FAR exam Flashcards
When does the seller book a transaction as a financing arrangement?
When the repurchase price is equal to or greater than the original sale price and the expected market value.
What’s the formula to calc the percentage of completion?
Total cost to data / Total estimated cost of contract
What is the percentage of completion method?
Method to account for construction contract using Total contract sales price, less total est. cost of contract = total gross profit X % of completion = Gross profit earned to date (cumulative) Less income prev. recognized = income recognized in current year.
Under percentage of completion method, when do you report a asset and a liability?
The excess of accumulated costs plus estimated earning over related billings is the current asset recorded, and a Liability only exists when progress billings exceed costs and estimated earnings.
What is the single source of U.S. GAAP, which US companies are required to follow?
The FASB Accounting Standards Codification
What are the four enhancing qualitative characteristics?
Comparability, verifiability, timeliness, and understandability.
What is the format to reconcile bank balance to book balance?
Bank Balance
Add: Deposits in Transit
Less: Outstanding checks
+/- Outstanding checks
+/- Bank errors
+/- Errors on ledgers
= Book balance
Changes in the accumulated balances of each component of other comprehensive income are required to be presented…
…Either on the face of the financial statements or in the notes to the financial statements. Components of accumulated other comprehensive income are pension adjustments, unrealized holding gains and losses on available-for-sale debt securities and csh flow hedges, foreign currency items, and instrument-specific credit risk.
According to FASB framework, what are the characteristics of Relevance?
Predictive value, confirmatory value, materiality
According to FASB framework, what are the characteristics of Faithful Representation?
Completeness, neutrality, free-from-error
What is the 5 step approach to apply revenue recognition standard? (ISTAR)
1.) Identify the contract with the customer
2.) Identify separate performance obligations in the contract
3.) Determine the transaction price
4.) Allocate the transaction price to the separate performance obligations
5.) Recognize revenue when or as the entity satisfies performance obligations
What is considered prior period adjustment? Handled prospectively, or retroactively?
Correction of an error. Retroactively,
What is the depreciation method for double declining balance method?
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WHat is the exception to cumulative change in accounting principle being reported as an adjustment to beginning retained earnings?
When making a change to LIFO, it is generally considered impracticable to calculate the cumulative effect of change. The beginning inventory dollar amount becomes the first LIFO layer. No cumulative effect adjustment is made. The change is accounted for prospectively. Treated as change in estimate.
When is restating prior years financial statements required?
Only when comparative financial statements are shown for prior period adjustments of subsequently discovered errors, changes in entity or changes in accounting principle. Restating the financial statements of all prior periods would be done in the case of prior period adjustments (corrections of errors), changes in accounting principle (retrospective application), and changes in accounting entity (retrospective application).
Does a change from cost method to the equity methods of accounting require restatement or is it accounted for prospectively?
a change from cost method to the equity methods of accounting requires restatement; however a change from the equity method to the cost method does not require restatement and is accounted for prospectively.
What are considered common errors - which would require prior period adjustment resulting from the correction of an error?
Using cash basis for financial reporting,
Prior period adjustment is reported net of tax: true or false?
TRUE
How to calc double declining balance?
How to calc present value problems?
The effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate should be reported:
As a component of income from continuing operations, in the period of change and future period if the change affects both.
What are the main components of other comprehensive income?
-Pension changes in funded status: due to gains/losses, prior service costs, and net transition assets or obligations.
-Unrealized gains and losses: unrealized holding gains/losses on available-for-sale debt securities, unrealized holding gains and losses on debt securities transferred from the held-to-maturity to available-for-sale classification, and gains and losses on cash flow hedges.
-Foreign currency items, including translation adjustments.
-Instrument-specific credit risk.
What is the purpose of reporting comprehensive income?
Comprehensive income represents all changes in stockholders’ equity that come from nonowner sources. Therefore, comprehensive income includes all net income plus any and all components of other comprehensive income, the “PUFI” items. Comprehensive income would not include investments by stockholders (owners) nor would it include distributions or dividends to stockholders (owners).
How do you calculate current asset for interest on a note?
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