FAR: ALL: 4/19/2018 Flashcards
Clawson Company agrees to a contract that includes a piece of equipment, installation, and training. The buyer does not have the expertise available to install the equipment. The buyer does have access to other training resources, but decides to engage Clawson because of its reputation for high-quality training. The contract includes a single transaction price covering the equipment, installation, and training. To which performance obligations should Clawson allocate the transaction price?
1) The entire transaction price should be allocated to the equipment because it is the primary reason for the contract and the primary performance obligation.
2) The transaction price should be allocated to the equipment, installation, and training as three separate performance obligations.
3) The transaction price should be allocated to two performance obligations: the equipment and installation as a single performance obligation and the training as a separate performance obligation.
4) More information is required to determine the number of performance obligations to which the transaction price should be allocated.
The transaction price should be allocated to two performance obligations: the equipment and installation as a single performance obligation and the training as a separate performance obligation.
A good or service must be distinct to be considered a separate performance obligation. There are not three separate performance obligations in the contract.
On March 21, year 2, a company with a calendar year end issued its year 1 financial statements. On February 28, year 2, the company’s only manufacturing plant was severely damaged by a storm and had to be shut down. Total property losses were $10 million and determined to be material. The amount of business disruption losses is unknown. How should the impact of the storm be reflected in the company’s year 1 financial statements?
1) Provide NO information related to the storm losses in the financial statements until losses and expenses become fully known.
2) Accrue and disclose the property loss with NO accrual or disclosure of the business disruption loss.
3) Do NOT accrue the property loss or the business disruption loss, but disclose them in the notes to the financial statements.
4) Accrue and disclose the property loss and additional business disruption losses in the financial statements.
Do NOT accrue the property loss or the business disruption loss, but disclose them in the notes to the financial statements.
This is a subsequent event that did not exist at the balance sheet date but occurred before the financial statements were issued. The company is required to make a footnote disclosure describing the nature of the event and an estimate of the financial effect, or a statement that an estimate cannot be made. Recognition is inappropriate because the condition existed after the balance sheet date.
Parco owns 100% of its subsidiary, Subco, which it acquired at book value. It carries its investment in Subco on its books using the equity method of accounting. At the beginning of its 2009 fiscal year, the investment in Subco account was $552,000. During 2009, Subco reported the following:
Net Income $42,000
Dividends Declared/Paid 12,000
There were no other transactions between the firms in 2009.
In preparing its 2009 fiscal year consolidated statements, which one of the following is the amount of the investment eliminating entry that Parco will make as a result of its ownership of Subco?
1) $552,000
2) $582,000
3) $594,000
4) $606,000
$552,000
This incorrect amount ($582,000) results from adding to the beginning of the year investment account balance ($552,000) the net of Subco’s income and dividends declared during the year ($42,000 − $12,000 = $30,000), or $552,000 + $30,000 = $582,000. The amount of an investment eliminating entry is the balance in the investment account as of the beginning of the period being consolidated. In this case, that was $552,000.
A subsidiary, acquired for cash in a business combination, owned inventories with a market value different from the book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would include this difference as part of:
1) Deferred Credits
2) Goodwill
3) Inventories
4) Retained Earnings
Inventories
The difference between (fair) market value and book value of inventories would not be recognized as retained earnings on a consolidated balance sheet prepared immediately after the acquisition. The difference would be recognized by adjusting inventories to fair value. The impact on consolidated retained earnings would occur only when the difference between fair value and book value was written off when the inventories are sold (or otherwise disposed of).
For calendar year 3 Steiner Corporation reported depreciation of $300,000 in its income statement. On its year 3 income tax return Steiner reported depreciation of $500,000. Additionally, Steiner’s income statement included interest revenue of $50,000 on municipal obligations. Assuming an enacted income tax rate of 30%, the amount of deferred tax expense reported on Steiner’s year 3 income statement should be
1) $45,000
2) $60,000
3) $75,000
4) $90,000
$60,000
Deferred taxes are only created by temporary differences or, in other words, differences that will reverse. The depreciation expense is a temporary difference because, although differing amounts may be reported each year, total depreciation over the life of any asset will be the same for both financial reporting and tax purposes. The interest income on municipal obligations is a permanent difference because this income is never taxable. Since depreciation expense is $200,000 ($500,000 − $300,000) greater for tax purposes than for accounting purposes, payment of $60,000 ($200,000 × 30%) of taxes is deferred to future periods. The entry is
Income tax expense (deferred portion) 60,000
Deferred tax liability 60,000
The $60,000 must be reported as the deferred taxes component of income tax expense on the current period’s income statement.
Authorized common stock is sold on a subscription basis at a price in excess of par value. Additional paid-in capital should be recorded when the subscribed stock is
1) Contracted for.
2) Paid for.
3) Issued.
4) Authorized.
Contracted For
Additional paid-in capital should be recorded when the common stock is contracted for or subscribed. Also, a receivable is recorded, and a new equity account, common stock subscribed, is established. The journal entry is as follows:
Cash (cash received)
Subscription receivable (balance due)
Common stock subscribed
(par value of shares issued)
Additional paid-in capital
(amount in excess of par)
IFRS allows plant, property, and equipment to be valued using the cost model or the revaluation model. Which statement is true about the revaluation model for valuing plant, property, and equipment?
1) Revaluation of assets must be made on the last day of the fiscal year.
2) Revaluation of assets must be made on the same date each year.
3) Revaluation of assets must be made every two years.
4) There is no rule for the frequency or date of revaluation.
There is no rule for the frequency or date of revaluation
IFRS does not provide requirements as to the frequency or date of revaluation of plant, property, and equipment.
