Far Deck 3

Question 1

commonly required disclosures in a summary of significant accounting policies.

Answer 1

1) the basis of consolidation
2) depreciation methods
3) amortization of intangibles
4) inventory pricing
5) recognition of revenue from contracts with customers
6) recognition of revenue from leasing operations.

Question 2

GAAP require disclosure of all significant concentrations of credit risk for most financial instruments
Except for

Answer 2

obligations for deferred compensation, certain instruments of a pension plan, insurance contracts, warranty obligations and rights, and unconditional purchase obligations

Question 3

The current vulnerability due to concentrations must be disclosed if certain conditions are met

Answer 3

1. Management knows prior to the issuance of the statements that the concentration exists
   at the balance sheet date
2. it makes the entity vulnerable to a near term severe impact
3. Such impact is at least reasonably possible in the near term

Question 4

A major business combination completed on January 20, Year 7. Negotiations had begun in December of Year 6

Answer 4

This would not result to an adjustment in the financial statements. Even though there
were negotiations in year 6, the business combination did not occur until after year end
It would require a disclosure but not an adjustment to the yr 6 financial statements.

Question 5

How are subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet accounted for?

Answer 5

They must be recognized in the financial statements. Examples of such events are
- The settlement of litigation for an amount differing from the liability recorded in the statements and
- A loss on a receivable resulting from a customer’s bankruptcy.