FAR 7

Question 1

What specific fair value item cannot be hedged for accounting purposes?

Answer 1

Fair value of an investment accounted for using the equity method of accounting.

Question 2

Where are effective and ineffective portions of a cash flow hedge reported?

Answer 2

Effective - other comprehensive income. Ineffective - current income.

Question 3

Can hedges be deferred?

Answer 3

Yes, only if cash flow hedges, in which case gains or losses are deferred in other comprehensive income, and can later be reclassified to current income if income is affected. FV hedge gain or loss is recognized in current income and not deferred.

Question 4

Are a listing of cash flow hedges a required disclosure?

Answer 4

No.

Question 5

IFRS and U.S. GAAP differences with regard to hedges:

Answer 5

IFRS allows both 1. Hedging a forecasted business combination that is subject to foreign exchange risk and 2. Hedging part of the life of a hedged item. U.S. GAAP allows neither.

Question 6

Under IFRS, when an asset is revalued:

Answer 6

The entire class of PPE that the asset belongs to must be revalued. (No “cherry picking” allowed of assets within each class.)

Question 7

A change from cash-basis to accrual-basis of accounting requires:

Answer 7

Prior period adjustment to the balance of beginning retained earnings. This applies to this correction of an error (as cash-basis is inappropriate under GAAP) and other error corrections.

Question 8

How are accounting-principle changes treated?

Answer 8

By retroactively restating prior-year financial statements.

Question 9

A change in reporting entities is handled…

Answer 9

Retrospectively.

Question 10

Change in Net Position is measured on the…

Answer 10

Full accrual basis.

Question 11

In a government’s Basic Financial Statements and MD&A, what is the minimum budgetary information required?

Answer 11

Original budget, amended/final budget, actual revenues and expenditures, and balances on a budgetary basis.

Question 12

Internal Service Funds are required to be included in the Government-Wide Statements as:

Answer 12

Governmental Activities because they provides goods or services only to the government entity.

Question 13

To convert “profits” of an internal service fund to governmental activities in the Government-Wide Statements:

Answer 13

Eliminate the “profit” by decreasing the expenditure by the “profit” amount and reclassifying it as “expense”.

Question 14

How are capital outlay expenditures reconciled to the Government-Wide Statements?

Answer 14

They are eliminated by an increase in reconciling changes in fund balance, at the government fund level, to changes in net position at the government-wide level.

Question 15

Instead of revenues and expenses, a private-purpose trust fund recognizes:

Answer 15

Additions and deductions

Question 16

What is a primary objective for accounting for taxes?

Answer 16

To recognize and measure the deferred tax consequences of temporary differences between pretax financial income and taxable income.

Question 17

According to FASB statement 109, what justifies the method of determining periodic deferred tax expense?

Answer 17

Recognition of assets and liabilities

Question 18

What are examples of permanent differences between taxable income and accrual-basis income?

Answer 18

1. Tax exempt interest (i.e. interest on municipal bonds), 2. Fines and penalties, 3. Life insurance premiums on key employees (when firm is the beneficiary), 4. Meals and entertainment (50% is deductible), 5. Dividends received deduction.

Question 19

What type of stock is NOT considered an equity investment?

Answer 19

Redeemable preferred stock. It can be reacquired (redeemed) by its issuing corporation under prescribed conditions.

Question 20

How is the purchase of an investment INITIALLY measured?

Answer 20

At the price paid for the investment plus brokerage fees.