FAR Deck - 3 Flashcards
JE to record Credit Loss write off (Adjustment) under CECL model
Allowance for Credit Loss - DEBIT
Accounts Receivable - CREDIT.
Neither net income nor working capital is affected, as the net AR remains the same.
True or False:
The “principal” market is the market with the greatest volume of activity for the particular asset for which fair value is being determined.
TRUE!
True or False:
Bond liability is shown on the balance sheet Net of Unamortized discount
TRUE!
The long-term liabilities will increase by the difference between the carrying amount of the old 15-year bond and the face amount (issuing price) of the new 10-year bond.
If book basis of asset is greater than tax basis, resulting from different depreciation methods, a _______________ should be recognized for the tax effect of the difference.
DEFERRED TAX LIABILITY.
When to record Deferred Tax Liability and Deferred Tax Asset for the temporary differences?
DEFERRED TAX ASSET:
WHEN TAXABLE INCOME IS HIGHER THAN BOOKS INCOME.
This means higher taxes owed now and lower taxes in future as the temporary differences will reverse.
DEFERRED TAX LIABILITY:
WHEN TAXABLE INCOME IS LOWER THAN BOOKS INCOME.
This means Lower taxes owed now and higher taxes due in future as temporary differences reverses.
True or False:
The difference between book value and fair market value of the property dividend should be recorded as gain/loss on disposal of asset.
TRUE!
How depreciated property constructed on leased land is accounted?
Depreciable property constructed on leased land is depreciated over the life of the property or the term of the lease, whichever is shorter.
Under rising prices __________ method of inventory would help company to maximize the profits.
FIFO method. As COGS will be LOWER, Profit will be HIGHER.
LIFO will LOWER the Profits as COGS will be HIGHER. However if the strategy is to maximize tax deduction and reduce tax burden, LIFO should be use under rising prices.
Amortization of discount of a Note is reported as ____________ on the financial statements.
INTEREST EXPENSE.
Accrued Warranty costs results in ________________ as they are deductible for tax purposes when actual paid for.
DEFERRED TAX ASSET (DTA).
LOWER INCOME in BOOKS vs HIGHER INCOME for TAXES created DTA.
True or False:
A disadvantage of the periodic inventory system is that the cost of good sold amount used for financial reporting purposes includes both the cost of inventory sold and inventory shortages.
TRUE!
With a periodic inventory system, the quantity of inventory is determined only by physical count, usually at least annually.
DuPont Return on Asset formula
ROA = (Net Income / Sales) X (Sales / Avg Assets)
this can also be interpreted as
ROA = Net Margin X Asset Turnover
what is Moving average method of Inventory?
The moving-average method assumes the company has perpetual records. A new weighted-average cost is computed after each purchase and issues are priced at the latest weighted average cost.
Under Purchase Commitment, how inventory is valued if the market price is less than the fixed (committed) purchase price?
When the current market value of the inventory is less than the fixed purchase price in a purchase commitment, the loss must be recognized at the time of the decline in price, a liability must be recognized on the balance sheet and a description of the losses must be described in the footnotes.
What are the different methods of depreciate?
- Straight Line Method - Annual depreciation remains constant thought the useful life of asset.
- Sum of Years’ Digit - This is an accelerated depreciation method that adds each digit leading up to the useful life in years in the denominator, and divides it into a numerator which represents the number of years of depreciation remaining. For this question, the formula is: [N * (N+1)]/2.
- Units of Production -The units of production method applies a percentage equal to the number of units produced in a period divided by the total expected units of production.
- Double declining balance -The double declining balance method of depreciation is an accelerated method that applies an annual depreciation rate equal to two times the straight-line rate. This method IGNORES Salvage or Residual Value of an Asset in the calculation.
FOB point inventory in Transit which
was excluded from the ending inventory has following impact
Assets (Inventory balance) - UNDERSTATED
COGS (Expense) - OVER-STATED
Net Income and Retained Earnings - UNDERSTATED
True or False:
Unrealized gains or losses of trading securities and held to maturity securities should be included in current year’s earnings i.e. Income Statement.
FALSE!
Trading debt securities are reported at fair value with unrealized gains and losses included in earnings.
Held-to-maturity debt securities are reported at their amortized costs
The rule under Equity method of Investment -
Investor records as revenue its “share of the investee’s earnings” (not “dividends received”) under the equity method.
Dividends from an investee company are recorded by the investor as a reduction in the carrying amount of the investment on the balance sheet of the investor.
Changes in the market value of investee’s common stock are not considered income to the parent under the equity method.
What is the effect of amortization of Discount and Premium on Bonds on the Carrying Amount of Bonds?
Discount on Bonds will INCREASE the Carrying amount of Bonds over the time, AND
Premium on Bonds will DECREASE the Carrying amount of Bonds over the time.
The carrying amount of a bond liability on the balance sheet is the face plus unamortized premium or less on amortized discount. Amortization causes the carrying value to approach the face value
How lease expenses are recognized under Operating Lease?
The lessee shall record an operating lease as lease expense using the straight-line basis.
No increase in lease expenses even though there is a variable payment included in lease term.
Interest is not recorded under Operating Lease.
Under US GAAP, subsequent reversal of impairment loss recognized on Intangible Asset is ________________ unless intangible asset is held for disposal.
PROHIBITED.
True or False:
Financial Controls and Legal Restrictions leads to Fund Accounting by a Governmental organization.
TRUE!
Objective of Fund accounting are -
1. Compliance with Spending purpose (Legal Restrictions)
2. Setting Spending Limits (Financial Control - Budget vs Actual)
3. Other Fiscal Accountability.
True or False:
Interim financial statements (quarterly reporting) must be adjusted for the temporary changes in the market value of inventory or securities.
FALSE!
Temporary market declines in inventory / securities need not be recognized at interim when a turn-around can reasonably be expected to occur before the end of the fiscal year
Under U.S. GAAP, a gain that is both unusual and infrequent should be reported as _______________________.
INCOME FROM CONTINUING OPERATIONS.
Under U.S. GAAP, items that are both unusual and infrequent are reported as a separate component of income from continuing operations.
What is the most appropriate method of depreciation / amortization for an intangible asset when economic benefits of an intangible asset are consumed or otherwise used up.
STRAIGHT LINE METHOD.
Which is a cost associated with exit and disposal activities?
COST to RELOCATE EMPLOYEES.
When is disclosure only required for contingent liabilities?
REASONABLE POSSIBLE.
Only footnote disclosure is required for a “reasonably possible” (not “probable”) loss.
What is the primary GAAP principle followed for contingencies?
CONSERVATISM.
The accounting concept of conservatism applies: “anticipate all losses but not gains.
True or False:
Resources provided to Not-for-Profit entity for clinical researches considered as contribution revenue with donor restrictions.
FALSE!
This is an exchange transaction, which increases net assets without donor restrictions. Resources have been provided in exchange for research results and do not constitute a contribution.The transaction represents a reciprocal transfer, or exchange, not a contribution.
What is the primary objective of fund financial statements by a governmental organization under GASB 34?
A Separate fund financial statements should be presented for governmental and proprietary funds to report additional and detailed information about the primary government.
Fund financial statements are displayed to report additional and detailed information about the primary government.
True or False:
A statement of activities of a NFP should report grants (given) to other organizations and depreciation as expense.
TRUE!
Both grants to other organizations and depreciation are recorded as expenses in a not-for-profit organization.
How is contribution revenue recognized for Services-In-Kind donations?
Donated services are recognized as a contribution at fair value when those services create or enhance a non-financial asset or they require specialized skills that would have been otherwise purchased and can be measured easily (valued at fair value).
Contribution solicitation does not meet the criteria for recognition for exampleThe value of an attorney’s time spent soliciting contributions on behalf of a not-for-profit organization would not need to be recognized as contribution revenue and a related expense
The measurement focus of governmental-type funds is on the determination of __________________ and _____________.
CURRENT FINANCIAL RESOURCES and FINANCIAL POSITION.
True of False:
A Donor restrictions relative to use of transferred assets would indicate measurable performance related barrier.
FALSE!
Entitlement to assets, contingent upon the achievement of producing specific outputs or measurable outcomes, could be a measurable performance-related barrier that could indicate the existence of a condition attached to a promise to give or resource received.
Measurable performance-related barriers include specific outputs or outcomes, specified levels of service, matching requirements, or outside events or contingencies.
Donor restrictions relative to uses of transferred assets would not indicate a measurable performance-related barrier
True or False:
For gifts-in-kind contributions, such as land, the fair value at the date of the donation should be reported.
TRUE!
Gifts-in-kind need to be recognized in the appropriate year at the fair value at the date of donation.
