FAR - A Flashcards
How is a change in inventory method to LIFO treated?
A change to LIFO is a change in accounting principles. It is considered impractical to calculate the cumulative effect as of the beginning of the first period presented. Handle prospectively.
What are the rules for the Lower Cost of Market (LCM)?
If cost > Market: write down the inventory to its market value.
If cost < or equal to Market value: no adjustment is needed.
If the cost exceeds the market value, write down the inventory to the market value.
What is the Lower Cost of the Net Realizable Method (LCNRV)
Compare the cost of each inventory item to its NRV. If the cost exceeds the NRV, write down the inventory to its NRV.
Net realizable value is the selling price of the inventory goods less the selling costs (completion and disposal).
Current replacement cost is not used in valuing inventory in LCNRV.
What does the term ‘Market’ mean in LCM?
Market is current replacement cost, provided the current replacement cost does not exceed NRV ( the market ceiling) or fall below NRV less normal profits ( the market floor).
What is relative capitalization in terms of dividend distribution and how used if company has common and preferred stocks?
Participating preferred stock splits dividend distributions with common shareholders only after the common shareholders have received percentage dividends equivalent to preferred shareholders. The remaining dividend is shared in relation to the portion allotted to each common and preferred shareholders.
In the determination of whether an impairment exists do you use discounted or undiscounted future cash flows?
To determine whether an impairment loss exists, undiscounted future cash flows are compared to carrying value. If an impairment loss exists, then the fair value of the asset can be used to determine the amount of the loss to be recognized.
How are intercompany transactions eliminated in a consolidation?
In a consolidated, intercompany transactions are eliminated 100% even when the parent owns less than 100% in a subsidiary.
How is intercompany inventory/merchandise transaction treated?
Eliminate sales and cost of goods sold.
Eliminate profit from the ending inventory and the cost of goods sold by the purchasing affiliate.
The intercompany profit in beginning inventory recognized by the selling affiliate in the previous year must be eliminated by an adjustment to retained earnings.
What is the subsequent event period for an SEC filer vs a non-SEC filer?
The subsequent event evaluation period for a
SEC “filer” is the date that its financial statements have been widely distributed to financial statement users in a form and format that complies with GAAP.
The subsequent event evaluation period for all other entities is through the date that the financial statements are available to be issued.
What is the most advantageous market?
The most advantageous market is determined by considering the selling price of the asset after factoring in the transaction costs. The greater net price is the most advantageous market. Use the selling price of the asset as the appropriate fair value measurement.
How is a fair value measured in relation to a principal market?
Fair value is measured by reference to the principal market (i.e., the market with the greatest volume or level of activity) for the asset or liability, or the most advantageous market in the absence of a principal market. If there is a principal market for an asset or liability, the price in that market will be the fair value measurement, even if there is a more advantageous price in a different market. In addition, although transaction costs are considered in the determination of the most advantageous market, the final fair value measurement does not include transaction costs.
what is the difference between Foreign currency Translation vs Transaction?
Foreign currency translation related to gains and losses from translating foreign currency financial statement into the reporting currency.
Foreign currency transaction related to gain and losses from transacting business in a currency other than US$. It is remeasured after the intial recording.
What is ‘In the money’, regarding stock warrants? And how does it affect Diluted EPS?
The calculation for diluted EPS will require an adjustment when warrants (and options) are in-the-money, which means the strike price is less than the average market price of the stock.
What is the measurement focus and basis of accounting used in government-wide and fund financial presentations?
- Current Financial, Modified Accrual - GRaSPP - Governmental Funds
General, Special Revenue and Debt Service, Capital Projects, Permanent - Economic Resources and Full Accrual -IE-CIPPOE and Government-wide.
a. Proprietary - Internal Service, Enterprise
b. Fiduciary - Custodial, Investment Trust, Private Purpose Trust, Pension Trust.
In a Trouble Debt Restructuring how should gain be calculated if the FV of the transferred asset in settlement of the debt is higher than the book value?
If the debtor achieves full settlement of the debt by transferring assets having an FV that is less than the amount of the debt, a gain is recognized for the difference between the carrying value of the payable at the date of transfer and the fair market value of the asset at the date of the transfer.
