FAR

Question 1

If there is commercial substance to an exchange, the exchange is measured at:

Answer 1

Fair Value. The gain is equal to the old asset’s fair value and it’s book value. If the fair value was 30 and its book value is 25, the gain is 5.

Question 2

How does retail inventory method establish lower of cost or market valuation for ending inventory?

Answer 2

By excluding net markdowns from the cost to retail ratio.

Question 3

Can consolidated financial statements be prepared from a business combination that was accounted for using the acquisition method OR the pooling of interests method?

Answer 3

Yes to both. The pooling of interest method CANNOT be used anymore for business combinations, combinations that happened before that still need to be consolidated.

Question 4

Does a foreign sub using the local currency as its functional currency has their financials translated or remeasured?

Answer 4

Translated.

Question 5

Does a foreign sub using US dollars as its functional currency has their financials translated or remeasured?

Answer 5

Remeasured.

Question 6

Under translation, common stock is translated at the what exchange rate?

Answer 6

The historic exchange rate.

Question 7

500 shares of 6%, $100 par callable preferred stock are called at $101. The shares were issued at $103 per share. What is the journal entry to record the retirement?

Answer 7

DR preferred stock for 50,000DR PIC-preferred for 1,500CR PIC retirement of preferred for 1,000CR Cash for 50,500

Question 8

Working capital:

Answer 8

current assets - current liabilities

Question 9

Acid test:

Answer 9

(cash + net receivables)/current liabilities

Question 10

Acc Rec turnover:

Answer 10

Sales/ avg net receivables

Question 11

Inventory turnover:

Answer 11

COGS/ avg inventory

Question 12

Times interest earned:

Answer 12

EBIT/ interest expense

Question 13

Return on total assets:

Answer 13

(net income + after-tax interest expense)/ avg total assets

Question 14

Return on equity:

Answer 14

Net income / avg owners equity

Question 15

Dividend payout ratio

Answer 15

Common dividends / net income

Question 16

What are the 2 primary qualitative characteristics?

Answer 16

Relevance and Faithful representation

Question 17

2 components of relevance:

Answer 17

Predictive value and confirmatory value

Question 18

3 components of Faithful Representation

Answer 18

Completeness, neutrality, and free from material error

Question 19

What are the 4 enhancing characteristics?

Answer 19

Comparability, verifiability, timeliness, and understandability

Question 20

Times interest earned is:

Answer 20

income before interest and income tax over interest expense

Question 21

What is a central characteristic of a joint venture?

Answer 21

Shared control. None of the participating parties are likely to have unilateral control of the joint venture.

Question 22

What is the defensive-interval ratio?

Answer 22

The ratio of quick assets to daily operating expenditures. The ratio is showing the length of time in days that the firm can operate with its present liquid resources- so it’s a liquidity measure.

Question 23

Inventory turnover ratio:

Answer 23

COGS/ avg inventory for the period

Question 24

Where are G/L on remeasurment and translation booked?

Answer 24

Remeasurement is on the income statement, translation go in an equity account. Remeasurement is when the foreign sub’s currency is the US dollar. It’s translation if the sub’s currency is the local foreign currency.

Question 25

Receivables turnover ratio:

Answer 25

Net sales / avg net accounts receivable

Question 26

What statements are usually included in personal financial statements?

Answer 26

A statement of financial condition and a statement of changes in net worth.

Question 27

If a donation is conditional, how should it be accounted for?

Answer 27

As a refundable advance.

Question 28

For donation of specialized services to a nonprofit, at what value should they be recognized?

Answer 28

Fair value.

Question 29

For a NP, are contributions spread over a few years restricted or non restricted?

Answer 29

The contribution in the current year is non restricted(unless it comes with an actual restriction), and the contributions for future years are recognized at present value and are RESTRICTED.

Question 30

When are the payments for an “Annuity Due” made?

Answer 30

At the beginning of each period.

Question 31

How is a lease payment calculated when the lease payments are due at the beginning of the period?

Answer 31

You divide the FAIR VALUE of the leased equipment by the ANNUITY DUE rate.

Question 32

What is the journal entry at the inception of a capital lease and the payments are due at the beginning of each period?

Answer 32

DR: Leased asset for its fair value amountCR: Lease Liability for plug amountCR: Cash for the payment amount

Question 33

How do you calculate the interest expense at the end of the year on a capital lease with payments at the beginning of the period? What is the journal entry?

Answer 33

You multiply the remaining lease liability amount by the interest capitilization rate.DR: Interest expenseCR: Lease liability

Question 34

How does the LESSOR in a capital lease determine the amount of Lease Receivable?

Answer 34

Multiply the payment by the number of payments.

Question 35

What is the journal entry by the LESSOR for a capital lease with payments at the beginning of each period?

Answer 35

DR: Lease receivableDR: Cash for the payment amountDR: COGS for the book value amountCR: Unearned interest for the lease rec amount MINUS the BVCR: Equipment for BV amountCR: Sales for the FV amount

Question 36

Working capital formula

Answer 36

current assets - current liabilities

Question 37

Acid test formula

Answer 37

(cash + net receivables) / current liabilities

Question 38

Acc Rec turnover formula

Answer 38

Sales / avg net receivables

Question 39

Inventory turnover

Answer 39

COGS / avg inventory

Question 40

Avg collection period for acc receivable?

Answer 40

Net credit sales / avg net acc receivable…. then you divide 365 by that number

Question 41

What financial statements are required for the Governmental funds?

Answer 41

1)Balance sheet and 2) Statement of revenues, expenditures, and changes in fund balance

Question 42

What statements are required for the Proprietary funds?

Answer 42

1)Statement of Net Postition2)Statement of revenues, expenditures, and changes in net position3)Statement of cash flows

Question 43

What statements are required for the fiduciary funds?

Answer 43

1)Statement of net position2)Statement of changes in fiduciary net positiion

Question 44

Which fund type does the government-wide financials EXCLUDE that are included on the CAFR?

Answer 44

Fiduciary funds.

Question 45

What are the 3 sections of the CAFR?

Answer 45

1) Introductory2) Financial3) Statistical

Question 46

If an investment in 30% of another company is accounted for using the fair value method, what is recognized as net income from the investment?

Answer 46

Cash dividends received and increases in the fair value of the investment are recognized in net income from the investment. The portion of the company’s net income is NOT recognized in net income from the investment.

Question 47

A contest prize expense is the present value of the?

Answer 47

Total cost incurred. If the prize is an annual $50,000 payment for 20 years and the company takes out an annuity of $418,250 after making the initial $50,000 payment, the contest prize expense in the current year is $468,250.

Question 48

The ending balance of the asset retirement obligation should be the:

Answer 48

Beginning balance + the DISCOUNTED cash flow estimate of the new asset + accretion expense - the amount paid during the year.

Question 49

The debt service fund records cash transfers from the general fund as what, and cash payments as what?

Answer 49

Operating transfers and Expenditures.

Question 50

During a period of inflation, would a perpetual inventory system result in the same dollar amount of ending inventory as a periodic inventory system under FIFO and LIFO?

Answer 50

Yes with FIFO, No with LIFO. The perpetual system would be calculating COGS based on the latest goods acquired prior to each sale versus all the latest goods acquired during the period under a periodic system.

Question 51

Does a NOL carryforward directly reduce taxes or taxable income?

Answer 51

Taxable income. If the NOL is 40,000 and taxable income is 60,000, then it reduces taxable income down to 20,000, which is then multiplied by the tax rate.

Question 52

During a business combination, can the acquisition date be before, on, or after the closing date?

Answer 52

It can be any of the 3.

Question 53

For state or local governments, encumbrances outstanding at year end should be reported as:

Answer 53

Assigned or committed fund balance.

Question 54

What does income and dividends from a sub do to the investment account under the equity method?

Answer 54

Income increases the investment, and dividends reduce the investment account.

Question 55

What is the focus of proprietary funds?

Answer 55

Income determination. Proprietary funds use accrual accounting and they are similar in reporting to private businesses.

Question 56

What is the entry in the General Fund to record equipment purchased with a capital lease?

Answer 56

DR: ExpendituresCR: Other financing sourcesThe general fund doesn’t record fixed assets. The general fund fixed asset account group would record the acquired equipment.

Question 57

What are funds classified as that can only be used for a specific purpose because of restraints imposed by formal action of the government’s highest level of decision making authority?

Answer 57

According to GASB Statement No. 54, amounts that can only be used for a specific purpose, because of constraints imposed by formal action of the government’s highest level of decision-making authority, should be reported as Committed Fund Balance. The Restricted Fund Balance classification should be used when constraints are placed on the use of resources are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation.

Question 58

What is the process for recording collection of accounts that had been written off?

Answer 58

First you debit accounts receivable and credit allowance for doubtful accounts to restore the amounts that had been written off. Then you debit cash for the amount collected, and you credit accounts receivable to take them off the books since they’ve been collected.

Question 59

In the general fund, what 3 accounts are affected when property taxes are levied?

Answer 59

Revenue control is credited, property taxes receivable is credited, and allowance for uncollectible taxes is credited. Bad Debt Expense is ONLY an accrual accounting concept, and IS NOT used in modified accrual accounting.

Question 60

When the direct method for LCM is used, what is the journal entry to write down inventory?

Answer 60

DR: Cost of goods soldCR: Inventory

Question 61

When using the allowance method under LCM, what is the JE to write down inventory?

Answer 61

DR: Holding lossCR: Allowance for LCM

Question 62

Under the fair value option, what is recognized as income from the investment company?

Answer 62

Cash dividends and the increase in fair value of the investment are both recognized in net income of the investor.

Question 63

How does the installment sale method work?

Answer 63

Each payment consists of return of cost and gross profit. You calculate the gross profit percentage by taking the sales price and subtracting the carrying value, and then dividing that number by the sales price. Then you multiply the principal portion of the payment by the gross profit percentage, and then add in the interest payment amount, and that is the amount of revenue to recognize. The return of cost portion of the payment is NOT recognized as revenue.

Question 64

Gains or losses on retirement of debt used to automatically be classified as extraordinary gains or losses, but now they are:

Answer 64

immediately recognized in full in income from continuing operations.

Question 65

What rate is used to calculate the amount of dividends from a foreign currency?

Answer 65

The spot rate on the date of declaration is used regardless of translation or remeasurement.

Question 66

How is the refinancing of a liability due within a year treated under GAAP and IFRS?

Answer 66

Under GAAP, if the refinancing happens before the ISSUANCE date of the financial statements, then it can be considered long term again. Under IFRS, the refinancing has to happen before the BALANCE SHEET DATE for it to be considered a long term liability again.

Question 67

How is interest expense and dividends paid classified as far as cash flow under IFRS?

Answer 67

Interest expense and dividends paid can be classified as EITHER operating or financing activities.

Question 68

How is interest revenue and dividend revenue classified under IFRS for cash flows?

Answer 68

They can both be either cash flows from operating OR investing activities.

Question 69

If the percentage of completion method cannot be applied, how are profits recognized on long-term contracts under GAAP and IFRS?

Answer 69

Under GAAP the profits will be recognized once the job is completed- which is the completed contract method. Under IFRS, all profits will be recognized when all the costs have been recovered- the cost recovery method.

Question 70

If an IFRS company decides to revalue its equipment each year, what effect would a drop of $2000 in value above regular depreciation be?

Answer 70

It would be a 2000 expense for that year, recognized in income. BUT…. an increase in the value would go under other comprehensive income.

Question 71

What is the main capital lease criteria under IFRS?

Answer 71

That the lease life is a “major portion” of the equipment life. Thus, a lease of 60% of the equipment’s life would qualify as a capital lease.

Question 72

If both parties consider a lease to be a capital lease, what interest rate do they both use under IFRS?

Answer 72

They both use the implicit rate built into the contract.

Question 73

Under IFRS, a contingent loss must be recognized if it is…

Answer 73

More likely than not. Even just 51% vs 49% meets this criteria.

Question 74

How is a prior service cost due to a change in the projected benefit obligation due to a contractual adjustment treated under IFRS and GAAP?

Answer 74

Under IFRS it is expensed immediately to the extent that benefits have vested. Under GAAP it is recorded to accumulated other comprehensive income and then amortized to expense over the years the employees are expected to work.

Question 75

A bond with face value of 100k is sold at 110k due to a convert option into common stock. How is this recorded under GAAP and IFRS?

Answer 75

Under IFRS 100k would be the liability and the 10k is recorded as equity. Under GAAP the full 110k is debt until it is actually converted.

Question 76

How is an impairment loss on equipment determined under IFRS?

Answer 76

A loss must be recognized if the book value exceeds the higher of the PRESENT VALUE of the future cash flows and the fair value less necessary costs to sell the equipment.

Question 77

GAAP vs IFRS research and development costs?

Answer 77

Under GAAP all research and development costs are expensed as incurred. Under IFRS, research costs are expensed, but development costs are capitalized if the company believes that future economic benefits are probable and that the product being developed is commercially and technically feasible.

Question 78

How are legal costs to successfully defend a patent treated under GAAP and IFRS?

Answer 78

Under GAAP the costs are added to the cost of the patent. Under IFRS the costs are expensed UNLESS the cost increase the future benefits to be derived from the asset.

Question 79

How are biological assets valued under IFRS?

Answer 79

At fair value less costs to sell.

Question 80

How is the reversal of an impairment loss recorded under IFRS?

Answer 80

The recovery of an impairment in value must be recognized if the circumstances that caused the impairment are reversed.

Question 81

A company has two checking accounts: one with 100k and one with negative 10k. How are they reported under GAAP and IFRS?

Answer 81

Under GAAP the negative is reported as a liability, so the cash line will show 100k. Under IFRS they are netted so the cash line would show 90k.

Question 82

In a period of rising prices, a company that wants to maximize profits will use what inventory method?

Answer 82

FIFO. In rising prices using FIFO, the earliest goods will be sold first which makes COGS lower and NI higher.

Question 83

Formula for ending DV LIFO balance:

Answer 83

Beginning DV LIFO + (increase at base-year dollars)(price index)300,000 + (400,000 - 300,000)(1.1) = 410,000

Question 84

What is the ceiling and floor of LCM?

Answer 84

Ceiling is Net Realizable Value and Floor is NRV less a normal profit margin.

Question 85

Explain LCM

Answer 85

If replacement cost is within the range of the ceiling and floor, then market is replacement cost.If the RC is greater than the ceiling, then market is the ceiling amount.If RC is less than the floor, then market is limited to the floor amount.

Question 86

How are trademarks classified, capitalized, amortized, and impaired?

Answer 86

They can be either definite or indefinite life, only expenditures made to external parties are capitalized, amortization depends on whether they are definite or indefinite life, as does impairment.

Question 87

How are customer lists classified, capitalized, amortized, and impaired?

Answer 87

They can be either definite or indefinite life, only expenditures made to external parties are capitalized, they are amortized, impairment is decided by the recoverable cost test.

Question 88

How is an initial franchise fee classified, capitalized, amortized, and impaired?

Answer 88

Can be definite or indefinite life, only capitalize expenses to external parties, amortization depends on definite or indefinite, as does impairment.

Question 89

When a liability has a carrying value less than fair value, does an unrealized gain or loss exist?

Answer 89

An unrealized loss exists. It would be a debit to Impairment loss, and a credit to the liability to increase it to its fair value.

Question 90

In financial statements prepared on the income-tax basis, how should nondeductible expenses such as meals be reported?

Answer 90

Included in the expense category in determination of income. These are still business expenses and need to be included to calculate income on the financial statements.

Question 91

For grants, what is a prime factor in determining eligibility for accrual?

Answer 91

The expenditure of resources (spending the money)

Question 92

What would an entity most likely do to hedge an investment in a foreign operation?

Answer 92

Borrow from another foreign entity with the same foreign currency as the operation being hedged. Since borrowing is a liability, any changes in the foreign currency would offset the investment.

Question 93

If intercompany fixed asset balances are NOT eliminated, will consolidated income or loss be overstated.

Answer 93

Both can be overstated.

Question 94

When there is NOT commercial substance to an exchange, gains are recognized:

Answer 94

In proportion to the amount of cash received.

Question 95

Under the cost method, is the Sub’s income or dividends recognized by the parent?

Answer 95

Dividends are recognized as income to the parent.

Question 96

When transferring a receivable, the loss is the difference between the carrying value of the portion of the asset transferred and the cash received for the:

Answer 96

Transferred portion. Usually the total carrying value will be allocated between the portion of the asset surrendered and portion retained, based on relative fair values.

Question 97

For estimating income taxes for personal financial statements, assets and liabilities measured at their tax bases should be compared to assets and liabilities measured at their:

Answer 97

Estimated current value and estimated current amount.

Question 98

Before assets are distributed as a property dividend, the unrecognized holding gain or loss is:

Answer 98

Recognized. If a firm pays a property dividend of a stock it bought for 20,000 when its market value is 25,000, there is a debit to retained earnings for 25,000 and a gain on disposal of 5,000 is recognized.

Question 99

Bond prices and interest rates are inversely related. When interest rates increase,

Answer 99

the market value of bonds decrease, because there are now better opportunities on the market.

Question 100

Are fund-based statements or government wide statements included on a CAFR?

Answer 100

They both are. The gov-wide statements focus on the financial results and health of the gov while the fund based statements report how various revenues are derived and spent.

Question 101

What are the 3 columns on the gov-wide statements?

Answer 101

Gov activities, business type activities, and total gov activities

Question 102

Which funds are not included in the gov-wide financial statements?

Answer 102

Fiduciary funds.

Question 103

How is an internal service fund reported on the gov wide statements if another gov agency is its main beneficiary?

Answer 103

As a gov fund instead of a business type fund.

Question 104

What accounting basis is used to report the gov wide financial statements?

Answer 104

Full accrual accounting.

Question 105

What statements are required for the gov wide statements?

Answer 105

The statement of net position and the statement of activities

Question 106

How would 5 year bonds appear in the fund based statements and the gov wide statements?

Answer 106

They wont show up in the fund based statements because they aren’t a claim against current assets. They will show up as a long term liability in the gov wide statements.

Question 107

Does a firm selling put options on its own stock affect liabilities or equity?

Answer 107

It increases liability by the fair value of the options.The liability will be extinguished when the option is exercised or when it expires.

Question 108

When computing avg shares outstanding during the year, how are stock dividends treated?

Answer 108

Stock dividends are treated as outstanding for the entire year. It is when new stock is issued that it is multiplied by the portion of the year remaining.

Question 109

Is additional compensation to former shareholders after a business combination considered additional costs of the business combination?

Answer 109

No.

Question 110

Can a forecasted transaction be hedged?

Answer 110

Yes- in a cash flow hedge since it is forecasted and therefore subject to changes in related cash flow.

Question 111

Is a finder’s fee for a lease expensed or allocated over the lease term?

Answer 111

The finder’s fee benefits the entire lease term and is therefore expensed evenly over the lease term.

Question 112

What exchange rate is used to TRANSLATE a foreign sub’s income statement?

Answer 112

The average exchange rate.

Question 113

If a company changes from FIFO to weighted avg inventory during 2005, how is the cumulative effect of the change measured?

Answer 113

The change is measured as of the beginning of the year of change.

Question 114

Are the direct costs or the general expenses in a business combination deducted from the corp’s net income from the combination?

Answer 114

Both are expensed in the period incurred.

Question 115

Does the recording of an asset retirement obligation for a natural resources development site increase the liability or the depletion base?

Answer 115

Both. It is a credit to a liability, and a debit to the natural resources account, which is the depletion base.

Question 116

Under international accounting, the vested portion of prior service cost is immediately recognized in:

Answer 116

Pension expense. The unvested portion is gradually recognized under delayed recognition in pension expense.

Question 117

If financial statements prepared on another basis besides GAAP are not appropriately titled, the auditor must:

Answer 117

Disclose any reservations in an explanatory paragraph and qualify the opinion for the inappropriate title of the statements.

Question 118

Under IFRS for SMEs, which inventory valuation method is NOT allowed?

Answer 118

LIFO.

Question 119

Personal financial statements should report assets and liabilities at:

Answer 119

Estimated current values(fair values) at the date of the financial statements.

Question 120

What financial statements are included in a set of personal financial statements?

Answer 120

A statement of financial condition (balance sheet) is always included, and a statement of changes in net worth may be included, but is NOT required.

Question 121

In a personal statement of financial condition, a life insurance policy should be reported at cash surrender value less any:

Answer 121

Loans outstanding against the policy.

Question 122

In a cash flow hedge, the item being hedged is measured using:

Answer 122

The present value of expected cash inflows or outflows. The item being hedged could be associated with an asset, a liability, or a forecasted transaction.

Question 123

What is the purpose of reporting comprehensive income?

Answer 123

To summarize all changes in equity from nonowner sources.

Question 124

What are the “other comprehensive income” items? (4)

Answer 124

Unrealized G/L on AFS securities, unrealized G/L on pension costs, foreign currency translation adjustments, and unrealized G/L on certain derivative transactions.

Question 125

Who pays the shipping with FOB shipping point?

Answer 125

The title passes to buyer at the shipping point, so the buyer is responsible for paying the shipping charges.

Question 126

Who pays the shipping with FOB destination?

Answer 126

The seller pays shipping charges to get the goods to the buyer. The title passes to the buyer once they reach their destination.

Question 127

Under IFRS, how should a company report their investments in bonds when it is a part of their business model to hold such investments solely to receive the cash and interest from principal repayment?

Answer 127

At amortized cost.

Question 128

Can impairment losses on intangibles be reversed?

Answer 128

No. Losses on plant assets held for disposal can be reversed to the extent of previous losses but intangible impairment losses cannot be reversed.

Question 129

Which governmental fund type can report a positive amount in the Unassigned fund balance?

Answer 129

The general fund. Other governmental funds cannot have a positive balance in their unassigned fund.

Question 130

In a sale-leaseback, how is the gain on sale recognized?

Answer 130

It is amortized over the lease term. A 50,000 unearned gain on a sale-leaseback over 10 years will result in 5,000 being recognized in each of the 10 years.

Question 131

If a city imposes a 2% tax on hotel charges which will be used to promote tourism in the city, what type of nonexchange transaction is this?

Answer 131

It is a Derived Tax Revenue.

Question 132

How are the different governmental funds reported on the fund-based balance sheet?

Answer 132

The general fund has its own column, then the major funds each have their own column, and then the rest of the individual funds that are not considered major are grouped into a single column.

Question 133

A fund balance is the amount of assets greater than liabilities. What are the different classes of the fund balance?

Answer 133

Unrestricted- which means it’s none of the below and is available for future use.Nonspendable and restricted. This means the money is restricted as to use by an outside party.Committed means the money is committed to a specific use by the highest level of decision making.Assigned means the money has been assigned by officials that are NOT the highest level of authority.

Question 134

If a city plans on collecting $10k a month from property taxes for the next 18 months, how much revenue should be reported in year one?

Answer 134

$140,000. 10k for each month of the year plus Jan and Feb of the following year.

Question 135

How is $10k of bonds reported on the gov wide and fund-based statements?

Answer 135

They are a regular liability on the gov wide statements and “other financing source” on the fund based statements.

Question 136

How is a bond due in 3 months reported on the gov wide & fund-based statements?

Answer 136

It is ‘bonds payable’ on both.

Question 137

If a city takes on a project but accepts no liability for the work being done, what type of fund is used.

Answer 137

An agency fund.

Question 138

How does a transfer from the gen fund to capital projects get reported?

Answer 138

The general fund shows a “other financing use”, the capital projects fund shows a “other financing source”, and both balances will show up in the total gov funds column. This are no eliminations of “intercompany transactions”.

Question 139

What is the difference between the purchases method and consumption method for the government fund accounting?

Answer 139

Under purchases, the whole purchase is immediately recognized as an expenditure. Under the consumption method, the supplies are moved to expenditures as they are used.

Question 140

Is a computer or office supplies reported as an asset on the fund-based governmental statements?

Answer 140

Office supplies are an asset- capitalized assets such as a computer are not.

Question 141

how is a capital lease recorded in the gov fund-based statements?

Answer 141

The PV of the payments is recorded as an expenditure, and an increase in ‘other financing sources’.

Question 142

Do infrastructure assets get depreciated?

Answer 142

They do unless the modified approach is adopted. Then you have to set a minimum level of acceptable condition and maintain documentation to show that the asset is kept at that level.

Question 143

For general purpose gov statements, is MD&A required?

Answer 143

Yes, it must be included but it is separate from both the gov wide & fund-based statements.

Question 144

What are the 3 requirements to be a special purpose gov?

Answer 144

1) separately elected governing body. 2) It is legally independent so that it can sue, be sued, and buy and sell property in its own name. 3) Be fiscally independent of all other governments.

Question 145

On the statement of activities, what is included in program revenues?

Answer 145

Any revenue generated by the activity, as well as any grants related specifically to that activity. This is then netted against the expense.

Question 146

In troubled debt restructuring, what does the creditor do, and how do they recognize interest on the restructured loan?

Answer 146

They reduce the amount owed to the present value of future cash flows on the ORIGINAL interest rate. Then, they recognize interest by using the original interest rate times the BV of the new receivable. The debtor recognizes a loss as the difference between the current BV of its receivable and the present value of the future cash flows.

Question 147

In troubled debt restructuring, what does the debtor do?

Answer 147

They compute the total cash flows now owed. So you take the future interest payments and add them to the new principal amount.

Question 148

If you have an investment that isn’t enough to be equity method, then you invest more later that does take it to equity method, how is that treated?

Answer 148

The equity method is retroactively applied to the first amount. So if you owned 10% the whole year then bought another 20% at year end, you would recognize 10% of the company’s earnings under the equity method.

Question 149

How is a capitalized interest problem done? (average accumulated expenditures)

Answer 149

First calculate the average accumulated expenditures. That is taking the amounts spent through the year each multiplied by the portion of the year remaining.Next you calculate avoidable interest. Avoidable interest is the interest on the construction specific loan(s), and then the amount of other debt above the amount of the construction loans.Then calculate actual interest. The lesser of the avoidable interest and the actual interest is the amount that can be capitalized.

Question 150

When converting financial statements using translation, paid in capital accounts are translated using the ______ rate?

Answer 150

Historic rate in effect when the account arose or the investment was made.

Question 151

If a firm buys land to build a warehouse on, is the interest from the land loan and the warehouse construction capitalized?

Answer 151

Only interest on the warehouse construction can be capitalized.

Question 152

If a firm is going to discontinue a segment early next year, but there is a loss in that segment ending this year, how is that loss reported?

Answer 152

As an operating loss of the discontinued segment. This section is below income from continuing ops but above extraordinary items.

Question 153

What is an accelerated filer and how long do they have after their fiscal year end to file their 10-K?

Answer 153

Aggregate worldwide market value of voting and nonvoting stock of $75 million or more, but less than 700 million. They have 75 days to file 10-K.

Question 154

What is a large accelerated filer and how long do they have after their fiscal year end to file their 10-K?

Answer 154

Market cap of 700 million or more. They have 60 days to file their 10-K.

Question 155

A foreign currency transaction is settled in ______ but measured and recorded on the US entity’s books in ________.

Answer 155

Non dollarsDollars.

Question 156

Where are foreign currency exchange gains or losses on acc rec reported?

Answer 156

In current income as an item of income from continuing operations.

Question 157

What disclosure is required relating to sinking funds and long term debt?

Answer 157

FAS 47 requires the disclosure of the aggregate amount of maturities and sinking fund requirements for all long-term debt for each of the five years following the balance sheet date. The detail of each year for both is shown.

Question 158

When does a liquidating dividend occur?

Answer 158

When the investee pays more income than was earned during the period the investor owned the shares of the investee.

Question 159

Describe the cost method:

Answer 159

The cost method is for an investment that DOES NOT give the investor significant influence. The dividends are recognized in income of the investor. The investment remains on the balance sheet at cost unless there is a permanent decline in value, or there is a liquidating dividend.

Question 160

Under IFRS, are gains and losses on the changes in fair value of equity investments reported in the income statement or in other comprehensive income?

Answer 160

It can be either. If the investment is held for trading purposes, then the changes in fair value are reported in profit/loss.If it’s NOT held for trading, the investor may elect to report changes in fair value through other comp. income.

Question 161

What type of investments can be transferred between categories under IFRS?

Answer 161

Only debt. Equity securities are not allowed to be transferred between categories under IFRS. When investments are transferred, prior period statements must be restated for comparative purposes.

Question 162

Under IFRS, if debt securities are held NOT as part of the business plan, what are they measured at?

Answer 162

Fair value.

Question 163

Under IFRS, if debt securities are held as part of the business plan, what are they measured at?

Answer 163

Amortized cost.

Question 164

Under the equity method for GAAP, what effect does the sub’s income and dividends have on the investor’s investment account?

Answer 164

The investor’s share of income increases the investment account, and dividends decrease the investment account. The investor’s share of income from the investee is also recognized as income for the investor.

Question 165

Which form of business combination results in a NEW legal entity?

Answer 165

Consolidation. In consolidation, 2 or more existing entities are combined into one new legal entity.In a merger, one pre-existing entity is combined into another pre-existing entity. In an acquisition, one entity acquires a controlling interest and both continue to exist as separate legal entities.

Question 166

Accretion expense is essentially growth in the:

Answer 166

Asset retirement obligation.

Question 167

Purchases of treasury stock do not affect retained earnings under the:

Answer 167

Cost method.

Question 168

Return on equity is considered what kind of ratio?

Answer 168

A profitability ratio

Question 169

What is the defensive-interval ratio and what type of ratio is it?

Answer 169

It is the ratio of quick assets to daily operating expenditures. It is a liquidity ratio.

Question 170

Does the cost method or the fair value method require a reconciliation of the changes in carrying amounts between the beginning and end of a period?

Answer 170

They both require said reconciliation.

Question 171

If a decline in inventory value is not considered temporary, the decline is recognized in the quarter in which the decline occurs. Later recoveries are:

Answer 171

Recognized as gains to the extent of the previous losses only.

Question 172

A discount on a bond is essentially:

Answer 172

Extra interest expense.

Question 173

Which regulation governs the form and content of financial statement disclosures?

Answer 173

Regulation S-X.

Question 174

The notional amount in a derivative refers to:

Answer 174

The specified unit of measure. If you have an option to buy 100 shares, the notional amount is the 100 shares.

Question 175

Where does a first time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?

Answer 175

In retained earnings.

Question 176

What are the 4 components of the IASB monitoring board? (1 on top, 3 on bottom)

Answer 176

The IFRS foundation is on top, and below it is the IFRS advisory council, the IASB, and the IFRS interpretation committee.

Question 177

What does the IFRS foundation do and how long is their term?

Answer 177

They appoint members of the IASB, the IFRS Advisory Council, and the IFRS interpretations committee. The trustees serve 3 year terms

Question 178

What are the objectives of the IFRS foundation? (4)

Answer 178

To develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards. To promote us and rigorous application of IFRS. To consider the needs of a range of size and type of entities. To promote and facilitate adoption of IFRS through convergence.

Question 179

What does the IASB do?

Answer 179

They establish IFRS reporting standards, but they do NOT have enforcement power. Enforcement is the responsibility of the securities regulators in the national jurisdictions.

Question 180

What is the IFRS advisory council and who appoints them?

Answer 180

They advise the IASB on priorities and the views of interested organizations. Members are appointed by the IFRS foundation

Question 181

What does the IFRS interpretations committee do and who appoints the members?

Answer 181

They are similar to the FASB’s emerging issues task force: they identify issues in the context of IFRS, their interpretations are reviewed by the IASB. The members are appointed by the IFRS foundation.

Question 182

What is an SME?

Answer 182

Small and medium-sized entities. IFRS has one single standard for companies that are not publicly traded. Revisions to SME standards only happen once every 3 years.

Question 183

What are the 2 assumptions in the IASB framework?

Answer 183

That the accrual method is used, and that the entity is a going concern

Question 184

What statements are required for a first-time adopter of IFRS?

Answer 184

Upon adoption, the first set of statements must have 3 statements of financial position, 2 statements of comprehensive income, two separate income statements, two statements of cash flows, and two statements of changes in equity. Basically they need 3 balance sheets and 2 of everything else.

Question 185

What is the TRANSITION date of a company to IFRS?

Answer 185

The opening date of the balance sheet for the earliest comparative financial statements. If the first IFRS reporting date is as of Dec 31 Year 2, then the transition date will be Jan 1 year 1.

Question 186

Upon first time adoption of IFRS, an entity can elect to use fair value as deemed cost for:

Answer 186

Any individual item of property, plant, and equipment.

Question 187

What is the first reporting date when switching to IFRS?

Answer 187

The year end date for the period which IFRS is first applied.

Question 188

What are the major characteristics of IFRS for SMEs?

Answer 188

Disclosures are simplified. LIFO is prohibited. Goodwill and indefinite life intangible assets are amortized over a period NOT exceeding 10 years. Depreciation is based on a component approach. Simplified temporary difference approach to income tax accounting. Reversal of impairment charges is allowed in some circumstances. No disclosures for earnings per share and segment disclosures.

Question 189

Can revenue and AR from a sales commitment be recognized?

Answer 189

Yes. IFRS defines revenue from a balance sheet point of view and is based on the inflow of economic resources.

Question 190

What is the difference in transfer of receivables under GAAP and IFRS?

Answer 190

GAAP focuses on whether control has shifted from the transferor to the transferee. IFRS focuses on whether the transferor has transferred the rights to receive cash flows from the receivable and whether or not substantially all the risk and rewards of ownership were transferred.

Question 191

What is the general rule of IFRS when it comes to the value of assets?

Answer 191

That assets aren’t carried at more than their recoverable amount. If the asset’s carrying value is greater than the amount that could have been recovered through the asset’s use or by selling the asset, then it is impaired.

Question 192

What is the definition of RECOVERABLE AMOUNT under IFRS?

Answer 192

The higher of the fair value less cost to sell or the value in use. Fair value less cost to sell is the amount obtainable from the sale in an arms-length transaction. The value in use is the discounted present value of the future cash flows expected from the asset.

Question 193

What is a CGU under IFRS?

Answer 193

A cash generating unit is the smallest group of assets that can be identified that generates cash flows independently of the cash flows from other assets.

Question 194

Does IFRS permit recovery of an impairment loss?

Answer 194

Yes.

Question 195

Whats the difference in GAAP and IFRS of the reversal of an inventory write-down?

Answer 195

Under IFRS a reversal is allowed. Under GAAP it is NOT allowed.

Question 196

How often is useful life and depreciation method reviewed under IFRS?

Answer 196

Annually. Under GAAP it’s only when events or circumstances change.

Question 197

Component depreciation GAAP vs. IFRS

Answer 197

Under IFRS, when an item of PPE comprises of individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately.

Question 198

PPE revaluation GAAP vs IFRS

Answer 198

PPE can be remeasured to fair value if fair value can be reliably measured.

Question 199

Where does an increase in PPE’s fair value ABOVE its original cost go under IFRS?

Answer 199

It goes into a revaluation surplus account which is in OCI. If a truck had gone down in value 10k then back up 15k in the next year, the first 10k would be in the profit and loss statements. The extra 5k would go into the revaluation surplus account in OCI.

Question 200

What investment classifications exist under IFRS?

Answer 200

Held to maturity which is debt measured at amortized cost, and Fair value, all equity is at fair value.

Question 201

Difference of HTM classification in GAAP vs IFRS:

Answer 201

Under GAAP the test is whether the firm has the positive ability and intent to hold to maturity. Under IFRS it’s the business model test, which evaluates if holding the debt for the cash flow is part of the business model.

Question 202

Transfer from HTM differences GAAP vs IFRS

Answer 202

In GAAP you transfer from HTM when you no longer have the positive ability and intent to hold to maturity. Under IFRS you transfer from HTM only when the business model objective changes

Question 203

OCI for investments differences in GAAP vs IFRS:

Answer 203

In GAAP gains/losses are recorded in OCI ONLY for AFS securities. In IFRS the entity may ELECT to records gains/losses to OCI at the initial measurement, but the election cannot be undone.

Question 204

IFRS investment property

Answer 204

ljwoj

Question 205

What is a small stock dividend?

Answer 205

Below 20 to 25 % of the previously outstanding shares.

Question 206

What effect do stock dividends have on retained earnings?

Answer 206

If it is a SMALL dividend they reduce RE by the amount of shares issued X current stock price.If they are a LARGE dividend (bigger than 25%), they are recorded at par value.

Question 207

JE for treasury stock purchase under cost method?

Answer 207

DR: Treasury stockCR: CashContributed capital is NOT affected. If treasury shares are resold at less than cost, then retained earnings is reduced by the difference in cost and reissue price.