FAR 8 Flashcards
At year-end, the firm estimates that the amount required to extinguish its warranty liability in the future is in the range of $20 to $60 million, with no amount more likely than any other. Under the two sets of standards, what amount will be recognized?
International 40, US 20. International accounting standards recognize the midpoint, whereas U.S. standards recognize the low point.
During the current year, Comma Co. had outstanding: 25,000 shares of common stock, 8,000 shares of $20 par, 10% cumulative preferred stock, and 3,000 bonds that are $1,000 par and 9% convertible. The bonds were originally issued at par, and each bond was convertible into 30 shares of common stock. During the year, net income was $200,000, no dividends were declared, and the tax rate was 30%.
What amount was Comma’s basic earnings per share for the current year?
Basic EPS = [$200,000 - (8,000 x $20 x .10)]/25,000 = ($200,000 - $16,000)/25,000 = $7.36.
The effect of the stock split is applied _______ to all changes in the number of shares of common stock outstanding before the split.
retroactively
In preparing consolidated financial statements of a U.S. parent company with a foreign subsidiary, the foreign subsidiary’s functional currency is the currency:
Of the environment in which the subsidiary primarily generates and expends cash.
The exchange rate of the currency in which the transaction was denominated changed at December 31, 2008. The resulting gain/loss should be included as a component of…
income from continuing operations.
Forward contracts establish the price at the time the contract is _______.
executed
Because a hedging instrument is intended to offset changes in the hedged item, when the hedged item is a receivable, the hedging instrument would have to be a ________.
payable.
For forward contracts entered into for speculative purposes, what exchange rates, if any, will be used to measure the contracts prior to maturity?
Forward rate
What hedge using a forward contract will require the recognition of a new asset or liability if a gain or loss occurs on the hedging instrument?
Firm commitment hedge.
For determining a functional currency, a highly inflationary (hyper inflationary) economy is one that has experienced a cumulative inflation of 100% or more over the past _______.
3 years.
The specific method to be used to convert financial statements of a subsidiary expressed in a foreign currency into the domestic currency of the parent depends primarily on:
The functional currency of the subsidiary.
An adjustment resulting from translation of financial statements would be reported in _______.
other comprehensive income
an adjustment resulting from remeasurement would be reported in ________.
net income.
