FAR Module 9A

Question 0

What basis is required by GAAP?

Answer 0

Accrual Basis

Question 1

What basis violates GAAP?

Answer 1

Cash Basis

Question 2

Installment sales formula for realized gross profit:

Answer 2

Cash collections * gross profit % = realized gross profit

Question 3

Installment sales formula for gross profit %:

Answer 3

Net sales - cost of sales = gross profit

Gross profit/net sales = gross profit %

Question 4

Installment sales formula for deferred gross profit:

Answer 4

Ending a/r * gp% = deferred gross profit

Question 5

Define Installment sales

Answer 5

When collection of sale price is not reasonably assured we can use the installment sales method which allows revenue to be recognized as cash is collected rather than at the point of sale

Question 6

Define cost recovery method; how is it different from the installment sales method?

Answer 6

Under the cost recovery method gross profit on the sale is deferred until the cumulative receipts exceed the cost of the asset sold, rather than deferring until some cash is received (like installment sales)

Question 7

When can a franchise fee be recognized by the franchiser?

Answer 7

Only upon substantial performance of their initial service obligation

Question 8

SFAC 7 is limited to …. And does not address ….

Answer 8

Measurement issues

Recognition questions

Question 9

According to SFAC 7, the most relevant measure of a liability always reflects ….

Answer 9

The credit standing of the entity obligated to pay

Question 10

When you read “expected” think…

Answer 10

Probability

Question 11

The SFACs are basically the …

Answer 11

Rules to write the rules.

Question 12

T/F

The SFACs are part of GAAP

Answer 12

FALSE

they seek to provide the theory behind accounting and reporting and only provide guidance when no GAAP exists

Question 13

The objectives of financial reporting for business enterprises, according to the FASB conceptual framework, are based on…

Answer 13

The needs of the users of information, specifically the primary users

Question 14

The enhancing qualitative characteristics of financial reporting are:

Answer 14

Comparability, verifiability, timeliness, and understandability

Question 15

According to the FASB conceptual framework, the process of reporting an item in the financial statements of an entity is:

Answer 15

Recognition

Question 16

The fundamental qualitative characteristic of faithful representation has what components?

Answer 16

Completeness
Neutrality
Free from error

Question 17

According to the FASB conceptual framework, an entity’s revenue may result from…

Answer 17

An increase in an asset from primary operations and/or a decrease in a liability from primary operations

Question 18

Essential characteristics of an asset include:

Answer 18

Probable future economic benefits
Controlled by a particular entity
Occurred as a result of past transactions or events

Question 19

For a business about to dispose of assets, how should those assets be measured?

Answer 19

Using the net realizable value basis. All other measurement values are not appropriate because these amounts do not reflect the entity’s probable future benefit

Question 20

If given an installment sales problem that involves a note receivable and thus interest how should the interest be treated?

Answer 20

Interest income is recognized in full and is not subject to the gross profit percentage

Question 21

What conditions must be met for a company to recognize revenue on separate units under a multiple deliverables arrangement?

Answer 21

The delivered item has value on a stand alone basis and can be sold separately

If the arrangement includes a right of return for the delivered item, the undelivered item must be substantially in control of the vendor

Question 22

The milestone method of accounting is used to recognize revenue for:

Answer 22

Research and development arrangements

Question 23

The milestone method of revenue recognition provides that if a substantive milestone is achieved, what amount of revenue is recognized?

Answer 23

Contingent revenue is recognized in its entirety

Question 24

Who sets IFRS?

Answer 24

IASB

Question 25

The fundamental qualitative characteristics of relevance includes:

Answer 25

Predictive value & confirmatory value

Question 26

According to the IASB framework, the two criteria required for incorporating items into the income statement or statement of financial position are that...

Answer 26

It meets the definition of an element and can be measured reliably

Question 27

IFRS requires what method when the outcome of rendering services cannot be estimated reliably?

Answer 27

Cost recovery method

Question 28

Component of relevance

Answer 28

Predictive value | Confirmatory value

Question 29

Increases/decreases in net assets from incidental or peripheral transactions affecting an entity

Answer 29

Gains/losses

Question 30

The process of converting non cash resources and rights into cash or claims to cash

Answer 30

Realization

Question 31

The process of formally recording an item in the financial statements of an entity after it has met existing criteria and been subject to cost-benefit constraints and materiality thresholds

Answer 31

Recognition

Question 32

All changes in net assets of an entity during a period except those resulting from investments by owners and distributions to owners.

Answer 32

Comprehensive income (FASB SFAC 6 definition)

Question 33

Inflows or other enhancements of assets of an entity or settlements of its liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing operations

Answer 33

Revenues

Question 34

The amount of cash or it's equivalent that could be obtained by selling an asset in orderly liquidations

Answer 34

Current market value/fair value

Question 35

The quality of information that helps users to increase the likelihood of correctly forecasting the outcome of future events based on past or present events

Answer 35

Predictive value

Question 36

A performance measure concerned primarily with cash to cash cycles

Answer 36

Earnings

Question 37

Examples of accrual-type JEs

Answer 37

Accounts receivable, other receivables, salaries & wages payable, accounts payable, other payables

Question 38

Examples of deferral-type JEs

Answer 38

Depreciation, prepaid expenses, unearned revenue

Question 39

First section of Accounting cycle (steps 1-3)

Answer 39

Prepare transaction journal entries and record them in the journal Post transaction journal entries to the general ledger Prepare an unadjusted trial balance

Question 40

Second section of accounting cycle (steps 4-6)

Answer 40

Prepare adjusting journal entries and record them in the journal. these can include accrual type adjusting journal entries and deferral type adjusting journal entries Post adjusting journal entries to the general ledger Prepare an adjusted trial balance

Question 41

Third section of accounting cycle (step 7)

Answer 41

Prepare the financial statements and footnotes under US GAAP This will include: the income statement, statement of changes in stockholder equity, balance sheet, and statement of cash flows

Question 42

Last section of accounting cycle (steps 8-10)

Answer 42

Prepare the closing journal entries and record them in the journal. Post closing journal entries to the general ledger. Prepare a post closing trial balance. Optional step is to prepare reversing journal entries, record them in the journal, and post them to the general ledger

Question 43

If ending inventory is understated then cost of sales is…

Answer 43

Overstated. Ending Inventory and cost of sales move inversely

Question 44

The entry to account for allowance for uncollectible accounts is...

Answer 44

Debit bad debt expense. | Credit allowance for uncollectible accounts.

Question 45

When crediting accounts payable you will most likely debit what account?

Answer 45

Purchases

Question 46

To recognize inventory that was not recorded what entry do you make?

Answer 46

Debit inventory | Credit cost of sales

Question 47

What is the account "income summary"?

Answer 47

This account is used to close the books at the end of the period

Question 48

If you want to correct an error or want to make a prior period adjustment what account do you debit or credit?

Answer 48

If it is a sole proprietorship use the capital account | if it is a large enterprise use retained earnings

Question 49

When do you record a loss contingency?

Answer 49

When the loss is probable and you can reasonably estimate it

Question 50

How does a sole proprietor pay themselves?

Answer 50

Using a withdraw account, there are no salary accounts for sole proprietors unless they have other employees.

Question 51

What is the single source for all US GAAP

Answer 51

The accounting standards codification (ASC)

Question 52

Define accrual

Answer 52

Accrual is where recognition precedes cash receipt or cash expenditure

Question 53

Under what basis are expenses recognized as related revenues are recognized? Another way to say this is that you recognize revenues as they are earned, recognize expenses as they are incurred, and match expenses to revenues that those expenses helped to earn

Answer 53

Accrual basis

Question 54

What basis recognizes income when cash is received and expenses when cash is disbursed

Answer 54

Cash basis

Question 55

Define Deferral

Answer 55

Cash receipt or expenditure precedes accrual basis recognition

Question 56

What is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions

Answer 56

Fair value/current market value

Question 57

What is the amount of cash, or its equivalent, paid to acquire an asset

Answer 57

Historical cost

Question 58

Define installment sales

Answer 58

Revenue is recognized as cash is collected

Question 59

What is the non-discounted amount of cash, or its equivalent, into which an asset is expected to be converted during the normal course of business less direct costs to make the conversion

Answer 59

Net realizable value

Question 60

What do you call costs that are not particularly or conveniently assignable to a product

Answer 60

Period costs

Question 61

What is the current measure of an estimated future cash inflow or outflow, discounted at an interest rate for the number of periods between today and the date of the estimated cash inflow or outflow

Answer 61

Present Value

Question 62

What are costs which can be associated with particular sales

Answer 62

Product costs

Question 63

What term word do we use to describe these assets: related assets received or held are readily convertible into known amounts of cash or claims to cash

Answer 63

The assets are realized or realizable