FAR Deck - 2 Flashcards
Treatment and recognition of Current Expected Credit Loss (CECL) for Available-for-Sale securities
Per the current expected credit loss (CECL) model, the expected credit loss is equal to the difference between amortized cost ($1,000,000) and the present value of expect.ed cash flows ($978,000). Credit Loss to be recognized in this case will be $22,000.
If the fair value exceeds the Unamortized Cost no, credit loss to be recognized. The resulting gain will be reported in Other Comprehensive Income Statement as Unrealized Gain on AFS.
What is the effect of inventory overstated in the financial statements?
Understated COGS and Overstated Retained Earnings. Overstated Gross Margin.
TRUE or FALSE:
Under Operating Lease, variable payments does not impact on the lease expenses.
TRUE!
Under Operating Lease, lease payments including variable payments are recorded straight line basis. Variable payments are known at the inception of the lease hence included in PV of Lease. There is NO interest expense under Operating Lease.
What are Support Services expense of Not-for-Profit?
Support services summarize the functional expenses related to general and administrative costs, costs of membership development, and fundraising.
Fundraising contemplates inducing potential donors to contribute to the entity.
Membership activities involve seeking prospective members, ensuring current member satisfaction, etc. Membership activities mimic marketing activities (a general and administrative expense) in commercial settings
TRUE or FALSE:
Gains and Losses from treasury stock transactions affect retained earnings under Legal Method of treasury stock accounting.
FALSE!
Under the legal method, the additional paid-in capital account is debited for losses (or credited for gains) when the treasury stock is repurchased.
However when additional paid in capital does not have enough balance to absorb loss on transaction, retained earnings is further reduced (balance debit to RE).
TRUE or FALSE:
A primary difference between the cost method and legal method is the timing of the recognition of gains or losses on treasury stock transactions.
TRUE!
TRUE or FALSE:
Treasury stocks are recorded at their reacquisition price under the cost method.
TURE! Treasury stock shares are recorded and carried at their reacquisition cost under the cost method.
When a contribution revenue is recognized by a Not-for-Profit organization?
Cash contributions and unconditional pledges are recognized as contribution revenue
in the year in which the cash or pledge is received.
What is considered as Contribution to Not-for-Profit?
Contributions to Not-for-Profit include transactions that are unconditional (not requiring future event to occur),
non-reciprocal, voluntary and not of an ownership investment.
How contribution revenue is measured for Not-for-Profit?
The difference between the fair value of purchases and the amount transferred
is classified as Contribution revenue.
TRUE or FALSE:
Exchange transaction (like resources provided for research) increases Net Assets without donor restrictions.
TRUE!
TRUE or FALSE:
Charity care are recognized as revenue to Not-for-Profit and must be reported on the face of financial statements.
FALSE!
Charity care are those health care services provided but never expected to result in cash flows to the
hospital, are not recorded as receivable or as revenue.
Charity care is not recognized on the face of the financial statements but is disclosed.
How federal grants received are recognized by a Not-for-Profit?
Federal grant funding received, subject to conditions associated with eligible cost principles, would not be recognized as revenue until conditions are satisfied.
How debt securities and the equity securities are accounted by Not-for-Profit?
All debt securities and those equity securities that have readily determinable fair values
are measured at fair value in the statement of financial position.
Gains and losses on investments are reported in the statement of activities as net assets without restrictions.
When the funds received by Not-for-Profit are recorded as as liabilities on the statement of financial position?
When funds received by the recipients that do not have variance power (do not have any latitude
with regard to use of the funds received) would recognize the asset received as a liability to the beneficiary.
How to determine if Not-for-Profit organization is financially inter-related with other?
Financially interrelated Not-for-Profit definition per FASB-ASC 958-605 is-
1. Organization must be able to influence the operating and financial decisions of the other , and
2. Must have on-going economic interest in the net asset of the other.
TRUE or FALSE:
Gains and losses on the investments are always recorded as net asset with restrictions.
FALSE!
Gains and losses on investments should be reported in the statement of activities as increases
or decreases in net assets without restrictions UNELSS OTHERWISE stipulated by donor or by law.
How different types of government funds are accounted?
Governmental funds: Current financial resource measurement focus and modified accrual basis of accounting.
Proprietary Funds: Economic resources measurements focus and Accrual basis of accounting.
Fiduciary Funds: Economic resources measurements focus and Accrual basis of accounting.
Types of Proprietary funds and accounting method used?
Proprietary funds includes - Enterprise Funds and Internal Service Funds
Accounting method - Economic resources measurements focus and Accrual basis of accounting.
Types of Governmental funds and accounting method used?
Governmental funds includes - General fund, Permanent fund, special revenue fund, debt service fund and Capital Projects fund.
Accounting method - Current financial resource measurement focus and modified accrual basis of accounting.
TRUE or FALSE:
Local governmental unit could have funds using both the Accrual basis and the Modified Accrual basis of accounting.
TRUE!
TRUE or FALSE:
The effect of a change in the opening balance of a valuation allowance that results from a change of circumstances ordinarily is included in income from operations.
TRUE!
TRUE or FALSE:
Due to the absence of seasonal fluctuations, the end of the preceding fiscal year is the appropriate period to include in addition to the most recent quarter end on Form 10Q.
TRUE!
What is the sum-of-the-years’-digits method of depreciation?
The sum-of-the-years’-digits method is an accelerated method of depreciation where the earlier years reflect more depreciation expense than the later years. To calculate the denominator in the sum-of-the-years’-digits method, the following calculation is necessary:
[N × (N+1)]/2, where N is the estimated useful life
TRUE or FALSE:
Capitalized interest can increase the total interest cost actually incurred for calculation on interest capitalization for the qualifying asset.
FALSE -
The total capitalized interest amount recognized may not exceed the total interest costs actually incurred by the entity during the stipulated period.
How a loss on investment in debt security classified as available-for-sale recognized under CECL model?
Using Current Expected Credit Loss (CECL) model, loss on available-for-sale debt security should be recognized in Income Statement when the fair value of AFS is Lower than Amortized cost but above PV of future cash flows.
TRUE or FALSE:
Any change in the value of the liability after the property has been fully depreciated will be recognized in profit or loss
TRUE!
How dividends are distributed to Common Stockholder when Preference Shares are participating?
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 relative capitalization.
TRUE or FALSE:
Shares that are acquired and resold at a lower price could lower retained earnings (debit) if the additional paid-in capital—treasury stock account cannot fully absorb the loss.
TRUE!
Under the cost method, if shares are acquired and reissued at a lower price, the additional paid-in capital—treasury stock account will absorb the loss until reaching $0, with the remaining loss recognized as a reduction (debit) to the retained earnings account.
True or False:
Whenever assets are purchased requiring fixed payments extending beyond one year, the assets should be valued at the present value of all future payments.
TRUE!
Credit Loss on Available for Sale securities using Current Expected, Credit Loss (CECL) model -
When the FAIR VALUE of Available for Sale security is LOWER than UNAMORTIZED COST (Carrying Value), the CREDIT LOSS should be reported in current year earnings section of the Income Statement and the carrying amount of the asset must be written down to FAIR VALUE on the Balance Sheet.
Market price of bond is determined by ___________________ PLUS ________________, using the market interest rate ie Effective Interest Rate.
PV of PRINCIPAL plus PV of INTEREST PAYMENTS.
PV of Principal + PV of Interest Payments = Market value of Bonds
Bonds which are mature in installments are called _____________
SERIAL BONDS.
Difference between Special Revenue Fund and Permanent Fund -
SPECIAL PURPOSE FUND -Special revenue funds are expendable (may be entirely used up).
PERMANENT FUND -permanent funds are nonexpendable (legally restricted to the extent that income and not principal may be used for the restricted purpose)
True or False:
Reclassification adjustments, and their effect on both net income and other comprehensive income, are reported in the footnotes.
FALSE!
This is REPORTED on OTHER COMPREHENSIVE INCOME STATEMENT.
