in the year that a future taxable or deductible amount is scheduled, use the enacted tax rate for that future year to calculate the related DTA or DTL. 2. IF NOL is expected, use the enacted rate of what will be the prior year the NOL will be carried back to or the enacted rate of the future year to which the carryforward will apply.

Question 305

Q1305. Explain tax-planning strategies.

Answer 305

A1305. In some cases, there are actions (including elections for tax purposes) that 1) are prudent & feasible 2) an enterprise ordinarily might not take, but would take to prevent an operating loss or tax credit carryforward from expiring unused 3) would result in realization of deferred tax assets.

Question 306

Q1306. How are DTA’s & DTL’s reported in a classified balance sheet?

Answer 306

A1306. They are separated & reported in a net current & a net noncurrent amount.

Question 307

Q1307. What’s positive evidence that a valuation allowance is not needed when there is negative evidence?

Answer 307

A1307. 1. Contracts or backlog that will produce more than enough taxable income to realize the DTA based on existing sales prices & cost structures 2. An excess of appreciated asset value over the tax basis of the entity’s net assets in an amount sufficient to realize the DTA. 3. A strong earnings history & any loss isn’t an indication of a continuing condition.

Question 308

Q1308. What is negative evidence when it comes to valuation allowances?

Answer 308

A1308. 1. Cumulative losses in recent years 2. History of operating loss or tax credit carryforwards expiring unused 3. Losses expected in early future years (by a presently profitable entity) 4. Unsettled circumstances that, if unfavorably resolved, would adversely affect future operations & profit levels on a continuing basis in the future. 5. A carryback, carryforward period that is so brief that it would limit realization of tax benefits.

Question 309

Q1309. Explain future realization of tax benefit.

Answer 309

A1309. It ultimately depends on the existence of sufficient taxable income of the appropriate character (ex. ordinary inc. or capital gain) within the carryback, carryforward period available under the tax law.

Question 310

Q1310. What’s weighing evidence when it comes to valuation allowances?

Answer 310

A1310. An enterprise must use judgment in considering the relative impact of negative & positive evidence. The more negative evidence that exists the more positive evidence is necessary & the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion or all of the DTA.

Question 311

Q1311. Where is the effect of recognizing or eliminating a deferred tax liability or asset reported?

Answer 311

A1311. It’s included in income from continuing operations.

Question 312

Q1312. Do losses & carryforwards need to be disclosed?

Answer 312

A1312. Yes! The amounts & expiration dates of operating loss & tax credit carryforwards.

Question 313

Q1313. How do you apply tax benefits in a business combo?

Answer 313

A1313. If a valuation allowance is recognized for the DTA for an acquired entity’s deductible temporary difference’s or operating loss or tax credit carryforwards apply them to: 1. First to reduce to zero any GW related to the acquisition. 2. Reduce to zero other noncurrent intangible assets related to the acquisition. 3. Reduce the income tax expense

Question 314

Q1314. What’s the dividends received deduction?

Answer 314

A1314. Tax law has generally allowed corporate shareholders owning less than 20% of the stock of a qualifying domestic corp to deduct 70% of the dividends received & 80% for owning 20-80%.

Question 315

Q1315. How are DTA’s & DTL’s classified?

Answer 315

A1315. They are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A DTA or DTL that is not related to an asset or liabilities for financial reporting, including DTA’s related to carryforwards, is classified according to the expected reversal date of the temporary difference.

Question 316

Q1316. When is stockholders equity charged or credited for income tax effects?

Answer 316

A1316. 1. Adjustment of the opening bal or RE for certain changes in accounting principles or a correction of an error. 2. G & L’s recognized in comprehensive inc., but excluded from net inc. 3. An increase or decrease in contributed capital 4. Expenses for employee stock options recognized differently for financial reporting & tax purposes

Question 317

Q1317. What are the components of Income Tax Expense that are disclosed in the f/s or notes thereto?

Answer 317

A1317. 1. Current Tax Expense (benefit) 2. Deferred tax expense (benefit) 3. Investment tax credits 4. Government grants 5. The benefits of operating loss 6. Tax expense that results from allocating certain tax benefits. 7. Adjustment of a DTA or DTL or a change in tax status of an enterprise. 8. Adjustment of the valtion allow

Question 318

Q1318. What is the amount allocated to continuing operations?

Answer 318

A1318. The amount allocated to continuing operations is the tax effect of the pretax income or loss from continuing operations that occurred during the year, + or - income tax effects of: 1. Changes in judgment about the realization of DTA’s in future years 2. Changes in tax laws or rates 3. Changes in tax status The remainder is allocated to items other than continuing operations.

Question 319

Q1319. Explain the tax allocation for the I/S.

Answer 319

A1319. Income tax expense (benefit) for the year is to be allocated among continuing operations, disc operations, extra items & items of OCI. The process of allocating inc. taxes to key components of the f/s is called intraperiod tax allocation.

Question 320

Q1320. There are 5 things that must be disclosed, what are they?

Answer 320

A1320. 1. Total of all DTL’s 2. Total of all DTA’s 3. Total valuation allowance recognized for DTA’s 4. Net change during the year in total valuation allowance 5. Approximate tax effect of each type of temporary difference & carryforward

Question 321

Q1321. Explain the allocation to other than continuing operations.

Answer 321

A1321. If there is only 1 item other than cont operations, the portion of income tax expense (benefit) for the year that remains after the allocation to continuing operations is allocated to that item. If there are 2 or more items other than continuing operations, the amount that remains after the allocation to continuing operations shall be allocated among those other items in proportion to their individual effects on income tax expense (benefit) for the year.

Question 322

Q1322. What’s a tax reconciliation?

Answer 322

A1322. A public enterprise discloses a reconciliation using percentages or dollar amounts of a reported amount of income tax expense attributable to continuing operations for the year to an amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income from continuing operations.

Question 323

Q1323. Do you always subtract out Bad Debt expense from General & Admin Expenses?

Answer 323

A1323. Yes

Question 324

Q1324. What’s the formula for cash paid for inventory?

Answer 324

A1324. COGS + income in inv + decrease in a/p

Question 325

Q1325. What’s the formula for cash received from customers?

Answer 325

A1325. Sales + Beginning A/R - Ending A/R. sometimes take out write offs

Question 326

Q1326. What are some examples of non-cash investing & financing transactions?

Answer 326

A1326. 1. Converting debt to equity 2. Acquiring assets by assuming directly related liabilities, such as a purchase of a bldg by incurring a mortgage. 3. Obtaining an asset by entering into a capital lease 4. Exchanging non-cash assets or liabilities for other non- cash assets or liabilities.

Question 327

Q1327. Should non-cash investing & financing activities be reported in disclosures?

Answer 327

A1327. Yes

Question 328

Q1328. Explain reporting cash flow’s from operating activities under the direct method?

Answer 328

A1328. Under this method, enterprises are encouraged to report major classes of gross cash receipts & gross cash payments & their arithmetic sum-the net cash flow from operating activities. At a minimum the following classes of operating cash receipts & payments should be reported separately for: cash from cust, interest & dividends received, other operating cash receipts, cash paid to employees & other suppliers of goods or services including ins & ppd’s, interest paid, income taxes paid & other operating cash payments

Question 329

Q1329. What 4 types of info does the statement of CF’s provide to outsiders?

Answer 329

A1329. 1. Entities ability to generate positive future net cash flows. 2. Entities ability to meet its obligations, it’s ability to pay dividends, and its needs for external financing. 3. The reasons for differences between NI & associated cash receipts & payments. 4. The effects on an enterprises financial position of both it’s cash & non-cash investing & financing transactions during the period.

Question 330

Q1330. What type of disclosure is required of investing & financing transactions.

Answer 330

A1330. Related disclosures should report the effects of investing & financing transactions that affect an enterprises financial position, but do not directly affect cash flows during the period.

Question 331

Q1331. What are cash equivalents?

Answer 331

A1331. ST, highly liquid investments that are both 1) readily convertible into known amounts of cash, 2) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Maturity less than 3 months!!

Question 332

Q1332. What are 4 things that are removed from NI under the indirect method?

Answer 332

A1332. 1) All deferrals of past operating cash receipts & payments, such as changes during the period in inventory & deferred income. 2) All accruals of expected operating cash receipts & payments, such as changes during the period in receivables & payables. 3) Items whose cash affects are investing CF’s, such as depreciation & G & L’s on sales of PPE & discontinued operations. 4) Items whose cash affects are financing cash flows, such as G&L’s on extinguishment of debt.

Question 333

Q1333. Should f/s report amount of cash flow per share?

Answer 333

A1333. No

Question 334

Q1334. What is the six part format for the statement of CF’s?

Answer 334

A1334. 1) Net cash flow from operating activities-DM or IM 2) Net cash flow from investing activities 3) Net cash flow from financing activities 4) Net increase (decrease) in cash & cash equivalents 5) Cash & cash equivalents at beginning of year 6) Cash & cash equivalents at end of year

Question 335

Q1335. Are loans receivable that are acquired specifically for resale part of investing activities?

Answer 335

A1335. No

Question 336

Q1336. Proceeds from an insurance settlement on a bldg that was damaged or destroyed should be reported where?

Answer 336

A1336. Investing Activities

Question 337

Q1337. Where are principal payment’s to creditors who have extended long-term credit reported?

Answer 337

A1337. Financing Activities

Question 338

Q1338. When do you provide a reconciliation of Net Income in a separate schedule?

Answer 338

A1338. If the direct method was used for operating activities.

Question 339

Q1339. What two things pretty much make up the investing section?

Answer 339

A1339. 1) Acquiring and disposing of PPE & other productive assets. 2) Purchases, sales & maturities of debt & equity securities (excluding those acquired specifically for resale). Those include AFS & HTM & investments in equity securities.

Question 340

Q1340. Is a disbursement of cash for a loan made by an entity a financing or investing activity?

Answer 340

A1340. Investing

Question 341

Q1341. What are 4 general examples of financing activities?

Answer 341

A1341. 1) obtaining resources from owners & providing them with a return on, & return of, their investment. 2) Borrowing money & repaying amounts borrowed, or otherwise settling the obligation. 3) obtaining & paying for other resources obtained from creditors on long-term credit. 4) derivatives that contain a financing component

Question 342

Q1342. What are the 5 things that are in cash outflows?

Answer 342

A1342. Cash outflows: cash payments for: 1) to acquire materials for providing services & manufacturing goods for resale, including prin payments on A/P & both s & LT N/P to suppliers. 2) to other suppliers for other goods or service, including employees 3) for grants to other governments or organizations for specific activities that are considered to be operating activities of the grantor government 4) for taxes, duties, fines & other fees or penalties 5) for quasi-external operating trans with other funds, including payments in lieu of taxes

Question 343

Q1343. What’s in capital & related financing activities?

Answer 343

A1343. Includes acquiring & disposing of capital assets used in providing services or producing goods; borrowing money for acquiring, constructing, or improving capital assets & repaying the amounts borrowed, including interest, & paying for capital assets obtained from vendors on credit.

Question 344

Q1344. What two things are included in other RSI?

Answer 344

A1344. After F/S 1. Budgetary Comparison Schedule (BCS) 2. Infrastructure Schedules

Question 345

Q1345. Order of CAFR?

Answer 345

A1345. 1. Intro 2. Financial a. MD&A b. Basic F/s 1. GWS - net assets & activities 2. Fund F/S 3. Notes to F/S c. RSI d. Combining Statements e. Individual Fund Statements & Schedules

Question 346

Q1346. What’s in investing activities on CF’s?

Answer 346

A1346. Making & collecting loans (except program loans) & acquiring & disposing of debt or equity instruments.

Question 347

Q1347. What’s in Noncapital Financing Activities?

Answer 347

A1347. Includes borrowing for purposes other than to acquire, construct or improve cap assets, as well as repaying borrowed amounts, including interest. This category includes proceeds from all borrowings (such as revenue anticipation notes) not clearly attributable to capital assets, regardless of the form of the borrowing.

Question 348

Q1348. What are the 5 things that are in cash inflows?

Answer 348

A1348. Cash Inflows: Receipts of cash from 1) Sales of goods/service, including receipts from collection or A/R & both S & LT Notes Received from customers arising from sales. 2) Quasi-external operating trans with other funds 3) Grants for specific activities that are considered to be operating activities of the grantor government. (A grant arrangement of this type is essentially the same as a contract for services) 4) Other funds for reimbursement of operating trans 5) Loan programs that are made & collected as part of a governmental program. ex. student loans

Question 349

Q1349. What’s included in the operating section of CF’s?

Answer 349

A1349. Cash inflows, receipts, & payments that do not result from transactions defined as capital & related financing, non- cap financing, or investing activities.

Question 350

Q1350. How should fiduciary funds be prepared?

Answer 350

A1350. Same as Proprietary as far as economic resource measurement focus & the accrual basis of accounting. Required statements are: 1) State of N/A 2) State of changes in N/A Major fund recording is NOT used in Fiduciary Funds

Question 351

Q1351. How should the proprietary funds be prepared?

Answer 351

A1351. F/S should be prepared using the economic resources measurement focus & the accrual basis of accounting. Internal service funds also should be reported in the aggregate in a separate column on the proprietary fund statements.

Question 352

Q1352. What’s the link between Government Wide & Fund Statements?

Answer 352

A1352. A reconciliation to convert the governmental funds to the economic resources measurement & accrual basis of accounting. Adjustment usually include moving the trans. for general capital assets & general LT liabilities from the operating statements to the B/S. Other reconciling items may include adjustment to deferred revenues or internal service fund net assets.

Question 353

Q1353. What’s the major difference between Government CF’s and regular?

Answer 353

A1353. 4 categories: Operating, Non-Cap Financing, Cap & Related Financing, Investing Activities

Question 354

Q1354. What should enterprise fund f/s consist of?

Answer 354

A1354. a) statement of net assets or b/s - net assets should be reported in the same categories required for the GWS. b) statement of rev’s, expenses & changes in fund net assets

Question 355

Q1355. What’s considered a major fund?

Answer 355

A1355. General fund is ALWAYS major! 2 other criteria are: 1) At least 10% of the corresponding total for the relevant fund category (governmental or proprietary) 2) At least 5% of the corresponding total for all governmental & proprietary funds combined.

Question 356

Q1356. What 2 statements are required for governmental funds?

Answer 356

A1356. 1) Balance Sheet 2) Statement of Revenues, Expenditures, and changes in fund balance.

Question 357

Q1357. What’s included in Bus-Type funds?

Answer 357

A1357. Amounts from enterprise funds & exceptional internal service funds.

Question 358

Q1358. How are capital assets & LT Liabilities recorded in GWS?

Answer 358

A1358. a) Amounts are presented within the appropriate governmental activities, bus-type activities, & component unit classification. b) Depreciation is not required if other criteria is met.

Question 359

Q1359. What 2 requirements need to be met for infrastructure assets that are part of a network or subsystem of a network to not be depreciated?

Answer 359

A1359. 1) Government manages the eligible infrastructure assets using an asset management system. Such as up to date inventory, perform condition assessments, estimate each year of maintenance & preserve. 2) Government documents that the eligible infrastructure assets are being preserved approximately at (or above) a condition level established & disclosed by the government.

Question 360

Q1360. When should governments capitalize collections or “things”?

Answer 360

A1360. Works of arts, historical treasures. If collection is exhaustible it should be depreciated over it’s useful life.

Question 361

Q1361. When should a capital asset be considered impaired?

Answer 361

A1361. If both: a) the decline in service utility of the capital asset is large in magnitude b) the event or change in circumstance is outsie the normal life cycle of the cap asset.

Question 362

Q1362. Explain Infrastructure Assets system for retroactive reporting.

Answer 362

A1362. Retroactive reporting is required 4 years after the effective date on the basic provisions for all major general infrastructure assets that were acquired or significantly reconstructed, or that received significant improvements, in fiscal years ending after 6/30/80.

Question 363

Q1363. What’s included in Governmental Activities?

Answer 363

A1363. Includes the amounts from the governmental funds (restated on the accrual basis of accounting) plus, typically the amounts from the internal service funds. Exception applies if the internal service fund provides services primarily to enterprise funds.

Question 364

Q1364. 8 parts of the letter of transmittal are?

Answer 364

A1364. 1) Discussion 2) Comparison 3) Analysis of Overall Financial Position 4) Analysis of Balances & transactions of individual funds 5) Analysis of significant budget changes 6) Capital asset & LT Liabilities activities 7) Infrastructure 8) Currently known facts, decisions or conditions

Question 365

Q1365. Explain eliminations & reclassifications!

Answer 365

A1365. Eliminations deduct the duplication resulting from interfund transfers & internal service fund transactions. Interfund rec’s and payables are eliminated, except for residual balances between governmental & bus-type activities. Internal events that are essentially allocations or OH expenses are also eliminated from the statement of activities. Interfund services provided & used between functional categories, such as sales of utilities, are not eliminated.

Question 366

Q1366. Explain what special & extra items are!

Answer 366

A1366. Special & extra items are nonoperating sources or uses. They are displayed separately on the statement of activities after the calculation of excess revenues. Special items are within the control of management but are both abnormally big in size & either unusual in nature or infrequent in occurrence. Extra items are trans or other events that are both unusual in nature and infrequent in occurrence.

Question 367

Q1367. What are fiduciary funds?

Answer 367

A1367. The fiduciary fund category includes only those funds used to report assts held in a trustee or agency capacity for others & that cannot be used to support the governments own programs. Private-purpose trust funds & permanent funds distinguish between resources held in a fiduciary capacity & those available to the government. Private purpose trusts are fiduciary funds, permanent funds are governmental funds, NOT fiduciary funds!!

Question 368

Q1368. What’s the primary Government on the GWS?

Answer 368

A1368. Sum of the governmental & business-type activities.

Question 369

Q1369. What’s a letter of transmittal?

Answer 369

A1369. GASB don’t require it, but it’s for governments that participate in the GFOA certificate of achievement for excellence in financial reporting. Sort of reflects GASB requirements for MD&A.

Question 370

Q1370. What are proprietary funds?

Answer 370

A1370. Enterprise & internal service funds! If the sponsoring government is the predominant “customer” for the activity, the activities are reported in an internal service fund. Otherwise an enterprise fund is used.

Question 371

Q1371. What are some characteristics of fund statements?

Answer 371

A1371. Fund statements appear between the GWS & the notes. The combining statements report funds by type for the fiduciary funds & the combo of nonmajor funds. 1) A reconciliation to GWS appears on the face of the governmental fund financial statements, in a separate schedule, or in the notes. 2) Cash flows statements appear only in the fund statements for proprietary funds! 3) Optional combining fund statements (for nonmajor funds) may be presented after the notes to the f/s.

Question 372

Q1372. What are basic f/s?

Answer 372

A1372. Basic F/S include both GWS & the fund statements, as well as the notes.

Question 373

Q1373. When is the accrual basis used?

Answer 373

A1373. In GWS for all amounts. Also, in Prop fund statements, where rev’s & expenses are recorded & NI (loss) is reported. Also used in fiduciary fund statements, except for the recognition of certain liabilities of defined benefit pension plans & certain postemployment healthcare plans.

Question 374

Q1374. Is the reserve for encumbrances account a liability account?

Answer 374

A1374. No!! It’s a reservation of fund balance similar to the appropriated RE of a business enterprise.

Question 375

Q1375. Explain the encumbrance system!

Answer 375

A1375. The encumbrance system is used in governmental funds (general, spec rev, & cap projects) to prevent over- expenditure & to show compliance with legal requirements. When a PO is issued or a contract is approved, the estimated amount of the planned expenditure is encumbered (committed) by debiting Encumbrances & crediting Reserve for Encumbrances. When the related invoice is received, the encumbrance entry is reversed and the actual expenditure is recorded.

Question 376

Q1376. What is the basis of accounting in GWS?

Answer 376

A1376. All amounts in the GWS, including from the governmental funds, are determined using the economic resources measurement focus and accrual basis of accounting! Governmental funds presented in the fund F/S use current financial resources and modified accrual basis. Prop & Fiduciary funds use the economic resources focus & accrual basis in the fund statements, with limited exceptions for some fiduciary funds.

Question 377

Q1377. What should be done if at the end of the year if encumbered funds have not yet been expended?

Answer 377

A1377. Close the encumbrances acct by debiting fund balance & crediting encumbrances. This reduces the unreserved fund balance acct & causes the reserve for encumbrances acct - which merely offsets the encumbrances acct during the year - to be the true fund balance reserve. At beginning of the next period reverse the closing entry

Question 378

Q1378. What are 2 characteristics of the modified accrual basis of accounting?

Answer 378

A1378. 1) Revenues - accrued when available & measurable 2) Fixed assets are expenditures *Modified accrual is used in the government-type fund statements (general, spec rev, cap projects & debt service funds)

Question 379

Q1379. What are the 4 required columns in GWS?

Answer 379

A1379. The four required columns are: governmental activities, bus-type activities, the primary government (sum of the previous two), & component units. Note **Funds do not explicitly appear in GWS, the amounts in governmental fund, prop fund and component units statements match or are reconciled to GWS amounts.

Question 380

Q1380. How many of each type of funds should a government have?

Answer 380

A1380. Only 1 general fund & none, one or more of the other types of funds.

Question 381

Q1381. Do Fiduciary funds appear in GWS?

Answer 381

A1381. NO!

Question 382

Q1382. What are 4 examples of Fiduciary Funds?

Answer 382

A1382. Pension Trust Funds, Investment Trust Funds, Private- purpose trust funds & Agency Funds (which are purely custodial A = L)

Question 383

Q1383. What are the 2 Prop Funds?

Answer 383

A1383. 1. Enterprise (ex. Utilities) 2. Internal Service Funds (ex. central repair shop)

Question 384

Q1384. Do Prop and Fiduciary funds need budgets?

Answer 384

A1384. NO!!!!

Question 385

Q1385. Explain Fund Accounting!

Answer 385

A1385. A specific governmental unit is not accounted for through a single accounting entity. Instead, the accounts of a government are divided into several funds. A fund is a fiscal & accounting entity with a self-balancing set of accounts recording cash & other financial resources, together with all related liabilities & residual equities & balances, & changes therein, that are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.

Question 386

Q1386. What are fiduciary funds?

Answer 386

A1386. Fiduciary funds acct for resources ($ related liabilities) held by governments in a trustee capacity (trust funds) or as an agent for others (agency funds).

Question 387

Q1387. What are Prop funds used for?

Answer 387

A1387. They are used to finance a governments self-supporting business-type activities (ex. utilities). The accounting equation is the same as a business corp! Prop fund operations are measured in terms of revenues earned, expenses incurred & Net Income or loss.

Question 388

Q1388. What are fund balance reserves?

Answer 388

A1388. When some of the assets of a governmental fund are not working capital available for expenditure-e.g., assets of one fund have been loaned to another fund for several years - a fund bal. reserve is established.

Question 389

Q1389. What are 5 kinds of Governmental funds?

Answer 389

A1389. General, SRF, CPF, DSF & Permanent Fund

Question 390

Q1390. What are revenues?

Answer 390

A1390. Additions to fund assets or decreases in fund liabilities (except from other financing sources).

Question 391

Q1391. What are appropriations?

Answer 391

A1391. Forecasts of ($ authorizations of ) asset outflows of estimated uses of fund working capital (except for other financing uses). The appropriations control account is credited to record the budgeted expenditures (and closed at end of period with a debit).

Question 392

Q1392. What are expenditures?

Answer 392

A1392. Increases in fund liabilities or decreases in fund assets (except for other financing uses).

Question 393

Q1393. What is estimated revenue?

Answer 393

A1393. Forecasts of asset inflows of estimated sources of fund working capital (except from other financing sources). The estimate revenues control acct is debited to record the revenue budget ($ is closed at the end of the period with a credit).

Question 394

Q1394. What’s a fund balance?

Answer 394

A1394. The fund residual equity acct that balances the A & L accts of a governmental fund, thus recording the amount available for expenditures. (The Fund Bal. Acct. is similar to OE of a common enterprise only in this balancing feature; however, it does not purport to show any ownership in a fund’s assets).

Question 395

Q1395. What are governmental funds used for?

Answer 395

A1395. To finance the cops, fire protection, courts, inspection & general admin.

Question 396

Q1396. What are quasi-external transactions?

Answer 396

A1396. These are trans that would result in recognizing revenues & expenditures or expenses, as appropriate, if they were with organizations apart from the government. These transactions should also result in recognition of rev’s & expend’s or exp’s as appropriate, when they occur between or among funds of the government. Examples: routine employer contributions to pension trust funds

Question 397

Q1397. What’s the definition of Interfund Transactions?

Answer 397

A1397. Interfund transactions simultaneously affect two or more funds of the government. Transfers are NONRECIPROCAL shifts of resources among funds and are NOT intended to be repaid.

Question 398

Q1398. What’s the purpose of an Agency Fund and how is the accounting for it?

Answer 398

A1398. An agency fund is used to account for the custodial activities of a government serving as an agent for other government, private organizations or individuals. Agency funds are purely custodial (A=L). No equity in agency funds, no operating accts (ex. revenue) and no operating statement!

Question 399

Q1399. 3 things to remember about subfunds in Enterprise funds are?

Answer 399

A1399. 1) A & L’s of subfunds are accounted for by using separate A & L accts. ex. cash-construction, Investments-debt service 2) Rev’s & expenses related to the subfunds are recorded as enterprise rev’s & exp’s, not in a separate subfund rev & expense accts. 3) Customers’ security deposits that can’t be spent for normal operating things should be classified in the b/s of the enterprise funds as both a restricted asset and a liability.

Question 400

Q1400. When is an enterprise fund used?

Answer 400

A1400. They are used to account for a governments business-type operations that are financed & operated like private business, where the intent is that all costs (including depreciation) of providing goods & services to the general public be recovered primarily through user charges. ex. electricity, gas, water & sewage systems

Question 401

Q1401. What are subfunds?

Answer 401

A1401. Has to do with enterprise funds. If capital, debt service, trust, or agency funds related to an enterprise activity are required (ex. bond indentures, other contractual agreements, grant provisions, or laws), they are accounted for as enterprise fund subfunds rather than as separate funds.

Question 402

Q1402. What are the 4 types of fiduciary funds?

Answer 402

A1402. Pension Trust Funds, Investment Trust Funds, Private- Purpose Trust Funds & Agency Funds

Question 403

Q1403. What’s the purpose of a Pension Trust Fund and how is the accounting for it?

Answer 403

A1403. 1) Pension trust funds are needed only by governments that manage their own pension plans rather than participate in statewide plans or contract with a company to do it. 2) Accounting is basically the SAME as Proprietary Funds. Contributions & earnings are revenues, and benefit payments, admin costs & refunds or contributions are expenses. Depreciation expense is also recorded!!

Question 404

Q1404. What is a common type of Agency Fund?

Answer 404

A1404. The most common type of agency fund is the tax agency fund-used when one government collects property (or other) taxes for several governments, usually including the collecting government. Also, some governments use a payroll withholding agency fund to accumulate the payroll taxes, insurance premiums, etc. withheld in its several funds, then remit them to the proper governments, insurance companies, etc.

Question 405

Q1405. In Proprietary Funds, is contributed capital separated from RE in the B/S?

Answer 405

A1405. No!! Both are labeled Net Assets!!

Question 406

Q1406. Explain ISF’s profit structure.

Answer 406

A1406. They are supposed to break even annually and/or over a period of years! That is, the charges to other departments- that are accounted for as ISF revenues - are intended to recoup ISF expenses.

Question 407

Q1407. What’s the 2 differences between the enterprise fund & ISF?

Answer 407

A1407. 1) Only the FA that are expected to be replaced through the ISF are recorded therein & depreciated. ex., the printing equipment for a central printing shop located in the basement of a county house would be recorded in (& depreciated in) the print shop ISF. The house is reported in the government-wide f/s, a portion of the house cost would NOT be recorded in the ISF. 2) An account such as Billings to Depts serves as the ISF sales account rather than the usual revenues acct.

Question 408

Q1408. When are permanent funds used?

Answer 408

A1408. They are used to account for nonexpendable resources that may be used for the governments programs, in other words, to benefit the reporting entity or its citizens. They use modified accrual but their are no budgetary & encumbrance entries.

Question 409

Q1409. What’s the proprietary fund accounting equation?

Answer 409

A1409. Current Assets + Fixed & Other Assets = Current Liabilities + LT Debt + Net Assets

Question 410

Q1410. How should the reacquisition (refunding) of debt be handled as far as difference between the reacquisition price & the net carrying value of the old debt?

Answer 410

A1410. Difference should be deferred & amortized as a component of interest expense over the remaining life of the old debt or the life of the new debt, whichever is SHORTERS! Reported on B/S as either an addition or deduction from the new debt liabilities. This is in Proprietary funds!

Question 411

Q1411. What are internal service funds used for?

Answer 411

A1411. They are used to account for in-house business enterprise activities. Examples are government motor pools, central repair shops & garages, data processing departs & photocopy & printing shops.

Question 412

Q1412. How does an ISF get the initial capital to start?

Answer 412

A1412. The initial capital to finance an ISF may come from the general fund, the issuance of general obligation bonds, transfers from other funds, or advances from other governments. Permanent capital contributions (i.e., residual equity transfers) must be distinguished from loans & advances that are to be repaid.

Question 413

Q1413. What are some of the deciding factors to be a Special Revenue Fund versus one of the other funds?

Answer 413

A1413. The deciding factor for use of a SRF instead of an enterprise fund is intent. If the intent is to recover less than 50% of expenses from user fees, then the activity is handled in a special revenue fund. Another deciding factor in using a SRF as opposed to a private purpose trust fund are the beneficiaries. If the bene’s are citizens or the reporting entity, the activity is handled in a SRF. If the bene’s are individuals, private organizations, or other governments, then the activity is handled in a private- purpose trust fund.

Question 414

Q1414. Describe the accounting in a SRF.

Answer 414

A1414. Uses modified accrual, budgetary, encumbrance & actual activity usually appear in SRF’s. Kind of MIMICS the General Fund!

Question 415

Q1415. When is a capital projects fund used?

Answer 415

A1415. It’s used to account for the acquisition & use of financial resources to construct or otherwise acquire major long- lived general government capital facilities. Accounting similar to General & SRF’s except budgets are optional.

Question 416

Q1416. What is interim financing in CPF?

Answer 416

A1416. Often needed during the early stages of the capital projects to pay for expenditures incurred before the bond issue proceeds or other resources are received.

Question 417

Q1417. Give the 3 basic entries in the Special Revenue Fund. (Library Example)

Answer 417

A1417. 1. To record endowment earnings that are restricted for library purposes: Debit: Cash or Due from Perm Fund Credit: OFS Library Perm Fund 2. To record expenditures for library purposes: Debit: Expenditures-Lib Books Credit: Cash or payable 3. To close the accts at year-end: Debit: OFS Lib Perm Fund Credit: Expenditures Lib Books Credit: Fund Balance

Question 418

Q1418. Give some examples of special revenues & corresponding uses.

Answer 418

A1418. Source Use Hotel Bed Tax - Operate Tour Ctr Gas Tax - Maintain Streets Parking Fines - Run Traffic Crt Library Fines - Operate Library Donations - Purchase Library Books

Question 419

Q1419. Explain how a Capital Projects Fund gets it’s financial resources.

Answer 419

A1419. Typically are provided by bond issue proceeds, other funds, & interest earnings. 1) Interfund transfers are classified as operating transfers (OFS) or residual equity transfers, as appropriate. 2) Bond issue proceeds are classified as OFS. Premium & Disc are recorded as OFS or OFU. Debt issue cost paid out of proceeds are expenditures. A net premium is usually transferred to the DSF.

Question 420

Q1420. When is a Debt Service fund used?

Answer 420

A1420. It’s used to account for the accumulation of resources for the periodic payment of interest on and principal of general obligation LT-Debt. Uses modified accrual & similar accounts & entries to general, SRF & CPF’s!

Question 421

Q1421. Are capital assets carried in Governmental type funds?

Answer 421

A1421. No! Depreciation expense is also NOT recorded in governmental-type funds! LT Debt are also NOT carried in governmental-type funds!

Question 422

Q1422. How would you record an increase in supplies inventory on hand at year-end?

Answer 422

A1422. Debit: Supplies Inv Credit: Fund Bal Debit: Fund Bal Credit: Fund Bal Reserved for Supplies Inventory

Question 423

Q1423. How would you record a payment of a grant to the school district?

Answer 423

A1423. Debit: OFU Credit: Cash (or payable)

Question 424

Q1424. What’s the definition of Special Revenue Funds?

Answer 424

A1424. Used to account for revenues that are externally restricted or designated by the legislative body for specific general government purposes other than capital projects.

Question 425

Q1425. Are other financing sources/uses netted at all?

Answer 425

A1425. No! Transfers in/out or to/from are not netted!!

Question 426

Q1426. What’s the debit & credit to record an encumbrance?

Answer 426

A1426. Debit: Encumbrances Control Credit: Reserve for Encumbrances

Question 427

Q1427. How would you record receipt of a grant from the State Government & a bond issue?

Answer 427

A1427. Debit: Cash (or receivable) Credit: Grant Revenues Credit: OFS: Bond Proceeds

Question 428

Q1428. What’s a typical closing entry for actuals at year end?

Answer 428

A1428. Revenues Control (actual) OFS (actual) Expenditures (actual) OFU (actual) Fund Bal (diff-debit or credit) Fund Balance Encumbrance Control (amount outstanding at year end) reverse this at beginning of following year

Question 429

Q1429. What entry is typical of the general fund to record the budget?

Answer 429

A1429. Estimate Rev Control Estimate OFS Budgetary Fund Bal Estimate OFU Appropriations

Question 430

Q1430. Briefly explain how revenues are recorded.

Answer 430

A1430. Revenues are recorded as received in cash except for revenues susceptible to accrual and revenues of a material amount that have not been received at the normal time of receipt. Revenues are considered susceptible to accrual at the time they become measurable & available for use.

Question 431

Q1431. When are restricted grants recognized as revenue?

Answer 431

A1431. Restricted grants should not be recognized as revenue until they are earned. A restricted grant must be expended for the specific purposes to be considered earned. Deferred grant revenue is recorded initially, and the grant revenue is recognized only when the qualifying expenditures are incurred.

Question 432

Q1432. Do appropriations constitute maximum expenditure authorization during the fiscal year?

Answer 432

A1432. YES!!

Question 433

Q1433. Explain Encumbrances.

Answer 433

A1433. Encumbrance accounting records obligations to spend (PO’s) to prevent overspending of appropriations. Encumbrances are NOT liabilities. 1) Encumbrance entry is made when an item is ordered in the amount of the estimated cost. 2) A reverse entry is made for the same dollar amount when the invoice arrives. 3) Outstanding encumbrances at year end are carried forward as a reserve of fund bal with a corresponding deduction of unreserved fund bal. 4) The spending of a prior year outstanding encumbrance is a use of res fund bal, not a current year expenditure.

Question 434

Q1434. What does billed available revenues mean?

Answer 434

A1434. Billed available means collected or collectible within the current period or early enough the next period (within 60 days or so) to be used to pay for expenditures incurred in the current period (ex. property taxes). If revenue-related assets (e.g. taxes receivable) are not available, a deferred revenue acct. should be credited initially. When the assets become available, the acct is debited & revenue is credited.

Question 435

Q1435. What are the 3 times expenditures are not recorded when fund liabilities are incurred or assets are expended?

Answer 435

A1435. 1) Inventory items may be recorded as expenditures either at the time of purchase or at the time the items are used. 2) Expenditures normally are NOT allocated between years by the recording of prepaids (ex. 2year ins. policy). PPD expenses may be recorded as expenditures or may be allocated to periods (in funds using accrual accounting) 3) Interest on general LT debt, usually accounted for in DSF’s, normally are recorded as an expenditure on it’s due date rather than being accrued prior to it’s due date.

Question 436

Q1436. Accounting definition

Answer 436

A1436. A system of providing quantitative information primarily financial in nature about economic entities that is intended to be useful in making economic decisions.

Question 437

Q1437. Focus of financial accounting is on three primary financial statement. Name them

Answer 437

A1437. Balance Sheet, The income statement, statement of cash flows

Question 438

Q1438. Name some of the users of financial accounting information

Answer 438

A1438. Lenders, investors, company management, suppliers, customers, employees, competitors, government agencies, politicians and the press

Question 439

Q1439. The practice of accounting in the US involves adherence to established accounting rules set by…

Answer 439

A1439. The FASB

Question 440

Q1440. Name the three factors that make RIGHT NOW a time of significant change in accounting

Answer 440

A1440. Rapid advance in information technology, the international integration of worldwide business and the increased scrutiny associated with large corporate accounting scandals.

Question 441

Q1441. Define Bookkeeping

Answer 441

A1441. The preservation of a systematic, quantitative record of an activity

Question 442

Q1442. An accounting system is used by businesses for two reasons, name them

Answer 442

A1442. 1) to handle routing book keeping tasks 2) to structure the information so it can be used to evaluate the performance and status of the business

Question 443

Q1443. Financial and Managerial accounting differ, how?

Answer 443

A1443. Financial accounting provides information to outside users. Managerial accounting provides information for internal users.

Question 444

Q1444. What financial document “reports the resources of the company (the assets), the company’s obligations (the liabilities) and the owners equity?

Answer 444

A1444. The Balance Sheet

Question 445

Q1445. What financial document “reports the amount of net income earned by a company during a period, with annual and quarterly income statements being the most common?

Answer 445

A1445. The Income Statement - The income statement represents the accountant’s best effort at measuring the economic performance of a company.

Question 446

Q1446. What financial document “reports the amount of cash collected and paid out by a company in the following three types of activities: Operating, investing and financing?

Answer 446

A1446. The Statement of cash flows.

Question 447

Q1447. What are the three types of activities on the “Statement of cash flows?”

Answer 447

A1447. Operating, investing and financing

Question 448

Q1448. In the US, the FASB sets the accounting standards. What does the FASB stand for?

Answer 448

A1448. Financial Accounting Standards Board

Question 449

Q1449. GAAP is defined as?

Answer 449

A1449. Generally accepted accounting principles.

Question 450

Q1450. In response to the 1929 stock market crash, the Congress created this group to regulate US Stock exchanges

Answer 450

A1450. SEC - Securities and Exchange Commission

Question 451

Q1451. The international equivalent to the FASB is this board…

Answer 451

A1451. IASB - International Accounting Standards Board

Question 452

Q1452. The FASB is a government agency - T/F?

Answer 452

A1452. False.

Question 453

Q1453. The company’s resources can also be called -

Answer 453

A1453. Assets

Question 454

Q1454. The company’s obligations can also be called

Answer 454

A1454. Liabilities

Question 455

Q1455. The net ownership interest of a company can also be called

Answer 455

A1455. Owner’s equity

Question 456

Q1456. What document details how a company obtained and spent cash during a certain period of time?

Answer 456

A1456. Statement of cash flows - All of a company’s cash transactions are categorizes as operating, investing or financing activities

Question 457

Q1457. Where would you find the information on the accounting assumptions used in preparing the statements and also get supplemental information not included in the statements themselves?

Answer 457

A1457. The notes to the financial statements. Notes are an integral part of the financial statements.

Question 458

Q1458. Why is an audit performed by an outside company?

Answer 458

A1458. It increases the reliability that users can place on the information in the company’s financial statements.

Question 459

Q1459. What is the key trade-off in the preparation of useful accounting information?

Answer 459

A1459. Relevance vs. reliability. Other concepts include: comparability, conservatism, materiality, and articulation

Question 460

Q1460. In general terms, what does the Balance sheet show?

Answer 460

A1460. The balance sheet shows what a company owns and what it owes.

Question 461

Q1461. In general terms, what does the Income statement show?

Answer 461

A1461. The accountants best attempt at measuring the economic performance of a company

Question 462

Q1462. In general terms, what does the statement of cash flows show?

Answer 462

A1462. It outlines where a company gets its cash and how it spends that cash.

Question 463

Q1463. If the company is public, what do you call the owner’s equity?

Answer 463

A1463. stockholder’s equity

Question 464

Q1464. What are “probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events?”

Answer 464

A1464. Assets

Question 465

Q1465. What is the residual interest in the assets of an entity that remains after deducting its liabilities?

Answer 465

A1465. Owner’s equity

Question 466

Q1466. Owners withdraw assets Company suffers a loss These actions will…

Answer 466

A1466. Decrease Owner’s equity

Question 467

Q1467. Owners invest assets Company generates a profit These actions will…

Answer 467

A1467. Increase Owner’s equity

Question 468

Q1468. Define Paid-in capital

Answer 468

A1468. When the owners of a corporation invest cash or other assets in the business and receive shares of stock in exchange

Question 469

Q1469. What do you call the portion of stockholder’s equity that has not been paid to the owners as dividends?

Answer 469

A1469. Retained earnings

Question 470

Q1470. What do you call the repurchased shares of a company?

Answer 470

A1470. Treasury stock

Question 471

Q1471. Is treasury stock an asset?

Answer 471

A1471. No. Treasury stock is a deduction of shareholder equity.

Question 472

Q1472. What do you call a balance sheet that distinguishes between current and long-term assets?

Answer 472

A1472. A classified balance sheet

Question 473

Q1473. What is the accounting equation?

Answer 473

A1473. Assets = liabilities + Owner’s equity - A = L + E (Hint - after the test, we’re getting some A.L.E!)

Question 474

Q1474. How would you twist the accounting equation to get Stockholder’s equity?

Answer 474

A1474. Assets - Liabilities = Stockholder’s equity.

Question 475

Q1475. What do you call the idea that personal financial activity is kept separate from business financial activity?

Answer 475

A1475. The Entity concept

Question 476

Q1476. With items that change in value, at what price do you record them?

Answer 476

A1476. Their Historical cost - they are not adjusted for their change in value. But, financial instruments such as investment securities and derivatives are reported in the balance sheet at current market value.

Question 477

Q1477. What is the “going concern assumption?

Answer 477

A1477. That the company in question will continue in business for the foreseeable future

Question 478

Q1478. What are expenses?

Answer 478

A1478. The amount of assets consumed from the performance of business operations; the opposite of revenues.

Question 479

Q1479. The do you call the money made (or lost) on activities outside the normal business of a company?

Answer 479

A1479. Gains and Losses

Question 480

Q1480. What do you call the difference between revenues and expenses?

Answer 480

A1480. Net Gain or Net Loss

Question 481

Q1481. EPS is the most widely cited measure of a company’s performance - what is it?

Answer 481

A1481. Earnings per share. EPS tells the owner of one share of stock how much of the net gain (loss) belongs to him/her.

Question 482

Q1482. When deciding whether or not to recognize revenue, what are the two questions you must answer?

Answer 482

A1482. 1) Is the promised work done, meaning that the goods have been delivered or the service has been provided? 2) Before recognizing revenue, cash must have been collected or be reasonably assumed to be collected.

Question 483

Q1483. What is the best measure of a company’s economic performance?

Answer 483

A1483. Net Income.

Question 484

Q1484. What are the activities involved in producing and selling goods and services and thus comprise the day to day business of a company?

Answer 484

A1484. Operating Activities

Question 485

Q1485. What activities obtain cash from or repay cash to owners and creditors?

Answer 485

A1485. Financing activities

Question 486

Q1486. What four general notes would you expect to find in the “Notes to financial statement” section?

Answer 486

A1486. Summary of significant accounting policies; additional information about the summary totals found in the statement; disclosure of important information not recognized in the statement; supplementary information required by the FASB or SEC

Question 487

Q1487. What do you call the ease in which an outsider can tell what is going on inside a process?

Answer 487

A1487. transparency

Question 488

Q1488. Define Recognition

Answer 488

A1488. Breaking down all the estimates and judgments into one number and then reporting that one numbers in the financial statement.

Question 489

Q1489. Why do an external audit?

Answer 489

A1489. The outside auditors can give an independent outside opinion on the quality of the financial statements.

Question 490

Q1490. To be RELEVANT, the information must do 3 things:

Answer 490

A1490. the info must be provided on a timely basis, be useful in evaluating past decisions, and provide some basis for forecasting future financial performance.

Question 491

Q1491. Comparability helps data…

Answer 491

A1491. be more useful - data is stronger when it can be compared against a benchmark or standard

Question 492

Q1492. What is the concept of conservatism?

Answer 492

A1492. When in doubt, recognize all losses but don’t recognize any gains.

Question 493

Q1493. What is the concept of materiality?

Answer 493

A1493. Poses the question: Is the item in question large enough to make any difference to anyone?

Question 494

Q1494. What is the concept of articulation?

Answer 494

A1494. It means that the three primary financial statements are not isolated lists of numbers but are an integrated set of reports on a company’s financial status.

Question 495

Q1495. Analysis of financial statement numbers can be used to do two main things - what are they?

Answer 495

A1495. Diagnose existing problems and forecast how a company will perform in the future.

Question 496

Q1496. What statement allows the comparison of financial statements across years and between companies are prepared by dividing all financial statement numbers by sales for the year?

Answer 496

A1496. Common-size financial statements

Question 497

Q1497. The DuPont Framework decomposes return on equity into three components - what are they?

Answer 497

A1497. profitability, efficiency and leverage components

Question 498

Q1498. Define financial ratios

Answer 498

A1498. The relationship between financial statement amounts

Question 499

Q1499. The Debt ratio = total liabilities / total assets and tells you what?

Answer 499

A1499. What % of $ a company borrowed to buy its assets.

Question 500

Q1500. The current ratio = current assets / current liabilities and tells you what?

Answer 500

A1500. They liquidity of the company. Essentially, the company’s ability to pay its debts in the short run.