FAR Concepts 1

Question 1

formula to compute accounts receivable turnover is

Answer 1

Net credit sales

Average accounts receivable

Question 2

quick (acid-test) ratio

Answer 2

ATR = (Cash + Accounts Receivable + Short-term Investments) / Current Liabilities

Question 3

What makes a segment reportable?

Answer 3

Profit Test: A reportable segment is one in which the segment’s revenue, operating profit (or loss), or identifiable assets are 10% or more of the company’s total values.

Question 4

Comprehensive income

Answer 4

Increase in retained earnings
Add cash dividends declared
Add/deduct the increase/decrease in accumulated other comprehensive income for Year

Question 5

Are temporary declines in inventory market value recognized?

Answer 5

No, unless it seems to be permanent. Gain will not be recorded above cost.

Question 6

appropriate cost approach for determining fair value measurements

Answer 6

Using the current replacement cost of the asset under cost approach

Question 7

SFAC 7, Using Cash Flow Information and Present Value in Accounting Measurements

Answer 7

SFAC 7 provides a framework for using future cash flows as the basis for accounting measurements at initial recognition or fresh-start measurements and for the interest method of amortization. FASB limited SFAC 7 to measurement issues (how to measure) and chose not to address recognition questions (when to measure). SFAC 7 introduces the expected cash flow approach, which differs from the traditional approach by focusing on explicit assumptions about the range of possible estimated cash flows and their respective probabilities.

Question 8

Mandate interim accounting

Answer 8

IFRS does not mandate interim reporting.

US GAAP provides minimum guidelines for interim reporting.

Question 9

What is required enterprise-wide disclosure regarding external customers?

Answer 9

disclosure is required of the fact that the company receives 10% or more of its revenue from a single customer.

Question 10

cost of goods manufactured

Answer 10

Beginning work in process
\+ 	Direct materials used
\+ 	Direct labor
\+ 	Factory overhead
− 	Ending work in process
Cost of goods manufactured

Question 11

Form 10Q

Answer 11

the SEC requires that a Form 10-Q contain an interim balance sheet as of the end of the most recent fiscal quarter and a balance sheet as of the end of the preceding fiscal year. An interim balance sheet for the fiscal quarter of the preceding year does not need to be provided unless it is necessary for understanding the impact of seasonal fluctuations.

Question 12

Comprehensive Income

Answer 12

Comprehensive income is defined as the change in equity of a business during a period from transactions of non-owner sources.

Question 13

Relevance

Answer 13

Predictive value
Confirmatory value
Material

Question 14

Faithful Representation

Answer 14

Completeness
Neutral
Free from error

Question 15

Enhancing characteristics of Conceptual Framework

Answer 15

Comparability
Verifiability
Timeliness
Understandability

Question 16

Weighted-average shares outstanding is calculated as follows:

Answer 16

Beginning Shares outstanding
+Stock dividend (The stock dividend is treated as if the shares were outstanding for the entire year.)
+Stock issued (The stock issued during the year is weighted by the number of months outstanding.)

Question 17

Interim Tax expense

Answer 17

Tax expense for interim reporting purposes is calculated as year-to-date income times the estimated annual effective tax rate less the tax expense recognized in previous quarters.