FAR - Personal Flashcards

Question

Included in Lee Corp.’s liability account balances at December 31, Year 3, were the following: 14% note payable issued October 1, Year 3, maturing September 30, Year 4: $125,000 16% note payable issued April 1, Year 1, payable in six equal annual installments of $50,000 beginning April 1, Year 2: 200,000 Lee’s December 31, Year 3, financial statements were issued on March 31, Year 4. On January 15, Year 4, the entire $200,000 balance of the 16% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, Year 4, Lee consummated a noncancelable agreement with the lender to refinance the 14%, $125,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. Both parties are financially capable of honoring the agreement, and there have been no violations of the agreement’s provisions. ``` On the December 31, Year 3, balance sheet, the amount of the notes payable that Lee should classify as short-term obligations is: $50,000. $175,000. $125,000. $0. ```

Answer 1

$0. When a debt that is due within the next 12 months is refinanced (repaid with the proceeds of a long-term debt) after the balance sheet date, but prior to balance sheet issuance, the debt that was due within 12 months can be classified as a noncurrent liability, as long as the refinance was intended by management as of the balance sheet date. A disclosure of the details is required in the footnotes to the balance sheet. These rules are applicable as long as the agreement from whence the refinancing funds are received has terms that are readily determinable, the company that is the source of the refinancing funds is capable of honoring its agreement, and no violations of the agreement have occurred. Since both of the notes payable were refinanced long term prior to the issuance of the balance sheet, both can be reclassified as long term, and so nothing remains as short term.

Answer 2

Current Assets - Current Liabilities This measures the extent to which current assets can cover current liabilities.

Answer 3

governmental activities. The governmental activity which is the predominant user of the internal service funds absorbs and reports the assets and liabilities of an internal service fund that are not eliminated. In most situations, this will be the governmental activities. (GASB 2200.147–.150) View referenced content in book. 2421 Government-Wide Financial Statements

Answer 4

Whenever it is impossible to determine whether a change in accounting estimate or a change in accounting principle has occurred, the change should be considered a change in estimate. FASB ASC 250-10-45-18 states: Quote Distinguishing between a change in an accounting principle and a change in an accounting estimate is sometimes difficult. In some cases, a change in accounting estimate is effected by a change in accounting principle. One example of this type of change is a change in method of depreciation, amortization, or depletion for long-lived, nonfinancial assets (hereinafter referred to as depreciation method). The new depreciation method is adopted in partial or complete recognition of a change in the estimated future benefits inherent in the asset, the pattern of consumption of those benefits, or the information available to the entity about those benefits. The effect of the change in accounting principle, or the method of applying it, may be inseparable from the effect of the change in accounting estimate. Changes of that type often are related to the continuing process of obtaining additional information and revising estimates and, therefore, shall be considered changes in estimates for purposes of applying this Subtopic. (Emphasis added) View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 5

$525,000 Each of the costs incurred by Orr Co. is cited in FASB ASC 730-10-55-1 as examples of items that would be considered research and development expenses. Orr's 20X1 R and D expense = $150,000 + $200,000 + $175,000 = $525,000 View referenced content in book. 2388 Research and Development Costs

Answer 6

had lower accrued expenses on December 31 than on January 1 of the current year. All other things being equal, when liabilities decrease, net income increases. Accrued expenses are simply another way to refer to accrued liabilities, payables.

Answer 7

Rent expense FASB ASC 280-10-50-22 specifically lists the following as requiring disclosure: - Revenues from external customers - Revenues from transactions with other operating segments of the same enterprise - Interest revenue - Interest expense - Depreciation, depletion, and amortization expense - Unusual items as described in FASB ASC 225-20 - Equity in the net income of investees accounted for by the equity method - Income tax expense or benefit - Extraordinary items - Significant noncash items other than depreciation, depletion, and amortization expense *Rent expense is not one of the items that require disclosure. View referenced content in book. 2390 Segment Reporting

Answer 8

Accumulated other comprehensive income is reported in the stockholders' equity section of the balance sheet. FASB ASC 220-10-45 requires that accumulated other comprehensive income be reported in the stockholders' equity section of the balance sheet: Quote The total of other comprehensive income for a period shall be transferred to a component of equity that is presented separately from retained earnings and additional paid-in capital in a statement of financial position at the end of an accounting period. A descriptive title such as accumulated other comprehensive income shall be used for that component of equity. FASB ASC 220-10-45-14

Answer 9

28% The gross profit percentage is Gross profit ÷ Sales: $252,000 ÷ $900,000 = 0.28 (28%) View referenced content in book. 2251 Revenue Recognition

Answer 10

$680,00 Nongovernmental not-for-profit hospitals do not record charity services as revenue and deduct contractual adjustments from gross patient services revenues. Amounts expected to be uncollectible are generally treated as bad debt expenses to be reported on the operating statement. Government hospitals, on the other hand, deduct the provision for bad debts from revenue to arrive at net revenue. Hospitals required by law to provide services, such as emergency room services, without being able to determine billing or collection status at the time of service, may record revenue reduced by a relatively high bad debts provision at the time of service. This hospital is able to identify the charity care and the billing status at the time of service delivery. $775,000 - $25,000 - $70,000 = $680,000 View referenced content in book. 2526 Nongovernment Not-for-Profit Hospital andUniversity …

Answer 11

Interest expense, $50,000; interest payable, $20,000 Interest on general long-term debt is an expense reported in the government-wide statement of activities. This bond issue pays $60,000 of interest annually ($1,000,000 × 0.06) or $5,000 interest monthly. Under accrual accounting, interest expense is recognized for the 10 months of the year the bond issue was outstanding, from March 1 to December 31 (10 × $5,000 = $50,000). Of these 10 months, 6 months of interest was paid on September 1 and 4 months remained due on December 31 (4 × $5,000 = $20,000). No adjustments to the interest rate or liability amount are needed due to amortization of discount or premium because the bonds were issued at par and the proceeds equaled the face value of the bonds. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 12

Net income Extraordinary items are presented immediately below the discontinued operations section of the income statement. Descriptive captions are used, and the extraordinary items are presented net of the related tax effect. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 13

Expensed immediately Organization costs are start-up costs and are required to be expensed when incurred. View referenced content in book. 2252 Costs and Expenses

Answer 14

$550,000 Under IFRS, after an impairment loss has been recognized, if facts change and the estimated value of the asset has increased, the impairment loss can be considered recovered and, to the extent of the recovered loss, the impairment can be undone. Here, the building has recovered some of the loss and can be written back up to the current estimated value in use of $550,000. View referenced content in book. 2370 Impairment

Answer 15

235,000 At the beginning of the year, the number of shares outstanding was 100,000: ***15,000 new shares were issued, giving a new total of 115,000 outstanding ***2,500 of the 10,000 treasury shares were reissued; adding them to the 115,000 gives a new total of 117,500. ***A 2-for-1 split doubles the shares outstanding at that point, for a new total of 235,000 (117,500 × 2). View referenced content in book. 2250 Equity

Answer 16

$20,000 FASB ASC 715-30-55-95 prescribes the amortization of prior service pension cost over the remaining service period of the employees for whom such costs are incurred. The method used when employees have varying service periods includes the calculation of the weighted-average service period. This method, similar to sum-of-the-years'-digits depreciation, results in a declining amortization expense over the expected service period. The fraction that represents the annual amortization rate has a numerator equal to the current year's equivalent years of service and a denominator equal to the total future service years for all employees. In this case, amortization of prior service cost would be calculated as follows: Future Service Year Employees Years 1 2 3 4 5 6 7 A 3 1 1 1 B 5 1 1 1 1 1 C 5 1 1 1 1 1 D 7 1 1 1 1 1 1 1 20 4 4 4 3 3 1 1 The total number of Future Service Years is 20; the total number in the first year is 4. Year 1 amortized prior service cost is 4/20 × $100,000 = $20,000. FASB ASC 715-30-55-95 to 55-97 View referenced content in book. 2264 Retirement Benefits

Answer 17

Higher by 36,000 Decrease in accounts receivable $20,000 Increase in accounts payable 16,000 ------- Total increase in cash-basis income $36,000

Answer 18

Monetary unit The four assumptions that underlie GAAP are the economic entity assumption, the going concern assumption, the periodicity assumption, and the monetary unit assumption. - The economic entity assumption is the presumption that all economic events can be identified with a particular economic entity and that the activities of a company can be distinguished from those of its owners. - The going concern assumption is that a business entity will continue to operate indefinitely. - The periodicity assumption relates to the ability to divide the “life” of a business into shorter, artificial time periods for financial reporting purposes. - The monetary unit assumption is that the monetary unit (dollars in the U.S.) is the most appropriate common denominator for measuring, reporting, and analyzing economic activity. View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 19

$1,620,000 The only noncurrent liability appearing on Mint Corp.'s December 31, 20X1, trial balance is the $1,620,000 noncurrent note payable.

Answer 20

$0 Treasury stock transactions are equity transactions and result in no gain or loss.

Answer 21

The amount of net gain or loss recognized in earnings when a hedged firm commitment no longer qualifies as a fair value hedge Of the answer choices listed, only “the amount of net gain or loss recognized in earnings when a hedged firm commitment no longer qualifies as a fair value hedge” is a disclosure requirement for a fair value hedge. The other answer choices are disclosure requirements for a cash flow hedge. FASB ASC 815-10-50-4C * VIDEO EXPLANATION - Fair value hedge - everything goes through the income statement. Hedging a market value related to a particular asset or liability - Cash flow hedge - everything goes through OCI. edging a cash flow related to a particular item View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 22

Milton will retain control of the receivables. Under a pledge, an account receivable is used as collateral for a loan. Milton continues to collect the receivables and applies the collection to the loan balance.

Answer 23

Fluctuating market prices of short-term investments may adversely affect the ratio. A creditor relying on the quick ratio would need to be aware of the quick ratio’s risks. The quick ratio is based on quick assets, such as short-term investments or trading securities, that are measured at fair value, a value that could decline quickly. View referenced content in book. 2137 Consolidated and Combined Financial Statements

Answer 24

historical cost. Financial accounting is primarily based on the historical cost principle which specifies that assets be recorded and carried at their historical acquisition cost. When reporting inventory at the lower of cost or market, cost is compared with market (usually some variant of replacement cost) and the lower value is used to reflect the loss of utility (i.e., market value) of the goods. Selection and use of a value other than acquisition cost is clearly a departure from the historical cost principle. View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 25

In cash inflow from financing activities and cash outflow from investing activities Raising cash through borrowings is a financing activity. Using cash to purchase fixed assets is an investing activity.

Answer 26

An update is issued only after a majority vote by the members of the FASB. The FASB describes its due process procedures on its web site (http://www.fasb.org) as follows: The FASB has established the following procedures for developing accounting standards. These procedures are used for major agenda projects. Not all of the steps may be necessary for application and implementation projects. Many other steps are followed during the course of the project that are not specifically required by the Board's Rules of Procedures. The Board identifies a financial reporting issues based on requests/recommendations from stakeholders or through other means. The FASB Chairman decides whether to add a project to the technical agenda, after consultation with FASB members and others as appropriate, and subject to oversight by the Foundation's Board of Trustees. The Board votes on whether to add the project to its agenda. A simple majority vote is needed. The Board deliberates at one or more public meetings the various reporting issues identified and analyzed by the staff. The Board issues the Exposure Draft. (In some projects, the staff may prepare and issue an Invitation to Comment or Preliminary Views prior to the Board issuing an Exposure Draft.) The Board holds a public roundtable meeting on the Exposure Draft, if necessary. The staff analyzes comment letters, public roundtable discussion, and any other information and the Board redeliberates the proposed provisions at public meetings. The Board issues an Accounting Standards Update by simple majority vote, describing amendments to the Accounting Standards Codification. The Board issues an Accounting Standards Update by simple majority vote. Accounting Standards Updates issued after September 2009 will not be considered authoritative in their own right. Instead, the Accounting Standards Updates will serve only to update the Accounting Standards Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification. View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 27

37,000 Shares Fraction Weighted Shares Outstanding x of Year = Outstanding ----------- -------- --------------- 33,000 (1) x 12/12 = 33,000 8,000 x 6/12 = 4,000 ------ Total weighted-average shares outstanding = 37,000 Note The common stock dividend shares require “retroactive” treatment. They are assumed to be outstanding throughout all periods presented. View referenced content in book. 2335 Earnings per Share

Answer 28

$253,000 The appropriations included in the adopted budget of the general fund represent the maximum authorized for expenditure during the period. If $164,000 has already been expended and another $18,000 has been encumbered or committed, then only $253,000 remains available for spending. The vouchers payable represent past expenditures waiting only for cash payment. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 29

$15,000 This problem must be solved using the gross profit method: Goods available for sale = $40,000 + $480,000 = $520,000 Gross profit = $620,000 × 0.25 = $155,000 Cost of goods sold = $620,000 - $155,000 = $465,000 Ending inventory = $520,000 - $465,000 = $55,000 Reimbursement = ($55,000 - $5,000) × 0.70 = $35,000 Loss = $55,000 - $5,000 - $35,000 = $15,000

Answer 30

Goodwill has been created in the purchase of a business. The FASB Accounting Standards Codification only authorizes the recognition of goodwill in a purchase context. View referenced content in book. 2315 Business Combinations

Answer 31

$3,225 Balance on Jan 1, 20X1 (1,000 units at $1) $1,000 Purchase on Jan 7, 20X1 (600 units at $3) + 1,800 -------- Moving average inventory on Jan 7, 20X1 $2,800 Sale of 900 units Jan 20, 20X1 (900 units at $1.75)* - 1,575 -------- Moving avg inv Jan 20, 20X1 (700 units @$1.75) $1,225 Purchase on Jan 25, 20X1 (400 units at $5.00) + 2,000 -------- Moving average inventory on Jan 31, 20X1 $3,225 ======== * The $1.75 is from the total cost divided by units available for sale ($2,800 ÷ 1,600) .

Answer 32

Governmental fund liability: $12,500; Proprietary fund liability: $100,000; Governmental activities liability: $250,000; Business-like activities liability: $100,000 As employees earn the right to claim vacation pay, a compensated absence, the liability is accrued and reported in full in the proprietary fund and government-wide financial statements (governmental activities and business-like activities). The portion reported in the government-wide financial statements as governmental activities is a general long-term liability. The governmental funds, using the modified accrual method, report only the portion of the liability expected to be claimed by employees in the first 60 days of the new fiscal year. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 33

$150,000 The first step is to figure the total profit on the contract, as follows: - Total revenue was $2,500,000. - Total actual costs are known (since the project has been completed) to be $2,000,000 (made up of $500,000 + $900,000 + $600,000 from the 3 years of work). - This gives us a profit of $500,000 on the contract ($2,500,000 - $2,000,000). At the beginning of the third year, Frame had expended a total cost of $1,400,000 ($500,000 from the first year, and $900,000 more from the second year combined). At the start of Year 3, Frame was thus 70% complete (based on total cost expended so far, $1,400,000, divided by total cost estimated to finish, $2,000,000). Frame would have already recognized 70% of the total contract profit so far ($350,000, or 0.7 × $500,000 total profit). Thus, Frame has only $150,000 profit remaining to be recognized in Year 3 (Total profit of $500,000 - Profit already recognized of $350,000). Since the total expected cost was the total actual cost, in this particular case the percentage completed in Year 3 times the total contract profit will also give the correct answer: $600,000 ÷ $2,000,000 = 0.3 0.3 × $500,000 = $150,000 View referenced content in book. 2251 Revenue Recognition

Answer 34

I and II only A rabbi trust is a grantor trust meeting the requirements of the Internal Revenue Code allowing it to qualify for deferral of the employee compensation paid from it. One of the requirements is that the funds in a rabbi trust are available to pay the creditors of the employer in the case of the employer's bankruptcy. Thus, items I and II are correct. The trust funds can no longer be used by the employer to pay personal expenses. View referenced content in book. 2262 Deferred Compensation Arrangements

Answer 35

$800,000. Amount owed to unsecured creditors $1,200,000 Less cash paid $400,000 Common stock issued at fair value* (80,000 shares x $1.25) 100,000 500,000 -------- --------- Gain on restructuring $ 700,000 ========= * Common stock would be increased by $80,000 (80,000 sh x $1 par). Additional Paid-in Capital would be increased by $20,000 (80,000 sh x ($1.25 - $1)). The net increase in Hale Corp.'s stockholders' equity is $800,000, the sum of the $700,000 gain on restructuring plus the $100,000 increase in stockholders' equity resulting from issuance of the additional shares. * VIDEO EXPLANATION - This is a troubled debt restructuring - we can have gains and losses Gains/Losses in Restructuring = Total amount previously owed - new amount owed 1,200,000 - (40,000 cash paid + *100,000 equity) *We have some equities that we issued: 80,000 shares that had a $1.25 fair value = 10 So we owed 1.2 M and settled debt of $500,000 So our gain (cuz we paid more than what we owed) was **700,000 (1,200,00 - 500,000) 700,00 is an equity and is a part of our retained earnings. When we issued 80,000 shares common stock at par value $1: Common stock = 80,000 x $1 = 80,000 APIC = 80,000 x ($1.25 - $1) = 20,000 -------------- **100,000 stockholder increase 700,000 + 100,000 = total gains of 800,000!! JOURNAL ENTRY: Debt 1,200,000 Cash 400,000 C.S. 80,000 APIC 20,000 Gain 700,000 (Cash + APIC + Gain) = all part of stock holder's equity

Answer 36

Do not accrue the property loss or the business disruption loss, but disclose them in the notes to the financial statements An entity must not recognize events that arose after the balance sheet date but before the financial statements are issued. One of the events specifically mentioned in FASB ASC 855-10-55-2 is the loss of plant as a result of fire or other natural disaster. However, this event must be disclosed in the notes to the financial statements. Quote The following are examples of nonrecognized subsequent events addressed in [FASB ASC] 855-10-25-3: a. Sale of a bond or capital stock issued after the balance sheet date but before financial statements are issued or are available to be issued b. A business combination that occurs after the balance sheet date but before financial statements are issued or are available to be issued ([FASB ASC] 805 requires specific disclosures in such cases.) c. Settlement of litigation when the event giving rise to the claim took place after the balance sheet date but before financial statements are issued or are available to be issued d. Loss of plant or inventories as a result of fire or natural disaster that occurred after the balance sheet date but before financial statements are issued or are available to be issued e. Losses on receivables resulting from conditions (such as a customer's major casualty) arising after the balance sheet date but before financial statements are issued or are available to be issued f. Changes in the fair value of assets or liabilities (financial or nonfinancial) or foreign exchange rates after the balance sheet date but before financial statements are issued or are available to be issued g. Entering into significant commitments or contingent liabilities, for example, by issuing significant guarantees after the balance sheet date but before financial statements are issued or are available to be issued. (Emphasis added) FASB ASC 855-10-55-2 View referenced content in book. 2392 Subsequent Events

Answer 37

Events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. Under FASB ASC 855-10, there are two types of subsequent events: The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (that is, recognized subsequent events). The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date (that is, nonrecognized subsequent events). FASB ASC 855-10-20 View referenced content in book. 2392 Subsequent Events

Answer 38

Benefits paid to participants The statement of changes in net assets available for benefits of an employee benefit plan must include the following: The change in fair value (or estimated fair value) of each significant type of investment, including participant-directed and self-directed investments held in brokerage accounts. Gains and losses from investments sold need not be segregated from unrealized gains and losses relating to investments held at year-end. Realized gains and losses on investments that were both bought and sold during the period should be included. This information may be presented in the accompanying footnotes. Investment income, exclusive of changes in fair value described above -Contributions from employers, segregated between cash and noncash contributions (a noncash contribution shall be recorded at fair value; the nature of noncash contributions shall be described either parenthetically or in a note) (This would be an increase.) -Contributions from participants, including those transmitted by the sponsor (This would be an increase.) -Contributions from other identified sources (for example, state subsidies or federal grants) (This would be an increase.) -Benefits paid to participants (This would be a decrease.) -Payments to insurance entities to purchase contracts that are excluded from plan assets -Administrative expenses FASB ASC 962-205-45-7 View referenced content in book. 2152 Financial Statements of Employee Benefit Plans/Trusts

Answer 39

$13,500 The annual expenses would be the $15,000 maintenance contract multiplied by 10/12 of the year covered, or $15,000 × 10/12 = $12,500 from March to the end of the year. Also, expenses would cover 1/5 ($1,000) of the $5,000 from the other costs for one of the five years: $12,500 + $1,000 = $13,500 total.

Answer 40

Credit tax anticipation notes payable In this problem, a city obtained short-term bank financing secured by the city's taxing power. This is interpreted to mean that (1) the General Fund is involved, since some or all of a city's tax revenues are normally recorded in that fund, and (2) future tax proceeds will be used to repay the loan. The journal entry to record the transaction will include a debit to cash, of course. In this problem, the loan is short-term and there is no information to suggest that the loan will be refinanced with long-term borrowing. Therefore, the loan represents establishment of a fund liability (not an increase in “other financing sources” as is the case when the General Fund accounts for the proceeds from long-term borrowing). The credit side of the entry then must be to some liability account. The only available response in this problem that increases a liability is “credit tax anticipation notes payable.” Moreover, in view of the information given, this is the ideal response. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 41

Cost of goods sold: LIFO; Ending inventory: FIFO Because LIFO (last in, first out) counts the most recent purchases as sold items, its cost of goods sold will be closest to current costs. Since FIFO (first in, first out) counts the most recent purchases as still in inventory, the ending inventory under FIFO will be closest to current costs.

Answer 42

1. BOOK VALUE METHOD: at conversion you just transfer the bond balances to stock accounts and no gain or loss is recorded 2. MARKET VALUE METHOD: at conversion the stock accounts are credited for the market value of the stock or bonds, the bond accounts are closed, and a gain or loss is recorded for the difference

Answer 43

i. Under GAAP, re-valuation of goodwill is NOT allowed. Under IFRS it is allowed if in an active market ii. Under GAAP, reversal of impairment loss is NOT allowed. Under IFRS a reversal of an impairment loss is permitted iii. Under GAAP, goodwill is recognized at the “reporting unit” level. Under IFRS it is recognized at the cash-generating unit level

Answer 44

$0 The debt is a long-term liability and would not appear on the balance sheets of the governmental funds, although it would be reported in the governmental activities section of the government-wide statement of net position. The interest that is due very early in the following year has been deposited in the debt service funds. The expenditure for debt service would usually be recognized in the year of payment. The expenditure and related liability could be recognized in the debt service fund but is not required in the December 31, 20X1, statements. Therefore, the correct answer is $0. View referenced content in book. 2411 Measurement Focus and Basis of Accounting * VIDEO EXPLANATION * NOTES 9/27

Answer 45

Inventory losses generally should be recognized in the interim statements. Under FASB ASC 270-10-45-4, interim financial reports should be based on the principles, practices, and policies used in the preparation of the last annual report. Other-than-temporary market declines in inventory should be recognized. If losses recognized in early interim periods are recovered in the same year, such recoveries are recognized as gains in the appropriate interim periods. View referenced content in book. 2375 Interim Financial Reporting

Answer 46

upon the liquidation or termination of the reporting entity. A mandatorily redeemable financial instrument, such as mandatorily redeemable preferred stock, must be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity. View referenced content in book. 2385 Distinguishing Liabilities from Equity

Answer 47

$8,200 FASB ASC 274-10-35-11 states that nonforfeitable rights to receive future sums that have all the following characteristics shall be presented as assets at their discounted amounts: The rights are for fixed or determinable amounts. The rights are not contingent on the holder's life expectancy or the occurrence of a particular event, such as disability or death. The rights do not require future performance of service by the holder. Since the employer's contributions have not vested and are forfeitable (Jen will not complete three years of employment until February 1, 20X3), the current value of Jen's 401(k) plan is: $7,000 Jen's contributions 10% ($21,000 + $23,000 + $26,000) + 1,200 Earnings on Jen's contributions ------ $8,200 Total current value ======Vesting is the process by which an employee accrues non-forfeitable rights over employer-provided stock incentives or employer contributions made to the employee's qualified retirement plan account or pension plan.

Answer 48

$437,000. When applying the dollar-value LIFO retail method, you need to (as in dollar-value LIFO) restate ending-year retail to base-year prices: $660,000 ÷ 1.10 (1 + 10% increase) = $600,000 This is a $100,000 increase in the ending-year retail amount over the retail amount at the beginning of the year (in base-year prices). Now, determine the ending inventory using dollar-value LIFO retail directly, by adding to the beginning inventory of $360,000 the new layer of $100,000 multiplied by both the new layer’s cost-to-retail percentage and the new layer price level of 1.1: $360,000 + ($100,000 × 0.7 × 1.1) = $437,000

Answer 49

$3.20 The costs of the natural resource to be depleted include the purchase price plus the cost incurred to prepare the coal mine for extraction of the coal. This amount, $2,500,000, must be reduced by the $100,000 expected sales price of the land that will be recovered after all the coal has been mined. This difference divided by the 750,000 tons is the depletion charged for each ton of coal mined during the current year.

Answer 50

All of the answer choices are true. FASB ASC 480-10-65-1 requires mandatorily redeemable stock to be classified as a liability, with proper disclosure. Since death is certain to occur at some point, a liability is shown. A mandatorily redeemable financial instrument shall be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity. View referenced content in book. 2385 Distinguishing Liabilities from Equity

Answer 51

shown separately and not included under a general heading such as notes receivable or accounts receivable. According to FASB ASC 850-10-50-2, notes or accounts receivable from officers, employees, or affiliated entities must be shown separately and not included under a general heading such as notes receivable or accounts receivable. View referenced content in book. 2387 Related Parties and Related Party Transactions

Answer 52

Certain information may be presented either on the face of the financial statements or in the notes to the financial statements. Disclosure in the notes to the financial statements is needed only when the information required to be disclosed is not displayed on the face of the financial statements. Per GASB 2300.103, certain information may be presented either on the face of the financial statements or in the notes to the financial statements. Disclosure in the notes to the financial statements is needed only when the information required to be disclosed is not displayed on the face of the financial statements. Disclosure in the MD&A or “elsewhere” are not alternatives for disclosure provided by the GASB Codification. Note disclosure includes “essential,” not “supplemental,” information that is not displayed on the face of the financial statements. View referenced content in book. 2425 Notes to Financial Statements

Answer 53

$1,000 Eligible Number of Expected Liability for unemployment tax = wages x employees x claim rate = $10,000 x 5 x 2% = $ 1,000

Answer 54

$30,000 Feld should recognize $30,000 gain: Value received ($100,000 value of tow truck less $10,000) $90,000 Book value of delivery truck: Cost $140,000 Accumulated depreciation 80,000 60,000 ------- Gain $30,000 View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 55

70% FASB ASC 985-20-35-1 provides that: Quote The annual amortization shall be the greater of the amount computed using: a. The ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product, or b. The straight-line method over the remaining estimated economic life of the product including the period being reported on. - Ratio of current to total revenues (given) = 30% - Straight-line rate = 1/5 = 20% The greater of these, 30%, would be used in computing 20X2 amortization, leaving a net amount of 70% (100% - 30%) to be shown on Bit's December 31, 20X2, balance sheet. View referenced content in book. 2391 Software Costs

Answer 56

increase asset revaluation surplus, an equity account like other comprehensive income, by the $50,000 addition to fair value. When a class of assets' fair value can be reliably measured, a corporation applying IFRS can elect to apply the revaluation model to the class of assets. When the carrying value of the assets differs materially from the fair value of the assets, a revaluation must occur, with any increase being included in asset revaluation surplus, an equity account, like other comprehensive income, and a decrease being accounted for as an other loss included in income from operations.

Answer 57

$10,000 Income taxes payable $13,000 Less net deferred tax asset ((0.90 x $20,000) - $15,000) = (3,000) -------- Total income tax expense $10,000 ======== View referenced content in book. 2270 Income Taxes

Answer 58

Lion, Monk, and Nevi If an operating segment's revenue (sales to unaffiliated customers and intersegment sales) is “10% or more of the combined revenue…of all the enterprise's industry segments,” it is a reportable segment. For Terra Co.: Segment Revenues / Total = Percentage Lion $100,000 / $150,000 = 66.67% Monk 26,000 / 150,000 = 17.33% Nevi 24,000 / 150,000 = 16.00% All of Terra Co.'s segments are reportable. Since all these meet the revenue test, it is not necessary to apply the other two tests (asset test and profit/loss test). View referenced content in book. 2390 Segment Reporting

Answer 59

In its December 31, 20X1, financial statements, what amount should Explanation Retained earnings on December 31, 20X1, would be computed: Total income since incorporation $420,000 Less cash dividends $130,000 Property dividends 30,000 160,000 -------- -------- Retained earnings on December 31, 20X1 $260,000 Note The excess of proceeds over cost of treasury stock sold would be credited to “additional paid-in capital” under the cost method.

Answer 60

Includes the par or stated value of preferred and common stock. It is sometimes referred to as legal capital.

Answer 61

$20,000 *Study your advanced accounting note s for this!! When a new partner is admitted by investing into the partnership, the total capital of the partnership changes, and the purchase price (amount of new investment) can be equal to, more than, or less than book value. When the purchase price is equal to book value, no goodwill or bonuses are recorded. When the purchase price is more or less than book value, either goodwill or bonuses must be recorded. The total capital of the resulting new partnership determines whether goodwill or bonuses are recorded. Under the goodwill approach, goodwill is recognized on the basis of the total value of the new partnership implied by the new partner's investment relative to the partners' total capital. Under the bonus approach, such implied value is not considered. In this problem, the assets are revalued, suggesting that goodwill is being recorded. Implied value after new investment: $30,000 represents 25% of total value; therefore, the implied total value is $120,000 ($30,000 ÷ .25). Implied Value $120,000 Total partner's capital accounts (100,000) (45,000 + $25,000 + $30,000) --------- Goodwill to original partners $ 20,000

Answer 62

Income (or expense) from discontinued operations - This component is related to income (or expense) generated due to the shutdown of one or more divisions or operations (plants). These events need to be isolated so they do not inflate or deflate the company's future earning potential. This type of nonrecurring occurrence also has a nonrecurring tax implication and, as a result of the tax implication, should not be included in the income tax expense used to calculate net income from continuing operations. That is why this income (or expense) is always reported net of taxes. The same is true for extraordinary items and cumulative effect of accounting changes (see below). Extraordinary items - This component relates to items that are both unusual and infrequent in nature. That means it is a one-time gain or loss that is not expected to occur in the future. An example is environmental remediation. Cumulative effect of accounting changes - This item is generally related to changes in accounting policies or estimations. In most cases, these are non cash-related expenses but could have an effect on taxes. Unusual or Infrequent Items Included in this category are items that are either unusual or infrequent in nature but they cannot be both.

Answer 63

1. Adjustments for changes in current assets and current liabilities: +Decrease in non cash current asset -Increase in non cash current asset +Increase in current liability -Decrease in current liability 2. Adjustments for operating items not providing or using cash +Depreciation, depletion, amortization and goodwill impairment loss 3. Adjustments for non operating items +Losses from disposal of long-term assets and retirement of debt -Gains from disposal of long-term assets and retirement of debt

Answer 64

Interest should be capitalized on qualifying assets. FASB and AICPA pronouncements dated before November 20, 1989, have been incorporated into the GASB Codification, which indicates that interest should be capitalized for what is termed “qualifying assets” of governments, including the business-like activities. Qualifying assets include assets constructed for the government's own use. Therefore, the choices that interest may not be capitalized, that capitalization is optional, or that interest capitalization is not addressed in GASB standards are all incorrect. View referenced content in book. 2412 Fund Accounting Concepts and Application * VIDEO EXPLANATION * notes 9/28

Answer 65

Depreciation on general capital assets, including infrastructure, is always required. Under GASB 1400.105, certain infrastructure capital assets are not required to be depreciated under the modified approach. The other three statements are true. GASB 1400.105 GASB 2200.133 View referenced content in book. 2427 Required Supplementary Information (RSI) Other Than …

Answer 66

is always considered part of required supplementary information. State and local governments are required to prepare a statistical section that accompanies the basic financial statements. GASB 2800.101 clearly indicates that the statistical section is supplementary information. Financial trends is one of the five categories of statistical information to be presented. Statistical information is not considered part of management's discussion and analysis, another item of required supplementary information, or part of the notes to the financial statements. View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 67

At fair value FASB ASC 962-205-45-2 requires that an employee benefit plan report its net assets at fair value. View referenced content in book. 2264 Retirement Benefits

Answer 68

$19,000 Annual advance premium payment $40,000 Less increase in cash surrender value ($108,000 - $87,000) 21,000 ------- Life insurance expense for 20X6 $19,000 ====== Note The increase in cash surrender value is deducted because cash surrender value of the insurance policy is an asset. Also, the increase in this asset already includes the effect of the $6,000 in dividends applied to it in 20X6.

Answer 69

providing schedules supporting Airport fund information. The question makes it clear that the expense categories in the combining enterprise funds statements are not detailed enough for the grant reporting. The additional detail is not one of the items required as supplementary information. The Airport fund would not be included in the combining fund statements of governmental funds because it is an enterprise fund. The additional detail should be shown in a schedule in order to show compliance with finance-related legal and contractual provisions. View referenced content in book. 2428 Combining Statements and Individual Fund Statements …

Answer 70

Carrying amount x Effective interest rate

Answer 71

$3,700 Generally, a nonmonetary exchange should be based on the fair values of the assets exchanged—resulting in the immediate recognition of a gain or loss. Exceptions to this treatment include the following: Fair value is not determinable Exchange transaction to facilitate sales to customers Exchange transaction that lacks commercial substance Under these exceptions, no gains or losses are recognized. Since this transaction lacks commercial substance, no gain or loss is recognized and the new book value is equal to the book value prior to the exchange: Original cost $23,000 Accumulated depreciation 20,000 ------- Book value $ 3,000 Additional cash paid 700 ------- New book value $ 3,700 View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 72

Read carefully!! It's asking for the INVENTORY amount, NOT COGS!! Perpetual: $5,400; Periodic: $2,600 Under the LIFO method, the last goods in are treated as the first ones included in cost of goods sold. The perpetual method of LIFO treats units sold as coming from the last units acquired prior to that sale. Thus, the sale on January 23 leaves remaining inventory at 1,400 units at $1 (2,000 + 1,200 - 1,800). The purchase on January 28 adds $4,000 to the inventory for a total of $5,400. When using the periodic method, the inventory is not valued until the end of the period. Under the periodic method, the ending inventory of 2,200 units is priced at the earlier prices during the year (2,000 at $1 plus 200 at $3) for a total of $2,600.

Answer 73

$208,000 Cost of goods sold = Sales × (1 - Gross margin ratio) $220,000 = $275,000 × 0.80 Cost of goods sold = Beginning inventory + Purchases - Ending inventory ``` $220,000 = $30,000 + Purchases - $18,000 Purchases = $208,000 ```

Answer 74

both sales to customers and wages expense. FASB ASC 830-10-55-10 expresses a preference for using the current exchange rate in effect when revenues, expenses, gains, or losses occur. However: Quote Because translation at the exchange rates at the dates the numerous revenues, expenses, gains, and losses are recognized is generally impractical, an appropriately weighted-average exchange rate for the period may be used to translate those elements. Thus, both sales and wages expense may be translated using a weighted-average exchange rate. View referenced content in book. 2361 General Concepts

Answer 75

$90,800 This is a case of converting from cash-basis rent revenue to accrual-basis revenue. Rent received in cash plus the increase in rental receivables, plus the decrease in unearned rent would be rent revenue on an accrual basis. (Cash plus increase in assets and decreases in related liabilities is revenue.) Thus, the revenue for the year is $80,000 cash received, plus the increase in receivables of $2,800 (from $9,600 to $12,400), adding the decrease in unearned rent of $8,000 (down from $32,000 to $24,000), which adds up to $90,800: $80,000 + $2,800 + $8,000 = $90,800

Answer 76

$694,000 Net worth is the excess of the estimated value of assets over the estimated amounts of liabilities, reduced by the tax associated with the difference between the estimated values and the tax basis of assets and liabilities. Smith's net worth is computed as follows: Estimated value of assets $900,000 Estimated amount of liabilities (80,000) Tax on difference between estimated values and tax basis: Assets ($900,000 - $500,000) $400,000 Liabilities ($100,000 - $80,000) 20,000 -------- $420,000 Tax rate 30% -------- Tax (126,000) --------- Net worth $694,000 ========= View referenced content in book. 2151 Personal Financial Statements

Answer 77

Under IFRS, research and costa are expensed, but development costs are capitalized

Answer 78

1.08 The debt-to-equity ratio is the relationship between total liabilities and total equity. Thus, here we divide total liabilities by total equity. Total equity is simply the sum of both retained earnings added to capital stock: $150,000 + $215,000 = $365,000 Total liabilities can be computed to be $395,000, as it is the total assets less the total equity: $760,000 – $365,000 = $395,000 To get the debt-to-equity ratio, divide the total liabilities by the total equity: $395,000 ÷ $365,000 = 1.08 View referenced content in book. 2137 Consolidated and Combined Financial Statements

Answer 79

Both I and II GASB Concepts Statement 1, Objectives of Financial Reporting, is the basis for this question. Item I is an appropriate response because the Concepts Statement says at paragraph 32: “financial reporting by state and local governments is used in making economic, social, and political decisions and in assessing accountability....” Item II is also an appropriate response because paragraph 61, in the discussion of accountability, states that “interperiod equity is a significant part of accountability” and thus “financial reporting should help users assess whether current-year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume (financial) burdens for services previously provided.” View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 80

4.7 Receivables turnover is defined as net credit sales divided by average receivables. For Year 2, sales were $400,000. To get average receivables, one needs to get the net beginning and net ending receivables balances, add them, and then divide the total by 2. Beginning balance was $130,000 – $40,000, or $90,000. Ending balance was $100,000 – $20,000, or $80,000. The average balance is $85,000: ($80,000 + $90,000) = $170,000; $170,000 ÷ 2 = $85,000. The receivables turnover is thus 4.7: $400,000 ÷ $85,000 = 4.7.

Answer 81

The financial statements for Years 1 and 2 should be restated; the cumulative effect of the error on Years 1 and 2 should be reflected in the carrying amounts of assets and liabilities as of the beginning of Year 3. A correction of an accounting error must be reported by restating the financial statements for all prior years. The carrying amounts for assets, liabilities, and beginning retained earnings must be restated for the earliest year presented in the financial statements presented in the year the error is discovered. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 82

Fiduciary activities The government-wide financial statements display information about the reporting government as a whole. The statements would report the governmental activities reported in the governmental funds and the proprietary and enterprise activities accounted for in enterprise funds. The fiduciary activities are not considered part of the operations of the government itself and would not be included in the government-wide financial reports. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 83

$120,000. Warranty expense for 20X1: 4% of sales = .04 × $3,000,000 = $120,000 Dr. Cr. Warranty expense $120,000 Estimated warranty liability $120,000 The warranty expense is recognized in the year in which the warranted product is sold. The actual warranty expenditures may or may not be made in that same period. The $67,500 warranty expenditures incurred in 20X1 result in a reduction of the estimated warranty liability. Those expenditures may relate to products sold in 20X1 but they also may relate to products sold in a prior period. The entry for the warranty expenditures made in 20X1 is: Dr. Cr. Estimated warranty liability $ 67,500 Cash $ 67,500

Answer 84

Asset and liability approach FASB ASC 740-10-10-1 determines the approach used to determine income tax expense from the periodic expense approach to the asset and liability approach. This method focuses on the calculation of deferred tax assets and liabilities, and calculates the periodic expense or benefit as the change in the asset or liability from the prior balance sheet date. View referenced content in book. 2270 Income Taxes

Answer 85

$12,101 The amount accumulated at the end of two years is the future value of a single payment times the $10,000 deposit. Because future values of single payments and present values of single payments are reciprocals, the amount that will be accumulated at the end of two years is $10,000 ÷ .8264, or $12,101. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 86

$245,000 The items listed (promotion costs, engraving and printing, and underwriters' commissions) would all qualify as bond issuance costs that need to be amortized over the term of the bonds: $20,000 + $25,000 + $200,000 = $245,000

Answer 87

An ordinary annuity is a series of payments having the following three characteristics: 1. All payments are in the same amount (such as a series of payments of $1,000). 2. All payments are made at the same intervals of time (such as once a month or quarter, over a period of a year). 3. All payments are made at the end of each period (such as payments being made only the last day of the month). Usually, payments made under the ordinary annuity concept are made at the end of each month, quarter, or year, though other payment intervals are possible (such as weekly or even daily). Examples of ordinary annuity payments are: Semi-annual interest payments on bonds Quarterly or annual dividend payments Because payments are made sooner under an annuity due (where payments are made at the beginning of each period) than under an ordinary annuity, an annuity due has a higher present value than an ordinary annuity. When interest rates rise, the value of an ordinary annuity is reduced. When interest rates decline, the value of an ordinary annuity is increased. The reason for these variations is that the present value of a stream of future cash payments is dependent on the interest rate used in the present value formula.

Answer 88

$50,000 The technological advance applies only to 20X2 production. Therefore: 20X2 Warranty expense = 0.01 × $5,000,000 = $50,000

Answer 89

$0 FASB ASC 845-10-30-1 specifies that the accounting for nonmonetary exchanges generally should be accounted for based on fair values, which is the same basis as that used for monetary transactions. FASB ASC 845-10-30-3 provides three exception cases in which a nonmonetary exchange should be recorded based on the recorded amount (book value) of the assets surrendered: 1. Fair value is not determinable. 2. Exchange transaction is to facilitate sales for customers. 3. Exchange transaction lacks commercial substance. In Beam's case, exception 2 is met. The exchange of the inventory is to facilitate sales to Beam's customers. The exchange should be recorded based on carrying amounts with no gain recognized. If the inventory's carrying amount had been in excess of the fair value of the inventory given up, the inventory given up should have been written down and the loss recognized before the exchange was recorded. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 90

$6,000 Initial capital investment $2,000 Add: Service revenue collected 5,000 ------- Subtotal $7,000 Deduct: Cash withdrawn (1,000) ======= Capital balance on March 31, 20X1 $6,000 Under the cash method, expenses would be recorded in April when paid.

Answer 91

$1,085,000 AR on January 1, 20X1 $ 650,000 Credit sales for 20X1 + 2,700,000 ------------ Subtotal $3,350,000 Sales returns for 20X1 $ 75,000 Accounts written off in 20X1 40,000 Collection from customers 2,150,000 2,265,000 --------- ------------ Ar on December 31, 20X1 $1,085,000 =========== Note The question concerned the accounts receivable account, not net accounts receivable, so estimated uncollectible accounts were not considered.

Answer 92

FIFO, Yes; LIFO, No Under the FIFO inventory method, the ending inventory would consist of the last units purchased under both the perpetual and periodic inventory systems. Under the LIFO inventory method, the periodic inventory system would include in ending inventory the earliest units (beginning inventory and early purchases). Under LIFO, the perpetual inventory system would have expensed some of the beginning inventory and early purchases when sales were made early in the year.

Answer 93

$154,125 The cost of plant assets includes all expenditures necessary to acquire the asset and prepare it for its intended use. The cost of land includes the purchase price, costs incidental to acquisition (such as legal fees, commissions, and title insurance), and the costs of preparing the land for use (such as the costs of surveying, grading, filling, draining, and clearing). The cost of tearing down an existing building is included in the cost of the land. All of the costs presented other than the excavation should be included in the cost of the land. The excavation for the basement will be included in the cost of the building.

Answer 94

$3,600 Item Prepaid Amount ------------------------------------------ -------------- Comprehensive insurance policy (1/2 was expensed in 20X0, remainder expensed in first half of 20X1) $ 0 Insurance paid July 1, 20X1 (1/2 remains) 1,600 Advance rental payment (applies to 20X2) 2,000 ------ Total prepaid expenses on December 31, 20X $3,600 ======

Answer 95

$60,000 FASB ASC 845-10-30-1 generally specifies that if fair value is determinable nonmonetary exchanges be recorded based on fair value unless the exchange transaction lacks commercial substance. In that case, the entire amount of any implied gain or loss should be recognized at the time of the exchange. The implied gain in this case is: Fair value of asset surrendered: Fair value of equipment received $60,000 Cash received 30,000 ------- 90,000 Less book value of asset surrendered ($100,000 - $40,000) 60,000 ------- Implied gain $30,000 ======= The entry to record the exchange is: Equipment (new) $60,000 Cash 30,000 Accumulated depreciation 40,000 Equipment (old) $100,000 Gain 30,000 This question is addressed from the standpoint of Vey Co. The fair value of the equipment that Vey traded (transferred out) must be the same as the sum of the fair values of everything that Vey Co. received (cash and equipment). Thus, the fair value of the equipment surrendered by Vey Co. must be $30,000 (cash received) plus $60,000 (fair value of equipment received), for a total of $90,000. The cash received by Vey is taken into consideration in determining the fair value of the equipment surrendered, but is not taken into consideration in determining the fair value of the equipment received. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 96

Changes in accounting principles and correction of errors IFRS allows an exception of reporting the impact of both changes in accounting principles and correction of errors. Unless an individual standard specifies otherwise, a change in accounting principle or an accounting error is applied retrospectively, except to the extent that it is impracticable to determine the effects of the change. In that case, the principle or error change is applied from the earliest date practicable. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 97

Large stock dividend. A stock dividend is considered to be large if the new shares being issued are more than 20-25% of the total value of shares outstanding prior to the stock dividend. On the declaration date of a large stock dividend, a journal entry is made to transfer the par value of the shares being issued from retained earnings to the paid-in capital section of stockholders' equity. To illustrate, let's assume a corporation has 2,000 shares of common stock outstanding when it declares a 50% stock dividend. This means that 1,000 new shares of stock will be issued to existing stockholders. The stock has a par value of $0.10 per share and the stock has a market value of $12 per share on the declaration date. The following entry should be made on the declaration date: ``` Retained Earnings (100 x $0.10) 100 C.S. Dividends 100 ``` When the 1,000 shares are distributed to the stockholders, the following journal entry is made: Common Stock Dividends 100 Common Stock 100

Answer 98

In the government-wide statement of net position in the governmental activities column The noncurrent portion of capital leases financed by the general government is reported as general long-term liability. General long-term liabilities should be reported in the governmental activities column in the government-wide statement of net position. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 99

Net credit sales Net credit sales do not include any sales for which payment is made immediately in cash.

Answer 100

INCREASE in cash because cash must be received to decrease accounts receivable.

Answer 101

Present value of future cash flows SFAC 5, Recognition and Measurement in Financial Statements of Business Enterprises, discusses each of these measurement attributes. Each of the methods, except present value of future cash flows, would be acceptable in measuring inventory in certain circumstances. The use of present values of future cash flows was said to be useful in reporting long-term receivables. Inventory is accounted for at lower of (historical) cost or market. Market is measured as replacement cost, net realizable value, or net realizable value less a normal profit margin.

Answer 102

The statement of net position and the statement of activities Since budgetary compliance requires governmental entities to prepare cash-basis budgets, GASB 1600.103 requires the issuance of two financial statements: The balance sheet or statement of net position The statement of revenue and expenses or statement of activities View referenced content in book. 2123 Financial Reporting by State and Local Governmental …

Answer 103

required using the full governmental model. Public institutions that report as special-purpose governments either engaged only in governmental activities or engaged in both governmental and business-type activities should report infrastructure using the provisions of GASB Statement 34 codified as GASB Sp20.104. These provisions include the reporting of capital assets that are defined in GASB 1400.103 to include infrastructure. View referenced content in book. 2424 Fiduciary Funds Financial Statements

Answer 104

Debt-to-equity ratio = Total debt / Total stockholders' equity .75 = Total debt / ($700,000 + $300,000) .75($1,000,000) = Total debt $750,000 = Total debt Additional debt = Total debt - Present debt = $750,000 - $420,000 = $330,000

Answer 105

II and III Per GASB 2200.119, net position should be reported as restricted if use is constrained either by externally imposed conditions such as from creditors or grantors, or by legislation. The council's actions do not constitute external constraints or enabling legislation. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 106

This write-off reduces the allowance for doubtful accounts on that date but not net income. Writing off an account as uncollectible is recorded as a reduction to both accounts receivable and the allowance for doubtful accounts. Thus, the net receivable is unchanged and no income effect is recorded. For example, if the accounts receivable balance is $400,000 and the allowance is $20,000, the net receivable is reported as $380,000. After a $9,000 write off, the receivable is $391,000 and the allowance is $11,000 and the net figure stays at $380,000 (so B cannot be correct). Bad debt expense is 4 percent of sales and, thus, is not impacted by accounts that are written off (meaning that neither A nor D can be correct).

Answer 107

Operating activities Normally, loan activities are classified as investing activities. The Development Agency's loans, however, are not intended to be investments, but are undertaken instead to fulfill a governmental responsibility. Therefore, for cash flow reporting purposes, these loans are the primary operating activity of the governmental enterprise. The related cash flows should be classified as operating activities. All loans made and collected (including interest) should be considered operating cash outflows and inflows, respectively. View referenced content in book. 2423 Proprietary Funds Financial Statements *VIDEO EXPLANATION

Answer 108

$10,000 Intercompany dividends are eliminated in consolidation. The only dividends that remain after the eliminating entries are dividends paid to noncontrolling shareholders: 10% of Dun's dividend of $100,000, or $10,000. View referenced content in book. 2323 Emphasis on Adjusting and Eliminating Entries(…

Answer 109

Non operating revenues Revenues from state appropriations for other than capital-asset-related purposes are recorded as nonoperating revenues. Capital contributions and other financing sources are reported in other revenues, expenses, and transfers. View referenced content in book. 2450 Accounting and Reporting for Governmental Not-for-…

Answer 110

$160,000 Stock appreciation rights (SARs) provide a cash bonus to the employee based upon the change in the market value of the stock. In Wolf's case, each SAR entitles the employee to receive cash equal to the difference between $20 and the market price of the stock on the date each right is exercised. Under FASB ASC 505-50-15-2, the measurement objective for liabilities incurred under share-based compensation arrangements is the same as that for equity instruments awarded to employees; that is, to estimate the fair value of the award at the measurement date. The measurement date for equity awards is the grant date. The measurement date for a liability award, such as Wolf's, is the date of settlement. Liabilities incurred under share-based payment arrangements, such as Wolf's SARs, are remeasured at the end of each reporting period until settlement. Wolf's liability at December 31, 20X2, would be measured as follows: Fair value of SARs at 12/31/X2 (30,000 x $8 fair value) $240,000 Percentage to service period through 12/31/X2 2/3 ------- Liability at 12/31/X2 $160,000 ======= View referenced content in book. 2265 Stock Compensation (Share-Based Payments)

Answer 111

The entire balance in the sinking fund account should appear as a noncurrent asset. When cash and investments have a specific, intended purpose they will be used for, that will determine whether they are current or noncurrent assets. When assets are set aside and intended by management to be used to pay off a noncurrent liability, then those assets (no matter what form they are in; cash, for example) are tied to a noncurrent item, and are noncurrent assets.

Answer 112

$49 Harbor's book value per share of common stock is $49: Book value of corporation $2,200,000 Divided by shares of stock outstanding (50,000 - 5,000) / 45,000 ---------- Book value per share $ 49 (rounded)

Answer 113

issuance of a new FASB Statement (SFAS) that requires the use of the new method and specifies that the change be recognized by including cumulative effect (net of income taxes) in net income. FASB ASC 250-10-45-5 mandates that voluntary changes in accounting principle be recognized using the retrospective approach, in which the cumulative effect is reported as an adjustment of the beginning-of-year retained earnings of the earliest year presented. The only exception is when the FASB issues a new pronouncement and mandates in that pronouncement that a change in accounting principle made to comply with that pronouncement should be made by including the cumulative effect in net income of the year of change. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 114

a 10% stock dividend. FASB ASC 505-20-30-3 provides that for issuances of additional shares less than 20% or 25%, the issuing corporation should transfer from earned surplus (retained earnings) “an amount equal to the fair value of the additional shares issued.” Thus, retained earnings should be charged for an amount equal to the market value of the shares issued in a 10% stock dividend. View referenced content in book. 2250 Equity

Answer 115

The minimum lease payments plus *residual value The lessor shall measure the gross investment in a direct financing lease initially as the sum of the following amounts: The minimum lease payments The unguaranteed residual value accruing to the benefit of the lessor View referenced content in book. 2380 Leases *Residual value is another name for salvage value, the remaining value of an asset after it has been fully depreciated. The residual value derives its calculation from a base price, calculated after depreciation.

Answer 116

$56,111 Tell Co. must treat the lease as a capital lease because the present value of the minimum lease payments exceeds 90% of the fair value (sales price) of the equipment. Tell's cost equals the present value of $505,000. The question does not indicate or imply that Tell guarantees any residual value or that ownership transfers at the end of the 9-year lease. Therefore, the depreciable cost of $505,000 must be charged to depreciation over the period of use, which is the lease term of 9 years. The depreciation expense for the current year (one full year's depreciation) is $505,000 ÷ 9 years, or $56,111. View referenced content in book. 2380 Leases

Answer 117

No effect on retained earnings and a decrease in noncontrolling interest The dividend will have no effect on consolidated retained earnings because consolidated retained earnings include only retained earnings of the parent company. However, since the noncontrolling (minority) interest (in this case, 30%) is a percentage of the stockholder equity (including retained earnings) of the subsidiary, any reduction in subsidiary retained earnings (such as dividend declaration) will decrease noncontrolling (minority) interest. View referenced content in book. 2323 Emphasis on Adjusting and Eliminating Entries(…

Answer 118

All of the answer choices are correct. FASB ASC 260-10-50 requires disclosure of a reconciliation, effect of preferred dividends, and antidiluted securities. View referenced content in book. 2335 Earnings per Share

Answer 119

$610,000 Total Unearned franchise fees contracted: 21 x $30,000 on December 31, 20X1 $630,000 Less: Doubtful account (future payments from 1 franchise) (Total fee - prepaid nonrefundable fee) ($30,000 - $10,000) 20,000 -------- Net Unearned franchise fees on Dec 31, 20X1 $610,000 ======== Note The total initial franchise fee is unearned on December 31, 20X1, even the nonrefundable portion, because Potter Pie Co. must perform services to all the franchisees in 20X2. The nonrefundable $10,000 fee merely means if a franchisee defaults on future payments, Potter keeps this portion of the fee. “Nonrefundable” does not mean that Potter has already performed the services to earn the fee. View referenced content in book. 2251 Revenue Recognition

Answer 120

$864,884 This question is about the computation of the issue price for a bond. The bonds will pay semiannually, and thus will pay $40,000 twice each year, computed as follows: Face amount of $800,000 × 10% coupon × 6/12 (half-year) = $40,000 The yield of the bonds is 8% annually, but in half-year periods it is 4% a half-year. The present value of the bonds is thus the $40,000 multiplied by the present value of the ordinary annuity for 10 periods and 4%, plus the $800,000 par value of the bonds multiplied by the present value of $1 at 10 periods, 4%: Issue price = ($40,000 × 8.11090) + ($800,000 × 0.67556) = $324,436 + $540,448 = $864,884

Answer 121

$10,000 20X2 Depreciation Expense: Double-declining-balance rate = 2 (1/4 years) = .50/year 20X0 DDB dep. = .50 ($80,000) = $40,000 20X1 DDB dep. = .50 ($80,000-$40,000) = $20,000 20X2 DDB dep. = .50 ($80k-$40k-$20,000)= $10,000 Note The full amount, $10,000, of depreciation can be taken in 20X2 because the remaining book value of $10,000 ($80,000 - $40,000 - $20,000 - $10,000) exceeds the estimated salvage value of $8,000 (10% of $80,000). However, only $2,000 of depreciation will be available in 20X3. Salvage value is not used in the depreciation formula, but the plant asset cannot be depreciated below its salvage value.

Answer 122

Most CPA problems are this type of bond and it just means a bond with a single maturity date

Answer 123

$2,110,000 Total retained earnings on December 31, 20X1: Retained earnings (unappropriated) $900,000 Retained earnings (restricted for note payable) $160,000 Earnings for 20X1: Earnings from LT contracts $6,680,000 Less costs and expenses - 5,180,000 --------- Earnings before taxes 1,500,000 Less income taxes (30% x 1.5M) 450,000 --------- Total earnings for 20X1 1,050,000 ---------- Total retained earnings (Dec 31, 20X1) $2,110,000 ==========

Answer 124

There is no current deduction for capital expenditures. Under any basis of accounting for income taxes, expenses are deductible only when paid or accrued. There is no current deduction for capital expenditures. The expense for capital expenditures will be recognized in the form of depreciation, amortization or depletion. View referenced content in book. 2160 Special Purpose Frameworks

Answer 125

It is an ASSET! Prepaid expenses are future expenses that have been paid in advance. You can think of prepaid expenses as costs that have been paid but have not yet been used up or have not yet expired. The amount of prepaid expenses that have not yet expired are reported on a company's balance sheet as an asset.

Answer 126

May be reported in a separate statement or in a combined statement of income and comprehensive income FASB ASC 220-10-45-1A states: “An entity reporting comprehensive income in a single continuous financial statement shall present its components in two sections, net income and other comprehensive income.” The financial statement should include a total net income amount and the components for that amount, total other comprehensive income amount and the components for that amount, and total comprehensive income.

Answer 127

$14,250 Est warranty exp (20X1 sales) = .06 x $150,000 = $ 9,000 Eat warranty exp (20X2 sales) = .06 x $250,000 = 15,000 ------- Total estimated warranty expense $24,000 Less actual warranty expenditures 9,750 ------- Est warranty liability on December 31, 20X2 $14,250 =======

Answer 128

$418,250 The correct amount of contest prize expense is the current dollar amount needed to satisfy House Publishers' obligation to the contest winner. This amount is calculated as follows: January 2, 20X2, installment $ 50,000 Amount required to meet future installment requirements (i.e., present value of 19 annual payments of $50,000) 418,250 -------- Total $468,250

Answer 129

The amount expected to be collected.

Answer 130

Presents all revenue and gains in the upper part of the statement. Purchase discounts are shown as deductions in the expense section. Recovery of accounts written off has no effect on the income statement since cash is increased and allowance for doubtful accounts is decreased.

Answer 131

$10,800 Rent for Year 1 $ 8,000 x 6/12 = $ 4,000 Rent for Years 2-5 $12,500 x 4 = 50,000 ------- Total for five years $54,000 ======= Rent for 1 year (amount to be reported for 20X1) = $54,000 / 5 = $10,800 View referenced content in book. 2380 Leases

Answer 132

Information about both the nature and relationship between inflows and outflows and service efforts and accomplishments SFAC 4, Objectives of Financial Reporting by Nonbusiness Organizations, notes that the performance of nonbusiness organizations is usually not subject to direct competition in markets as is that of business enterprises. Thus, other controls have been introduced to ensure efficient and effective operation (i.e., funds, budgets, donor restrictions). SFAC 4 observes that nonbusiness organizations generally have no single indicator of performance such as profit or net income, and suggests two performance indicators for nonbusiness organizations: 1. Information about the nature and relationship between inflows and outflows of resources 2. Information about service efforts and accomplishments View referenced content in book. 2122 Financial Reporting by Not-for-Profit (Nongovernmental)…

Answer 133

Governmental Accounting Standards Board (GASB). The Governmental Accounting Standards Board (GASB) was created by the Financial Accounting Foundation (FAF) to specifically address the needs of governmental accounting. The Financial Accounting Standards Board (FASB) is recognized as the proper rule-setting authority for all other types of financial statements, including nonprofits, but no longer for governmental accounting. View referenced content in book. 2410 Governmental Accounting Concepts

Answer 134

$12,000. Summary journal entries for issuance and redemption of rights: Dr. Cr. Sep 20X1 Memo entry only March 20, 20X5, Retained Earnings 12,000 (120,000 x $.10) Cash 12,000 The result is a reduction of $12,000 in West's stockholders' equity.

Answer 135

Perpetual: $5,400; Periodic: $2,600 Under the LIFO method, the last goods in are treated as the first ones included in cost of goods sold. The perpetual method of LIFO treats units sold as coming from the last units acquired prior to that sale. Thus, the sale on January 23 leaves remaining inventory at 1,400 units at $1 (2,000 + 1,200 - 1,800). The purchase on January 28 adds $4,000 to the inventory for a total of $5,400. When using the periodic method, the inventory is not valued until the end of the period. Under the periodic method, the ending inventory of 2,200 units is priced at the earlier prices during the year (2,000 at $1 plus 200 at $3) for a total of $2,600.

Answer 136

$390,000 Capital-Smith balance January 2, 20X1 $350,000 Add: Net income 60,000 --------- Subtotal $410,000 Deduct: Withdrawals (20,000) --------- Capital-Smith balance December 31, 20X1 $390,000

Answer 137

$2,100,000 credit balance. The complete entry to record the adopted budget is: Estimated revenues $30,000,000 Appropriations control $27,000,000 Estimated transfer to debt service $ 900,000 Budgetary Fund Balance $ 2,100,000 View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 138

Income from continuing operations

Answer 139

$12,500 Contribution revenues and assets or expenses should be reported for donated services if: special skills are required to perform the service, the individual providing the service has those special skills, and the organization would have to buy the services if they were not donated. Therefore, $12,500 would be recorded as contribution revenue ($8,000 + $4,500 = $12,500). View referenced content in book. 2521 Support, Revenues, and Contributions

Answer 140

Earnings section of the income statement and writing down the cost basis to FMV Available-for-sale securities are recognized on the balance sheet at fair value. Any related unrealized holding gains and losses are excluded from net income and reported as other comprehensive income. However, if a decline in value is not temporary, the cost basis of the individual security should be written down to fair value and the amount of the write-down is included in earnings.

Answer 141

$360,000 This is a discount so you should subtract the recorded amortization of bond discount of 3,600 from $363,600!! When bonds are issued at a discount, the carrying value of the bonds is less than the face value. The initial carrying value is the issue price (proceeds received upon issuance). When you pay interest, you amortize the discount, making it smaller. As discount is amortized, the carrying value of the bond comes closer to face value. After the initial interest payment, therefore, the amortization of the bond discount on the first payment date was from the issue price to the present carrying amount. Subtract the discount amortization just added to get the present book value, the $3,600, to get the original book value, the issue price. So, the bond carrying cost after the first payment less the amortization of the first payment is the issue price: $363,600 - $3,600 = $360,000.

Answer 142

$100,000 FASB ASC 225-20-45-2 provides two criteria (unusual in nature and infrequent in occurrence) for extraordinary item treatment. Midway Co.'s hurricane loss appears to meet both of these criteria. So, Midway should report: Extraordinary loss from hurricane (less applicable income taxes of $XXX) $XXXXX The amount of extraordinary loss before income taxes is $100,000: (Loss on equipment and building - Proceeds from insurance) ($800,000 + $300,000 - $1,000,000) = $100,000 Note The foreign currency exchange loss and loss from discontinued operations are specifically excluded from extraordinary treatment by FASB ASC 225-20-45-4. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 143

Financial control: Yes; Legal restrictions: Yes A governmental accounting system must make it possible both (a) to present fairly and with full disclosure the financial position and results of financial operations of funds and account groups of the governmental unit in conformity with GAAP and (b) to determine and demonstrate compliance with finance-related legal and contractual provisions (GASB 1100.101). View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 144

$95,000 Of the $300,000 of contributions, $200,000 designated for use during the current year would have been collected in full by the date of the financial statements issued as of the end of the year. This $200,000 would be reported in the statement of activities as unrestricted support. Of the remaining $100,000, 5% or $5,000 is estimated to be uncollectible. Therefore, the $95,000 anticipated to be collected in the subsequent year is reported in the statement of activities as temporarily restricted support. View referenced content in book. 2512 Statement of Activities

Answer 145

be reported as an increase in both expenses and contributions. The contributed services should be recorded as an increase in contributions and the repair to the roof should be reported as an increase in expenses. Donated services are recorded as donation income if the services received either: - create or enhance nonfinancial assets, or - require specialized skills, are provided by individuals possessing those skills, and would need to be purchased if not provided by the donor. Any other donated services are not recognized. Footnote disclosure of the fair value of contributed services that are not recognized as revenue is encouraged but not required. View referenced content in book. 2512 Statement of Activities

Answer 146

$12,000 Total separate accounts receivable = $52,000 + $38,000 = $90,000 Less consolidated accounts receivable $78,000 ------- Accounts receivable eliminated in consolidation $12,000 Intercompany receivables and payables are always eliminated in the consolidation process. Therefore, the $12,000 eliminated must represent the amount Shel owed to Pare for intercompany sales. View referenced content in book. 2323 Emphasis on Adjusting and Eliminating Entries(…

Answer 147

$1,390,000 Governmental entities should recognize assets from derived tax revenue transactions in the period when the exchange transaction on which the tax is imposed occurs or when the resources are received, whichever occurs first. Revenues should be recognized, net of estimated allowances for doubtful accounts in the same period that the assets are recognized. From the entity-wide perspective, “availability” is not a criterion for recognizing revenues, so classification as “deferred” is unnecessary. Receipts current year $1,250,000 Add ending receivables 600,000 Less end allowance for doubtful accounts (60,000) ----------- 1,790,000 Less beginning receivables (450,000) Add beginning allowance for doubtful accounts 50,000 ----------- Current-year revenue $1,390,000 =========== View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 148

$8,000 Dr. Cr. Semi-annual realty tax payment = $12,000 Monthly tax accrual = $12,000 / 6 months = $2,000 September 1, 20X1, entry to purchase warehouse: Warehouse xxx Cash xx Real estate taxes payable $ 4,000 (2 months x $2,000) September 30, 20X1, entry to accrue taxes: Real estate taxes expense $2,000 Real estate taxes payable $ 2,000 October 31, 20X1, entry to accrue taxes: Same as September 30 November 1, 20X1, entry to pay taxes: Prepaid real estate taxes $4,000 Real estate taxes payable 8,000 Cash $12,000 The November and December accruals should credit prepaid real estate taxes.

Answer 149

Per capita claims The easiest way to answer this question is to realize that the pension expense is made up of service cost, interest cost, and sometimes an amortization of unrecognized prior service cost, so all three of these are pension concepts; per capital claims are not. Per capita claims are unique to the health care benefits. View referenced content in book. 2263 Nonretirement Postemployment Benefits

Answer 150

$59,000 Baker has earned the initial franchise fee and there is no indication that collectibility of the receivable is not reasonably assured. Therefore, Baker should recognize all the revenue for the initial franchise fee. The amount to be recognized is the cash received ($25,000) plus the present value of the future payments ($34,000). The difference between the $40,000 of future payments and their present value will be recognized as interest revenue over the 4-year period.

Answer 151

Expenditures—salaries, debit 250,000; Salaries payable, credit 250,000 It helps to clarify the terminology used in governmental accounting: Appropriations is an account created as a restriction of revenues. Encumbrances, similar to a purchase order, specifically designates funds for a specific future purchase of goods or services. Expenditures can be for capital or revenue items and means an outflow of resources, usually money. As the salaries have already benefited the city, but simply have not been paid, the appropriate credit would be to a liability account. The only liability account listed as a credit in the answer choices is salaries payable, thereby eliminating the "Salaries expense, debit 250,000; Appropriations, credit 250,000" and "Salaries expense, debit 250,000; Encumbrances, credit 250,000" answer choices. The salaries have already been incurred, which, based on the encumbrance definition, would eliminate "Encumbrances, debit 250,000; Salaries payable, credit 250,000" as an appropriate answer choice. "Expenditures—salaries, debit 250,000; Salaries payable, credit 250,000" is the best answer. View referenced content in book. 2449 Encumbrances

Answer 152

Decrease in both ending inventory and net income In a period of rising prices, changing from FIFO to LIFO will cause ending inventory to decrease because the earlier, lower-cost items will be included. As a result of the lower-ending inventory, cost of goods sold will be higher. (Less-ending inventory will be subtracted from cost of goods available.) The higher cost of goods sold will produce a decrease in net income.

Answer 153

Defensive-interval ratio Thus, it is computed by dividing total quick assets by average daily cash expenditures. This is a LIQUIDITY measure, as it assesses how long a company can continue to keep up with its debts.

Answer 154

$500,000 Although payment of post-employment retirement benefits has often been considered “pay as you go,” each year an actuarily determined expense is recorded and added to the enterprise funds' long-term obligations. OPEB (other postemployment retirement benefits), benefits other than pensions, do not have to be advanced funded. However, the annual required contribution (ARC) consisting of the present value of the benefits earned due to current service plus amortization of a portion of previously earned benefits is recognized as an expense. The expense therefore is not measured by the payments to retirees. The unfunded actuarial accrued liability is considered in calculating the ARC, but is not the amount of annual expense. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 155

Statement of financial position, statement of activities, and statement of cash flows According to FASB ASC 958-205-45-4, a full set of financial statements for a private not-for-profit entity that is not a health and welfare entity, like a college or university, would include a statement of financial position, a statement of activities, and a statement of cash flows. A college or university may choose to incorporate additional classifications such as operating and nonoperating within the changes to each class of net assets on its statement of activities. View referenced content in book. 2510 Financial Statements

Answer 156

$31,000 In the context of this problem accumulated depreciation is affected by the asset disposal when the carrying value of the asset sold is written off and by depreciation expense for the current period. These two items account for the net increase of $25,000 ($153,000 - $128,000) in the credit balance of the accumulated depreciation account. The debit change in accumulated depreciation caused by the asset disposal needs to be determined from the facts provided. The equipment account had a beginning balance of $344,000. The $50,000 purchase of new equipment would cause this balance to increase to $394,000. However, the ending balance was $379,000. The only other transaction affecting the equipment account was the disposal of a piece of equipment. Therefore, the original cost of the disposed equipment was $15,000 ($394,000 - $379,000). Since the disposed equipment had a cost of $15,000 and a carrying value of $9,000 (carrying value = cost - accumulated depreciation), the accumulated depreciation associated with the disposed equipment was $6,000 ($9,000 = $15,000 - accumulated depreciation). The beginning credit balance in the accumulated depreciation control account was $128,000. It would have been decreased (debited) for the $6,000 of accumulated depreciation related to the disposed equipment. That would leave a credit balance of $122,000. However, the ending balance was a credit of $153,000. Depreciation expense for the period would also change (increase or credit) the balance of accumulated depreciation. Since the ending balance was $153,000, and the balance without the effect of depreciation expense was $122,000, the depreciation expense must have been $31,000 ($153,000 - $122,000).

Answer 157

The company's accounting policy for the investment Accounting policy disclosure includes the selection of accounting principles from existing acceptable methods. This would include the company's use of the equity method. The equity method must be used if the company has significant influence over the company whose stock has been acquired. Generally, 20% ownership is evidence of significant influence, but it is possible that other factors would indicate otherwise. Consequently, the use of the equity is the selection of an accounting principle from existing alternatives (equity method or cost method).

Answer 158

Recognize previously unrecognized items that the entity expects to sell "Recognize previously unrecognized items that the entity expects to sell" is correct. Assets must be measured at the estimated amount of cash expected to be collected. Costs and income should be recognized when it becomes apparent that liquidation is imminent.

Answer 159

$15,000 The $100,000 contribution is meant by the donor to remain invested, so the balancing equity in the accounting equation would be permanently restricted net assets. The $15,000 of interest earned is meant by the donor to be used for a specific purpose, to fund scholarships. The scholarships will be awarded in Year 3 although the interest was earned in Year 2. For the statement of financial position, therefore, the $15,000 of interest earnings is considered temporarily restricted net assets. The restriction on use will not be released until Year 3. View referenced content in book. 2512 Statement of Activities

Answer 160

Enterprise funds The statement of net position reports the financial position of proprietary funds. Enterprise funds are a type of proprietary fund. Capital projects funds, special revenue funds, and permanent funds are all types of governmental funds that report financial position on a balance sheet. The net assets of proprietary funds are called net position. The net assets of a governmental fund are represented by Fund Balance. GASB 2200.170 View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 161

Accounts receivable: No effect; Allowance for uncollectible accounts: Increase The entry to record the collection of an account previously written off would be: Cash XXX Allowance for uncollectible accounts XXX * Decreases the allowance!! * *Allowance for uncollectible accounts is a contra account to accounts receivable.

Answer 162

Dr. Asset xx | Cr. Revenue xx

Answer 163

1. A company can elect to record a bond at fair value a. The election can never be changed b. It can apply to one or several bonds c. The bond is recorded at fair value d. The amortization of a premium or discount still applies e. Any change in fair value is recognized in earnings as unrealized gains or losses i. Increase in fair value means a loss: the company owes more ii. Decrease in fair value is a gain: the company owes less

Answer 164

$191,000 The International Financial Reporting Standards (IFRS) apply a lower of cost and net realizable value, applied on an item-by-item basis. For each item, one must figure out the net realizable value: the sales price less cost to sell. For blades, net realizable value is $50,000 less $2,000, or $48,000. For blades the cost is less, so blades will be carried at cost, $41,000. Towers sell for $54,000 less $4,000 to sell, for a net realizable value of $50,000, which is below cost of $52,000. Towers are carried at $50,000. Generators sell for $30,000 less $2,000 for a net realizable value of $28,000, and cost of $20,000 is below that. Generators will be carried at cost, $20,000. Gearboxes sell for $120,000 less $12,000, or a net realizable value of $108,000, which is higher than cost of $80,000. Gearboxes will be carried at cost of $80,000. The total of all four items at lower of cost or net realizable value is thus $41,000 + $50,000 + $20,000 + $80,000 = $191,000.

Answer 165

Operating Activities: $500,000; Investing Activities: $0; Financing Activities: $200,000 The Statement of Cash Flows prepared by a not-for-profit entity uses the standard FASB categories. Unrestricted contributions are reported as operating activities while contributions restricted for long-term purposes (i.e., plant acquisitions) are reported as financing activities. View referenced content in book. 2513 Statement of Cash Flows

Answer 166

40 days Form 10-Q is the quarterly report required by the SEC for publicly traded companies. The due date is 40 days after the end of the quarter to which it applies.

Answer 167

$24,980 The capitalized cost of the equipment is $24,980: Down payment $ 4,000 Present value of note ($6,000 x 2.58) 15,480 Shipping charges 2,000 Installation charges 3,500 ------- Total $24,980

Answer 168

Classify as available-for-sale securities and report as a separate component of other comprehensive income FASB ASC 320-10-25-1 defines held-to-maturity securities as debt securities that the company has the intent and ability to hold, while trading securities are debt or equity securities and are securities that are bought and held principally for the purpose of selling them in the near term. It provides that investments “not classified as trading securities or as held-to-maturity securities shall be classified as available-for-sale securities.” Quote At acquisition, an entity shall classify debt securities and equity securities into one of the following three categories: Trading securities. If a security is acquired with the intent of selling it within hours or days, the security shall be classified as trading. However, at acquisition an entity is not precluded from classifying as trading a security it plans to hold for a longer period. Classification of a security as trading shall not be precluded simply because the entity does not intend to sell it in the near term. Available-for-sale securities. Investments in debt securities and equity securities that have readily determinable fair values not classified as trading securities or as held-to-maturity securities shall be classified as available-for-sale securities. Held-to-maturity securities. Investments in debt securities shall be classified as held-to-maturity only if the reporting entity has the positive intent and ability to hold those securities to maturity. FASB ASC 320-10-25-1

Answer 169

Income from continuing operations The holding gain or loss on marketable equity securities bought and held principally to sell in the near term would be included in income from continuing operations. In accordance with FASB ASC 320-10-35, these securities would be classified as trading securities.

Answer 170

neither interperiod nor intraperiod income tax allocation. FASB ASC 740-10-10-1 notes: “Certain revenues are exempt from taxation and certain expenses are not deductible.” The items referred to in this passage are commonly called permanent differences. A permanent difference affects only the current reconciliation of book income to taxable income, and the permanent difference has no effect on the computation of deferred taxes. Permanent differences do not affect either interperiod or intraperiod income tax allocation. View referenced content in book. 2270 Income Taxes

Answer 171

FASB ASC 230-10-45-1 states: Quote A statement of cash flows shall report the cash effect during a period of an entity's operations, its investing transactions, and its financing transactions. It is further noted that these are the “same amounts as similarly titled line-items or subtotals shown in the statements of financial position as of those dates.” Since Mend's policy is to treat these investments as cash equivalents, the purchase would not be reported in the statement of cash flows.

Answer 172

Donor contributions to fund a resident camp program Of the answer choices presented, only the donor contributions for a specific purpose, to fund a resident camp program, would increase the temporarily restricted net assets. The refundable advances represent an asset of the organization as it had given cash to an equipment provider before the purchase had taken place. The participants' deposits represent a receipt of cash and a liability to provide the promised activity for participants, a trip. Membership fees are exchange revenues considered unrestricted. View referenced content in book. 2512 Statement of Activities

Answer 173

Debt securities classified as held-to-maturity should be reported as amortized cost, and debt securities classified as available-for-sale should be reported as fair value. Since the fair value exceeds the carrying amount of the assets in question, there does not seem to be an impairment concern. The debt securities that are held to maturity are thus carried at amortized cost, and the debt securities that are available for sale are carried at fair value.

Answer 174

2.0 times Inventory turnover is the relationship of cost of goods sold to average inventory. Thus, to compute it, one needs the cost of goods sold for the year and the average of the beginning and ending inventory balances. The cost of goods sold is $18,000. Beginning inventory is $6,000. Ending inventory is the beginning inventory plus purchases, less cost of goods sold, and thus ending inventory is $12,000, computed as follows: $6,000 (Beginning inventory) + $24,000 (Purchases) – $18,000 (Cost of goods sold) = $12,000 The average of the beginning and ending inventory is $9,000, computed as follows: $6,000 (Beginning inventory) + $12,000 (Ending inventory) = $18,000 $18,000 ÷ 2 =$9,000; thus, the inventory turnover is $18,000 ÷ $9,000, or 2 times. View referenced content in book. 2137 Consolidated and Combined Financial Statements

Answer 175

$62,500 Since one of the 10 payments had been collected on December 31, 20X1, the carrying amount of the note receivable would be the present value of a nine year annuity of $10,000 discounted at 8%. The computation: Carrying value of note receivable = Annual payment x Present value of ordinary annuity factor = $10,000 x 6.2469 = $62,469 or $62,500 rounded

Answer 176

Extraordinary gains from extinguishment of debt Gains or losses from the extinguishment of debt are included in net income.

Answer 177

Reflects the reduction in total stockholder's equity resulting from the corporation reacquiring its own shares of stocks.

Answer 178

$200,000 It's like indirect method! Net revenue from cash sales ($80,000 - $4,000) $ 76,000 Cash collected from credit customers Net credit sales ($120,000 - $6,000) $114,000 Add decrease in AR! ($40,000 - $30,000) 10,000 $124,000 -------- -------- Cash basis net revenue for 20X1 $200,000 ($76,000 + $124,000) ========

Answer 179

1. Under IFRS, instead of the 75% of the remaining life rule, any “major portion” of the remaining useful life would be a capital lease 2. Likewise, instead of the GAAP 90% of cash value rule, under IFRS if the present value of minimum lease payments is ‘substantially all’ of the fair value of the asset, then it’s a capital lease 3. Another IFRS criteria is that if the asset under lease is specialized or unique to the point that only the lessee could use it without requiring major modifications, then it would be considered a capital lease

Answer 180

Dr. Expense xx | Cr. Asset xx

Answer 181

$388,000 Journal entry to record issuance of bonds on January 1, 20X2: Dr. Cr. Cash (400,000 + 8,000 - 12,000) $396,000 Bonds Disc (400 x $1,000 (1.00 - .97)) 12,000 Bonds payable (400 x $1,000) $400,000 Interest payable [(3/12) x (400,000 x .08)] 8,000 Following bond issuance on January 1, 20X2, Oak should report: Face amount of bonds $400,000 Less: Bond discount 12,000 -------- Bonds payable, net of discount $388,000 ========

Answer 182

$60,000 When an asset may have sustained a loss in value, due to circumstances occurring by the end of the year, it must be tested for impairment. Under IFRS, the test for and measure of an impairment loss is the excess of carrying value ($500,000) above recoverable amount ($440,000). The recoverable amount is the higher of the value in use (present value of discounted future cash flows) or net realizable value (sales proceeds less cost to sell). The recoverable amount here is the value in use of $440,000, which is larger than the net realizable value of $450,000 - $16,000, or $434,000. Thus, a $60,000 impairment loss is recognized. View referenced content in book. 2370 Impairment

Answer 183

FINANCING ACTIVITIES According to FASB ASC 958-230-55-3, a contribution to a not-for-profit restricted to long-term purposes like construction shall be reported as a cash flow from financing activities. Cash flows received from investment income restricted by donor stipulation to the same purposes also are reported as financing activities, not as operating activities.

Answer 184

Describes a company's revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities.

Answer 185

Serial bonds, $475,000; Debenture bonds, $400,000 Serial bonds mature in installments (only part of the total principal is paid back each year, so only some of the total bonds are paid off each year) and thus are described as maturing annually. Thus, the serial bonds are the 9.375% bonds and the 10% bonds for a total of $475,000 ($275,000 + $200,000). Debenture bonds are unsecured debt, and so these are the 9.375% and the 11.5% bonds for a total of $400,000 ($275,000 + $125,000).

Answer 186

not unusual in nature but infrequent in occurrence. An extraordinary item must be both unusual and infrequent. An item that is only infrequent would be included in continuing operations. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 187

A decrease in a non cash current asset such as AR suggests MORE AVAILABLE CASH at the end of the period compared to the beginning. This is so because a decrease in AR implies HIGHER CASH RECEIPTS than reflected sales.

Answer 188

Unrestricted The three categories of net assets reported for nongovernmental not-for-profit entities are: -unrestricted net assets, -temporarily restricted (by donors or grantors) net assets, -permanently restricted (by donors or grantors) net assets. FASB ASC 958-210-45-9 states that the amounts for each of the three classes of net assets are based on donor-imposed (not board of directors–imposed) restrictions. View referenced content in book. 2511 Statement of Financial Position

Answer 189

(Cash + Current Receivables + Marketable Securities*) / Current Liabilities This ratio uses the most liquid assets to measure the ability to meet obligations. *Marketable securities or short-term investments

Answer 190

365 / *AR Turnover *AR Turnover = Net credit sales / Average AR This measures the average number of days it takes to collect receivables

Answer 191

decrease the operating income for the period 20X2 by the decrease to fair value, $50,000. When a class of assets' fair value can be reliably measured, a corporation applying IFRS can elect to apply the revaluation model to the class of assets. When the carrying value of the assets differs materially from the fair value of the assets, a revaluation must occur, with any increase being included in asset revaluation surplus, an equity account, like other comprehensive income, and a decrease being accounted for as an other loss included in income from operations.

Answer 192

All of the answer choices are correct. All of the listed choices are contained in the FASB ASC 740-10-20 definition: Quote A position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. A tax position can result in a permanent reduction of income taxes payable, a deferral of income taxes otherwise currently payable to future years, or a change in the expected realizability of deferred tax assets. The term tax position also encompasses, but is not limited to: a. A decision not to file a tax return b. An allocation or a shift of income between jurisdictions c. The characterization of income or a decision to exclude reporting taxable income in a tax return d. A decision to classify a transaction, entity, or other position in a tax return as tax exempt e. An entity's status, including its status as a pass-through entity or a tax-exempt not-for-profit entity. View referenced content in book. 2270 Income Taxes

Answer 193

$5,000 Non-level lease payments must be expensed on a straight-line basis. ``` Year 1 $25,000 Year 2 30,000 Year 3 35,000 ------- Total rent payments $90,000 ``` Lease term 3 years Yearly rent $30,000 The entry for the first payment would be: Rent expense $30,000 Cash $25,000 Lease liability 5,000 View referenced content in book. 2380 Leases

Answer 194

$3,000 Cash payments to purchase equipment are outflows from investing activities. The $3,000 down payment is an investing activity outflow. The $27,000 financed and the principal payments are financing activities. View referenced content in book. 2135 Statement of Cash Flows

Answer 195

$730,000. Since this item would not be considered infrequent, the gain would not be an extraordinary item. The gain would be reported as a separate component of income before extraordinary items (if any). Proceeds from insurance (replacement cost) $1,100,000 Less: Current carrying amount $300,000 Policy deductible 50,000 Dismantling costs 20,000 370,000 -------- ---------- Gain to be reported $ 730,000 ========== View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 196

State: $700,000; Curry: $350,000 Sales taxes are classified as a form of derived tax revenue. According to GASB N50.113, revenues should be recognized when the underlying exchange transaction occurs. (On the modified accrual basis of accounting, revenues should be recognized when the underlying exchange has occurred and the resources are available.) In this question, the underlying sales transactions took place before June 30. Also, the resources are considered to be available because the resources are received in the current year or soon enough thereafter to be used to pay the current year's bills, i.e., within 60 days of year-end (15 days for remittance to the state plus 45 days for distribution to the city). Thus, the full amount collected, $1,050,000, would be recognized by either the state or the city. Distribution of the amount: The total percentage of the tax collected is 6% (4% + 2%). The amount to Curry City = $1,050,000 × 2/6 = $350,000 The amount to State = $1,050,000 × 4/6 = $700,000 View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 197

The beginning present value of the lease did not include the present value of the bargain purchase option. The liability under capital lease obligation should be equal to the discounted present value of the minimum lease payments, which includes any bargain purchase option. If the calculated liability includes only the discounted present value of the periodic payments to be made over the 5-year lease term, the liability will be shown as paid in full with the last periodic payment. Therefore it appears Cott did not include the amount of its bargain purchase option in the minimum lease payments when calculating its lease liability. View referenced content in book. 2380 Leases

Answer 198

$14,000 The FASB guidance provides that investments in equity securities (stock) with readily determinable market value are reported at market value. The question asks specifically for the end-of-year amount. View referenced content in book. 2511 Statement of Financial Position

Answer 199

As a gain in earnings at the acquisition date In a business acquisition, the acquiring corporation must recognize the assets and liabilities acquired at fair value. If the net assets acquired exceed the purchase price—a bargain purchase—the excess must be recognized as a gain in earnings at the date of the acquisition. View referenced content in book. 2315 Business Combinations

Answer 200

$9,961 Given the information in the question, the company's cash balance should be adjusted to determine the adjusted cash balance. It is computed as follows: Balance per books, June 30 $10,012 Add: Interest revenue 35 -------- Deduct: Service charges (50) Correction of check (36) -------- Adjusted cash balance $ 9,961 ========

Answer 201

$1,980,000 The timing of collection of revenues does not affect revenue recognition in the entity-wide (government-wide) statement of activities [BECAUSE IT USES ACCRUAL BASIS]. Revenues are recognized after deducting estimated uncollectibles, discounts, etc. Therefore, the amount reported as revenues in the current year will be the net realizable value of the tax levy for the current year. In this question, the amount is the levy amount ($2,000,000) less the estimated uncollectible amount ($2,000,000 × 1%, or $20,000), which equals $1,980,000. Timing of revenue collection does affect revenue recognition in governmental funds financial statements. When modified accrual accounting is used, revenues must also be “available.” View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 202

$250,000 20X2 20X1 --------- --------- Sales $900,000 $600,000 Less: Write-offs (50,000) (200,000) Collections (300,000) (300,000) ---------- --------- Uncollected sales 12/31/X1 $550,000 $100,000 Times gross profit % x 0.40 x 0.30 --------- --------- Deferred gross profit $220,000 $ 30,000 ========= ========= Total deferred gross profit on December 31, 20X2 = $220,000 + $ 30,000 = $250,000 View referenced content in book. 2251 Revenue Recognition

Answer 203

$300,000 FASB ASC 840-30-30-1 requires capitalization of the present value of minimum lease payments. This does not include executory costs such as real estate taxes. Capitalized lease liability at 12/31/X1 = ($52,000 - $2,000) x 6 (for nine years at 9%) = $ 50,000 x 6 = $300,000 View referenced content in book. 2380 Leases

Answer 204

Bigger inventory costs Lower COGS than FIFO Bigger income

Answer 205

In periodic inventory system, merchandise inventory and cost of goods sold are not updated continuously. Instead purchases are recorded in Purchases account and each sale transaction is recorded via a single journal entry. Thus cost of goods sold account does not exist during the accounting period. It is determined at the end of accounting period via a closing entry.

Answer 206

$250 The company's increase in cash flows is $250, calculated as follows: Dividends paid $(300) Proceeds from the issuance of common stock 250 Borrowings under a line of credit 200 Proceeds from the issuance of convertible bonds 100 ----- Net increase from financing activities $250 The proceeds from the sale of a building are included in investing activities.

Answer 207

Depreciation expense would be decreased and goodwill impairment would be assessed. Goodwill is the excess of the fair value of the consideration given over the fair value of the net identifiable assets acquired. The carrying amounts of Scarp's assets and liabilities approximated their fair values, except that the fair value of the building is less than its book value. Since Prim paid cash equal to the book value of the stock, the amount paid was greater than the fair value of the net identifiable assets of Scarp, resulting in goodwill being recognized. In this particular case, the amount of the goodwill is equal to the excess of the book value of the building over its fair value. One could argue that Scarp already should have recognized an impairment loss on its own books with regard to the building. However, there is insufficient information to know if the criteria specified in FASB ASC 360-10-05-4 have been met. The mere fact that the fair value of the building is less than its book value is not necessarily sufficient evidence. Thus, presumably the depreciation expense recorded by Scarp is based on the book value amount. In any event, the building should be included in the consolidated assets at its fair value, which is an amount lower than its book value. The consolidated depreciation should be based on this lower amount. Therefore, the consolidated depreciation expense is less than the sum of the depreciation amounts reported by Prim and Scarp as separate entities (i.e., before the consolidated statements are prepared). Thus, for consolidated financial statement purposes, depreciation is decreased from the amounts reported by the two separate entities. Regardless of the depreciation issue, FASB ASC 350-20-35-28 requires goodwill to be tested for impairment at least annually, as well as in the year of acquisition. Therefore, goodwill impairment must be assessed in this case. View referenced content in book. 2315 Business Combinations *VIDEO EXPLANATION Cash paid is > fair value = goodwill Example: Building CV: 100; FV: 80 - We're gonna make an adjustment. We'll have to reduce the value of building to FV (down to 80 for consolidation purposes) - If FV is less, we're gonna make an adjustment to reduce the value of the building which means the depreciation expense will be decreased - We need to assess goodwill for impairment at least once a year * Under Acquisition method, all assets & liabilities are recorded at FV * If cash PP > FV = goodwill * Goodwill assessed for impairment annually

Answer 208

An outflow equal to the 20X1 principal payments only Cash outflows for financing activities per FASB ASC 230-10-45-15 include “other principal payments to creditors who have extended long-term credit.” Only the principal portion of the monthly lease payments would be reported as cash outflow for financing activities in Dewey Co.'s 20X1 statement of cash flows. Note Interest is a cash outflow that is classified as an operating activity. (FASB ASC 230-10-45-17)

Answer 209

$300,000 Interest payments are included in operating activities. Cash payments to acquire EQUITY INSTRUMENTS are included in INVESTING activities. Only payments of dividends to stockholders are included in financing activities.

Answer 210

Dr. Liability xx | Cr. Revenue xx

Answer 211

$30,000 Deferred income Temporary Effective tax expense for 20X2 = differences x tax rate = $100,000 x 0.30 = $30,000 Note The temporary difference of $100,000 for 20X2 offset by the temporary asset difference ($9,000 ÷ .30 = $30,000) as of January 1, 20X2, resulted in a cumulative taxable difference of $70,000 on the December 31, 20X2, balance sheet. View referenced content in book. 2270 Income Taxes

Answer 212

COGS / Average inventory

Answer 213

$73,000 Employees were paid through Friday, December 26, 20X1. Salaries were unpaid for Monday, December 29 through Wednesday, December 31 (three days). Accrued salary at 12/31/X1 (3/5 x $80,000) $48,000 Accrued vacation pay for 20X1 25,000 ------- Total Accrual at 12/31/X1 $73,000 ======= Balance at December 31, 20X0, ($20,000) is not used in this computation. The 20X0 accrual amounts would have been used during 20X1. View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 214

employee is fully eligible for benefits. FASB ASC 715-60-35-68 requires the obligation for postretirement benefits for an employee to be accrued during the attribution period that applies to the employee. “In all cases, the end of the attribution period shall be the full eligibility date.” View referenced content in book. 2263 Nonretirement Postemployment Benefits

Answer 215

$3,000 FASB ASC 470-60-35-4 stipulates that: Quote A debtor that issues or otherwise grants an equity interest to a creditor to settle fully a payable shall account for the equity interest at its fair value. The difference between the fair value of the equity interest granted and the carrying amount of the payable settled shall be recognized as a gain on restructuring of payables. Wood should recognize a gain on restructuring of debt of $3,000 ($28,000 - $25,000).

Answer 216

Direct Method The advantage of the direct method over the indirect method is that it reveals operating cash receipts and payments.

Answer 217

either a servicing asset or a liability. FASB ASC 860-50-20 and 50-25-1 require recognition and measurement of servicing assets (total servicing revenue is expected to exceed total servicing costs) or servicing liabilities (total servicing costs are expected to exceed total servicing revenues) when an entity undertakes an obligation to service financial assets. View referenced content in book. 2393 Transfers and Servicing of Financial Assets and …

Answer 218

Neither general funds nor fiduciary funds The measurement focus of the general fund and other governmental-type funds is flow of current financial resources. This focus provides a measure of the change in current financial resources. The measurement focus of trust funds, including fiduciary funds, is economic resources. The purpose of measurement is change in trust net position reported as additions and deductions. Net income is not determined for governmental or fiduciary fund types. View referenced content in book. 2411 Measurement Focus and Basis of Accounting * VIDEO EXPLANATION * NOTES 09/30

Answer 219

In perpetual inventory system, merchandise inventory and cost of goods sold are updated continuously on each sale and purchase transaction. Some other transactions may also require an update to inventory account for example, sale/purchase return, purchase discounts etc. Purchases are directly debited to inventory account whereas for each sale two journal entries are made: one to record sale value of inventory and other to record cost of goods sold. Purchases account is not used in perpetual inventory system.

Answer 220

Gain in value of debt Instrument A only FASB ASC 815-25-35-1 requires that gains or losses associated with changes in the fair value of the hedging instrument be recognized in net income in the period in which the change in fair value takes place. The gain or loss resulting from changes in the fair value of a cash flow hedge is included in other comprehensive income. Consequently, only the gain in the value of Instrument A would be included in net income. View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 221

$12,000 Cone's bonus for Year 1 is $12,000: Bonus = 0.25 x ($160,000 - $100,000 - Bonus) Bonus = 0.25 x ($60,000 - Bonus) Bonus = $15,000 - (.25 x Bonus) Bonus + (0.25 x Bonus) = $15,000 1.25 (125%) x Bonus = $15,000 Bonus = $15,000 / 1.25 Bonus = $12,000 View referenced content in book. 2252 Costs and Expenses

Answer 222

2.4 to 1 This particular ratio is the relationship to earnings available to pay preferred stock dividends, net income, divided by the preferred stock dividends total. Thus, here it is $480,000/$200,000, or 2.4 to 1.

Answer 223

principal of general long-term debt and interest on general long-term debt. Governmental units use a modified accrual basis of accounting. Expenditures should be recorded as fund liabilities are incurred or assets are expended. However, the expenditure rules will not apply to the principal or to the interest on debt as specified by the GASB. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 224

$45,500. Kane's pension expense for 20X1 is: Service cost $40,000 Interest cost 15,000 Expected return on plan assets (12,000) Amort of prior service costs 4,000 Amort of unrecognized (gain) loss (3,000) Amort of unrecognized transition obligation 1,500 Pension expense - 20X1 $45,500 View referenced content in book. 2264 Retirement Benefits

Answer 225

$52,000 FASB ASC 323-10-05-5 requires the use of the equity method when a company acquires 20% or more of the outstanding stock of another company. Significant influence is assumed. Under the equity method, Puff should report 40% of the $150,000 income of Straw, or $60,000. Because Straw's equipment has a fair market value exceeding its carrying value, Puff should amortize the difference over the equipment's 5-year life. Puff should record 40% of $100,000 ($40,000) as equipment subject to amortization (depreciation). Straight-line amortization of $40,000 over five years yields an expense of $8,000. Puff has income of $60,000 less $8,000, or $52,000 for 20X1. *See Video Explanation under "Investments"

Answer 226

Both embodies an obligation to repurchase the issuer's equity shares and requires or may require the issuer to settle the obligation by transferring assets. An entity must classify as a liability a financial instrument, other than an outstanding share, that, at inception (FASB ASC 480-10-25-8): -embodies an obligation to repurchase the issuer's equity shares, or is indexed to such an obligation and -requires or may require the issuer to settle the obligation by transferring assets. Examples of these financial instruments include forward purchase contracts or written put options on the issuer's equity shares that are to be physically settled or net cash settled. View referenced content in book. 2385 Distinguishing Liabilities from Equity

Answer 227

15.0 to 1. The price-to-earnings ratio is the relationship between the stock price per share to the earnings per share. The stock price per share is given as $12, but the earnings per share will have to be computed. Earnings per share is net income divided by common shares outstanding: $240,000 ÷ $300,000 = 0.8 Thus, the price-to-earnings ratio is $12 ÷ 0.8, or 15 to 1.

Answer 228

The convertibility of debt security to equity has some value so we would pay less interest than non convertible debt (straight debt) The convertible debt security is an option for businesses to raise money-potentially give up a little bit of equity they can pay a lower rate of interest than the near term so it is a financing mechanism. (how to finance/projects or growth - it's something to consider)

Answer 229

The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues FASB ASC 280-10-50-42 requires the following with respect to enterprise-wide disclosures about major customers: “A public entity shall provide information about the extent of its reliance on its major customers. If revenues from transactions with a single external customer amount to 10 percent or more of a public entity's revenues, the public entity shall disclose that fact, the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues. The public entity need not disclose the identity of a major customer or the amount of revenues that each segment reports from that customer.” View referenced content in book. 2390 Segment Reporting

Answer 230

Operational accountability Governmental fund reporting covers sources, uses, and balances of current financial resources, and budgetary accounting enables financial and fiscal accountability. Both fund-based and government-wide financial reporting facilitate functional accountability as both classify costs by major service or responsibility areas. Only the government-wide statement of activities reports the government's operations using all economic resources. Thus, the statement of activities is designed primarily to promote the assessment of operational accountability. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 231

$70,000 The changes in temporarily restricted net assets include increases from investment income ($50,000) and net investment appreciation ($80,000) that the donor restricted to use for the senior center. Temporarily restricted net assets decrease by the amount of resources spent for the restricted purpose. These net assets released from restrictions reduce temporarily restricted net assets and increase unrestricted net assets by $60,000. Therefore, the change in temporarily restricted net assets is $80,000 + $50,000 - $60,000, or $70,000. View referenced content in book. 2511 Statement of Financial Position

Answer 232

Both summary of significant accounting policies and summary of significant assumptions The AICPA's “Statement of Standards for Accountants' Services on Prospective Financial Information” governs the preparation of prospective financial statements. It requires that accountants provide summaries of the significant accounting policies and the assumptions used to prepare these forward-looking statements. The same full disclosure principle that guides the preparation of historical financial statements applies to the reporting of prospective financial statements.

Answer 233

1. Replacement cost is more than net realizable value, in which case market will be net realizable value (the ceiling) or 2. Replacement cost is less than net realizable value reduced by a normal profit margin, in which case market is net realizable value minus a normal profit margin (the floor).

Answer 234

net assets reflecting all investments at cost. The statement of net assets available for benefits of the plan must include the following: Total assets Total liabilities Net assets reflecting all investments at fair value Net assets available for benefits

Answer 235

$40,000 A personal statement of financial condition consists of estimated current values of assets, liabilities, estimated income tax payable, and net worth at a specific date. Income taxes for 20X1 are not included because they were paid in full on April 15, 20X2. Estimated income taxes for any elapsed portion of a current year are included as income tax payable. The estimated tax liability on April 30, 20X2, is $20,000 and is included in current liabilities. For a personal financial statement, the estimated tax associated with the difference between the estimated value of assets and liabilities and their tax bases is shown between liabilities and net worth. That estimated tax for Green is given to be $40,000. View referenced content in book. 2151 Personal Financial Statements *VIDEO EXPLANATION 10/09

Answer 236

cost method, and only a portion of Ima's 20X1 dividends represent earnings after Pal's acquisition. Pal Corp. recorded the receipt of the dividends received as follows: Debit Credit ----- ------ Cash XXX Dividend Income XX Investment in Ima Corp. XX This is in accord with the discussion in FASB ASC 325-20-35-1 describing application of the cost method: Quote Dividends received in excess of earnings subsequent to the date of investment are considered a return of investment and are recorded as reductions of cost of the investment.

Answer 237

$17,000 other comprehensive loss Other comprehensive income includes unrealized holding gains or losses on available-for-sale securities ($17,000). All of the other items presented in the problem are included in net income.

Answer 238

Understatement of accumulated depreciation of $40,000 Failure to report depreciation expense would understate depreciation expense and accumulated depreciation by the amount of the depreciation expense not reported. If no other errors were made, income would be overstated by the net of tax amount ($24,000). View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 239

Financial capital is applied to both currently reported net income and comprehensive income. SFAC 6, Elements of Financial Statements, contains the following definitions: Capital maintenance concept: the recovery of cost; separation of return on capital from return of capital. Financial capital concept: The effects of price changes on assets held and liabilities owed are recognized as “holding gains and losses” and included in return on capital. Physical capital concept: The effect of price changes are recognized as “capital maintenance adjustments” as a separate element of equity and would not be included in return on capital. SFAC 6 continues: Quote The financial capital concept is the traditional view and is generally the capital maintenance concept in present primary financial statements. Comprehensive income as defined in paragraph 70 is a return on financial capital. Thus, the financial capital maintenance approach is applied to both currently reported net income and comprehensive income. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 240

$260,000 Griff Co.'s general and administrative expenses for 20X1 would include: Accounting& legal fees $ 25,000 Officer salaries 150,000 Insurance 85,000 Total $260,000 (Freight-in would be part of cost of goods sold and/or inventory. Freight-out and sales representative salaries are part of selling expenses.) View referenced content in book. 2252 Costs and Expenses

Answer 241

$37,000 Cash inflows from financing activities: Proceeds from sale of treasury stock $75,000 Cash outflows from financing activities: Dividends paid (38,000) -------- Net cash provided by financing activities $37,000 Dividends declared created a liability, but until they are paid, no cash flows out of the corporation. View referenced content in book. 2135 Statement of Cash Flows

Answer 242

Unlike single-step income statements, a multiple-step income statement offers detailed information about the gross profit and operating profit of a company. Operating sections of the statement generally involve revenues and expenses, while nonoperating sections detail the gains and losses of indirect activity. The company's specific sources of revenue and expense are itemized and presented as different line items, making it easier for investors to digest performance and evaluate financial health. The obvious trade-off to presenting detailed accounting is that it is more complicated and time-consuming to put together.

Answer 243

$5,000 Original cost $46,000 Accu dep [($46,000 - $1,000) / 12] x 4 (15,000) ``` Book value =$31,000 Salvage value (1,000) ``` Depreciable cost =$30,000 Remaining useful life / 6 years Depreciation =$ 5,000 View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 244

$2,000. Cash paid for purchase of equipment $20,000 Less cash received from sale of equipment ($25,000 - $12,000 + $5,000 gain) 18,000 ------- Net cash outflow from investing activities $ 2,000 ======= Note All of the following are cash inflows from investing activities: Receipts from sales of property, plant, and equipment and other productive assets (FASB ASC 230-10-45-12) All of the following are cash outflows for investing activities: Payments at the time of purchase or soon before or after purchase to acquire property, plant, and equipment, and other productive assets. (FASB ASC 230-10-45-13) View referenced content in book. 2135 Statement of Cash Flows

Answer 245

the market (effective) interest rate. FASB ASC 835-30-25-10 requires all long-term receivables and payables to be recorded at present value. Additionally, the present value of all the cash flows (principal and interest) at the beginning of any bond arrangement represents the amount of cash the issuer will receive from the purchaser (i.e., the market price of the bond). The stated rate of interest is used to determine the amount and timing of the cash flows for interest. The market rate is the true rate of interest in the arrangement and is used to determine the present value of all the cash flows.

Answer 246

There is a greater than 50% chance that the taxing authority will agree with the entity taking the tax position. FASB ASC 740-10-30-7 defines “more likely than not” as greater than 50% likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information: “A tax position that meets the more-likely-than-not recognition threshold shall initially and subsequently be measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. Measurement of a tax position that meets the more-likely-than-not recognition threshold shall consider the amounts and probabilities of the outcomes that could be realized upon settlement using the facts, circumstances, and information available at the reporting date. As used in this Subtopic, the term reporting date refers to the date of the entity's most recent statement of financial position.” View referenced content in book. 2270 Income Taxes

Answer 247

agency fund. When one governmental entity collects revenues for another and has the responsibility to remit the funds to the other entity, the first entity acts as a fiduciary for the second. The state must record the collected taxes in an agency fund. This is a fund which allows the collection and subsequent remission of the monies to be recorded without affecting the funds with which the state itself operates. (GASB 1300.114) View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 248

Development or improvement of techniques and processes FASB ASC 730-10-20 defines research and development as follows: “Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service or a new process or technique in bringing about a significant improvement to an existing product or process. Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use.” View referenced content in book. 2388 Research and Development Costs

Answer 249

Inventories carried at cost FASB ASC 830-10-45-18 provides guidance for the remeasurement (i.e., translation) of the books of record into the functional currency. Specifically, a listing of accounts to be remeasured using historical exchange rates is provided and inventories carried at cost appears in that listing. Note Remeasurement using historical rates is the exception to the general guidance of using the current exchange rate for all assets and liabilities. Only those items on this listing are remeasured using historical rates. View referenced content in book. 2367 Translation of Foreign Currency Financial Statements

Answer 250

the budget is recorded. Adoption of the operating budget is recorded in the general ledger of a governmental fund with a budgetary entry that debits estimated revenues and credits appropriations, with the budgetary fund balance account being debited or credited for the difference. The debit balance in estimated revenues is compared periodically with the credit balance in revenues to determine whether actual revenues are behind or ahead of the budgeted (estimated) amount. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 251

First quarter: $0; Third quarter: $0 FASB ASC 270-10-45-1 states that companies should view interim periods as an integral part of the annual reporting period. Therefore, declines in inventory that are temporary need not be reported in interim periods. Note that Wilson expected the first-quarter decline to reverse later in the same year. However, if it expected the loss to be of an other-than-temporary nature, Wilson should have recognized the loss in the first quarter. View referenced content in book. 2375 Interim Financial Reporting

Answer 252

$0 FASB ASC 958-225-45-1 through 45-8 requires that all expenses be reported in the unrestricted category. Only net assets released from restriction reduce temporarily restricted revenue. In this problem the $30,000 investment income would increase temporarily restricted net assets and the release-from-restriction reclassification would reduce it $30,000. The $15,000 additional amount spent would come from unrestricted resources. The decrease in market value would affect only the endowment fund (classified as permanently restricted).

Answer 253

Prepaid insurance: $7,000; Insurance expense: $500 This question indicates that on Roro's unadjusted trial balance the full 3-year premium of $7,200 for the renewal of the policy has been expensed. The prepaid insurance account still contains $300 of unamortized premiums from the old policy. The accountant must make adjusting entries to achieve the following: Expense the remaining premium of the old policy. Transfer the premium for the new policy to the prepaid insurance account. Amortize one month of expense on the new policy. Calculation of account balances: Monthly amortization = Policy cost / 36 months = $7,200 / 36 = $200 / month ``` Prepaid insurance Policy 1 month balance on 3/31/X1 = cost - amortization = $7,200 - $200 = $7,000 ====== ``` ``` Insurance expense on 3/31/X1: Amortization of prior policy $300 March amortization of renewal 200 ---- Total expense on 3/31/X1 $500 ==== ```

Answer 254

fair value. FASB ASC 718-10-30-2 requires the use of a fair value based method of accounting for stock-based compensation plans. View referenced content in book. 2265 Stock Compensation (Share-Based Payments)

Answer 255

Both insurance on the machine while in transit and testing and preparation of the machine for use The capitalized cost of a machine would include all costs of acquiring, transporting, installing, and testing of the machine for its intended use, up to the time the machine was placed in use. This total acquisition cost would, therefore, include insurance during transit and testing and preparation of the machine for use. Insurance and operating costs incurred subsequent to placing the machine in operation would be treated as product or period costs.

Answer 256

Both summary of significant accounting policies and summary of significant assumptions The AICPA's “Statement of Standards for Accountants' Services on Prospective Financial Information” governs the preparation of prospective financial statements. It requires that accountants provide summaries of the significant accounting policies and the assumptions used to prepare these forward-looking statements. The same full disclosure principle that guides the preparation of historical financial statements applies to the reporting of prospective financial statements.

Answer 257

neither a pension trust fund nor a proprietary fund. Debt service funds are governmental funds used to account for the accumulation of resources for, and the repayment of, general obligation long-term debt principal and interest. Debt accounted for in a pension trust or a proprietary fund is serviced from that fund and is not general long-term debt. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 258

$0 At year-end, Falton should record an account receivable of $300,000 (1,800,000 - 1,500,000) and inventory of $2,000,000. However, no current liability exists. Journal entries: Construction in Progress 2,250,000 Cash and profit 2,250,000 Accounts Receivable 1,800,000 Progress Billings 1,800,000 Cash 1,500,000 Accounts Receivable 1,500,000 View referenced content in book. 2251 Revenue Recognition

Answer 259

They usually mean fixed assets.

Answer 260

As a decrease in temporarily restricted net assets and an increase in unrestricted net assets Satisfaction of specific purpose restrictions in 20X1 requires a reclassification from temporarily restricted net assets (where the $400,000 was recorded in 20X0) to unrestricted net assets. The equipment would also be reported as an asset in the statement of financial position. View referenced content in book. 2512 Statement of Activities

Answer 261

$0 “Governmental entities should recognize revenues from property taxes, net of estimated refunds and estimated uncollectible amounts, in the period for which the taxes are levied, even if the enforceable legal claim arises or the due date for payment occurs in a different period. All other imposed nonexchange revenues should be recognized in the same period that the assets are recognized unless the enabling legislation includes time requirements. If so, revenues should be recognized in the period when the resources are required to be used or when use is first permitted.” (GASB N50.115) The year taxes are levied is 20X1 for use in 20X2. The due dates for payment of the taxes are January 15, 20X2, and July 15, 20X2. With the schedule of payments, no revenues are recognized in 20X1. (GASB N50.115) View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 262

The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability. FASB ASC 210-10-20 defines current assets as: Cash and other assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. According to this pronouncement, cash which is “restricted as to withdrawal or use” should not be included in current assets. Thus, the segregated account should be classified as a noncurrent asset. The regular account is a current asset. The overdrawn account is a liability rather than an asset. It should be reported as a current liability.

Answer 263

$110,000 discount The total amount initially received for the bonds and warrants was $1,090,000 (face multiplied by issue percentage of 1.09): $1,000,000 × 1.09 = $1,090,000. The number of warrants issued was 50,000 (there were 1,000 $1,000 bonds issued, $1,000 × 1,000 = $1,000,000, and 50 warrants per bond, so 50,000 warrants). The total value of the warrants after issuance was $200,000 (50,000 × $4 per warrant). Thus, the bonds were issued for $890,000 ($1,090,000 - $200,000). Therefore, the bonds had a discount of $110,000, the difference between the face and issue price ($1,000,000 - $890,000).

Answer 264

$3,800 The sum-of-the-years'-digits depreciation method entails using a fraction with a numerator equal to the remaining useful life of the asset at the beginning of the year and a denominator equal to the sum of the years' digits. To calculate annual depreciation expense, this fraction is applied each year to the depreciable basis of the asset, which is the historical cost less any salvage value. For an asset with a 4-year estimated useful life, the denominator is 4 + 3 + 2 +1 = 10. The depreciable basis in Spiro's equipment is $20,000 less an estimated salvage value of $2,000 = $18,000. Depreciation expense for 20X1 through 20X3 is calculated as follows: 4/10 × $18,000 = $7,200; 3/10 × $18,000 = $5,400; 2/10 × $18,000 = 3,600. At December 31, 20X3, accumulated depreciation is $16,200 and the cost is $20,000, resulting in a net book value of the equipment of $3,800.

Answer 265

$1,080 Total interest expense recorded when paid with 12% interest: $10,000 x .12 x 1 year = $1,200 (1 year of interest paid for 11/1/X1 to 10/31/X2) $30,000 x .12 x 1/2 year = 1,800 (1/2 year from 2/1/X2 to 7/31/X2) ------ Total interest paid/expensed $3,000 ====== Total interest accrued: $10,000 x .12 x 10/12 year = $1,000 (10/12 year from 1/1/X2 to 10/31/X2) $30,000 x .12 x 6/12 year = 1,800 (6/12 year from 2/1/X2 to 7/31/X2) $16,000 x .12 x 8/12 year = 1,280 (8/12 year from 5/1/X2 to 12/31/X2) ------ Total interest accrued = $4,080 ====== Interest must be recognized as it is accrued, not when it is paid. Therefore: ``` Interest accrued $4,080 Interest paid (3,000) ------- Understated interest $1,080 ======= ``` View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 266

Without recourse means that the factor or third party has no recourse against the transferor. This is usually accounted for as a sale of receivables because there is no recourse against the transferor, even if the customers end up not paying the third party

Answer 267

Agency This question refers to situations in which a government is not obligated in any manner for the repayment of special assessment debt, but merely acts as a collection and disbursement agent on behalf of the property owners within a special assessment benefit district. In such cases, the government (1) collects special assessment debt payments from property owners, and (2) remits the proceeds to the holders of the special assessment debt—but otherwise has no liability. GASB 1300.107 requires that an agency fund be employed to account for special assessment collection and debt servicing activities in cases where the government is not obligated in any manner for special assessment debt repayment. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 268

$15,000 Only dividends paid to Peace shareholders will be reported as dividends paid. Dividends paid to Peace by Surge will be eliminated in consolidation. Dividends paid to shareholders other than Peace will be reported as an adjustment to the noncontrolling interest account. View referenced content in book. 2323 Emphasis on Adjusting and Eliminating Entries(…

Answer 269

Statement of financial position, statement of activities, statement of cash flows The “statement of comprehensive income” is the term for the change in the net equity of a business entity and would not relate to a not-for-profit organization. The correct listing of required statements is: statement of financial position, statement of activities, and statement of cash flows. FASB ASC 958-205-45-4 goes on to state: “In addition, a voluntary health and welfare entity shall provide a statement of functional expenses.” View referenced content in book. 2510 Financial Statements

Answer 270

Exempt from federal taxation The joint FASB/GASB definition of governmental organizations that is included in several AICPA Audit and Accounting Guides, including State and Local Governments (paragraph 1.01), indicates that bodies corporate and politic and entities with the power to enact and enforce a tax levy are governments. Not-for-profit organizations that are not governmental are exempt from federal taxation. View referenced content in book. 2410 Governmental Accounting Concepts

Answer 271

increase in the projected benefit obligation due to the passage of time. FASB ASC 715-30-35-8 states: Quote The interest cost component of net periodic pension cost is interest on the projected benefit obligation, which is a discounted amount. Measuring the projected benefit obligation as a present value requires accrual of an interest cost at rates equal to the assumed discount rates. View referenced content in book. 2264 Retirement Benefits

Answer 272

Amortization of discount of a note Only the discount amortization is reported as interest expense. Pension cost interest is not directly reported but causes a change in pension expense. Deferred compensation plan interest is not directly reported but causes an increase in the plan. Software production costs are capitalized and eventually amortized or expensed.

Answer 273

understated by $78,000. * If beg inventory is understated = cost of goods available for sale & COGS is understated * If end inventory is overstated = COGS is understated The items making up cost of goods sold (based on a periodic inventory model) are: add beginning inventory to net purchases to get goods available for sale, then subtract ending inventory from that to get cost of goods sold. If beginning inventory is understated, then so will goods available for sale, and cost of goods sold also. If ending inventory is overstated, then too much is taken out in computing cost of goods sold, and again cost of goods sold will be understated. Thus, if both beginning inventory is understated by $26,000 and ending inventory is overstated by $52,000, then cost of goods sold will be understated by both of those amounts together, $26,000 + $52,000, for a total understatement of cost of goods sold of $78,000.

Answer 274

$0 General long-term liabilities should be reported in the governmental activities column in the government-wide statement of net position, not the government-wide statement of activities. Further, bonds which will be serviced by an enterprise fund should be reported in the business-type activities column of the government-wide statement of net position. The bonds for the garbage collection enterprise fund and the revenue bonds for the zoo would also be reported in each enterprise fund. GASB 1500.102–.103 View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 275

Debit deferred revenues. Encumbrance accounting is only one feature of the accounting practices used by municipalities for governmental funds. Accounting for governmental funds is done on the modified accrual basis. There are many instances where a grant is awarded and received in cash prior to the recipient city incurring “qualifying” expenditures. In such instances, receipt of the grant proceeds is recorded with a debit to cash and a credit to a deferred revenues (liability) account. Then, as qualifying expenditures are incurred, the related grant revenues are recognized by debiting deferred revenues and crediting revenues. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 276

$375,000 Shipping costs from overseas (freight-in) should be included in the inventory costs. Shipping costs to export customers (freight-out) should not be included in the inventory costs. Ending inventory is 1/4th ($3,000,000 ÷ $12,000,000) of purchases. Thus, 1/4th of shipping costs from overseas ((0.25 × $1,500,000) = $375,000) should be included in ending inventory.

Answer 277

$16,000 The only restriction of the use of the bequest by an external party is that the interest of $16,000 be used to build a playground. The restriction is temporary and will be satisfied when the $16,000 is spent for the specific purpose stipulated. The $200,000 principal from the certificate of deposit is unrestricted, even though a portion of it is designated by the board of trustees, because the board is not an external party. View referenced content in book. 2511 Statement of Financial Position

Answer 278

7% convertible bonds, issued at par, with each $1,000 bond convertible into 40 shares of common stock Dilutive securities reduce earnings per share. To determine dilution, a conversion basis must be stated. Each 7% $1,000 bond yields $49 ($70 - 30% tax) of earnings after tax. The conversion increases the number of shares by 40. The earning per share on the converted bonds is only $1.225 (49/40) thus diluting the basic earnings per share of $1.29. View referenced content in book. 2335 Earnings per Share

Answer 279

Single-step income statements offer a very straightforward accounting of a company's business activity. All revenues and gains are added together at the top of the statement, while all of the losses and expenses are totaled below them. An example of the equation is represented as: (Revenues + Gains) - (Expenses + Losses) = Net Income

Answer 280

This is used by retailers to estimate the cost of ending inventory Basic steps 1. Calculate ending inventory at retail prices 2. Calculate the cost to retail ratio 3. Apply cost to retail ratio to ending inventory at retail prices to get ending inventory at cost

Answer 281

$38,000 Gross profit rates: 20X1 = ($80,000 - $40,000) / $80,000 = 50% 20X2 = ($90,000 - $60,000) / $90,000 = 33.33% Deferred gross profit on December 31, 20X2: On 20X1 sales = 50% x $30,000 = $15,000 On 20X2 sales = 33.33% x $69,000 = $23,000 ------- Total deferred gross profit $38,000 View referenced content in book. 2251 Revenue Recognition

Answer 282

$390,000 All of the liabilities are current liabilities because all will be paid within the next year. Accounts payable $ 80,000 Bonds payable 300,000 Discount on bonds payable (15,000) Deferred income tax liability 25,000 -------- Total $390,000 View referenced content in book. 2251 Revenue Recognition

Answer 283

does not represent a payable in the usual sense in which the term “payable” is used in financial statements. A credit balance in the deferred income taxes account does not represent a payable in the usual sense in which the term “payable” is used in financial statements. The term “payable” is normally associated with an amount that is owed to an outside party. A credit balance in the deferred income taxes account results from temporary differences between the amount of income or expense reported for tax purposes and that reported for financial statement purposes. A credit balance indicates that either: (a) the revenue to-date for financial reporting purposes exceeds the income to-date included in taxable income or (b) the expense to-date for financial reporting purposes is less than the amount of expense to-date included in taxable income. The credit balance in the deferred income taxes account represents the tax expense recognized to-date for financial reporting purposes that is expected to be included in taxable income in future years. However, it does not represent an amount “owed” to the federal government at the balance sheet date. View referenced content in book. 2270 Income Taxes

Answer 284

Stockholders' equity is increased. Assume that account balances related to Ashley, Inc.'s, convertible bonds just prior to exchange on March 31, 20X1, are: Bonds payable 100,000 Premium on bonds payable 1,000 ------- Carrying value of bonds 101,000 ======= If these bonds are exchanged (converted) and the book-value method is used, the carrying value of the bonds ($101,000) will be removed from the bonds accounts and the same amount will be added to common stock (at par) and additional paid-in capital. The result is that stockholders' equity is increased by $101,000.

Answer 285

Dollar-value LIFO Dollar-value LIFO starts with a base-year layer valued at base-year prices. As subsequent year layers are added, these inventory layers are valued using the specific inventory prices in effect for the year in which the layer is added. Thus, estimates of price-level changes (price indexes) for specific inventories are required in applying dollar-value LIFO.

Answer 286

Note receivable balance on June 30, 20X0 $150,000 Principal plus accrued payments collected in 20X1 - 50,000 -------- Note receivable balance on July 1, 20X1 $100,000 Times interest rate x .08 -------- Interest receivable June 30, 20X2 $ 8,000 ========

Answer 287

$1,250,000 Under the book value method, the carrying value of the debt (bonds) is removed and is replaced by stockholder equity in exactly the same total amount (i.e., the book value of the debt). The journal entry to record the conversion: Bonds payable $1,000,000 Premium on bonds payable 300,000 Common stock ($1 par x 50,000 shares) $ 50,000 Additional paid-in capital 1,250,000

Answer 288

i. If redeemable, preferred stock has a specified date at a specified price, it is usually classified as debt 1. Dividends are reported as interest expense ii. When callable or redeemable, stock is called or redeemed, any dividends in arrears are paid first

Answer 289

In the component units column after the primary government totals Data of discretely presented component units should be displayed in the government-wide statement of activities and statement of net position in columns to the right or after the primary government information. The focus of the government-wide financial statements should be on the primary government. Separate columns distinguish the primary government and its discretely presented component units. Discretely presented component units are not in substance part of the primary government. This contrasts with the presentation of blended component unit data, which is included within the primary government information because blended component units are, in substance, part of the primary government. GASB 2600.101 and .107 View referenced content in book. 2421 Government-Wide Financial Statements

Answer 290

$35,000 Even though the coupons expired December 31, 20X1, additional coupons can be expected after December 31, 20X1, since the problem states that it takes 30 days from the redemption date for Case to receive the coupons from the retailer. Therefore, the entire estimated redemption of 120,000 should be used to accrue the estimated liability even though only 100,000 coupons have been accounted for on December 31, 20X1 (50,000 coupons have been redeemed and 50,000 are awaiting processing). Expected liability Coupons expected Cost of for 20X1 = to be redeemed x redemption = 120,000 x ($.45 + $.05) = $60,000 Liability on December 31, 20X1 = Expected liability - Payments made = $60,000 - $25,000 = $35,000

Answer 291

The present value of the remaining monthly payments discounted at 12% The payments include the 12% interest. In order to determine the notes receivable balance six months after the sale, it would be necessary to compute the present value of the 18 remaining monthly payments using a discount rate of 12%. View referenced content in book. 2251 Revenue Recognition

Answer 292

220,000 shares issued and 212,000 shares outstanding Shares issued include: Original shares issued 100,000 Sale of shares on August 6 10,000 Additional shares from stock split 110,000 ------- Total 220,000 Shares outstanding: Change Outstanding -------- ----------- Original issue 100,000 100,000 Treasury shares held in 20X1 (5,000) 95,000 Sales of Treasury shares in 20X2 1,000 96,000 Sale of unissued shares 10,000 106,000 Stock split 106,000 212,000 The difference of 8,000 shares is the 4,000 treasury shares plus the additional 4,000 issued treasury shares in the stock split.

Answer 293

$8,500 Initial lease obligation on December 31, 20X1 $135,000 Less payment made on December 31, 20X1 - 20,000 -------- Lease obligation during 20X2 $115,000 ======== Portion of December 31, 20X2, payment that is interest = rate x obligation x time = 10% x $115,000 x 1 = $11,500 Portion of December 31, 20X2, payment that is related to lease obligation = payment - interest portion = $20,000 - $11,500 = $8,500 This amount is a current liability since it is payable within the current period. The remaining lease obligation is noncurrent. *See video explanation and notes!

Answer 294

Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross Factoring of receivables without recourse is essentially a sale of those receivables because the recipient of the receivables (i.e., Ross Bank) has no recourse if the debtor(s) do(es) not pay amounts owed. All risk of nonpayment is transferred to Ross Bank. (FASB ASC 860-10-55-45) View referenced content in book. 2393 Transfers and Servicing of Financial Assets and …

Answer 295

both sales to a single customer and export sales. FASB ASC 280-10-50-12 requires that public companies disclose if 10% or more of total revenues come from sales to single customers or from export sales. View referenced content in book. 2390 Segment Reporting

Answer 296

As an increase in temporarily restricted net assets The endowment fund income has a restriction as to its use. The restriction is temporary because it will be satisfied when the library acquisitions have been made and the temporary restriction can be released at that time. View referenced content in book. 2512 Statement of Activities

Answer 297

a gain in an amount determined by the ratio of cash received to total consideration FASB ASC 845-10-30-1 specifies that the accounting for nonmonetary exchanges generally should be accounted for based on fair values, which is the same basis as that used for monetary transactions. FASB ASC 845-10-30-3 provides three exception cases in which a nonmonetary exchange should be recorded based on the recorded amount (book value) of the assets surrendered: 1. Fair value is not determinable. 2. Exchange transaction is to facilitate sales for customers. 3. Exchange transaction lacks commercial substance. In Slate's case, one of the “givens” is that the exchange does not meet the criteria for commercial substance. Therefore, the exchange should be accounted for based on the recorded amounts of the assets surrendered, except that Slate, as the recipient of cash, must recognize “partial” gain. The gain to be recognized by Slate is an amount determined by the ratio of cash received to fair value of the total consideration received. The “partial” gain would be computed by multiplying this ratio times the total implied gain, which is the difference between the carrying amount and the fair value of the land surrendered. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 298

$17,000 The capitalized interest is based on the payments made for the land and progress payments to the contractor based on the amount of the year that these payments were outstanding. The land payment of $120,000 was outstanding the entire year for an expenditure amount of $120,000 × 12/12, or $120,000. The progress payment to the contractor was for $150,000 and was made in September, for only the last four months of the year, thus an expenditure of $150,000 × 4/12, or $50,000. The total weighted-average expenditures was thus $120,000 and $50,000, for a total of $170,000. A larger ($300,000) specifically construction-related debt was outstanding all year, so there is enough interest to capitalize at the 10% rate of the loan. The capitalized interest is thus $170,000 × 0.10, or $17,000.

Answer 299

$30,000 Royalty income of $30,000 ($300,000 × 10%) was both earned and realized in 20X1. The remainder of the $50,000 deposit is unearned royalty revenue. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 300

$10,500 The machinery is recorded at the cash equivalent price of the machinery, $110,000. Straight-line depreciation for 20X1 = $(110,000 - $5,000) / 10 years = $ 105,000 / 10 years = $ 10,500 The total cash payment of $130,000 includes interest of $20,000.

Answer 301

Smaller inventory costs Higher COGS than FIFO Lower income

Answer 302

program revenues. Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government's general revenues. Revenues derived from those who purchase, use, or directly benefit from the goods or services of a program, even those beyond the reporting government's boundaries, are always considered program revenues. GASB 2200.135 View referenced content in book. 2421 Government-Wide Financial Statements

Answer 303

$46,000 The company making this sale must recognize an estimated liability for $6,000. That is the expected amount that will have to be refunded to the bank. That is the estimated shortfall below the minimum collection level. The company removes its $300,000 in receivables and reports the $260,000 cash that is collected. In addition, the $6,000 liability must be recorded, leaving a loss of $46,000 on the sale of the receivables.

Answer 304

Unrestricted contribution In this situation, the board, not the donor, imposes restrictions on use of the gift. When resources are under control of the governing board and not specifically restricted by an outside donor, the resources are considered unrestricted and the resulting income is unrestricted revenue. View referenced content in book. 2511 Statement of Financial Position

Answer 305

$8,000,000 The obligations of the proprietary fund, the revenue bonds of $2,000,000, should be shown as a fund liability. The other bonds should be shown in the government-wide statements as a liability relating to governmental activities, but not shown in the fund statements. The general obligation debt consists of the $4,000,000 and $3,000,000 general obligation bonds as well as the special assessment bonds of $1,000,000. Special assessment debt is usually an obligation of the general government, although some costs may be defrayed with special assessments. View referenced content in book. 2411 Measurement Focus and Basis of Accounting * VIDEO EXPLANATION * NOTES 9/27

Answer 306

including a line item on the face of the financial statement with disclosures regarding XYZ Museum's permanent art collection, which includes the painting. A not-for-profit entity may opt not to capitalize works of art, historical treasures, and the like as long as the items meet the definition of collection items: held for exhibition, protected, and preserved, with a policy that requires sales only for acquisition of other collection items. Capitalization means an addition to both sides of the accounting equation, assets and equities. If the collection is not capitalized, there is no amount included in equities or net assets. However, the existence of the collection, including the donated painting, cannot be disregarded and a note describing the collection must be referenced on a line on the face of the financial statement. FASB ASC 958-360-45-3, 958-605-25-19, and Glossary View referenced content in book. 2511 Statement of Financial Position

Answer 307

$1,314,600 Net income is computed is follows: Gross sales $3,600,000 Less: Sales returns 34,000 ----------- Net sales $3,566,000 Cost of goods sold 1,200,000 ----------- Gross profit $2,366,000 Selling and administrative expenses 500,000 ----------- Operating income $1,866,000 Other income: Gain on sale of available-for-sale securities 8,000 ----------- Income before taxes $1,874,000 Provision - income txes ($1,874,000 x .30) (562,200) ----------- Income from continuing operations $1,311,800 Discontinued operations: Gain from disposal of discontinued business segment, net of applicable tax savings of $1,200 ($4,000 x .30) 2,800 (4,000-1,200) ----------- Net income $1,314,600 =========== Unrealized gain on available-for-sale securities is included in comprehensive income, not in net income

Answer 308

Use a fraction with a numerator equal to the remaining useful life of the asset at the beginning of the year and a denominator equal to the same of the years' digits.

Answer 309

25 years FASB ASC 350-30-20 defines the useful life of an intangible as the period over which the asset is expected to contribute to future cash flows.

Answer 310

Appraised value FASB ASC 274-10-35-1 states: Quote Personal financial statements shall present assets at their estimated current values and liabilities at their estimated current amounts at the date of the financial statements. A set of guidelines for determining estimated current values included in this pronouncement includes “use of appraisals.” Smith should report the art works at their current values based on appraised value. *An appraised value is an evaluation of a property's value based on a given point in time that is performed by a professional appraiser during the mortgage origination process

Answer 311

use the same accounting principles followed in preparing its latest annual financial statements. Because the standards generally treat interim periods as “integral parts” of the annual reporting periods, not as discrete periods or separate reporting periods, companies are required to use the same accounting principles for interim periods that they follow in preparing their annual financial statements. View referenced content in book. 2375 Interim Financial Reporting

Answer 312

140,000 120,000 shares x 6/12 year 60,000 (120,000 shares + 40,000 shares) x 6/12 year 80,000 ------- Weighted-average shares outstanding 140,000 ======= View referenced content in book. 2335 Earnings per Share *QUESTION: Why did we multiply 120,00 by 6/12 and not by 12/12

Answer 313

Both I and II Government reporting should be a means of demonstrating accountability that enables users to assess that accountability. Specifically, the information provided should permit users to determine whether current-year revenues were sufficient to pay for current-year services and/or whether future years’ citizens must assume burdens for services previously provided, demonstrate the government’s budgetary accountability and compliance with other finance-related legal and contractual requirements, and assist users in assessing service efforts, costs, and accomplishments. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 314

The gain or loss, along with the offsetting loss or gain attributable to the hedged risk, should be recognized currently in earnings in the same accounting period. The FASB requires that the following be recognized for fair value hedges: Changes in the fair value of the fair value hedge Changes in the fair value of the item being hedged View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 315

$126,000 Vane should report $126,000, calculated as follows: Net income before taxes ($600,000 – $420,000) $180,000 Income taxes ($180,000 x 0.30) 54,000 Net income from continuing operations $126,000 View referenced content in book. 2132 Income Statement/Statement of Profit or Loss

Answer 316

$900,000. Deferred subscription revenue on December 31, 20X1, equals the cash received after the cutoff date (i.e., during the 3 months from October 1 to December 31): $3,600,000 × 3/12 = $900,000

Answer 317

Sales and cost of goods sold should be reduced by the intercompany sales. FASB ASC 810-10-45-1 states: “In the preparation of consolidated financial statements, intra-entity balances and transactions should be eliminated. This includes…sales and purchases....Any intra-entity profit…shall be eliminated.” The income statement adjustment process is greatly simplified because the goods sold to Senior were all subsequently sold to “outside” customers. This means that inventory will not require adjustment. The only adjustment needed is reduction of sales and cost of goods by the total dollar amount of the intercompany sales. Failure to do this would overstate those two items on the consolidated income statement. View referenced content in book. 2323 Emphasis on Adjusting and Eliminating Entries(…

Answer 318

$5,000 Other comprehensive income includes all of comprehensive income not included in net income. Both the deferred gain on effective cash flow hedge and the foreign currency translation gain would have a positive effect on other comprehensive income, comprehensive income for Year 1 equal to 5,000 (8,000 + 2,000 – 5,000).

Answer 319

$600 The change in the estimated useful life of a fixed asset is a change in accounting estimate that must be accounted for prospectively. The book value at the end of Year 4 is $2,400 ($12,000 - ($12,000 × 4 years ÷ 5 years)). This $2,400 must be allocated to depreciation expense over the remaining 4-year period ($2,400 ÷ 4 = $600).

Answer 320

Debt service fund, $5,300,000; General fund, $0 The debt service fund is a reserve used to account for and report payments of the maturing principal and interest of general government short- and long-term debt. These liabilities are recorded in the General Capital Assets and General Long-Term Liabilities accounts, which are subaccounts of the debt service fund. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 321

carrying amount. In order to solve this problem, give the 15-year bonds a face amount, say $100,000. If the bond was issued at a discount, then it was issued and was carried as a debt at a value below $100,000, say $90,000 (if the remaining unamortized discount was $10,000). If the 10-year bond was issued at its face amount, then it would be carried as a debt at its face amount. If the 10-year bond was issued during Year 11, then the 15-year bond was still a long-term debt, and the new 10-year bond would also be a long-term debt. If the 10-year bond was issued at face and the proceeds paid off the face amount of the 15-year bond, then the 10-year bond would have needed to be at least the face amount of the 15-year bond (they would have the same face amount). Thus, the new debt would be carried at $100,000, the old debt would be carried at below $100,000 (less the remaining unamortized discount), and the total long-term liabilities would be increased by the discount left, the amount the new 10-year debt carrying value is higher than the carrying value of the 15-year debt.

Answer 322

Functional classification in the statement of activities or notes to the financial statements Financial reporting for a not-for-profit should provide information about the service efforts of the entity. Therefore, the FASB Accounting Standards Codification requires expenses to be reported by functional classification (i.e., program services, management, fundraising, etc.). Only those not-for-profits that are voluntary health and welfare entities must augment the functional classification of expenses that appears in the statement of activities with a natural classification of expenses, displayed in a matrix format, that is shown in a separate document, a statement of functional expenses. View referenced content in book. 2512 Statement of Activities

Answer 323

The tax position must be based on its technical merits and not on whether or not the taxing authority is likely to examine that tax position. FASB ASC 740-10-25-7 requires the presumption that the taxing authority has full knowledge of all relevant information even if not published. Each tax position must be evaluated without consideration of the possibility of offset or aggregation: Quote In making the required assessment of the more-likely-than-not criterion: It shall be presumed that the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. Technical merits of a tax position derive from sources of authorities in the tax law (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. When the past administrative practices and precedents of the taxing authority in its dealings with the entity or similar entities are widely understood, for example, by preparers, tax practitioners and auditors, those practices and precedents shall be taken into account. Each tax position shall be evaluated without consideration of the possibility of offset or aggregation with other positions. View referenced content in book. 2270 Income Taxes

Answer 324

The objective of this method is to state inventory at LIFO cost basis.

Answer 325

$1,500 Ajax will realize $1,500 of current tax benefit using the 150%-declining-balance method: Tax benefit of 150%-declining-balance ($100,000 x .15 = $15,000; $15,000 x .30) $4,500 Tax benefit of straight-line ($100,000 / 10 = $10,000; $10,000 x .30) 3,000 ------ Benefit of using 150%-declining-balance $1,500 View referenced content in book. 2270 Income Taxes

Answer 326

be included as an element of expense. As a voluntary community organization, the People's Environmental Protection Association is considered a not-for-profit entity as described in the FASB Accounting Standards Codification Glossary. FASB ASC 958-360-35-1 provides that a not-for-profit entity “shall recognize the cost of using up the future economic benefits or service potentials of its long-lived tangible assets (as) depreciation (expenses).” FASB ASC 958-360-35-1 and Glossary View referenced content in book. 2450 Accounting and Reporting for Governmental Not-for-…

Answer 327

All of the conditions listed here exist. Vulnerability to concentrations refers to risk due to a lack of diversification. Disclosure of such risk must be made if, based on management's information, the following criteria are met: -The concentration exists at the date of the financial statements. -The concentration makes the entity vulnerable to the risk of a near-term severe impact. -It is at least reasonably possible that the events that could cause the severe impact will occur in the near term. FASB ASC 275-10-50-16 View referenced content in book. 2389 Risks and Uncertainties

Answer 328

Governments that present their primary government in more than a single column in their basic financial statements should disclose in their summary of significant accounting policies general definitions of each column that could be used to describe any government. GASB 1300.125 states, “Governments that present their primary government in more than a single column in their basic financial statements should disclose in their summary of significant accounting policies the activities accounted for in each of the following columns—major funds, internal service funds, and fiduciary fund types—presented in the basic financial statements. With the exception of the general fund or its equivalent, the descriptions should be specific to the particular government, rather than general definitions that could describe any government.” (Emphasis added) The other answer choices should be disclosed in the notes to the financial statements. (GASB 2300.106–.107) View referenced content in book. 2425 Notes to Financial Statements

Answer 329

$3,200 The cash surrender value of a whole-life insurance policy represents an amount that can be recovered if the policy is canceled. If the company is the owner and beneficiary of the policy, it is the amount of the insurance premiums not normally charged to expense for the death benefit coverage and it would be an asset to the company. Since the company is both the owner and beneficiary of the policy in this problem, the cash surrender value is an asset to the company. If the insured officers or their heirs were the beneficiaries, then the cash surrender value would not be an asset to the company and the entire annual premium would be expensed by the company. 20X1 20X2 20X3 20X4 ------- ------- ------- ------- Annual Premium $4,000 $4,000 $4,000 $4,000 Expense (4,000) (3,600) (3,000) (2,200) ------- ------- ------- ------- Increase in cash surrender value $ 0 $ 400 $1,000 $1,800 ======= ======= ======= ======= Total increase in cash surrender value ($400 + 1,000 + 1,800) is $3,200.

Answer 330

$330,000 The requirement is to determine the current period's amount of cash paid for goods acquired from suppliers no matter when the goods were acquired. Therefore, the total purchases made during the current period (whether on credit or for cash) and the amount of purchases from the previous period not paid for in the previous period must be examined because they represent the amount that could have been paid to suppliers during the current period. A decrease in inventory during the period indicates that purchases were less than the cost of goods sold. Therefore, the current period's amount of purchases is determined by subtracting the decrease in inventory from cost of goods sold. The ending accounts payable represents what is still owed to suppliers at the end of the current period for purchases. A decrease in accounts payable during the current period indicates that suppliers were paid an amount of cash greater than the amount of the current period's purchases. Therefore, adding the decrease in accounts payable to purchases of the period yields the cash paid to suppliers in the current period. Cost of Goods Sold $450,000 Inventory decrease (160,000) --------- Purchases $290,000 ========= Purchases $290,000 Accounts Payable decrease 40,000 --------- Cash paid to suppliers $330,000 =========

Answer 331

Disclosure in the notes only Since Conlon is the plaintiff (they are suing), a gain contingency exists. Gain contingencies are not recognized since they have not been realized (conservatism). View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 332

Investing activities GASB 2450.124 states, in part: Quote Cash inflows from investing activities include: - Receipts from collections of loans (except program loans) made by the governmental enterprise and sales of other entities' debt instruments (other than cash equivalents) that were purchased by the governmental enterprise. - Receipts from sales of equity instruments and from returns of investment in those instruments. - Interest and dividends received as returns on loans (except program loans), debt instruments of other entities, equity securities, and cash management or investment pools. - Withdrawals from investment pools that the governmental enterprise is not using as demand accounts. View referenced content in book. 2423 Proprietary Funds Financial Statements

Answer 333

subject to the same impairment loss recognition as other long-lived intangible assets that are held and used. FASB ASC 805-20-55-4 includes in its scope long-term customer-relationship intangible assets of financial institutions, such as depositor and borrower relationship intangible assets and credit cardholder intangible assets. Those intangible assets are subject to the same tests and measurements as FASB ASC 360-10 requires for other long-lived assets to be held and used. View referenced content in book. 2370 Impairment

Answer 334

$0 The GASB evaluated these debt issuance costs and concluded that, with the exception of prepaid insurance, the costs relate to services provided in the current period and thus they should be expensed in the current period. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 335

$5,000 When the purchase order is approved by Elm City, the estimated amount is recorded in the journal entry: Encumbrances 5,000 Fund Balance--Reserved for Encumbrances 5,000 When the purchase order is filled for $4,950, the entry is reversed, for the original estimated amount of the purchase order: Fund Balance--Reserved for Encumbrances 5,000 Encumbrances 5,000 The actual amount of expenditures may be more or less than the estimated amount, but that does not affect the amount by which the encumbrance or the Budgetary Fund Balance—Reserved for Encumbrances are reversed. Some jurisdictions require a purchase change order to adjust the original purchase order to the actual transaction amount before reversing. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 336

$300,000 The question states that Park Township's total fund equity equal to its assets of $1,000,000 less its liabilities of $600,000, or $400,000, has not previously been allocated. This $400,000 of fund equity should be displayed as assigned or committed for $100,000, leaving an unassigned amount of $300,000. GASB 1700.127 View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 337

Conversion of debt to equity FASB ASC 230-10-45-3 states very specifically that “Financial statements shall not report an amount of cash flow per share.” And “Information about all investing and financing activities of an enterprise during a period that affects recognized assets or liabilities, but that does not result in cash receipts or cash payments in the period, shall be reported in related disclosures.” (FASB ASC 230-10-50-3) Converting debt to equity is cited as an example of the latter category of items.

Answer 338

$14,000. Since none of the information provided is an amount that is included in the bank statement balance but not included in the checkbook balance, the December 31, 20X1, checkbook balance of $14,000 is the balance sheet cash amount. This amount is confirmed by the reconciliation of the bank statement balance: Statement balance $10,000 Deposit in transit 5,000 Outstanding checks (1,000) -------- Cash balance (December 31, 20X1) $14,000 ========

Answer 339

$90,000. Here one needs to convert from the cash method to the accrual method as to the deferred amount of royalty expenses. The royalty payment was charged to (added to) royalty expense, but there was also a year-end credit adjustment downwards to royalty expense. The only reasonable debit to the year-end credit to royalty expense would be to debit (add to) prepaid royalties, as this could only be deferred (not properly accrued this year) royalty expenses. So far, prepaid royalties have had a debit balance of $65,000, and if one adds an additional debit to prepaid royalties of $25,000, there will be an ending balance of prepaid royalties of $90,000.

Answer 340

$5,000,000 If it is probable that a liability has been incurred, but no point in the range of estimated loss is more probable than any other, a company must record a loss and liability for the lowest point of the range. The company must also disclose the range of possible loss in accordance with FASB ASC 450-20-30-1. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 341

As a loss from continuing operations The impairment loss should be recognized in income from continuing operations just as amortization expense would have been recognized in arriving at income from continuing operations. (FASB ASC 350-20-45-1) View referenced content in book. 2370 Impairment

Answer 342

Disclosed only A loss contingency should be accrued if it is probable that a loss will occur and if the amount of such loss can be reasonably estimated. FASB ASC 850-10-50-1 states, “Financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosure shall include:” - “The nature of the relationship(s) involved.” - “A description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements.” - “The dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period.” -“Amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.” Eagle should disclose the guarantee, but not make an accrual. View referenced content in book. 2387 Related Parties and Related Party Transactions

Answer 343

neither a private-purpose trust fund nor proprietary funds. Debt service funds are used to account for and report payments of the maturing principal of general government long-term debt and related interest and fiscal agent charges. These liabilities are recorded in the General Capital Assets and General Long-Term Liabilities accounts that are reported only in the government-wide financial statements. The debt service fund is designed for the purpose of repaying principal and interest; private-purpose trusts and proprietary funds are not. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 344

75 days Annual 10-K reports are due within 75 days for fiscal years for accelerated filers as defined in 17 CFR 240.12b-2. The requirement is 90 days for other filers. The deadline for filing quarterly reports (10-Q) is 40 days for accelerated filers.

Answer 345

Historical exchange rate When translating the capital accounts of a subsidiary, the historical exchange rate is used for the capital stock account and additional paid-in capital. This date cannot be earlier than the date the parent acquired the investment in the subsidiary. View referenced content in book. 2367 Translation of Foreign Currency Financial Statements

Answer 346

$66,000 The cost of the installation of walls and offices should be capitalized as a leasehold improvement and amortized over the lease term. Clark Co.'s December 20X1 office utilization expense consists of: Monthly rent $60,000 Amortization of walls and offices ($360,000 / 60 months = $6,000/month) 6,000 ------- Total $66,000 ======= Note The last month's rent is capitalized as prepaid rent and expensed the last month of the lease term. The refundable security deposit is an asset. View referenced content in book. 2380 Leases

Answer 347

$86,000 Rue should report $86,000 as uncollectible accounts expense for Year 2: Allowance for uncollectible accounts--beginning balance $12,000 Accounts written off during the year (48,000) Uncollectible accounts expenses ? -------- Allowance for uncollectible accounts--ending balance $50,000 Required expense = $50,000 + $48,000 - $12,000 = $86,000

Answer 348

$1,250,000 The amount to be presented as current liabilities consists of the following: Accounts payable trade $ 750,000 Short-term borrowings 400,000 Mortgage payable, current portion 100,000 ---------- Total $1,250,000 The *refinanced loan is not included in current liabilities. FASB ASC 470-10-45-13 and 45-14, “Short-Term Obligations Expected to Be Refinanced,” addresses this refinanced loan:

Answer 349

With that caveat in mind, let’s say Joseph Inc. lends Michael Company $20,000, with payment due in five years. Joseph figures that the present value of the $20,000 is $13,612. The difference between $20,000 and $13,612 of $6,388 is the discount on notes receivable. Notes Receivable 20,000 Discounts on Notes Receivable 6,388 Cash 13,612 How did Joseph get the present value of $13,612? Joseph has an effective interest rate of 8 percent. Going to the present value of 1 table, the factor at the intersection of 8 percent and five periods is .6806. $20,000 x .6806 is $13,612. The discount on notes receivable account is a contra-asset account. It follows the note receivable, amortized over the five-year life. It moves from the balance sheet to the income statement via interest revenue using the effective-interest method. Journalize the first year by debiting discounts on notes receivable for $1,089 and crediting interest revenue for the same amount. 13,612 x .08 = 1,089

Answer 350

carrying amount exceeds undiscounted future cash flows. FASB ASC 360-10-35-17 indicates that an impairment loss exists when the asset's carrying amount exceeds its undiscounted future cash flows. Carrying amount exceeding the fair value is used to measure the amount of the impairment loss, not to identify the existence of such a loss. Assets subject to assessment for impairment under FASB ASC 805-20-55-4 are also subject to the same undiscounted cash flow recoverability test. View referenced content in book. 2370 Impairment *VIDEO EXPLANATION If it's investments - compare it to FV If it's inventory - there's some notion of market value that we are comparing it to However, with a LONG-LIVED ASSET, we care about whether the cost or carrying value is recoverable -we don't care about FV because we'll keep using these assets (not held for sale) -special category: fixed assets that are long-term -if the amount of income exceeds CV, then FV is irrelevant If we bought a fixed asset for $1,000,00 and we expect to use it for 10 years, then we do an estimation that only $750,000 will be profitable in 10 years, then we have a potential impairment that we need to record *carrying amount = book value (same thing)

Answer 351

It means it is a sale of the receivable. *Subtract allowance for doubtful account and any commission that might be included.

Answer 352

Contribution receivables A promise to give (sometimes referred to as a “pledge,” though this term is discouraged by the FASB) is recognized as receivable when it is unconditional or any conditions on the promise are met. Contributions receivables and contributions revenues are recognized in the period that unconditional contributions are made. Unrestricted contributions to be collected in the subsequent period or periods are reported as changes in temporarily restricted net assets because they are considered to have a time restriction. (This restriction is presumed unless the donor specified that the contribution was intended to finance current-period activities.) View referenced content in book. 2511 Statement of Financial Position

Answer 353

Increase in unrestricted net assets When resources are used according to donor limitations, assets are released from restriction. In this case, an increase in temporarily restricted net assets is not correct because a release of assets from temporary restriction would reduce the amount of temporarily restricted net assets. An increase in permanently restricted net assets is incorrect because there are no new permanently restricted resources being added. A decrease in permanently restricted net assets is incorrect because permanent donor limitations would not allow use of the donated resources. When assets are released from restriction, the unrestricted category of net assets increases as the temporarily restricted category decreases. View referenced content in book. 2512 Statement of Activities

Answer 354

$5,000 Quote Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 355

$280,000 The printing cost for the January catalogues is a 20X2 expense and should be deferred. The cost of the December radio spots was incurred in 20X1 (although paid in 20X2) and should be accrued: Unadjusted advertising expense balance $292,500 Deduct prepaid advertising (catalogs) (30,000) Add cost of December radio spots 17,500 --------- Adjusted balance of advertising expense $280,000 ========= View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 356

$31,000 In the context of this problem accumulated depreciation is affected by the asset disposal when the carrying value of the asset sold is written off and by depreciation expense for the current period. These two items account for the net increase of $25,000 ($153,000 - $128,000) in the credit balance of the accumulated depreciation account. The debit change in accumulated depreciation caused by the asset disposal needs to be determined from the facts provided. The equipment account had a beginning balance of $344,000. The $50,000 purchase of new equipment would cause this balance to increase to $394,000. However, the ending balance was $379,000. The only other transaction affecting the equipment account was the disposal of a piece of equipment. Therefore, the original cost of the disposed equipment was $15,000 ($394,000 - $379,000). Since the disposed equipment had a cost of $15,000 and a carrying value of $9,000 (carrying value = cost - accumulated depreciation), the accumulated depreciation associated with the disposed equipment was $6,000 ($9,000 = $15,000 - accumulated depreciation). The beginning credit balance in the accumulated depreciation control account was $128,000. It would have been decreased (debited) for the $6,000 of accumulated depreciation related to the disposed equipment. That would leave a credit balance of $122,000. However, the ending balance was a credit of $153,000. Depreciation expense for the period would also change (increase or credit) the balance of accumulated depreciation. Since the ending balance was $153,000, and the balance without the effect of depreciation expense was $122,000, the depreciation expense must have been $31,000 ($153,000 - $122,000).

Answer 357

$46,768 The bond carrying amount on December 31 of the current year is $46,768: Initial carrying value $46,139 Discount amortization at 6/30: Interest expense ($46,139 x .10 x 1/2) $2,307 Cash payment ($50,000 x .08 x 1/2) 2,000 307 ------- Carrying value at 7/1 $46,446 Discount amortization at 12/31: Interest expense ($46,446 x .10 x 1/2) $2,322 Cash payment ($50,000 x .08 x 1/2) 2,000 322 ------- Carrying value at 12/31 $46,768

Answer 358

Red: $43,000; White: $37,000 Salaries are paid (as an expense) to the partners before partnership earnings are allocated: Allocation -------------------------------- Earnings To Red To White Total Balance --------- --------- -------- --------- $80,000 Salary allowance $55,000 $45,000 $100,000 (20,000) Loss allocation To Red (.6 x $20k) (12,000) (12,000) ( 8,000) To White (.4 x $20k) (8,000) (8,000) 0 -------- -------- --------- ======== Totals $43,000 $37,000 $ 80,000 ======== ======== =========

Answer 359

$52,000 LTTI had a purchase commitment for 600,000 units (200,000 × 3) and purchased 80,000 units. By canceling sales of the product, LTTI has a loss of $52,000 (520,000 units × .10).

Answer 360

Fees of finders and consultants: Yes; Issuance fees for equity securities issues: No Business combinations accounted for as an acquisition should treat expenses related to the combination as follows: -Out-of-pocket costs such as fees of finders and consultants are expensed. -Issuance costs such as SEC filing fees are charged to the paid-in-capital account. FASB ASC 805-20-25-2 states the following: Quote Recognition Conditions To qualify for recognition as part of applying the acquisition method, the identifiable assets acquired and liabilities assumed must meet the definitions of assets and liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements, at the acquisition date. For example, costs the acquirer expects but is not obligated to incur in the future to effect its plan to exit an activity of an acquiree or to terminate the employment of or relocate an acquiree's employees are not liabilities at the acquisition date. Therefore, the acquirer does not recognize those costs as part of applying the acquisition method. Instead, the acquirer recognizes those costs in its postcombination financial statements in accordance with other applicable generally accepted accounting principles (GAAP). FASB ASC 805-10-25-23 states the following Quote Acquisition-Related Costs Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder's fees; advisory, legal, accounting, valuation, and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognized in accordance with other applicable GAAP. (Emphasis added) View referenced content in book. 2315 Business Combinations

Answer 361

$9,000 Increase in Assets $89,000 Increase in Liabilities (27,000) -------- Increase in stockholder's equity $62,000 Add back: Dividend Payment 13,000 -------- Increase in stockholders' equity BEFORE dividends $75,000 Less increase-new capital stock issued: Capital Stock $60,000 Additional Paid-in Capital 6,000 66,000 ------- -------- 20X1 Net Income $ 9,000 ========

Answer 362

Forfeited nonvested accounts could be used for any of the other answer choices, in accordance with plan documents. Required disclosure includes, among other items, the amount and disposition of forfeited nonvested accounts—specifically, identification of those amounts that are used to reduce future employer contributions, expenses, or reallocated to participant's accounts, in accordance with plan documents.

Answer 363

$201,900. Items to be included in the revenue section of the 20X2 income statement: Net sales revenue $187,000 Interest revenue 10,200 Gain on sale of equipment 4,700 -------- Total revenues $201,900 ======== Note Generally accepted accounting principles require that the other items listed appear in other sections of the income statement or in another financial statement.

Answer 364

$300,000 An agency fund should be used to report resources held in a purely custodial capacity. The $300,000 in sales taxes is not an asset of Arlen City and would be reported in an agency fund. The retirement plan should be reported in a pension trust fund where the resources are held in trust for the members and beneficiaries. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 365

Dividends to shareholders. Comprehensive income is defined in the FASB's conceptual framework as “the change in equity (assets - liabilities) of a business enterprise during a period from transactions and other events and circumstances from nonowner sources.” Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The FASB concluded in its conceptual framework that comprehensive income should be reported in a full set of financial statements. However, prior to FASB ASC 220-10-20, the FASB had not issued a standard that required the presentation of comprehensive income or recommended a format for displaying comprehensive income.

Answer 366

A secured bond has a claim to specific assets. Unsecured has no such claim and the bondholders are unsecured creditors

Answer 367

report information about the overall government without displaying individual funds or fund types. The government-wide financial statements consist of a statement of net position and a statement of activities. Those statements should “report information about the overall government without displaying individual funds or fund types” (GASB 2200.110). The statements should be prepared using the accrual basis of accounting and distinguish between governmental and business-type activities. Information about fiduciary funds should not be included in the statements. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 368

Assets are paid for by equity and/or liability —you cannot have one without the other. So if you complete a transaction that increases assets (and you debit the asset account), you must also increase the equity or liability (by crediting the equity or liability account) so that Assets remain equal to Equity and/or Liability.

Answer 369

Financial capital is applied to both currently reported net income and comprehensive income. SFAC 6, Elements of Financial Statements, contains the following definitions: Capital maintenance concept: the recovery of cost; separation of return on capital from return of capital. Financial capital concept: The effects of price changes on assets held and liabilities owed are recognized as “holding gains and losses” and included in return on capital. Physical capital concept: The effect of price changes are recognized as “capital maintenance adjustments” as a separate element of equity and would not be included in return on capital. SFAC 6 continues: Quote The financial capital concept is the traditional view and is generally the capital maintenance concept in present primary financial statements. Comprehensive income as defined in paragraph 70 is a return on financial capital. Thus, the financial capital maintenance approach is applied to both currently reported net income and comprehensive income. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 370

$100,000 GASB 1800.102 states that an interfund transfer without requirement for repayment must be recorded as other financing uses (or sources to the recipient). The payment to a pension trust fund and purchase of equipment are expenditures. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 371

a. This is rarely used and doesn’t conform to GAAP | b. When the account becomes uncollectible, it is written off to bad debt expense and AR is reduced by the same amount

Answer 372

Foreign currency-translation adjustments FASB ASC 220-10-25-1 links to the definition of comprehensive income: Quote The change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income comprises both of the following: All components of net income All components of other comprehensive income. FASB ASC 220-10-20 Some items included in comprehensive income include (FASB ASC 220-10-45-10A): - Foreign currency translation adjustments - Unrealized holding gains and losses that result from a DEBT security (NOT a TRADING security) - Prior service costs or credits associated with pension or other post retirement benefits It is important to note that comprehensive income is a change amount and not a cumulative amount. The amounts reported as direct charges or credits in the equity section of a balance sheet are cumulative amounts, similar to the way that retained earnings is a cumulative amount.

Answer 373

Statement of net position and statement of activities The government-wide financial statements consist of a statement of net position and a statement of activities. A statement of revenues, expenditures, and changes in fund balances is a required financial statement for the governmental funds, but not a government-wide financial statement. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 374

A detailed description of the plan, including employee groups covered FASB ASC 715-20-50-1 requires extensive disclosures regarding pensions. Among these are the components of net periodic pension cost and the estimated plan contributions for the year following the latest year reported in the statement of financial position. FASB ASC 715-20-50-1 requires, for each annual statement of financial position presented, “the amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit cost, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation.” View referenced content in book. 2264 Retirement Benefits

Answer 375

equity instruments for goods and services. FASB ASC 505-50-15-2 applies to: Quote All share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments or by incurring liabilities to a goods or service provider that is not an employee in amounts based, at least in part, on the price of the entity's shares or other equity instruments or that require or may require settlement by issuing the entity's equity shares or other equity instruments. View referenced content in book. 2265 Stock Compensation (Share-Based Payments)

Answer 376

$53,000 gain This is premium so you add the $65,000 to the carrying value!! Carrying value of 11% bonds $600k + $65k = $665,000 Less: Call price 600,000 x 102% = 612,000 -------- Pretax gain from retirement of bonds $ 53,000

Answer 377

Financing activities According to FASB ASC 958-230-55-3, a contribution to a not-for-profit restricted to long-term purposes like construction shall be reported as a cash flow from financing activities. Cash flows received from investment income restricted by donor stipulation to the same purposes also are reported as financing activities, not as operating activities.

Answer 378

$347,000. Using the indirect method, Karr computes cash flow from operating activities as follows: Reported 20X1 net income $300,000 Add depreciation expense 52,000 Deduct gain on sale of equipment ( 5,000) --------- Net Cash flow from operating activities $347,000 ========= Note All items that are included in net income that do not affect net cash provided from, or used for, operating activities such as depreciation of property, plant, and equipment and amortization of finite-life intangible assets. This includes all items whose cash effects are related to investing or financing cash flows, such as gains or losses on sales of property, plant, and equipment and discontinued operations (which relate to investing activities), and gains or losses on extinguishment of debt (which relate to financing activities). (FASB ASC 230-10-45-28)

Answer 379

$144,000 Mineral Depletion Rate and Total Depletion Cost of ore deposit: Purchase price $2,640,000 Development cost 540,000 ---------- Subtotal 3,180,000 Less expected disposal value 300,000 --------- Net cost of ore deposit $2,880,000 Depletion cost per ton = $2,880,000 / 1,200,000 tons = $2.40/ton 20X1 depletion = 60,000 tons x $2.40 = $144,000

Answer 380

$125,000 Summary journal entries: Dr. Cr. Jan. 5 Cash (20,000 x $15) 300,000 APIC (20,000 x ($15 - $10)) 100,000 Common stock (20,000 x $10) 200,000 July 14 Treasury stock (5,000 x $10) 50,000 APIC (5,000 x ($15 - $10)) 25,000* R.E. (5,000 x ($17 - $15)) 10,000 Cash (5,000 x $17) 85,000 Dec. 27 Cash (5,000 x $20) 100,000 APIC (5,000 x ($20 - $10)) 50,000 Treasury stock (5,000 x $10) 50,000 Balance of additional paid-in capital 12/31/X1 = $100,000 - $25,000 + $50,000 = $125,000 * (5,000 shares / 20,000 shares) x $100,000 = 25% x $100,000 = $25,000 OR * 5,000 shares x ($15 original issue price per share - $10 par value share) = $25,000 View referenced content in book. 2250 Equity

Answer 381

Governmental funds In governmental funds, interfund transfers should be reported as “other financing uses” in the fund making the transfer and as “other financing sources” in the fund receiving the transfer. In proprietary funds, which use full accrual accounting, transfers should be reported separately after nonoperating revenues and expenses. “Other financing sources and uses” is not an appropriate category for proprietary funds. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 382

$205,000 Dividends paid are reported as financing activities. The reconciliation of net income and cash provided by operating activities would reflect both of the other items as they are noncash expenses and losses. Net income X + Depreciation expense 190,000 + Goodwill impairment loss 5,000 = Cash provided by operating activities X = $205,000

Answer 383

i. When a company is constructing a significant asset, interest on the project can be capitalized. The rationale is that interest on the construction costs is deferred by adding it to the cost of the asset, and will eventually be expensed through depreciation 1. 3 things have to be happening at the same time in order for interest to be capitalized: a. Interest cost is being incurred b. Construction activities are taking place c. Construction expenses are occurring

Answer 384

reported as expenditures or expenses. “The costs of securities lending transactions should be reported as expenditures or expenses in the operating statement.” They should not be netted with interest revenue or the income from the investment of any cash collateral (GASB I60.106). View referenced content in book. 2441 Net Position and Components Thereof

Answer 385

Contract accounting (percentage of completion) Percentage of completion must generally be used if: the company can make reasonably dependable estimates of the extent of progress toward the completion, contract revenues, and contract costs, and both the buyer and seller can be expected to satisfy their obligations under the contract. FASB ASC 605-35-05-4 View referenced content in book. 2391 Software Costs

Answer 386

I only FASB ASC 958-605-45-6 states that gifts of long-lived assets should be reported as unrestricted support unless the organization has an accounting policy that implies a time restriction that expires over the useful life of a donated asset. View referenced content in book. 2511 Statement of Financial Position

Answer 387

Fund balance The use of a debt service fund to account for the payment of bond interest may be required by law. Otherwise, the general fund is used for transactions not required to be reported in another fund. In this case, state law allows the interest payment to be recorded in the general fund. Paying interest would increase, not decrease, expenditures, so interest expenditures is not correct. In a governmental fund, the interest would not have been accrued, so the payable would not be decreased, and interest payable would not be correct. In a governmental fund, expense (the expiration of resources matched to the earning of revenue) is not measured, so interest expense would not be correct. The correct answer is fund balance, which would be decreased when expenditures, a temporary account, is closed at the end of the period. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 388

$10,000. Carrying value = 100,000 - 60,000 = 40,000 Fair value = 30,000 40,000 - 30,000 = 10,000 If the carrying amount exceeds the future cash flows, an impairment loss should be recognized. The loss is the excess of the asset's carrying amount over its fair value. View referenced content in book. 2370 Impairment

Answer 389

Original budget A budgetary comparison statement is required only for the General Fund and for each major special revenue fund. Additionally, this statement may be presented as a schedule in required supplementary information instead of as a basic financial statement. The statement must (1) be presented using the budgetary basis of accounting and (2) include columns for the original budget adopted, the final budget, and for actual amounts on the budgetary basis of accounting. The variance column, based on actual versus the revised budget, is optional. View referenced content in book. 2422 Governmental Funds Financial Statements

Answer 390

$1,450,000 Since freight-out costs are paid by the seller (Pard), they are not included in the value of inventory by the buyer (Seed). Also, since they were paid on an intercompany sale, these costs should be eliminated from Pard's consolidated income statement. Thus, consolidated selling expenses for 20X1 are: Pard total - intercompany + Seed's total ($1,100,000 - $50,000) + $400,000 $1,050,000 + $400,000 = $1,450,000 View referenced content in book. 2323 Emphasis on Adjusting and Eliminating Entries(…

Answer 391

Litigation costs would be capitalized if the patent right is successfully defended. When a patent is purchased, it is accounted for at its cost. When a patent is internally generated, its cost is generally its legal filing fees. Legal expenses to successfully defend a patent's rights are considered an added cost to acquire and maintain the rights the patent represents. The successful legal defense costs of the patent help ensure that the patent will continue to be useful throughout its legal (useful) life. These costs benefit future periods (the remaining legal life of the patent) and should be capitalized, added to the patent's cost, and amortized over its remaining life. If legal costs are expended in an unsuccessful patent defense, these should be expensed since they do not benefit future periods.

Answer 392

$150,000 Gross profit rate = $270,000 ÷ $900,000 = 30% Cash collected prior to December 31, 20X2: January 2, 20X1 $150,000 January 2, 20X2 250,000 -------- Total $400,000 ======== Cash remaining to be collected = $900,000 - $400,000 = $500,000 Deferred gross profit to be reported on December 31, 20X2 = 30% × $500,000 = $150,000 View referenced content in book. 2251 Revenue Recognition

Answer 393

Common stock: $375,000; Additional paid-in capital: $175,000 Summary journal entry to record 20X1 issuance of convertible preferred stock: Dr. Cr. Cash (5,000 x $110) $550,000 Convertible preferred stock (5,000 x $100) $500,000 APIC preferred ($550,000 - $500,000) 50,000 Summary journal entry to record 12/31/X2 conversion of preferred shares: Dr. Cr. Convertible preferred stock $500,000 APIC preferred 50,000 Common stock (5,000 x 3 x $25) $375,000 APIC common ($550,000 - $375,000) 175,000 View referenced content in book. 2250 Equity

Answer 394

Net sales - COGS

Answer 395

Grants to other organizations and depreciation Per FASB ASC 720-25-25-1, contributions made by a business are considered expenses of the period. Not-for-profit entities recognize expenses the same way as businesses, so the contribution would be considered an expense with the other expenses of the period. FASB ASC 958-720-45-15 lists depreciation as an expense. View referenced content in book. 2524 Expenses, Including Depreciation and Functional …

Answer 396

Raim: As a component of income from continuing operations; Cane: As an extraordinary item FASB ASC 225-20-45-2 provides two criteria for extraordinary item classification—events or transactions must be both unusual in nature and occur infrequently. Based on this, Cane's losses would be considered an extraordinary item, but Raim's would not. Raim Co. would classify its losses as a component of income from continuing operations. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 397

$56,000 Income tax expense: Current portion = Taxable income x Tax rate = $140,000 x 0.40 = $56,000 View referenced content in book. 2270 Income Taxes

Answer 398

I and III Activities are required to be reported as enterprise funds if either I or III is true. In addition, if pricing policies of the activity establish fees and charges designed to recover costs, an enterprise fund must be used. The language describing funds as providing goods and services “on a cost-reimbursement basis” applies to internal service funds. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 399

$11 IFRS applies an inventory valuation rule of lower of cost or net realizable value, which is defined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Replacement cost and normal profit margin are not used in IFRS. Since net realizable value is less than cost, the inventory item is written down to $11 per unit.

Answer 400

None of these items would be part of the acquisition cost. FASB ASC 805-10-25-21 requires that acquisition-related costs be charged to expense. All of these costs are acquisition-related costs and should be expensed in the period incurred. FASB ASC 805-10-25-23 states the following: Quote Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder's fees; advisory, legal, accounting, valuation, and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognized in accordance with other applicable GAAP. View referenced content in book. 2315 Business Combinations

Answer 401

$155,000 When converting from cash-basis sales to accrual-basis sales, sales must be adjusted for the net change in accounts receivable. There has been a net decrease in receivables of $20,000 over the course of the year from $50,000 to $30,000. Thus, accrual sales would decline by $20,000 as compared to cash sales (which included the additional receivables collected). Therefore, this response of $155,000 ($175,000-$20,000) is correct. BEG AR + Sales - Collections =END AR ``` Rearrange formula to get sales: END AR 30,000 -BEG AR (50,000) +Collections 175,000 =SALES =155,000 ```

Answer 402

$10,000 The Roth Co. note is due in 9 months. FASB ASC 835-30 (Interest on Receivables and Payables) does not require any special treatment for notes maturing in less than one year. Wake Co. should report the Roth Co. note at its face amount, $10,000.

Answer 403

Reports info about how RE changes over the reporting period. This statement shows beginning RE, events that increase it (NI), and events that decrease it (dividends and net loss). Ending RE is computed in this statement and is carried over and reported on the BS.

Answer 404

$15,227 The initial obligation would be capitalized at $60,000 × 5.0757 = $304,542. Initial obligation $304,542 Interest rate (5%) x .05 -------- Interest expense $ 15,227 View referenced content in book. 2380 Leases

Answer 405

general fund. According to the principles concerning the use of fund accounting specified by GASB 1300.116, “a government shall report only one general fund.” Although “the general rule is to establish the minimum number of funds consistent with legal specifications, operational requirements, and the principles of fund accounting,” a governmental entity could have a need for more than one pension trust fund, internal service fund, or capital projects fund. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 406

the same as in a periodic inventory system. The FIFO perpetual inventory method will produce the same ending inventory as the FIFO periodic method. This is due to the fact that the “first-in” units are removed first under both methods. The only difference is that the units sold are removed immediately under the perpetual approach but only at the end of the period under the periodic approach. The flow and amounts are the same. This is not true for any other inventory method (other than specific identification).

Answer 407

$150,000 Fair value of plan assets at end of year $525,000 Explained changes: Fair value of plan assets at beg of yr $350,000 Contributions during year 110,000 Benefits paid during year (85,000) Total explained changes 375,000 Unexplained changes (return on plan assets) $150,000 View referenced content in book. 2264 Retirement Benefits

Answer 408

Both Lease M and Lease P as a capital lease FASB ASC 840-10-25-1 established four criteria for classifying leases: Ownership of asset is transferred at end of lease. Lease contains bargain purchase option. Lease term is 75% or more of economic life of asset. Present value of lease payments is 90% or more of fair value of leased assets. If one or more of these conditions are present, the lease is a capital lease. Lease M is a capital lease because the lease term is greater than 75% of the economic life of the property. Lease P is also a capital lease for the same reason. View referenced content in book. 2380 Leases

Answer 409

$487,695 This is a question involving the amortization of a loan: with two payments made, what is the remaining payable carrying value? Beginning principal of $500,000 × 0.12 (Interest rate) × 1/12 (because they are monthly payments) for only one month’s interest = $5,000. The principal amortized from the first payment is thus the payment amount less the $5,000 interest, or $11,122 – $5,000 = $6,122. The interest on the second payment is $500,000 less $6,122 for the principal of $493,878, × 0.12 × 1/12 (as before, covering one month) for a total interest charge of $4,939. Thus, the remaining principal balance on December 31 is the principal after the first payment of $493,878 less the principal paid with the second payment (after interest, $11,122 – $4,939) of $6,183, thus $493,878 – $6,183 = $487,695.

Answer 410

$20,000 Style, Inc., the subsidiary, reported 20X1 earnings of $20,000 (see below): Retained Earnings (01/01/X1) $36,000 Plus 20X1 Income ? Less 20X1 Dividends (5,000) -------- Retained Earnings (12/31/X1) $51,000 ======== Dallas, Inc., the parent, includes 100% of Style's earnings: $20,000. The noncontrolling interest in the subsidiary net income $4,000 (20% of $20,000) is then subtracted from the combined entity's consolidated net income to derive the parent's interest in consolidated net income. View referenced content in book. 2322 Fundamentals of Consolidated Worksheets(Acquisition …

Answer 411

$40,000 Gain from sale of assets $90,000 Less: Net operating loss 50,000 ------- Gain from disposal of component to be reported $40,000 ======= Note When an entity has been disposed of or is classified as held for sale, the income statement should report in discontinued operations, the results in the period(s) in which they occur. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 412

$25,000 $ 370,000 December 31, 20X1, accumulated depreciation + $55,000 20X2 depreciation --------- $ 425,000 12/31/X2 bal disregarding any retirements in 20X2 - 400,000 Actual accumulated depreciation balance on 12/31/X2 --------- $25,000 20X2 depreciation adjustments because of retirements ========= OR Beg Balance + Additions - Deductions = End balance 12/31/X1 Accum. Dep. + 20X2 Dep. Exp - Retirements = 12/31/X2 Balance $370,000 + $55,000 - $25,000 = $400,000 (Deprec. Associated with Retirements)

Answer 413

Operating income Operating income is a subtotal well before income tax expense. Income tax expenses during the period are specifically allocated to the other three answer choices (discontinued operations, income from continuing operations, and extraordinary gains and losses). The following items are subject to the application of intraperiod income tax allocation: ``` Discontinued operations Extraordinary items Cumulative effects of accounting changes Prior-period adjustments Direct adjustments to capital accounts ```

Answer 414

Unrestricted net assets $0, temporarily restricted net assets $2,500, permanently restricted net assets $0 The donation was earmarked for a specific purpose, not to be held indefinitely. Therefore, there would be no impact on permanently restricted net assets. As of the date of the statement of financial position for 20X3, the unspent donation amounted to $2,500 that would be reflected in temporarily restricted net assets. The 20X3 supplies purchase and use of supplies would be reported in the statement of activities as both an increase at the time of purchase (reclassification from temporarily restricted to unrestricted net assets) and a decrease (expense) at the time of use with a zero net effect on unrestricted net assets by the end of 20X3. FASB ASC 958-210-45-1 View referenced content in book. 2511 Statement of Financial Position

Answer 415

Purchase price - Salvage Value

Answer 416

$0 FASB ASC 250-10-45-5 mandates that voluntary changes in accounting principle be recognized using the retrospective approach, in which the cumulative effect is reported as an adjustment of the beginning-of-year retained earnings of the earliest year presented. The only exception is when the FASB issues a new pronouncement and mandates in that pronouncement that a change in accounting principle made to comply with that pronouncement should be made by including the cumulative effect in net income of the year of change. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 417

more CASH is received.**

Answer 418

$172,000 Uncollectible accounts balance on 01/01/X2 $24,000 Cr. Uncollectible accounts written off in 20X2 -96,000 ------- Uncollectible accounts balance on 12/31/X2 72,000 Dr. Add: Allowance balance required on 12/31/X2 100,000 ------- Uncollectible/accounts expense for 20X2 $172,000 ========

Answer 419

the total of capital assets less depreciation and outstanding mortgages or bonds reduced by any significant unspent proceeds. The best answer calculates the displayed amount by considering capital assets reduced by depreciation and directly related debt. Any amount of significant unspent debt proceeds or deferred inflows should not be included in the calculation of “net investment in capital assets.” It would be displayed as “restricted” or “unrestricted” and reduced by that portion of the debt or deferred inflow. Not all long-term debt is directly associated with the capital assets. View referenced content in book. 2441 Net Position and Components Thereof

Answer 420

Revenues from educational programs The statement of operations for not-for-profit entities includes a performance indicator such as operating results. Operating results are reported among the total changes in unrestricted net assets. This indicator is analogous to income from continuing operations of a for-profit enterprise. Additional classifications such as operating/nonoperating may be included within the performance indicator. For a hospital's performance indicator, revenues other than patient service revenues, such as revenues from educational programs, would be considered “other revenues.” Gifts and contributions would not be considered operating revenues. FASB ASC 954-225-45-4 and 45-5 View referenced content in book. 2450 Accounting and Reporting for Governmental Not-for-…

Answer 421

format and content of financial information submitted to the SEC. Regulation S-X contains information regarding the financial statements that must be submitted to the SEC. Regulation S-K contains the instructions for filing the nonfinancial statement forms required by the SEC. Regulation S-T contains instructions for the electronic filing of required SEC forms. Both Regulation S-K and S-T should be read together, as some parts of Regulation S-X may supersede the instructions in Regulation S-K.

Answer 422

As a change in accounting estimate, not requiring restatement of prior periods According to GASB 1400.107, footnote 9, a change from depreciation to the modified approach should be reported as a change in an accounting estimate, and this change would not require a restatement of prior periods. View referenced content in book. 2427 Required Supplementary Information (RSI) Other Than …

Answer 423

$9,000,000 In Maple City's General Fund budgetary entry, the amount that is debited to the account “Estimated Revenues” would consist only of those financial resource inflows expected to be recorded as revenues. The property taxes, licenses, and fines would be recorded as revenues. Proceeds of the debt issue would be recorded either as a liability, if short-term debt, or as proceeds of bonds (an other financing source) if long-term debt, not as revenues. Also, the interfund transfers would not be recorded as revenues. Therefore, the correct answer is $9,000,000 of property taxes, licenses, and fines. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 424

$190,000 The rearrangement cost and wall removal cost were reasonable and necessary costs to put the equipment “in a location and condition” for its use. These costs benefit future periods and should be capitalized along with the equipment cost.

Answer 425

$91,000. FASB ASC 270-10-45-1 provides the guidelines for the preparation of interim financial statements: “each interim period should be viewed primarily as an integral part of the annual period” and specifies the following: Costs not directly associated with interim revenues (such as property taxes) are allocated equally—so the $12,000 allocation of the property tax expense is properly included in third-quarter net income. Extraordinary items should be recognized totally in the period in which they occur—so the extraordinary gain of $60,000 should have been recognized totally in the second quarter without being allocated to the balance of the year; the $20,000 should not be included in Quarter 3. Cumulative-effect losses resulting from a change in accounting principles are reported by restating the pre-change interim periods; the $16,000 cumulative loss from the change in inventory method should not be included in the third quarter net income. Thus, Kell Corp.'s third quarter net income should be: $95,000 - $20,000 + $16,000 = $91,000 View referenced content in book. 2375 Interim Financial Reporting

Answer 426

Factor the receivables outstanding Factoring arrangements are a means of discounting accounts receivable on a nonrecourse, notification basis. Accounts receivable are sold outright, usually to a transferee (the factor) that assumes the full risk of collection, without recourse to the transferor in the event of a loss. Debtors are directed to send payments to the transferee. Red Co. will have its cash immediately upon the sale, whereas the other methods may accelerate the receipt of cash but will not result in a great deal of cash being received immediately. View referenced content in book. 2393 Transfers and Servicing of Financial Assets and …

Answer 427

disclose the liquidation preference in the equity section of the statement of financial position. Liquidation preferences must be disclosed. View referenced content in book. 2250 Equity

Answer 428

the original cost of $25. IFRS requires that inventories be valued at lower of cost or net realizable value. If net realizable value falls below cost, then inventory must be written down to net realizable value. If net realizable value increases back up above cost, then a recovery of the writedown must occur, and the inventory must be written back up to cost, which is now the lower of cost and net realizable value. Replacement cost is not used in this procedure.

Answer 429

operating revenues. Internal service funds are established to account for activities that one department within a government undertakes for the benefit of (1) other departments within that same government (usual case), and (2) (sometimes) other governments, at prices approximating their external exchange value. This question illustrates an exchange-like reciprocal interfund activity. Interfund services provided and used should be reported as revenues in seller funds and expenditures or expenses in purchaser funds (GASB 1800.102). Transportation appropriations is a budgetary account. The term “exchange” describes interfund transactions, but is not used as an account title. Intergovernmental resource flows between different governments would be recognized as revenues or expenses/expenditures. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 430

No effect on current ratio or quick ratio Trading securities (short-term investments) are included in both current assets and quick assets along with cash and other items. The conversion of the trading securities to cash would not alter the total amount of either current or quick assets (because the trading securities are carried at current market value). Therefore, the respective ratios would show no effect.

Answer 431

Less than warrants' market value, yes; Contributed capital, yes The amount of the proceeds from the bonds and the warrants is allocated to the bonds and the warrants based on their relative fair value at the issue date. The portion of the proceeds allocated initially to the stock warrants is credited to contributed capital from stock warrants. However, if the stock warrants are worth more than they were worth at the issue date, then the market value of the stock warrants will now exceed the portion of the sales proceeds allocated to the warrants at the issue date.

Answer 432

Both group depreciation and composite depreciation Group depreciation applies an average (straight-line depreciation) rate to an entire group of similar assets, hence the term group depreciation. Composite depreciation applies an average (straight-line depreciation) rate to an entire group of dissimilar assets. Note Both methods use the straight-line depreciation method.

Answer 433

Both I and II FASB ASC 850-10-50-1 requires the following disclosures: - The nature of the relationship(s) involved - A description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements - The dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period - Amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement View referenced content in book. 2387 Related Parties and Related Party Transactions

Answer 434

Ebon, Fain, Gel, and Hak All four of Cott Co.'s operating segments are deemed to be reportable segments. Ebon, Fain, and Gel qualify as reportable segments because they each have revenues that are 10% or more of combined revenues. Hak qualifies as a reportable segment because its identifiable assets are 10% or more of the combined assets of all operating segments. View referenced content in book. 2390 Segment Reporting

Answer 435

Cost of goods available for sale / Number of units available for sale

Answer 436

not reported on the balance sheet but disclosed in the notes to the financial statements. When a company is obligated to pay a specified amount to a supplier even if it does not take delivery of the contracted goods, it has an unconditional purchase commitment. Such an obligation is not reported on the balance sheet but is disclosed in the notes to the financial statements at the present value of the future required payments. Video explanation: Normally, if you have a contract with a supplier then you take a delivery of the contracted goods and you have a liability: Dr. Inventory Cr. Accounts Payable The trigger to record a liability on the balance sheet is we take delivery when goods are shipped or we cancel the contract. So we're not recording anything on the balance sheet because we have a purchase commitment (A & B is not our option) But we do disclose it because this is an important information for investors we know how much have we committed ourselves, how much cash outflows we have committed ourselves to in the upcoming few years. Remember that if it's a contract to receive goods or purchases goods or services, our trigger is we when we take delivery on those goods or services or we've breached the contract and we actually owe that amount to the vendor.

Answer 437

Proceeds received less cash surrender value The cash surrender value of the policy was carried in Jung Co.'s accounts as an asset. The proceeds received less the carrying amount (i.e., the cash surrender value) should be reported by Jung as a gain.

Answer 438

$106,000 Since the principal of the endowment and the income from investment of endowment funds are both restricted to the purpose of funding scholarships, and the investment income remained undisbursed at the end of the fiscal year, the principal and income both contribute to the net assets of this specific fund. View referenced content in book. 2512 Statement of Activities

Answer 439

$617,000 ``` Rice Co. was incorporated on January 1, 20X1, with $500,000 from the issuance of stock and borrowed funds of $75,000. During the first year of operations, net income was $25,000. On December 15, 20X1, Rice paid a $2,000 cash dividend. No additional activities affected owner's equity in 20X1. On December 31, 20X1, Rice's liabilities had increased to $94,000. In Rice's December 31, 20X1, balance sheet, total assets should be reported at: $598,000. $600,000. $617,000. $692,000. ``` Stockholders' equity (January 1, 20X1) $500,000 Add net income 25,000 Deduct dividends (2,000) --------- Stockholders' equity (December 31, 20X1) $523,000 ========= Total assets = Total liabilities + Stockholders' equity = $94,000 + $523,000 = $617,000

Answer 440

May be capitalized, but it is not required, and depreciation is not required The donated painting in this situation meets the three conditions that make capitalization optional for government-wide reporting: it is to be held for public exhibition and not gain, it is to be protected and preserved, and a policy is in place requiring proceeds from any potential sale to be used to acquire other collection items. As artwork is considered “inexhaustible,” governments are not required to depreciate them. GASB 1400.109–.111 View referenced content in book. 2441 Net Position and Components Thereof

Answer 441

$6,000 Income tax expense for the second quarter is the total income for quarters one and two times the effective rate, less the income tax expense recorded at the end of the first quarter. Income before tax expense (10k + 20k) $30,000 Tax rate x 0.25 -------- Total expense for second quarter $ 7,500 Less: Expense reported 1st quarter (1,500) -------- Income tax expense, 2nd quarter $ 6,000 View referenced content in book. 2375 Interim Financial Reporting

Answer 442

statement of financial position. The over- or underfunded status of a defined benefit pension plan must be shown as an asset or a liability on the balance sheet, the statement of financial position. View referenced content in book. 2264 Retirement Benefits

Answer 443

Both I and II GASB L10.103 states that both the costs of a final cover to be applied to the landfill, and costs of postclosing monitoring equipment should be included in the estimated total current cost of landfill closure and postclosure care. GASB L10.106 states that for landfills using proprietary fund accounting, a portion of the estimated total current cost of landfill closure and postclosure care should be recognized as an expense and liability in each period that the landfill accepts solid waste. GASB L10.103 and .106 View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 444

Treasury stock: $108,000; Additional paid-in capital: $42,000 The cost method of accounting for treasury stock treats the acquisition and reissue of the shares as two parts of one transaction. Thus, Seda Corp. would make the following entries: Dr. Cr. Acquisition: Treasury stock (at cost) $216,000 (6,000 sh x $36/sh) Cash $216,000 Reissue: Cash (3,000 sh x $50/sh) $150,000 Treasury stock (at cost) (3,000 sh x $36/sh) $108,000 Additional paid-in-capital (3,000 sh x ($50/sh - $36/sh)) $42,000

Answer 445

A reconciliation of ending retained earnings to net cash flow from operations A reconciliation of ending retained earnings to net cash flow from operations would serve no useful purpose and is not required to be disclosed on the statement of cash flows. Each of the other items mentioned would be disclosed under the direct method. View referenced content in book. 2135 Statement of Cash Flows

Answer 446

Both actual total costs and income previously recognized Final year income would be calculated: Total contract revenue XXX Less actual total costs - XX ---- Total income from contract XX Less income previously recognized - X ---- Income recognized in final year X Note Both actual total costs and income previously recognized are used in calculating final-year income.

Answer 447

The total future cash payments This question relates to the debtor's gain on troubled debt restructuring. FASB ASC 310-40-40-1 has changed the treatment of creditor's losses on a restructuring to include the use of present values. Debtor's gains, however, continue to follow FASB ASC 470-60-35-6. Debtor's gains are calculated based on undiscounted amounts. The total future cash payments, including interest, are used to compute the gain on troubled debt restructuring.

Answer 448

$1,000 decrease Alloc. to Alloc. to Total Young Zinc Allocated --------- --------- --------- Profit before interest $ 4,000 Interest allocation To Young (10% x $160k) $16,000 (16,000) To Zinc (10% x $100k) $10,000 (10,000) -------- Residual allocation (1) (22,000) To Young (50% x $22k) (11,000) 11,000 To Zinc (50% x $22k) -- (11,000) 11,000 -------- -------- -------- Increase in Young capital $ 5,000 Decrease in Zinc capital (1,000) 1 Residual is $4,000 - $16,000 - $10,000 = $(22,000)

Answer 449

$76,000 Accounts receivable has $200,000 less $150,000 less $10,000 in each year. That means the balance at the end of the first year is $40,000 and then $80,000 at the end of the second year. The allowance for doubtful accounts is $12,000 ($200,000 times 6 percent) less $10,000 (write-offs) each year. This means that the balance at the end of the first year is $2,000 and then $4,000 at the end of the second year for a $76,000 ($80,000 receivable less $4,000 allowance) net accounts receivable.

Answer 450

When a creditor receives property as partial payment in settlement of a debt, the creditor should recognize the property received at the fair value of the property received. Mene is the creditor and the fair value of the real estate is $90,000. View referenced content in book. 2245 Troubled Debt Restructurings by Debtors

Answer 451

$275,000 FASB ASC 730-10-20 defines research and development as the planned search and critical investigation aimed at the discovery of new knowledge and ultimately a new product. Computer software costs follow this definition. Computer software costs to be sold, leased, or otherwise marketed are charged to expense as research and development until technological feasibility has been established for the product. After feasibility has been established, all software costs are capitalized. Based on the definition, research and development expense includes planning, design and testing of $275,000 ($50,000 + 150,000 + 75,000). View referenced content in book. 2391 Software Costs

Answer 452

December 31, 20X1: Overstated; January 2, 20X7: No effect Carrying amount on 1/2/X1 = $1,000,000 - $150,000 = $850,000 Amortization of discount: ``` Using straight-line = $150,000 / 6 yrs = $25,000 / yr. Using effective interest = (0.12 x $850,000) - (.08 x $1,000,000) = $22,000 Carrying amount on 12/31/X1: ``` Using straight-line = $850,000 + $25,000 = $875,000 Using effective interest = $850,000 + $22,000 = $872,000 Overstatement of carrying value when using straight-line = $875,000 - $872,000 = $3,000 Over the 6-year life of the bonds, the same total discount amortization will occur under each method. The bond carrying amount on January 2, 20X7, will be the maturity value regardless of the amortization method. Thus, on December 31, 20X1, the bond carrying value will be overstated if straight-line amortization of discount is used but on January 2, 20X7, there will be no effect from its use. ``` *VIDEO EXPLANATION Original Journal Entry: Cash 850,000 Discount 150,000 Bonds Payable 1,000,000 ``` Issued year 1, matures in year 7 = amortized over 6 years 150,000/6 yrs= 25,000/yr Amortization at the end of the year: Discount 150,000-25,000 = 125,000

Answer 453

$140,000 Other comprehensive income is computed as follows: ``` Sales revenue $800,000 Cost of goods sold 600,000 -------- Gross profit $200,000 Operating expenses 90,000 -------- Net income $110,000 Unrealized holding gain 30,000 -------- Comprehensive income $140,000 ``` View referenced content in book. 2133 Statement of Comprehensive Income

Answer 454

$50 The amount of contribution revenue recognized in an exchange transaction is reduced by the fair market value of the consideration given by the organization to the donor. The $150 received is reduced by the $100 fair market value of the theater tickets for total contribution revenue of $50. View referenced content in book. 2512 Statement of Activities

Answer 455

Neither cumulative effect of a change in accounting principle nor pro forma effects of retroactive application of new depletion base An increase in the estimated quantity of copper recoverable from its mine represents a change in accounting estimate. FASB ASC 250-10-45-17 provides that a change in accounting estimate be accounted for in the period of change or the period of change and future affected periods if both are affected by the change. Also: Quote A change in an estimate should not be accounted for by restating amounts reported in financial statements of periods or by reporting pro forma amounts for prior periods. Therefore, no is the appropriate answer for both suggested treatments. View referenced content in book. 2305 Accounting Changes and Error Corrections *VIDEO EXPLANATION What type of change is this? Error, change in accounting principle, or do we have a change in accounting estimate. It is a change in estimate! Similar to depreciation (looking at fixed asset). These are recorded prospectively. Cumulative effect is a change in accounting principle. We don't have a change in accounting principle.

Answer 456

$9,000 Increase in Assets $89,000 Increase in Liabilities (27,000) -------- Increase in stockholder's equity $62,000 Add back: Dividend Payment 13,000 -------- Increase in stockholders' equity BEFORE dividends $75,000 Less increase-new capital stock issued: Capital Stock $60,000 Additional Paid-in Capital 6,000 66,000 ------- -------- 20X1 Net Income $ 9,000 ======== View referenced content in book. 2132 Income Statement/Statement of Profit or Loss

Answer 457

$5,000 FASB ASC 718-10-30-2 requires that the fair value method be used. Except in very rare circumstances, the intrinsic value method is no longer acceptable. Accordingly, total compensation cost for Farm Co. is the $10,000 fair value of the options on the grant date (1,000 options × $10 fair value per option on January 2, 20X1). The $10,000 total compensation cost should be amortized over Farm's 2-year service period at the rate of $5,000 per year ($10,000 ÷ 2 years = $5,000). The compensation expense for 20X1 therefore is $5,000. View referenced content in book. 2264 Retirement Benefits *VIDEO EXPLANATION

Answer 458

may be included in the basic financial statements or in the required supplementary information (RSI). Governments with significant budgetary perspective differences that preclude providing budgetary comparisons for the general fund and each major specific revenue fund are required to present budgetary comparison schedules as required supplementary information (RSI). Other governments are encouraged to provide the budgetary comparison statement as RSI but may include it as part of the basic financial statements. Budgetary comparison statements are not listed among the items to be included in management's discussion and analysis (MD&A). View referenced content in book. 2413 Budgetary Accounting

Answer 459

$300 Current tax expense is defined in FASB ASC 740-10-20 as: Quote The amount of income taxes paid or payable (or refundable) for a year is determined by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues for that year. Thus: Current income tax expense = 30% × $1,000 = $300 View referenced content in book. 2270 Income Taxes

Answer 460

increase asset revaluation surplus, an equity account like other comprehensive income, by the $50,000 addition to fair value. When a class of assets' fair value can be reliably measured, a corporation applying IFRS can elect to apply the revaluation model to the class of assets. When the carrying value of the assets differs materially from the fair value of the assets, a revaluation must occur, with any increase being included in asset revaluation surplus, an equity account, like other comprehensive income, and a decrease being accounted for as an other loss included in income from operations.

Answer 461

2.4 to 1 This particular ratio is the relationship to earnings available to pay preferred stock dividends, net income, divided by the preferred stock dividends total. Thus, here it is $480,000/$200,000, or 2.4 to 1.

Answer 462

Are the future cash flows expected to change significantly as a result of the exchange? Nonmonetary exchanges are generally recorded at fair value. One of the exceptions to the exchange being recorded at fair value is an exchange transaction that lacks commercial substance. The main issue in determining commercial substance is whether the entity's future cash flows are expected to significantly change. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 463

$120,000 Income tax expense—current is the tax currently payable ($400,000 × 0.30 = $120,000). Journal Entry: Tax expense-current 120,000 Tax payable 120,000 View referenced content in book. 2270 Income Taxes

Answer 464

$700,000 Since Wall Corp. contributes $2 for every $1 the employees contribute, Wall Corp.'s expense in 20X1 for the employee stock purchase plan is: 2 × Employee withholding = 2 × $350,000 = $700,000 The gain on the treasury stock issued does not affect the expense. It is recorded separately as “Contributed Capital from Treasury Stock Transactions.” FASB ASC 718-10-30-2 View referenced content in book. 2265 Stock Compensation (Share-Based Payments)

Answer 465

Each reporting unit Goodwill is to be tested for impairment at the level of the reporting unit or at one level below an operating segment. View referenced content in book. 2370 Impairment

Answer 466

$4,000 The investor receiving stock rights must allocate a portion of the purchase price of the investment that “carried” the rights. Here, although the stock rights were received 6 months after the purchase, the rights still “ride” with the purchase. Thus, the stock rights are allocated a portion of the purchase price based on the market value of the rights as a percentage of the total market value of the stock investment plus the rights at the balance sheet date: Cost of shares acquired = 1,000 x $80 = $80,000 Cost allocated to stock rights = $80,000 ($5 / ($95 + $5)) = $80,000 ($5 / $100) = $4,000 *See video explanation under "Investments"

Answer 467

Both accrual and disclosure Town, Inc., has a legally enforceable right to the settlement from the lawsuit on December 1, 20X1, so it would be reported in 20X1. The circumstances of the accrual of the gain should be disclosed in the interest of full disclosure. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 468

a capital projects fund. Depreciation expense is not recorded in any governmental fund since governmental funds account for neither depreciable assets nor expenses (the measurement focus of governmental funds is on expenditures, not expenses). Capital assets and related depreciation expenses are accounted for in proprietary funds and fiduciary funds. The only governmental fund type listed in the responses to this question is the capital projects fund, so this is the appropriate response. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 469

$95,000 Under FASB ASC 270-10-45-4, interim financial reports should be based on the principles, practices, and policies used in the preparation of the last annual report. Property taxes ($60,000 x 3/12) $15,000 Major repairs ($240,000 x 3/9) 80,000 ------- Total $95,000 View referenced content in book. 2375 Interim Financial Reporting

Answer 470

Operating activities As illustrated in FASB ASC 958-205-55-18, unrestricted contributions are reported as operating activities. Cash received from contributions restricted by donors for noncurrent purposes such as fixed asset construction, acquisition or improvement, term endowments, or permanent endowments are classified as FINANCING activities in the statement of cash flows. Cash received from investment income restricted by donor stipulation to the same purposes also are reported as financing activities, not as operating activities.

Answer 471

Five years Douglas Co. should capitalize the lease because the lease term (five years) is equal to 83% (equal to or more than 75%) of the economic life (six years). Under a capital lease, the lease is depreciated using the life of the lease if the 75% or 90% of fair market value criteria are met. If the lease transfers ownership or has a bargain purchase, the life of the asset is used to determine depreciation. (FASB ASC 840-30-35-1) View referenced content in book. 2380 Leases

Answer 472

$105,000 A correction of an error in prior years' financial statements is reported in the year of correction by restating all prior years affected by the error. The cumulative effect of the error on periods prior to those presented must be reflected in the carrying amounts of the assets and liabilities as of the beginning of the earliest year presented in the current period's financial report. In addition, the offsetting amount of this cumulative effect must be reported as an adjustment to the opening balance of retained earnings of the earliest year presented in the current period's financial report. (FASB ASC 250-10-45-23 to 45-24) Depreciation of $20,000 should have been recognized in Years 1–4, as well as each of the remaining six years of the asset's life after Year 4. However, no depreciation was recorded in any of the years up to Year 4. Rather, an expense of $210,000 was recognized in Year 1. (210,000 - 10,000) / 10 years = 20,000 Correct Expensed Cumulative Cumulative Depreciation Depreciation (Before Tax) (After Tax) ------------ ------------ ------------ ----------- Year 1 $20,000 $210,000 $190,000 $133,000 Year 2 20,000 0 170,000 119,000 Year 3 20,000 0 150,000 105,000 View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 473

Continue to treat as a regular asset It's depreciated like normal Apply impairment if applicable

Answer 474

basic financial statement. The Governmental Funds Balance Sheet is a basic financial statement. The balance sheet includes a separate column for each major governmental fund and a column with aggregated information for all other (nonmajor) governmental funds as well as a total column for all governmental funds. Basic financial statements are: government-wide statement of net position, government-wide statement of activities, governmental funds balance sheet, governmental funds statement of revenues, expenditures, and change in fund balances, proprietary funds statement of net position, proprietary funds statement of revenues, expenses, and changes in fund net position, proprietary funds statement of cash flows, fiduciary funds statement of net position, fiduciary funds statement of changes in fiduciary net position, and notes to financial statements. GASB 2200.105 and .156 View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 475

II only The basic government-wide financial statements include the statement of net position and the statement of activities, but not a cash flow statement. The fund financial statements include statements of cash flows for proprietary funds but not for governmental funds. The proprietary funds, except for the internal service funds, make up the business-type operations of a government. A city-owned utility is a prototypical example of a business-type activity that would be recorded in a proprietary fund. In contrast, construction of a city hall building is a general government operation that would be recorded in a governmental fund. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 476

increase the allowance for uncollectible accounts. Journal entries to: Debit Credit ------ ------ (1) Write an account off: Allowance for Uncollectibles xx Accounts Receivable xx (2) Reinstate account previously written off: Accounts Receivable xx Allowance for Uncollectibles xx (Entry (2) reverses entry (1) to the extent of cash subsequently collected) (3) Collect the account: Cash xx Accounts Receivable xx (Entry (2), the reinstatement, credits or increases the allowance for uncollectible accounts)

Answer 477

$840,000 Because the question asks for the amount of “expenditures,” it is clear that the question refers to the governmental fund reporting and not the government-wide reporting. The current liability of $100,000 at the start of year 20X1 relates to expenditures of the prior year. The 20X1 payment of $800,000 liquidated that liability of $100,000 remaining from the prior year and recognized $700,000 of 20X1 expenditures. At the end of 20X1, another $140,000 of 20X1 claims and judgments expenditures were waiting to be liquidated with current resources. Thus, the 20X1 claims and judgments expenditures were $840,000. View referenced content in book. 2445 Interfund Activity, Including Transfers

Answer 478

$140,000 The after-tax loss from the discontinued operation is computed as follows: Sale proceeds $ 800,000 Accounts receivable $ 200,000 Inventory 500,000 Buildings $5,000,000 Accu dep 3,000,000 2,000,000 Mortgage on buildings -1,100,000 Accounts payable -600,000 Net book value 1,000,000 ---------- Loss $ 200,000 Taxes ($200,000 x .30) 60,000 ---------- After-tax loss $ 140,000 View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 479

Increase in unrestricted revenues, gains, and other support When resources are under control of the governing board and not specifically restricted by an outside donor, the resources are considered unrestricted and the resulting income is unrestricted revenue. View referenced content in book. 2511 Statement of Financial Position

Answer 480

Bank certificates of deposit One of the characteristics of a derivative instrument is that it derives its value or cash flow from some other security or index, called an underlying. FASB ASC 815-10-20 defines an underlying as follows: “An underlying is a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable. An underlying may be a price or rate of an asset or liability but is not the asset or liability itself.” Bank certificates of deposit clearly do not have this characteristic. View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 481

$104,000 The permanent difference from tax-exempt interest does not produce deferred taxes. ``` Uncollectible accts ($220,000 - $250,000 $(30,000) Depreciation exp ($860,000 - $570,000) 290,000 ``` Net temporary differences =$260,000 Tax rate x .40 Deferred tax expense $104,000 View referenced content in book. 2270 Income Taxes

Answer 482

Governmental funds, yes; Proprietary funds, yes Consider that if an item impacts operations, then it should be a factor in the final results of operations. Governmental and proprietary funds require a statement of revenues and expenditures; fiduciary funds do not. View referenced content in book. 2422 Governmental Funds Financial Statements

Answer 483

0. 81 to 1 * Don't forget to subtract allowance for uncollectible accounts from AR!! NET Accounts Receivable is a current asset, meaning AR - allowance. Quick ratio = Current assets (excluding Inventories and Prepaid assets) ÷ Current liabilities: (Cash + Net accounts receivable + Short-term marketable securities) ÷ Current liabilities ($60,000 + ($180,000 - $8,000) + $90,000) ÷ $400,000 = 0.81 (rounded) All of the assets listed are current liabilities. Inventory and prepaid rent are excluded from the quick ratio.

Answer 484

Preferred stock: $36,000; Common stock: $8,000 Dividends in arrears on preferred stock $12,000 Preferred stock dividend requirement for 20X1 (4,000 shares x $100 x 6%) 24,000 ------- Dividends allocable to preferred shares $36,000 ======= Dividends allocable to common shares ($44,000 - $36,000) $ 8,000 ======= Remember Dividends in arrears and current dividends on cumulative preferred stock must be paid before any dividend can be paid to common. Since the preferred stock is not participating, the total amount remaining after the current and in arrears amount is paid to preferred goes to common. View referenced content in book. 2250 Equity

Answer 485

Report as income in Year 1 Contribution revenues from gifts, grants, and bequests are reported in the period they are unconditionally promised or received, whichever is earlier. They are reported as temporarily or permanently restricted to reflect donor wishes as to use. Since the revenue will be realized within a year, the amount recorded as revenue would be the full amount of the contribution. Otherwise, the contribution would be recorded at net present value. View referenced content in book. 2521 Support, Revenues, and Contributions

Answer 486

one-fifth of the total cash to be received over the life of the lease. The timing of the cash payments is not relevant in the situation described. What is important is that Graf will collect four years of payments for a 5-year lease. Each year Graf should recognize 1/5th (1/life of lease) of the total lease payment as rental revenue for that year. View referenced content in book. 2380 Leases

Answer 487

in proportion to the cash collection. Installment method calculations of annual gross profit: -Compute total expected gross profit by subtracting cost of goods sold from the installment sale amount. -Compute the percentage gross profit rate by dividing total gross profit by sale amount. -For each period, multiply cash collected times the gross profit percentage in the period the sales were made to get that period's gross profit. The net result is that gross profit is recognized in proportion to cash collected. View referenced content in book. 2251 Revenue Recognition

Answer 488

exercise date. Total compensation cost is determined at the date of grant, based on the fair value of the award at that date. This total compensation cost is recognized over the service period by recording the following type of entry (ignoring, for simplicity, the income tax effect): Compensation expense XXX Additional paid-in capital--stock options XXX When the stock options are exercised, the following type of entry is recorded: Cash (for any amounts the employees must pay) XXX Additional paid-in capital--stock options XXX C.S. (par or stated value of shares issued) XXX Capital in excess of par--common XXX View referenced content in book. 2265 Stock Compensation (Share-Based Payments)

Answer 489

Book value of capital assets sold during the year GASB requires a summary reconciliation between fund financial statements and government-wide financial statements. To adjust the total changes to governmental fund balances to the total change to the government-wide net position, additions and subtractions are needed. Capital asset purchases and payments of long-term debt principal would be considered expenditure reductions of governmental fund balances and would be added back, as asset acquisitions are not considered an expense reduction of net position. In preparing government-wide financial statements, internal service fund assets and liabilities would be added to those of governmental activities, requiring an addition, not subtraction, to net position. When capital assets were sold, the entire sales price would have been an increase to governmental fund balances, but only the gain on sale would be an addition to net position. Therefore, the book value of capital assets sold during the year is the only item requiring a subtraction to reconcile to the changes in net position. View referenced content in book. 2429 Deriving Government-Wide Financial Statements and … * VIDEO EXPLANATION * NOTES 10/01

Answer 490

Cost of Goods Available for Sale - Ending Inventory

Answer 491

94 The operating cycle is the approximate time from investment in inventory to receipt of cash from sales of inventory. The operating cycle is the time that inventory is kept prior to sale added to the time from sale to cash collection (days in accounts receivables). Thus, the company’s operating cycle is simply the total of both of these times given in the question: days' sales in inventory plus days' sales in accounts receivable: 61 days + 33 days = 94 days

Answer 492

May be reported in a separate statement or in a combined statement of income and comprehensive income FASB ASC 220-10-45-1A states: “An entity reporting comprehensive income in a single continuous financial statement shall present its components in two sections, net income and other comprehensive income.” The financial statement should include a total net income amount and the components for that amount, total other comprehensive income amount and the components for that amount, and total comprehensive income.

Answer 493

Program services, management and general, and fundraising The functional categories for expense reporting by a private not-for-profit are program services and supporting services. Within the supporting services category, specific subcategories are management and general activities, fundraising activities, and membership development activities. Program services, management and general, and fundraising are choices from this list. Membership dues are not an expense. Grant expenses would be accounted for within the program activities category. Depending on their nature, professional fees could be included in any of the categories. View referenced content in book. 2512 Statement of Activities

Answer 494

After a seller has written off an accounts receivable, it is possible that the seller is paid part or all of the account balance that was written off. Under the allowance method, if such a payment is received (whether directly from the customer or as a result of a court action) the seller will take the following two steps: 1. Reinstate the account that was written off by reversing the write-off entry. If we assume that the $1,400 written off on Aug 24 is collected on October 10, the reinstatement of the account looks like this: Oct 10 Accounts Receivable 1,400 Allowance for Doubtful Accounts 1,400 * Allowance for DA is a contra-asset to AR so crediting it means increasing it!! 2. Process the $1,400 received on October 10: Oct 10 Cash 1,400 Accounts Receivable 1,400

Answer 495

I only FASB ASC 280-10-50-12 establishes three primary criteria for determining reportable segments: Quote A public entity shall report separately information about an operating segment that meets any of the following quantitative thresholds…: a. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments. b. The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of either: 1. The combined reported profit of all operating segments that did not report a loss 2. The combined reported loss of all operating segments that did report a loss. c. Its assets are 10 percent or more of the combined assets of all operating segments. View referenced content in book. 2390 Segment Reporting

Answer 496

Murphy's net income for the current year is overstated. Gains and losses do not result from buying and selling your own equity shares. Therefore, no gain should have been reported on the resale of the treasury stock. Net income was overstated as a result.

Answer 497

$10,000 The Roth Co. note is due in 9 months. FASB ASC 835-30 (Interest on Receivables and Payables) does not require any special treatment for notes maturing in less than one year. Wake Co. should report the Roth Co. note at its face amount, $10,000.

Answer 498

$4,500 Use a T-account for escrow liability to Kent: Deposits from Kent Corp. are credits ($2,500 per month). Payments to the taxing authority ($28,000 ÷ 4 = $7,000 per quarter are debits) Escrow Liability to Kent Corp. ------------------------------ Balance on December 31, 20X1 | $3,000 Quarter 1 deposits (3 x $2,500) | 7,500 payment $7,000 | | Quarter 2 deposits | 7,500 payment 7,000 | | Quarter 3 deposits | 7,500 payment 7,000 | ------------------------------ | $4,500 ======

Answer 499

operating revenues. Internal service funds are established to account for activities that one department within a government undertakes for the benefit of (1) other departments within that same government (usual case) and (2) (sometimes) other governments, at prices approximating their external exchange value. This question illustrates an exchange-like reciprocal interfund activity. Interfund services provided and used should be reported as revenues in seller funds and expenditures or expenses in purchaser funds (GASB 1800.102). Other financing sources are used to record operating transfers-in for governmental funds. Nonoperating revenues include earnings tangential to the purpose of the fund, e.g., interest and miscellaneous revenue. Transportation appropriations is a budgetary account. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 500

The unrealized loss should be credited to the other comprehensive income account. The related unrealized holding loss (losses are usually debits) on an available-for-sale security is a debit balance (lowering) in other comprehensive income (equity account, normal credit balance). When the asset is sold, the related accounts are removed, including this unrealized holding loss in other comprehensive income. A credit to other comprehensive income will remove it. The corresponding debit in the entry is to a realized loss.

Answer 501

All of the funds listed are considered special-purpose funds. Enterprises will sometimes set aside cash for special purposes, such as a sinking fund for the retirement of bonds. Some of these funds are placed under the control of an external trustee, whereas others are managed by internal personnel.

Answer 502

Disclosed but not accrued If the possibility that a company will be required to pay a contingent liability is reasonably possible, the liability is not required to accrue the liability. However, the nature of the liability and an estimate of the loss (or range of loss) must be disclosed. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 503

$20,000 The allowance account had a credit balance of $70,000 to begin with. It will be debited, decreased by the $35,000 written off accounts, and would thus have a balance of a $35,000 credit. Since at the end of the year it had a higher credit balance of $55,000, it must have been credited by $20,000 in the bad debt expense adjusting entry, so the bad debt must have been $20,000.

Answer 504

$16,000 Only the current portion of the mortgage is included in current liabilities. In a classified statement of financial position, an entity shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. (FASB ASC 740-10-45-4) The refinanced loan is not included in current liabilities. FASB ASC 470-10-45-13 and 45-14, “Short-Term Obligations Expected to Be Refinanced,” addresses this refinanced loan: Quote Short-term obligations arising from transactions in the normal course of business that are due in customary terms shall be classified as current liabilities. A short-term obligation shall be excluded from current liabilities only if the conditions in the following paragraph are met. Funds obtained on a long-term basis before the balance sheet date would be excluded from current assets if the obligation to be liquidated is excluded from current liabilities. A short-term obligation shall be excluded from current liabilities if the entity intends to refinance the obligation on a long-term basis (see [FASB ASC] 470-10-45-12B) and the intent to refinance the short-term obligation on a long-term basis is supported by an ability to consummate the refinancing demonstrated in either of the following ways: Post-balance-sheet-date issuance of a long-term obligation or equity securities. After the date of an entity's balance sheet but before that balance sheet is issued or is available to be issued (as discussed in [FASB ASC] 855-10-25), a long-term obligation or equity securities have been issued for the purpose of refinancing the short-term obligation on a long-term basis. If equity securities have been issued, the short-term obligation, although excluded from current liabilities, shall not be included in owners' equity. Financing agreement. Before the balance sheet is issued or is available to be issued (as discussed in [FASB ASC] 855-10-25), the entity has entered into a financing agreement that clearly permits the entity to refinance the short-term obligation on a long-term basis on terms that are readily determinable, and all of the following conditions are met: The agreement does not expire within one year (or operating cycle) from the date of the entity's balance sheet and during that period the agreement is not cancelable by the lender or the prospective lender or investor (and obligations incurred under the agreement are not callable during that period) except for violation of a provision with which compliance is objectively determinable or measurable. For purposes of this Subtopic, violation of a provision means failure to meet a condition set forth in the agreement or breach or violation of a provision such as a restrictive covenant, representation, or warranty, whether or not a grace period is allowed or the lender is required to give notice. Financing agreements cancelable for violation of a provision that can be evaluated differently by the parties to the agreement (such as a material adverse change or failure to maintain satisfactory operations) do not comply with this condition. No violation of any provision in the financing agreement exists at the balance sheet date and no available information indicates that a violation has occurred thereafter but before the balance sheet is issued or is available to be issued (as discussed in [FASB ASC] 855-10-25), or, if one exists at the balance sheet date or has occurred thereafter, a waiver has been obtained. The lender or the prospective lender or investor with which the entity has entered into the financing agreement is expected to be financially capable of honoring the agreement. FASB ASC 470-10-45-13 and 45-14

Answer 505

Principal × Interest rate × Time

Answer 506

$23,500 The company's cash-basis consulting revenue is $23,500: Accrual basis consulting fee revenue $25,000 Unearned consulting fee-- cash received with no revenue 2,000 Consulting fees receivable-- revenue with no cash received (3,500) -------- Cash basis revenue $23,500 View referenced content in book. 2135 Statement of Cash Flows

Answer 507

$900,000 Sales should be adjusted for the expected returns (7% + 3% = 10%) only (as an allowance reducing sales.) The sales related to expected exchanges for merchandise of equal or greater value are recognized as revenue in the period in which the original sale is made with no adjustment for the expected exchanges because the entire amount of the original sale is expected to result in an inflow of assets. Sales reported for month of Dec 20X1 $1,000,000 Less expected returns (10% x $1,000,000) -100,000 Net sales for December 20X1 $ 900,000 View referenced content in book. 2251 Revenue Recognition

Answer 508

an encumbrance. Encumbrances represent commitments to purchase goods or services. They are recorded for budgetary control purposes to prevent overexpenditure of appropriations, especially in General and Special Revenue Funds. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 509

2.00 To determine the ending inventory using dollar-value LIFO, a separate price index is used for each layer of inventory. Under dollar-value LIFO, the price index for the 20X1 inventory layer is determined by dividing the 20X1 inventory layer at the current (end of the year) cost of $80,000 by the inventory at the base-year cost of $40,000. The price index used was 2.00.

Answer 510

additional paid-in capital when the subscription is recorded. Journal entry to record subscription for no par common stock with stated value: Dr. Cr. Stock subscriptions receivable XXX Common stock subscribed (for shares subscribed x stated value per share) XX Additional paid-in capital X Note Additional paid-in capital is recorded when the subscription is recorded. View referenced content in book. 2250 Equity

Answer 511

$20,000 Only the equipment that has an alternative use is capitalized and depreciated. The depreciation is $100,000 ÷ 5 = $20,000. The other expenditures should be expensed immediately. Quote Elements of costs shall be identified with research and development activities as follows (see [FASB ASC] 350-50 for guidance related to website development): a. Materials, equipment, and facilities. The costs of materials (whether from the entity's normal inventory or acquired specially for research and development activities) and equipment or facilities that are acquired or constructed for research and development activities and that have alternative future uses (in research and development projects or otherwise) shall be capitalized as tangible assets when acquired or constructed. The cost of such materials consumed in research and development activities and the depreciation of such equipment or facilities used in those activities are research and development costs. However, the costs of materials, equipment, or facilities that are acquired or constructed for a particular research and development project and that have no alternative future uses (in other research and development projects or otherwise) and therefore no separate economic values are research and development costs at the time the costs are incurred. FASB ASC 730-10-25-2 View referenced content in book. 2388 Research and Development Costs

Answer 512

Consolidated financial statements (including the financial information of both corporations) should only be prepared by Star and not by Sun. A company that controls another company must prepare consolidated financial statements. Star owns 100% of Sun and must consolidate the financial statements of the two companies. FASB ASC 805-10-05-2 View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 513

$2,500 Restricted contributions are recognized as revenue when received or promised. The $2,000 restricted for meals is recognized as temporarily restricted revenue. Conditional promises to give are not recognized as revenue until all conditions are met. The $10,000 represents a conditional promise since it may not be used until completion of a new playroom. Therefore, none of the $10,000 is recognized as revenue currently. Exchange transactions represent actions that involve a reciprocal transfer between the organization and the donor. In these situations, the amount given by the donor that is recognized as contribution revenue is reduced by the fair market value of the consideration given by the organization to the donor. The $1,500 received for subscriptions represents a $1,000 payment for the subscription and a $500 unrestricted contribution. Total contribution revenue is: Restricted $2,000 Unrestricted 500 ------ Total revenue $2,500 View referenced content in book. 2511 Statement of Financial Position

Answer 514

$31,000 increase. According to FASB ASC 230-10-45-12, cash inflows from investing activities include receipts from sales of property, plant, and equipment. These receipts include directly related proceeds of insurance settlements. Cash proceeds from "sale" of destroyed building: BV of building $100,000 - $48,000 = $52,000 Less amount of loss 21,000 ------- Cash proceeds $31,000 ======= View referenced content in book. 2135 Statement of Cash Flows

Answer 515

Both Lemu and Young should disclose their relationship. Since Ego can influence both Lemu and Young, and Lemu and Young are under the common management of Ego, Lemu and Young are part of the consolidated entity of Ego. Therefore, that fact should be disclosed in both (subsidiaries) Lemu's and Young's financial statements. FASB ASC 850-10-05-5 FASB ASC 850-10-50-6 View referenced content in book. 2387 Related Parties and Related Party Transactions

Answer 516

Sales revenue The statement of comprehensive income includes all revenues and expenses contained in the income statement/statement of profit and loss. Consequently, it would include sales revenue but would not include investments or distributions by owners or deferred revenue.

Answer 517

Temporary transfers Internal service funds are used to account for in-house business enterprise activities (i.e., to account for the financing of goods or services provided by one government department or agency to other departments or agencies of the government and perhaps to other governments also) on a cost-reimbursement basis. By the very nature of "temporary," the implication is to undo the transfer at some point in time, and it should not impact the net income of the fund. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 518

$540 Correct 20X2 Interest: ``` Loan 1 $ 5,000 x 12% x 10/12 = $500 Loan 2 $15,000 x 12% x 6/12 = 900 Loan 3 $ 8,000 x 12% x 8/12 = 640 ------ Total interest expense $2,040 Recorded to date 1,500 ------ Understatement $ 540 ``` View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 519

Separately to each item When applying the lower of cost or market inventory method, the lowest total inventory amount is obtained when the lower of cost or market determination is made on an item by item basis because the lower value for each item is selected.

Answer 520

Program services: $6,000; Fundraising: $4,000; General services: $0 FASB ASC 958-720-45-29 through 45-37 states that joint costs should be allocated between fundraising and the appropriate program or management and general function if three criteria are met. Otherwise, all of the joint costs should be considered fundraising costs (not one of the answer choices given). The criteria are purpose, audience, and content. The purpose of the joint activity must include accomplishing program or management and general functions, with a specific activity by the audience and a specific activity by the recipient to that end. If the criteria are not met, all the costs are considered fundraising costs. Fundraising activities that are incidental to program or management and general activities would not require all costs to be considered fundraising costs or to be allocated. View referenced content in book. 2512 Statement of Activities *VIDEO EXPLANATION

Answer 521

Goods sold: Yes; Inventory: Yes Goods sold: Yes; Inventory: No Holding gains may be realized or unrealized. Realized holding gains equal the difference between the current cost and the historical cost of assets sold or consumed during the period. Unrealized holding gains equal the difference between the current cost and the historical cost of assets still on hand at the end of the period. Holding gains for cost of goods sold are realized. Holding gains for inventory on hand at the end of the period are unrealized.

Answer 522

$1,900,000 At the entity-wide level Halderman County accounts for the revenue using accrual-based accounting, net of any allowance for doubtful accounts in the period for which the taxes were levied ($2,000,000 × 0.95 = $1,900,000). The availability requirement does not apply. GASB N50.113 View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 523

The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss. In determining basic earnings per share, cumulative preferred dividends reduce the amount available for common shareholders. Consequently, net income should be reduced or net loss increased for the amount of the cumulative dividend. View referenced content in book. 2335 Earnings per Share

Answer 524

$609,000 Eagle received $609,000: Sales price = 600 x $1,000 x 0.99 = $594,000 Accrued interest = 600 x $1,000 x 0.10 x (3/12) = 15,000 -------- Total amount received $609,000 ========

Answer 525

the carrying amount of similar assets of competitors. Quoted market prices in active markets and market prices for similar assets are methods of determining fair value. The carrying amount of similar assets would usually not be known and would not necessarily indicate an impairment loss, even if it were known. Appropriate valuation techniques can be used in determining the fair value of an impaired asset. Examples of such techniques include present value of expected future cash flows, option-pricing models, matrix pricing, option-adjusted spread models, and fundamental analysis. View referenced content in book. 2370 Impairment

Answer 526

$66,000 20X2 index = Inventory at current-year cost / Inventory at base-year cost = $80,000 / $60,000 = 1.333 20X2 layer = 20X2 index x 20X2 layer at base-year cost = 1.333 x $15,000 = $20,000 Dollar value LIFO inventory on December 31, 20X2 = 12/31/X1 valuation + 20X2 layer = $46,000 + $20,000 = $66,000

Answer 527

$0 Resources provided before that period of qualifying activity should be recognized as deferred revenues. Since the amount of qualifying expenditures exceeded the amount of the advance, there would be no deferred revenues reported at year-end. GASB N50.116 View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 528

1. Under IFRS inventory is valued at lower of cost or NRV. GAAP is lower of cost or market. 2. LIFO is NOT allowed at all under IFRS. 3. Reversal of inventory write-down IS allowed under IFRS. This is NOT allowed under GAAP.

Answer 529

The real estate holdings would be included with the other permanently restricted net assets with no other details offered.

Answer 530

Held for disposal A long-lived asset classified as held for sale (disposal) must be measured at the lower of its carrying amount or fair value less cost to sell. A loss should be recognized for any initial or subsequent write-down to fair value less cost to sell. A gain should be recognized for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized for a write-down to fair value less cost to sell. View referenced content in book. 2370 Impairment *VIDEO EXPLANATION Held for disposal - lower of carrying value OR NRV (price - cost to sell) For an asset held for sale - we write it down to NRV or carrying value (if it's lower) but we're not going to change that value. - not depreciated - we can't write it up over our carrying value - but we can write it up to the extent of the impairment that we have previously recognized * Held for disposal falls under a different accounting theory than normal fixed asset for used for impairment - more of a notion of F.V. than it is of recoverability using the asset

Answer 531

$6,750,000 The note does not compound the interest due; the payment here is a simple interest computation. The total interest is the principal multiplied by the rate, multiplied by the total time outstanding: $4,500,000 × 0.10 × 5 years = $2,250,000 Add this to the principal of $4,500,000 to get the total payment of principal and interest: $4,500,000 + $2,250,000 = $6,750,000

Answer 532

General Unless specifically designated for a defined purpose, hospital debt is used for the general benefit of the entity and is secured with a pledge of collateral (such as a building or major equipment) that would have the item classified as a general fund obligation rather than a specific-purpose obligation. Debt for an enterprise fund can only be classified in such a fund if the debt incurred for that enterprise activity is secured solely by the revenues of that fund. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 533

Enterprise The proper accounting and financial reporting for this risk pool depends on whether the sponsoring government is also the predominant participant. If Government C is not the predominant participant, the pool would be treated as a stand-alone pool in substance and thus be accounted for in an enterprise fund and Government C's participation in the pool would be considered incidental. GASB Po20.110 and .115 View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 534

Principal and interest requirements to maturity, presented separately, for each of the five subsequent fiscal years and in 5-year increments thereafter GASB 1500.129 requires disclosure of principal and interest requirements to maturity, presented separately, for each of the five subsequent fiscal years and in 5-year increments thereafter. View referenced content in book. 2425 Notes to Financial Statements

Answer 535

The allocation of the natural resource to inventory. Depletion is debited to inventory and credited to a contra account for the natural resource asset.

Answer 536

A statement of financial condition and a statement of changes in net worth Personal financial statements are financial statements of individuals (or families). They are generally prepared to organize and plan financial affairs. The basic set of personal financial statements includes (1) a statement of financial condition that presents assets and liabilities at estimated current values on an accrual basis where personal net worth is the difference between total assets and liabilities, and (2) a statement of changes in net worth (optional) that shows sources of increases and decreases in net worth.

Answer 537

Asset: $0; Liability: $0 FASB ASC 450-20-25-2 provides for: accrual of a loss if such loss is probable and can be reasonably estimated, and no accrual of gains. FASB ASC 450-20-55-12 indicates: Quote If the underlying cause of the litigation, claim, or assessment is an event occurring before the date of an enterprise's financial statements, the probability of an outcome unfavorable to the enterprise must be assessed to determine whether the condition in paragraph 8(a) is met. Among the factors that should be considered are the nature of the litigation, claim, or assessment, the progress of the case (including progress after the date of the financial statements but before those statements are issued or are available to be issued, with the appropriate date determined in accordance with Statement 165), the opinions or views of legal counsel and other advisers, the experience of the enterprise in similar cases, the experience of other enterprises, and any decision of the enterprise's management as to how the enterprise intends to respond to the lawsuit, claim, or assessment (for example, a decision to contest the case vigorously or a decision to seek an out-of-court settlement). Since the outcome of the appeal cannot be predicted, no asset (gain) should be reported. Since Halsey received a favorable judgment, the liability accrued in 20X1 is no longer appropriate. (And the legal costs have probably already been expensed.) However, the lawsuit and appeal should be disclosed in a footnote. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 538

$205,000 *The question is asking for the NET INCOME amount, not the operating activities amount (which is already given!) Dividends paid are reported as financing activities. The reconciliation of net income and cash provided by operating activities would reflect both of the other items as they are noncash expenses and losses. Net income + Depreciation expense + Goodwill impairment loss = Cash provided by operating activities X + $190,000 + $5,000 = $400,000 X = $205,000

Answer 539

Debt-to-equity ratio decreased to 12%. The information presented is at the end of the year. The option exercise occurred during the year, resulting in these numbers. The ratio after the transaction is: $60,000 ÷ $500,000 = 0.12 (12%)

Answer 540

$43,000 Goods owned by Opal, which are out on consignment, and goods in transit FOB shipping (title to goods passed to Opal upon shipment) are included in year-end inventory. Goods held by Opal on consignment for another entity are not included. Opal's inventory should be reduced by: Markup on merchandise out on consignment: (40% x $40,000) 16,000 Goods held on consignment by Opal: 27,000 ------- Total reduction $43,000 ======= If this question indicated that the markup included was of cost**, you would divide $40,000 by 1.4. However, since the question states that markup is equal to 40% of the selling cost, you multiply.

Answer 541

the segment has 10% or more of the company's long-term debt. An operating segment is a reportable segment if it meets one or more of the following quantitative criteria: - Its revenue (both internal and external) is 10% or more of the combined revenue of all operating segments. - The amount of its reported profit or loss is 10% or more of the greater of the combined reported profit of all operating segments that did not report a loss or the combined reported loss of all operating segments that did report a loss. (In making these determinations, the absolute value of all figures is used.) - Its assets make up 10% or more of the combined assets of all operating segments. View referenced content in book. 2390 Segment Reporting

Answer 542

10% of Iona's income for January 1 to July 31, 20X1, plus 40% of Iona's income for August 1 to December 31, 20X1 When Point increased its ownership in Iona to 40% on August 1, Point became subject to the use of the equity method in accounting for this investment. Stated simply, Point should include its proportional share of Iona's income in Point's 20X1 income statement. This would include: 10% of Iona's income from January 1 to July 31 and 40% of Iona's income for the remainder of the year. (The dividends received in October are not income to Point. Under the equity method, dividends are treated as a form of return of investment.)

Answer 543

recognize certain revenues and expenses in different reporting periods. Both income tax-basis and GAAP-basis financial statements recognize all the financial activities of a company's business. However, it is the timing of this recognition that differs between the two methods. For income tax-basis financial statements, taxable revenues and tax-deductible expenses are recognized in the financial statements in the same period they are reported in the tax return. For financial statements prepared in accordance with GAAP, all revenues and expenses are recognized using the full accrual method of accounting. View referenced content in book. 2160 Special Purpose Frameworks

Answer 544

$0 Neither of these costs meets the definition of research and development cost: - Development of software for internal use is likely excluded from the applicability of FASB ASC 730-10-15-5. - Marketing research is specifically excluded from the definition of research and development by FASB ASC 730-10-15-4. Research and development costs are defined as the “planned research…for new knowledge” and “the translation of research findings…into a…design for a new product or process.” (FASB ASC 730-10-20) View referenced content in book. 2388 Research and Development Costs

Answer 545

Unrestricted net assets $(500), temporarily restricted net assets $0, permanently restricted net assets $70,000 FASB ASC 958-205-45-14 directs that each source of an endowment fund—original amount, gains and loss, and dividends and interest—must be evaluated separately in light of the donor's wishes and relevant law. Unless contravened by law or donor instruction, net losses shall reduce temporarily restricted net assets to the degree any remain from previous gains or investment earnings and then reduce unrestricted net assets. In this case, the donor's wishes indicate that the principal amount should not fall below $70,000. The excess of expenses and losses over revenues would be shown as a reduction in unrestricted net assets. The investments are being managed by an outside firm, so any mid-year investment transactions would not be recorded directly by the not-for-profit. XYZ would record the dividends received and the ending investment value as reported by the management firm. FASB ASC 958-205-45-14, 958-205-45-17, and Glossary View referenced content in book. 2512 Statement of Activities

Answer 546

equal the present value of the minimum lease payments at the beginning of the lease. FASB ASC 840-30-30-1, in a discussion of accounting and reporting by lessees, notes that: Quote The lessee shall measure a capital lease asset and capital lease obligation initially at an amount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term. View referenced content in book. 2380 Leases

Answer 547

the needs of the users of the information. SFAC 8, chapter 1 (“The Objective of General Purpose Financial Reporting”), paragraph OB2, states: Quote The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. These decisions involve buying, selling or holding equity and debt instruments and providing or settling loans and other forms of credit. (Emphasis added) Thus, the objective of financial reporting is based on user needs. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 548

$0 The cruise ship qualifies for interest capitalization. Qualifying assets, per FASB ASC 835-20-15-5, include “assets that are constructed or otherwise produced for an entity's own use (including assets constructed or produced for the entity by others for which deposits or progress payments have been made).” The down payment means that the weighted-average accumulated expenditures each year will be at least $3,000,000. Therefore, all of the interest on the note is capitalized during each year of construction. No interest expense related to the note should be reported in the income statement during the construction period.

Answer 549

Under GAAP, bond issue costs are capitalized and then amortized. Under IFRS, debt issue costs reduce any premium or increase any discount

Answer 550

of the environment in which the subsidiary primarily generates and expends cash. FASB ASC 830-10-45-2 states that the functional currency is the currency of the primary economic environment in which the entity operates or the currency in which most of the subsidiary's transactions are denominated. View referenced content in book. 2361 General Concepts

Answer 551

A shelter for the homeless Health and welfare entities have expense reporting requirements beyond other not-for-profit entities. They are required to report their expenses in natural or object classes such as salaries, interest expense, and depreciation expense in an additional financial statement using a matrix format, which is called the statement of functional expense. Of the answer choices presented in this question, only a homeless shelter is a health and welfare organization subject to this additional reporting requirement. All of the organizations are required to disclose the functional categories of their expenses in the statement of activities or in the notes to the financial statements. The functional categories consist of program services and supporting activities, with supporting activities further classified as management and general, fundraising, and membership development. View referenced content in book. 2514 Statement of Functional Expenses

Answer 552

$40,000 liability The recognition of the $100,000 expense for tax purposes in advance of the point it is recognized under GAAP allows the company to defer payment of taxes on $100,000 of GAAP income for the current year. The tax expense, from a GAAP perspective, is incurred because of current-year income and should be matched to the current year. This means that a current-year tax expense is not paid in the current year, but will be paid in the future. (Next year the company will have to pay tax on $100,000 more income than earned per GAAP.) Therefore, the amount is a deferred tax liability. The GAAP rules for measuring the amount of the liability are designed to report the “best” estimate of the amount of tax that actually will be paid in the future on this income. Therefore, the amount of the liability is measured using enacted tax rates. Because the 40% rate has been enacted into law by year-end, it will be used to measure the deferred tax liability. This makes the balance a $40,000 liability ($100,000 × 40%). View referenced content in book. 2270 Income Taxes

Answer 553

$605,000 Use the basic accounting equation: Beginning balance + Additions - Deductions = Ending balance Escrow accounts liability on January 1, 20X1 $ 700,000 Add: Escrow payments received in 20X1 1,580,000 Net interest credited ($50,000 - 10% of $50,000) 45,000 --------- Subtotal $2,325,000 Less: Real estate taxes paid in 20X1 1,720,000 ---------- Escrow accounts liability on December 31, 20X1 $ 605,000 ==========

Answer 554

Government-wide statement of net position The noncurrent portion of general government capital leases are reported as a general long-term liability. General long-term liabilities should be reported in the governmental activities column of the government-wide statement of net position. They should not be reported as liabilities in governmental funds. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 555

The fair value of the computers on January 1, Year 1, is $14,000. For a lease to be treated as a capital lease and given formal recognition in the financial statements of the lessor and lessee, only one of these criteria must be met. One of the criteria is that the present value of the minimum lease payments (excluding that portion which represents executory costs) equals or exceeds 90% of the excess of the fair value of the leased property to the lessor at the inception of the lease over any related investment tax credit retained by the lessor. The present value of the lease payments ($13,000) exceeds 90% of the fair value of the computers (90% of $14,000 is $12,600). View referenced content in book. 2380 Leases

Answer 556

Decrease in total stockholders' equity and increase in book value per share The entry to record the treasury stock is: Dr. Cr. Treasury stock XXX Cash XXX Treasury stock is a deduction from total stockholders' equity; therefore total stockholders' equity decreases. Since the price paid for the reacquired shares is less than their book value, the book value per share of the remaining outstanding shares must increase. Before the reacquisition of the shares, the book value per share is the same for all shares (i.e., those that will be reacquired and those that will not be). The reduction in total book value of the entity is equal to the total cost of the shares reacquired, which is less than the total book value of those shares. Thus, the percentage reduction in total book value was less than the percentage reduction in the number of outstanding shares. Therefore, the book value per share of the remaining shares must increase. For example, assume that an entity has total stockholders' equity of $1,000,000 and 10,000 shares outstanding. The book value is $1,000,000 ÷ 10,000 shares = $100. If 1,000 shares are reacquired at $60 per share (an amount less than the $100 book value per share), the entry would be: Dr. Cr. Treasury stock (1,000 x $60) 60,000 Cash 60,000 After the reacquisition of the shares, total stockholders' equity is $1,000,000 - $60,000, or $940,000. The book value per share of the remaining outstanding shares is $940,000 ÷ 9,000 outstanding shares, or $104.44. Therefore, the reacquisition of outstanding shares at a price less than their book value per share causes the book value per share of the remaining outstanding shares to increase.

Answer 557

Current liabilities of $30,000, long-term liabilities of $100,000 The accounts payable will be paid with current assets, so it is considered a current liability. The refinanced loan is not included in current liabilities. FASB ASC 470-10-45-13 and 45-14, “Short-Term Obligations Expected to Be Refinanced,” addresses this refinanced loan:

Answer 558

1. A company can issue bonds that also give the bond purchaser stock warrants (stock rights). 2. Both the bonds and the warrants need to be allocated a value a. If the fair value of both the bonds and the warrants is known (this will be given to you in the problem), then you allocate the total bond price in proportion to the fair values b. If only one fair value is known, you assign the fair value to that security and allocate the remaining bond price to the other security c. When allocating a value to the warrants, this is recorded in equity, not debt

Answer 559

FIFO (first in, first out) In an inflationary period, rising prices will cause LIFO cost of goods sold to be highest (from recent purchases) and LIFO ending inventory to be lowest (earliest purchases). FIFO will give opposite results, with a lowest cost of goods sold (from earliest purchases) and highest ending inventory (from recent purchases). Average costing will be in the middle of the other two on both measures. Inventory turnover is the division of cost of goods sold by average inventory. Since FIFO gives the lowest cost of goods sold and a relatively high ending inventory amount going into the denominator average, FIFO will produce the lowest inventory turnover ratio. Lower numerators and higher denominators yield lower ratios. View referenced content in book. 2137 Consolidated and Combined Financial Statements

Answer 560

$71,200 Accrual-basis net income is computed as follows: Beginning Effect on of Year End of Year Accrual Net Income --------- ----------- ------------------ Cash-basis net income $70,000 Accounts payable $ 3,000 $ 1,000 2,000 Unearned revenue 300 500 -200 Wages payable 300 400 -100 Prepaid rent 1,200 1,500 300 Accounts receivable 1,400 600 -800 ------- Accrual net income $71,200 View referenced content in book. 2135 Statement of Cash Flows

Answer 561

Assets, liabilities, and net assets The statement of financial position is the term for the balance sheet reported by private not-for-profit (NFP) entities. Balance sheets report the balances of permanent accounts on a specific date. Therefore, income, expenses, or changes in net asset categories are not reported. The FASB recommends that the financial statements of an NFP focus on the entity as a whole. The NFP account equation uses the term “net assets” for equity. Its accounting equation is assets equal liabilities plus net assets. View referenced content in book. 2501 Not-for-Profit (Nongovernmental) Accounting and …

Answer 562

1. Straight line: (cost - salvage value)/number of years 2. Service hours method: (cost - salvage / total service hours) x hours used 3. Units of output: (cost - salvage/total units) x units produced

Answer 563

Decrease goodwill by $13,000 Under IFRS, impairment is measured at the level of the cash generating unit. Total carrying amount $45,000 Recoverable amount 32,000 ------- Impairment $13,000 View referenced content in book. 2370 Impairment

Answer 564

$9,600 Nongovernmental not-for-profit entities may adopt an accounting policy recognizing a time restriction on assets provided by donors for the entity's use. The residual value of the asset, after annual depreciation, would therefore be recognized as temporarily restricted assets. The annual depreciation is recognized as an expense, shown as a reduction of unrestricted assets. Annual depreciation is also shown as a reduction in the value of the asset. As the asset is reduced in value, the amount of associated temporarily restricted net assets is also reduced. This requires a reduction of temporarily restricted net assets shown as “net assets released from restrictions” on the statement of activities. Therefore, one year's depreciation of the donated vehicle ($12,000 ÷ 5 years, or $2,400) would reduce its residual value to $9,600 ($12,000 - $2,400). FASB ASC 958-360-45-1 and 45-2 View referenced content in book. 2511 Statement of Financial Position

Answer 565

An item is included in gross income for the year in which it is earned. The accrual method for tax purposes is, for the most part, the same as the accrual method required by GAAP. An item is included in gross income for the year in which it is earned. A deduction can be recognized when: all the events have occurred to create the liability and the amount of the liability can be determined with reasonable accuracy.

Answer 566

Teacher salaries Program services expenses are incurred in carrying out the primary mission of an organization, in this case the provision of educational services by teachers. All other expense classifications in this question pertain to supporting services (management, general, or fundraising). View referenced content in book. 2512 Statement of Activities

Answer 567

$425,000 An enterprise fund is a proprietary fund that uses the economic resources measurement focus and accrual accounting. Therefore, the compensated absences long-term liability would be decreased when employees use their promised leave time and increased when employees accrue additional leave. The newly accrued leave would be recognized as an expense of the period. Therefore, analysis of the liability account indicates that $400,000 of compensated absence liability was extinguished during the year and $425,000 of additional liability incurred to explain the ending liability balance of $150,000. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 568

i. Treasury stock is when a company purchase its own stock. It does not represent ownership and it lowers cash and owners’ equity. ii. Treasury stock is a contra- owners’ equity account iii. It is not an asset or an investment, income is never affected, earnings per share is increase, and retained earnings can be decreased but not increased by treasury stock iv. 2 methods of accounting for treasury stock 1. cost method: this debits the treasury stock account at cost a. when treasury stock is purchased, cash is credited and ‘treasury stock’ is credit for the same amount 2. par method: this debits the treasury stock account at par a. when treasury stock is purchased, common stock is reduced pro-rata for the # of treasury shares purchased

Answer 569

a recording error. A recording error must have been made if the balance in the Fund Balance—Reserved for Encumbrances account exceeds the amount of encumbrances. For example, when a purchase order is approved, the estimated amount is recorded in the journal entry: Encumbrances XX Fund Balance--Reserved for Encumbrances XX When the purchase order is filled, the entry is reversed, for the amount estimated, and the actual expenditure is recorded. The actual amount of expenditures may be more or less than the estimated amount, but that would not affect the encumbrance accounts. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 570

FASB ASC 815-10-20 defines credit risk as the risk of changes in the hedged item's fair value attributable to both of the following: Changes in the obligor's creditworthiness Changes in the spread over the benchmark interest rate with respect to the hedged item's credit sector at inception of the hedge As for disclosure of credit risk: Note An entity shall disclose all significant concentrations of credit risk arising from all financial instruments, whether from an individual counterparty or groups of counterparties. An entity must also recognize all of its derivatives as an asset or liability. In short, credit risk for all financial instruments should be disclosed.

Answer 571

Engineering activity required to advance the design of a product to the point that it meets specific functional and economic requirements and is ready for manufacture FASB ASC 730-10-20 defines research and development as follows: Quote Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service or a new process or technique in bringing about a significant improvement to an existing product or process. Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. Costs incurred after commercial production has begun are not research and development costs. FASB ASC 730-10-55-1 provides examples of activities included in research and development: - Laboratory research aimed at discovery of new knowledge - Searching for applications of new research findings or other knowledge - Conceptual formulation and design of possible product or process alternatives - Testing in search for or evaluation of product or process alternatives - Modification of the formulation or design of a product or process - Design, construction, and testing of pre-production prototypes and models - Design of tools, jigs, molds, and dies involving new technology - Design, construction, and operation of a pilot plant that is not of a scale economically feasible to the enterprise for commercial production - Engineering activity required to advance the design of a product to the point that it meets specific functional and economic requirements and is ready for manufacture FASB ASC 730-10-55-2 gives examples of those types of activities that are not research and development activities: - Engineering follow-through in an early phase of commercial production - Quality control during commercial production including routine testing of products - Troubleshooting in connection with breakdowns during commercial production - Routine, ongoing efforts to refine, enrich, or otherwise improve upon the qualities of an existing product - Adaptation of an existing capability to a particular requirement or customer's need as part of a continuing commercial activity - Seasonal or other periodic design changes to existing products - Routine design of tools, jigs, molds, and dies - Activity, including design and construction engineering, related to the construction, relocation, rearrangement, or start-up of facilities or equipment other than (1) pilot plants and (2) facilities or equipment whose sole use is for a particular research and development project - Legal work in connection with patent applications or litigation, and the sale or licensing of patents View referenced content in book. 2388 Research and Development Costs

Answer 572

Gain of $10,500 Trading securities are recognized on the balance sheet at fair value. Unrealized holding gains and losses for trading securities are included in earnings. The sale of the first securities was $104,500 - $92,000 $12,500 The unrealized loss of the second securities was $73,000 - $71,000 (2,000) -------- Net effect on income statement $10,500

Answer 573

Noncapital financing According to GASB 2450.118, footnote 6, cash inflows from noncapital financing activities include cash receipts from grants or subsidies to finance operating deficits. A governmental entity would prepare statements of cash flows for proprietary funds and business-type activities that account for activities whose goal is self-support rather than making a profit. A governmental not-for-profit entity may report as a special-purpose government engaged only in business-type activities. View referenced content in book. 2423 Proprietary Funds Financial Statements

Answer 574

When a bond is issued at its face amount, the issuer receives cash from the buyers of the bonds (investors) and records a liability for the bonds issued. The liability is recorded because the issuer is now liable to pay back the bond. The entry is: Cash xxx Bonds payable xxx

Answer 575

$(2,800) in 20X1 and $(1,200) in 20X2. In 20X1, Larkin should recognize a deferred tax asset and the related deferred tax benefit of $4,000 ($10,000 NOL × 40% tax rate). However, Larkin also must recognize a $1,200 valuation allowance in 20X1. Thus, in 20X1 Larkin should recognize a net tax expense (benefit) of $(4,000) + $1,200 = $(2,800). Note that the recognition of the valuation allowance reduces the net tax benefit recognized in 20X1. The decision in 20X2 that the valuation allowance is no longer necessary means that the valuation allowance should be eliminated, as shown in the following entry in 20X2: Valuation allowance $1,200 Tax expense/benefit - deferred $1,200 Therefore, tax expense (benefit) in 20X2 has a credit balance of $(1,200), indicating a deferred tax benefit. This $(1,200) tax benefit recognized in 20X2 is the change in deferred tax expense/benefit arising from changed circumstances causing a change in judgment as to the amount of valuation. View referenced content in book. 2270 Income Taxes

Answer 576

$30,000 Nonmonetary exchanges are generally recorded at fair value. Value of property exchanged $50,000 Original cost 20,000 ------- Gain on exchange $30,000 View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 577

the U.S. dollar. The objective of translation or remeasurement is to report the subsidiary’s income statement results in the U.S. parent’s currency—which is the U.S. dollar. View referenced content in book. 2367 Translation of Foreign Currency Financial Statements

Answer 578

BALANCE SHEET Evaluation of a company's liquidity would necessitate computation of liquidity ratios such as the current ratio and acid-test ratio. Financial flexibility would be evaluated using debt and equity ratios. The data used in computation of each of the above-mentioned ratios would be obtained from the balance sheet.

Answer 579

Cash basis: $3,200; Accrual basis: $1,700 *This question is asking for NET INCOME! The initial cash investment and the capital account is not included in the calculations. Cash Basis Accrual Basis ---------- ------------- Revenue $3,200 $3,200 Less: Expenses - (1,500) ------ ------- Net Income $3,200 $1,700 ====== =======

Answer 580

Both U.S. GAAP and IFRS allow a separate statement of comprehensive income or a combined statement. Both U.S. GAAP and IFRS (International Financial Reporting Standards) allow either a separate statement of comprehensive income or a combined statement of net income and comprehensive income. Also, operating activities would include interest and dividends under IFRS. View referenced content in book. 2133 Statement of Comprehensive Income

Answer 581

I, II, and III According to FASB ASC 958-450-50-2, noncompliance “with donor-imposed restrictions should be disclosed if there is a reasonable possibility that a material contingent liability has been incurred at the date of the financial statements or there is at least a reasonable possibility that the noncompliance could lead to a material loss of revenue or could cause an entity to be unable to continue as a going concern.” View referenced content in book. 2521 Support, Revenues, and Contributions

Answer 582

$6,000 Inventory on consignment is inventory of the consignor, not of the consignee. The 30% of the inventory that was not sold is Nomar's inventory, not Seabright's inventory. Therefore, Nomar's inventory cost is 30% of $20,000, or $6,000.

Answer 583

All of the answer choices are possible expenses or losses. Computer software costs to be sold, leased, or otherwise marketed are charged to expense as research and development until technological feasibility has been established for the product. Technological feasibility is established on completion of a detailed program design or completion of a working model. After technological feasibility has been established, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized computer software costs are amortized on the basis of current and future revenue for each product with the minimum annual amortization equal to the straight-line amortization over the remaining estimated economic life of the product. An impairment loss would be recognized if the net realizable value was determined to be less than the amortized cost. View referenced content in book. 2391 Software Costs

Answer 584

i. Under GAAP, you cannot reverse impairment of assets. Under IFRS reversal of impairment is permitted if circumstances change- but not on goodwill ii. Under IFRS, an annual review of the estimated useful life and depreciation method is required. Under GAAP this is only required if circumstances change or there is a reason to re-evaluate iii. IFRS uses component depreciation: different components of an asset that has different useful lives should be depreciated by their respective useful lives

Answer 585

375,000 shares issued and 334,000 shares outstanding Effect on Shares Effect on Shares Date Transac Shares Issued Issued Shares os os ------------------------------------------------------------------------------- Before treasury shares -- 125,000 -- 125,000 purchased 12/31/X1 Treas shares -- 125,000 (25,000) 100,000 held 01/01/X2- Treas shares 10/31/X2 distributed -- 125,000 (12,000) 113,000 11/01/X2 3-for-1 split -- 375,000 (36,000) 339,000 12/01/X2 Treas shares purchased -- 375,000 (41,000) 334,000 After 13,000 of the shares are reissued, only the remaining 12,000 (25,000 - 13,000) are treasury stock and the rest of the issued shares (125,000 - 12,000, or 113,000) are outstanding. The stock split affects all outstanding stock. Afterwards, there are 375,000 issued, 36,000 treasury stock (12,000 × 3) and 339,000 outstanding (375,000 - 36,000, or 339,000). The repurchase of the 5,000 shares increases treasury stock to 41,000 (36,000 + 5,000) and decreases outstanding stock to 334,000 (339,000 - 5,000). Issued shares are not affected. Note Only the stock split affects the number of shares issued. Treasury stock transactions affect only the number of shares outstanding. View referenced content in book. 2250 Equity

Answer 586

When Envoy classifies it as held for sale Discontinued operations are presented in a separate section of the income statement between income from continuing operations and income before extraordinary items. The discontinued operations section reflects the results of operations of an entity that is classified for sale or has actually been disposed of. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 587

$610,000 nventory must be valued at lower of cost or market when the utility of the inventory is no longer as great as cost. Market is replacement cost unless: replacement cost is more than net realizable value, in which case market will be net realizable value (the ceiling) or replacement cost is less than net realizable value reduced by a normal profit margin, in which case market is net realizable value minus a normal profit margin (the floor). Total original cost $210,000 + $400,000 = $610,000 Total replacement cost $150,000 + $370,000=$520,000 Total net realizable value $240,000+ $410,000=$650,000 Total net realizable value less profit margin $208,000 + $405,000 = $613,000 Since replacement cost is less than realizable value less profit margin, market is the floor of $613,000. The lower of cost or market is then the cost of $610,000.

Answer 588

$5,000 Neither the bond maturity nor the frequently occurring loss from a hurricane are extraordinary. Neither are unusual and infrequent. The sale of a segment would be a discontinued operation since its disposition represents a strategic shift. Gain on bond maturity $260,000 Hurricane damage (255,000) Income from continuing operations $ 5,000 View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 589

$500,000 When Cliff City approved the purchase orders, the estimated amount is recorded in the (summary) journal entry: Encumbrances 5,000,000 Fund Balance--Reserved for Encumbrances 5,000,000 When the portion of the purchase orders were filled, the entry was reversed for the estimated cost amount of the portion of the purchase orders filled: Fund Balance--Reserved for Encumbrances 4,500,000 Encumbrances 4,500,000 The actual amount of expenditures may be more or less than the estimated amount and the amount paid may differ from the encumbered amount. However, that does not affect the encumbrance or the Fund Balance—Reserved for Encumbrances amounts. Therefore, the amount outstanding at June 30, 20X1, was $500,000. In the closing process, the outstanding Encumbrances and Fund Balance—Reserved for Encumbrances of $500,000 would be removed, and $500,000 of the post-closing Fund Balance would be displayed as “committed” or “assigned.” View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 590

$100,000 Cash collected from cash sales ($40,000 - 2,000) =$38,000 Cash collected from credit sales: Net credit sales for 20X1 ($60,000 - 3,000) $57,000 January 1, 20X1, accounts receivable 20,000 ------- Subtotal $77,000 Less December 31, 20X1, accounts receivable 15,000 62,000 ------- -------- Cash basis revenue for 20X1 $100,000 ======== View referenced content in book. 2135 Statement of Cash Flows

Answer 591

Loss on an uncollectible trade account receivable as a result of a customer's deteriorating financial condition leading to bankruptcy after the balance sheet date but before the financial statements are issued or are available to be issued The correct answer is “loss on an uncollectible trade account receivable as a result of a customer's deteriorating financial condition leading to bankruptcy after the balance sheet date but before the financial statements are issued or are available to be issued.” An entity must recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet. The other answer choices are incorrect because an entity must not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date but before financial statements are issued or are available to be issued. View referenced content in book. 2392 Subsequent Events

Answer 592

Revenue of $5 million that should have been deferred was recorded in the previous year as earned. Prior period adjustments to retained earnings are only reported for errors in prior-year financial statements that resulted in an incorrect balance in retained earnings at the beginning of the year. These adjustments are not required for errors that affect the current year because these errors do not affect prior-year balances, and current-year income should be corrected if current-year errors are detected before the financial statements are published. Prior-year errors in reporting other comprehensive income do not affect the beginning balance of retained earnings. Rather, they result in erroneous balances in accumulated other comprehensive income. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 593

$409,750 The appropriations included in the adopted budget constitute the maximum authorized for expenditure during the period, and cannot legally be exceeded unless subsequently amended by the legislative body. In this question, the appropriation was established at $745,000; expenditures incurred to date were $298,000 and $37,250 was encumbered. Only $409,750 remains available for spending. The vouchers payable represent past expenditures waiting only for cash payment. Appropriation $745,000 Expenditures (298,000) Encumbrances (37,250) --------- Funds available $409,750 ========= GASB 1700.105 and .127 View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 594

i. Interest paid can be operating OR financing under IFRS. It is only operating under GAAP ii. Interest received can be operating OR investing under IFRS, it is only operating under GAAP iii. Dividends received can be operating OR *investing under IFRS and GAAP iv. Dividends paid can be operating OR financing under IFRS, it is only financing under GAAP

Answer 595

In note disclosure only If Date Co. wins the lawsuit, the award paid to Date will be a gain. FASB ASC 450-30-50-1 provides that gain contingencies should not be reflected in the accounts (i.e., accrued) but that adequate disclosure should be made in notes to the financial statements. A loss contingency would be reported by accrual for the most likely award or for the lowest amount of the range of possible awards if no amount can be considered most likely. (FASB ASC 450-20-25-4) View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 596

$3,960 Expected redemption = .60 x 110,000 = 66,000 coupons Toys required = 66,000 coupons / 5 = 13,200 toys Cost of toys = 13,200 x $.80 = $10,560 Less payment to be received = 13,200 x $.50 = 6,600 ------- Estimated liability for coupons $ 3,960

Answer 597

Impact on net income: $2,000 loss; Other comprehensive income (reclassification): $5,000 gain; Comprehensive income: $3,000 gain The relationship of net income and comprehensive income can be shown as follows: Net Income + Other comprehensive income = Comprehensive income Ignoring any tax effects, these transactions and events affect comprehensive income as follows: Net income: Realized loss ($48,000 - $50,000) $(2,000) Other comprehensive income: Reclassification adjustment gain 5,000 -------- Comprehensive income $ 3,000 ======== A realized loss of $2,000 is recognized because investments costing $50,000 were sold for $48,000. That realized loss is included in net income. The $5,000 reclassification gain is required to offset the previously recognized unrealized loss ($50,000 - $45,000). FASB ASC 220-10-20 defines “other comprehensive income” as “all revenues, expenses, gains, and losses that under generally accepted accounting principles (GAAP) are included in comprehensive income but excluded from net income.” Currently, existing GAAP specifies that unrealized holding gains and losses on available-for-sale securities should be reported as direct charges or credits to equity. Thus, these gains and losses constitute other comprehensive income. To prevent including certain items in the determination of comprehensive income twice, reclassification adjustments are required for a transaction or event that has been included as a component of other comprehensive income and later becomes a component of net income. Impact Impact Years Before Year of Sale Sale ------------ -------- Net income -0- $(2,000) Other comprehensive income: Unrealized gain/(loss) $(5,000) Reclassification -0- 5,000 -------- -------- Comprehensive in $(5,000) $ 3,000 ======== ======== FASB ASC 220-10-20

Answer 598

restricted as to use by the donor, grantor, or other source of the resources. Donor and grantor restrictions may be time restrictions or use restrictions. Restrictions that can be satisfied by the passage of time or by using the resources for a certain purpose (to finance expenses of a specific program or to construct a building, for example) are called temporary restrictions. Restrictions that cannot be fulfilled by either the passage of time or actions of the organization are known as permanent restrictions. View referenced content in book. 2522 Types of Restrictions on Resources

Answer 599

economic entity. FASB ASC 810-10-10-1 summarizes the purpose of consolidated statements as follows: Quote The purpose of consolidated statements is to present…the results of operations and the financial position of a parent and all its subsidiaries essentially as if the consolidated group were a single economic entity. Thus, consolidated statements reflect the economic entity concept. FASB ASC 810-10-10-1 View referenced content in book. 2321 Introduction and Overview

Answer 600

$150,000 The receivable would equal the difference between the amount of the advance and the revenues of $400,000 (the amount spent on qualifying expenditures). Revenues $400,000 Less advance received (250,000) --------- Intergovernmental receivable $150,000 ========= View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 601

Effective interest = Carrying value of the bonds × Effective interest rate × Time period How to calculate effective interest rate: Effective interest / (Carrying value x Time Period)

Answer 602

Cost - accumulated depreciation = Carrying value

Answer 603

10 - If an operating segment becomes reportable because it meets one or more of the quantitative criteria in the current period but did not meet those criteria previously, prior-period segment information that is presented for comparative purposes should be restated, unless it is not practicable to do so. - Information about operating segments that do not meet any of the quantitative criteria, and that are not combined with other operating segments to create reportable segments, are combined and presented in an “all other” category. - As a practical limit, more than 10 reportable segments is a recommended level at which management should consider whether its presentation of segment information has become overly detailed. View referenced content in book. 2390 Segment Reporting

Answer 604

$88,000 Franchise fee revenue is recognized when all material services or conditions relating to the sale have been substantially performed or satisfied by the franchisor. In this case, the services have not been performed. Consequently, the initial fee is still unearned. Paid at signing $40,000 Present value of note + 48,000 Initial and unearned franchise fee $88,000 View referenced content in book. 2251 Revenue Recognition

Answer 605

$800,000 Computer software costs to be sold, leased, or otherwise marketed are charged to expense as research and development until technological feasibility has been established for the product. Technological feasibility is established on completion of a detailed program design or completion of a working model. Since a technological feasibility was established on August 31, all of the costs up to that date (8 × $100,000) would be expensed as research and development expenses. View referenced content in book. 2391 Software Costs

Answer 606

Included in net income and disclosed in the notes to interim financial statements Discontinued operations and extraordinary items should be reported separately, net-of-tax, on the income statement for the interim period. Disclosure in the notes to the interim statements is required. View referenced content in book. 2375 Interim Financial Reporting

Answer 607

Current year, $850,000; Previous year, $(600,000) The sale of a division would be a discontinued operation since its disposition represents a strategic shift. The discontinued operation would be recorded in the year the sale occurred. Previous Current Net loss from continuing op $(600,000) $(50,000) Gain on sale of discontinued op 900,000 Net income $(600,000) $850,000 View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 608

Cash includes cash in the checking account and the petty cash. Cash equivalents are short-term, highly liquid investments. They must be convertible to known amounts of cash and generally have maturities when purchased of not more than three months. The commercial paper qualifies as a cash equivalent because it is highly liquid and matures within three months of the balance sheet date. The sinking fund would be restricted cash, and the postdated check is still a receivable.

Answer 609

$4,500 Deferred income tax liability = Temporary differences x Tax rate = ($25,000 - $10,000) x 0.30 = $15,000 x 0.30 = $4,500 FASB ASC 740-10-45-6 states, “For a particular tax-paying component of an enterprise and within a particular tax jurisdiction, (a) all current deferred tax liabilities and assets shall be offset and presented as a single amount, and (b) all noncurrent deferred tax liabilities and assets shall be offset and presented as a single amount. However, an enterprise shall not offset deferred tax liabilities and assets attributable to different tax-paying components of the enterprise or to different tax jurisdictions.” View referenced content in book. 2270 Income Taxes

Answer 610

amortized cost. Kale Co. should account for the bonds at amortized cost per FASB ASC 320-10, Amortized cost is acquisition cost adjusted for any unamortized premium or discount. FASB ASC 320-10-25-1 states, “Investments in debt securities shall be classified as held-to-maturity only if the reporting entity has the positive intent and ability to hold those securities to maturity.” Quote Trading securities. Investments in debt securities that are classified as trading and equity securities that have readily determinable fair values that are classified as trading shall be measured subsequently at fair value in the statement of financial position. Unrealized holding gains and losses for trading securities shall be included in earnings. FASB ASC 320-10-35-1(a)

Answer 611

$1,680,000 CONTRIBUTED CAPITAL: Common stock $ 600,000 Additional paid-in capital 800,000 ---------- Total contributed capital $1,400,000 Retained E ($150k appropriated) 350,000 ---------- Subtotal $1,750,000 Less accumulated comprehensive income (unrealized loss on available-for-sale marketable equity securities) $20,000 Less Treasury stock at cost 50,000 70,000 ------- ---------- Total stockholders' equity $1,680,000 ========== Note Only the unrealized loss from the marketable securities classified as available-for-sale is included in shareholder's equity as a component of accumulated comprehensive income. The net unrealized loss on marketable trading securities is included in income.

Answer 612

With recourse means the transferor bears the costs of bad debt- so if customers don’t pay the transferor is the one losing that money Were the sales made on a with recourse basis, one additional requirement, the estimation and recognition of a RECOURSE LIABILITY as an additional credit to the transaction, would be necessary, with the additional credit causing an increase to the loss on sale. "If the maker defaults and ABC has to pay the note, ABC would record the ff entry on the maturity date of the note: Dishonored Notes Receivable 110,000 Cash 110,000

Answer 613

Treasure stock is a corporation's own previously issued and outstanding stock that is reacquired but not retired. After being reacquired, the shares are still considered to be issued but not outstanding. TWO METHODS: COST METHOD - refers to a single transaction concept - views the requisition of the outstanding shares and their subsequent sale as a single transaction - treasure stock is carried at cost pending the outcome of the subsequent sale as a single transaction PAR VALUE METHOD - "two transactions" concept - views the reacquisition of the shares and their subsequent sale as two separate transactions - the reacquired shares are accounted for in much the same manner as retired shares - the subsequent shares is accounted for essentially as if the shares were unissued shares

Answer 614

19,000. Total capital of new partnership ($60,000 + $20,000 + $15,000) $95,000 Times capital credit percentage to Grant x .20 ------- Equals capital credit allowed to Grant $19,000 ======= Note Grant is given a “bonus” equal to $4,000, the excess of his $19,000 capital credit over the $15,000 fair value of land invested.

Answer 615

As a liability of $100,000 This temporary difference will result in additional taxes being paid in future years so the related tax effect will be a liability. Amount of liability = Temporary difference x Future enacted tax rate = $250,000 x 0.40 = $100,000 View referenced content in book. 2270 Income Taxes

Answer 616

state law requires prior-year comparative data for any individual fund receiving a prorated share of state tax collections. As a nonmajor fund, the financial information for the Road Tax fund is combined with other nonmajor funds in the basic financial statements. Individual fund financial statements would be required to demonstrate compliance with state law in this case. Whether shown in RSI or as part of the basic financial statements, the budgetary data would not otherwise show the details of individual, nonmajor funds. In combining nonmajor funds, it does not matter if only one of the governmental funds was a special revenue fund. Because the focus of fund financial reporting is on major funds, nonmajor funds should be aggregated and do not need to be shown individually. View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 617

disclosure. One of the purposes of financial statements is to provide information to help users predict the reporting entity's future cash flows and results of operations. This assessment depends, to some degree, on the users' knowledge and assessment of the risks and uncertainties involving the entity's operations. Disclosure of these risks and uncertainties is a critical component of the user's process of evaluating these variables. FASB ASC 275-10 addresses the disclosures required to facilitate a user's evaluation of an entity's risks and uncertainties. FASB ASC 275-10-05-1 View referenced content in book. 2389 Risks and Uncertainties

Answer 618

The plan should be accounted for as a current expense and accrued liability each year of an employee's service life. A deferred compensation plan which is not the equivalent of a pension plan should be reported in accordance with FASB ASC 710-10-25-11. Davis Co. would accrue a liability of not less than the present value of the estimated future payments. View referenced content in book. 2262 Deferred Compensation Arrangements

Answer 619

`a gain included in net income before extraordinary items. According to terms of the purchase, a liability to make a future payment in francs originated when the sale occurred (i.e., title to the goods passed to Velec Co.) on December 15, not when the order was placed on October 1 or when the payment was due on January 15. This purchase is a foreign currency transaction because it is denominated in a foreign currency. At December 31, 20X1, the liability from this transaction is remeasured at the exchange rate (spot rate) as of that date. The exchange rate fluctuation from December 15 (20 francs per $1) to December 31 (21 francs per $1) is then recorded in net income before extraordinary items. (Remember, gains or losses from foreign currency transactions are specifically excluded from extraordinary item treatment by FASB ASC 830.) Assume that at this time Velec agreed to pay 20,000 francs. A dollar settlement at this time would require $1,000 (20,000 ÷ 20 francs per $1 = $1,000). On December 31, only $952.38 (20,000 ÷ 21 francs per $1 = $952.38) would be required for settlement. The difference, a gain, would be included in 20X1 net income. View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward …

Answer 620

$600,000 (cash collections) and $240,000 (realized gross profit). 20X1 Installment sales = 20X1 Deferred gross profit --------------------- Gross profit margin = $560,000 / .40 = $1,400,000 Cash collections in 20X1 = 20X1 Sales - 12/31/X1 Receivables = $1,400,000 - $800,000 = $600,000 20X1 Realized gross profit = Gross profit margin x Cash collections = 40% x 600,000 = $240,000 Proof: End receivables x Gross profit on sales = End deferred gross profit (after adjustment) $800,000 x .40 = $320,000 Deferred gross profit - Deferred gross profit (before adjustment) (after adjustment) = Adjustment $560,000 - $320,000 = $240,000 = Realized GP View referenced content in book. 2251 Revenue Recognition

Answer 621

Permanent funds Special revenue funds are classified as governmental funds. The other governmental funds are the general fund, capital projects funds, debt service funds and permanent funds. Governmental funds use the modified accrual basis of accounting. Enterprise funds are a type of proprietary fund and investment and pension trust funds are types of fiduciary funds. They use the accrual basis of accounting. GASB 1300.103–.108 View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 622

$3.56 (20X2) and $3.50 (20X1) Net income - Dividend to preferred stock Basic EPS = ------------------------------------------------- Weighted-average no. of common shares outstanding 20X2: Weighted-average no. shares = ((Beginning shares x Time) + (Treasury shares x Time)) = ((100,000 x 12/12) + (20,000 x 9/12)) = (100,000 + 15,000) = 115,000 shares Basic EPS = $410,000 / 115,000 shares = $3.56/share 20X1: Weighted-average no. shares = (100,000 x 12/12) = 100,000 shares EPS = $350,000 / 100,000 shares = $3.50/share View referenced content in book. 2335 Earnings per Share

Answer 623

$40,000 For qualifying assets being constructed for an entity's own use, FASB ASC 835-20-30-2 requires interest cost to be capitalized equal to the less of (a) the avoidable interest (based on the weighted-average amount of accumulated expenditures), or (b) the actual interest cost incurred. Cole's avoidable interest is given to be $40,000. Since the $70,000 actual interest cost incurred ($50,000 + $20,000) is greater than the avoidable interest of $40,000, the amount of interest that Cole can capitalize is $40,000.

Answer 624

$530,000 Total revenues, gain, and other support will include the following: Net patient service revenue $500,000 Less Charity care 100,000 $400,000 -------- Other revenue 80,000 Net assets released from restrictions used for operations 50,000 -------- Total $530,000 ======== Charity care does not qualify for recognition as revenues in the financial statements. These are services provided without expectation of payment. The bad debt expense would not affect the patient service revenue reported by a private not-for-profit hospital. In contrast, uncollectible patient accounts would reduce patient services revenues reported by governmental hospitals. FASB ASC 954-605-25-10 View referenced content in book. 2512 Statement of Activities

Answer 625

Total Revenue Less: Sales Return Allowances Discounts

Answer 626

All of the items listed are included on a statement of changes in equity. A. statement of changes in stockholders' equity includes the following: Column headings that identify individual stockholders' equity accounts Events changing stockholders' equity accounts The body of the statement presented in terms of the dollar impact of various transactions and events The impact of the transactions on the number of shares of stock, if any Ending balances that tie to the items presented in the stockholders' equity section of the balance sheet on the same dates

Answer 627

II only FASB ASC 360-10-35-17 establishes a recoverability test to determine when an impairment loss is to be recognized. If the undiscounted sum of estimated future cash flows from an asset or asset group is less that the asset's or asset group's book value, an impairment loss may need to be recognized. The impairment loss is the difference between the book value of the asset(s) and its (their) fair value. Note that there is not an impairment loss if the fair value exceeds the carrying amount. View referenced content in book. 2370 Impairment

Answer 628

$450,000 The costs incurred by the not-for-profit entity in carrying out its primary mission are considered program expenses. As a museum, both education and research can be considered primary to the Fenn Museum's mission. Supporting services expenses are separated into two categories: Management and general Fundraising View referenced content in book. 2524 Expenses, Including Depreciation and Functional …

Answer 629

Fair value at the date of contribution Noncash assets invested in a partnership should be recorded at their fair value at time of investment. Failure to record those asset investments at fair value would cause the difference (between recorded value and fair value) to be subject to allocation to all partners in the profit and loss ratio as these assets are used or sold.

Answer 630

overlapping personnel. In applying these criteria, operating segments may be combined in order to meet these criteria if they have the following similar characteristics: - Nature of products and services - Nature of the production processes - Type or class of customer - Distribution methods for products or services - Nature of regulatory environment (if appropriate) View referenced content in book. 2390 Segment Reporting

Answer 631

a single amount equal to the estimated current value of the business interest. FASB ASC 274-10-45-9, Accounting and Financial Reporting for Personal Financial Statements, contains guidelines for preparation of personal statements of financial condition. For business interests that constitute a large part of a person's total assets: Quote The estimated current value of an investment…should be shown in one amount as an investment....

Answer 632

$0 Encumbrances resulting from the issuance of purchase orders or approval of contracts are not reported as liabilities since neither the goods nor services have been received. A liability is recorded on the books only when the goods/services are received. However, depending on the legal restrictions observed by the Community College, the encumbrances may be shown as committed or assigned fund balance. As a public institution, Community College engages in governmental and business-type activities and follows the full governmental model. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 633

$500,000 FASB ASC 840-40-55-49 provides that a sale/leaseback is to be treated as an operating or capital lease, depending on whether the capital lease criteria in FASB ASC 840-10 are met. Further: “Any profit or loss on the sale shall be deferred and amortized in proportion to the amortization of the leased asset if a capital lease…” Applying this: The lease term of Plane 1 is 80% (8/10) of its remaining useful life. Since this exceeds the 75% criterion, Plane 1 involves a capital lease. Plane 2 is not a capital lease because it is leased for only 8.6% (3/35) of its useful life. (And by observation the present value, for 3 years, of the $200,000 annual payment is not 90% of the $1,000,000 fair value.) The deferred gain reported for Plane 1 is $500,000 ($600,000 sales price less $100,000 carrying value). As the cited FASB ASC sections state, there are circumstances when operating lease gain also can be deferred. Since a discount rate is not specified in the problem, the needed present values cannot be ascertained, so $500,000 is the best answer choice. View referenced content in book. 2380 Leases

Answer 634

Regulation S-K Regulation S-K contains the instructions for filing the nonfinancial statement forms required by the SEC. Regulation S-X contains information regarding the financial statements that must be submitted to the SEC. There are no such documents as the “SEC Form Guide” or “Regulation 10-K-I (Instructions).”

Answer 635

$140,000 Other comprehensive income is computed as follows: Sales revenue $800,000 Cost of goods sold 600,000 -------- Gross profit $200,000 Operating expenses 90,000 -------- Net income $110,000 Unrealized holding gain 30,000 -------- Comprehensive income $140,000

Answer 636

Increase in assets and increase in liabilities Donors often use one not-for-profit as an intermediary to forward donations to the ultimate recipient. If the intermediary has the right to redirect the resources, then it would recognize temporarily restricted support or revenue. In this case, Belle has been given specific instructions to forward the resources to another entity and has been given no discretion. It is acting as an agent. An agency transaction does not affect the revenue account, only assets and liabilities. “Deferred revenue” and “fund balance” are governmental terms not used for a private not-for-profit. View referenced content in book. 2521 Support, Revenues, and Contributions

Answer 637

$900 January sales tax was paid in February since tax was over $500 ($600). $10,600 / 1.06 = $10,000 sales $10,000 x .06 = $600 tax February sales = Credit to sales / (1.00 + Tax rate) = $7,420 / 1.06 = $7,000 ``` February sales tax = $7,000 x .06 = $420 OR = $7,420 - $7,000 = $420 ``` March sales = Credit to sales / (1.00 + Tax rate) = $8,480 / 1.06 = $8,000 ``` March sales tax = $8,000 x .06 = $480 OR = $8,480 - $8,000 = $480 ``` Sales tax payable on 3/31/X1 = $420 + $480 = $900 Note Sales tax was not paid for February sales on March 20 because the amount owed at that time ($420) was less than $500.

Answer 638

Foreign currency translation adjustments Foreign currency translation adjustments are an example of accumulated other comprehensive income. The transfer in the answer choice “Unrealized holding gains and losses that result from a debt security being transferred into the held-to-maturity category from the available-for-sale category” is backwards from what is shown in other comprehensive income. Transfers from held-to-maturity into available-for-sale are shown in other comprehensive income.

Answer 639

$300,000 reported as a loss from discontinued operations The operating loss and the loss on the sale must be reported as the loss for the discontinued operation. Revenues $ 500,000 Expenses (800,000) Loss from discontinued operations $(300,000) View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 640

$75,000 FASB ASC 740-10-45-4 provides that: “Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting.” A deferred tax liability is considered to be related to a liability if reduction of the liability will cause the temporary difference to reverse. Note Based on this requirement, Thorn should report a noncurrent deferred tax liability of $75,000 at December 31, 20X1. (Note: The $10,000 reversal expected in 20X2 would affect the December 31, 20X2, noncurrent deferred tax liability amount.) View referenced content in book. 2270 Income Taxes

Answer 641

An asset and revenue for $10,000 is recognized. UVW has earned advertising revenue. The company has, in substance, prepaid for travel and lodging services. Both an asset and revenues should be recognized in its June 30 financial statements. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 642

Increase in unrestricted revenues, gains, and other support The conversion of the funds to the building causes a move from temporarily restricted to unrestricted support, is reported on the statement of activities as “net assets released from restriction,” and is included in “total revenues, gains, and other support.” FASB ASC 958-205-55-13 View referenced content in book. 2512 Statement of Activities

Answer 643

Preferred stock: $25,000; Additional paid-in capital: $(2,500); Retained earnings: $0 The entry to record the redemption and retirement of the preferred stock: Dr. Cr. 11% Preferred stock (.25 x 2,000 x $50) 25,000 Additional paid-in capital from preferred stock ($25,000 - $22,500) 2,500 Cash 22,500 Note Retained earnings would be debited if the balance in additional paid-in capital from preferred stock was less than the amount by which the cash paid to redeem the stock exceeded the par value.

Answer 644

A freezer costing $150,000 for storing food for the soup kitchen The freezer is a long-lived, tangible asset currently being used in operations. It also has a limited life. Assets not being used in operations and land are not depreciated. The linens are not material enough in amount and, if used daily, may not have a useful life in excess of a year or slightly more. FASB ASC 958-360-35-1 provides that a not-for-profit entity “shall recognize the cost of using up the future economic benefits or service potentials of its long-lived tangible assets—depreciation.” View referenced content in book. 2524 Expenses, Including Depreciation and Functional …

Answer 645

$273,000 Loss from sale of other assets = $625,000 - $500,000 = $125,000 Allocation of loss to Alfa = .60 x $125,000 = $ 75,000 Alfa's new capital balance = $348,000 - $75,000 = $273,000 Alfa should receive $273,000 of cash. Proof: Pre-liquidation cash $ 45,000 Add: Liquidation proceeds 500,000 -------- Subtotal 545,000 Payment of liabilities 120,000 -------- Remaining cash 425,000 Payment to Beda $232,000 - $30,000 - .40($125,000) 152,000 -------- Payment to Alfa $273,000

Answer 646

An underfunded pension liability of $50,000 FASB ASC 715-20-45-3 requires that an entity report on its balance sheet the underfunded or overfunded pension plan. In the case of a pension plan, the underfunded pension liability represents the excess of the projected benefit obligation over the fair value of the plan assets. Thus, Payne should report a $50,000 underfunded pension liability for the excess of the $140,000 projected benefit obligation over the $90,000 fair value of the plan assets. View referenced content in book. 2264 Retirement Benefits

Answer 647

$37,000 Cash proceeds from the sale of an investment are a cash inflow and *CASH PAID TO PURCHASE STOCK is a cash outflow. Both are investing activities. $75,000 - $38,000 = $37,000 ``` Investing activities CASH INFLOWS: -From collecting principal on loans -From selling investments in securities -From selling (discounting) of notes -From selling long-term productive assets CASH OUTFLOWS: -To make loans to others -To purchase long-term productive assets -To purchase investments in securities ```

Answer 648

Entirely in the quarter that the loss occurs Extraordinary gains and losses are reported in the quarter in which the gain or loss occurs. FASB ASC 270-10-45-11A states: Quote Effects of disposals of a component of an entity and unusual and infrequently occurring transactions and events that are material with respect to the operating results of the interim period but that are not designated as extraordinary items in the interim statements shall be reported separately. Extraordinary items, gains or losses from disposal of a component of an entity, and unusual or infrequently occurring items shall not be prorated over the balance of the fiscal year. View referenced content in book. 2375 Interim Financial Reporting

Answer 649

Contributions from other identified sources (for example, state subsidies or federal grants) The statement of changes in net assets available for benefits of an employee benefit plan must include the following: The change in fair value (or estimated fair value) of each significant type of investment, including participant-directed and self-directed investments held in brokerage accounts. Gains and losses from investments sold need not be segregated from unrealized gains and losses relating to investments held at year-end. Realized gains and losses on investments that were both bought and sold during the period should be included. This information may be presented in the accompanying footnotes. Investment income, exclusive of changes in fair value described above Contributions from employers, segregated between cash and noncash contributions (a noncash contribution shall be recorded at fair value; the nature of noncash contributions shall be described either parenthetically or in a note) Contributions from participants, including those transmitted by the sponsor Contributions from other identified sources (for example, state subsidies or federal grants) Benefits paid to participants (this would decrease the statement) Payments to insurance entities to purchase contracts that are excluded from plan assets (this would decrease the statement) Administrative expenses (this would decrease the statement)

Answer 650

$6,000,000 The proceeds from the sale of revenue bonds and the capital contributed by subdividers are classified as capital and related financing activities: $5,000,000 + $1,000,000 = $6,000,000. The cash received from customers is recorded as part of operating revenues. View referenced content in book. 2423 Proprietary Funds Financial Statements

Answer 651

$73,500 At December 31, 20X1, the total lease liability was $76,364 (the sum of the current portion of $1,364 and the long-term portion of $75,000). The $9,000 payment made on January 2, 20X2, was for the $1,364 current portion and the interest of $7,636 ($9,000 - $1,364). After the January 2, 20X2, payment, the total lease liability is $75,000. Interest for 20X2 is $7,500 ($75,000 × 10% implicit rate). Therefore, the reduction in principal that will be included in the January 2, 20X3, payment will be $1,500, which is the $9,000 payment minus $7,500 interest for 20X2. This $1,500 represents the current portion of the lease liability. Therefore, the long-term portion of the liability at December 31, 20X2, is the $75,000 total lease liability less the $1,500 current portion, or $73,500. View referenced content in book. 2380 Leases

Answer 652

Internal service fund The internal service fund, a proprietary fund, is the only answer choice in which capital assets and related depreciation are recorded. The other answer choices are governmental funds in which neither capital assets nor depreciation expense are recorded. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 653

Net income / Preferred Stock Dividends It is the relationship to earnings available to pay preferred stock dividends.

Answer 654

II only FASB ASC 840-40-25-4 provides that if the lease meets one of the criteria for capital lease treatment (it does—the lease transfers title to the seller-lessee at end of lease term), then any gain on the sale should be deferred and amortized. Again, the key element is the retention of the right to all remaining use of the property. Transfer of risks of ownership is not one of the four criteria for capital lease treatment. View referenced content in book. 2380 Leases

Answer 655

capitalized and depreciated over 15 years. The leasehold improvements will benefit a number of years and therefore must be capitalized and depreciated over the periods benefited. The improvements are expected to have a useful life of 15 years and should be depreciated over that period.

Answer 656

$75,000 The unrestricted cash gift and the gift restricted for scholarships should be reported as contribution revenue currently. The naming of the college as a beneficiary in a will can be changed and is dependent upon future uncertainties. It should not be recognized at this time. View referenced content in book. 2450 Accounting and Reporting for Governmental Not-for-…

Answer 657

based on the tax rates currently enacted for the future periods in which the temporary differences are expected to reverse. The asset/liability method bases the accounting for deferred income taxes on the tax rates currently enacted for the future periods in which the temporary differences are expected to reverse. Thus, from the standpoint of the tax rates used, the deferred tax balance represents the amount of income tax expected to be paid or refunded when the temporary differences reverse. View referenced content in book. 2270 Income Taxes

Answer 658

fair value, with holding gains and losses included in earnings. FASB ASC 320-10-20 defines trading securities as follows: Quote Securities that are bought and held principally for the purpose of selling them in the near term and therefore held for only a short period of time. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price. In summary, trading securities should be carried at fair value with holding gains and losses included in earnings.

Answer 659

The building modification costs and the production line rearrangement costs should both be capitalized. The general rule here is that if an expenditure benefits periods other than the current period, the expenditure should be capitalized and charged (depreciated) to the present and all future periods benefited. It would appear that this treatment should be applied to both the building modification costs and the production line rearrangement costs since the expenditures involved more than simple routine maintenance. Both expenditures are extraordinary repairs or betterments—large dollar amounts, non-recurring in nature, that increase the utility (efficiency) of the asset by decreasing production costs.

Answer 660

replacement cost. At the end of a fiscal year, inventory must be assessed for a loss of value, the lower of cost or market rule. Market value is defined as replacement cost (what you could repurchase the inventory for), so long as replacement cost is less than net realizable value (what you can sell the item for) and above net realizable value minus a normal profit margin. Here replacement cost qualifies (it is between net realizable value and net realizable value minus a normal profit margin) as the designated market. Since original cost is above replacement cost (market), market is lower than cost, and we carry the inventory at market or replacement cost.

Answer 661

1. TT - title transfer, debit asset today! 2. BPO - Bargain Purchase Option If you can buy the asset for less than the expected fair value at the end of the lease, debit asset today! 3. 75% - If the lease term is equal to 75% of its useful life. You're getting the most economic benefit, debit asset today! 4. 90% - If the PV of the lease payments is greater than or equal to 90% of the cash price of the leased asset. PV is what you're gonna pay over the life of the lease is > = to the market value of the lease at its inception, then you're gonna pay most of the asset, debit asset today! If all these cases were true, that means the lessee will capitalize the asset Dr. Leased Asset Cr. Obligation Under Capital Lease How much? PV of the lease minimum payment (never more than FV) Who will pay the depreciation? The lessee! Because the lessee bought it! They will pay the associated costs such as maintenance cost, etc because substance over form and substance is a purchase in sale even though in form it looks like a rental.

Answer 662

$0 Endowments that must be maintained in perpetuity (permanent endowment) are classified as permanently restricted revenues. Income from the endowment is reported as temporarily restricted revenue. View referenced content in book. 2512 Statement of Activities

Answer 663

Both I and II If the aggregated fair value of an entity's financial instruments is immaterial, disclosures of fair values are not required because the standards “need not be applied to immaterial items.” If it is not practicable to estimate fair values of a financial instrument or a class of financial instruments, a company is not required to disclose fair values, even if material. However, in such cases, the company must disclose the reasons for its failure to disclose fair values of its financial instruments, including: ``` information pertinent to estimating the fair value of that financial instrument or class of financial instruments, such as the carrying amount, effective interest rate, and maturity, and the reasons why it is not practicable to estimate fair value. ``` FASB ASC 825-10-50-16

Answer 664

Fund balance—nonspendable: $2,100 The portion of fund balance that reflects equity for amounts that cannot be spent because they are not in spendable form would be termed “nonspendable.” Both supplies inventory and prepaid expenses are not spendable. Committed fund balance would result from an action of the highest level of the government and assigned fund balance would reflect action by a government designee. Restrictions of fund balance would reflect specific purposes externally imposed by creditors, grantors, or enabling legislation. View referenced content in book. 2442 Fund Balances and Components Thereof

Answer 665

$132,000 The units of production method charges a fixed amount of depreciation expense per unit produced. The per-unit amount is computed as the depreciable cost of the assets (cost less salvage value) divided by the total expected units of production. For Quarry Company's machine, the per-unit amount is ($864,000 - $72,000) ÷ 1,800,000 units, or $0.44 per unit. For 20X1, the depreciation expense is 300,000 units manufactured × $0.44, or $132,000. Because this is the first year in the machine's life, the December 31, 20X1, accumulated depreciation also is $132,000.

Answer 666

Beg Inventory + Net Purchases - COGS = Ending Inventory

Answer 667

Interest Payments The recorded amount of interest expense is based on the interest rate stated on the face of the bond. Any further impact on interest rates is handled separately through the amortization of any discounts or premiums on bonds payable, as discussed below. The entry for interest payments is a debit to interest expense and a credit to cash.

Answer 668

The inventory records and the relationships between sales, gross profit, and cost of goods sold must be used to estimate the inventory lost in the flood using the gross profit method of estimation. The process is as follows: Cost of goods sold = Sales × (1 - Gross profit ratio) $250,000 × 0.6 = $150,000 Total estimated ending inventory = Beginning inventory + Net purchases - Cost of goods sold $35,000 + 200,000 - $150,000 = $85,000 Inventory lost in flood = Total estimated inventory before flood - Inventory not damaged by flood $85,000 - $30,000 = $55,000

Answer 669

In the period of change and future periods if the change affects both Changes in accounting estimates are handled on a prospective basis—in the current year and future years. There is no retroactive application. An explanation and justification must be disclosed in the notes. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 670

Discrete presentation, no; Blended, yes Blending of financial results is allowed as the public school system and the city are not separate legal entities. The city is responsible for the finances of the school system (the school board has no authority to levy taxes or issue bonds). Discrete presentation is for affiliated entities whose resources are entirely for the benefit of the primary government. The school system does not operate for the sole benefit of the town. View referenced content in book. 2430 Financial Reporting Entity, Including Blended and …

Answer 671

$40,000 The losses on the investment previous to this year have already been recognized in earnings. The losses from this year up until the reclassification from trading to available for sale (from $575,000 at the end of last year down to $530,000 when the reclassification was made) of $45,000 are recognized as a loss in earnings this year. Any loss after that goes into other comprehensive income (down from $530,000 at the time of the reclassification until the end of the year, down another $40,000 to $490,000 fair value).

Answer 672

Statement of changes in fiduciary net position Investment trust funds are one of the fiduciary fund types for state and local governments. Two financial statements are required for fiduciary funds—a statement of fiduciary net position and a statement of changes in fiduciary net position. (The statement of changes in fiduciary net position is not required for agency funds.) View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 673

segregated for the purpose of carrying on specific activities or attaining certain objectives. This question refers to the basic definition of a “fund,” included as one of the fundamental governmental accounting and financial reporting principles in GASB 1300. “A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources…which are segregated for the purpose of carrying on specific activities or attaining certain objectives....” View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 674

$115,000 Allowance balance on January 1, 20X1 $260,000 2% of 20X1 credit sales (.02 x $9,000,000) 180,000 ---------- Subtotal $440,000 20X1 write-offs (325,000) ---------- Allowance balance on December 31, 20X1 $115,000

Answer 675

the notes contain disclosures related only to required supplementary information. In the notes to the financial statements, both businesses and governments should include a note that summarizes the accounting policies related to the specific statements presented. The notes are considered an integral part of the statements. Although unnecessary and immaterial items should not be included, the extensive list of items a government should address in the notes of its financial statements covers material additional to “required supplementary information.” Therefore, only “the notes contain disclosures related only to required supplementary information” is not true; GASB 2200.104 states that both notes and required supplementary information are required. View referenced content in book. 2425 Notes to Financial Statements

Answer 676

accrued expenses. The cash basis of accounting, as compared to accrual-basis accounting, will understate income when accrued expenses decrease because that decrease must have been the result of paying out more cash than expenses incurred. A decrease in accounts receivable would have the opposite effect. This decrease would occur as more cash was collected than sales made, producing a higher cash basis income. In summary, cash basis income is: - higher when accounts receivable decrease. - lower when accrued expenses decrease. View referenced content in book. 2324 Elimination of Intercompany Profits and Losses(…

Answer 677

$9,000. This problem tests the rule that straight-line recognition should be used to record the rent revenue, regardless of the payment schedule. At $1,000 per month (straight-line), total revenue recognized by the end of the second year should be $24,000. Since cash was actually received at that point in the amount of $15,000 ($9,000 + $6,000), a receivable of $9,000 remains in the rent receivable account for the difference ($24,000 - $15,000). *Because it is only 1.5 years!! Hint It helps to do journal entries and T accounts to see how this works, using the following three accounts: rent receivable, rent revenue, and cash. View referenced content in book. 2380 Leases

Answer 678

Statement of cash flows The key to this question is that this is a not-for-profit entity, not a government. The basic financial statements for a not-for-profit entity are statement of financial position (like a balance sheet), statement of activities, statement of cash flows, and for voluntary health and welfare entities, a statement of functional expenses. View referenced content in book. 2510 Financial Statements

Answer 679

$2,700 Balance on Jan 1, 20X1 (1,000 units at $1.00) $1,000 Purchase on January 7, 20X1 (600 units at $3.00) + 1,800 -------- LIFO inventory on January 7, 20X1 $2,800 Sale of 900 units on January 20, 20X1 (600 units at $3.00) - 1,800 (300 units at $1.00) - 300 -------- LIFO inventory on Jan 20, 20X1 (700 units at $1.00) $ 700 Purchase on Jan 25, 20X1 (400 units at $5.00) + 2,000 -------- LIFO inventory on January 31, 20X1 (1,100 units) $2,700 ========

Answer 680

$9,000. Depreciation (amortization) expense for 20X1 = ("Cost" - Salvage) / Useful life = $108,000 / 12 years = $9,000 Since title to the leased asset passes to the lessee (Cole) at the end of the lease, Cole should depreciate the machine over the useful life of the asset (rather than over the shorter lease term) “in a manner consistent with the lessee's normal depreciation policy.” The “cost” of the asset is the present value of the aggregate lease payments. View referenced content in book. 2380 Leases

Answer 681

Fund balance unassigned $132,000 Fund balance--committed 132,000 The correct answer is: Fund balance unassigned $132,000 Fund balance--committed 132,000 It appears the general fund started with a fund balance of $132,000 if it held only enough cash to pay for the six vehicles delivered in October, November, and December. The fund balance would have been debited $264,000 when expenditures were closed and outstanding encumbrances removed at year-end, leaving a debit balance of $132,000. The remaining encumbered amount would be disclosed as the fund balance category called “Fund balance—committed.” (The city simply reversed encumbrances at year-end, and then displayed the ending fund balance in two amounts—committed and unassigned.) Further, the amount of fund balance set aside due to the outstanding encumbrances could be labeled “Fund balance—assigned” as well as “Fund balance—committed” depending on whether the original agreement to purchase the vehicles had been approved at the highest level of the government. The remaining fund balance, a deficit amount in this case, would be labeled “unassigned.” The following answer choices are not correct because encumbrances would be removed from the books at year-end: Encumbrances $132,000 Reserve for encumbrances 132,000 Encumbrances $264,000 Reserve for encumbrances 264,000 The second answer choice above is also not correct because it shows the original encumbrance value for all 12 vehicles although 6 have already been delivered. The remaining answer choice is not correct because the debits and credits are reversed: Fund balance--committed $264,000 Fund balance--unassigned 264,000 View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 682

$152,000 *The $40,000 equity was already properly included in Pearn's 20X1 income before taxes since we are using equity method. Reported income before taxes $125,000 Add adjustment of prior year's depreciation (should be excluded from current period income and recorded directly to Beg. Ret. Earnings) 35,000 Deduct dividends received from Cinn under the equity method (this amount reduces the carrying value of the investment; it is NOT included in the income of the investor) (8,000) --------- Corrected net income before taxes $152,000 ========= Since Pear owns 40% of Cinn's common stock, Pear has the ability to exercise significant influence over Cinn by virtue of its investment and should account for its investment in Cinn by the equity method. Therefore, Pear's $40,000 equity in Cinn's earnings is properly included in Pear's 20X1 income before taxes. Under the equity method, the dividends received from Cinn reduce the carrying amount of the investment; they do not affect the amount of investment income that Pear recognizes. Therefore, the $8,000 of dividends received from Cinn erroneously included in 20X1 income before taxes are subtracted to correct that figure. The arithmetical errors in depreciation of prior years represent a correction of errors of prior periods. The correction of the errors should be reported as an adjustment to the opening balance of retained earnings, net of the related income tax effect. Therefore, the $35,000 of arithmetical errors in depreciation of prior years that Pear had inadvertently subtracted from 20X1 income before taxes are added back to correct that figure.

Answer 683

Credit budgetary fund balance Encumbrance accounting is a feature of the accounting practices used by municipalities for governmental funds. Accounting for governmental funds is done on the modified accrual basis. Annual budgets of estimated inflows and estimated outflows are prepared for the general fund and most other governmental funds. The budget is so important to a city's financial operations for a fiscal year that “budgetary accounting,” a method of integrating budgeted amounts into a city's accounting system, is used. Adoption of the operating budget is recorded by debiting appropriate budgetary accounts for estimated inflows (“estimated revenues”) and crediting the appropriate budgetary accounts for estimated and approved outflows (“appropriations”). “Budgetary fund balance” is debited or credited for the difference. In this problem, since estimated inflows exceed estimated outflows, budgetary fund balance is credited for the difference. (Note: This budgetary entry is reversed at the end of the period as the first closing entry.) View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 684

$24,000 Grant should include 30% of investee's (South's) reported income for 20X1. Income from investment in South = 30% x $80,000 = $24,000 The cash dividends are not included in the investor's income, but rather they reduce the investment under the equity method. Cash 15,000 Investment 15,000 ($50,000 x .3 = $15,000)

Answer 685

Revenue is received in advance of earning and delivering the product or service. It is a liability representing an obligation to provide goods or services in the future. When the agreed-upon activity is completed, the revenue is recognized.

Answer 686

It is an accounting practice used for discounting a bond. This method is used for bonds sold at a discount; the amount of the bond discount is amortized to interest expense over the bond's life.

Answer 687

Identifies cash inflows (receipts) and cash outflows (payments) over a period of time.

Answer 688

$37,500 The average cost method in a periodic inventory system is referred to as the weighted-average method. The weighted-average per unit equals cost of goods available for sale divided by units of goods available for sale. Ending inventory equals the weighted-average cost per unit times the units in ending inventory. Cost of goods sold equals cost of goods available for sale less ending inventory. In this question: Units Unit Cost Total ------ --------- ------- Beginning inventory 10,000 $3.00 $30,000 1/5 purchase 5,000 4.00 20,000 1/15 purchase 5,000 5.00 25,000 ------ ------- Total 20,000 $75,000 Weighted-average cost per unit = $75,000 ÷ 20,000 units = $3.75 per unit Units in ending inventory = 20,000 available for sale - 10,000 sold = 10,000 units Cost of ending inventory = $3.75 per unit × 10,000 units = $37,500 Cost of goods sold = $75,000 - $37,500 = $37,500 Of course, if one noticed that half of the units available for sale were sold, one could have determined that the cost of goods sold would be half of the cost of goods available for sale using the weighted-average method.

Answer 689

Overfunded plan assets of $100,000 FASB ASC 715-20-45-3 requires that an entity report on its balance sheet the underfunded or overfunded pension plan. In the case of a pension plan, the underfunded pension liability represents the excess of the projected benefit obligation over the fair value of the plan assets. Thus, Nola should report a $100,000 overfunded pension asset for the excess of the $260,000 fair value of the plan assets over the $160,000 projected benefit obligation. View referenced content in book. 2264 Retirement Benefits

Answer 690

Fund balance—committed, $2,000,000; Fund balance—assigned, $600,000. The outstanding encumbrance would be reflected as either committed or assigned fund balance for $2,000,000, depending on the level of government that entered into the agreement with the vendor. As the vendor in this case is probably a large construction company, it is likely the city council approved the major contract. Nonspendable fund balance would reflect resources such as inventories that cannot be spent, and restricted fund balance would reflect external constraints such as those imposed by creditors or grantors. Only the general fund can have an unassigned fund balance. Any fund balance in excess of the amount of the encumbrance would be considered assigned by being accounted for in a separate governmental fund—a capital projects fund. View referenced content in book. 2442 Fund Balances and Components Thereof

Answer 691

$60,000 Since the warrants are detachable, the proceeds from the bond issue must be allocated between the bonds (debt) and the warrants (under stockholder's equity) on the basis of fair market values. Summary journal entry for March 1 issuance of bonds: Dr. Cr. Cash ($500,000 x 1.03) $515,000 Discount on bonds payable ($560,000- $515,000) 45,000 Stock warrants outstanding (1) (500 bonds x 30 warrants x $4) 60,000 Bonds payable 500,000 (1) $500,000 / $1,000 bond = 500 bonds The balance ($60,000) in stock warrants outstanding would be classified under stockholder's equity in the balance sheet. Upon exercise, this balance would be transferred into the appropriate capital stock and additional paid-in capital accounts. *THE WARRANTS ARE UNDER STOCKHOLDER'S EQUITY!!! To get the warrants amount: 500,000 / 1,000 = 500 => 500 x 30 (detachable stock warrants) x $4 FV =60,000

Answer 692

Accumulated, yes; Vested, yes Rights to paid absences, such as vacation pay, should be accrued as an expense when earned, as long as the rights are vested, or at least accumulate (carry over to the next period). View referenced content in book. 2261 Compensated Absences

Answer 693

Debt service fund Debt service funds are used to account for payments of the maturing principal and related interest of general government long-term debt and the accumulation of financial resources for these payments. The resources for these payments may be accumulated from tax levies specifically designated for debt service and/or by transfers from other funds. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 694

net realizable value. If replacement cost is above net realizable value, then net realizable value is used as designated market. If the item's original cost is above both replacement cost and net realizable value, then designated market is below cost, and the item needs to be written down to designated market, or net realizable value, in this case.

Answer 695

decreases both accounts receivable and the allowance for uncollectible accounts. Typical journal entries under the allowance method include: Debit Credit ------ ------ (a) Bad debt expense xx Allowance for uncollectible accounts xx To recognize periodic uncollectible accounts expense and provide allowance. (b) Allowance for uncollectible accounts xx Accounts receivable xx To write off uncollectible account. Note When an account is written off (e.g., b) both accounts receivable and allowance for uncollectible accounts are decreased.

Answer 696

Financial accountability GASB 2100.111 states that “the financial reporting entity consists of the primary government and organizations for which the primary government is financially accountable....In addition, the primary government may determine through the exercise of management's professional judgment that the inclusion of an organization that does not meet the financial accountability criteria is necessary in order to prevent the reporting entity's financial statements from being misleading.” Thus, the basic criterion for determining whether another organization should be part of the reporting entity is financial accountability. View referenced content in book. 2430 Financial Reporting Entity, Including Blended and …

Answer 697

capitalize the cost of refurbishing and record a loss in the current period equal to the carrying amount of the damaged portion of the building. Since the cost and related accumulated depreciation of the damaged portion of the building are identifiable, the carrying value of the damaged portion of the building is known. A loss equal to this carrying value should be recorded against removal of that cost and accumulated depreciation from the records. Then, the cost of refurbishing should be capitalized.

Answer 698

$25,000 An estimate of the effective tax rate expected for the annual period is made at the end of each interim period. This rate is used in providing for income taxes on a current year-to-date basis. Worth should use its expected rate of 25%: $100,000 × 0.25 = $25,000. View referenced content in book. 2375 Interim Financial Reporting

Answer 699

debit Asset and credit Liability. FASB ASC 410-20-25-5 provides that: Quote Upon initial recognition of a liability for an asset retirement obligation, an entity shall capitalize an asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount as the liability. View referenced content in book. 2310 Asset Retirement and Environmental Obligations *VIDEO EXPLANATION: When we have chemicals or hazardous waste or anything special that needs to be disposed of, we have an Asset Retirement Obligation, or ARO. We need to record the liability at the point in time when we build the power plant. The accounting rules for ARO do not require us to record this ARO as an expense. We get to take the expense over the life of the asset that is associated with so in order to record a liability, the expense over time over the life of the asset, we have to do a little bit of some non intuitive accounting. We are going to: Dr. Asset Cr. Liability Example - Nuclear power plant: Fixed Asset 10,000,000 Fixed Assets-ARO 1,000,000 Cash 10,000,000 ARO 1,000,000 Our nuclear power plant on the books is not just for the $10M that we paid for, it's gonna be $11M (includes the ARO of $1M). On a net basis, there is no impact on equity because these $2M cancel each other out. The liability stays there until we actually pay it at the end of the of the useful life of this asset.

Answer 700

i. Under gross method, when AR is recorded, the gross amount is shown, along with a journal entry for the discount ii. Under net method, AR is recorded with the discount already factored in

Answer 701

$21,400 The deposit should include: The $20,000 of gross wages $20,000 The 7% employee taxes (7% of $20,000) 1,400 ------- Total $21,400 ======= The $20,000 of gross wages already includes the amount of federal income taxes and employee-paid FICA taxes withheld. The employee actually receives the net amount.

Answer 702

lower of the fair value less costs to sell or carrying amount. Lower of fair value, less costs to sell or carrying amount, is the proper measurement of an impaired asset held for sale. FASB ASC 360-10-35-43 View referenced content in book. 2370 Impairment

Answer 703

$6 million All of the costs an entity incurs to develop the technological feasibility of computer software are expensed ($4 million + $2 million = $6 million). Technological feasibility has occurred when the software is ready to be sold or leased to customers. Customer support and maintenance costs are also expensed. The costs of producing product masters after technological feasibility is achieved are capitalized. View referenced content in book. 2391 Software Costs

Answer 704

$140,000 Balance in advertising expense on December 31, 20X1, before adjustment $146,000 Add radio advertisements 9,000 -------- Subtotal $155,000 Deduct cost of 20X2 catalogs 15,000 -------- Advertising expense for 20X1 $140,000 Clark Co. received the services (i.e., radio advertisements) in December, so an adjusting entry would be made at year-end to reflect the accrual of the related expense. The sales promotional campaign is to be conducted in January, and any associated costs are an expense of 20X2. Thus, the $15,000 cost of printing catalogs should be removed from the advertising expense account and recorded as a prepaid expense as of December 31, 20X1. View referenced content in book. 2252 Costs and Expenses

Answer 705

4.7 Receivables turnover is defined as net credit sales divided by average receivables. For Year 2, sales were $400,000. To get average receivables, one needs to get the net beginning and net ending receivables balances, add them, and then divide the total by 2. Beginning balance was $130,000 – $40,000, or $90,000. Ending balance was $100,000 – $20,000, or $80,000. The average balance is $85,000: ($80,000 + $90,000) = $170,000; $170,000 ÷ 2 = $85,000. The receivables turnover is thus 4.7: $400,000 ÷ $85,000 = 4.7. View referenced content in book. 2137 Consolidated and Combined Financial Statements

Answer 706

Antitrust action FASB ASC 225-20-45-2 defines extraordinary items as “events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence.” The loss from the antitrust suit was a first for Teller. FASB ASC 225-20-45 mentions government regulation in discussing “unusual nature.” That loss should be reported as an extraordinary item. The increase in production costs should not be reported as an extraordinary item. FASB ASC 225-20-45 contains a listing of several items not considered extraordinary. Among them are the effects of a strike, including those against competitors and major suppliers. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 707

The notes to the financial statements FASB ASC 825-10-50-20 requires note disclosures regarding a company's concentrations of credit risks.

Answer 708

fair values. FASB ASC 860-20-40-1A requires that the transferor of financial assets: Quote Allocate the previous carrying amount of the entire financial asset between both of the following on the basis of their relative fair values at the date of the transfer: 1. The participating interest(s) sold 2. The participating interest that continues to be held by the transferor. View referenced content in book. 2393 Transfers and Servicing of Financial Assets and …

Answer 709

$800,000 On the modified accrual basis, revenues should be recognized when all applicable eligibility requirements are met and the resources are available. The $800,000 considered to be eligible qualifying expenditures would be recognized as grant revenues for the year. The resources received in excess of qualifying expenditures would be considered deferred revenues. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 710

$0 Principal and interest on general long-term liabilities of state and local governments must be reported in the period in which they become legally due and payable. An exception is permitted, but not required, if the due date is in the first 30 days of the next fiscal year (not the case here) and dedicated resources have been set aside in a debt service fund by the end of the year (not indicated here). In any event, even if the two conditions are met, the question asked for the required amount to report for bond interest. Because no bond interest becomes legally due and payable (matures) during the year, $0 of bond interest is required to be reported. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 711

Gain of Life Insurance Coverage is credited for $75,000. At the time of death of an insured officer or employee, a gain would be recognized equal to the excess of the face amount of the policy over the cash surrender value at the time. In this case, the entry would be: Cash $100,000 Cash Surrender Value $25,000 Gain from Proceeds of Life Insurance 75,000

Answer 712

$63,000 Cost of patent $90,000 Patent amortization for 20X1 through 20X3 (($90,000 / 10 years) x 3 years) 27,000 ------- Carrying value of patent on 01/01/X4 (amount written off in 20X4) $63,000 ======= Remember Since amortization is recorded at the end of each year, no amortization for 20X4 has been recorded before 12/31/X4. The objective at the end of 20X4 is to write off all remaining investment since the product was withdrawn from sale.

Answer 713

$500,000 Sales-type leases give rise to manufacturer's profit to the lessor defined as the difference between the sales price and the carrying value of the asset. PV of lease payments (i.e. sales price) $3,300,000 Less carrying value of leased property 2,800,000 ---------- Income to be reported for year ended Dec 31, 20X1 $ 500,000 ========== View referenced content in book. 2380 Leases

Answer 714

Debit prepaid services and credit services expense for $60,000 The $90,000 payment covers six months' work, of which only two months are in this year. Thus, this year's expenses should be only 2/6 of $90,000, or $30,000. The other 4/6 of the payment is a prepaid expense of $60,000 for next year, so the prepaid expenses need to be increased with a debit of $60,000, and they must come out of the services expenses of this year with a credit of $60,000, lowering this year's expense down to where it should be. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 715

$140,000 Purchase price of land $100,000 Cost of razing building $50,000 Less proceeds from sale of scrap 10,000 40,000 ------ ------- Capitalized cost of land $140,000 =======

Answer 716

$5,650,000 Current liabilities represent obligations whose liquidation is expected to require the use of current assets or the creation of other current liabilities. Current liabilities also include long-term obligations that are or will be callable by the creditor because the debtor has violated a covenant in the debt agreement. The “other bank loan” matures in 6 months from the balance sheet date and is a current liability. 750,000 + 400,000 + 3,500,000 + 1,00,00 = 5,650,000

Answer 717

$80,000 Donated capital assets should be reported at their estimated fair value at donation date plus ancillary charges, if any. General capital assets are capital assets not specifically related to activities reported in proprietary or fiduciary funds. They are reported in the governmental activities column of the government-wide statement of net position. Site preparation costs of $20,000 and the $60,000 fair market value of the land are both properly included in the cost of the land. View referenced content in book. 2443 Capital Assets and Infrastructure Assets

Answer 718

$200,000 Gross profit on sale = $1.5M - $1M = $500,000 Gross profit rate = $500K / $1.5M = 33.33% Cash collected in 20X1 ($300K + $444K) $744,000 Less interest collected ($444K - $300K) - 144,000 -------- Cash collected from sales 600,000 Times gross profit rate x 33.33% -------- Gross profit reported in 20X1 $200,000 ======== View referenced content in book. 2251 Revenue Recognition

Answer 719

Quoted market prices Investments in debt securities should be reported at market prices because that is the source of readily available fair value information. Discounted expected future cash flows are required to value financial assets for which there is no market that can provide fair value information. Historical cost is used to value acquisitions of property, plant, and equipment. Liquidation values generally are used when liquidation of an entity is imminent. View referenced content in book. 2511 Statement of Financial Position

Answer 720

Current liabilities FASB ASC 280-10-50-30 specifically requires that an entity disclose for each reportable segment total assets, revenues, and a measure of profit or loss. There are also other items that must be disclosed for each reportable segment, but there is no mention about any requirement to disclose the amount of current liabilities for those segments. View referenced content in book. 2390 Segment Reporting

Answer 721

$500 Barnel Corp. should report the full $500 as a refundable security deposit (liability). A final determination is not possible until the lease ends. To recognize charges to be retained at the beginning of the lease would be similar to recognizing revenue or gains before they occur.

Answer 722

$193,000 FASB ASC 350-20-25-3 provides that any costs of developing, maintaining, or restoring goodwill should be deducted from income when incurred. Obviously, the $80,000 expenditure falls into this category. The $200,000 of purchased goodwill should be assessed for impairment each year. Initial cost of goodwill $200,000 Less: 20X1 impairment 7,000 -------- Unamortized amount on December 31, 20X1 $193,000 View referenced content in book. 2370 Impairment

Answer 723

$175,000 Amounts due to or from related parties must be disclosed at each balance sheet date. Thus, loans to officers must be disclosed ($125,000 $50,000 = $175,000). View referenced content in book. 2387 Related Parties and Related Party Transactions

Answer 724

Disclosure only Information which becomes known after the balance sheet date, but before the financial statements are issued, should be disclosed to keep the financial statements from being misleading. The gains or losses associated with the redemption and issuance of the bonds would be reported and disclosed in the 20X2 financial statements.

Answer 725

$9,000 FASB ASC 274-10-35-9 provides that assets be reported at their estimated current values. Specifically regarding life insurance: Quote The estimated current value of an investment in life insurance is the cash value of the policy less the amount of loans against it.

Answer 726

$88,000 Customer advances balance Dec 31, 20X0 $118,000 Add: Advances received in 20X1 184,000 -------- Subtotal $302,000 Deduct: Advances applied $164,000 Advances canceled 50,000 214,000 -------- -------- Customer advances balance Dec 31, 20X1 $ 88,000

Answer 727

Both compensating balance and restricted cash Material amounts of restricted cash must be segregated from “regular” cash for reporting purposes because it is not readily available for general use. Restricted cash is classified as current or long-term assets depending upon the date of availability for disbursement. Compensating balances should be separately classified as being maintained as a compensating balance. It is classified as current or noncurrent based upon the terms of the agreement requiring the compensating balance, and details of the arrangement should be disclosed in the notes.

Answer 728

Current assets and gross profit were both overstated. The overstatement of ending inventory (a current asset) results in an understatement of cost of goods sold. The understatement of cost of goods sold results in an overstatement of gross profit.

Answer 729

Cash inflow of $15,000 and cash outflow of $47,000 According to FASB ASC 230-10-45-13, cash flows associated with transactions involving long-term assets are classified as cash flows from investing activities. Cash inflows are not to be netted against cash outflows. There is a cash outflow of $47,000 to purchase equipment given directly in the problem. The cash inflow must be determined from the facts as given. A gain on disposal indicates that the cash received is higher than the carrying value. Carrying value $10,000 Gain on disposal + 5,000 ------- Cash selling price $15,000 =======

Answer 730

Routine employer contributions from the general fund to a pension trust fund GASB P20.113 requires employer governments to report as an expenditure or expense, as appropriate, employer pension contributions. Thus, contributions to a pension trust fund from a general fund on behalf of employees whose activities are accounted for within the general fund would be reported as expenditures of the general fund. This is true regardless of whether the payee is a retirement system independent of the employer government or a pension trust fund that is part of the same government. In the latter case, the general fund contribution would be viewed as a reciprocal interfund activity, similar to an exchange transaction with an external entity. The other items are transfers from the general fund reported as Other Financing Uses. View referenced content in book. 2445 Interfund Activity, Including Transfers

Answer 731

Exempt from federal taxation Entities having status as bodies corporate and politic and entities with the power to enact and enforce a tax levy are each considered governmental organizations (joint FASB/GASB definition of governmental organizations included in several AICPA Audit and Accounting Guides, including State and Local Governments, paragraph 1.01). However, many nongovernmental organizations are exempt from federal taxation. View referenced content in book. 2410 Governmental Accounting Concepts *VIDEO EXPLANATION

Answer 732

$230,000 Since Pare purchased the additional shares on December 31, Pare records only 10% of Tot's net income (for the 10% of the shares held during the year). However, because Pare owned a 30% share on December 31, the equity method is used, and the investment in Tot is adjusted for Pare's share of net income: Pare's investment in Tot Co. on December 31, 20X1: Acquisition cost of first 10,000 shares $ 50,000 Acquisition cost of additional 20,000 shares 150,000 Pare's share of Tot Co.'s 20X1 earnings under equity method (10% x $300,000) 30,000 ------- Total $230,000 ========

Answer 733

both flow of financial resources and financial position. The measurement focus of governmental type funds is on both: the changes in financial position and financial position. The flow of financial resources refers to the changes in financial position from the sources and uses of financial resources (GASB 1300.102). By contrast, the measurement focus of a proprietary fund is on determining “operating income, changes in net position (or cost recovery), financial position, and cash flows”—similar to a commercial entity. View referenced content in book. 2411 Measurement Focus and Basis of Accounting *VIDEO EXPLANATION

Answer 734

Private-purpose trust funds Private-purpose trust funds represent resources held in trust for the benefit of parties that are not a part of the government, rather than for the benefit of government programs. GASB 1300.113 View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 735

I only Sinking funds are special-purpose investments, in the form of cash and/or securities. Sinking funds are increased by revenues earned and by additional investment.

Answer 736

$250 The question is asking for *financing activities* The company's increase in cash flows is $250, calculated as follows: Dividends paid $(300) Proceeds from the issuance of common stock 250 Borrowings under a line of credit 200 Proceeds from the issuance of convertible bonds 100 ----- Net increase from financing activities $250 The proceeds from the sale of a building are included in investing activities.

Answer 737

element of income from operations. An impairment loss is presented as part of income from operations, and is not presented as discontinued operations, extraordinary item, or cumulative effect of a change in accounting principle. View referenced content in book. 2370 Impairment

Answer 738

$293,000 Under the principle of consolidation, the parent and subsidiary are considered a single economic entity. Thus, the consolidated balance sheet reports the combined (parent plus subsidiary) asset and liability accounts. The single parent-sub entity owns all the net assets of both entities. Total stockholders' equity accounts on the consolidated balance sheet equals the total stockholders' equity of the parent plus the noncontrolling interest. Therefore, Dallas, Inc., reports total stockholders' equity account on December 31, 20X1, of $270,000 ($50,000 + $80,250 + $139,750) plus 20% of the total stockholders' equity of Style of $23,000 ($20,000 + $44,000 + $51,000), which is $293,000. View referenced content in book. 2322 Fundamentals of Consolidated Worksheets(Acquisition …

Answer 739

i. The biggest difference in common stock vs preferred is that common stock usually has voting rights and preferred doesn’t, and preferred stock usually has dividends and dividend priority when common stock might not receive dividends

Answer 740

$600,000 The cost of $1,000,000 should be assigned to the land and buildings based on their relative values. The value of the building is 60% of the total; therefore, $600,000 ($1,000,000 × .6) is assigned to the building.

Answer 741

Temporarily restricted Donor wishes related to the $15,000 gift are use restrictions that will be met in time; therefore, the contribution is recorded as an increase in temporarily restricted net assets. The contribution would not be considered an increase in permanently restricted net assets because the restriction will be released when the beds are acquired. The contribution would not be considered an increase in unrestricted net assets because the beds will not be acquired within the same accounting period. In the event that Pann did purchase the beds, “Endowment” is not a net asset class. View referenced content in book. 2512 Statement of Activities

Answer 742

An interest rate that is lower than nonconvertible debt The conversion feature has an economic value. Consequently, if all other terms are the same, a convertible debt security should receive a lower interest rate than a nonconvertible debt security. *See video explanation under "Investments"

Answer 743

702,000 Basic earnings per share = (Net income - Dividends on preferred stock) ÷ Weighted-average common shares. Weighted-average common shares are computed by relating the portion of time within a reporting period that common shares are outstanding. Common shares outstanding, 1/1 to 12/31 (12 months) 700,000 12/12 700,000 Common shares repurchased, 3/31 to 12/31 (9 months) 20,000 9/12 -15,000 Conversion of preferred shares, 6/30 to 12/31 (6 months) 40,000 6/12 20,000 Common shares repurchased, 12/1 to 12/31 (1 month) 36,000 1/12 -3,000 Weighted-average common shares 702,000 View referenced content in book. 2335 Earnings per Share

Answer 744

This is a specific type of deferred revenue Usually the extended warranty revenue is amortized on a SL basis over the life of the warranty.

Answer 745

A loss in continuing operations The bonds were sold at a discount, so their carrying value (bond face amount less unamortized discount) was less than 100. When Somar Co. retired the bonds at 105, a loss was incurred. According to FASB ASC 470-50-45, the loss is not extraordinary since the extinguishment of debt in this country is not infrequent and unusual.

Answer 746

acquire other items for collections. FASB ASC 958-605-25-19 indicates that an entity (in this case, a museum) need not recognize the receipt of historical artifacts as contributions if the donated items are added to a collection. The glossary to the FASB Codification defines a “collection” as works of art, historical treasures, or similar items meeting the following conditions: -They are held for public exhibition rather than financial gain. -They are cared for and preserved. -They are subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections. “Acquire other items for collections” corresponds with this third condition. Note disclosure is required. View referenced content in book. 2511 Statement of Financial Position

Answer 747

Expenditures Expenditures is a nominal (operating statement) account used in periodically measuring outflows of financial resources, and as such is closed at the end of the fiscal year. Vouchers Payable, Fund Balance, and Fund Balance—Reserved for Encumbrances are all balance sheet (real) accounts. Balance sheet accounts are not closed at fiscal year-end. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 748

i. This is the method used when an investor owns more than 20% but less 50% of voting shares in an entity Recording the investment: 1. Record the investment at cost on your books 2. If the purchase price is greater than the FMV, you allocate the difference to goodwill 3. Dividends reduce the investment on your books, and it’s prorata: If you paid $1,000 for 30% of the common stock, then they pay out $100 in dividends, you will reduce your investment by $30 4. Income is the opposite: If the company you invested in reported $100 of net income, you would increase the investment on your books by $30

Answer 749

105,000 The initial stock outstanding is 50,000 shares. A 5% stock dividend adds 50,000 × 0.05, or 2,500 new shares, for a total of 52,500 shares now outstanding. A 2-for-1 split doubles that amount for a final total of 52,500 × 2, or 105,000 shares now outstanding. View referenced content in book. 2250 Equity

Answer 750

By recognizing $10,000 in profit or loss and $5,000 in other comprehensive income An entire class of assets whose value can be measured reliably can be carried at fair value. This company does this for its land. At the end of the first year, the land lost value, and thus the difference lost of $10,000 is taken as a loss. When the value is regained in the second year, the prior loss is undone with a gain of $10,000, but the additional $5,000 increase in value must go to an equity account in other comprehensive income.

Answer 751

the primary source for financial information about the entity to the primary users since information cannot be provided directly to these users. Financial statements serve as the primary, not the only, means for communicating financial information to those outside the entity. For example, press releases also can communicate information to users. Only the balance sheet is a “snapshot” in time of the financial condition of the entity. The other financial statements serve as a “motion picture” showing the impact of various activities occurring throughout the year. Since financial statements are designed for external reporting, they are not the principal tool for managing the entity. To manage an entity, managers require other types of information that are usually provided by internal managerial accounting reports. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 752

20X2 For an imposed nonexchange form of tax, assets (cash or receivables) are recognized in the period when an enforceable legal claim has arisen, or when resources are received, whichever occurs first. Governments should recognize revenues in the period for which the taxes are levied even if the enforceable legal claim occurs in a different period. In this case, the government should recognize property tax receivable in the same period that revenues are recognized, in 20X2, the period for which they were levied and an enforceable legal claim can be made. GASB N50.114 View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 753

Enterprise The enterprise fund uses the economic resources measurement focus and the accrual basis of accounting. All of the other listed funds are governmental funds that use the current financial resources measurement focus and the modified accrual basis of accounting. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 754

Both I and II FASB ASC 260-10-45-3 requires the following: “An entity that reports a discontinued operation, an extraordinary item, or cumulative effect of an accounting change…shall present basic and diluted EPS amounts for those line items either on the face of the income statement or in the notes.” View referenced content in book. 2335 Earnings per Share

Answer 755

reduced the capital balances of Yale and Lear. Under the bonus method, the excess of assets distributed to Mill over Mill's capital balance is considered to come from the other partners' capital balances. The summary journal entry illustrating this is: Dr. Cr. Mill, Capital xx Yale, Capital x Lear, Capital x Assets xxx Note The net effect is that Mill receives a “bonus” from Yale and Lear.

Answer 756

Credit deferred revenues In order to prevent property taxes collected in advance from increasing the fund balance in a period before the related assets can legally be expended, a deferred revenue account (a liability like Unearned revenue) is credited (with corresponding debit to cash). View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 757

Maple may pool all investments, but must allocate realized and unrealized gains and losses considering donor restrictions, board policy, and relevant legislation. As illustrated in FASB ASC 958-320-55-5 and subsequent paragraphs, a not-for-profit entity such as Maple Church may pool its investments, including those from contributions with different kinds of restrictions, for portfolio management. When a pool is established, proportional values are initially assigned based on cash amounts placed in the pool. Investment income and realized and recognized, unrealized gains and losses are later assigned based on the underlying facts and circumstances, board policy, donor requirements, and relevant legislation. View referenced content in book. 2511 Statement of Financial Position

Answer 758

GAAP applicable to nonbusiness organizations differ significantly from those applicable to business enterprises and among the various types of nonbusiness organizations. GAAP applicable to nonbusiness organizations differ significantly from those applicable to business enterprises. Moreover, applicable GAAP differ significantly among the various types of nonbusiness organizations (e.g., between government hospitals and nongovernment hospitals and between government educational institutions and nongovernment educational institutions). View referenced content in book. 2501 Not-for-Profit (Nongovernmental) Accounting and …

Answer 759

$3,333,333 Costs incurred to develop software for internal use are capitalized after the application development stage is reached (in accordance with FASB ASC 350-40-35-4). The costs are amortized over the benefited periods—three years in this case. View referenced content in book. 2391 Software Costs

Answer 760

$745,000 FASB ASC 274-10-05-2 provides that: Quote The primary focus of personal financial statements is a person's assets and liabilities, and the primary users of personal financial statements normally consider estimated current value information to be more relevant for their decisions than historical cost information. Lenders require estimated current value information to assess collateral, and most personal loan applications require estimated current value information. ``` Current value of: Ink Corp. stock $675,000 Jewelry 70,000 -------- Total $745,000 ======== ``` View referenced content in book. 2151 Personal Financial Statements

Answer 761

The financial statements of all prior periods presented should be restated. FASB ASC 250-10-50-6 provides that accounting changes involving a change in reporting entity should be reported by restating the financial statements of all prior periods. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 762

Recognize previously unrecognized items that the entity expects to sell "Recognize previously unrecognized items that the entity expects to sell" is correct. Assets must be measured at the estimated amount of cash expected to be collected. Costs and income should be recognized when it becomes apparent that liquidation is imminent. View referenced content in book. 2153 Liquidation Basis Financial Statements

Answer 763

Debt service The government-wide financial statements do not report the information that is included in the fiduciary funds. Agency, private-purpose trust, and pension trust are all fiduciary funds. The debt service fund reports the payment of interest on the government's general long-term debt such as general obligation bonds. Interest expense on general long-term debt should be reported in the government-wide statement of activities. View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 764

$174,000 East Corp.'s pension expense for 20X1 is $174,000, as shown below: Service cost $150,000 Interest cost 0 Amortization of past service cost 24,000 Expected return on plan assets 0 Amort of unrecognized gain/loss 0 =$174,000 The interest cost is computed by applying the appropriate rate times the projected benefit obligation (PBO) at January 1, 20X1. Since this is the first year of the plan, the PBO at January 1, 20X1, is $0, which means that the interest cost for 20X1 is $0. The expected return on the plan assets is computed by applying the appropriate rate times the fair value of the plan assets (PA) at January 1, 20X1. Since this is the first year of the plan, the PA at January 1, 20X1, is $0, which means that the expected return on plan assets for 20X1 is $0. Since no amortization of unrecognized gain/loss is necessary (which is stated in the facts), the pension expense consists of the service cost and the amortization of past service costs. View referenced content in book. 2264 Retirement Benefits

Answer 765

In operating activities as a deduction from income

Answer 766

I and II FASB ASC 715-20-50-1 requires “disclosures about an employer's obligation to provide postretirement benefits and the cost of providing those benefits…” Included in the required disclosures are both: - the assumed health care trend rate used to estimate expected cost of retiree benefits and - the accumulated post-retirement benefit obligation. View referenced content in book. 2263 Nonretirement Postemployment Benefits

Answer 767

$300,000 Transfers are other financing sources and are never recognized as revenues. If the receivable is associated with an unrestricted grant or with a restricted grant for which all eligibility requirements have been met, the state grant should be reported as revenues. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 768

Accounting for goodwill is one option and a bargain purchase cannot be recognized as an extraordinary gain. IFRS differs from U.S. GAAP when accounting for a business combination. IFRS does not require goodwill to be recognized but allows it as an option. Under IFRS, a recognition of extraordinary gain as a “bargain purchase” is prohibited. View referenced content in book. 2315 Business Combinations

Answer 769

$1.55 Under FASB ASC 830-30-45-3, all elements of financial statements should be translated by using a current exchange rate. For revenues and expenses, an appropriately weighted-average exchange rate for the period may be used to translate those amounts. View referenced content in book. 2367 Translation of Foreign Currency Financial Statements

Answer 770

$250,000 When a company owns 20% or more of the voting stock of another corporation, the company is presumed to have significant influence over the decisions of the corporation, and is required to account for the investment in the other corporation using the equity method. The equity method requires the investing company to recognize its share of the owned corporation's earnings, and to increase the carrying amount of its stock in the owned corporation by the same amount. When the investing corporation is paid dividends by the owned corporation, this is not income under the equity method, but it does lower the investment carrying amount. The investing corporation's initial price in buying the stock of the owned corporation is the carrying amount of the investment, and this is increased by the share of earnings and decreased by the share of dividends. Thus, the carrying amount of Larkin's investment in Devon at year-end is the beginning balance $200,000, plus 25% of the $600,000 Devon income, and minus 25% of the Devon dividends: $200,000 + (0.25 × $600,000) - (0.25 × $400,000) $200,000 + (0.25 x $600,000) - (0.25 x $400,000) = $200,000 + $150,000 - $100,000 = $250,000

Answer 771

On the balance sheet, the company would recognize a noncurrent asset (if plan assets exceed PBO, or projected benefit obligation) or a liability in relation to the underfunded plan. If the PBO, or present value of the expected pension costs (a liability), exceeds the present value of the assets available to pay these costs, the company recognizes a liability, for the excess.

Answer 772

In accounting, a contingent liability and the related contingent loss are recorded with a journal entry only if the contingency is both probable and the amount can be estimated. If a contingent liability is only possible (not probable), or if the amount cannot be estimated, a journal entry is not required. However, a disclosure is required.

Answer 773

Face amount x stated interest rate

Answer 774

Discount the bonds at the market rate of interest and deduct bond issuance costs. To determine the issue price for a bond, the cash flows from the bond should be discounted at the yield, or market, rate. The net proceeds are the issue price less the cost to issue the bonds. The cash flows include the principal repayment and interest payments calculated at the stated rate.

Answer 775

Creates a $10,000 credit balance The total cost of the available-for-sale securities listed in the question is $120,000 ($70,000 + $50,000). The cost of a security that has suffered an impairment loss is not adjusted upwards. The total fair value of the two available-for-sale securities is $110,000 ($50,000 + $60,000). The necessary securities fair value adjustment account to restate the securities to fair value is thus a credit of $10,000 from $120,000, down to $110,000.

Answer 776

Most 20X2 contracts were signed earlier in the calendar year than were the 20X1 contracts. Considering the fact that the service contract fees and the number of contracts were substantially the same for both 20X1 and 20X2, the only logical explanation for the decrease in deferred revenue balance is that more service revenue was performed in 20X2 on 20X2 contracts. This would occur if most of the 20X2 contracts were signed earlier in the calendar year than were the 20X1 contracts.

Answer 777

As an increase in both permanently restricted net assets and unrestricted net assets The $100,000 donation received may not be spent by the college and should be recorded as an increase in permanently restricted net assets. The $10,000 in investment income should be reported as an increase in unrestricted net assets since no restrictions have been placed on its use. The statement of activities presents changes in the three net asset classes separately. View referenced content in book. 2511 Statement of Financial Position

Answer 778

No effect Receivables usually are reported at the same time that revenue is recognized. For reporting purposes, revenues should be reduced by an appropriate allowance for amounts estimated to be uncollectible when revenue is recognized, thus affecting equity at time of recognition. To the extent of the allowance made ($50,000), the actual write-off of the receivable against the allowance would have no effect on equity. View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 779

An increase in noncash current assets such as AR implies LESS CASH RECEIPTS than reflected in sales. (More people paid on credit!) As another example, an increase in prepaid rent (asset!!) indicates that more cash is paid for rent than is dedicated as rent expense. (We paid rent in advanced). Accounts Receivable increases $20,000 - this increase implies that Genesis collects less cash than is reported in sales. That is, some of these sales were in the form of AR and that amount increased during the period.

Answer 780

As reporting for an integral part of an annual period The Financial Accounting Standards Board in FASB ASC 270-10-45-1 noted that “each interim period should be viewed primarily as an integral part of an annual period.” View referenced content in book. 2375 Interim Financial Reporting

Answer 781

Both I and II FASB ASC 360-10-15-4 lists the following types of leases that are tested for impairment: Quote - Capital leases or lessees - Long-lived assets of lessors subject to operating leases - Proved oil and gas properties that are being accounted for using the successful-efforts method of accounting - Long-term prepaid assets. View referenced content in book. 2370 Impairment

Answer 782

Bond Sets (contract rate) vs. Market Sets (market rate) Bond Price Determined: Contract rate > Market rate = Bond sells at PREMIUM Contract rate = Market rate = Bond sells at PAR Contract rate < Market rate = Bond sells at DISCOUNT

Answer 783

Expense all costs in the year incurred Expenditures can be capitalized only if the expenditure is expected to provide benefits in the future. Since there is doubt as to the outcome of research and development expenditures, they are expensed immediately. View referenced content in book. 2388 Research and Development Costs

Answer 784

Serial Debenture bonds do not have a security interest in specific property. Variable rate debt has no fixed stated rate. Term bonds all mature together after a fixed term, but serial bonds mature in installments.

Answer 785

$0 Encumbrances reflect the estimated cost of goods and services and are recorded in the Encumbrances account temporarily from the time an order is approved (or a contract is signed) until the goods or equipment ordered are received (or the contract is filled) and recorded as actual expenditures against the appropriations. Encumbrances do not affect actual asset, liability, revenue, or expenditure accounts. Therefore, neither item of encumbrance listed here should be reported as a liability. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 786

Charges for services Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government's general revenues. Charges for services are always program revenues. Taxes are always general revenues, even if restricted to a particular program. Financing provided by the government itself is usually a general revenue. Proceeds from the sale of a capital asset and investment revenues are provided by the government itself. GASB 2200.135 View referenced content in book. 2421 Government-Wide Financial Statements

Answer 787

$450,000 When software costs are capitalized, yearly amortization of these costs is based on the greater of the ratio of current sales to expected total sales or the straight-line method over the useful life of the asset (four years). Sales ratio: 10% (0.10) × $600,000 = $60,000 Straight-line: (1/4) 25% (0.25) × $600,000 = $150,000 Since straight-line amortization is larger and is used, the remaining capitalized cost is $600,000 less $150,000, or $450,000. Since the net realizable value, $480,000, is greater than the $450,000, there is no need for an additional write-off. FASB ASC 350-40-35-4 states: Quote Amortization The costs of computer software developed or obtained for internal use shall be amortized on a straight-line basis unless another systematic and rational basis is more representative of the software's use. FASB View referenced content in book. 2391 Software CostsASC 985-20-35-4 states: Quote Net Realizable Value of Capitalized Software Costs At each balance sheet date, the unamortized capitalized costs of a computer software product shall be compared to the net realizable value of that product. The amount by which the unamortized capitalized costs of a computer software product exceed the net realizable value of that asset shall be written off.

Answer 788

Governments should only present that information needed to support their analysis of financial position and results of operations prescribed by GASB Statement 34 for MD&A.

Answer 789

$0 The following conditions are required to be met for revenue to be recognized from an initial franchise fee: “Franchise fee revenue from an individual franchise sale ordinarily shall be recognized, with an appropriate provision for estimated uncollectible amounts, when all material services or conditions relating to the sale have been substantially performed or satisfied by the franchisor.” (FASB ASC 952-605-25-1) “Substantial performance for the franchisor means that all of the following conditions have been met: “The franchisor has no remaining obligation or intent—by agreement, trade practice, or law—to refund any cash received or forgive any unpaid notes or receivables “Substantially all of the initial services of the franchisor required by the franchise agreement have been performed “No other material conditions or obligations related to the determination of substantial performance exist.” (FASB ASC 952-605-25-2) “If the franchise agreement does not require the franchisor to perform initial services but a practice of voluntarily rendering initial services exists or is likely to exist because of business or regulatory circumstances, substantial performance shall not be assumed until either the initial services have been substantially performed or reasonable assurance exists that the services will not be performed. The commencement of operations by the franchisee shall be presumed to be the earliest point at which substantial performance has occurred, unless it can be demonstrated that substantial performance of all obligations, including services rendered voluntarily, has occurred before that time.” (FASB ASC 952-605-25-3) Because North did not perform, in the current year, substantially all of the required services covered by the initial franchise fee, North cannot recognize any of the revenue from the initial franchise fee in the current year. View referenced content in book. 2251 Revenue Recognition

Answer 790

a disclosure of $20,000. Since the preferred stock is cumulative, Apex must pay dividends to preferred shareholders for every year before any dividend can be paid to common shareholders. Thus Apex should report dividends in arrears computed as follows: Dividend req for 20X1 (3,000 x $100 x.05) $15,000 Dividend req for 20X2 (3,000 x $100 x.05) 15,000 ------ Total requirement for 20X1 and 20X2 $30,000 Less dividends paid in 20X2 10,000 ------- Dividends in arrears $20,000 ======= However, dividends in arrears are not an accrued liability until actually declared. Thus, the reporting of dividends in arrears is achieved through disclosure either on the face of the balance sheet or in the notes.

Answer 791

$0 If the possibility that a company will be required to pay a contingent liability is reasonably possible, the liability is not required to accrue the liability. However, the nature of the liability and an estimate of the loss (or range of loss) must be disclosed. If it is probable that the company will acquire assets in the future due to the contingency, the gain cannot be recognized. In this problem, the “reasonably possible” loss will not be accrued, only disclosed. The contingent gain cannot be accrued. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 792

$1,220,000 Research and development costs are identified in five categories: 1. Materials, equipment, and facilities used in R&D activities 2. Personnel engaged in R&D activities 3. Intangibles purchased or developed for use in R&D activities 4. Contract services acquired and used in conjunction with R&D activities 5. Indirect costs reasonably allocable to R&D activities A particularly important aspect of determining whether items included in (1) and (3) above are research and development is whether the item (e.g., machinery, equipment, patent) has an alternative use in other R&D projects. If an alternative use exists, the cost is capitalized as a tangible or intangible asset and depreciated or amortized. The periodic depreciation or amortization is identified as R&D expense as long as the asset is used in R&D activity. If no alternative use exists, the expenditure is charged to R&D in the period of acquisition. Costs to obtain a patent are not R&D expenditures and should be capitalized. The research and development expenses include the following: Depreciation on equipment with an alternate use ($100,000 / 5) $ 20,000 Equipment for current project 200,000 Research and development salaries 400,000 Material and labor costs 600,000 ---------- Total $1,220,000 View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 793

Quality control during commercial production, including routine testing of products FASB ASC 730-10-20 defines research and development as follows: Quote Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service or a new process or technique in bringing about a significant improvement to an existing product or process. Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. Costs incurred after commercial production has begun are not research and development costs. FASB ASC 730-10-55-1 provides examples of activities included in research and development and FASB ASC 730-10-55-2 gives examples of those types of activities that are not research and development activities. View referenced content in book. 2388 Research and Development Costs

Answer 794

$0 FASB ASC 958-225-45-1 through 45-8 requires that all expenses be reported in the unrestricted category. Only net assets released from restriction reduce temporarily restricted revenue. In this problem the $30,000 investment income would increase temporarily restricted net assets and the release-from-restriction reclassification would reduce it $30,000. The $15,000 additional amount spent would come from unrestricted resources. The decrease in market value would affect only the endowment fund (classified as permanently restricted). View referenced content in book. 2512 Statement of Activities *VIDEO EXPLANATION 10/05

Answer 795

$48,000 The cost of the intangible asset-franchise is $60,000. It is not affected by the continuing franchise fees incurred during the life of the franchise, which are expensed as incurred. Straight-line amortization would be $12,000 per year ($60,000 ÷ 5 years). Therefore, at the end of the first year, the carrying value of the asset is $48,000 ($60,000 - $12,000).

Answer 796

A debit to bond discount of $1,000 The entry to record the bond issue would be: Cash 49,000 Bond discount 1,000 Bonds payable 50,000 Note This entry to record the issuance is the most common method discussed in textbooks, and thus is presumably the most commonly applied in practice, but net reporting is allowed (a credit to bonds payable of $49,000).

Answer 797

Operating income Operating income is a subtotal well before income tax expense. Income tax expenses during the period are specifically allocated to the other three answer choices (discontinued operations, income from continuing operations, and extraordinary gains and losses). The following items are subject to the application of intraperiod income tax allocation: ``` Discontinued operations Extraordinary items Cumulative effects of accounting changes Prior-period adjustments Direct adjustments to capital accounts ```

Answer 798

the conversion of the fund-based information to the government-wide financial statement format. Although classified as proprietary funds, the internal service funds of this town would be reported in the governmental activities column in the government-wide financial statements. Presenting them in a single column facilitates the preparation of the government-wide statements as the internal service fund operations of the town would be considered governmental activities and the enterprise operations would be considered business-like activities. Internal service funds are exempted from the major funds reporting requirements. All enterprise funds could be shown in a single column in the basic financial statements if none would need to be shown separately as a major fund. This aggregation does not change the notes disclosures required. Budgetary accounting, required for governmental funds, is not required for internal service funds. View referenced content in book. 2429 Deriving Government-Wide Financial Statements and …

Answer 799

$20,000 For Project 1: Percentage Completed = 20X1 costs / estimated total costs = $240,000 / ($240,000 + $120,000) = 2/3 Contract price recognized in 20X1 (2/3 x $420,000) $280,000 Less 20X1 cost incurred 240,000 -------- Gross profit from Project 1 $ 40,000 For Project 2: Contract price $300,000 Less actual& estimated cost to complete ($280,000 + $40,000) 320,000 -------- Estimated loss (20,000) -------- Pell's total 20X1 gross profit (loss) under percentage-of-completion $ 20,000 ======= Because Project 2 reflects an anticipated loss, the entire amount of the loss (not the percent completion of loss) must be recognized in accordance with the conservatism principle.

Answer 800

As a disclosure of a contingent gain of an undetermined amount in the range of $75,000 to $150,000 According to FASB ASC 450-30, gain contingencies should not be reflected in the accounts but should be given adequate disclosure. FASB ASC 450-30 reads: Quote A contingency that might result in a gain usually should not be reflected in the financial statements because to do so might be to recognize revenue before its realization. FASB ASC 450-30-25-1 Quote Adequate disclosure shall be made of contingencies that might result in gains, but care shall be exercised to avoid misleading implications as to the likelihood of realization. FASB ASC 450-30-50-1 Smith Co.'s financial statements should include a disclosure of a contingent gain with a range of $75,000 to $150,000. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 801

Unrestricted revenue: $975,000; Temporarily restricted revenue: $500,000 A not-for-profit entity should distinguish between contributions received with permanent restrictions, temporary restrictions, or no restrictions. The foundation should report unrestricted revenue of $975,000. This is the $875,000 contribution as well as the $100,000 in contributed services. The value of volunteer services is recognized as contributions insofar as the services require specialized skills, were provided by persons possessing those skills, and would typically have been purchased if not provided by donation. A promise to contribute a specified amount to an organization should be recorded as income immediately upon receipt of the promise. Because the promised contribution ($500,000 in this scenario) will not be collected until the subsequent year, it should be considered temporarily restricted. Because the promised contribution is expected to be collected within one year of the financial statement date, it may be measured at net realizable value. View referenced content in book. 2512 Statement of Activities

Answer 802

(Net income - Preferred dividends) / Weighted avg common shares outstanding This measures the income per share of common stock.

Answer 803

An exchange gain occurs when the exchange rate increases between the date a receivable is recorded and the date of cash receipt. Receivables denominated in a foreign currency entitle a company to a fixed number of units of the foreign currency. The U.S. dollar balance of the receivable is measured initially using the exchange rate in effect when the receivable is established. If the exchange rate is higher when the fixed number of units of the foreign currency is received (i.e., cash is received), the dollars received will exceed the balance of the receivable in dollars, and a gain will have occurred. View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward … * VIDEO EXPLANATION - When we have an exchange rate increase, that results in gains on assets & losses on liabilities - When we have an exchange rate decrease, we have losses on assets & gains on liabilities * If it's from USD to Euro --> this relationship becomes the opposite

Answer 804

Depreciation expense: No; Interest revenue: Yes A lease with transfer of title meets the criteria to be classified as a capital lease. The lessor (Able) should remove the asset from the books, record a receivable, and recognize interest revenue from the receivable. View referenced content in book. 2380 Leases

Answer 805

$500,000 FASB ASC 450-20-25 provides the following guidance when the estimated loss is in a range of values: When no amount within the range is a better estimate than any other amount, it is required that the minimum amount in the range shall be accrued. Thus, Steel Co. should report a liability from the lawsuit in the amount of $500,000, the minimum amount in the range. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 806

Measurement focus: Economic resources; Basis of accounting: Accrual GASB 1600.103 states that the financial statements prepared for government-wide reporting “should be prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues, expenses, gains, losses, assets, deferred outflows of resources, liabilities, and deferred inflows of resources…should be recognized when the exchange takes place.” This contrasts with governmental fund accounting, which recognizes transactions when cash is received or disbursed or expected to be received or disbursed within a short time. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 807

more CASH is paid.**

Answer 808

Indirect Method

Answer 809

estimated current value (assets) and estimated current amount (liabilities). FASB ASC 274-10-35-15 provides guidance for the preparation of personal financial statements. The following statement from that pronouncement relates to the estimation of income taxes: “A provision should be made for estimated income taxes on the difference between the estimated current values of assets and the estimated current amounts of liabilities and their tax bases including consideration of negative tax bases of tax shelters, if any.” View referenced content in book. 2151 Personal Financial Statements

Answer 810

All of the answer choices are acceptable methods to report taxable income. There are three acceptable methods to report taxable income: cash basis, accrual basis, and the hybrid method. IRC Section 446

Answer 811

Net income is computed as follows for Garnett Co.: Sales $32,000 Cost of sales ($50,000 x .40) (20,000) Commissions ($32,000 x .10) (3,200) Advertising expense (1,200) -------- Net income $ 7,600 ========

Answer 812

Unearned revenue for the entire proceeds Revenue is normally considered to be earned and recognizable when an exchange occurs. In this case, the exchange will occur when the performance is presented. Until that occurs, the entire proceeds from advance ticket sales should be treated as unearned revenue because before the performance the theatrical group has not earned the revenue. The nonrefundability of the tickets reflects the fact that no right of return exists for the buyer (i.e., the buyer cannot return the tickets). The nonrefundability in no way relieves the theatrical group of its obligation to earn the revenue by presenting the performance. (If the performance were canceled, the theatrical group would not earn the revenue and would be obligated to refund the proceeds from the advance ticket sales.)

Answer 813

$125,000. In a company purchase transaction, goodwill can be recognized. It is maintained at its purchase value, unless and until it is found to be impaired. Costs to maintain or develop goodwill are not capitalized, but are expensed.

Answer 814

I only The GASB Codification (Section I60.103) states: “Governmental entities should report securities lent (the underlying securities) as assets in their balance sheets.” Further, GASB I60.105 states that “securities lending transactions collateralized by letters of credit or by securities that the governmental entity does not have the ability to pledge or sell unless the borrower defaults should not be reported as assets and liabilities in the balance sheet.” View referenced content in book. 2441 Net Position and Components Thereof

Answer 815

Costs of start-up activities, including organization costs, should be expensed as incurred. An asset can be recorded only when the business is certain that it will derive a benefit from the expenditure. Certain expenditures for research and development, advertising, training, start-up and pre-operating activities, development stage enterprises, relocation or rearrangement, and goodwill are examples of the kinds of items for which assessments of future economic benefits may be especially uncertain. Consequently, expenditures for start-up costs should be expensed as incurred. View referenced content in book. 2252 Costs and Expenses

Answer 816

$5,400 Nongovernmental not-for-profit entities must depreciate all fixed assets used in operations except land. All expenses of nongovernmental not-for-profit entities must be reported as changes in unrestricted net assets. Donated assets must be recorded at fair value at the date of donation. Therefore, the depreciation expense both of the purchased vehicle ($15,000 ÷ 5 years, or $3,000) and of the donated vehicle ($12,000 ÷ 5 years, or $2,400) must be reported under changes in unrestricted net assets. The total depreciation expense of the two vehicles is $5,400. View referenced content in book. 2512 Statement of Activities

Answer 817

The organization reports the change in unrestricted net assets for the period. FASB ASC 958-225-45-9 allows a great deal of flexibility in presentation format for the statement of activities. Amounts required are changes in net assets for each of the three classes (unrestricted, temporarily restricted, and permanently restricted) and totals for revenues, expenses, gains, losses and the amounts of assets released from restriction (see FASB ASC 958-225-45-1 and 45-10). View referenced content in book. 2512 Statement of Activities

Answer 818

$360,000 RE on December 31, 20X1 $300,000 Add: 20X2 net income 60,000 -------- RE on December 31, 20X2 $360,000 Note The re-issuance of the 5,000 shares of treasury stock at $5 more per share than acquisition cost resulted in a credit to additional paid-in capital. Retained earnings were not affected. View referenced content in book. 2250 Equity

Answer 819

$201,900 Items to be included in the revenue section of the 20X2 income statement: Net sales revenue $187,000 Interest revenue 10,200 Gain on sale of equipment 4,700 -------- Total revenues $201,900 ======== Note Generally accepted accounting principles require that the other items listed appear in other sections of the income statement or in another financial statement.

Answer 820

The temporary idling of a long-lived asset Within the context of FASB ASC 410-10-20, the term “retirement” is defined as the other-than-temporary removal of a long-lived asset from service. It includes the sale, abandonment, recycling, or disposal in some other manner, but does not encompass the temporary idling of a long-lived asset. View referenced content in book. 2310 Asset Retirement and Environmental Obligations

Answer 821

$195,000 Tyre's current income tax expense is simply taxable income multiplied by the effective income tax rate. Current income tax expense = Taxable income x Tax rate = $650,000 x 0.30 = $195,000 Note Tyre also has a deferred income tax liability in the amount of $30,000 ($100,000 timing difference multiplied by the 30% tax rate). View referenced content in book. 2270 Income Taxes

Answer 822

$190,000 Summary journal entries needed to effect quasi-reorganization: Dr. Cr. Common stock* 250,000 Additional paid-in capital 250,000 Additional paid-in capital 210,000 Retained earnings 210,000 * Common stock reduced by ($30 - $5) x 10,000 = $250,000 The resulting balance in additional paid-in capital is $150,000 + $250,000 - $210,000 = $190,000. View referenced content in book. 2250 Equity

Answer 823

A statement of cash flows should be presented for proprietary funds only. Governments should present a statement of cash flows for proprietary funds using the DIRECT method of presenting cash flows from operating activities. GASB 2200.195 View referenced content in book. 2423 Proprietary Funds Financial Statements

Answer 824

Revenues Property taxes of a governmental unit can be accrued and recorded as a receivable and revenue when the property taxes are measurable and available. These revenues are considered measurable at the time the levy is approved by the legislative body. (The billing may occur immediately upon approval of the levy.) The availability criterion requires that the taxes be collected within the current period or soon enough thereafter to be used to pay liabilities of the current period. The length of time used to define available, often 60 days, should be disclosed in the notes to the financial statements. This problem assumes that the availability criterion is met. Therefore, the entry to record property taxes billed would credit revenues. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 825

rent expense equal to the 20X1 lease payments. In addition to transfer of title and bargain purchase option, FASB ASC 840-10-25-1 provides two additional criteria for determining whether a lease is a capital lease: 1. Lease term is 75% or more of economic life of leased asset. 2. Present value of minimum lease payments is 90% or greater of the fair value of the leased property. In Mollat's case the lease term is only 70% of economic life and the present value is only 80% of the equipment's fair value. The lease is, therefore, an operating lease and the lease payments should be reported as rent expense. View referenced content in book. 2380 Leases

Answer 826

Debt securities are sometimes issued in combination with stock purchase warrants. The warrants give the debt holder the right to purchase a specified number of shares of stock at a specified price. If the warrants are detachable, the proceeds from the bond issue must be allocated between the debt and the warrants on the basis of their relative fair values. The amount allocated to the warrants is accounted for as additional paid-in capital. If the warrants are NOT detachable, the proceeds should be allocated totally to the debt.

Answer 827

Net income will increase by $5,800. Options do not qualify for hedge accounting. The gain or loss must be currently recognized. $43 x 2,000 = $86,000; $86,000 + $400 = $86,400 $40 x 2,000 = $80,000; $80,000 + $600 = 80,600 ------- Gain = $ 5,800 View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 828

$1,000 Foreign currency amt at 09/01/X1 ($.74 x 50k) $37,000 Less: Foreign crncy amt at 09/30/X1 ($.72 x 50k)36,000 ------- Foreign exchange loss $ 1,000 ======= Note On September 1, 20X1, the 60-day forward rate is used while the rate used on September 30, 20X1, is the 30-day rate. Since the forward contract (the derivative) is for purposes of speculation, any associated exchange gain or loss must be included in net income. FASB ASC 815-25-35-15 addresses the use of hedges to control for foreign currency exposure. If a derivative qualifies as a hedge, FASB ASC 815-25-35-1 permits companies to match the timing of the gains and losses of hedged items and their hedging derivatives. For a fair value hedge, FASB ASC 815-25-35-1 permits the hedger to record the change in the fair value of the hedged item concurrently with the gain or loss on the hedging derivative. For a cash flow hedge, the effective portion of any changes in the hedging derivative's fair value is recorded in other comprehensive income until the change in the value of the hedged item is recognized in earnings. If a derivative does not qualify as a hedge, changes in its value must be reported in quarterly earnings. Speculative contracts do not quality as hedges and are still controlled by FASB ASC 830-20-35-1. For these derivatives, the change in fair value is recognized immediately in net income. View referenced content in book. 2363 Hedges of Foreign Currency Exposures That Do Not …

Answer 829

When the machines are sold Proper matching of revenues and expenses requires that if it is probable customers will make claims under warranties relating to goods that have been sold and a reasonable estimate of the costs can be made, the accrual method must be used. Therefore, Vadis Co. should recognize its warranty costs when the machines are sold.

Answer 830

Price A bond has a face amount of principal, which is the amount repaid to the owner of the bond at the end of its term. A bond has a coupon rate, which, when multiplied by the face (principal) amount, states the amount of (actual cash) interest paid to the bond owner annually. The value of owning the bond is the (present) value of these two rights, to be repaid the principal at the end of the bond's term, and to be paid the coupon rate of interest every year until then. The present value of these rights is the value of the bonds, hence the rational price. The present value is based on the market rate of interest, since this is the (rational) rate to charge, and discount based on what the market would require of the debtor. “Yield” is a synonym for market rate, and “par” is another term for face amount.

Answer 831

$40,000 A personal statement of financial condition consists of estimated current values of assets, liabilities, estimated income tax payable, and net worth at a specific date. Income taxes for 20X1 are not included because they were paid in full on April 15, 20X2. Estimated income taxes for any elapsed portion of a current year are included as income tax payable. The estimated tax liability on April 30, 20X2, is $20,000 and is included in current liabilities. For a personal financial statement, the estimated tax associated with the difference between the estimated value of assets and liabilities and their tax bases is shown between liabilities and net worth. That estimated tax for Green is given to be $40,000. The $20,000 is just a tax expense and tax payable!! It's not something that impacts our estimated tax.

Answer 832

Direct method GASB 2450.128 clarifies that, for proprietary funds, a statement of cash flows should be presented using the direct method. This contrasts with practice in not-for-profit and for-profit entities that follow FASB guidance allowing the use of either the indirect or the direct method. Thus, the other answer choices would not apply to the enterprise fund of a government. View referenced content in book. 2423 Proprietary Funds Financial Statements

Answer 833

$105,000 The landscaping costs represent a leasehold improvement. Leasehold improvements need to be amortized over the remaining term of the lease at the time of the improvement or the improvement's own useful life, whichever is shorter. Since there is no information indicating that the lease will be renewed beyond its original term, the most certain remaining lease term is eight years, which is shorter than the 15-year life of the landscaping. Therefore, the cost should be amortized over eight years. Recall that carrying value is amortized cost (cost less accumulated amortization). ``` $ 120,000 cost / 8 year life --------- $15,000 annual amortization ========= $ 120,000 cost - $15,000 accumulated amortization --------- $105,000 carrying value ========= ```

Answer 834

$50,000 The current-year effective annual tax rate is used for interim reports: $200,000 × 0.25 = $50,000 View referenced content in book. 2375 Interim Financial Reporting

Answer 835

Publicly traded enterprises FASB ASC 280-10-50-10 requires publicly held business enterprises to report certain information about their operating segments in their annual financial statements. View referenced content in book. 2390 Segment Reporting

Answer 836

the leasehold improvements. FASB ASC 840-10-25-1 provides four criteria for capital lease application: Transfer of ownership Bargain purchase option Lease term is 75% or more of asset life. Present value of lease payments equals or exceeds 90% of fair value of asset. Since none of these criteria is met by Vail's lease agreement, the building would not be capitalized. The leasehold improvements should be capitalized and amortized over the term of the lease. View referenced content in book. 2380 Leases

Answer 837

B - $61,500 In applying the percentage of receivables approach to bad debts, the allowance for doubtful accounts is the balance being estimated. The ending receivable balance is $510,000 plus $2.3 million less $1.9 million less $60,000 or $850,000. Because 5 percent is the estimated amount of uncollectible accounts, the company needs to report an allowance for doubtful accounts of $42,500 ($850,000 x 5 percent). Bad debt expense is the amount of adjustment that is needed so that the year-end allowance reports this $42,500. Prior to the adjustment, the allowance has a debit balance of $19,000 (the original $41,000 credit reduced by $60,000 in accounts written off). The company must turn the $19,000 debit balance into the proper $42,500 credit balance. To do so, an expense of $61,500 is recognized.

Answer 838

$51,700. When accounting for a discounted note and computing the cash proceeds, one must first find the maturity value of the note, what will be received by the holder of the note when it comes due. By the time of the discounting, some of the principal has already been paid. Only the second installment, the final $50,000 principal plus interest, will be paid to the bank when due. At the end of December, Year 2, the $50,000 will be received by the bank along with 10% interest (since the principal will have been outstanding for a whole year). On December 31, Year 2, a total of $55,000 maturity value will be due: $50,000 + ($50,000 × 0.1) = $55,000 The discounted proceeds will be based on this amount, the discount rate (0.12), and the discounting period (from July to December of Year 2, 6 months). The discount amount is thus: $55,000 × 0.12 × 6/12 = $3,300 The cash proceeds are the maturity value less the discount: $55,000 – $3,300 = $51,700

Answer 839

Moss' share of preferred dividends = 20% x 10% x $100,000 = $2,000 Earnings attributable to common shareholders = $60,000 - 10% x $100,000 = $50,000 Moss' share of common earnings = 80% x $50,000 = $40,000 Moss' total equity in Dubro earnings = $2,000 + $40,000 = $42,000 FASB ASC 323-10-35-16 states: “If an investee has outstanding cumulative preferred stock, an investor shall compute its share of earnings (losses) after deducting the investee's preferred dividends, whether or not such dividends are declared.” These amounts may be adjusted later into consolidated statements.

Answer 840

Loss of plant or inventories as a result of fire or natural disaster that occurred after the balance sheet date but before financial statements are issued or are available to be issued The correct answer is “loss of plant or inventories as a result of fire or natural disaster that occurred after the balance sheet date but before financial statements are issued or are available to be issued.” An entity must not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date but before financial statements are issued or are available to be issued. The other answer choices are incorrect because an entity must recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet. View referenced content in book. 2392 Subsequent Events

Answer 841

$118,220 The amount of goods available for sale is calculated as beginning inventory plus net purchases. Net purchases include purchase discounts (which reduce purchase costs) and freight-in (which increases purchase costs). Using the periodic inventory method, goods available for sale are either (1) sold during the period or (2) still on hand at period's end. To determine the cost of goods sold, subtract the ending inventory from the goods available for sale. Beginning inventory $30,840 --------- Plus net purchases Purchases $102,800 Purchase discounts (10,280) Freight-in 15,420 --------- Net purchases 107,940 --------- Goods available for sale 138,780 Less ending inventory (20,560) --------- Cost of goods sold $118,220 ========= Freight-out is not a cost of goods sold item.

Answer 842

Sales or Revenue / Average Total Assets It is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue or sales income to the company. Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.

Answer 843

The 1934 Securities Exchange Act Both the 1933 Securities Act and the 1934 Securities Exchange Act were designed to restore investor confidence after the 1929 stock market crash. The 1933 act contains accounting and disclosure requirements for the initial offering of stocks or bonds. In addition to requirements for secondary market offerings, the 1934 Securities Exchange Act created the Securities and Exchange Commission (SEC). View referenced content in book. 2111 U.S. Securities and Exchange Commission (SEC)

Answer 844

$200,000 Normally, resources provided before that period of qualifying activity should be recognized as deferred revenues. Insofar as the amount of qualifying expenditures was less than the amount of the advance, the deferred revenues would be equal to the difference. Advance received $1,000,000 Qualifying expenditures 800,000 ---------- Deferred revenues $ 200,000 ========== GASB N50.118 View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 845

$545,000 Regardless of whether the direct or indirect method is used to determine cash flows from operating activities, the following items are required to be disclosed: Amount of income taxes paid during the period ($325,000) Amount of interest paid during the period ($220,000) $325,000 + $220,000 = $545,000 View referenced content in book. 2135 Statement of Cash Flows

Answer 846

Net Income / Sales This measures net profitability on sales.

Answer 847

Classify as building and depreciate FASB ASC 360-10-30-1 provides that: Quote If an asset requires a period of time in which to carry out the activities necessary to bring it to that condition and location, the interest cost incurred during that period as a result of expenditures for the asset is a part of the historical cost of acquiring the asset. The $186,000 should be classified as building cost and would be depreciated.

Answer 848

No possibility of future gain or loss The purpose of a hedge is to reduce exposure to a particular type of risk. A perfect hedge would remove all of the risk—that is, remove the possibility of any future gain or loss. View referenced content in book. 2363 Hedges of Foreign Currency Exposures That Do Not …

Answer 849

Fair value - cost to sell = Net Realizable Value (NRV) If CV > NRV then record a loss If CV

Answer 850

Balance of "allowance" on 01/01/X1 $30,000 Less balance of "allowance" on 12/31/X1 ($350,000 - $325,000) 25,000 -------- Decrease in "allowance" (i.e., debits) $ 5,000 ======== Net write-offs of accounts receivable ($18,000 - $2,000) $16,000 Less decrease in "allowance" account ($30,000 - $25,000) (5,000) -------- Uncollectible accounts expense (i.e., credits to "allowance" account) $11,000 ======== Allowance for uncollectible accounts: Beginning balance $30,000 Uncollectible accounts written off (18,000) Written-off accounts now collectible 2,000 Uncollectible accounts expense ? -------- Year-end balance $25,000 ======== Thus, the expense (“?”) equals $11,000. Note that $350,000 accounts receivable less the allowance for uncollectible accounts (i.e., $25,000) equals the $325,000 net accounts receivable.

Answer 851

$14,000 Accounts receivable has $200,000 less $150,000 less $10,000 in each year. That means the balance at the end of the first year is $40,000 and then $80,000 at the end of the second year. The allowance account is $4,000 (10 percent of $40,000) at the end of Year One. The $10,000 in write-offs in Year Two reduces this $4,000 allowance to a negative (debit) balance of $6,000. At the end of the second year, the allowance needs to be an $8,000 credit ($80,000 times 10 percent). To adjust a $6,000 debit to an $8,000 credit requires expense recognition of $14,000.

Answer 852

$6,600 The initial payments should be spread over the contract year. (Eight months remain in the contract year: January 1–August 31, 20X2.) The unearned initial payments (i.e., deferred revenue) on December 31, 20X1, are: Plan 1 = $500 x 15 = $7,500 / 12 mos. = $625 x 8 mos. = $5,000 Plan 2 = $200 x 12 = $2,400 / 12 mos. = $200 x 8 mos. = 1,600 ------ Total deferred revenue on December 31, 20X1 $6,600 ====== The monthly fees are earned each month as received. Since no monthly fees are received in advance (for the 8 months in 20X2 remaining on the contract), no deferred revenue results.

Answer 853

$250,000 The single-step income statement presents all revenue and gains in the upper part of the statement. Purchase discounts are shown as deductions in the expense section. Recovery of accounts written off has no effect on the income statement since cash is increased and allowance for doubtful accounts is decreased.

Answer 854

Redemption of certificates: Decrease; Lapse of certificates: Decrease Upon sale of the gift certificates, deferred revenue increases, but upon redemption and use of the gift certificates (or lapse), the deferred revenue can be recognized as revenue, and the deferred revenue is lessened.

Answer 855

a summer camp for homeless children supported by contributions. Of the not-for-profit entities listed, the trade association and residential school are not supported primarily by public donations. Although the art museum is primarily supported by the public, it does not provide health and welfare benefits to society. The summer camp is both supported by public donations and provides welfare services, and it is the only voluntary health and welfare entity listed. A statement of functional expenses is required for voluntary health and welfare entities. FASB ASC 958-205-45-6 View referenced content in book. 2501 Not-for-Profit (Nongovernmental) Accounting and …

Answer 856

Both a statement of net assets available for benefits of the plan as of the end of the plan year and a statement of changes in net assets available for benefits of the plan for the year then ended must be filed. Employee benefit plans and trusts must prepare two financial statements according to GAAP: A statement of net assets available for benefits of the plan as of the end of the plan year A statement of changes in net assets available for benefits of the plan for the year then ended

Answer 857

$900,000 Under the book value method, the basis of the transaction is the carrying amount of the bonds converted. The entry to record the conversion is: Bonds payable 1,000,000 Discount on bonds payable 100,000 Common stock 100,000 Paid-in capital in excess of par 800,000 The increase to stockholders' equity is common stock of $100,000 and paid-in capital of $800,000 ($900,000).

Answer 858

Factoring Factors are firms that buy accounts receivable from firms at a discounted price. This provides the seller with cash flow advantages and can transfer the costs associated with credit granting and collections to the factor.

Answer 859

$16,000 Minimum purchase commitment for 20X2 and 20X3 (100,000 units x $.10/u x 2 years) $20,000 Less scrap recovery (100,000 units x $.02 x 2 years) 4,000 ------- Probable loss from purchase commitment $16,000 ======= $200,000 x 0.08 = $16,000 Note The question asks for the probable loss from purchase commitment (i.e., the loss for the remaining two years on the contract). The loss on the 250,000 units already in inventory is not considered part of this loss; it would be reported as an operating loss due to the write-down of inventory due to obsolescence. View referenced content in book. 2132 Income Statement/Statement of Profit or Loss

Answer 860

$20,000 Under FASB ASC 805-30-30-1, the excess of acquisition price over the net value of the identifiable assets acquired is accounted for as goodwill: Quote Measurement of Goodwill The acquirer shall recognize goodwill as of the acquisition date, measured as the excess of (a) over (b): The aggregate of the following: The consideration transferred measured in accordance with this Section, which generally requires acquisition-date fair value (see paragraph 805-30-30-7) The fair value of any noncontrolling interest in the acquiree In a business combination achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest in the acquiree. The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this Topic. Acquisition price $300,000 Less fair value of net assets: Current assets $ 40,000 PPE ($380,000 + $60,000) 440,000 -------- Subtotal 480,000 Less liabilities 200,000 280,000 -------- -------- Excess of acquisition price over fair value of net assets = Goodwill $ 20,000 ======== View referenced content in book. 2315 Business Combinations

Answer 861

$952,500 The numerator will be Net income + Interest (net of tax). Net income $600,000 Interest: Cash ($5,000,000 x .09) $450,000 Discount amortization 20,000 Tax ($470,000 x .25) (117,500) 352,500 -------- Numerator $952,500 View referenced content in book. 2335 Earnings per Share

Answer 862

As a memorandum entry reducing the unit cost of all Guard stock owned A company using the equity method to account for an investment does not recognize dividends received as revenue. When a cash dividend is received, the receipt of cash is treated as a liquidation of the investment and the carrying amount of the investment is reduced by the amount of the dividend. However, when additional stock shares are received in lieu of cash, no liquidation of the investment has occurred. Instead, the investment carrying value now applies to a larger number of shares held by the investor. Therefore, the investor needs only to note that the value per share of its investment has decreased and the number of shares has increased.

Answer 863

``` RELEVANCE: -Predictive value -Confirmatory value -Materiality FAITHFUL REPRESENTATION: -Completeness -Neutrality -Free from error ```

Answer 864

$100 When you apply the par value method to account for treasury stock, you have to know (or approximate) the original entry made upon issuance of the stock, and partially undo it. ``` Cash 700 ($7 per share x 100 shares) Common Stock 600 ($6 par x 100 shares) APIC 100 (plug) ``` When the stock is reacquired, the credits to common stock and additional paid-in capital must be debited to undo the original issuance. Common Stock 600 APIC 100 Retained Earnings 300 (plug) Cash 1,000 $10x100 shares paid2buy Hence, additional paid-in capital decreases with a debit (equity, normal credit balance). Some sources (e.g., Kieso, 7th edition) point out that the retained earnings debit could go against a prior credit balance in additional paid-in capital. View referenced content in book. 2250 Equity

Answer 865

The translation loss less the exchange gain is reported in other comprehensive income. Both of the items involved, the translation loss on the investment in the subsidiary and the partial hedge through the borrowing of euros, are items that will be reported in other comprehensive income. Since one is a gain and the other is a loss, the net effect of both is reported in other comprehensive income. View referenced content in book. 2366 Foreign Currency Net Investment in a Foreign Entity …

Answer 866

$1,020,000 For investments in debt securities, like a bond, the owner must decide if they can and intend to hold the debt until it matures, which Barton seems not to intend. The bond could then be either a trading or an available-for-sale item, both of which are carried at fair value on the balance sheet.

Answer 867

Extraordinary items FASB ASC 225-20-45-2 provides two criteria for extraordinary item status: Unusual in nature Infrequent in occurrence Based on the information given, Packet Corp. should classify the loss as an extraordinary item. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 868

decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter. FASB ASC 270-10-45-6 provides that inventory losses from market declines should be recognized in the interim period in which the decline occurs. If these losses are recovered in a later period a gain should be recognized in that period but these gains “should not exceed previously recognized losses.” In regard to the situation described in the question, the dollar amount of inventory would DECREASE by the amount of price decline in the first quarter and INCREASE by the same amount in the third quarter. View referenced content in book. 2375 Interim Financial Reporting

Answer 869

$1,500 A foreign currency transaction loss occurred because it cost more to purchase the units of foreign currency on December 31 ($.70) than it cost when the transaction originated on September 22 ($.55) The amount of loss would be computed: Transaction loss = Number of units x Change in rate = 10,000 x ($.70 - $.55) = 10,000 x $.15 = $1,500 View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward …

Answer 870

reclassify the asset(s) and report it separately on the balance sheet. If the secured party (transferee) has the right by contract or custom to sell or repledge the collateral, then the obligor (transferor) shall reclassify that asset and report that asset in its statement of financial position separately (for example, as security pledged to creditors) from other assets not so encumbered.

Answer 871

how the governmental entity met its cash requirements. To achieve the objective of providing information to assist users in assessing the level of services that can be provided by the entity and its ability to meet its obligations as they become due, financial reporting should provide information about: - the financial position and condition of the governmental entity, - the governmental entity's physical and other nonfinancial resources, and - legal or contractual restrictions of resources and risks of potential loss of resources. - Information about how the governmental entity met its cash requirements is related to the objective of providing information to assist users in evaluating the operating results of the governmental entity. (GASB Concepts Statement 1) View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 872

Both a statement of net assets in liquidation and a statement of changes in net assets in liquidation FASB ASC 205-30-45 requires that, when liquidation becomes imminent and at subsequent reporting dates, the entity must present both a statement of net assets in liquidation and a statement of changes in net assets in liquidation.

Answer 873

a contract that has its settlement value tied to an underlying notional amount. A derivative instrument has three characteristics: There is an underlying or notional amount. There is little or no initial net investment. Its term requires or permits net settlement. View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 874

$3,060,000 The extraordinary gain is determined as follows: Consideration transferred $2,680,000 Net fair value 5,740,000 Extraordinary gain $3,060,000 View referenced content in book. 2315 Business Combinations

Answer 875

This is used by retailers to estimate the cost of ending inventory Basic steps 1. Calculate ending inventory at retail prices 2. Calculate the cost to retail ratio 3. Apply cost to retail ratio to ending inventory at retail prices to get ending inventory at cost.

Answer 876

Purchase of fixed assets Purchase of fixed assets is an example of an expenditure and reduces the excess of revenues over expenditures. Transfers between funds are recorded as “other financing sources and uses.” Proceeds from the sale of capital assets is an example of a special item. Special items are shown on the statement after the excess of revenue over expenditures. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 877

The loss on account receivable resulting from a customer's bankruptcy relates to an account that existed on the balance sheet date and an adjustment is needed. FASB ASC 855-10 provides guidance as to subsequent events that require recognition: Quote An entity shall recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. FASB ASC 855-10-25-1 Quote The following are examples of recognized subsequent events: a. If the events that gave rise to litigation had taken place before the balance sheet date and that litigation is settled, after the balance sheet date but before the financial statements are issued or are available to be issued, for an amount different from the liability recorded in the accounts, then the settlement amount should be considered in estimating the amount of liability recognized in the financial statements at the balance sheet date. b. Subsequent events affecting the realization of assets, such as receivables and inventories or the settlement of estimated liabilities, should be recognized in the financial statements when those events represent the culmination of conditions that existed over a relatively long period of time. For example, a loss on an uncollectible trade account receivable as a result of a customer's deteriorating financial condition leading to bankruptcy after the balance sheet date but before the financial statements are issued or are available to be issued ordinarily will be indicative of conditions existing at the balance sheet date. Thus, the effects of the customer's bankruptcy filing shall be considered in determining the amount of uncollectible trade accounts receivable recognized in the financial statements at the balance sheet date. FASB ASC 855-10-55-1 View referenced content in book. 2392 Subsequent Events

Answer 878

All of the answer choices are correct. Information about the extent of reliance on major customers is required where 10% or more of the enterprise's revenue is derived from a single customer. Required information is: - the fact that one (or more) individual customer(s) account for 10% or more of the enterprise's revenue. - the total amount of revenue from each such customer. - identification of the segment(s) reporting the revenue. In meeting these requirements, the identity of the customer is not necessary. A group of entities under common control are considered a single customer, as are each of the following: the federal government, a state government, a local government, and a foreign government. View referenced content in book. 2390 Segment Reporting

Answer 879

$475,000 FASB ASC 830-30-45-3 requires that the financial statements of a foreign subsidiary be translated to U.S. dollars. The exchange rate used for translation of assets is the current exchange rate. The translation using current rates is $475,000. View referenced content in book. 2367 Translation of Foreign Currency Financial Statements

Answer 880

8.57% Since Sun Co. did not specify the borrowings were for the fixed assets, the capitalized rate should be the weighted average of the applicable rates. Interest on the two debts is $480,000 and $720,000 for a total of $1,200,000. $1,200,000 ÷ $14,000,000 = 8.57%

Answer 881

If the percentage of sales method is selected, net income will be $3,000 lower than if the percentage of receivables method is selected. If the percentage of sales method is used, bad debt expense is simply the estimated percentage multiplied by sales. Here, the expense is 2 percent of $1.2 million or $24,000. The percentage of receivables method is a bit more complex. The percentage is multiplied times the receivable balance and the resulting figure is the ending balance for the allowance for doubtful accounts. For Andersen, that is 4 percent of $500,000 or $20,000. The expense, though, in this second method, is the amount needed to adjust the allowance to that figure. Because the allowance already has a $1,000 debit balance but now should report a $20,000 credit (as a contra asset), an expense of $21,000 is needed to turn the $1,000 debit into a $20,000 credit. The percentage of sales method reports expense of $24,000. The percentage of receivables method reports expense of $21,000. Under the percentage of sales method, net income will be $3,000 lower.

Answer 882

a direct reduction from the face amount of the note. A note payable is sold at a discount when it is issued for less than face value. This would be recorded by the issuer as follows: Dr. Cr. Cash or other asset XX Discount or Note payable X Note Payable XXX This note would be reported on the balance sheet as follows: Note Payable XXX Less: Discount X --- Notes Payable (net of discount) XX The discount is reported as a direct reduction from the face amount of the note. View referenced content in book. 2252 Costs and Expenses

Answer 883

$1,000,000 The general fund is the primary fund in governmental accounting and reports items that do not meet specific restrictions for the other type of funds. The unrestricted state grant of $1,000,000 in cash would meet the criteria for the general fund. Fiduciary funds are used to report assets and liabilities held in trust for the benefit of another. A common example of a fiduciary fund would be employees’ pensions, thereby eliminating the bank account interest of $200,000 from being accounted for in the general fund. As a result, $1,000,000 is the proper answer. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 884

Allowance for Doubtful Accounts had a credit balance of $9,000 on December 31. Record the adjusting journal entry for bad debt. The adjusted balance in Allowance for Doubtful Accounts is $14,360. Since the unadjusted balance is $9,000, we need to record bad debt of $5,360. [14,360-9,000] Dr. Bad Debt Expense 5,360 Cr. Allowance for Doubtful Accounts 5,360 Example: Record the adjusting entry assuming the same facts as above, except the Allowance for Doubtful Accounts has a debit balance of $2,000. Since Allowance for Doubtful Accounts has a normal credit balance, a debit balance in the account is like overdrawing the account. We need to bring the account even, then add enough to get the balance to $14,360. Therefore, we want to add the amounts. You could also look at it like this: New balance – old balance = amount of adjustment $14,360 – $(-2,000) = $16,360 Dr. Bad Debt Expense 16,360 Cr. Allowance for Doubtful Accounts 16,360 The most important thing to remember when working with the allowance methods for bad debt is to know what you have calculated! Once you figure a dollar amount, ask yourself if that amount is the bad debt expense or the allowance. If it is the allowance, you must then figure out how much bad debt to record in order to get to that balance.

Answer 885

45,000 Months Weighted No. Shares x Outstanding = No. shares Shares outstanding 1/1-12/31 20,000 x 12 = 240,000 Add shares resulting from 2-for-1 20,000 x 12 = 240,000 stock split Shares issued 7/1 10,000 x 6 = 60,000 (10,000 x 1/2 year) ------- Total shares used to calculate 20X1 earnings per share 540,000 Divided by 12 months / 12 ------- Weighted-average shares 45,000 Note The stock split is treated retroactively as if it had occurred at the beginning of the period. View referenced content in book. 2335 Earnings per Share

Answer 886

Both U.S. GAAP and IFRS use the term “retained earnings.” Both GAAP and IFRS (International Financial Reporting Standards) use the term “retained earnings.” IFRS includes a “revaluation surplus” related to revaluation of property, plant, and equipment; mineral resources; and intangible assets. IFRS uses different stock account titles than U.S. GAAP. Instead of “Common Stock,” IFRS uses an account titled “Share Capital.” IFRS accounts for treasury stock retirements only by charging an excess in purchase price and issue cost to paid-in capital. View referenced content in book. 2134 Statement of Changes in Equity

Answer 887

COGS - Beg Inventory + End Inventory = Purchases

Answer 888

$26,000. The royalty revenue should be based on the trademark sales during Year 2 (15% of them). The amount received on September 15 of Year 2, $17,000, was for the sales for the first 6 months of Year 2, and the estimated sales for the last 6 months of Year 2 were $60,000 in total. The royalty revenue for Year 2 was the $17,000 plus 15% of the $60,000 for a total of $26,000 ($17,000 + (0.15 × $60,000)). View referenced content in book. 2132 Income Statement/Statement of Profit or Loss

Answer 889

matching. The definition of matching is recording expenses and expired costs necessary to generate revenue in the same period as the revenue. View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 890

$415,000 At the fund level, derived tax revenues are reported using the modified accrual method. Using modified accrual, that portion of the ending receivable which is measurable but not available, or accounted for as an allowance, is accounted for as deferred revenue. Deferred Revenues Ending receivable $600,000 Less collections June 30 through August 30 (125,000) Less ending allowance for doubtful accounts (60,000) --------- $415,000 ========= View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 891

30.0 days The average collection period for accounts receivable is computed by dividing account receivable turnover into 360 days. Accounts receivable turnover is computed as follows: Net credit sales $3,000,000 $3,000,000 12 ---------- = --------------------- = ------------ = Times Average ($100,000 + $400,000) $250,000 a year accounts ------------------- receivable 2 360 days -------- = 30.0 days 12

Answer 892

$302,000 When the bonds are converted, their carrying value is removed from the company books. The bonds' carrying value is the par less the discount, or $775,000 less $23,000 for $752,000 total bond carrying value. Upon conversion into equity, the stock goes into the common stock account at number of shares converted into times par, or 90,000 × $5, for a total of $450,000 going into the common stock account. The rest of the bond carrying value goes into additional paid-in capital, thus $752,000 less $450,000 for a total of $302,000.

Answer 893

$17,000 Capital lease liability before first payment $270,000 Less December 31, 20X1, payment (all attributed to reduction in lease liability) 40,000 -------- Capital lease liability at 01/01/X2 $230,000 ======== December 31, 20X2, lease payment $40,000 Less interest portion (10% x 230,000) 23,000 ------- Amount considered reduction in lease liability $17,000 ======= View referenced content in book. 2380 Leases

Answer 894

$15,000 FASB ASC 845-10-30-1 specifies that the accounting for nonmonetary exchanges generally should be accounted based on fair values, which is the same basis as that used for monetary transactions. FASB ASC 845-10-30-3 provides three exception cases in which a nonmonetary exchange should be recorded based on the recorded amount (book value) of the assets surrendered: 1. Fair value is not determinable. 2. Exchange transaction is to facilitate sales for customers. 3. Exchange transaction lacks commercial substance. In determining if a nonmonetary exchange has commercial substance, the key issue is to determine if the exchange is expected to significantly change the entity's future cash flows. FASB ASC 845-10-30-4 specifies that the entity's future cash flows are expected to change significantly if either of the following criteria is met: 1. The configuration (risk, timing and amount) of the future cash flows of the asset(s) received differs significantly from the configuration of the future cash flows of the asset(s) transferred. 2. The entity-specific value of the asset(s) received differs from the entity-specific value of the asset(s) transferred, and the difference is significant in relation to the fair values of the assets exchanged. In Dahl's case, criterion (1) is met because the configuration of the future cash flows associated with the asset received (a new van) differs significantly from the future cash flows of the asset surrendered (the old van and cash). Therefore, the exchange has commercial substance and must be accounted for based on fair value. Dahl should record the new van at the $50,000 fair value of the assets surrendered ($5,000 cash + $45,000 fair value of old van). The $15,000 difference between the $30,000 carrying amount of the old van and its fair value of $45,000 should be recognized as a gain. The entry is: Van (new) $50,000 Van (old) $30,000 Cash 5,000 Gain 15,000 View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 895

$6,000 Initial capital investment $2,000 Add: Service revenue collected 5,000 ------- Subtotal $7,000 Deduct: Cash withdrawn (1,000) ======= Capital balance on March 31, 20X1 $6,000 Under the cash method, expenses would be recorded in April when paid. View referenced content in book. 2135 Statement of Cash Flows

Answer 896

$5,000,000 The statement of financial position of a not-for-profit entity shall report the amounts of three classes of net assets: unrestricted, temporarily restricted, and permanently restricted, depending on whether there are donor-imposed restrictions. The shares valued at $5,000,000 would be reflected in temporarily restricted net assets, as the donor requires that they be sold and the proceeds used for a specific purpose. In contrast, assets donated with a stipulation that they be invested permanently to provide income, like the shares valued at $2,000,000, should be reflected in permanently restricted net assets. FASB ASC 958-210-45-9 View referenced content in book. 2511 Statement of Financial Position

Answer 897

Interest revenue has a different meaning depending on whether the accrual basis or cash basis of accounting is used. Under the accrual method, all accumulated interest is counted as interest revenue, even if it has not actually been paid yet. Meanwhile, under the cash method, interest is not recorded as revenue until it is actually paid. For example, if a company has received $10,000 in interest payments during a particular quarter and accrued another $5,000 in owed interest, then it would report $15,000 in interest revenue under the accrual method. Under the cash method, only the $10,000 that was actually received would be reported as revenue on the income statement.

Answer 898

Selling Price - Cost / Selling Price

Answer 899

estimated current value (assets) and estimated current amount (liabilities). FASB ASC 274-10-35-15 provides guidance for the preparation of personal financial statements. The following statement from that pronouncement relates to the estimation of income taxes: “A provision should be made for estimated income taxes on the difference between the estimated current values of assets and the estimated current amounts of liabilities and their tax bases including consideration of negative tax bases of tax shelters, if any.”

Answer 900

$100,000 The total fair value of the compensation for the stock options must be decided at the grant date, and the total compensation must be recognized evenly over the vesting period during which it is earned. $300,000 ÷ 3 years = $100,000 compensation expense per year View referenced content in book. 2265 Stock Compensation (Share-Based Payments)

Answer 901

$68,000 Factoring a receivable without recourse is, in effect, a sale of the receivable. Amount factored $80,000 10% sales return allowance (8,000) 5% commission (4,000) -------- Cash received by Aloe $68,000

Answer 902

Statistical The CAFR (comprehensive annual financial report) of a government includes three sections: Introductory, Financial, and Statistical. An investment is a type of asset. “Actuarial” describes the process of estimating future liabilities based on expected life spans. A “single audit” is an entity-wide audit meeting specific federal guidelines for entities that receive and expend certain federal grants or other resources. View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 903

The difference between total assets and total liabilities after deducting estimated income taxes on the difference between the estimated values of assets and liabilities and their tax bases.

Answer 904

$340,000 The $10,000 patent cost will be capitalized as an intangible asset in accordance with the provisions of FASB ASC 350-30-25-1. The remaining costs are considered to be research and development costs, as defined in FASB ASC 730-10-55-1. Special developmental equipment and prototypes are addressed in FASB ASC 730-10-55-1. They are considered to be research and development costs which “shall be charged to expense when incurred.” Thus the entire $340,000 ($60,000 + $200,000 + $80,000) would be expensed. View referenced content in book. 2388 Research and Development Costs

Answer 905

The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability. FASB ASC 210-10-20 defines current assets as: Cash and other assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. According to this pronouncement, cash which is “restricted as to withdrawal or use” should not be included in current assets. Thus, the segregated account should be classified as a noncurrent asset. The regular account is a current asset. The overdrawn account is a liability rather than an asset. It should be reported as a current liability.

Answer 906

$9.00 Basic earnings per share is (Net income - Preferred stock dividends) ÷ Weighted-average common shares. $2,000,000 - (20,000 × $100 × 0.10) ÷ 200,000 = $9.00 View referenced content in book. 2335 Earnings per Share

Answer 907

$7,600 FASB ASC 830-10-45-17 provides that remeasurement for transactions denominated in a currency other than the functional currency will give rise to a “foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes.” FASB ASC 830-30-45-12 states, “Translation adjustments shall not be included in determining net income but shall be reported separately and accumulated in comprehensive income.” Based on this, Park should include the $7,600 remeasurement gain in its income statement, but not the translation gain. View referenced content in book. 2367 Translation of Foreign Currency Financial Statements

Answer 908

Capital The lessee must classify a lease as a capital lease instead of an operating lease if any one of the following four criteria is met: 1. The lease transfers ownership to the lessee by the end of the lease term (not met in this lease). 2. The lease contains a bargain purchase option (not indicated for this lease). For leases consummated in the first 75% of the economic useful life of the leased asset: 3. The noncancelable lease term is at least 75% of the remaining economic useful life of the leased asset (true for this lease). 4. The present value of the minimum lease payments is at least 90% of the fair value of the leased asset (less any investment tax credit retained by and expected to be realized by the lessor) at the inception of the lease (true for this lease). Crane's lease meets two of these criteria (only one is necessary). For the lessee, no other criteria have to be met. Crane is the lessee; therefore, the lease is a capital lease for Crane. View referenced content in book. 2380 Leases

Answer 909

$178,000 Reported retained earnings (12/31/X1) $150,000 Correction of error: INCREASE in income* $40,000 Less income taxes (30%) -12,000 Prior period adjustment +28,000 Adjusted beginning retained earnings $178,000 View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 910

All of the answer choices are differences in U.S. GAAP and IFRS. There are very few differences between International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP) income statements. Some of the differences follow: - Under IFRS, companies may classify expenses by either nature (salaries, rent, etc.) or function (cost of goods sold, sales, etc.). - Under IFRS, if a company uses the functional method, it must disclose expenses by nature in the notes to the financial statement. - Under IFRS, net income or loss is simply “income” or “loss.” - Extraordinary items are prohibited under IFRS. - The IFRS definition of discontinued operations is narrower than that of U.S. GAAP. View referenced content in book. 2132 Income Statement/Statement of Profit or Loss

Answer 911

$7,500 The reconciliation of the $1,500 increase in governmental fund balances (modified accrual basis) to the government-wide change in net position (full accrual basis) involves adding back the expenditure recorded in the governmental funds when the capital assets were purchased ( + $9,000) and subtracting the depreciation expense required with full accrual ( - $3,000). GASB 2200.160 View referenced content in book. 2422 Governmental Funds Financial Statements

Answer 912

Legal costs incurred to successfully defend an internally developed patent should be capitalized and amortized over the patent's remaining economic life. In general, the cost of internally developed patents should be expensed in the period incurred. An exception to this is the treatment of legal costs related to patents as required by FASB ASC 730-10-55-2. In a listing of examples of activities to be excluded from research and development treatment (i.e., expensed when incurred) is: Quote i. Legal work in connection with patent applications or litigation, and the sale or licensing of patents. This means that legal costs related to the successful defense of internally developed patents should be capitalized and amortized over the patent's remaining economic life. FASB ASC 350-30-35-14 requires that intangibles subject to amortization also be assessed for impairment. View referenced content in book. 2388 Research and Development Costs

Answer 913

Additional paid-in capital increased in 20X2; no effect on net income. The only accounting effect of the issue and exercise of the warrants would be a memo entry to record the issuance of warrants on November 2, 20X1, and the following journal entry to record the exercise of warrants on March 1, 20X2: Cash XX Common stock XX Additional paid-in capital XX (We know there was additional paid-in capital because the exercise price was $30, $10 more than the par value of the stock.) As a result, additional paid-in capital increased in 20X2, but net income was not affected.

Answer 914

$260,000 Retained earnings on December 31, 20X1, would be computed: Total income since incorporation $420,000 Less cash dividends $130,000 Property dividends 30,000 160,000 -------- -------- Retained earnings on Dec 31, 20X1 $260,000 Note The excess of proceeds over cost of treasury stock sold would be credited to “additional paid-in capital” under the cost method. View referenced content in book. 2134 Statement of Changes in Equity

Answer 915

$527,500 $ 525,000 Dec 31, 20X1, inventory at base-year cost - $500,000 January 1, 20X1, inventory at base-year cost ---------- $25,000 20X1 layer at base-year cost x 1.10 20X1 index ---------- $27,500 20X1 layer at December 31, 20X1, cost ========== Dollar-value LIFO inventory on December 31, 20X1 Base-year layer $500,000 20X1 layer at 20X1 cost 27,500 -------- Total $527,500 ========

Answer 916

Describes a company's financial position (types and amounts of assets, liabilities, and equity) at a point in time.

Answer 917

$14,000 Count the months carefully!! The interest is calculated as: Principal ($300,000) × Interest Rate (8%) × Time (7 months ÷ 12 months) = $14,000

Answer 918

Allowance for Doubtful Accounts is a contra current asset account associated with Accounts Receivable. When the credit balance of the Allowance for Doubtful Accounts is subtracted from the debit balance in Accounts Receivable the result is known as the net realizable value of the Accounts Receivable. The credit balance in this account comes from the entry wherein Bad Debts Expense is debited. The amount in this entry may be a percentage of sales or it might be based on an aging analysis of the accounts receivables (also referred to as a percentage of receivables). When the allowance account is used, the company is anticipating that some accounts will be uncollectible in advance of knowing the specific account. As a result the bad debts expense is more closely matched to the sale. When a specific account is identified as uncollectible, the Allowance for Doubtful Accounts should be debited and Accounts Receivable should be credited.

Answer 919

i. This is when a debtor can’t pay their debt, and the creditor decides there is more to gain by making a concession instead of forcing the debtor into bankruptcy 1. The creditor makes a concession on the amount owed, and they record a loss 2. The debtor records a gain, because they now owe less than they did originally

Answer 920

CEILING "Market" upper limit = Net realizable value = Selling price - Processing costs = $40,000 - $12,000 = $28,000 FLOOR "Market" lower limit = Net realizable value - Normal profit margin = $28,000 - 10% ($40,000) = $24,000 The measure of market value cannot exceed the ceiling or be lower than the floor. Therefore, the market value is considered to be the middle value of replacement cost, the net realizable value, and the net realizable value less a normal profit margin. Which is the measure of market value? A. Replacement cost: middle of ceiling & floor = use replacement cost B. Replacement cost > ceiling = use net realizable value C. Replacement cost

Answer 921

i. This applies only to equity securities with no significant influence and when the fair value cannot be easily determined ii. The investment is recorded on the balance sheet at cost iii. Dividends are recognized in earnings

Answer 922

$24,000 Initial capitalized amount $45,000 amortization (3/15 x $45,000) (9,000) Infringement defense costs 15,000 -------- Carrying value at time of sale $51,000 ======== Sales price $75,000 Carrying value - 51,000 --------- Gain on sale $24,000 An intangible asset, other than goodwill, should be amortized over its useful life (if the life is finite) and should also be reviewed for impairment. FASB ASC 350-30-35-7

Answer 923

None of the answer choices are correct; all of these financial instruments must be presented as liabilities. FASB ASC 480-10-10 addresses the classification of the following three classes of freestanding financial instruments: 1. Mandatorily redeemable financial instruments 2. Obligations to repurchase the issuer's equity shares by transferring assets 3. Certain obligations to issue a variable number of shares These three classes of financial instruments must be presented in the balance sheet as liabilities. They may not be presented between the liabilities section and the equity section. View referenced content in book. 2385 Distinguishing Liabilities from Equity

Answer 924

not unusual in nature but infrequent in occurrence. FASB ASC 225-20-45-16 stipulates: “A material event or transaction that is unusual in nature or occurs infrequently but not both, and therefore does not meet both criteria for classification as an extraordinary item, should be reported as a separate component of income from continuing operations.” The indicated treatment provides for separate recognition of “unusual”or“infrequent” items which fall short of full-fledged extraordinary treatment. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 925

$1,950,000 Cash $ 550,00 AR $1,650,000 - (2 x $125,000) 1,400,000 ---------- Total current assets $1,950,000 ========== Note Current assets consist of cash and other assets reasonably expected to be realized in cash or sold or consumed in operations within one year or an operating cycle, whichever is longer. It is important to note that Trey's trial balance has not been adjusted for income taxes. Since there are no temporary differences, Trey's taxable income (for tax purposes) and income before income taxes (for financial reporting purposes) is $1,000,000 (revenues of $3,600,000 less expenses of $2,600,000). Trey's income tax for 20X1 is $300,000 ($1,000,000 × 30%). Therefore, Trey will have no “prepaid taxes” once the trial balance is adjusted for income taxes. The balance in the unadjusted Prepaid Taxes account will be transferred to the Income Tax Expense account. Accounts receivable reported in current assets should include only the installments due within the next year, which includes the $125,000 installments due on April 1, 20X1, and October 1, 20X1. **(?)The other two installments should not be included in current assets; rather, they should be included in noncurrent assets as a long-term receivable. Thus, the amount of accounts receivable to be included in current assets is $1,650,000 less $250,000 (i.e., $125,000 × 2 installments due after 20X1), or $1,400,000.

Answer 926

all enterprise funds. The business-like activities portion of the government-wide financial statements report the functions also reported in the enterprise funds and internal service funds providing goods and services to the enterprise funds. In this problem, the internal service funds provide goods and services only for governmental functions. Fiduciary fund information is not shown within the government-wide financial statements. Discretely presented component unit information is shown separate from the governmental and business-like activities portions on the government-wide financial statements. View referenced content in book. 2422 Governmental Funds Financial Statements *VIDEO EXPLANATION 10/1

Answer 927

The statistical section is not part of the basic financial statements. The statistical section of a CAFR is outside the financial section of the report and is considered to be supplementary information. The statistical tables present comparative data for several periods of time and may contain nonaccounting data. View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 928

two net balances, one that would be classified as current and one that would be classified as concurrent. FASB ASC 740-10-45-4 requires an enterprise to net separately all of the deferred tax assets and liabilities classified as current and noncurrent. Thus the maximum number of deferred tax balances that can be reported on an enterprise's balance sheet is two, one current (either an asset or a liability) and one noncurrent (either an asset or a liability). View referenced content in book. 2270 Income Taxes

Answer 929

$209,000 The question is asking for Dec 20x1 only!! Acquisition cost $200,000 30% of South's income (30% x $80,000) 24,000 30% of South's dividends (30% x $50,000) (15,000) --------- Carrying amount on December 31, 20X1 $209,000 =========

Answer 930

An item is included in the calculation of net income in one year and in taxable income in a different year. An item is included in the calculation of net income in one year and in taxable income in a different year. Temporary differences arise when items are treated differently in financial statements than they are on income tax returns in the same year. The difference will reverse in the future. View referenced content in book. 2270 Income Taxes

Answer 931

Relevance The qualitative characteristics of useful accounting information are found in SFAC 8, chapter 3. The primary qualitative characteristics are relevance and faithful representation. Relevance to the users of financial information means that the information is capable of making a difference when the user is making a financial decision. The characteristics that have the potential to make a difference are: - predictive value, - confirmatory value, and - materiality. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 932

$2,500 This payment is partially an exchange transaction and partially a contribution and the two parts should be accounted for separately. Oz would recognize ticket sales revenue for the 25 tickets ($2,500) and recognize the balance as contribution revenue. View referenced content in book. 2512 Statement of Activities

Answer 933

$1,365,000 Under FASB ASC 805-20-25, the acquisition will be recorded at fair value: Investment in Trask Co. $2,400,000 Common stock ($5 x 200,000) $1,000,000 Additional paid-in capital ($7 x 200,000) 1,400,000 Legal and consulting costs are a current expense: Professional services expenses $110,000 Cash $110,000 Registration and issuance costs reduce Additional Paid-in Capital: Additional paid-in capital $35,000 Cash $35,000 The effect on Additional Paid-in Capital is: Stock issue $1,400,000 Registration and issuance costs (35,000) ----------- $1,365,000 View referenced content in book. 2315 Business Combinations

Answer 934

$10,000 increase The $50,000 desired balance of the allowance for uncollectible accounts is determined by multiplying the ending accounts receivable balance ($1,000,000) by the percentage of receivables expected to prove uncollectible (5%). The $50,000 is the amount that is deducted from accounts receivable to get the $950,000 net realizable value that will be reported in the balance sheet. It is not the expense amount that should be reported in the income statement. Bad debt expense is determined by computing the credit necessary to change the allowance account balance from the unadjusted amount ($40,000 in this question) to the proper year-end estimate (“desired” year-end balance) of $50,000. The credit required to the allowance account of $10,000 is the amount that must be debited to uncollectible accounts expense as well.

Answer 935

income from operations. FASB ASC 360-10-45-4 states: Quote An impairment loss recognized for a long-lived asset (asset group) to be held and used shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amount of that loss. View referenced content in book. 2370 Impairment

Answer 936

$244,000. Mare's consigned goods should be carried at cost, not selling price. Goods out on consignment remain the property of the consignor and must be included on the consignor's balance sheet at cost. Thus: Cost of consigned goods = Selling price / 1.30 = $26,000 / 1.30 = $20,000 This would reduce the accounts receivable balance by $26,000 to $94,000. Current assets: Cash $ 70,000 70,000 A/R 120,000 (26,000) 94,000 Inventories 60,000 20,000 80,000 -------------------------- Total current assets $250,000 ( 6,000) 244,000 View referenced content in book. 2251 Revenue Recognition

Answer 937

Enterprise fund Enterprise funds are used to report any activities for which a fee is charged, and 55% of the library's needs are covered by fees. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 938

1. Under GAAP, the fair value option can be applied to equity investees. Under IFRS only certain investors can- not regular businesses 2. Under GAAP the investor business and the investee business can have different accounting policies. Under IFRS both company's accounting policies must be the same. 3. Under GAAP, equity method applies until the investment is sold. Under IFRS, the investment must be reclassified to AFS before it is sold.

Answer 939

$1,000 Note The question asks for the allowance for discounts, not the allowance for uncollectible accounts. Only receivables in the “0-15 days” age category are eligible for the cash discount (2/15, net 30) on December 31, 20X1. Allowance = Amount x Percent taking discount x Discount rate for discounts = $100,000 x 50% x 2% = $1,000

Answer 940

$390,000 Capital-Smith balance Jan 2, 20X1 $350,000 Add: Net income 60,000 --------- Subtotal $410,000 Deduct: Withdrawals (20,000) --------- Capital-Smith balance Dec 31, 20X1 $390,000 View referenced content in book. 2135 Statement of Cash Flows

Answer 941

Imposed nonexchange revenues GASB N50.104 requires that nonexchange revenues be classified into four different categories: Derived Tax Revenues, Imposed Nonexchange Revenues, Government Mandated Nonexchange Transactions, and Voluntary Nonexchange Transactions. Property taxes and fines are examples of imposed nonexchange revenues insofar as they are assessed by governments on nongovernmental entities, including individuals, and are not assessments on exchange transactions. View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 942

North American segment, whose assets are 12% of the company's assets of all segments, and management reports to the chief operating officer FASB ASC 280-10-50-1 defines an operating segment as follows: Quote A reportable operating segment is a component of an enterprise: a. That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise), b. Whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and c. For which discrete financial information is available. FASB ASC 280-10-50-4 states, “Not every part of an enterprise is necessarily a reportable operating segment or part of an operating segment. For example, a corporate headquarters or certain functional departments may not earn revenues or may earn revenues that are only incidental to the activities of the enterprise and would not be operating segments.” Further, FASB ASC 280-10-50-7 requires, “Generally, an operating segment has a segment manager who is directly accountable to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plans for the segment.” View referenced content in book. 2390 Segment Reporting

Answer 943

$59,400 Royalty income is Net sales × 10% = ($600,000 - $6,000) × 0.10 = $59,400. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 944

Net income will be overstated. Revenue has been received in advance of earning the revenue. Revenue from the second year of the service contract cannot be recognized until the second year. Consequently, revenue and net income have been overstated in the first year.

Answer 945

Purchase returns When applying the retail inventory method, one must compute the total cost and total retail amounts for goods available for sale. Some items are only included in one of these totals, sales returns and markups only go into the retail column, and freight in only goes into the cost column. Purchase returns are an adjustment to both columns.

Answer 946

projected benefit obligation exceeds the fair value of the plan assets. FASB ASC 715-20-45-3 requires that an entity report on its balance sheet the underfunded or overfunded pension plan. In the case of a pension plan, the underfunded pension liability represents the excess of the projected benefit obligation over the fair value of the plan assets. The underfunded amount for a postretirement plan other than pensions would represent the excess of the accumulated benefit obligation over the fair value of the plan assets. View referenced content in book. 2264 Retirement Benefits

Answer 947

$20,000 Purchase cost of stock $200,000 Less 30% of identifiable assets (30% of $600,000) 180,000 Excess of PP over fair value of assets (Goodwill) =$ 20,000 View referenced content in book. 2315 Business Combinations

Answer 948

Letter of transmittal The comprehensive annual financial report (CAFR) has a template specified by the GASB. While not a “fill in the blank” type of template, it does specify by section what is to be included in each section. The letter of transmittal is specified as part of the introduction section. The other three items listed are not part of the introduction. View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 949

Sales taxes: $39,000; Occupancy taxes: $8,200 Since Hudson paid the November sales tax on January 3, sales tax for both November and December are payable on December 31: Sales taxes payable on December 31, 20X1: ``` November sales $110,000 x .15 = $16,500 December sales $150,000 x .15 = 22,500 ------- Total $39,000 ======= Occupancy taxes payable on December 31, 20X1: ``` Taxes = Room nights for 4th quarter x $2 = (1,100 + 1,200 + 1,800) x $2 = 4,100 x $2 = $8,200

Answer 950

Dividends received from investments FASB ASC 230-10-45-25 identifies several classes of receipts and payments that should be used in reporting cash flows from operating activities using the direct method. Included in the list of items are interest and dividends received. The transactions or events related to the other items listed are not reported in the operating activities section. View referenced content in book. 2135 Statement of Cash Flows

Answer 951

This is used to estimate COGS using gross margin Sales - COGS = Gross Margin 100 - 70 = margin of 30 Then you know that COGS is 70% of sales, and margin is 30%. You can use this to figure out these margin problems

Answer 952

$40,000 State University would report the full amount of the pledges as revenue because the availability criterion does not apply. The Statement of Activities is a government-wide statement using the full accrual basis of accounting. The contributions are restricted to scholarships but this purpose restriction by the donor is not a condition that must be met before the donation is made. It does not function like an “expenditure driven” government grant (the recipient must incur allowable costs before it recognizes any grant revenue). GASB N50.111 and .122 View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 953

$251,000 Inventory must not be reported at an amount greater than the benefits it can provide. Consequently, inventory must be valued at the lower of cost or market. Market cannot: 1. Exceed Net realizable value = Estimated selling price - Disposal costs: $275,000 - $14,000 = $261,000. 2. Be less than Net realizable value - Normal profit margin: $261,000 - $10,000 = $251,000. The net carrying value would be $251,000, as $251,000 is less than the FIFO basis of $258,000.

Answer 954

It recognizes gains and losses immediately. Generally, a nonmonetary exchange should be based on the fair values of the assets exchanged—resulting in the immediate recognition of a gain or loss. Exceptions to this treatment include the following: 1. Fair value is not determinable 2. Exchange transaction to facilitate sales to customers 3. Exchange transaction that lacks commercial substance Under these exceptions, no gains or losses are recognized. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 955

$64,000 Total separate revenues = $400k + $28k = $680,000 Less consolidated revenues - 616,000 ] Revenues eliminated in consolidation = $64,000 Since intercompany sales are eliminated in the consolidation process, the $64,000 eliminated represents intercompany sales from Pare to Shel. View referenced content in book. 2323 Emphasis on Adjusting and Eliminating Entries(…

Answer 956

$200,000 FASB ASC 450-20-25-2 requires accrual of a loss contingency if “it is probable that an asset had been impaired or a liability had been incurred”and the loss amount can be reasonably estimated at balance sheet date. Haft should have reported an accrued liability of $200,000, the amount of the reasonable estimate of additional taxes. If a range of loss can be estimated, the best estimate within the range is accrued. If no amount within the range is a better estimate than any other amount, the minimum amount is accrued and the estimated range is disclosed. FASB ASC 855-10-25-1 confirms this treatment; it states, “An entity shall recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.” FASB ASC 855-10-20 defines subsequent events as “events or transactions that occur after the balance sheet date but before the financial statements are issued.” View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 957

$120,000 Depreciable base is Purchase price - Salvage value: $135,000 - $15,000 = $120,000

Answer 958

Over the life of the lease FASB ASC 840-20-25-1 stipulates that “if the rentals vary from a straight-line basis, the income shall be recognized on a straight-line basis.” Since the bonus represents a deviation from a straight-line pattern of lease payments, it should be recognized in income in straight-line fashion over the life of the lease. View referenced content in book. 2380 Leases

Answer 959

expensed as incurred in the current period. The acquisition method is required to account for the acquisition of another company. The acquisition method requires that acquisition-related costs be expensed as incurred. The costs to acquire stock or bonds must be included in the cost of the stock or bonds. View referenced content in book. 2315 Business Combinations

Answer 960

Permanent differences are differences that never reverse. That is, they are items of book (or tax) revenue or expense in one period, but they are never items of tax (or book) revenue or expense. They are either nontaxable revenues (book revenues that are nontaxable) or nondeductible expenses (book expenses that are nondeductible). Examples of permanent differences are (nontaxable) interest revenue on municipal bonds and (nondeductible) goodwill (GW) amortization expense under the purchase method for acquisitions. A good example of GW amortization is when one company purchases another company or any asset at a price that exceeds its recorded book value. This would be recognized partially at the time of purchase and partially over a period of time using standard amortization schedules. These are often referred to non-cash items of expenses or revenues and again are heavily scrutinized by analysts.

Answer 961

$8,200 FASB ASC 274-10-35-11 states that nonforfeitable rights to receive future sums that have all the following characteristics shall be presented as assets at their discounted amounts: -The rights are for fixed or determinable amounts. -The rights are not contingent on the holder's life expectancy or the occurrence of a particular event, such as disability or death. -The rights do not require future performance of service by the holder. Since the employer's contributions have not vested and are forfeitable (Jen will not complete three years of employment until February 1, 20X3), the current value of Jen's 401(k) plan is: $7,000 Jen's contributions 10% ($21,000 + $23,000 + $26,000) + 1,200 Earnings on Jen's contributions ------ $8,200 Total current value ====== View referenced content in book. 2151 Personal Financial Statements

Answer 962

$0 The debt is a long-term liability and would not appear on the balance sheets of the governmental funds, although it would be reported in the governmental activities section of the government-wide statement of net position. The interest that is due very early in the following year has been deposited in the debt service funds. The expenditure for debt service would usually be recognized in the year of payment. The expenditure and related liability could be recognized in the debt service fund but is not required in the December 31, 20X1, statements. Therefore, the correct answer is $0. View referenced content in book. 2411 Measurement Focus and Basis of Accounting *VIDEO EXPLANATION General obligation fund is part of Governmental Funds - general fund for the entire gov't -- MODIFIED ACCRUAL BASIS - No long term assets/debts on the B.S. of statement of financial position of governmenfunds - So 2,000,000 & 3,000,000 are not recorded - $62,500 - interest (this is just a transfer of cash to the debt service fund but the cash has not been expended yet and we only recognize the liability when we recognize the expenditure and the expenditure will not be recognized until Year 2.

Answer 963

Dividend per share payout ratio as numerator and earnings per share not used Dividends per share is the dividends paid out divided by total shares. Whereas the dividend payout ratio would be included in the numerator, the earnings per share is not involved, only the number of shares outstanding.

Answer 964

Legal costs associated with obtaining a patent on a new product Assets are probable future economic benefits obtained or controlled by a particular enterprise as a result of past transactions or events. (SFAC 6.25) The incorrect answer choices are research and development costs. Since there is a great deal of uncertainty about the future benefit of these costs, they must be expensed. (FASB ASC 730-10-05-3)

Answer 965

$50,000 20X2 Sales of gift certificates $250,000 Less est nonredemption 10% x $250,000 = 25,000 -------- Net redeemable certificates 225,000 Less 20X2 redemptions of current-year sales 175,000 -------- Unearned revenue on December 31, 20X2 $ 50,000 ========

Answer 966

Common stock that contains an unconditional redemption feature An unconditional redemption feature on stock must be reported as a liability. Cumulative or convertible preferred stock does not create a liability. Neither does common stock issued at a discount. View referenced content in book. 2385 Distinguishing Liabilities from Equity

Answer 967

a. These are financials issued between annual reports. b. Interim statements are not audited - they are "reviewed" c. Tax rate is estimated in each interim period d. The formula is: i. (cumulative year-to-date income x estimated annual tax rate) - any tax expense recognized in prior interim periods

Answer 968

ADD! Both intangibles and bond discounts are expenses with no cash outflows such. Another example is depreciation.

Answer 969

A disadvantage of the periodic inventory system is that the cost of goods sold amount used for financial reporting purposes includes both the cost of inventory sold and inventory shortages. The periodic inventory system calculates cost of goods sold as the difference between cost of goods available for sale and ending inventory. This system does not maintain records indicating what the amount of ending inventory should be. It simply requires a company to determine what the amount of ending inventory is at period end. Therefore, there is no way to determine what portion of the items represented by the difference between cost of goods available for sale and cost of ending inventory was sold and what portion was stolen, broken and discarded, etc. In short, this system assigns the entire difference to cost of goods sold because of the inability to determine what portion represents inventory shortages.

Answer 970

$7.94 The exercise of the incentive stock options would be antidilutive since the exercise price exceeds the market price of the stock. Weighted-average shares: January 1 to March 31 (3/12 x 15,000) 3,750 April 1 to May 31 (2/12 x 12,500) 2,083 June 1 to December 31 (7/12 x 17,000) 9,917 ------ Total 15,750 $125,000 / 15,750 = $7.94 View referenced content in book. 2335 Earnings per Share

Answer 971

general revenues. Programs are financed with program revenues and general revenues. Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry as a whole; they reduce the net cost of the function to be financed from the government's general revenues. All revenues are general revenues unless they are required to be reported as program revenues. All taxes are general revenues. GASB 2200.140 View referenced content in book. 2421 Government-Wide Financial Statements

Answer 972

Increase in temporarily restricted net assets The new funds from a benefactor are restricted as to use for building expansion. The purpose restriction of the benefactor will be satisfied when Alpha Hospital undertakes the building project; therefore, the restriction is classified as temporary. View referenced content in book. 2511 Statement of Financial Position

Answer 973

i. When a company issues stock, there are usually 3 accounts hit: 1. ‘Cash’ for the amount of the stock issued a. ‘Common stock’ (#shares * par value) b. ‘Paid-in capital excess of par’- whatever is above the par value i. If you issued 10 shares of $1 par value stock for $100, you would receive $100 in cash, credit ‘common stock’ for $10, and credit ‘additional paid in capital’ for $90 c. If the stock is “no par” stock, then the entry would just be a debit to cash of $100 and a credit to ‘common stock’ of $100

Answer 974

All of the answer choices are true. he modified cash basis is a hybrid method that combines features of both the cash basis and the accrual basis. Modifications to the cash basis accounting include such items as the capitalization of assets and the accrual of income taxes. If these modifications are made, the resulting balance sheet would include long-term assets, accumulated depreciation, and a liability for income taxes. The income statement would report depreciation expense and income tax expense. Modified cash basis financial statements are intended to provide more information to users than cash basis statements while continuing to avoid the complexities of GAAP. The modified cash basis does not comply with GAAP unless there are no material differences in this method and GAAP.

Answer 975

$190,000 The sales during this month less the expected returns from this month's sales will be this month's net sales. This month's estimated returns are all that matter. Thus, $200,000 × (1 - 0.05) is the month's net sales: $200,000 × 0.95 = $190,000. View referenced content in book. 2251 Revenue Recognition

Answer 976

$25,000 The amount reported on the consolidated statement retained earnings as “dividends paid” would include only dividends paid to majority shareholders directly, the $25,000 distributed by Pare Co. Of the $5,000 dividends paid by Kidd, the parent's share ($3,750) would be eliminated on the consolidated worksheet and the other $1,250 would be included in the noncontrolling (minority) interest. However, the $1,250 would not be included in “dividends paid” on the consolidated statement of retained earnings. View referenced content in book. 2322 Fundamentals of Consolidated Worksheets(Acquisition …

Answer 977

$900,000 Because the governmental funds have the measurement focus of current financial resources, all three disbursements ($900,000) would be reported as expenditures. Because governmental funds do not account for noncurrent assets or liabilities, the purchase of equipment ($300,000) and the payment of principal on long-term debt ($100,000) are fund expenditures, as well as the payments to vendors ($500,000). View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 978

$4,500 Per FASB ASC 274-10-35-9, “Investment in life insurance is the cash value of the policy less the amount of loans against it.” Thus, the amount that should be reported in Quay's personal financial statement is $4,500 (i.e., $7,000 cash surrender value less the $2,500 loan). Note that the $4,500 amount given in the question is already net of the loan and was computed by deducting the $2,500 loan amount from the $7,000 cash surrender value. The cash surrender value of a whole-life insurance policy is the amount of the insurance premiums not related to the expense for death benefit coverage. It represents an amount that can be recovered if the policy is canceled. Therefore, it is an asset to the individual. The cash surrender value is the current amount available and, therefore, is the current value to be reported on the face of the statement. The cash surrender value has been reduced for the amount of any loans outstanding against the cash value. Cash surrender value $7,000 Less: Loans against life insurance (2,500) ------- $4,500 ======= The $10,000 face amount of the policy should also be disclosed.

Answer 979

$500,000 Under FASB ASC 205-20-45-3, the losses from a discontinued segment that qualifies as a component are reported in the period they occur. An anticipated loss on sale should be recognized by writing the component down to FMV. An anticipated gain on sale of the component should not be recognized until the day of the sale. Loss 01/01/X1 to 09/30/X1 ($300,000) Loss 10/01/X1 to 12/31/X1 ( 200,000) ---------- Loss ($500,000) View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 980

Net income will increase by $5,800. Options do not qualify for hedge accounting. The gain or loss must be currently recognized. $43 x 2,000 = $86,000; $86,000 + $400 = $86,400 $40 x 2,000 = $80,000; $80,000 + $600 = 80,600 ------- Gain = $ 5,800 View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 981

Relevance Relevance encompasses all of the other characteristics listed. Consider for a minute that if the information provided in a financial report is not timely or reliable, it is not relevant. Furthermore, information can easily be developed that is timely, comparable, and consistent and, while it meets all of the characteristics, it still may not be relevant. In order for information to be judged relevant, there must be a close logical relationship between the information provided and its purpose. Based on the diversity of the needs of the audience of potential users, the cost of developing relevant information that is capable of making a difference in a user's assessment of a problem, condition, or event may be illusive and/or cost prohibitive. GASB Concepts Statement 1.65 View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 982

prior period adjustment resulting from the correction of an error. A change from cash-basis accounting (non-GAAP) to accrual-basis accounting (GAAP) would be considered a correction of an error. FASB ASC 250-10-45-23 stipulates that a correction of an error in the financial statements of a prior period should be reported as a prior period adjustment. Lore Co. should report the cumulative effect of the change from cash-basis to accrual-basis accounting as a prior period adjustment. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 983

$24,000 Because the receivables were sold without recourse, the amount that the bank eventually collects has no impact on the company making the sale. The bank is not able to come back to the seller for any amount of a refund. The company sold $200,000 of its receivables for $176,000; that is a loss of $24,000.

Answer 984

increased by the face amount of the note. A note sold with recourse is a promise to pay the financial institution if the maker dishonors the note. When receivables are sold with recourse, the entity has a contingent liability. A contingent liability is an obligation that has to be paid in the future. Therefore, the notes receivable discounted account must be increased by the face amount of the note.

Answer 985

$40,000 The adjustment is for the difference between the estimated ending balance ($3,000,000 × .03, or $90,000 credit) and the unadjusted balance ($50,000 credit), or $40,000.

Answer 986

Dividends paid to stockholders Comprehensive income per SFAC 6, Elements in Financial Statements, encompasses all changes in equity of a business resulting from transactions with non-owners. Specifically: Quote It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Based on this, dividends paid to stockholders would not be included in computation of comprehensive income.

Answer 987

$248,000 The main point of this question is that the cash flows focuses on the cash received in the transaction, not on the gain recognized in the transaction. The amount of the gain on the sale of the land does not affect investing activities. The item that shows up on the cash flow statement is the cash provided by the sale of the land: the cash proceeds of $40,000. Therefore, given the other information about cash and cash flows in the problem, the ending cash balance may be computed as follows: Cash from operating activities $351,000 Cash from investing activities: Cash used for investing activities (420,000) Cash received from sale of land 40,000 Cash provided by financing activities 250,000 --------- Net increase in cash 221,000 Beginning cash balance 27,000 --------- Ending cash balance $248,000 ========= View referenced content in book. 2135 Statement of Cash Flows

Answer 988

effective tax rate expected to be applicable for the full year of 20X1 as estimated at the end of the second quarter of 20X1. For interim financial reporting: at the end of each interim period an estimate should be made of the expected tax rate applicable to the full fiscal year and this rate should be used to develop the income tax provision for the affected interim period. Specifically, the income tax provision for the second quarter of 20X1 would be calculated using the full-year estimated tax rate for 20X1 estimated at the end of the second quarter. FASB ASC 740-270-35-2 and 35-3 View referenced content in book. 2375 Interim Financial Reporting

Answer 989

To report the change in net assets for the period The nongovernmental not-for-profit organization does not earn a profit in the sense that a for-profit entity would. Instead, the not-for-profit organization records the difference between revenues and expenses as a change in net assets for the accounting period. Each revenue, expense, gain, or loss must be classified according to the net asset class affected and reported based on restrictions or functional subclassification. View referenced content in book. 2512 Statement of Activities

Answer 990

required supplementary information. The management's discussion and analysis, or MD&A, is a component of the required supplemental information. The MD&A should introduce the basic financial statements and provide an analytical overview of the government's financial activities. GASB 2200.106 View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 991

Even though the total amount of stockholders' equity remains the same, a stock dividend requires a journal entry to transfer an amount from the retained earnings section of the balance sheet to the paid-in capital section of the balance sheet. The amount transferred depends on whether the stock dividend is (1) a small stock dividend, or (2) a large stock dividend. SMALL STOCK DIVIDEND. A stock dividend is considered to be small if the new shares being issued are less than 20-25% of the total number of shares outstanding prior to the stock dividend. On the declaration date of a small stock dividend, a journal entry is made to transfer the market value of the shares being issued from retained earnings to the paid-in capital section of stockholders' equity. To illustrate, let's assume a corporation has 2,000 shares of common stock outstanding when it declares a 5% stock dividend. This means that 100 (2,000 shares times 5%) new shares of stock will be issued to existing stockholders. Assuming the stock has a par value of $0.10 per share and a market value of $12 per share on the declaration date, the following entry is made on the declaration date: Retained Earnings (100 x $12) 1,200 C.S. Dividends 10 APIC 1,190 When the 100 shares are distributed to the stockholders, the following journal entry is made: Common Stock Dividends 10 Common Stock 10

Answer 992

All of the answer choices are correct. GASB E70.102 indicates that escheat property held for another government should be reported as an asset in a private-purpose trust fund or an agency fund, as appropriate, or in the governmental or proprietary fund in which the escheat property is otherwise reported. Paragraph 26 of GASB Statement 37 (basis for conclusions) clarifies that an agency fund can be used to report amounts held for other governments, provided the holding period is expected to be short. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 993

secured borrowing. If a transfer of financial assets does not qualify as a sale according to the criteria in FASB ASC 860-30-25-1, then the transfer should be accounted for as a secured borrowing with a pledge of collateral. The requirements to qualify as a sale are listed in FASB ASC 860-10-40-5, and if these qualifications are not met, one is sent to FASB ASC 860-30-25-1 (listed in this question) by FASB ASC 860-10-40-6. View referenced content in book. 2393 Transfers and Servicing of Financial Assets and …

Answer 994

Simply use “boilerplate” language and cut and paste each year's MD&A using the same text In GASB 2200.109, managers are clearly encouraged to avoid “boilerplate” discussion in preparing the annual MD&A. The MD&A should focus on the primary government, be restricted to specifically listed information, and use condensed financial information for year-to-year comparisons. View referenced content in book. 2426 Management's Discussion and Analysis

Answer 995

$24,000 Receipt of a stock dividend does not result in income to the recipient and no journal entry is made by Plack Co. As a result of the stock dividend, Plack now owns 12,000 shares of stock and receipt of a $2 per share cash dividend yields income of $24,000.

Answer 996

government-wide and fund financial statements, notes to the financial statements, management's discussion and analysis and other required supplementary information. The minimum requirements for general purpose external financial statements are illustrated in GASB 2200.103 and comprise MD&A, government-wide and fund financial statements with the notes to the financial statements, and RSI other than MD&A. Governments should prepare and publish a comprehensive annual financial report (CAFR), which includes information additional to the basic general-purpose financial statements. View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 997

Agency funds Agency funds should not be reported in the statement of changes in fiduciary net position because they involve reporting for resources held by the government in a purely custodial activity. Current assets equal current liabilities in the statement of net position. There are no operating accounts and therefore no changes in net position. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 998

$193,000 FASB ASC 350-20-25-3 provides that any costs of developing, maintaining, or restoring goodwill should be deducted from income when incurred. Obviously, the $80,000 expenditure falls into this category. The $200,000 of purchased goodwill should be assessed for impairment each year. Initial cost of goodwill $200,000 Less: 20X1 impairment 7,000 -------- Unamortized amt on Dec 31, 20X1 $193,000 View referenced content in book. 2370 Impairment

Answer 999

the dividends may be reported as a $19,625 increase in temporarily restricted net assets. FASB ASC 958-320-45-4 indicates that investment revenues may be reported net of related expenses provided that there is disclosure of the expenses elsewhere in the financial statements. In this case, the dividend revenues are subject to specific use by the donor and should be considered an increase to temporarily restricted net assets. No expenses are reported in the temporarily restricted net assets category. If the investment expenses are to be reported separately, the expense would be a decrease in unrestricted net assets accompanied by a reclassification from the temporarily restricted net assets category, leaving a net increase of $19,625 to temporarily restricted net assets ($20,000 - $375). View referenced content in book. 2511 Statement of Financial Position

Answer 1000

proceeds from exercise are used to purchase common stock at the average market price. Exercise of options and warrants is assumed at the beginning of the period. Proceeds are assumed used to purchase common stock at the average market price during the period. The incremental shares are included in the denominator of diluted EPS. View referenced content in book. 2335 Earnings per Share

Answer 1001

When they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. Financial statements are considered available to be issued when they are complete in a form and format that complies with GAAP and all approvals necessary for issuance have been obtained, for example, from management, the board of directors, and/or significant shareholders. An entity that has a current expectation of widely distributing its financial statements to its shareholders and other financial statement users must evaluate subsequent events through the date that the financial statements are issued. All other entities must evaluate subsequent events through the date that the financial statements are available to be issued. (FASB ASC 855-10-20) View referenced content in book. 2392 Subsequent Events

Answer 1002

$149,000 Rev for Jan 1-May 31 = $400K - $50K = $ 350,000 Revenue for June 1-November 30 325,000 Revenue for December 1-31 70,000 -------- Total 20X2 revenue $745,000 times 20% x 0.20 -------- Equals Rill's 20X2 royalty revenue $149,000 ======== View referenced content in book. 2251 Revenue Recognition

Answer 1003

derivatives should be reported at cost. FASB ASC 815-10 is the authority for accounting for derivatives and hedging activities. FASB ASC 815-10-30-1 requires derivatives to be recognized as assets or liabilities on the balance sheet at fair value. The accounting for any gains or losses from hedge transactions depends, in part at least, on whether the hedge is designated as a hedge and qualifies for hedge accounting. View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 1004

$1,250,000 Baler should report $1,250,000, calculated as follows: Cost of goods sold $1,200,000 Decrease in inventory: Beginning inventory $200,000 Ending inventory 150,000 (50,000) Decrease in accounts payable: Beginning accounts payable $300,000 Ending accounts payable 200,000 100,000 ----------- Cash paid to suppliers $1,250,000

Answer 1005

$1,490,000 Brite Corp.'s current liabilities on December 31, 20X1, would include: Accounts payable $ 55,000 Unsecured notes, 8% (due 7-1-X2) 400,000 Accrued expenses 35,000 Senior bonds, 7% (due 3-31-X2) 1,000,000 --------- Total $1,490,000 ========== Note The contingent liability and deferred income tax liability will not come due or reverse until 20X3; therefore these liabilities are noncurrent.

Answer 1006

$0 Contributions of services are recognized as revenues if they “create or enhance nonfinancial assets” or “require specialized skills” that would need to be purchased if not donated. Specialized skills are possessed by trained and often licensed or certified professionals. Turtle feeding does not require such specialized training or skills, and would not be paid for if Chris did not donate his time. Therefore, no revenue is recognized for Chris's volunteered time. View referenced content in book. 2512 Statement of Activities

Answer 1007

governmental units. The Government Accounting Standards Board (GASB) is the body authorized to promulgate standards of financial accounting and reporting for governmental units. It was created by the Financial Accounting Foundation (FAF) in 1984 as successor to the NCGA and is recognized by the Code of Professional Conduct as an authorized body whose pronouncements must be followed in order to conform to Rules 202 and 203. View referenced content in book. 2114 Governmental Accounting Standards Board (GASB)

Answer 1008

$4,925 Inventory should include the net purchase price plus the indirect acquisition costs such as freight-in and handling. All of the listed costs should be included in inventory.

Answer 1009

Retained earnings: $100,000 increase; Noncontrolling interest: $0 Carrying value of Palmer bonds payable $1,075,000 Less acquisition cost to Seal, Inc. 975,000 ---------- Gain to Palmer (Consolidated entity) $ 100,000 ========== This gain would, of course, increase consolidated retained earnings. The gain is identified with the issuer of the bonds, which is Palmer in this case. Therefore, the gain has no effect on noncontrolling (minority) interest. View referenced content in book. 2324 Elimination of Intercompany Profits and Losses(…

Answer 1010

may be allocated between or among accounting periods or may be accounted for as expenditures of the period of acquisition. GASB 1600.127.b states: “Expenditures for insurance and similar services (prepaid items) extending over more than one accounting period need not be allocated between or among accounting periods, but may be accounted for as expenditures of the period of acquisition.” View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1011

Neither a change in market value of the investee's common stock nor cash dividends from the invested The equity method is appropriate when an investor has “significant influence” but no controlling interest over an investee. Typically, this occurs with a 20%–50% ownership interest. The equity method is required when ownership is 20% or greater because “significant influence” is assumed. Under the equity method, investor's share or percentage of investee's income is recognized by increasing the investment account balance when income is reported by the investee. When dividends are received from investee, investor will reduce the investment account balance but not increase investment income. No action is taken under the equity method when the market value of investee's shares changes. Therefore, the answer is “No” to both situations described in the question. *See video explanation under "Investments"

Answer 1012

$(20,000) Project 1 Project 2 --------- --------- Cost incurred during 20X1 $240,000 $280,000 Add est costs to complete 120,000 40,000 --------- --------- Total costs of Projects (actual and estimated) $360,000 $320,000 Less contract price 420,000 300,000 --------- --------- Estimated profit (loss) on contract $ 60,000 ($20,000) ========= ========= Since Project 1 shows an anticipated profit of $60,000 but has not been completed, no profit (loss) is reported. However, since Project 2 is showing an anticipated loss, the estimate of this loss must be reported as soon as it is known (i.e., in 20X1) even though the project is not complete. View referenced content in book. 2251 Revenue Recognition

Answer 1013

As a noncurrent liability, with separate disclosure of the note refinancing The debt would be classified in the December 31, 20X1, financial statements as a noncurrent liability since it will be refinanced on a long-term basis. In addition, the note refinancing should be disclosed separately.

Answer 1014

the amount of such premiums paid less the increase in cash surrender value during the period. Enterprises often carry life insurance policies on the lives of key officers and employees. If the enterprise is the beneficiary, the cash surrender value of the policy is an asset of the enterprise. The amount to be charged to expense is the amount of such premiums paid less the increase in cash surrender value during the period.

Answer 1015

Equipment A plant fund is established for a specific purpose, in this case to accumulate assets for plant acquisition or capital projects over a longer period of time. Fuel is normally considered an inventory item, which is a current asset and can be expended across multiple uses—not only a specific capital project. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1016

a careful pro forma presentation of the implications of current year's decisions for future financial statements. While managers may wish to discuss implications and contingent outcomes of current decisions, these matters should be presented elsewhere in the comprehensive annual financial report, such as the letter of transmittal or in other supplementary information. The other answer choices consist of MD&A requirements discussed in GASB 2200.106–.109. View referenced content in book. 2426 Management's Discussion and Analysis

Answer 1017

The objectives and fundamental concepts that will be the basis for development of financial accounting and reporting guidance. The opening paragraph of the introduction to SFAC 8, Statements of Financial Accounting Concepts, states: Quote More specifically, Concepts Statements are intended to establish the objectives and fundamental concepts that will be the basis for development of financial accounting and reporting guidance. The fundamentals are the underlying concepts of financial accounting—concepts that guide the selection of transactions and other events and conditions to be accounted for; their recognition and measurement; and the means of summarizing and communicating them to interested parties. The Accounting Standards Codification (ASC) establishes generally accepted accounting principles (GAAP) in financial reporting by business enterprises. The meaning of “present fairly in accordance with the applicable financial reporting framework” is presented in Statement on Auditing Standards (SAS) 122 (AU-C 700.35). View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 1018

Criteria for determining which investments are treated as cash equivalents FASB ASC 230-10-50-1, in a discussion of cash and cash equivalents, states: Quote An entity shall disclose its policy for determining which items are treated as cash equivalents. Note The above requirement was embedded in a long paragraph discussing cash equivalents. The wording of the correct answer choice, particularly “criteria,” indicates a relation to policy, whereas none of the other answers imply such a relationship. View referenced content in book. 2135 Statement of Cash Flows

Answer 1019

is optional for all not-for-profits except voluntary health and welfare entities. Voluntary health and welfare entities are required to prepare a statement of functional expenses using natural classification of expenses (salaries, supplies, utilities, etc.) in addition to the statement of activities which shows functional categories of expenses (program, fundraising, etc.). The statement of activities is not forbidden for any not-for-profit entity but is not required for any but voluntary health and welfare entities. FASB ASC 958-720-45-15 View referenced content in book. 2514 Statement of Functional Expenses

Answer 1020

composed of a self-balancing set of accounts. Under fund accounting, each fund is a separate“fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities and balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.” (GASB 1100.102) A government's activities are not captured in a single fund, but are divided into several separate funds to account for specific revenue sources and activities. A fund can be one of three categories: (1) governmental, (2) proprietary, or (3) fiduciary. A fund is not interchangeable and interdependent with the general fund. Each fund is a separate fiscal and accounting entity. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1021

$100 The company would recognize a $100 gain: January (2,000 pounds x $1.50) $3,000 December (2,000 pounds x $1.45) 2,900 ------ Gain $ 100 View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward …

Answer 1022

1. Some problems will include bond issue costs 2. Bond issue costs are reported on the balance sheet as a deduction to the bond carrying amount 3. The issuance costs are amortized over the life of the bond to interest expense a. Bond issue costs include accounting fees, legal fees, printing fees, and underwriting fees

Answer 1023

$30,000. Impairment of goodwill is a two-step process: Step 1, Compare: (a) year-end fair value of reporting unit $400,000 (b) carrying amount, including goodwill $470,000 If (b) exceeds (a), go to step 2. If (a) exceeds (b), no impairment. Step 2, Compare: (a) implied fair value of reporting unit goodwill ($400,000 - $330,000) $ 70,000 (b) carrying amount of goodwill $100,000 Since (b) exceeds (a) by $30,000, an impairment loss of $30,000 is recognized. If (a) exceeds (b), no impairment. Note: The impairment loss cannot exceed the recorded goodwill. View referenced content in book. 2370 Impairment

Answer 1024

If investors buy the bonds at a premium, the difference between the face value of the bonds and the amount of cash received is recorded in a premium on bonds payable account. This happens when investors are willing to accept a lower return on their investment, because the stated interest rate is higher than the market interest rate. The entry would be: Debit Credit Cash xxx Premium on bonds payable xxx Bonds payable xxx

Answer 1025

a single amount equal to the estimated current value of the business interest. FASB ASC 274-10-45-9, Accounting and Financial Reporting for Personal Financial Statements, contains guidelines for preparation of personal statements of financial condition. For business interests that constitute a large part of a person's total assets: Quote The estimated current value of an investment…should be shown in one amount as an investment.... View referenced content in book. 2151 Personal Financial Statements

Answer 1026

$400 Forward rate available for remaining maturity of contract (30-day rate at 12/31/X1) $ .82 Less contracted forward rate (90-day future rate at 11/01/X1) .78 ------- Difference $ .04 Multiplied by foreign currency units x 10,000 ------- Loss on forward contract to be reported in 20X1 $ 400 ======= FASB ASC 815-25-35-15 addresses the use of hedges to control for foreign currency exposure. If a derivative qualifies as a hedge, FASB ASC 815-25-35-1 permits companies to match the timing of the gains and losses of hedged items and their hedging derivatives. For a fair value hedge, FASB ASC 815-25-35-1 permits the hedger to record the change in the fair value of the hedged item concurrently with the gain or loss on the hedging derivative. For a cash flow hedge, the effective portion of any changes in the hedging derivative's fair value is recorded in other comprehensive income until the change in the value of the hedged item is recognized in earnings. If a derivative does not qualify as a hedge, changes in its value must be reported in quarterly earnings. Speculative contracts do not quality as hedges and are still controlled by FASB ASC 830-20-35-1. For these derivatives, the change in fair value is recognized immediately in net income. View referenced content in book. 2363 Hedges of Foreign Currency Exposures That Do Not …

Answer 1027

Interest incurred for machinery for own use: interest incurred after completion; Interest incurred for machinery held for sale: all interest incurred Once an asset is complete, and ready for use or sale, then any interest incurred after that is an interest expense, not capitalized.

Answer 1028

$468,500 Discount on note = 10.8% x $500,000 = $54,000 Monthly amort = $54,000 / 12 months = $ 4,500/month Face amount of note $500,000 Less discount at issuance 54,000 -------- Carrying value of note at issuance $446,000 Add discount amortization Aug. 1 - Dec. 31 (5 months x $4,500) 22,500 -------- Carrying value of note on Dec 31, 20X1 $468,500 ======== *VIDEO EXPLANATION: We've amortized the discount so now we're adding the 22,500 to the original 446,200. Important thing to remember about non-interest bearing is that nobody is going to loan anyone money for no interest. But instead of me giving you 500,000 today when you take out the loan, I'm only gonna give you 446,000 but you have to give me back 500,000 so we're not gonna call that interest but in reality you ARE paying interest! Just referring to stated interest.

Answer 1029

Guaranteed residual refers to an additional payment made by a lessee in property, cash, or both when a lease terminates. Guaranteed residual values are financial commitments made by the lessee, and factor into the calculation of the minimum lease payment.

Answer 1030

$225,000 Cash ($30,000 - $10,000) $ 20,000 Accounts receivable (net) 35,000 Inventory 58,000 Prepaid expenses 12,000 Land held for resale 100,000 -------- Current assets on June 30, 20X1 $225,000 ======== Since the land was held for resale and was indeed sold before issuance of the financial statements, the land should be classified as a current asset. The overdraft shown in the trial balance is assumed to be the overdraft related to checks mailed in July. The $30,000 in checks should not have been recorded (deducted from cash) in June since they weren't issued until well into July. The $30,000 clearly remained in cash on June 30 and must be added back.

Answer 1031

Debt-to-equity ratio decreased to 12%. The information presented is at the end of the year. The option exercise occurred during the year, resulting in these numbers. The ratio after the transaction is: $60,000 ÷ $500,000 = 0.12 (12%)

Answer 1032

$190,000 Because the fair value of the land approximated the balance due on the note, neither the debtor (E & S) nor the creditor (Big State) records a gain or loss on the settlement of the debt. E & S, however, must record a gain or loss on the disposal of an asset (the land). Since the fair value of the land approximated the balance due on the note, the fair value must have declined from the purchase price (which is also the carrying value since land is not depreciable); therefore, the loss must be in the amount already paid on the purchase, or, $190,000 (the $100,000 payment and the $90,000 payments made on principal of the note (total payments - interest = $179,000 - $89,000 = $90,000)).

Answer 1033

$115,000 Investments are initially recorded at fair value if received as a contribution or gift. Unrealized gains on investments carried at fair value also increase net assets. As the investments themselves were an unrestricted gift, the unrealized gain would increase unrestricted net assets. Investment income includes dividends that increase unrestricted net assets unless there are donor stipulations. $110,000 + $5,000 = $115,000 View referenced content in book. 2512 Statement of Activities

Answer 1034

$32,300 FASB ASC 730-10-25-1 provides that research and development costs be “charged to expense when incurred.” The $34,000 cost of registration would be capitalized and amortized over the 10-year economic life. 20X1 amortization = ($34,000 / 10 years) x (6/12) = $1,700 Carrying value of patent on December 31, 20X1 = Costs of patent - Patent amortization = $34,000 - $1,700 = $32,300 FASB ASC 350-30-35-1

Answer 1035

Debt-to-equity ratio = Total debt / Total stockholders' equity .75 = Total debt / ($700,000 + $300,000) .75($1,000,000) = Total debt $750,000 = Total debt Additional debt = Total debt - Present debt = $750,000 - $420,000 = $330,000

Answer 1036

v. IFRS vs GAAP differences 1. Under GAAP, contingent assets and liabilities can be recognized if criteria is met. Under IFRS, contingent assets are not recognized 2. Under GAAP, goodwill allocation is to the reporting units. Under IFRS, goodwill is allocated to the cash-generating units 3. Goodwill impairment testing is a one-step process under IFRS, and a two-step process

Answer 1037

Discount on note receivable: Yes; Prepaid asset: Yes If a noninterest-bearing note due in three years is issued in connection with a contract to purchase merchandise, a discount on notes receivable for the *imputed interest should be established as a valuation account and amortized over the 3-year period using the effective interest method. The contract to purchase should be shown as a prepaid asset (prepaid purchases) for the amount of the 10% discount on the fixed amount of purchases. The deferred charge will be written off in the ratio of purchases made to the fixed amount of merchandise required to be purchased. *Imputed - assign (a value) to something by inference from the value of the products or processes to which it contributes.

Answer 1038

be reported as an increase in both expenses and contributions. FASB ASC 958-605-25-2 provides that “contributions received shall be recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received.” FASB ASC 958-605-25-16 provides that contributions of services “shall be recognized if the services received (a) create or enhance nonfinancial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.” View referenced content in book. 2512 Statement of Activities

Answer 1039

$30,000 According to FASB ASC 810-10-20, a noncontrolling interest is: Quote The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A noncontrolling interest is sometimes called a minority interest. The ownership interests in the subsidiary that are held by owners other than the parent is a noncontrolling interest. The noncontrolling interest in a subsidiary is part of the equity of the consolidated group. The noncontrolling (minority) interest is the interest of third parties in the acquired company (Kidd). Noncontrolling interest = Noncontrolling holding x Net assets of Kidd = (1.00 - 0.75) x ($50,000 + $70,000) = 0.25 x $120,000 = $30,000 Net assets can be computed in either of two ways: (1) book values of stockholders' equity or (2) book value of assets less book value of liabilities. Here, the book values of stockholders' equity are $50,000 for common stock and $70,000 for retained earnings. View referenced content in book. 2322 Fundamentals of Consolidated Worksheets(Acquisition …

Answer 1040

estimated historical cost. If determining the actual historical cost of general infrastructure assets is not practical because of inadequate records, public institutions reporting as special-purpose governments should report the estimated historical cost for major general infrastructure assets. View referenced content in book. 2443 Capital Assets and Infrastructure Assets

Answer 1041

Bond Anticipation Notes Payable Bond anticipation notes are included as general long-term liabilities. The amount would never be revenue or a deferred revenue as the amount is due to be repaid at some point. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1042

II only In order for replacement cost to be reported as the lower of cost or market inventory value: replacement cost would have to be lower than original cost (Statement I is not correct) and replacement cost would have to fall below net realizable value and above net realizable value minus a normal profit margin (Statement II is correct). Therefore, only statement II is correct.

Answer 1043

The lease contains a bargain-purchase option. A lease will be treated as a capital lease if it meets one of the criteria of FASB ASC 840-10-25-1: - The lease transfers ownership of the property to the lessee by the end of the lease term. - The lease contains a bargain purchase option. - The lease term (as defined in paragraph (c) of FASB ASC 840-10-25-1) is equal to 75% or more of the estimated economic life of the leased property. - The present value at the beginning of the lease term of the minimum lease equals or exceeds 90% of the excess of the fair value of the leased property. View referenced content in book. 2380 Leases

Answer 1044

Neither common stock nor additional paid-in capital The issuance of rights was “without consideration” so no asset can be debited. This issuance should be recorded as a memo entry only. If, and when, the recipients exercise their rights at a later date, cash would be increased as well as common stock and additional paid-in capital. For now, however, none of the accounts would be increased.

Answer 1045

CREDIT balance. It is a contra-asset account.

Answer 1046

$8,000 gain. The bonds were issued at a premium of $40,000 ($1,040,000 – $1,000,000). The premium is amortized using straight-line, over the term of the bonds, $40,000 ÷ 10 years (from January of Year 1 to January of Year 11), or $4,000 premium amortized each year. The bonds were called on July 1, Year 6, for $1,010,000, the call price (1,000 bonds × $1,000 per bond × 1.01 call percentage). By July 1, Year 6, 5-1/2 years have gone by from the issuance on January 1, Year 1. Thus, the remaining unamortized premium on the bonds is the initial total of $40,000 – (5.5 years × $4,000), or $18,000 ($40,000 – $22,000). The call price of the bonds was $1,010,000 and the carrying value of the bonds was $1,018,000 ($1,000,000 + $18,000), so the debt was paid for less than the carrying amount, and a gain of the $8,000 difference is recognized ($1,018,000 – $1,010,000).

Answer 1047

gross profit percentage. Under the installment method: - at the time of sale or shortly thereafter, the gross profit percentage ((Selling price - Cost) ÷ Selling price) is determined. - as down payment and installments are collected, income (gross profit) is recognized in the amount of cash collected multiplied by the gross profit percentage. View referenced content in book. 2251 Revenue Recognition

Answer 1048

$23,500 The company's cash-basis consulting revenue is $23,500: Accrual basis consulting fee revenue $25,000 Unearned consulting fee-- cash received with no revenue 2,000 Consulting fees receivable-- revenue with no cash received (3,500) -------- Cash basis revenue $23,500

Answer 1049

Cash receipts: Operating transfers; Cash payments: Expenditures A transfer between funds does not carry a stipulation for repayment between the funds and does not meet the definition of revenue. Therefore, any answer with “revenue” would never be correct. The purpose of a debt service fund is to make the required payments on the debt and would be a classic example of an expenditure. View referenced content in book. 2447 Expenditures

Answer 1050

fair value. The statement of net assets of a pension plan must include net assets reflecting all investments at fair value. FASB ASC 962-205-45-2 View referenced content in book. 2152 Financial Statements of Employee Benefit Plans/Trusts

Answer 1051

Net Income / Average common stockholders' equity This measures the rate of earnings on common shareholders' investment.

Answer 1052

$37,000 Cash proceeds from the sale of an investment are a cash inflow and cash paid to purchase stock is a cash outflow. Both are investing activities. $75,000 - $38,000 = $37,000 View referenced content in book. 2135 Statement of Cash Flows

Answer 1053

$100,000 In a consolidated balance sheet, only the common stock of the parent entity is labeled “common stock.” Pare would report its own common stock ($100,000) on the December 31, 20X1, consolidated balance sheet. Note The 25% non-majority-owned common stock of Kidd Co. would be reported as part of “noncontrolling (minority) interest.” View referenced content in book. 2322 Fundamentals of Consolidated Worksheets(Acquisition …

Answer 1054

IAS 7, Cash Flow Statements, is similar to the GAAP statement except that: bank overdrafts are presented as operating activities for IFRS and financing activities in U.S. GAAP, interest and dividends received are presented as operating or investing activities for IFRS and only as operating activities in U.S. GAAP, and cash flows from extraordinary items are required to be disclosed separately under the categories in U.S. GAAP; IFRS does not use extraordinary items.

Answer 1055

either a gain or a loss. FASB ASC 225-20-45-16 contains the following requirement: Quote A material event or transaction that is unusual in nature or occurs infrequently but not both and therefore does not meet both criteria for classification as an extraordinary item, should be reported as a separate component of income from continuing operations. This applies to both gains and losses. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 1056

Stock price per share / *Earnings per share *EPS = (Net income - Preferred dividends / Weighted avg common shares) This measures the price of the stock relative to its earnings per share - this is an indicator of market value.

Answer 1057

$51,700. When accounting for a discounted note and computing the cash proceeds, one must first find the maturity value of the note, what will be received by the holder of the note when it comes due. By the time of the discounting, some of the principal has already been paid. Only the second installment, the final $50,000 principal plus interest, will be paid to the bank when due. At the end of December, Year 2, the $50,000 will be received by the bank along with 10% interest (since the principal will have been outstanding for a whole year). On December 31, Year 2, a total of $55,000 maturity value will be due: $50,000 + ($50,000 × 0.1) = $55,000 The discounted proceeds will be based on this amount, the discount rate (0.12), and the discounting period (from July to December of Year 2, 6 months). The discount amount is thus: $55,000 × 0.12 × 6/12 = $3,300 The cash proceeds are the maturity value less the discount: $55,000 – $3,300 = $51,700

Answer 1058

i. These are when a creditor gives a debtor specific covenants that they have to meet. These are usually financial ratios that the debtor has to stay within a certain range of, for example total liabilities to tangible net worth 2. If the debtor falls “out of covenant”, there are penalties such as the debt being due immediately

Answer 1059

decreases unrestricted net assets. Management and general expenses are reported in a separate functional classification from program expenses. They are shown as expenses and not as an offset to revenues. According to the FASB Accounting Standards Codification, all expenses in the statement of activities are classified as changes in unrestricted net assets and therefore decrease unrestricted net assets. View referenced content in book. 2512 Statement of Activities

Answer 1060

Both a statement of net assets in liquidation and a statement of changes in net assets in liquidation FASB ASC 205-30-45 requires that, when liquidation becomes imminent and at subsequent reporting dates, the entity must present both a statement of net assets in liquidation and a statement of changes in net assets in liquidation. View referenced content in book. 2153 Liquidation Basis Financial Statements

Answer 1061

All of the answer choices are correct. One of the purposes of financial statements is to provide information to help users to predict the reporting entity's future cash flows and results of operations. This assessment depends, to some degree, on the users' knowledge and assessment of the risks and uncertainties involving the entity's operations. Disclosure of these risks and uncertainties is a critical component of the user's process of evaluating these variables. FASB ASC 275-10 addresses the disclosures required to facilitate a user's evaluation of an entity's risks and uncertainties. An important element of this topic is selectivity. Selectivity involves the specified criteria that serve to screen the risks and uncertainties encountered by every entity. The objective is to restrict required disclosures to matters that are significant to that specific entity. (FASB ASC 275-10-05-2) The disclosures discussed by this topic focuses on risks and uncertainties that could significantly affect amounts reported in the near-term. Near-term is defined as a period not to exceed one year from the date of the financial statements. (FASB ASC 275-10-20) The types of risks and uncertainties discussed in the topic are: -the nature of the entity's operations, the use of estimates in the preparation of the entity's -financial statements, and -significant concentrations in certain aspects of the entity's operations. FASB ASC 275-10-05-2 View referenced content in book. 2389 Risks and Uncertainties

Answer 1062

$17,000,000. Revenues should be recognized in the period that they become susceptible to accrual, both measurable and available to finance that period’s expenditures. "Available to finance the period’s expenditures" means the resources are legally available for use during the period and collected within the period or early enough in the next period to be used to pay the liabilities of the period. "Early enough in the next period" cannot exceed 60 days for property taxes; therefore, most governments apply the same limits to other revenue sources. The first item, Year 3 property taxes, is collected in the same year and so would be recognized as revenue. The second item, Year 2 taxes collected in Year 3, is recognized in the year collected or Year 3. The third item, Year 3 taxes but not collected until January of Year 4, would be recognized as revenue in Year 3, as the collection happens within the 60-day limit: $14,000,000 + $1,000,000 + $2,000,000 = $17,000,000 View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1063

$600,000 Oak City's net property taxes for 20X1 would be $600,000. This is the collections during 20X1 and the amount expected to be collected in the first 60 days of 20X2. Amounts expected to be collectible during the first 60 days of the following year can be recorded as revenues of the current year if they are legally usable to pay current liabilities of the current year; that is, if they are available. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1064

$4,800 This is a nonmonetary transaction without commercial substance, and thus full gain is not recognized yet, but is instead deferred. Some cash is received, though, so some gain is recognized. $30,000 cash out of a market value of the exchange of $150,000 is 20% of the transaction being in cash, so 20% of the gain is recognized now. Zaro’s gain is $150,000 – $126,000, or $24,000, and 20% of $24,000 is $4,800, the gain recognized now. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 1065

As a current liability because the lender is not expected to be financially capable of honoring the agreement Without the agreement to refinance the note payable, the note must be paid within the following year. Consequently, the note payable is a current liability.

Answer 1066

1. Can be debt or equity investments 2. Carry and report these investments at fair value 3. Adjust carrying value to fair market value at balance sheet date 4. Gains/losses are recognized in 'other comprehensive income' a. Remember that one item of 'other comprehensive income' is changes in values of AFS securities

Answer 1067

Expenditures control The general fund records expenditures rather than expenses. The entry to record the salaries and wages must, therefore, be made to expenditures control. Salaries and wages are generally not encumbered. Since they are controlled by civil service boards and payroll procedures, the amounts and timing are predictable. Expenditures control $800,000 Salaries and wages payable $800,000 View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1068

$250,000 Only the $250,000 of sales by Branch would be included in the combined income statement of Home Office and Branch for the year ended December 21, 20X1. The intracompany transactions would not affect combined income for 20X1. They will only be recognized when a sale to an “outside entity” occurs. View referenced content in book. 2324 Elimination of Intercompany Profits and Losses(…

Answer 1069

Alpha $10,000, Omega $8,570 Current receivables acquired as a result of customary trade terms are normally reported at their face value. Long-term receivables are reported at their present value: $10,000 × 0.857 = 8,570. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 1070

Contributions receivable, valued at their present values Unconditional contributions receivable expected to be collected over more than one year should be valued using present discounted value techniques and appropriate assumptions. The contributions receivable are valued at present values, not future values. The contributions should be recognized as revenue in the period they are made and not deferred. View referenced content in book. 2511 Statement of Financial Position

Answer 1071

$136,000 (1) Allocation of loss from sale of assets: Loss = $450,000 - $385,000 = $65,000 Allocation to Smith = 60% x $65,000 = $39,000 Allocation to Jones = 40% x $65,000 = $26,000 $195,000 - $39,000 = $156,000 $156,000 - $20,000 (loan) = $136,000

Answer 1072

A noncurrent liability of $12,000 FASB ASC 740-10-45-4 provides that “an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount.” Note that “amount” is singular, indicating that separate asset and liability amounts should be “netted,” leaving a single amount. Amount to be reported in Bren's noncurrent section of balance sheet at December 31, 20X1: Deferred tax liability $15,000 Less deferred tax asset (3,000) Net noncurrent liability to be reported on balance sheet= $12,000 View referenced content in book. 2270 Income Taxes

Answer 1073

i. These are things like bonds and notes ii. There is no ownership. The investor is going to receive interest payments and principal repayment iii. If the investor intends to hold the investment to maturity, then it is a “held-to-maturity” investment and valued at “amortized cost” iv. If the investor does NOT intend to hold the investment to maturity, then it is a “trading” or “available-for-sale” investment, and is valued at “fair value”

Answer 1074

As both an increase and a decrease of $100,000 in unrestricted net assets The $100,000 donation is shown in June 30, 20X2, statements as both: an increase to unrestricted net assets and a decrease in unrestricted net assets. When the contribution was received in the prior fiscal year, it was recorded as an increase to temporarily restricted net assets. The restriction was met in the current year when the scholarships were awarded. When restrictions are met on temporarily restricted net assets, they are shown on the Statement of Activities as “net assets released from restrictions,” an increase in unrestricted net assets. The corresponding payment of the scholarships may be shown as part of unrestricted expenses. One method of showing this in the Statement of Activities is as follows: Temporarily Permanently Unrestricted Restricted Restricted Revenues, gains and other support: Contributions Investment income Net assets released From restrictions 100,000 (100,000) ------- --------- Total 100,000 (100,000) ------- --------- Expenses: Program A Program B-scholarships 100,000 Management and general Fundraising ------- --------- Total expenses 100,000 ------- --------- Net change in assets 0 (100,000) Beginning net assets 100,000 ------- --------- Ending net assets 0 ======= ========= Note that scholarships provided by the college itself would be considered a scholarship allowance that would reduce net tuition revenue rather than increase expenses per FASB ASC 958-605-25-1. View referenced content in book. 2450 Accounting and Reporting for Governmental Not-for-…

Answer 1075

Dependable must reduce Accounts Receivable by $1,400 and record the Bad Debt Expense. Dr. Bad Debt Expense 1,400 Cr. Accounts Receivable 1,400

Answer 1076

Interest receivable This note was received after it was made, and thus the note has already accrued interest. This interest that has already accrued, along with the rest of the interest that will be received, will be received by the holder of the note when it comes due. Only the interest that accrues to the holder of the note while they hold the note will count as interest revenue to them. Thus, the interest that accrued on the note prior to the point of acquiring the note is not interest revenue, but only interest receivable.

Answer 1077

To provide a benefit that is not taxable to the recipients until some later date when they actually receive compensation Companies arrange various types of deferred compensation. The most common is referred to as a rabbi trust. A grantor trust is set up to fund compensation for a group of managers or executives. The goal is to provide a benefit that is not taxable to the recipients until some later date when they actually receive compensation. To qualify for no current taxation, the trust agreement must explicitly state that the assets of the trust are available to satisfy the claims of general creditors in the event of bankruptcy of the employer. View referenced content in book. 2262 Deferred Compensation Arrangements

Answer 1078

$0 This arrangement is not substantially different from a consignment. Devlin does not meet the requirements for a sale until Jensen has sold the goods. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 1079

higher by $36,000. Relative to accrual basis, a decrease in accounts receivable is an increase in cash because cash must be received to decrease accounts receivable. Relative to accrual basis, an increase in accounts payable is an increase in cash because accounts payable was increased instead of making cash purchases. Decrease in accounts receivable $20,000 Increase in accounts payable 16,000 ------- Total increase in cash-basis income $36,000 View referenced content in book. 2135 Statement of Cash Flows

Answer 1080

fair value amounts. FASB ASC 860-50-35-9 provides that a servicing asset or liability shall be assessed for impairment or increased obligation based on its fair value. View referenced content in book. 2393 Transfers and Servicing of Financial Assets and …

Answer 1081

75% Additional guidance for identifying reportable segments and presenting information about reportable segments is provided in FASB ASC 280-10-50-14. Additional operating segments shall be identified unless: - the total of external revenues of all reportable segments must make up at least 75% of the total consolidated revenues or - an operating segment that previously met the criteria as a reportable segment, but does not meet those criteria in the current period, may still be treated as a reportable segment if management judges it to be of continuing significance. View referenced content in book. 2390 Segment Reporting

Answer 1082

the original contractual rate. The effective interest rate is based on the original contractual rate, rather than on the current interest rate or the rate specified in the restructuring agreement. Note Under some circumstances, a debtor's interest could be a new rate, and thus “the rate specified in the restructuring agreement” could be the correct answer, but the best answer choice is “the original contractual rate.” The lender can reduce the interest rate in hopes of getting some money back (if debtor is having trouble paying)

Answer 1083

Private-purpose trust The only listed fund that would be reported as a fiduciary fund in Pine City's financial statements is the private-purpose trust fund. The special revenue and permanent funds are both governmental funds, and the internal service fund is one of two types of proprietary funds. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1084

A liability of $6,100 On the balance sheet, the company would recognize a noncurrent asset (if plan assets exceed PBO, or projected benefit obligation, which they do not) or a liability in relation to the underfunded plan. The PBO, or present value of the expected pension costs (a liability), exceeds the present value of the assets available to pay these costs, so the company recognizes a liability, for the excess. PBO is $68,100, and taking away the plan asset value of $62,000 leaves an unfunded excess liability of the difference, $6,100. It would presumably be noncurrent, but we are not given enough facts to know for sure. View referenced content in book. 2264 Retirement Benefits

Answer 1085

Permanent fund Fiduciary funds include pension trust funds, investment trust funds, private-purpose trust funds and agency funds. Permanent funds are a type of governmental fund. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1086

IFRS statements may present property, plant, and equipment first in the balance sheet. The categories of assets, liabilities, and stockholders' equity are quite similar within U.S. GAAP and IFRS (International Financial Reporting Standards). However, IFRS statements may present property, plant, and equipment first in the balance sheet.

Answer 1087

$90,000. Here one needs to convert from the cash method to the accrual method as to the deferred amount of royalty expenses. The royalty payment was charged to (added to) royalty expense, but there was also a year-end credit adjustment downwards to royalty expense. The only reasonable debit to the year-end credit to royalty expense would be to debit (add to) prepaid royalties, as this could only be deferred (not properly accrued this year) royalty expenses. So far, prepaid royalties have had a debit balance of $65,000, and if one adds an additional debit to prepaid royalties of $25,000, there will be an ending balance of prepaid royalties of $90,000. View referenced content in book. 2135 Statement of Cash Flows

Answer 1088

Unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets The total net assets in the statement of financial position is the total equity of a not-for-profit entity. The equity is reported in three categories: unrestricted, temporarily restricted, and permanently restricted, depending on whether there are donor-imposed constraints on asset use. Within these categories or in the notes, additional detail can be included about donors' wishes for their contributed assets. The term “current net assets” was commonly used in not-for-profit reporting prior to the FASB issuance of not-for-profit guidance currently codified in FASB ASC 958, but is no longer used in not-for-profit financial reporting. The term “current assets” is used throughout financial accounting for cash and those assets expected to be realized in cash in the normal operating cycle of an entity. View referenced content in book. 2511 Statement of Financial Position

Answer 1089

Underlying securities owned should be reported as “Investments.” GASB I55.115 states: “The assets and liabilities arising from reverse repurchase and fixed coupon reverse repurchase agreements should not be netted on the balance sheet. These agreements should be reported as a fund liability captioned ‘Obligations under reverse repurchase agreements,’ and the underlying securities should be reported as ‘investments.’” GASB I55.116 further indicates that interest cost should not be netted with interest earned on related investments. GASB I55.111 states that credit risk needs to be disclosed. View referenced content in book. 2422 Governmental Funds Financial Statements *VIDEO EXPLANATION 10/01

Answer 1090

$0 Don't fall for this trick question! On a consolidated balance sheet no intercompany receivables (or payables) would appear. They would be eliminated in the consolidation process. This rule is stated clearly in FASB ASC 810-10-45-1 as follows: Quote In the preparation of consolidated financial statements, intra-entity balances and transactions shall be eliminated. View referenced content in book. 2323 Emphasis on Adjusting and Eliminating Entries(…

Answer 1091

139,008 In computing earnings per share, the weighted average of common stock outstanding is number of shares outstanding at the beginning of the year weighted by time for any change in shares outstanding. In this problem, the weighted average is: Original shares outstanding 100,000 4/1 issue - 30,000 x 9/12 22,500 6/1 issue - 36,000 x 7/12 21,000 -------- 143,500 Effect of stock dividend x 1.05 -------- 150,675 Treasury stock acquired: 35,000 x 4/12 (11,667) -------- Weighted average outstanding 139,008 View referenced content in book. 2335 Earnings per Share

Answer 1092

a contract that has its settlement value tied to an underlying notional amount. A derivative instrument has three characteristics: There is an underlying or notional amount. There is little or no initial net investment. Its term requires or permits net settlement. View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 1093

restricted as to use by the donor, grantor, or other source of the resources. In hospital accounting, as in accounting for other not-for-profit entities, restricted funds are restricted as to use by the donor, grantor, or other party external to the organization. View referenced content in book. 2511 Statement of Financial Position

Answer 1094

Flows and balances of financial resources GASB 1300.102.a states: “The governmental fund reporting focuses primarily on the sources, uses, and balances of financial resources.” The financial statements for governmental funds use the current financial resources measurement focus. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1095

Enterprise fund An enterprise fund is the only answer choice in which capital assets are treated in a manner similar to a “for-profit” organization. The assets are recorded in the enterprise fund because they are used in production of the goods and/or services for which the fund exists. Depreciation of these assets is included in the expenses recorded as part of fund activity. Capital assets resulting from the activities of a special revenue fund, a capital projects fund, or a permanent fund are general capital assets, which should not be reported as assets in governmental funds, but would be reported as assets in the governmental activities column of the government-wide statement of net position. (GASB 1400.114–.115) View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1096

$155,000 The balance in the account at Big Bank of $155,000 would be the only amount included in cash. The negative balance in Small Bank would be classified as a current liability.

Answer 1097

a beneficial interest in the transferred assets controlled by the transferor. FASB ASC 860-10-40-5 provides that: Quote A transfer of an entire financial asset, a group of entire financial assets, or a participating interest in an entire financial asset in which the transferor surrenders control over those financial assets shall be accounted for as a sale if and only if all of the following conditions are met: a. Isolation of transferred financial assets. The transferred financial assets have been isolated from the transferor—put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership… b. Transferee's rights to pledge or exchange. This condition is met if both of the following conditions are met: 1. Each transferee (or, if the transferee is an entity whose sole purpose is to engage in securitization or asset-backed financing activities…, each third-party holder of its beneficial interests) has the right to pledge or exchange the assets (or beneficial interests) it received. 2. No condition does both of the following: i. Constrains the transferee (or third-party holder of its beneficial interests) from taking advantage of its right to pledge or exchange ii. Provides more than a trivial benefit to the transferor… View referenced content in book. 2393 Transfers and Servicing of Financial Assets and …

Answer 1098

$20,500 “With recourse” means that the financial entity where the note was discounted can collect fully from Davis Co. in the event the maker does not honor the note. Davis Co. should disclose the full amount ($20,500) of the note as a contingent liability in its December 31, 20X1, financial statements, because it is reasonably possible that Davis will have to make good on the note (FASB ASC 450-20-50-2).

Answer 1099

$17,000 Using the basic accounting equation, Beginning balance + Additions - Deletions = Ending balance: Bonds payable on 12/31/X1 (beg inv) $47,000 Plus bonds issued in 20X2 20,000 ------- Subtotal 67,000 Less bonds payable on 12/31/X2 (end inv) 50,000 ------- Bonds redeemed in 20X2 (presumably for cash) $17,000 ======= View referenced content in book. 2135 Statement of Cash Flows

Answer 1100

$240,000 20X1 loss after carryback to 20X0: = ($700,000) - $300,000 = ($400,000) 20X2 income after carryforward of remainder of 20X1 loss: = $1,200,000 - $400,000 = $800,000 20X2 income tax expense: = ($800,000 x 0.30) = $240,000 View referenced content in book. 2270 Income Taxes

Answer 1101

A convertible bond can be converted into stock. Most bond problems will be “regular” bonds that are not convertible, and just have a single maturity date

Answer 1102

Reserve for encumbrances Issuing purchase orders and contracts represents commitment of a certain amount of the appropriation for the fiscal year. The commitment is formally recorded by debiting the “encumbrances” budgetary account and crediting the “reserve for encumbrances” or “Fund balance—reserved for encumbrances” budgetary account. The debit-balance encumbrances account can be used in a report as contra to the credit-balance appropriations account so as to reduce the balance of the appropriation for operational control. In essence, encumbrances “hold the place” of expenditures that are in process but will not be recorded until the liability is formally recognized upon receipt of goods or services. View referenced content in book. 2411 Measurement Focus and Basis of Accounting * VIDEO EXPLANATION * NOTES 09/28

Answer 1103

Determine whether the fair value of the reporting unit is less than the carrying amount and report an impairment loss on goodwill in the income statement. Goodwill is impaired when the carrying amount exceeds the goodwill's implied fair value. View referenced content in book. 2370 Impairment

Answer 1104

The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues FASB ASC 280-10-50-42 requires the following with respect to enterprise-wide disclosures about major customers: “A public entity shall provide information about the extent of its reliance on its major customers. If revenues from transactions with a single external customer amount to 10 percent or more of a public entity's revenues, the public entity shall disclose that fact, the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues. The public entity need not disclose the identity of a major customer or the amount of revenues that each segment reports from that customer.” View referenced content in book. 2390 Segment Reporting

Answer 1105

$5,700,000 Mint Corp.'s current assets on December 31, 20X1: Cash $ 600,000 Accounts receivable (net) 3,500,000 Costs in excess of billings on long-term contracts 1,600,000 ---------- Total current assets $5,700,000 ========== Current assets consist of cash and other assets reasonably expected to be realized in cash or sold or consumed in operations within one year or an operating cycle, whichever is longer. It is important to note that Mint's trial balance has not been adjusted for income taxes. Since there are no temporary or permanent differences, Mint's taxable income (for tax purposes) and income before income taxes (for financial reporting purposes) is $1,500,000 (earnings from long-term contracts of $6,680,000 less costs and expenses of $5,180,000). Mint's income tax expense for 20X1 is $450,000 ($1,500,000 × 30%). Therefore, Mint will have no “prepaid taxes” once the trial balance is adjusted for income taxes. The balance in the unadjusted Prepaid Taxes account will be transferred to the Income Tax Expense account.

Answer 1106

$50,000 increase The donor's gift of $2 million is considered an increase in permanently restricted net assets because the donor directed that it be perpetually held as an investment. The investment revenue is considered an increase in temporarily restricted net assets as the donor directed how investment income is used. The gain on the value of the investment is also considered temporarily restricted net assets due to the donor's wishes as to its use. If the donor had not explicitly directed the use of investment gains on the endowment, such gains would be considered an increase in unrestricted net assets. $10,000 gain + $40,000 gift View referenced content in book. 2512 Statement of Activities

Answer 1107

Modified cash basis financial statements are intended to provide more information to users than cash basis statements while continuing to avoid the complexities of GAAP and the modified cash basis does not comply with GAAP unless there are no material differences in this method and GAAP. The modified cash basis is a hybrid method which combines features of both the cash basis and the accrual basis. Modifications to the cash basis accounting include such items as the capitalization of assets and the accrual of income taxes. If these modifications are made, the resulting balance sheet would include long-term assets, accumulated depreciation, and a liability for income taxes. The income statement would report depreciation expense and income tax expense. Modified cash basis financial statements are intended to provide more information to users than cash basis statements while continuing to avoid the complexities of GAAP. The modified cash basis does not comply with GAAP unless there are no material differences in this method and GAAP. View referenced content in book. 2160 Special Purpose Frameworks

Answer 1108

Hart: $10,000; Maxx: $7,827 FASB ASC 310 provides that notes receivable stating either no interest or an unreasonably low interest rate be reported at their present value computed using an appropriate interest rate if the original maturity date of the note exceeds one year. The Hart note would be reported at its face amount of $10,000 since it matures within the current 1-year accounting period. The correct value for reporting the Maxx note is: Present value of Maxx note = Maturity amount x Present value factor = ($10,000 + ($10,000 x 3% x 5 years)) x .6806 = ($10,000 + $1,500) x .6806 = $7,827 View referenced content in book. 2252 Costs and Expenses

Answer 1109

$180,000 ``` Sales (200,000 x $2) $ 400,000 Cost (200,000 x $1) (200,000) ---------- Tentative Gross Profit 200,000 Est Returns (5% x 200,000) (10,000) Added costs (10,000) ---------- Operating profit $ 180,000 ``` View referenced content in book. 2132 Income Statement/Statement of Profit or Loss

Answer 1110

$248,000 Bond issue cost related to bonds retired = 1/2 of $6,000 = $3,000 Bond issue cost amortized by 06/02/06 = 5/15 of $3,000 = $1,000 Face amount of bonds retired (1/2 of $500k)= $250,000 Less unamortized bond issue costs ($3k - $1k) = 2,000 -------- Bond carrying value prior to retirement $248,000 (Used to compute gain or loss on retirement) ========

Answer 1111

$12,000 Since all of the net operating loss can be used to offset income in Year 2, the maximum benefit is the amount of the net operating loss multiplied by the tax rate: $40,000 × 0.30 = $12,000 View referenced content in book. 2270 Income Taxes

Answer 1112

net realizable value less normal profit margin. Replacement cost is the basic measure of market value in the context of lower of cost or market valuation of inventory. However, there are both a “ceiling” and a “floor” to consider in order not to overstate or understate the inventory value. Net realizable value (selling price minus costs to complete and dispose) is the ceiling. Net realizable value minus a normal profit margin is the floor. The measure of market value cannot exceed the ceiling or be lower than the floor. Therefore, the market value is considered to be the middle value of replacement cost, the net realizable value, and the net realizable value less a normal profit margin. If replacement cost is between the ceiling and the floor, then replacement cost is the measure of market value. If replacement cost is above the ceiling, then net realizable value is the measure of market value. If replacement cost is below the floor, then net realizable value less a normal profit margin is the measure of market value. In this problem replacement cost is below the floor, therefore, net realizable value less a normal profit margin is the measure of market value. The cost is higher than this measure. Therefore, under the lower of cost or market concept, net realizable value less a normal profit margin is the value of the inventory.

Answer 1113

budgetary control for the general fund. Encumbrance accounting is a method of budgetary control for governmental funds, including the general fund. Encumbrances do not represent expenditures as they are a memorandum of commitments that will eventually lead to expenditures. They do not represent liabilities as the goods and services are yet to be delivered. Governmental intent to commit resources for specific uses in the future is indicated by an assignment of fund balance. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1114

$280,000 20X1 service and interest cost $720,000 Less: Contribution to plan $400,000 Interest on contribution (10% of $400K) 40,000 440,000 -------- -------- Accrued pension cost $280,000 ======== View referenced content in book. 2264 Retirement Benefits

Answer 1115

Selectivity One of the purposes of financial statements is to provide information to help users to predict the reporting entity's future cash flows and results of operations. This assessment depends, to some degree, on the users' knowledge and assessment of the risks and uncertainties involving the entity's operations. Disclosure of these risks and uncertainties is a critical component of the user's process of evaluating these variables. FASB ASC 275-10 addresses the disclosures required to facilitate a user's evaluation of an entity's risks and uncertainties. An important element of this topic is selectivity. Selectivity involves the specified criteria that serve to screen the risks and uncertainties encountered by every entity. The objective is to restrict required disclosures to matters that are significant to that specific entity. FASB ASC 275-10-05-2 View referenced content in book. 2389 Risks and Uncertainties

Answer 1116

a program expense (Public Works) in the statement of activities, but not as an expenditure in the general fund. The general fund, as a governmental fund, is accounted for from the current financial resources perspective. Therefore, capital assets and revaluations of capital assets are not reported. In the government-wide statements, impairment is a revaluation of a capital asset that is reported as an expense in the statement of activities. Depending on circumstances, an expense could be reported in the statement of activities as a program expense, special item, or extraordinary item. In this case, as the asset is used in a specific program for the Public Works department, and the determination appears to have already been made that it does not meet the criteria for treatment as a special or extraordinary item, the best choice is to report the expense as a program expense. View referenced content in book. 2443 Capital Assets and Infrastructure Assets

Answer 1117

$22,000 To do the calculation, use a number as the bonds face value, say $100,000. If such a bond was purchased at a discount of 10,000, that would be a carrying value of $90,000 ($100,000 – $10,000). If, while the bonds were held, $2,000 of discount was amortized, then the carrying value of the bonds would be $92,000, as the discount amortized adds to the bond carrying value, so that the carrying value approaches face value of $100,000. If the bonds were then sold to another investor at a premium of $14,000, then the new investor would pay face value plus $14,000 for a total of $114,000 ($100,000 + $14,000). When an investment with a carrying value of $92,000 is sold for $114,000, a gain of the difference is recognized: $114,000 – $92,000 = $22,000

Answer 1118

Additional paid-in capital is decreased. The entry to record the issuance of stock in 20X0 (using one share as an example) is: Dr. Cr. Cash $25 Common stock (par value) $10 Additional paid-in capital from issuance of stock $15 The reacquisition and retirement of one share would be recorded as follows: Dr. Cr. Common stock (par value) $10 Additional paid-in capital from retirement of stock 15 Cash $20 Additional paid-in capital from retirement of stock 5 Each share reacquired results in a net decrease in additional paid-in capital of $10 ($15 - $5). View referenced content in book. 2250 Equity

Answer 1119

20X2: $350,000; 20X1: $(300,000) Under FASB ASC 205-20-45-3, the operation gains and losses are reported in the periods they occur. If a loss on sale of the segment is estimated, the asset is written down to FMV in the period in which the decision is made. If a gain on sale of the segment occurs, it is not reported until the day of actual sale. 20X2 20X1 ---------- ---------- Discontinued operations: Loss from operation of discontinued segment ($300,000) ($300,000) Gain from disposal of discontinued segment 650,000 ---------- ---------- Total income (loss) $ 350,000 ($300,000) ========== ========== FASB ASC 205-20-45-3 states:

Answer 1120

$83,000 Using dollar-value LIFO (last in, first out) requires ending inventories to be restated at base-year price levels of the first year the method was adopted. This allows the use of the constant dollar-base-year values to be used as the way to estimate additional layer amounts, if any, in later years. At the beginning of this year, $50,000 of inventory was on hand. During the year, an additional level of $30,000 (at base-year prices) was added. To find the ending dollar-value LIFO amount, take the beginning inventory at its value without adjustment, $50,000, and then add only the new layer at the present price level. Thus, the answer is: Carryforward layer ($50,000 x 1) $50,000 Plus the new layer at its additional 10% price level ($30,000 x 1.10) 33,000 ------- Total of ending inventory dollar-value LIFO $83,000 Since designated market exceeds cost at year-end, no lower of cost or market loss of utility has occurred.

Answer 1121

both commonly controlled companies and companies under common management. FASB ASC 810-10-20 notes that in consolidation controlling financial interest resides with one of the companies included in the consolidation. In addition, combined financial statements would be useful where one individual owns a controlling financial interest in several entities that are related in their operations. Another use of combined statements is to present the financial position and the results of operations of entities under common management. Thus, combined statements (not consolidated) may be used to present operating results of companies under common management, as well as commonly controlled companies. View referenced content in book. 2321 Introduction and Overview

Answer 1122

$51,600 Current portion of Taxable Current income tax expense = income x tax rate = $129,000 x 40% = $51,600 View referenced content in book. 2270 Income Taxes

Answer 1123

There is no reasonable basis for estimating collectibility. FASB ASC 605-10-25-4 states in a footnote that “where receivables are collectible over an extended period of time and…there is no reasonable basis for estimates of the degree of collectibility…either the installment method or the cost recovery method of accounting may be used.” View referenced content in book. 2251 Revenue Recognition

Answer 1124

``` Gross sales Less: sales returns =Net sales -COGS =Gross Profit Less: Selling & Administrative Exp =Operating Income Other income: Add: Gain on sale of available-for-sale securities =Income before taxes Less: Provision for income taxes =Income from continuing operations Discontinued operations: Add: Gain from disposal of discontinued business seg EQUALS: NET INCOME ```

Answer 1125

Deferred Revenues: 60% of main contract price; Payables to Subcontractor: none Journal entry to record receipt of advanced payment on March 31, 20X1: Dr. Cr. Cash (60% of sales price) $XXX Deferred (Unearned) Revenues $XXX No other entries would be made at that time. Note Deferred (Unearned) Revenues (a liability) is credited at the time cash is received. Payables to Subcontractors, another liability account, would not be credited on March 31, 20X1, because the subcontractor has not delivered the order to Dallas Co. at that time.

Answer 1126

Equipment and facilities included in estimated total current cost of closure and post-closure care should not be reported as capital assets. Equipment, facilities, services, and final cover, included in the estimated total current cost, should be reported as a reduction of the accrued liability for landfill closure and post-closure care, when they are acquired. GASB L10.107 View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1127

$70,000 Vent should record $70,000 at issuance: Face value of debentures $500,000 Total sales price $450,000 Value of warrants *(20,000) Value of debentures 430,000 -------- Discount $ 70,000 * 2,000 detachable warrants x $10 market price * *If the warrants are detachable, the proceeds from the bond issue must be allocated between the debt and the warrants on the basis of their relative fair values. The amount allocated to the warrants is accounted for as additional paid-in capital. So you have to detach the value of warrants from the bond = value of debentures!!

Answer 1128

General capital asset The GASB Codification clearly states that leased capital assets should be reported in government-wide financial statements. If used for general government purposes, the leased asset would be considered a general capital asset. Other financing use and expenditure are temporary accounts used in governmental funds to represent equity reductions. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 1129

income determination. GASB 1300.102.b states: “Proprietary fund reporting focuses on the determination of operating income, changes in fund net position (or cost recovery), financial position and cash flows.” Reporting in this fund would be comparable to that in a commercial business type of entity, although the difference between revenues and expenses is reported as changes in net position, not as net income. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1130

their exercise price is greater than the average market price. Options have a diluting effect when the average market price of the common stock exceeds the exercise price of the options. (Note that options would not be exercised by holders if the option price exceeds the market price.) FASB ASC 260-10-45-28A states that stock-based awards are included in diluted EPS even if the employee may not be able to sell them until some future date. View referenced content in book. 2335 Earnings per Share

Answer 1131

$6.50 I. Computation of weighted-average shares: 1. Common stock outstanding 01/01/X2 110,000 2. Conversion of preferred stock 05/01/X2 13,333 20,000 x 8/12 (An additional 20,000 shares were outstanding from May 1 until year-end.) 3. Conversion of convertible bonds 07/01/X2 7,500 15,000 x 6/12 (One-half of the bonds were converted, so an additional 15,000 shares were outstanding from July 1 until year-end.) ------- 4. Total weighted-average shares 130,833 ======= II. Basic EPS: Basic EPS = Net income / Weighted-average number of outstanding common shares = $850,000 / 130,833 = $6.50 Note Preferred dividends are not deducted from Net Income in the basic EPS calculations due to the fact that the preferred stock is convertible. For the purposes of this calculation, the 10,000 shares of preferred stock are converted to 20,000 shares of common, which assumes that there were no preferred dividends. (FASB ASC 260-10-45-10) View referenced content in book. 2335 Earnings per Share

Answer 1132

All of these plans are deferred compensation plans. Deferred compensation is the portion of an employee's compensation that is payable in the future, either while employed or as retirement benefits, and may result in taxable income for the employee in the future rather than the present. Pension plan benefits, profit-sharing plans, stock bonus plans, bond purchase plans, individual retirement plans (IRAs), and Keogh plan earnings of the current year may be deferred and taxed in the year the payment is received by the employee. The timing of the taxability depends on whether or not the deferred compensation meets the technical requirements of Subchapter D of the Internal Revenue Code. View referenced content in book. 2262 Deferred Compensation Arrangements

Answer 1133

The General Fund balance sheet at December 31, 20X2, would report no Encumbrances; no Fund balance—reserved for encumbrances; Fund balance—committed, $350,000; and Fund balance—assigned, $50,000. As $350,000 of the year-end encumbrances were already recognized as a “committed” fund balance, so only the additional $50,000 of commitments need to be recognized in preparing the General Fund balance sheet. As the remaining encumbrances probably did not result from action at the highest level of government, the City Council, they would be shown as “assigned.” View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1134

$248,000 The main point of this question is that the cash flows focuses on the cash received in the transaction, not on the gain recognized in the transaction. The amount of the gain on the sale of the land does not affect investing activities. The item that shows up on the cash flow statement is the cash provided by the sale of the land: the cash proceeds of $40,000. Therefore, given the other information about cash and cash flows in the problem, the ending cash balance may be computed as follows: Cash from operating activities $351,000 Cash from investing activities: Cash used for investing activities (420,000) Cash received from sale of land 40,000 Cash provided by financing activities 250,000 --------- Net increase in cash 221,000 Beginning cash balance 27,000 --------- Ending cash balance $248,000 =========

Answer 1135

$29,800 The difference between gross and net reporting is that at gross reporting, the discounts are not recognized in the carrying values of the accounts until payment is made. Thus, the accounts in question will be carried at their full gross amounts due (not less the discount available). The account that will be affected by the change is the accounts payable account that keeps track of the payments still due, at their full gross amount due of $30,000. The purchases already paid for have been adjusted for any available discount and do not require adjustment now. Any expired discounts are also no longer available and any purchases they relate to should stay at gross amounts due. The unexpired discounts that are still available to take, the $200, should be adjusted into the carrying value of accounts payable now still outstanding, and that is the only adjustment to make. Thus, what needs to be done is to restate accounts payable down by the $200 unexpired discounts, from $30,000 to $29,800.

Answer 1136

$1,000,000 Donor wishes require that the $1,000,000 contribution be held permanently, thus increasing permanently restricted net assets in the period of the contribution. The endowment income is restricted by the donor only until it is used according to the donor's wishes, so it would be reported as an increase in temporarily restricted net assets. If the donor's wishes are fulfilled within the accounting period, the endowment income could be accounted for as an increase in unrestricted net assets. View referenced content in book. 2512 Statement of Activities

Answer 1137

This will always be true for FIFO method but not all the other cost flow methods.

Answer 1138

Debt-to-equity ratio decreased to 12%. The information presented is at the end of the year. The option exercise occurred during the year, resulting in these numbers. The ratio after the transaction is: $60,000 ÷ $500,000 = 0.12 (12%)

Answer 1139

Enterprise Encumbrances are used for budgetary control purposes in governmental funds. Of the four funds listed in this question, all but the enterprise funds are governmental funds. The GASB Codification emphasizes that encumbrances should be used especially in the general and special revenue funds, and may be used in the capital projects fund depending on the complexity of the projects being administered. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1140

DEDUCT! Amortization of bond premiums are revenues with no cash inflows.

Answer 1141

$116,250. The original historical cost can be inferred from the balances of the two accounts above. Taking the current market value and adding back the unrealized losses results in the original cost of the securities: $96,450 + $19,800 = $116,250

Answer 1142

A gain of $25,000 in the income statement The following entry is necessary on Toigo's books on November 20, to record the purchase of the inventory: ``` Inventory $625,000 Accounts Payable (500,000 x $1.25) $625,000 ``` The following entry is necessary on December 31, the balance sheet date, to remeasure the payable denominated in a foreign currency at the exchange rate at the balance sheet date: ``` Accounts Payable (500,000 x ($1.25 - $1.20) $25,000 Exchange Gain $25,000 ``` The exchange gain is included in the determination of net income. It is not an extraordinary item. View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward …

Answer 1143

Impaired when carrying value is greater than fair value Impairment loss is CV - FV

Answer 1144

government-wide financial statements, fund financial statements, and the notes to the financial statements. The basic financial statements include government-wide financial statements, fund financial statements, and the notes to the financial statements per GASB 2200.102. The minimum requirements for general purpose external financial reporting include, in addition to the basic financial statements, management's discussion and analysis, and required supplementary information other than management's discussion and analysis. View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 1145

$420,000 According to FASB ASC 225-20-45-2, extraordinary items are both unusual in nature and infrequent in occurrence. The fact that earthquakes are rare in the area means that damages from earthquakes would be both unusual and infrequent. Therefore, the loss from the earthquake would be an extraordinary item on the income statement. Additionally, intraperiod tax allocation is applied to such irregular items on the income statement. Pretax extraordinary loss $700,000 Tax effect (280,000) --------- Extraordinary loss, net-of-tax $420,000 ========= View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 1146

$286,000 The ending liability balance must be found, so start with the beginning balance of $500,000. Add to this any receipts, since these are additional liabilities owed to the customers. The payments of taxes lower the liability, so subtract them; they are the fulfillment of the requirements. Add the interest, since these are like additional receipts from the customers, but subtract the 10% fee of $40,000 × 0.10, which is $4,000. Thus, $500,000 + $1,200,000 - $1,450,000 + $40,000 - $4,000, for a final balance of $286,000.

Answer 1147

1. These can be debt or equity investments 2. Investor is looking for short-term profits 3. Investments are carried at fair value 4. These will almost always be current assets on balance sheet

Answer 1148

$150,000 Quality control during commercial production, including routine testing, is not included. Depreciation on equipment with alternative uses is included. Contract services for another entity are not included. Laboratory research aimed at discovery of new knowledge $ 75,000 Design of tools, jigs, molds, and dies involving new technology 22,000 Depreciation on equipment acquired 2 years ago, having an estimated useful life of 5 years with no salvage value, used in various R/D projects 30,000 Research and development services performed by Stone Co. for Metal, Inc. 23,000 -------- Total $150,000 View referenced content in book. 2388 Research and Development Costs

Answer 1149

All of the answer choices are methods to achieve a troubled debt restructuring. A troubled debt restructuring is normally accomplished by one or a combination of the following: Transfer from the debtor to the creditor of assets (e.g., real estate, receivables) to satisfy fully or partially the debt Issuance of an equity interest to the creditor by the debtor to satisfy fully or partially the debt Modification of terms of the debt, such as: - reduction in the interest rate for the remainder of the life of the debt - extension of maturity date(s) at an interest rate less than the current rate for new debt - reduction of the face amount or maturity amount of the debt - reduction of accrued interest

Answer 1150

$16,000 *Pay attention to: "dated October 1 of the current year" Even though the bonds have only been outstanding for two months (November and December) by the end of the year, nevertheless, the bonds pay interest on October and, in this case, owe the interest to be paid starting to accrue from October (the interest payment date). Thus, the interest payable up until the end of December for the year is based on the face amount ($800,000), the stated interest rate (8%), and the time from the October 1 payment date until the end of December. Thus, the interest payable at the end of the year is $16,000: $800,000 × 0.08 × 3/12 = $16,000

Answer 1151

$9.20. Moving average is an average costing method of a perpetual inventory system. Thus, after every purchase, the average unit cost must be recomputed and carried forward. At the end of the period, there are still 1,600 units of the items bought for $8.00 each, and also the newest purchase of 4,800 units at $9.60 each. The total units at the end of the month is thus 6,400 and their total cost is $58,880, computed as the total of 1,600 × $8.00 and 4,800 × $9.60. The unit cost is the total cost of $58,880 divided by the total number of units: $58,880 ÷ 6,400 = $9.20.

Answer 1152

8 to 1. The price-earnings ratio is P/E = Stock price ÷ EPS (earnings per share). The net earnings per common share is $9: ($1,200,000 – $300,000) ÷ 100,000 = $9 Price-earnings ratio: $72 ÷ $9 = $8 View referenced content in book. 2137 Consolidated and Combined Financial Statements

Answer 1153

$525,000 In the retail column, add the beginning inventory and purchases to the net markups for a subtotal of $960,000: $920,000 + $40,000 = $960,000 Next, divide the cost of $600,000 by this subtotal: $600,000 ÷ $960,000 = 0.625 Then, get the ending inventory at retail, the $960,000 subtotal less the net markdowns and sales for a total of $120,000: $960,000 – $60,000 – $780,000 = $120,000 Multiply the ending inventory at retail by the cost to retail percentage of 0.625 (62,5%) to reach the ending inventory at cost: $120,000 × 0.625 = $75,000 Cost of sales is the beginning inventory and purchases at cost, less the ending inventory at cost: $600,000 – $75,000 = $525,000

Answer 1154

All those other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business FASB ASC 850-10-50-1 requires that: Quote Financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. View referenced content in book. 2387 Related Parties and Related Party Transactions

Answer 1155

YES! The modified cash basis, as the name implies, is a combination of the cash basis and the accrual basis. The modified cash basis is acceptable and is regularly used by professional service companies. The cash basis is modified for items that have substantial support, such as recording income tax expense in the year in which the income was earned and capitalizing the purchase of assets even though cash was paid for the asset.

Answer 1156

The total receivable should be reported separately. The total receivable should be reported separately. The equity method would be used at the 20% ownership level but would not change the requirement to report the receivable separately. At the 50%-plus level of ownership, consolidation would require elimination of the receivable as an intercompany item.

Answer 1157

$6,050,000 Costs incurred to develop software for internal use are capitalized after the application development stage is reached (in accordance with FASB ASC 350-40-35-4). The costs are amortized over the benefited period—four years in this case. Costs incurred prior to the application development stage are expensed, as are training costs incurred after the development stage. Therefore, the amount expensed is: Pre-development stage costs $4,000,000 Amortization of capitalized costs: $8,000,000 / 4 years 2,000,000 Training costs 50,000 ---------- Total expenses $6,050,000 ========== View referenced content in book. 2391 Software Costs

Answer 1158

Both profit or loss and total assets FASB ASC 280-10-50-22 requires a measure of both profit or loss and total assets to be disclosed for each reportable segment of an enterprise. That paragraph states: “A public entity shall report a measure of profit or loss and total assets for each reportable segment.” View referenced content in book. 2390 Segment Reporting

Answer 1159

enterprise performance but not directly provide information about management performance. Financial statements provide direct information about enterprise performance because the primary focus of the statements is to provide information about the financial performance of that enterprise by providing information about earnings. The same cannot be said, however, in regard to management performance. The financial statements depict only indirect information concerning management performance. (Direct information related to management performance would be provided in internal managerial performance reports but not in the external financial statements.) View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 1160

It is prohibited. Subsequent reversal of a previously recognized impairment loss of goodwill or other intangible assets is prohibited in FASB ASC 350-30-35-14. View referenced content in book. 2370 Impairment

Answer 1161

FIFO Under the FIFO method, the amounts expensed as cost of goods sold are the oldest purchases. In a period of rising prices, the oldest purchases are the smallest amounts. A smaller cost of goods sold results in a larger gross profit.

Answer 1162

$798,000 This building is treated as a leasehold improvement. Although the land lease is for 21 years, the building will be in use for 20 years; thus, the depreciation period for the building is 20 years: Cost / Life = $840,000 / 20 years = $42,000/year Building cost - Depreciation = Carrying Value of Building $840,000 - $42,000 = $798,000

Answer 1163

$90,000 Under FASB ASC 958-605-25-2, not-for-profit entities must record unconditional promises to give as contributions revenue when the promise is made. Under FASB ASC 958-605-30-6, such contributions may be recorded at net realizable value, or net of any allowance for uncollectible pledges. $100,000 x 90% = $90,00 View referenced content in book. 2512 Statement of Activities

Answer 1164

As a refundable advance In this case, the donor has provided resources to Gridiron University before the conditions attached to the donation, the raising of matching funds, have been met. “Temporarily restricted” and “unrestricted support” (which would increase the related category of net assets) are not correct because the contribution cannot be recognized as support (revenue) until conditions have been met. “As a memorandum entry reported in the footnotes” is not correct because the cash received must be recorded in the books and records. “As a refundable advance,” considering the conditional donation as a liability called “refundable advance,” is the only correct answer. View referenced content in book. 2511 Statement of Financial Position

Answer 1165

$34,000 The net position of internal service funds are reported with governmental activities in government-wide statements because the activities accounted for in them are usually more governmental than business-type in nature. Thus, in this example, the total amount shown as net position for governmental activities is the $25,000 total net position derived from the governmental funds plus the $9,000 balance in the motor pool internal service fund. If enterprise funds are the predominant or only participants in an internal service fund, then the internal service fund would be reported along with the enterprise funds. Enterprise funds are reported as business-type activities in government-wide statements. Fiduciary funds (the pension fund) are not reported in the government-wide statements. GASB 2200 View referenced content in book. 2421 Government-Wide Financial Statements

Answer 1166

$150,000 Revenue is recognized when the earnings process is complete and the exchange has taken place. Only 50,000 gallons have been “exchanged” by delivery. Therefore, revenue would be: 50,000 gallons × $3/per gallon = $150,000 View referenced content in book. 2251 Revenue Recognition

Answer 1167

$6,000 Initial capital investment $2,000 Add: Service revenue collected 5,000 ------- Subtotal $7,000 Deduct: Cash withdrawn (1,000) ======= Capital balance on March 31, 20X1 $6,000 Under the cash method, expenses would be recorded in April when paid.

Answer 1168

In the period of change and future periods if the change affects both FASB ASC 250-10-45-17 indicates that reported amounts should not be restated for changes in accounting estimates. Instead: Quote The effect of a change in accounting estimate should be accounted for in (a) the period of change if the change affects that period only or (b) the period of change and future periods if the change affects both. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 1169

infrequent in occurrence but not unusual in nature. FASB ASC 225-20-45-16 stipulates that: Quote A material event or transaction that is unusual in nature or occurs infrequently but not both, and therefore does not meet both criteria for classification as an extraordinary item, should be reported as a separate component of income from continuing operations. Based on this, a material loss that is infrequent in occurrence but not unusual in nature should be presented separately as a component of income from continuing operations. A material loss that is an extraordinary item (i.e., both infrequent in occurrence and unusual in nature) or results from a cumulative effect-type change in accounting principle is reported as a separate item after income from continuing operations. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 1170

Accumulated other comprehensive income The total of other comprehensive income for a period is transferred to a component of equity that is presented in the statement of financial position separately from retained earnings and additional paid-in capital. This element of stockholders' equity should carry an appropriate title, such as accumulated other comprehensive income. The accumulated balances of each separate classification of that component of stockholders' equity is required, either in the statement of financial position or in notes to the financial statements. The classifications of other comprehensive income must be consistent throughout the financial statements (FASB ASC 220-10-45-14). View referenced content in book. 2133 Statement of Comprehensive Income

Answer 1171

$400,000 Computer software costs to be sold, leased, or otherwise marketed are charged to expense as research and development until technological feasibility has been established for the product. Technological feasibility is established on completion of a detailed program design or completion of a working model. Since a technological feasibility was established on August 31, all of the costs up to that date (8 × $100,000) would be expensed as research and development expenses. The costs after August 31 (4 × $100,000) would be capitalized. View referenced content in book. 2391 Software Costs

Answer 1172

accrued if attributable to employees' services already rendered. Four conditions are necessary for accrual of employees' compensation for future absences according to provisions in FASB ASC 710-10-25-1. The four conditions are: rights to compensation vest or accumulate, payment of compensation is probable, amount of payment can be reasonably estimated, and the compensation is attributable to employees' services already rendered. View referenced content in book. 2261 Compensated Absences

Answer 1173

$0 FASB ASC 250-10-45-5 mandates that voluntary changes in accounting principle be recognized using the retrospective approach, in which the cumulative effect is reported as an adjustment of the beginning-of-year retained earnings of the earliest year presented. Thus, the cumulative effect of Off-Line's change in accounting principle would not be included in its 20X2 income statement. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 1174

Extraordinary gain/loss: $0; Other gain/loss: $(4,000) FASB ASC 470-60-35-2 requires that a debtor in a troubled debt restructuring recognize a gain measure as “the excess of (i) the carrying amount of the payable settled…over (ii) the fair value of the assets transferred to the creditor.” FASB ASC 470-50-45 requires that gains and losses on extinguishment of debt, including those extinguishments associated with troubled debt restructurings, do not automatically qualify as extraordinary gains and losses but should be classified according to the criteria for extraordinary items identified in FASB ASC 225-20-45-2. Since extinguishments of debt and troubled debt restructurings generally are not unusual and infrequent (especially in light of the losses normally would not qualify as extraordinary items). Thus, the total gain/loss in this case is the difference between the carrying value of the debt, $105,000, and the carrying value of the machine, $109,000 and its fair value of $96,000 conceivably could be deemed to be an impairment loss. However, we do not have enough information to know that this $13,000 part of the loss qualifies as an impairment loss. Nevertheless, even if it did, it would be included in income from continuing operations and would not qualify as an extraordinary item. Thus, the best answer is that the $4,000 net loss should be recognized as an ordinary loss to be included in income from continuing operations.

Answer 1175

1. Sum of years digits: (# years remaining x (cost - salvage)) /sum of the years 2. Double declining: 2x straight line rate x (cost - accu depreciation)

Answer 1176

neither additional paid-in capital nor retained earnings. Assume: Par value of shares = $1,000 Original issue price = $1,200 ($1,000 par, $200 APIC) Reacquisition price = $1,100 (1) Reacquisition using cost method: Dr. Cr. Treasury shares $1,100 Cash $1,100 (2) Reacquisition using par value method: Dr. Cr. Treasury shares $1,000 Additional paid-in capital 100 Cash $1,100 The entry under the par value method reduces additional paid-in capital (i.e., the amount is not “greater”), while retained earnings are not affected. Note The question asks if the amount is “greater,” not just if the account is affected. View referenced content in book. 2250 Equity

Answer 1177

$298,000 Reported cost of goods sold for 20X1 $270,000 Add increase in inventory ($60,000 - $45,000) 15,000 Decrease in AP ($39,000 - $26,000) 13,000 -------- Cash paid to suppliers in 20X1 $298,000 ======== View referenced content in book. 2135 Statement of Cash Flows

Answer 1178

The amount is increased by the excess of the replacement forest land's cost over the condemned forest land's carrying amount. The receipt of a condemnation award is considered an involuntary conversion of a nonmonetary asset (the land) for monetary assets (cash). FASB Interpretation 30 requires that Lano Corp., as recipient of such an award, recognize a gain even though it reinvests the award in new land. The new land is then recorded at its acquisition cost. Thus, the net effect on the carrying amount of forest land reported in Lano's balance sheet is that the amount is increased by the excess of the replacement forest land's cost over the condemned forest land's carrying amount. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 1179

$3,000 FASB ASC 845-10-30-1 generally specifies that fair values should be used to account for nonmonetary exchanges unless the exchange does not have commercial substance. Thus, Balt should record the investment on July 1, 20X1, at the fair value of the truck surrendered ($3,000). Since Balt only owns 10% of Ace's common stock and there is no other evidence that Balt has the ability to exercise significant influence over Ace's policies, Balt should use the cost method to account for its investment in Ace. As a result, the investment balance remained unchanged during 20X1, resulting in a December 31, 20X1, balance of $3,000.

Answer 1180

the effect of the two transactions in income before extraordinary items. The loss on the sale of long-term investment in Iron Corp. bonds would be reported as income before extraordinary items. The gain from purchase of Gold's own bonds is subject to the provisions of FASB ASC 470-50-45, which states that FASB ASC 225-20-45-2 criteria apply to early extinguishment of debt. Note FASB ASC 225-20-45-2 requires that extraordinary items be both unusual in nature and infrequent in occurrence and applies to the determination of whether or not the early extinguishment of debt is an extraordinary item. Therefore, Gold Corp. should not report the gain on the purchase of its own bonds as an extraordinary item. Since the net of the two transactions is a gain, they would be included in income before extraordinary items. Neither item would be considered an extraordinary item. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 1181

A schedule showing the original budget, the final appropriations budget, and actual inflows, outflows, and balances on a budgetary basis The budgetary comparison schedule should present both (a) the original and (b) the final appropriated budgets for the reporting period as well as (c) actual inflows, outflows, and balances, stated on the government's budgetary basis. A separate column to report the variance between the final budget and actual amounts is encouraged, but not required. (GASB 2400.102) Note SLGs have the option of reporting the budgetary comparison schedule for the general fund and for each major special revenue fund that has a legally adopted budget as part of the basic financial statements instead of required supplementary information. View referenced content in book. 2422 Governmental Funds Financial Statements

Answer 1182

Current liabilities of $400,000; long-term liabilities of $900,000 A current liability is expected to require the use of current assets or the creation of other current liabilities. Long-term liabilities (or obligations) are those liabilities scheduled to mature beyond one year. The current and long-term liabilities in this problem are as follows: Current Long-Term -------- --------- Line of credit $250,000 Secured note 150,000 $600,000 Balloon note 300,000 -------- --------- Total $400,000 $900,000

Answer 1183

property taxes are recorded. Crediting the revenues control account signifies either that cash has been collected, or that a valid receivable exists. In practice, when property taxes are levied, a receivable is created. The debit to property taxes receivable is offset by a credit to revenues to the extent that the taxes are “susceptible to accrual;” that is, both measurable and available to pay liabilities of the fiscal period. (To the extent that receivable items do not meet the susceptible to accrual criteria, deferred revenues, a liability, is credited.) Budgetary events and accounts (the other answer choices) do not affect the revenue control account. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1184

Serial bonds Serial bonds are a set of related bonds issued at the same time but which mature at intervals over time. A debenture is an unsecured promissory note (bond) to pay a specified amount on a specified date. Term bonds are bonds that are scheduled to be outstanding for a fixed period of time, or term. A sinking fund is money regularly set aside for a specific purpose, usually to redeem outstanding bonds or preferred stock or to replace capital assets.

Answer 1185

$65,000 Sales of held-to-maturity securities and available-for-sale securities both result in cash inflows from the sale of equity securities of other enterprises. $25,000 + $40,000 = $65,000

Answer 1186

The approximate time from investment in inventory to receipt of cash from sales of inventory. The operating cycle is the time that inventory is kept prior to sale added to the time from sale to cash collection (days in accounts receivables).

Answer 1187

$5,750 Initial amount of lease $135,000 Less first payment 20,000 -------- Lease amount applicable to last half of 20X1 $115,000 Times interest rate (10% x 6/12 year) x .05 -------- Interest revenue for 20X1 $ 5,750 ======== View referenced content in book. 2380 Leases

Answer 1188

i. Under GAAP, revaluation of PPE through OCI is NOT allowed | ii. Under IFRS, revaluation of PPE through OCI is allowed

Answer 1189

i. Under GAAP there are 3 investment classifications: HTM, AFS, and Trading. Under IFRS, there are just two: HTM and Fair Value ii. Under GAAP any impairment of a debt investment cannot be reversed. Under IFRS an impairment can be reversed if there is evidence 40 iii. Under GAAP, to classify an investment as HTM, the investor needs to have “positive ability and intent to hold to maturity." Under IFRS it is a "business model test"

Answer 1190

been denominated in U.S. dollars. According to the FASB ASC Glossary: Quote Transaction gains or losses result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated. FASB ASC 830-30-40-1 specifies that “a transaction gain or loss…shall be included in determining net income for the period in which the change occurs,”not as an extraordinary gain or as a contra amount to the asset. A foreign currency translation gain or loss (which is reported as a separate component of stockholders' equity) results from the process of translating financial statements from the entity's functional currency into the reporting currency (clearly not the case here), not from a specific foreign exchange transaction such as the purchase of machinery. It would seem very unlikely that exchange rates between U.S. and German currencies would remain constant for the three months, October to December 31, 20X1. Therefore, it is reasonable to assume that the transaction was denominated in U.S. dollars. View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward …

Answer 1191

I only The government-wide statement of activities should present direct operating expenses by function. Special and extraordinary items are reported separately at the bottom of the statement of activities. Extraordinary items, per GASB 2200.143, are transactions or other events that are both unusual in nature and infrequent in occurrence. Governments may allocate indirect expenses to benefiting functions, but they are not required to do so. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1192

The goods should be included in ending inventory of the consignor. Goods out on consignment have not been sold and should be included in the inventory of the consignor (owner).

Answer 1193

Accumulated other comprehensive income is reported in the stockholders' equity section of the balance sheet FASB ASC 220-10-45 requires that accumulated other comprehensive income be reported in the stockholders' equity section of the balance sheet: Quote The total of other comprehensive income for a period shall be transferred to a component of equity that is presented separately from retained earnings and additional paid-in capital in a statement of financial position at the end of an accounting period. A descriptive title such as accumulated other comprehensive income shall be used for that component of equity. FASB ASC 220-10-45-14

Answer 1194

No effect on net noncurrent assets and decrease in net income In accordance with requirements of FASB ASC 320-10-45-5, Kopp Co. would have created a valuation allowance in 20X1 to lower the carrying value of the security to fair value. Since there was no change in the fair value between December 31, 20X1, and December 31, 20X2, there would be no effect on net noncurrent assets in 20X2. The recorded value in 20X2 is the 20X1 fair value. FASB ASC 320-10-35-34 also provides that: Quote If it is determined in Step 2 that the impairment is other than temporary, then an impairment loss shall be recognized in earnings equal to the entire difference between the investment's cost and its fair value at the balance sheet date of the reporting period for which the assessment is made. Thus, recognition of this realized loss would result in a decrease in net income for Kopp in 20X2.

Answer 1195

Many companies have interest-bearing assets, such as loans and investments, that generate a stream of income for the company. That interest can be categorized as either "interest receivable" or "interest revenue." These accounting terms have slightly different meanings. Interest receivable refers to the interest that has been earned by investments, loans, or overdue invoices but has not actually been paid yet. Put another way, interest receivable is the expected interest revenue a company will receive. As long as it can be reasonably expected to be paid within a year, interest receivable is generally recorded as a current asset on the balance sheet.

Answer 1196

$170,000 Cash inflows from investing activities: Proceeds from sale of equipment $ 10,000 Cash outflows for investing activities: Purchase of A.S., Inc., bonds (180,000) --------- Net cash used in investing activities $170,000

Answer 1197

$2,500 Futures contracts are a selected type of derivative instrument. All derivatives must be recognized on the balance sheet at fair value. Fair value is $0.70 on November 2, 20X1. Accounting for the changes in fair value depends on whether it has been designated as and qualifies for hedge accounting. Platt Co. has not hedged the risk of the futures contract and FASB ASC 815-20-35-1 specifies that gains and losses must be included in income for these contracts. Since this is a futures contract, the future 30-day rate ($0.65) is used to measure the gain or loss for the year ended December 31, 20X1. The foreign currency exchange loss for 20X1 is ($.70 - $.65) × 50,000 = $2,500. View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 1198

$2,300 impairment loss. According to FASB ASC 360-10-40-4, an impairment loss is recognized on an exchange of similar productive assets if the carrying amount of the asset exceeds its fair value on the date of exchange. For Winn, an impairment loss of $2,300 ($16,800 carrying amount less $14,500 fair value) should be recognized. FASB ASC 845-10-30-1 specifies that if fair value is determinable nonmonetary exchanges be recorded based on fair value unless the exchange transaction lacks commercial substance. In that case, the entire amount of any implied gain or loss should be recognized at the time of exchange. However, in Winn's case, the $2,300 impairment loss should be recognized before the nonmonetary exchange is recorded. Thus, the $2,300 loss is an impairment loss rather than a loss on exchange. View referenced content in book. 2370 Impairment

Answer 1199

$16,000 Year 1 dep = $100,000 × ((100% ÷ 10) × 2) = $20,000 Year 2 dep = ($100,000 - $20,000) × 0.20 = $16,000

Answer 1200

A contra revenue account might be described as a revenue account that is expected to have a debit balance instead of the usual credit balance. (Its balance is contrary to—or opposite of—the usual credit balance for a revenue account.) Another description of a contra revenue account is one that reduces the amounts reported in a company's revenue accounts. A contra revenue account reduces a company's gross revenues to net revenues. Here is an example to illustrate what we have described. If Company K sells $100,000 of merchandise on credit, the accounting entry is a debit to Accounts Receivable for $100,000 and a credit to Sales for $100,000. If customers return $500 of this merchandise, Company K will debit Sales Returns and Allowances (a contra revenue account) for $500 and will credit Accounts Receivable for $500. Company K's income statement will report Gross Sales of $100,000 less Sales Returns and Allowances of $500 resulting in Net Sales of $99,500. Another example of a contra revenue account is Sales Discounts. Sales discounts occur when a company offers a discount (such as 1% or 2% of the invoice amount if it is paid within 10 days instead of the company's normal 30 day period) and the customer remits the amount due within the 10 day period.

Answer 1201

Both fund accounting and budgetary accounting Fund accounting segregates resources according to the purpose(s) for which they may be used. Thus, fund accounting helps ensure that the taxes required to be used for central district improvements are not expended for other purposes. Appropriations are adopted in the budget to authorize expenditure of resources during a particular budget period. Overexpenditure of appropriations—even for central district improvements—violates the budget law. Budgetary accounting maintains a record of the remaining appropriation authority available for specific purposes at any point in time. Thus, budgetary accounting helps assure that resources are expended legally by helping to prevent overexpenditure of appropriations. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1202

No provision for income taxes is required. A sole proprietorship business is not a taxable entity. Business income (or loss) is “passed through” to the owner. Therefore, there would be no required provision for income taxes. Instead, the taxes would be paid by the owner on the proprietor's personal tax return. View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 1203

$45,000 Present value of note = 75 × $600,000 = $450,000 Interest income for 20X1 = .10 × $450,000 = $45,000

Answer 1204

As an addition to net income in the operating activities section The amortization of a bond discount is the difference between cash interest and interest expense. Cash paid for interest is reported in operating activities. Amortization of a discount on bonds payable results in interest expense greater than cash interest. Because more expense has been deducted in computing income than the amount of cash paid for interest, the difference (captured in the change in the bond discount account) must be added to income to reconcile to the cash provided or used for operating activities. View referenced content in book. 2135 Statement of Cash Flows

Answer 1205

$4,100,000 of other financing uses, $5,000 of expenditures, and $4,160,000 of other financing sources to the debt service fund. This transaction is recognizable as a “current” refunding in that the proceeds of new debt are used to repay old debt in its entirety. Usually, the debt service fund is used for refunding transactions. The proceeds of the new debt are not considered revenues and payment of the old debt is not considered expenditures. If underwriter fees or attorney costs had been paid out of the proceeds, the smaller net proceeds would have been recognized as other financing sources. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1206

$0 Patton would not recognize any gain. Sun purchased the 10,000 shares of Patton at the market price of $70 per share ($700,000 ÷ 10,000 shares). Even though Sun purchased the shares at a price above book value and Patton owns 100% of Sun, no gain will be recognized in the consolidated income statement. The purchase of the shares does not result in a recognized gain for either Patton or Sun. The dividends paid by Patton on June 1 were paid to stockholders of record on May 15; therefore, Sun received $10,000 (10,000 × $1 per share) as dividends. Since Patton owns 100% of Sun, Patton is in effect paying a dividend to itself. However, these transactions are intercompany transactions that will be eliminated for consolidated financial statement purposes. View referenced content in book. 2323 Emphasis on Adjusting and Eliminating Entries(…

Answer 1207

50,000 This is a basic question about the allowance account for uncollectible accounts receivable. At the end of the year, this allowance account has to have, as a credit balance, the amounts included within accounts receivable that are in doubt as to collection. This amount is stated in the problem, as $50,000. The amount of uncollectible accounts is STATED in the problem!! READ CAREFULLY!! The other questions only say it is "required" that's why you had to add the credit from previous allowance!!

Answer 1208

As an extraordinary gain Under FASB ASC 805-30-30-1, the excess of the net value of the identifiable assets acquired over the acquisition price is accounted for as an extraordinary gain. FASB ASC 805-30-25-2 (applicable to business combinations initiated in fiscal years beginning after December 15, 2008) states the following: Quote A Bargain Purchase Occasionally, an acquirer will make a bargain purchase, which is a business combination in which the amount in paragraph 805-30-30-1(b) exceeds the aggregate of the amounts specified in [805-30-30-1(b)]. If that excess remains after applying the requirements in paragraph 805-30-25-4, the acquirer shall recognize the resulting gain in earnings on the acquisition date. The gain shall be attributed to the acquirer… FASB ASC 805-30-30-1 states: Quote Measurement of Goodwill The acquirer shall recognize goodwill as of the acquisition date, measured as the excess of (a) over (b): The aggregate of the following: The consideration transferred measured in accordance with this Section, which generally requires acquisition-date fair value (see paragraph 805-30-30-7) The fair value of any noncontrolling interest in the acquiree In a business combination achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest in the acquiree. The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this Topic. View referenced content in book. 2315 Business Combinations

Answer 1209

a gain would be recognized equal to the excess of the face amount of the policy over the cash surrender value at the time. At the time of death of an insured officer or employee, a gain would be recognized equal to the excess of the face amount of the policy over the cash surrender value at the time, as presented: Cash XXX Cash Surrender Value XXX Gain from Proceeds of Life Insurance XXX

Answer 1210

$694,000 Net worth is the excess of the estimated value of assets over the estimated amounts of liabilities, reduced by the tax associated with the difference between the estimated values and the tax basis of assets and liabilities. Smith's net worth is computed as follows: Estimated value of assets $900,000 Estimated amount of liabilities (80,000) Tax on difference between estimated values and tax basis: Assets ($900,000 - $500,000) $400,000 Liabilities ($100,000 - $80,000) 20,000 -------- $420,000 Tax rate 30% -------- Tax (126,000) --------- Net worth $694,000 =========

Answer 1211

As a contribution of $500,000 and an exchange transaction for the $300,000 paid to ABC Company Since the fair value of the building exceeded the amount High Tech University paid ABC for the building, a portion of the transaction should be accounted for as a contribution. The $300,000 portion that High Tech University paid ABC Company for the building should be accounted for as an exchange transaction. The $500,000 excess of the fair value of the building over the amount High Tech paid should be accounted for as a contribution. This transaction is an example of one that is in part an exchange and in part a contribution. View referenced content in book. 2512 Statement of Activities

Answer 1212

$0 A corporation does not recognize gain or loss on treasury stock transactions.

Answer 1213

discrete presentation. Per GASB 2100.109, financial information for separate organizations for which the primary government's elected officials are financially accountable must be included in the primary government's financial statements even though the organization is a separate legal entity. These separate organizations are called component units. Discrete presentation should be used for this presentation of financial information unless the financial activities of the two entities are so intertwined as to make them substantially the same entity. Since this does not appear to be the case in this question, discrete presentation of the information is required. GASB 2100.109–.111 View referenced content in book. 2430 Financial Reporting Entity, Including Blended and …

Answer 1214

Both of the conditions described must be present. Estimates are a necessary part of the preparation of financial statements. It is necessary to explicitly communicate to the users of the financial statements that estimates have been used and that many of the amounts reported are approximations rather than exact amounts. This understanding should help users to make better decisions. (FASB ASC 275-10-05-6) The financial statements must include an explanation that the preparation of the statements requires the use of management's estimates in conformity with GAAP. The statements must also disclose certain significant estimates. (FASB ASC 275-10-50-6) Certain significant estimates are those estimates involving a situation where it is reasonably possible that the estimate will change in the term and the effect of the change will be material. Disclosure of these significant estimates must be made when both of the following conditions are present (FASB ASC 275-10-50-8): It is at least reasonably possible that the estimate of the effect on the financial statements will change in the near term due to one or more future confirming events (reasonably possible is the chance is more than remote but less than likely). The effect of the change would be material. View referenced content in book. 2389 Risks and Uncertainties

Answer 1215

$50,000 FASB ASC 250-10-45-22 notes, “Any error in the financial statements of a prior period discovered after the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) shall be reported as an error correction, by restating the prior-period financial statements.” Foy Corp.'s failure to accrue $50,000 of warranty cost in 20X1 is an error which should be reported in 20X2 as a prior period adjustment. (The change in depreciation is a change in accounting principle, shown on the income statement.) View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 1216

An employee stock option (ESO) is a stock option granted to specified employees of a company. ESOs offer the options holder the right to buy a certain amount of company shares at a predetermined price for a specific period of time.

Answer 1217

in the period received. SFAC 5, Recognition and Measurement in Financial Statements of Business Enterprises, identified two factors affecting revenue recognition: being realized or realizable and being earned. In regard to being earned, the statement noted that “revenues are not recognized until earned.” The royalties should be recognized as revenue in the period earned. View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 1218

$1,300,000 A loss contingency must be accrued if it is probable that the loss will occur and the amount can be reasonably estimated. If a range of loss can be estimated, the best estimate within the range is accrued. Since legal counsel believes that $1,300,000 is the most likely amount to be collected, Dane should report this amount as a liability. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 1219

a controlling majority of the members of its governing board are appointed by state government officials. The joint FASB/GASB definition of governmental organizations included in several AICPA Audit and Accounting Guides, including State and Local Governments (paragraph 1.01), states that an organization is a government if “a controlling majority of the members of the organization's governing body” are appointed or approved “by officials of one or more state or local governments.” In contrast, many nongovernmental organizations are exempt from federal taxation. View referenced content in book. 2410 Governmental Accounting Concepts

Answer 1220

This is using LIFO 'pools' to track inventory Main point is that it uses a "conversion index" to determine inventory value for the LIFO layer added in the current year.

Answer 1221

The end of preceding fiscal year Form 10-Q is used to file quarterly reports with the SEC. Required financial statements include a quarterly and end of the preceding fiscal year balance sheet. If the company is subject to seasonal fluctuations, a balance sheet for the corresponding quarter of the prior fiscal year is required.

Answer 1222

Rule adoption The SEC website lists the following steps in the rulemaking process: - Concept Release: The rulemaking process usually begins with a rule proposal, but sometimes an issue is so unique and/or complicated that the SEC seeks out public input on which, if any, regulatory approach is appropriate. A concept release is issued describing the area of interest and the SEC's concerns, usually identifying different approaches to addressing the problem, followed by a series of questions that seek the views of the public on the issue. The public's feedback is taken into consideration as the SEC decides which approach, if any, is appropriate. - Rule Proposal: The SEC publishes a detailed formal rule proposal for public comment. Unlike a concept release, a rule proposal advances specific objectives and methods for achieving them. Typically, the SEC provides between 30 and 60 days for review and comment. Just as with a concept release, the public comment is considered vital to the formulation of a final rule. - Rule Adoption: Finally, the SEC Commissioners consider what they have learned from the public exposure of the proposed rule, and seek to agree on the specifics of a final rule. If a final measure is then adopted by vote of the full Commission, it becomes part of the official rules that govern the securities industry. View referenced content in book. 2111 U.S. Securities and Exchange Commission (SEC)

Answer 1223

a $1,200 deferred tax liability classified as current and a $2,400 deferred tax liability classified as concurrent. The deferred tax asset or liability in this case will be a liability because the underlying temporary differences are taxable temporary differences. Since the deferred tax liability is not related to an asset or liability, it should be classified according to the reversal of the underlying temporary differences (FASB ASC 740-10-45-9). Accordingly, since 1/3 ($3,000 of the $9,000 total) of the temporary differences reverse within the next year, 1/3 of the deferred tax liability should be classified as current, and 2/3 as noncurrent. The total deferred tax liability is 40% of $9,000 = $3,600. Therefore, $1,200 should be classified as a current liability and $2,400 as a noncurrent liability. View referenced content in book. 2270 Income Taxes

Answer 1224

$418,250 The noncurrent portion of the note payable to contest winner should be reported on the balance sheet net of discount. This means that the present value of the 19 future payments of $50,000 is the correct amount to be disclosed. This amount is the $418,250 cost of the annuity.

Answer 1225

$84,000 Because no temporary differences exist, income tax expense is the same as income tax due on the tax return. 20X1 income Taxable Current tax expense = income x tax rate = $280,000 x 30% = $84,000 View referenced content in book. 2270 Income Taxes

Answer 1226

Object In governmental accounting, expenditures should be recorded in a multiple classification scheme—typically by (1) fund, (2) function or program, (3) organizational unit (e.g., department), (4) activity, (5) character, and (6) object (“object of expenditure”). Object refers to “the type[s] of items purchased or services obtained” (GASB 1800.137) which expenditures are for—that is, “what” is acquired. Governments pay salaries and wages in order to acquire “personal services.” View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1227

``` CASH INFLOWS: -From issuing its own equity stock -From contributions by owners -From issuing short-and long-term debt -From issuing notes and bonds CASH OUTFLOWS: -To repay cash loans -To pay withdrawals by owners -To purchase treasury stock -To pay dividends to shareholders ```

Answer 1228

INCREASE in cash because accounts payable was increased instead of making cash purchases.

Answer 1229

Yes, because the carrying value is not recoverable The answer choice, “No, since the undiscounted cash flows are larger than the carrying value,” is wrong, but would be the rule under U.S. GAAP today, IFRS does not use undiscounted future cash flows. The answer choice, “No, because the dock can be sold for its carrying value,” is wrong because IFRS uses net realizable value, not gross sale proceeds, for impairment tests. An asset is tested under IFRS for impairment, when there is reason to suspect loss in value. The test is to determine if the carrying value is recoverable. The recoverable amount is the greater of value in use (present value of discounted future cash flows) or net realizable value (sales proceeds less cost to sell). Here, that is $401,000 less the broker commission of $6,000, or $395,000. Since this is greater than the value in use ($380,000), the recoverable amount is $395,000, which is $5,000 below the carrying value, and thus A. A. recognizes an impairment loss of $5,000. View referenced content in book. 2370 Impairment

Answer 1230

Cumulative foreign exchange translation loss FASB ASC 830-30-45-12 requires that foreign currency translation adjustments “not be included in determining net income but shall be reported separately and accumulated in a separate component of equity.” If these cumulative adjustments netted out to a loss, this loss would effectively be reported as a stockholders' equity contra account. Discounts or premiums on convertible bonds are reported as contra accounts to the bond liability. Organization costs are an amortizable asset. View referenced content in book. 2367 Translation of Foreign Currency Financial Statements

Answer 1231

reported as amounts due to and due from other funds. Interfund loans should be reported as interfund receivables in lender funds and interfund payables in borrower funds, not affect the fund balance or net position of either fund involved, and not be reported as “other financing sources or uses” in the governmental fund financial statements. The transaction should be reported as a transfer from the fund that made the loan to the fund that received the loan. View referenced content in book. 2445 Interfund Activity, Including Transfers

Answer 1232

$2,005 Net proceeds of the loan were $194,000 and the effective interest rate was 12.4%. The journal entry to record the December 31, 20X1, accrual of interest would be: Debit Accrued Interest Receivable 2,005 Credit Interest Income 2,005 (12.4% x $194,000 x 1/12) The interest income reflects the effective interest rate applied to the net proceeds received. This is an application of the “effective interest” method.

Answer 1233

A decrease in both retained earnings and additional paid-in capital Journal entry to record reacquisition of 30,000 shares at $16 per share using the cost method: Dr. Cr. Treasury Shares 480,000 Cash 480,000 Journal entry to record sale of treasury shares (30,000 shares at $12 per share): Dr. Cr. Cash 360,000 Paid-in Capital 100,000 Retained Earnings 20,000 Treasury Shares 480,000 When the initial issue of public stock was made, the 100,000 shares sold at $1 above the par value of $10. This resulted in a balance of $100,000 in the additional paid-in capital account. The $120,000 loss on sale should first be used to reduce additional paid-in capital to zero ($100,000) and debit the remainder (20,000) to retained earnings. Treasury stock transactions should never impact the net income for the current year.

Answer 1234

$2.45 Net income reported in 20X2 $500,000 Attributed to preferred stock: For 20X2 ($25,000 x $10 x .04) (See Note) 10,000 Income attributable to common shares $490,000 Note The $16,000 dividends paid in 20X2 included only the $10,000 (i.e., 25,000 × $10 × .04) preferred dividend requirement for 20X2. Dividends in arrears should have been included in the previous year's computation of earnings per share. Earnings per share = $490,000 / 200,000 shares = $2.45 The current year's dividends accrued, and only the current year's dividends on cumulative preferred stock, whether declared or not, should be deducted from net income in calculating EPS. Dividends in arrears would have been included in the EPS calculation in previous years. View referenced content in book. 2335 Earnings per Share

Answer 1235

deducted in determining the net income of the combined corporation for the period in which the costs were incurred. Business combinations accounted for as an acquisition should treat expenses related to the combination as follows: Out-of-pocket costs such as fees of finders and consultants are expensed. Issuance costs such as SEC filing fees are charged to the paid-in-capital account. FASB ASC 805-10-25-23 states the following: Quote Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder's fees; advisory, legal, accounting, valuation, and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognized in accordance with other applicable GAAP. View referenced content in book. 2315 Business Combinations

Answer 1236

Deferred revenue is a liability until the service had been performed. Deferred revenues are generally for deposits received in advance of doing the required work. When one is paid in advance, one owes the work to the customer, and until doing the work (and earning the revenue), one owes the service (a liability).

Answer 1237

$0 The “second” forward contract was entered into to hedge a purchase commitment, therefore (assuming that all other conditions are met) it qualifies as a hedge of a purchase commitment. In that case, the forward contract qualifies as a fair value hedge (rather than a cash flow hedge). Therefore, the change in fair value of the derivative (the forward contract) should be included in net income, as should the change in fair value of the hedged commitment. Accordingly, the $3,000 gain (100,000 francs × ($.90-$.93)) would be included in income from continuing operations. If the hedge associated with the derivative qualified as a cash flow hedge, the unrealized gain would be included in other comprehensive income rather than in net income. However, the increase in the fair value of the hedged item, the purchase commitment, should be a $3,000 loss. The unrealized gain of $3,000 associated with the derivative (the hedging instrument) and the $3,000 unrealized loss associated with the hedged instrument (the purchase commitment) should result in a net unrealized gain/loss of $0. Thus, the net unrealized gain/loss included in income from continuing operations is $0. FASB ASC 815-25-35-1–35-8 FASB ASC 815-20-25-37 View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward …

Answer 1238

$44,000 Leasehold improvements on JaN 1, 20X1 $48,000 Amort of leasehold imprvment Jan 1 to Jun 30, 20X1 ($48,000/6 yrsleft on lease) x .5 years -4,000 -------- Leasehold improvements on June 30, 20X1 $44,000 ======== Remember Leasehold improvements are capitalized and amortized (as any fixed asset) over the lesser of the useful life of the improvement or the remaining lease term. *Capitalized costs are not expensed in the period they were incurred, but recognized over a period of time via depreciation or amortization.

Answer 1239

Both I and II GASB 1300.109.c states that enterprise funds should be employed when the pricing policies of the activity establish fees and charges to external users designed to cover its costs, including capital costs. Covering costs is an important objective of a lottery operation, so a lottery should be accounted for in an enterprise fund. GASB Ho5.102 notes that accounting for government-operated hospitals financed in whole or in part by fees charged are usually reported in an enterprise fund. Note: Governmental hospitals may also be component units. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1240

Dollar-value LIFO When prices are rising, a LIFO inventory method will produce a lower ending inventory than other inventory methods because the cost of ending inventory consists of older lower cost items. The dollar-value LIFO method does this using layers priced using specific price indexes for years in which layers are added. Of the choices given, dollar-value LIFO would give Jones the lowest ending inventory.

Answer 1241

fair FASB ASC 860-20-40-1A stipulates that: Quote Upon completion of a transfer of a participating interest that satisfies the conditions in paragraph 860-10-40-5 to be accounted for as a sale, the transferor (seller) shall: Allocate the previous carrying amount of the entire financial asset between both of the following on the basis of their relative fair values at the date of the transfer: 1. The participating interests sold 2. The participating interest that continues to be held by the transferor View referenced content in book. 2393 Transfers and Servicing of Financial Assets and …

Answer 1242

``` CASH INFLOWS: -From customers for cash sales -From borrowers for interest -From collections on credit sales -From lawsuit settlement -From cash dividends received CASH OUTFLOWS: -To salaries and wages -To lenders for interest -To charities -To suppliers for goods and services -To governments for taxes and fines ```

Answer 1243

Interest expense: overstated; Total stockholders’ equity: understated When a bond is issued for a premium, then the issuer receives more than the face amount of the debt upon issuance. Thus, the issuer will pay back (the face amount) less than the amount received. The additional receipts lower the interest expense over the course of the repayment, since the overall net repaid amount is less. As the bonds are repaid, the premium is amortized and lowers the interest expense taken over the term of the bond. If the amortization is not taken, then the interest expense is overstated, and the net income understated. (Thus, retained earnings and stockholder’s equity are also too low.)

Answer 1244

If investee is gonna pay a lot of dividends, maybe we want to use cost method - We don't want to take our share of losses for an equity method investment - That's why it's helpful to know the difference between cost & equity method when making decisions as an auditor

Answer 1245

$17,600 The receivable balance at the end of this year is $490,000 ($300,000 plus $1.5 million less $1.3 million less $10,000). At the end of the year, all figures are being adjusted to reflect an allowance equal to 4 percent of this $490,000, or $19,600. However, during the year, bad debt expense of $15,000 was recognized (1 percent of the $1.5 million in sales). Thus, prior to the year-end adjustment, the allowance already has a balance of $17,000 ($12,000 initial amount less $10,000 in accounts written plus the $15,000 already recorded during the year). That $17,000 must be raised to $19,600 so an additional $2,600 bad debt expense is recognized right at the end of the year. That increases the $15,000 recorded during the year to $17,600.

Answer 1246

other. The letter of transmittal and the statistical section required for a CAFR and GFOA's certificate are neither basic statements nor required supplemental information. View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 1247

Generally, these types of accounts are increased with a debit: Dividends, Expenses, Assets, Losses (DEAL)

Answer 1248

$100,000. The liquidating dividend is that portion of the cash dividend that exceeds the balance in retained earnings because other equity accounts must be debited. Thus, for Lake: Total amount of January 2, 20X2, cash dividend $400,000 Less: Retained earnings balance 300,000 -------- Liquidating dividend $100,000 ======== Liquidating dividends are a return of the investment rather than a return on the investment.

Answer 1249

Accounts receivable: No effect; Allowance for uncollectible accounts: Increase The entry to record the collection of an account previously written off would be: Cash XXX Allowance for uncollectible accounts XXX

Answer 1250

Prospectively Under FASB ASC 250-10-45-18, changes in depreciation methods are to be accounted for prospectively as changes in accounting estimates. Accordingly, the carrying amount at January 1, 20X3, should be depreciated over the estimated remaining life of the machinery under the straight-line method. Thus, the machine's $240,000 carrying amount at December 31, 20X2, should be depreciated over the estimated remaining life of the machinery under the straight-line depreciation method. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 1251

$2,100 Consider the journal entry to record the declaration of the dividend: Dr. Cr. Retained earnings (3,000 x .10 x $9) 2,700 Common stock dividend distributable (3,000 x .10 x $2) 600 APIC ($2,700 - $600) 2,100 Note Additional paid-in capital is credited for $2,100.

Answer 1252

employee stock ownership plan instruments. FASB ASC 718-10-25-2 applies to all transactions in which an entity grants shares of its common stock, stock options, or other equity instruments to its employees, except for equity instruments held by an employee stock ownership plan (as per FASB ASC 718-10-15-7). View referenced content in book. 2265 Stock Compensation (Share-Based Payments)

Answer 1253

in which the obligation is incurred if a reasonable estimate of fair value can be made. If a reasonable estimate of fair value can be made, an entity should recognize the fair value of an asset retirement obligation in the period in which the obligation is incurred. If the estimate cannot be made, the liability should be recognized in the first period in which a reasonable estimate can be made. View referenced content in book. 2310 Asset Retirement and Environmental Obligations

Answer 1254

$70,000 If the fair value of the identifiable assets acquired in an acquisition exceeds the cost of the acquisition, the excess must be recognized as an extraordinary gain. Indirect acquisition costs must be expensed. Cost of investment (fair value of Smith stock issued: (20,000 x $10) + $10,000) $210,000 Less: 100% of book value of net assets of S ($350,000 - $70,000) -280,000 ``` Extraordinary gain (excess of fair value of identifiable net assets over cost) = $(70,000) ``` View referenced content in book. 2315 Business Combinations

Answer 1255

(Net income + Interest Expense + Income Tax Expense)/ Interest Expense This measures the ability of current earnings to cover interest costs for the period.

Answer 1256

Bonds that can be exchanged from stock at the option of the bondholder. These bonds have features of both debt and equity. The bondholder has interest-bearing security that can become equity. The convertible feature is not recorded as such on the books of the issuing company. Primarily because of the inseparability of the debt and the conversion option, FASB ASC 470-20-25-12 requires that no part of the proceeds from the issuance of convertible debt should be accounted for as attributable to the conversion feature (as long as the conversion feature is not beneficial). Accordingly, the issuance of convertible get is accounted for in the same manner as the issuance of straight debt. IFRS requires separate accounting.

Answer 1257

When installment sales are material, and there is no reasonable basis for estimating collectibility Under the installment sale method of recognizing revenue, recognition is deferred beyond the point of sale and is associated with the subsequent collection of payments. The rationale underlying the method is that the length of the installment contract and the nature of the contract itself impose uncertainty concerning collection such that dependable estimates of uncollectibles are not possible. View referenced content in book. 2251 Revenue Recognition

Answer 1258

Risk of accounting loss: $230,000; Off-balance sheet risk: $0 FASB ASC 825-10-50-20 defines risk of accounting loss as the amount of write-off that a company would record if any party to an agreement failed to fully perform in accordance with the terms of the contract. Off-balance sheet risk occurs when the amount of an accounting loss exceeds the amount of the associated asset or liability recorded on the balance sheet. The maximum possible accounting loss associated with trade accounts receivable occurs if no amount of the current asset is collected. In this case, Butler's trade accounts receivable has a net book value of $230,000, which represents the maximum amount of potential write-off associated with trade accounts receivable. Butler would not be required to pay an amount in addition to the net book value of this asset, so there is no off-balance sheet risk.

Answer 1259

Modified accrual The GASB Codification notes at Section 1700.116 that, ideally, the budget should be consistent with the accounting basis used, so it is recommended that a government's budgetary accounting basis be prepared in the modified accrual accounting basis used for financial reporting. This section states: “It is recommended that governmental fund annual budgets be prepared on the modified accrual basis.” View referenced content in book. 2413 Budgetary Accounting

Answer 1260

$72,500 The total interest cost during the year includes the $500,000 at 12% interest ($500,000 × 0.12 = $60,000) and the interest on the other debt ($800,000 × 0.10 = $80,000). There cannot be more than $140,000 interest capitalized (the total interest accrued of $60,000 and $80,000). The weighted-average accumulated expenditures take into account the amounts expended on the building during the year based on how much of the year occurred after the payment. The $200,000 paid in January was paid at the beginning of the year and was outstanding all year ($200,000 × 12/12 of the year, or $200,000). The May payment was only outstanding for May through December for 8/12 of the year, so $600,000 × 8/12 = $400,000 weighted-average expenditure. The December payment was made for only the last month, or 1/12 of the year, for an expenditure of $300,000 × 1/12 = $25,000. The total weighted-average accumulated expenditures were thus $200,000 + $400,000 + $25,000, for a total of $625,000. The capitalized interest cost on these expenditures is based on the interest rates of the debt outstanding during the year, first, to the extent of any specific construction debt, i.e., the $500,000 at 12%. The interest capitalized on the first $500,000 of expenditures is based on 12%, or $60,000, and the interest on the remaining $125,000 of expenditures ($625,000 - $500,000) is paid at the rate of 10% for another $12,500 of capitalized interest. Thus, the total of the capitalized interest is $60,000 and $12,500, for a total of $72,500.

Answer 1261

$13,800 Since the check was held for several days in January, the $1,800 amount should be added back to cash and accounts payable as of December 31, 20X1. Thus: Checkbook balance (December 31, 20X1) $ 12,000 Amount of check + 1,800 -------- Cash reported on December 31, 20X1 $ 13,800 ========

Answer 1262

Assignment of AR is when a company assigns their AR as collateral for a loan The borrower must reclassify any assigned AR as “assigned AR”

Answer 1263

Straight-line Use of an accelerated depreciation method (e.g., double-declining balance or sum-of-the-years'-digits) would most likely produce a gain rather than a loss because of the rapid reduction in carrying value. With this in mind, it would be a good idea to try the straight-line method first. Assume that the equipment cost $10,000. Then, the salvage value would equal $2,000 (20% × $10,000). Crater held the equipment for 5 years (January 1, 20X1, through December 31, 20X5). Proceeds would equal $5,000 (50% × $10,000). Straight-line dep-5 yrs = 5 x ($10,000 - $2,000)/10 =$4,000 Carrying value after 5 yrs= $10,000 - $4,000 = $6,000 Loss from disposal = Proceeds - Carrying value = $5,000 - $6,000 = ($1,000) The straight-line depreciation method must have been used by Carter.

Answer 1264

Interest expense = Cash interest + Decrease in prepaid interest - Decrease in interest payable Interest expense = $70,000 + 23,000 - $17,000 = $76,000 Another simple way to analyze a question like this is to prepare a journal entry reflecting the appropriate account changes. In this case: ``` Interest Expense Unknown Interest Payable (decrease) 17,000 Prepaid Interest (decrease) 23,000 Cash (interest paid) 70,000 ``` Interest expense must be debited for $76,000 to balance the entry.

Answer 1265

$27,500 FASB ASC 840-30-35-1 states that “the asset recorded under a capital lease shall be amortized depending on the provisions of the lease. When a bargain purchase option exists or ownership of the leased asset reverts to the lessee, depreciation should be computed over the useful life of the assets using estimated salvage value at the end of that life.” (In other cases, the lessee computes depreciation over the lease term using residual value at the end of the lease term.) Thus, Nori recognizes depreciation expenses as follows: Depreciation expense for 20X1 = (Cost - Salvage value) / Useful life = ($240,000 - $20,000) / 8 years = $220,000 / 8 = $27,500 Note The $10,000 bargain purchase option was included in the $240,000 acquisition cost.

Answer 1266

Both sales to unaffiliated customers and inter segment sales After an enterprise has identified its operating segments (including those that represent an aggregation of two or more separate segments), it must report separately information about each operating segment that meets any one or more of the following tests. Those segments that meet at least one of the tests represent reportable segments for which specified information must be reported. -Revenue test: If its revenue is 10% or more of the combined revenue of all operating segments (for purposes of this test, revenue includes both sales to external customers and intersegmental sales or transfers) -Profitability test: If the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of: the combined reported profit of all operating segments that did not report a loss or the combined reported loss of all operating segments that did report a loss -Asset test: If its assets are 10% or more of the combined assets of all operating segments View referenced content in book. 2390 Segment Reporting

Answer 1267

a current asset and an expense. The prepayment on January 1, 20X1, represented the minimum annual fees for 20X1 and 20X2. On December 31, 20X1, the 20X1 fee is an expense and the payment for the 20X2 fee is a current asset (prepaid fee).

Answer 1268

$35 million Since the estimated future cash flow of the asset ($150 million) is less than the carrying value of the asset ($170 million), an impairment loss must be recognized. The impairment loss for long-lived assets to be held and used is the excess of the asset's carrying amount over its fair value. Carrying amount $170 million Fair value 135 million ------------ Impairment loss $ 35 million View referenced content in book. 2370 Impairment

Answer 1269

Sales returns and allowances is a contra asset to sales. ALLOWANCES for sales returns and allowances is a contra asset to AR. If sales returns and allowances are accrued at year-end as shown, in theory, an additional entry should be recorded to estimate the cost of goods expected to be returned as follows: Inventory xx COGS xx

Answer 1270

Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in unrestricted net assets. Investment gains and losses are reported as unrestricted revenues in the statement of activities unless the donor of the principal investment amount has explicitly instructed otherwise. The statement of activities is focused on clarifying whether revenues are unrestricted, temporarily restricted, or permanently restricted so gains may or may not be netted for presentation, and gains may or may not be reported net of expenses. View referenced content in book. 2521 Support, Revenues, and Contributions

Answer 1271

Cost of Goods Sold $20,000 LIFO Reserve $20,000 LIFO reserve balance needed on December 31, 20X1 ($375,000 - $320,000) $55,000 Existing LIFO reserve balance 35,000 ------- Additional reserve needed $20,000 ======= In order to increase the LIFO reserve balance to the required $55,000, Drew Co. would need to make the following adjusting entry on December 31, 20X1: Cost of goods sold $20,000 LIFO reserve $20,000

Answer 1272

Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services. The GASB has established “accountability” as the cornerstone of financial reporting for governmental entities. Under GASB Concepts Statement 1, accountability consists of the following subobjectives: Interperiod equity: Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services. Budgetary and fiscal compliance: Financial reporting should demonstrate whether resources were obtained and used in accordance with the entity's legally adopted budget; it should also demonstrate compliance with other finance-related legal or contractual requirements. Service efforts costs and accomplishments: Financial reporting should provide information to assist users in assessing the service efforts, costs, and accomplishments of the governmental entity. GASB Concepts Statement 1 Summary View referenced content in book. 2123 Financial Reporting by State and Local Governmental …

Answer 1273

the entity as a whole. FASB ASC 958-210-45-1 states that the statement of financial position “shall focus on the not-for-profit entity as a whole” and shall report the amounts of its total assets, liabilities, and net assets. Likewise, FASB ASC 958-225-45-1 provides that the statement of activities (operating statement) of a not-for-profit organization “shall focus on the entity as a whole” and shall report the amount of the change in net assets for the period. View referenced content in book. 2501 Not-for-Profit (Nongovernmental) Accounting and …

Answer 1274

there is reasonable assurance that the entity can comply with the conditions of the grant and when there is reasonable assurance that the grant will be received. International Accounting Standard (IAS) 20 states that income from governmental grants is recognized only when there is reasonable assurance that (a) the entity will comply with any conditions attached to the grant and (b) the grant will be received. View referenced content in book. 2501 Not-for-Profit (Nongovernmental) Accounting and …

Answer 1275

$50,000 In computing gain or loss, assets conveyed in a troubled debt restructuring should be valued at their fair value. Therefore: Carrying amount of note $150,000 Less fair value of land 100,000 ------- Gain on restructuring debt $ 50,000 =======

Answer 1276

$24,000. Reduction in stockholders' equity = $.10 x 240,000 rights = $24,000

Answer 1277

include the effect of the change on the January 1, 20X1, deferred tax liability in income from continuing operations of 20X1. The effect of the change on the deferred tax asset or liability at the beginning of the year of change should be included in income from continuing operations for the period that includes the enactment date. View referenced content in book. 2270 Income Taxes

Answer 1278

Five To be a reportable segment, the segment must report revenue, profit, or assets of 10% of the total entity. Segment F does not have 10% of any of these attributes, so it is not reported as a segment, leaving five reportable segments (A–E). View referenced content in book. 2390 Segment Reporting

Answer 1279

15.0 to 1. The price-to-earnings ratio is the relationship between the stock price per share to the earnings per share. The stock price per share is given as $12, but the earnings per share will have to be computed. Earnings per share is net income divided by common shares outstanding: $240,000 ÷ $300,000 = 0.8 Thus, the price-to-earnings ratio is $12 ÷ 0.8, or 15 to 1.

Answer 1280

both an expenditure and an other financing source. Under the current financial resources measurement focus used in governmental funds, neither capital assets nor long-term liabilities are recorded in those funds. However, the inception of a capital lease should be reported in the governmental fund from which the lease payments will be made. GASB 1800.128 states in this regard: “When a capital lease represents the acquisition or construction of a general fixed asset, the acquisition or construction of the general fixed asset should be reflected as an expenditure and (an) other financing source…” This is a “wash” entry that has no effect on fund balance. View referenced content in book. 2445 Interfund Activity, Including Transfers

Answer 1281

it has the power to enact and enforce a tax levy. The joint FASB/GASB definition of governmental organizations included in several AICPA Audit and Accounting Guides, including State and Local Governments (paragraph 1.01), states that organizations having the power to enact and enforce a tax levy are considered governments. Note that many nongovernmental organizations are exempt from federal taxation. Also, the GASB Codification (Section 2100.119, footnote 3) states that for-profit corporations can be component units of a governmental reporting entity. Finally, the governing boards of many organizations, governmental and otherwise, monitor public opinion in varying degrees. View referenced content in book. 2410 Governmental Accounting Concepts

Answer 1282

Total Debt / Total Stockholder's Equity

Answer 1283

Expenditures This question illustrates interfund services provided and used, that is, sales and purchases of goods and services between funds for a price approximating their external exchange value. A governmental unit, like any organization, needs electric power in order to function, and so must procure and pay for that power. From the standpoint of the consuming fund, the cost of electricity used is an expenditure regardless of whether the supplier of the electricity is part of the same government or an independent supplier. GASB 1800.102.a View referenced content in book. 2445 Interfund Activity, Including Transfers

Answer 1284

Sales-type leases give rise to manufacturer's profit to the lessor defined as the difference between the sales price and the carrying value of the asset.

Answer 1285

$400,000 Regardless of whether you are reporting the revenue at the fund or entity-wide level, the basic recognition criterion is the same: when all eligibility requirements are met. The availability requirement does not apply with entity-wide statements, but availability does not make a difference in this case. View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 1286

Operating cycle Operating cycle is equal to the average age of inventory (inventory period) plus the average age of accounts receivable (receivables period). Cash conversion cycle would subtract the average age of accounts payable from the operating cycle

Answer 1287

0. 81 to 1 * Don't forget to subtract allowance for uncollectible accounts!! Because you need NET AR!! Quick ratio = Current assets (excluding Inventories and Prepaid assets) ÷ Current liabilities: (Cash + Net accounts receivable + Short-term marketable securities) ÷ Current liabilities ($60,000 + ($180,000 - $8,000) + $90,000) ÷ $400,000 = 0.81 (rounded) All of the assets listed are current liabilities. Inventory and prepaid rent are excluded from the quick ratio.

Answer 1288

I only Both of the transactions identified are transactions with related parties. However, FASB ASC 850-10-50-1 states that a company does not have to disclose related party transactions that are “compensation arrangements, expense allowances and similar items in the ordinary course of business.” Therefore, only the first payment is included in disclosures of related party transactions. View referenced content in book. 2387 Related Parties and Related Party Transactions

Answer 1289

``` Beg Inv + Purchases =Goods available for sale - End Inv =COGS ```

Answer 1290

Return on stockholder's equity It is a PERFORMANCE measure, not a liquidity measure.

Answer 1291

Current ratio increased and quick ratio decreased This is a question regarding the common ratios used to assess liquidity. The current ratio divides current assets by current liabilities, and the quick ratio divides some current assets (cash, accounts receivable, and some marketable securities) by the same amount (current liabilities). The easiest way to answer the question, though, is to assign some values to the items involved. Since cash is $200,000, say that current assets are $1,500,000, total current liabilities are $1,000,000 (for a current ratio of 1.5:1), that the quick assets are $500,000 (giving a quick ratio of 0.5:1), and that accounts payable (part of current liabilities) is at least $200,000 so that cash can all be used to pay for it, and then see what happens to the ratios. With no more cash, current assets are $1,300,000 ($1,500,000 less $200,000), and quick assets are now $300,000 ($500,000 less $200,000). Current liabilities are also lower by the $200,000 paid against accounts payable, down to $800,000. The current ratio is now 1,300,000/800,000, and the quick ratio is now 300,000/800,000. The current ratio is now increased to 1.625:1, and the quick ratio is now decreased to 0.375:1. View referenced content in book. 2137 Consolidated and Combined Financial Statements

Answer 1292

$1,000,000 One can use the ratios given along with some algebra to solve for average total assets. Accounts receivables turnover is the multiple of accounts receivable to get the sales total. The receivables turned over 10 times during the year, so the sales were 10 times the receivables, or $2,000,000 (10 × $200,000). Total asset turnover is the multiple of total assets to get sales. Since the total asset turnover is 2, the sales were twice the level of total assets, so dividing sales in half results in total assets of $1,000,000.

Answer 1293

$100,000 FASB ASC 470-10-45-14 requires that short-term obligations be reported as long-term liabilities if a company (1) intends to refinance the short-term obligation on a long-term basis and (2) demonstrates the ability to refinance it a long-term basis. The intent is stated in the problem. Verona's issuance of common stock for $400,000 before the statements were issued demonstrates the ability to refinance $400,000 of the short-term obligations on a long-term basis. The balance of the obligation ($100,000) must be reported as a current liability.

Answer 1294

$745,000 FASB ASC 274-10-05-2 provides that: Quote The primary focus of personal financial statements is a person's assets and liabilities, and the primary users of personal financial statements normally consider estimated current value information to be more relevant for their decisions than historical cost information. Lenders require estimated current value information to assess collateral, and most personal loan applications require estimated current value information. Current value of: Ink Corp. stock $675,000 Jewelry 70,000 -------- Total $745,000 ========

Answer 1295

$209,500 Sales price of bonds = 1.01 x 200 x $1,000 = $202,000 Accrued interest = (5/12) (.09 x 200 x $1,000) = 7,500 Total received from bond issuance $209,500 Note Bonds were issued at 101% plus accrued interest. Therefore, the answer must be higher than $202,000. 101% × (200 bonds × $1,000 per bond) = $202,000 View referenced content in book. 2252 Costs and Expenses

Answer 1296

A temporarily restricted asset Term endowment gifts such as the one described in this question are temporarily restricted, becoming available for unrestricted use after a certain point in time. They are not permanently restricted because the time restriction will be satisfied when the specified time period (20 years in this case) expires. View referenced content in book. 2512 Statement of Activities

Answer 1297

Bonds that mature at staggered intervales

Answer 1298

$16,000,000 Intercompany balances in total are eliminated in the preparation of consolidated financial statements. Harlson is not included in the consolidated statements since Bard owns less than 50% of Harlson’s stock. ``` Brock Co. $4,000,000 Porter Co. 7,000,000 Nortin Co. 5,000,000 ----------- Total $16,000,000 ``` View referenced content in book. 2321 Introduction and Overview

Answer 1299

$212,000. Since the purchase price was $220,000 and it included the accrued interest of $5,000, the price for the bonds was $215,000 ($220,000 – $5,000). The bonds were thus sold at a premium of $15,000 (the price of $215,000 less the face of $200,000, computed as 200 × $1,000). Applying straight-line, the premium will be amortized equally over the months remaining in the bond’s term. The bond was bought on October 1 of Year 2, and will mature on January 1 of Year 9. That is a remaining term to maturity of 75 months (3 months of Year 2 and all of Years 3, 4, 5, 6, 7, and 8 ((6 × 12) + 3 = 75 months)). The total premium of $15,000 divided equally by 75 months is $200 per month. Thus, the bond carrying amount at December 31, Year 3, after the bond is held for 15 months (3 months in Year 2, and all of Year 3) will be: $215,000 (Initial price) - ($200 × 15 months) = $215,000 - $3,000 = $212,000

Answer 1300

$93,000 The entry to accomplish all of these changes at one time would include an increase to prepaid expenses with a $5,000 debit, and a $100,000 debit to operating expenses. One of the credits would be needed to increase the accrued liabilities by $12,000 and the other remaining credit to finish the entry would be to cash for $5,000 + $100,000 - $12,000, or $93,000. Prepaid expense 5,000 Operating exp 100,000 Accrued liability 12,000 Cash 93,000

Answer 1301

be valued at historical cost. When you cease using a building in operations, you cease depreciating it. If it is to be sold soon, it will be reclassified as held for sale. However, it will still be carried at no more than its original cost less depreciation accumulated (which would be below historical cost).

Answer 1302

a debit to the carrying value of the related asset. While a company records the legal liability (a credit), it also records the same amount as an increase (a debit) in the carrying value of the related asset. *VIDEO EXPLANATION - watch again tomorrow!! Asset Retirement Obligation (ARO) - this is when we have an asset that requires some special type of retirement , a special type of disposal at the end of its life that is going to cost us some money (ex: chemicals that can't just be thrown out) Debit to the carrying value of the related asset -Higher value to depreciate over the life of the asset. Let's say we bought a machine (fixed asset) and we have to pay $1,000 to clean it. Machinery 1,000,000 Machinery-ARO cost (f.a.) 100,000 Accounts Payable 1,000,000 ARO (liability account) 100,000 You depreciate the ARO cost over the life of the asset, not expense cost right away (in the beginning or the end)

Answer 1303

Contra Account Most common valuation account is allowance for uncollectible accounts

Answer 1304

Hake would record a $125,000 loss. Hake would record a loss on the settlement of the lawsuit of $125,000, calculated as follows: 20X2 Payment - 20X1 Contingent Liability = 20X2 Loss $375,000 - $250,000 = $125,000 On December 31, 20X1, Hake would have recorded a contingent liability of $250,000 (the minimum estimate of loss, since no amount within the range of estimates was identified as being a better estimate that any other) in accordance with FASB ASC 450-20-30-1. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 1305

When the underlying transaction takes place Sales taxes are derived tax revenues, per GASB N50.104. Revenues from derived tax revenues are recognized in the period when the underlying exchange has occurred (i.e., in the period the taxed sales transaction took place). View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 1306

$510,000 Unadjusted December 31, 20X1, accounts payable $360,000 Add: Debit balance in Ross account (need to reclassify as a prepaid asset) 50,000 Checks recorded but not mailed 100,000 -------- Adjusted accounts payable balance to be reported on December 31, 20X1 $510,000 ========

Answer 1307

Dr. Expense xx | Cr. Liability xx

Answer 1308

be displayed in a financial statement that has the same prominence as other financial statements. FASB ASC 220-10 requires that all items that are recognized as components of comprehensive income be reported in a financial statement that has the same prominence as other financial statements. However, FASB ASC 220-10-45-7 does not prescribe a specific format for the display of such information. View referenced content in book. 2133 Statement of Comprehensive Income

Answer 1309

Flows and balances of financial resources According to the summary of GASB Concept Statement 1, the primary characteristics of governmental structure are: Quote (1) The representative form of government and the separation of powers (2) The federal system of government and the prevalence of intergovernmental revenues (3) The relationship of taxpayers to services received These are the primary characteristics that affect financial reporting of governmental-type activities and must be considered in establishing financial reporting objectives. View referenced content in book. 2123 Financial Reporting by State and Local Governmental …

Answer 1310

$9,000 Taft's recorded equity in Flame earnings $180,000 Less dividends received in 20X1 -30,000 Temporary diff before dividend deduction =150,000 Less div received deduction (80% x $150k) -120,000 Net amount of temporary difference =$ 30,000 Times tax rate x 30% Deferred income tax liability $ 9,000 View referenced content in book. 2270 Income Taxes

Answer 1311

$0 If the sum of the estimated future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, the entity may have to recognize an impairment loss. The impairment loss, if any, to be recognized is any excess of the asset's carrying amount over its fair value. Notice, however, that no impairment loss is to be recognized unless the asset's estimated future cash flows (ECF) are less than its carrying amount, even if the asset's carrying amount (CA) exceeds its fair value (FV). Since the estimated future cash flows ($130,000) are not less than the carrying value ($120,000), no impairment loss must be recognized. View referenced content in book. 2370 Impairment

Answer 1312

$59,000 The capitalized costs here are generally the costs incurred after attaining technological feasibility. Hence, the coding and testing costs of $24,000 and $20,000 are capitalized, but also the costs of the product masters for training of $15,000. Thus, a total of $59,000 would be capitalized, and the rest would be expensed as research and development. View referenced content in book. 2388 Research and Development Costs

Answer 1313

This is when a company “factors” their AR which basically means they receive a loan for the amount of AR They turn over their AR to a third party in exchange for cash, and they pay the third party a fee Then the third party collects payments from the customers on the AR

Answer 1314

Any one of the conditions listed FASB ASC 480-10-25-14 requires that this type of obligation must be considered a liability if any one of the conditions listed is true. A financial instrument that embodies an unconditional obligation, or one other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares must be classified as a liability if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: A fixed monetary amount known at inception (for example, a payable settleable with a variable number of the issuer's equity shares) Variations in something other than the fair value of the issuer's equity shares (for example, a financial instrument indexed to the Standard and Poor's 500 and settleable with a variable number of the issuer's equity shares) Variations inversely related to changes in the fair value of the issuer's equity shares (for example, a written put option that could be net share settled) FASB ASC 480-10-25-14 View referenced content in book. 2385 Distinguishing Liabilities from Equity

Answer 1315

Both I and II GASB N50.115 states that governments should recognize property tax revenues in the period for which the taxes are levied even if a legal claim or actual payment occurs in a previous period. Property taxes are often levied in the fiscal year prior to the year in which they legally can be expended. To gain accounting control over the receivable, it should be recorded at the time of levy. However, the offsetting credit should be to a deferred revenue account since the revenue, although measurable, is not “available” until the following fiscal year. If previously levied, taxes collected in advance should be recorded with a debit to cash and a credit to taxes receivable. If not previously levied, the taxes collected should be recorded with a debit to cash and a credit to deferred revenues. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1316

In the period when the underlying transaction takes place When a state (provider) shares a portion of revenues resulting from its sales tax with local governments (recipients), both provider and recipient governments should account for the event as a voluntary or government-mandated nonexchange transaction, as indicated by the specific situation. Thus, the provider government would recognize the sharing of revenues, its liability, in the same period that the recipient governments recognize related revenues: when all eligibility requirements have been met, as set forth in GASB N50.125. Because the sharing is based on a continuing appropriation (no annual appropriation required), eligibility requirements are met as each sales transaction occurs. View referenced content in book. 2446 Nonexchange Revenue Transactions *VIDEO EXPLANATION* 10/03

Answer 1317

the period of estimated servicing income or loss. FASB ASC 860-50-35-1 provides that: Quote An entity shall subsequently measure each class of servicing assets and servicing liabilities using either of the following methods: a. Amortization method. Amortize servicing assets or servicing liabilities in proportion to and over the period of estimated net servicing income (if servicing revenues exceed servicing costs) or net servicing loss (if servicing costs exceed servicing revenues), and assess servicing assets or servicing liabilities for impairment or increased obligation based on fair value at each reporting date. b. Fair value measurement method. Measure servicing assets or servicing liabilities at fair value at each reporting date and report changes in fair value of servicing assets and servicing liabilities in earnings in the period in which the changes occur. View referenced content in book. 2393 Transfers and Servicing of Financial Assets and …

Answer 1318

Permanent fund The GASB Codification directs that resources that must be held as investment principal with earnings restricted to support the reporting government's programs for a specific purpose must be accounted for in a permanent fund. The gift received by Roy City meets this description. Investment trust funds and private-purpose trust funds are both fiduciary funds that should be used to hold resources held in trust for others and not for gifts received by the government itself. A special revenue fund could be used to account for the income from the gift, but not for the investment of the gift itself. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1319

48 to 58. The pertinent authoritative pronouncement is FASB ASC 715-60-35-66 through 35-68, which states that the attribution period begins at employee's date of hire and ends at the full eligibility date. Thus, Bounty Co.'s attribution period for Fletcher covers the period when Fletcher is age 48 (date hired) to 58 (when the 10-years-of-service requirement is met for full benefit eligibility). View referenced content in book. 2263 Nonretirement Postemployment Benefits

Answer 1320

The term “net assets” is encouraged by the FASB Accounting Standards Codification; further, the components could be identified in terms of donor restrictions and the unrestricted component could be subdivided into “board designated” and “undesignated.” The FASB Accounting Standards Codification encourages the use of standard terminology: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. However, other labels exist and may be used. If other labels are used, the amounts of the three categories need to be clear and meaningful captions are necessary. Information about amounts set aside by the board, such as for a voluntary endowment, are useful and may be presented on the face of the financial statement. FASB ASC 958-210-55-3 and 55-4 View referenced content in book. 2511 Statement of Financial Position

Answer 1321

$400,000 revenues and $600,000 other financing sources. The financing of the renovation of Fir City's municipal park is accounted for in the capital projects fund of the city. The resources from the state grant would be recorded as revenue. However, the proceeds from the bond issue and the interfund transfer would be classified as “other financing sources.” If the grant funds had not yet been used according to the grant guidelines, they would be recognized as deferred revenues, a liability, but not as other financing sources. Revenues are defined as inflows of financial resources from other than issuance of debt, interfund reimbursement and interfund transfers. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1322

$100,000 Replacement of the boiler represents two transactions: Debit Credit ----- ------ (1) Sale of the old boiler: Cash $2,000 Loss on sale 6,000 Old boiler (CV) $8,000 (2) Purchase of new boiler: New boiler (cost) $100,000 Cash $100,000 Thus, the new boiler is capitalized at $100,000. If the old boiler had been exchanged (i.e., traded in) for the new boiler, then this would have been a nonmonetary transaction in which similar assets are exchanged. In this transaction the new boiler would have been recorded at the fair market value of the assets surrendered in the trade (i.e., the market value of the old boiler plus any “boot” (cash paid)). View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 1323

At fair value for both dividend revenue and employee compensation expense FASB ASC 845-10-30-1 provides that: Quote A nonmonetary asset received in a nonreciprocal transfer should be recorded at the fair value of the asset received. A transfer of a nonmonetary asset to a stockholder or to another entity in a nonreciprocal transfer should be recorded at the fair value of the asset transferred. Both receipt of the dividend and the distribution of the merchandise to employees should be recorded at fair value as dividend revenue and employee compensation expense. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 1324

$264,000 The amount is $264,000, computed as follows: Total obligation $257,000 Add: undiscounted cash flow 68,000* Accretion expense 26,000 Deduct: payment (87,000) --------- $264,000 * The original undiscounted cash flow of $110,000 should be adjusted to the discounted estimate. View referenced content in book. 2310 Asset Retirement and Environmental Obligations

Answer 1325

$(10,000) In the case of a transfer of assets to satisfy a debt in a troubled debt restructuring, the debtor shall recognize a gain/loss: Fair value of real estate transferred $ 90,000 Carrying amount of real estate 100,000 ---------- Ordinary loss on transfer of real estate ($ 10,000) ========== The liability is retired by the transfer of real estate to Mene. An ordinary operating gain or loss is recognized on the transfer of real estate, and a possible extraordinary gain or loss is recognized on the restructuring. The ordinary loss is the excess of the real estate's carrying amount over its fair market value ($100,000 - $90,000 = $10,000). The extraordinary gain is the excess of the carrying amount of the liability over the fair market value of the real estate transferred, net of the related tax effect. The pretax extraordinary gain is $60,000 ($150,000 - $90,000). Note: This question is not asking what amount Knob should report as an extraordinary gain or loss. The journal entry to record the full liquidation of Knob's liability to Mene is: Dr. Cr. Note payable $150,000 Loss - transfer of real estate 10,000 Real estate: $100,000 Gain - restructure of debt 60,000

Answer 1326

$260,000 Retained earnings on December 31, 20X1, would be computed: Total income since incorporation $420,000 Less cash dividends $130,000 Property dividends 30,000 160,000 -------- -------- Retained earnings on December 31, 20X1 $260,000 Note The excess of proceeds over cost of treasury stock sold would be credited to “additional paid-in capital” under the cost method.

Answer 1327

Routine employer contributions from the general fund to a pension trust fund GASB P20.113 requires employer governments to report employer pension contributions as an expenditure from a governmental fund such as the general fund. The other answer choices are examples of nonreciprocal interfund activity and are transfers that should be reported as other financing uses rather than as expenditures of the general fund. This is true regardless of whether the payee is a retirement system independent of the employer government or a pension trust fund that is part of the same government. In the latter case, the general fund contribution would be viewed as a reciprocal interfund activity, similar to an exchange transaction with an external entity. The other items are transfers from the general fund reported as “other financing uses.” View referenced content in book. 2445 Interfund Activity, Including Transfers

Answer 1328

Cash inflow equal to the cash received and a cash outflow equal to the cash paid Included in cash inflows from investing activities per FASB ASC 230-10-45-12 are “receipts from sales of property, plant, and equipment and other productive assets.” This pronouncement also includes, under the category of cash outflows from investing activities, “payments at the time of purchase or soon before or after purchase to acquire property, plant, and equipment and other productive assets.” (FASB ASC 230-10-45-13) Canary Co. should treat the cash payments related to the equipment separately as both a cash inflow and cash outflow in the statement of cash flows.

Answer 1329

noncurrent liability. Temporary differences that will add to taxable income relate to future taxable amounts. Future taxable amounts are associated with deferred tax liabilities. The balance sheet classification of deferred tax assets and liabilities is based upon the classification of the item causing the deferred tax effect, not on the timing of when the deferred tax effect is expected to reverse. In this case, the deferred tax liability relates to noncurrent assets. Therefore, the deferred tax impact (which is a liability) will be classified as noncurrent. View referenced content in book. 2270 Income Taxes

Answer 1330

$900,000 The $50,000 debit balance in accounts payable for goods to be manufactured should be shown in accounts receivable unless right to set off exists. The goods shipped FOB destination should not be included as a liability until received and were not included in the $850,000 balance. $850,000 + 50,000 = $900,000 View referenced content in book. 2131 Balance Sheet/Statement of Financial Position

Answer 1331

1. When either a HTM or AFS security is moved to the ‘trading’ category, you put the investment at fair value and the unrealized gain or loss is recorded in income 2. When an AFS investment is changed to HTM, any unrealized G/L in AOCI is then amortized over the life of the debt 3. When a HTM is moved to AFS, the investment is recorded at fair value and the gain or loss is recorded in AOCI.

Answer 1332

recognize certain revenues and expenses in different reporting periods. Both income tax-basis and GAAP-basis financial statements recognize all the financial activities of a company's business. However, it is the timing of this recognition that differs between the two methods. For income tax-basis financial statements, taxable revenues and tax-deductible expenses are recognized in the financial statements in the same period they are reported in the tax return. For financial statements prepared in accordance with GAAP, all revenues and expenses are recognized using the full accrual method of accounting.

Answer 1333

$16,000 Peabody would recognize $16,000 in Year 1, calculated as follows: Cost $400,000 Income under equity method ($60,000 x 0.30) 18,000 $18,000 Dividends ($20,000 x 0.30) (6,000) --------- Balance using equity method $412,000 Fair value adjustment* (2,000) (2,000) -------- Net income from the investment $16,000 * Fair value adjustment is $412,000 - $410,000.

Answer 1334

$95,000 The statement of activities reports changes in each class of net assets from the beginning of the year to the end of the year. All expenses are reported as changes in unrestricted net assets. According to FASB ASC 958-205-45-11, when an expense is incurred for which there are both temporarily restricted and unrestricted net assets available, temporarily restricted net assets are released to the extent of the expense. Therefore, the statement of activities recognizes “net assets released from restrictions” in the amount of $95,000 because of the youth activity program expenses of $95,000. The existence of internally generated revenues of $89,000 does not have an impact on the amount released from restriction. View referenced content in book. 2512 Statement of Activities

Answer 1335

$60,000 In the case of a transfer of assets to satisfy a debt in a troubled debt restructuring, the debtor shall recognize a gain/loss on the transfer of assets (equal to the difference between the fair value and carrying value of the asset). Carrying amount of liability settled $150,000 Less fair value of real estate transferred 90,000 -------- Pretax gain on restructuring of payables $ 60,000 ========

Answer 1336

Declaration and distribution of stock dividend The rationale for using a weighted-average number of shares outstanding is to obtain the equivalent number of whole shares outstanding for the year which represents the underlying net assets being used to generate earnings. Shares issued or purchased (treasury stock) during the period affect the amount of shares outstanding and must be weighted by the portion of the period they are outstanding because issuances and purchases of shares affect the net assets of the company to which earnings are being related. Changes in net assets can cause changes in earnings. Stock dividends and stock splits do not change the net assets of an entity and cannot cause changes in earnings. They merely change the amount of shares outstanding. In order to maintain a consistent measure of the net assets affecting earnings, stock dividends and splits must be treated as if they had occurred at the beginning of the year. The weighted-average number of shares outstanding relates only to common shares outstanding, so changes in preferred shares outstanding will not affect the basic weighted-average number of shares outstanding. Convertible preferred stock will not change the basic weighted-average shares outstanding, even though it might affect the earnings per share denominator to calculate diluted earnings per share. The effect would be an adjustment to the weighted-average shares actually outstanding. View referenced content in book. 2335 Earnings per Share

Answer 1337

$400,000 On the modified accrual basis, revenues should be recognized when all applicable eligibility requirements are met and the resources are available. The $400,000 of qualifying eligible grant expenditures would be recognized as revenues during the period. A receivable of $150,000 from the federal agency would be shown as an asset. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1338

Financing activity inflow The cash flow statement for a not-for-profit is similar to a business cash flow statement. In a modification from the business cash flow statement, cash contributions received from donors who have restricted the use to long-term purposes are reported as financing activities. Thus, “operating activity inflow” and “investing activity inflow” use the wrong categories of cash flows. “As a noncash transaction” is incorrect because cash is clearly received in this transaction. View referenced content in book. 2513 Statement of Cash Flows

Answer 1339

Trade receivables arise from the sale of goods and services. Two principal types: 1. Accounts Receivable 2. Notes Receivable

Answer 1340

The estimated useful life of the leased asset is 12 years. For a lease to be treated as a capital lease and given formal recognition in the financial statements of the lessor and lessee, only one of these criteria must be met. One of the criteria is that the lease term is equal to 75% or more of the estimated economic life of the asset. The lease term of 10 years is more than 75% of the estimated useful life of the leased asset (12 years × 0.75 = 9 years). View referenced content in book. 2380 Leases

Answer 1341

$18,000 A stock dividend does not represent income to the investor. The only effect of a stock dividend is a change in the number of shares held and the carrying value per share; the total carrying value remains unchanged. Thus, only the cash dividend results in dividend income (based on 12,000 shares, the number after the stock dividend): Dividend income for the year ending October 31, 20X1 = 12,000 shares x $1.50 = $18,000 Note Cobb's 2% ownership interest requires accounting using the cost method. Under the cost method, dividends are recognized as income when received.

Answer 1342

Capital projects fund In governmental accounting, the measurement focus and basis of accounting used depend on the nature of the fund. The flow of current financial resources measurement focus and the modified accrual basis are used in the governmental funds where revenues and expenditures are recorded, such as the General, Special Revenue, Capital Projects, Debt Service, and Permanent Funds. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1343

As a disclosure in the notes to the financial statements only As of December 31, 20X1, the gain from the infringement action (regardless of whether the amount is $500,000 or $300,000) is a gain contingency because the settlement offer could be revoked or rejected and an appeal could still occur. Leader should report this situation as a disclosure in the notes to Leader's financial statements as provided for in FASB ASC 450-30-50-1. This treatment is confirmed in FASB ASC 855-10-25-3. A contingency must be recognized under the following conditions: Quote If the events that gave rise to litigation had taken place before the balance sheet date and that litigation is settled, after the balance sheet date but before the financial statements are issued or are available to be issued, for an amount different from the liability recorded in the accounts, then the settlement amount should be considered in estimating the amount of liability recognized in the financial statements at the balance sheet date. FASB ASC 855-10-55-1 Since the settlement occurred after the financial statements were issued, only disclosure is required. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 1344

2.5 Average inventory = (Beginning inventory + Ending inventory) ÷ 2: ($100,000 + $300,000) ÷ 2 = $200,000 Inventory turnover = Cost of goods sold ÷ Average inventory: ($100,000 + $700,000 - $300,000) ÷ (($100,000 + $300,000) ÷ 2) = 2.5

Answer 1345

had lower accrued expenses on December 31 than on January 1 of the current year. All other things being equal, when liabilities decrease, net income increases. Accrued expenses are simply another way to refer to accrued liabilities, payables. View referenced content in book. 2132 Income Statement/Statement of Profit or Loss

Answer 1346

Liability: $2,730; Expense: $765 Payroll tax liability: ``` Federal income tax withheld $1,200 Employee FICA (7.65% x $10,000) 765 Employer FICA (7.65% x $10,000) 765 ``` Total $2,730 Payroll tax expense: Employer FICA (7.65% × $10,000) = $765 View referenced content in book. 2252 Costs and Expenses

Answer 1347

$66,240 The $20,000 cash received on January 1 is considered unrestricted revenue to be closed to the unrestricted net assets category. The remaining four payments will each be received at the end of the next four calendar years, so this portion of the contribution revenue will be closed to temporarily restricted net assets. Although the donor has not placed any conditions on the use of the promised contributions, there is a time restriction while the Read NFP (not-for-profit) waits to receive the cash payments. The four promised payments are valued at present value by using the given interest factor of 3.312 ($20,000 × 3.312 = $66,240). View referenced content in book. 2511 Statement of Financial Position

Answer 1348

126,500 Weighted-average number of shares is determined by relating (a) the portion of time within a reporting period that common shares have been outstanding to (b) the total time in that period. In computing weighted-average number of shares (also called weighted-average common shares), retroactive application is given to stock splits, stock dividends, and shares of common stock issued in a business combination accounted for as a pooling of interests (i.e., they are treated as if they were outstanding for all of any periods presented). Shares outstanding at 1/1 + Stock dividend at 3/31 124,000 x 12 = 1,488,000 Stock issued at 6/30 5,000 x 6 = 30,000 --------- 1,518,000 Divided by number of months / 12 --------- Weighted-average number of common shares 126,500 View referenced content in book. 2335 Earnings per Share

Answer 1349

$175,000 The value of the restricted stock is earned equally over the 4-year vesting period, and the compensation expenses must be divided equally into those years. The total expense is the value of the shares multiplied by the amounts: 10,000 × $20 = $200,000, and also 20,000 × $25 for an additional $500,000, for a total of $700,000 compensation expense, earned 1/4th each year: $700,000 × 0.25 = $175,000. View referenced content in book. 2265 Stock Compensation (Share-Based Payments)

Answer 1350

$6,200 Employer's payroll taxes do not include amounts withheld from employee pay. Employer payroll taxes include: the employer's matching share of FICA taxes ($80,000 × 0.07 = $5,600) and unemployment taxes ($20,000 × 0.03 = $600), for a total of $6,200 ($5,600 + $600).

Answer 1351

Neither I nor II In an installment sale, revenue is not recognized at the time of “sale.” Rather, it is recognized as the cash installment payments that are received following the sale. (The only revenue recognized at the time of sale would be that related to any “down payment.”) No revenue is recognized prior to the sale. The cost recovery method treats the first dollars received as recovery of cost. After the cost is recovered, subsequent collections provide “gross profit.” Under this method revenue is recognized at or following the sale, not before. Thus, neither method recognizes revenue prior to sale. One only recognizes income prior to a sale when production is the critical event and sales and cost of sales are reasonably certain. Examples include commodities (gold, etc.) and percent completion of long-term construction contracts. View referenced content in book. 2251 Revenue Recognition

Answer 1352

Identify in the notes to financial statements the types of employees covered and the employer's and employees' obligations to contribute to the plan. In this question, only one response relates to a defined contribution plan rather than a defined benefit plan: that among the note disclosures required are the types of employees covered and the employer's and employees' obligations to contribute to the plan. Note Transition assets relate to the measurement of defined benefit plan assets and liabilities in the private sector (FASB ASC 715-60-35-38). Disclosure of pension benefit obligations as well as the requirement to accrue all earned benefits relate to defined contribution plans (GASB Pe5.118). View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1353

$155,000 For 20X2: Beginning Ending accounts + Sales - Collections = accounts receivable receivable $50,000 + Sales - $175,000 = $30,000 Sales = $175,000 + $30,000 - $50,000 Sales = $155,000

Answer 1354

flow of financial resources. Financial statements for governmental funds should be prepared and presented utilizing the flow of current financial resources measurement focus. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1355

included as part of minimum lease payments at present value. Capital lease accounting for a lessee involves: 1. Determining the amounts and timing of all cash flows not considered executory costs. This would include minimum lease payments as well as guaranteed residual value(s). 2. Computing the present value of the amounts in item 1. The sum of these present value amounts is capitalized as an asset. Note The guaranteed residual value should be added to (i.e., included) minimum lease payments at present value. View referenced content in book. 2380 Leases

Answer 1356

(1) Income – cost of goods = gross profit margin. This is what you would see on an income statement BEFORE you started looking at expenses. (2) Markup is the sales price of an item compared to it’s cost (either to buy it or produce it). In other words, markup is figured as a percentage of the seller’s costs. As a percentage it is (Sales Price/Cost)-1 = Markup percentage. (3) Margin is the gross profit on the selling price. As a percentage it is Gross Profit/Income = Margin percentage. (4) Fixed costs are difficult to change; i.e, rent. Variable costs are easier to control; i.e, buy the same item at a lesser cost from a different manufacturer. So, why is it important to know the difference? - Markup helps you determine the proper sales price taking into account the costs to purchase or produce the item. This will ensure you sell the item for more then it costs to make it. (i know, obvious). - Margin helps you determine your profitability. Here’s a great example: You purchased an item for $10, you mark it up by 50%, sales price will be $15. Your income statement will show income of $15 with a cost of goods sold of $10, your gross profit will be $5, a gross profit margin of 33%.

Answer 1357

pension trust funds and agency funds. Four types of fiduciary funds are used in governmental accounting systems: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) agency funds. Permanent funds are a type of governmental fund. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1358

credit to appropriations control, $27,000,000. An encumbrance system is used in most governmental funds to record when a purchase order is issued or a contract is approved. The encumbrance is recorded by debiting Encumbrances (a budgetary account) and crediting Appropriations Control. Transfers of resources between and among funds are reported in the governmental fund operating statement as other financing sources or other financing uses as appropriated. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1359

None of the answer choices are correct. Under the cost method the receipt of a cash dividend is recorded as income from investments. The investment account remains unchanged. Debit Credit ----- ------ Cost Method Journal Entry: Cash XX Dividend Income XX The receipt of a cash dividend is treated very differently under the equity method. Since income of the investor is recorded by the investor when reported, cash dividends are treated as a reduction in the investment account. Debit Credit ----- ------ Equity Method Journal Entry: Cash XX Investment in XYZ Co. XX Thus, neither method results in an increase in the investment account for a cash dividend received.

Answer 1360

$6,000 In order to properly match warranty expense with the revenue generating the expenses, 2% of Year 2's sales (0.02 × $300,000 = $6,000) should be expensed.

Answer 1361

Generally, these types of accounts are increased with a credit: Gains, Income, Revenues, Liabilities, Stockholders' Equity (GIRLS).

Answer 1362

A proposed accounting standards update The process for issuing a new accounting standards update includes the following steps: - The FASB identifies a financial reporting issue. - The FASB Chairman adds a project to the technical agenda. - Public meetings are held. - An exposure draft (proposed accounting standards update) is issued. - A public roundtable is held. - The FASB staff collects and analyzes all comments and the FASB redeliberates the proposed standard at public meetings. - The FASB issues an Accounting Standards Update. It becomes part of the Accounting Standards Codification. View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 1363

Interest rates have increased since Lee purchased the bonds. Bonds sell at a premium when the stated rate of interest paid by the bonds exceeds the market rate. The opposite is true if bonds sell at a discount. In the Lee Co. situation, Lee paid a premium price in 20X1 because Enfield, Inc.'s, interest rate was greater than the market rate. By December 31, 20X2, the situation had changed. The market rate was higher than Enfield's rate. Since Enfield's stated bond interest rate did not change during this period, the only explanation for the change in bond price from premium to discount was that market interest rates increased since Lee purchased the bonds.

Answer 1364

$33,000 When using the percentage of sales method, a reporting company directly determines its bad debt expense. The allowance account is merely the balance that results from this recognition (as well as the write off of specific balances). Sales for the two years have been $1.4 million ($600,000 plus $800,000) so the total amount of bad debt expense recognized to date is $70,000 ($1.4 million x 5 percent). To date, only $37,000 in receivables have been written off. Therefore, the balance of the allowance for doubtful accounts at the end of Year Two is $33,000 ($70,000 expense less $37,000 in bad accounts to date).

Answer 1365

Lease liability In general, each lease payment would consist of two elements—interest expense on the amount owed during the preceding period and reduction in lease liability. In the case described, “interest expense” would be zero (because the time period December 31, 20X1, to December 31, 20X1, produces no interest charge) so all of the initial payment is attributed to reduction of lease liability. View referenced content in book. 2380 Leases

Answer 1366

such control does not rest with the majority owner because the subsidiary is in bankruptcy. Prior to FASB ASC 810-10-15, some parent companies would defend their decision to not consolidate certain subsidiaries by arguing that the nature of the subsidiary's business was too unlike that of the parent. For example, the subsidiary might be a financial institution and the parent a manufacturing operation. FASB ASC 810-10-15 eliminated such “non-homogenous operations” defenses for not consolidating majority-owned subsidiaries by specifying that all majority-owned subsidiaries have to be consolidated unless control does not rest with the majority owner. FASB ASC 810-10-15 View referenced content in book. 2321 Introduction and Overview

Answer 1367

statutory consolidation. FASB ASC 805-10-20 defines a business combination as follows: Quote A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. The acquisition of stock classification refers to the acquisition of capital stock by the acquiring entity, which becomes the parent company. No third entity is established. The acquisition of assets classification refers to the transfer of assets from the acquired entity to the acquiring entity. No third entity is established. The statutory merger classification refers to the merging of the two entities into one. No third entity is established. The statutory consolidation classification refers to the merging of two enterprises into a newly established enterprise. View referenced content in book. 2315 Business Combinations

Answer 1368

If the receivables can be repurchased by the company, the transaction is viewed as a loan. When receivables are transferred to another party in this way, the question as to whether a sale has occurred depends on whether the original owner has retained control over those receivables. If the receivables can be repurchased, the company still has some control over them so that the transaction is deemed to be a loan not a sale. However, if the buyer can pledge or sell the receivables, those receivables are completely isolated from the original company, and the receivables are safe from the creditors of the original company, then the receivables are completely in the control of the buyer and a sale has occurred.

Answer 1369

Loss on discontinued operations SFAC 6 defines comprehensive income as: “Change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.” Loss on discontinued operations is part of net income which changes equity; therefore, it is part of comprehensive income. By definition, investments by owners are specifically excluded from comprehensive income. View referenced content in book. 2113 International Accounting Standards Board (IASB)

Answer 1370

$12,740 At the end of Year Two, the allowance for doubtful accounts has a $3,000 debit balance ($10,000 beginning balance less the $13,000 account written off as uncollectible). Accounts receivable is now $487,000 ($200,000 beginning balance plus $900,000 in sales less $600,000 in collections less the $13,000 account written off). The company estimates that 2 percent of receivables will prove uncollectible. That amount is $9,740 or 2 percent of $487,000. The allowance has a $3,000 debit balance but needs a $9,740 credit balance. To reach the desired figure, an expense of $12,740 is recognized for the period.

Answer 1371

fair value. FASB ASC 718-10-30-6 specifies that: Quote The measurement objective for equity instruments awarded to employees is to estimate the fair value at the grant date of the equity instruments that the entity is obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments (for example, to exercise share options). That estimate is based on the share price and other pertinent factors, such as expected volatility, at the grant date. FASB ASC 505-50-30-2 applies specifically to nonemployee transactions and recording them at fair value. View referenced content in book. 2265 Stock Compensation (Share-Based Payments)

Answer 1372

In the owners' equity section FASB ASC 810-10-45-16 requires that the noncontrolling interest be reported in the owners' equity section. View referenced content in book. 2321 Introduction and Overview

Answer 1373

Johan only An intangible asset with a finite useful life should be amortized over its useful life to the reporting entity. Johan's intangible should be amortized. An intangible asset that has an indefinite life should not be amortized, but should be evaluated to determine if it is impaired. Abco's goodwill has an indefinite useful life and should not be amortized, only evaluated for impairment.

Answer 1374

Net Income / Average Total Assets This measures the rate of return on total assets and how effectively total assets generate net income.

Answer 1375

Appropriations exceed actual expenditures. Two general approaches to recording budgetary information are used. One approach uses a budgetary fund balance account, which does not impact the unassigned fund balance amount. The other approach debits or credits the budgeted decrease or budgeted increase for the year to unassigned fund balance. The question presumes use of the latter approach. Thus, appropriations recorded using this approach would decrease unassigned fund balance. At the end of the year, the budgetary accounts are removed from the books, removing their impact on the fund balance totals. At the same time, the closing of the temporary accounts impacts fund balance. In the case of appropriations exceeding expenditures, the decrease to unassigned fund balance from closing expenditures would be less than the increase to fund balance from removing appropriations from the books. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1376

Both a disclosure and an accrual Post-balance sheet events (subsequent events) should be explained in the notes to the financial statements when the event is significant. FASB ASC 855-10-55-1 contains guidance about the recognition of subsequent events: Quote An entity must recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. The following is an example of a recognized subsequent event listed in FASB ASC 855-10-55-1: Quote If the events that gave rise to litigation had taken place before the balance sheet date and that litigation is settled, after the balance sheet date but before the financial statements are issued or are available to be issued, for an amount different from the liability recorded in the accounts, then the settlement amount should be considered in estimating the amount of liability recognized in the financial statements at the balance sheet date. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 1377

general revenues. Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government's general revenues. Grants and contributions are considered program revenues if restricted to a specific or to several specific programs. Otherwise, they are reported as general revenues. GASB 2200.136 and .138 View referenced content in book. 2421 Government-Wide Financial Statements

Answer 1378

$0 Settam would not record additional unrestricted net assets resulting from this donation because the entire donation is subject to donor-stipulated requirements. The answer choice of $2,000,000 is incorrect because the $2,000,000 of donated shares increase permanently restricted net assets because the investment is to be held indefinitely, and no dividends have yet been received. The answer choice of $8,000,000 is incorrect because the donation will be accounted for as temporarily restricted net assets until the renovation occurs. The answer choice of $10,000,000 is the sum of the other incorrect answers. View referenced content in book. 2511 Statement of Financial Position

Answer 1379

an unrestricted component of net position. Unrestricted net position is defined by exclusion. If an item is not classified as restricted or a capital asset, then it is unrestricted. While future equipment will be a capital asset, it is not currently a capital asset. View referenced content in book. 2441 Net Position and Components Thereof

Answer 1380

Report the interest from the notes payable benefiting specific functions as a direct expense of those functions and report the remaining interest as a separate line as an indirect expense. Interest that clearly derives from borrowing that is essential to support a program should be reported as a direct expense of that program, and interest that does not qualify as a direct expense should be reported as a separate line. The two types of interest should not be combined. Interest is reported as a component of other functions or a separate line, but not at the bottom of the statement. Although interest on long-term debt is usually an indirect expense, it should be reported as a separate line and not allocated. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 1381

$30,500 Since Grant purchased 30%, there is a presumption of significant influence, requiring the application of the equity method. Thus, Grant recognizes the percent share of the South income, adding to the investment balance, and the 30% of the dividends lower the carrying amount of the investment. Initial cost of investment $200,000 30% of South's 20X1 income (30% x $80k) 24,000 30% of 20X1 dividends (30% x $50,000) (15,000) --------- Carrying amount of investment on December 31, 20X1 $209,000 30% of South's Jan-June 20X2 income 30,000 (30% x $100,000) --------- Carrying amount of invest on Jne 30, 20X2 $239,000 Times 50% x 0.50 --------- Equals carrying amount of one-half of investment $119,500 ========= $ 150,000 Sales prices - 119,500 Carrying amount --------- $ 30,500 Gain on sale =========

Answer 1382

Revenues, expenses, gains, losses, net income or loss, and other comprehensive income are reported in the consolidated financial statements at the consolidated amounts, which include the amounts attributable to the owners of the parent and the noncontrolling interest. FASB ASC 810-10-45-19 requires that the consolidated amounts of these items (revenues, expenses, gains, losses, net income or loss, and other comprehensive income) be reported on the income statement. The amount of consolidated net income attributable to the parent and to the noncontrolling interest must be clearly identified and presented on the face of the consolidated statement of income. View referenced content in book. 2322 Fundamentals of Consolidated Worksheets(Acquisition …

Answer 1383

Fair value for certain debt and equity securities and amortized cost for certain debt securities Fair value for certain debt and equity securities and amortized cost for certain debt securities are the valuation methods required by FASB ASC 320-10-25-1 for debt and equity securities: Quote At acquisition, an entity shall classify debt securities and equity securities into one of the following three categories: TRADING SECURITIES. If a security is acquired with the intent of selling it within hours or days, the security shall be classified as trading. However, at acquisition an entity is not precluded from classifying as trading a security it plans to hold for a longer period. Classification of a security as trading shall not be precluded simply because the entity does not intend to sell it in the near term. AVAILABLE-FOR-SALE SECURITIES. Investments in debt securities and equity securities that have readily determinable fair values not classified as trading securities or as held-to-maturity securities shall be classified as available-for-sale securities. HELD-TO-MATURITY SECURITIES. Investments in debt securities shall be classified as held-to-maturity only if the reporting entity has the positive intent and ability to hold those securities to maturity.

Answer 1384

Intercompany loans, $0; Intercompany profits, $0 Intercompany loans and profits must be eliminated in the preparation of combined financial statements. This will result in balances of $0 in these accounts. View referenced content in book. 2323 Emphasis on Adjusting and Eliminating Entries(…

Answer 1385

$13,000 Current maturities of long-term debt on December 31, 20X1, include: 14-1/2% term note (due 20X2) $ 3,000 8% note (1/11th of $110,000) 10,000 ------- Total $13,000 ======= Note The interest due on the 8% note on December 31, 20X2, is classified as interest payable; this amount is not part of the current maturities of the long-term debt. The 11-1/8% term note and 7% debentures are of course, noncurrent (due 20X5 and 20X6, respectively).

Answer 1386

$27,000 Ball's year-end income statement should include $27,000 as foreign exchange loss, calculated as follows: Foreign currency loss on goods purchased ($90,000 - $96,000) $ 6,000 Loan principal foreign currency loss ($500,000 - $520,000) 20,000 Loan interest foreign currency loss ($25,000* - $26,000) 1,000 Total loss $27,000 * Interest in U.S. dollars: $500,000 × 0.10 × 1/2 year = $25,000 View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward …

Answer 1387

Cash and cash equivalents / Average daily cash expenses

Answer 1388

$17,000 other comprehensive loss Other comprehensive income includes unrealized holding gains or losses on available-for-sale securities ($17,000). All of the other items presented in the problem are included in net income.

Answer 1389

total costs incurred to date to total estimated costs. Because total estimated costs can change over the life of a long-term contract, the computation of income for any year except the first must accommodate the possibility of a change in estimate. Therefore, the percentage-of-completion method requires that a company computes the income for Year 3 as the difference between the: total income earned in Years 1 to 3 (total costs incurred to date over total estimated costs) times estimated total income on the contract (total contract revenue less total estimated costs based on estimates at the end of Year 3) less total income recognized in Years 1 and 2, leaving income assigned to Year 3. View referenced content in book. 2251 Revenue Recognition

Answer 1390

As an asset in an agency fund, offset by a liability GASB E70.102 indicates that escheat property held for another government should be reported as an asset in a private-purpose trust fund or an agency fund, as appropriate. GASB 1300.113 indicates that a private-purpose trust fund be used when principal and income are reported, and GASB 1300.114 indicates that an agency fund be used when resources are held by the reporting government temporarily in a purely custodial capacity. In this case, the property is to be held for a short period, thus indicating the use of an agency fund. The agency fund accounting equation is Assets = Liabilities. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1391

all governmental and internal service funds that provide services to the governmental functions. The governmental activities portion of the government-wide statements reports the functions also reported in the general and other governmental funds. Internal service funds providing services for governmental functions are also included. Fiduciary fund information is not shown within the government-wide financial statements. View referenced content in book. 2422 Governmental Funds Financial Statements *VIDEO EXPLANATION 10/01

Answer 1392

$20,000 Depreciation should be modified when an asset has been determined to be impaired. Cost $250,000 Accu dep (4 years at $25,000) 100,000 -------- Book value before impairment $150,000 Impairment 30,000 -------- Book value after impairment $120,000 ``` Remaining useful life 6 years Annual dep ($120,000 / 6 years) $ 20,000 ``` View referenced content in book. 2370 Impairment

Answer 1393

No value is assigned to the conversion feature when convertible debt is issued. Since the debt and the conversion option of convertible debt are inseparable, no portion of the proceeds from the issuance of convertible debt securities is to be accounted for as attributable to the conversion feature. (FASB ASC 470-20-25-12)

Answer 1394

9.0 to 1. The times interest earned ratio is income before interest expenses and taxes divided by interest expense. In this question, that would be the operating income prior to either of those expenses, or $900,000 divided by the interest expense of $100,000, giving an answer of 9.0 to 1. View referenced content in book. 2137 Consolidated and Combined Financial Statements

Answer 1395

$435,000 The issue here is whether Well Co. should apply the equity method to its investment in Rea, Inc. According to FASB ASC 323-10-15-6, if the investor can exercise significant influence over financial and operating policies of the investee, the equity method should be used. Significant influence may be indicated by “representation on the board of directors” as well as “the extent of ownership…in relation to the concentration of other shareholdings....” It appears that Well Co. does exercise significant influence over Rea, Inc. Therefore, the equity method should be used in accounting for the investment. Even though the amount of stock ownership is less than 20%, the investment account balance as of December 31, 20X1, would be computed: Unadjusted balance $400,000 10% of Rea's $500,000 income 50,000 10% of $150,000 dividends (15,000) --------- Adjusted balance $435,000 =========

Answer 1396

$470,475 Amortization table: BEG: 469,500 iNTEREST: face value x stated rate 500,000 x 9% x 6/12 = 22,500 DISC AMORT: beg amt x market/yield rate 469,500 x 10% x 6/12 = 23,475 DIFFERENCE: 23,475 - 22,500 = 975 ENDING: 469,500 + 875 = 470,475

Answer 1397

lending institution. Long-term debt often has covenants in the debt contract. Debt covenants are standards for the financial strength and performance of the borrower. These covenants are intended to protect the interest of the lending institution. Common ratios used to define debt covenants are the current ratio and the interest coverage ratio. Other covenants could include such requirements as maintaining a specific debt/equity ratio, having enough cash flow to cover interest expense, or acquiring an unqualified audit opinion. A covenant violation could result in the bonds becoming callable—giving the lending institution the right to receive the maturity value of the bonds prematurely or the right to convert the debt. Such debt would no longer be classified as long term, but would be considered a short-term liability.

Answer 1398

it is readily available to the taxpayer and actual receipt is not subject to substantial limitations or restrictions. Income that is constructively received is included in gross income. An example is interest income credited to an account by a financial institution. Income is constructively received if: it is readily available to the taxpayer and actual receipt is not subject to substantial limitations or restrictions.

Answer 1399

$160,000 Purchase price $860,000 Fair value of assets $840,000 Less fair value of liabilities 140,000 ------- Net fair value of assets 700,000 ------- Goodwill $160,000 ======= View referenced content in book. 2315 Business Combinations

Answer 1400

$250,000 Temporary restrictions may be restrictions as to the time during which donated resources may or must be used or restrictions on the purpose(s) for which the donated resources may be used. Contributions (such as the $250,000 contribution) that donors restrict to use in future years are time-restricted and are included in temporarily restricted contributions. Contributions that are not restricted by donors are unrestricted contributions. View referenced content in book. 2511 Statement of Financial Position

Answer 1401

A fiduciary fund Agency funds are one of the fund types comprising the “Fiduciary Funds.” Only resources held for the benefit of others are reported in fiduciary funds. The other fiduciary funds are pension trust funds, investment trust funds, and private-purpose trust funds. (GASB 1300.102) View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1402

$20,000 common stock, $60,000 preferred stock, and $820,000 additional paid-in capital. Summary journal entries for issuance of stock: Dr. Cr. (1) COMMON STOCK: Cash ($30 x 20,000 shares) 600,000 Common stock ($1 x 20,000 shares) 20,000 APIC 580,000 (2) PREFERRED STOCK: Cash ($50 x 6,000 shares) 300,000 Preferred stock ($10 x 6,000 shares) 60,000 APIC 240,000 At April 1, 20X1: ``` Common stock = $20,000 Preferred stock = $60,000 Additional paid-in capital = $580,000 + $240,000 = $820,000 ``` View referenced content in book. 2250 Equity

Answer 1403

$5,560 The total amount of interest revenue one earns on a note is related to the total payments but also to the present value of the note, with the discount recognized here initially. The total amount to be received on this note is 5 years multiplied by $5,009, as specified, for a total of $25,045. Interest is generally the amount returned over and above the amount originally recognized, which was $19,485 originally. Thus, the total interest revenue is $25,045 - $19,485, or $5,560.

Answer 1404

Understated accrued liabilities and overstated retained earnings The insurance costs relate to inventory sold in 20X1. Therefore, the unpaid cost should have been in accounts payable at December 31, 20X1, but was not. Likewise, the costs should have been included in cost of goods sold for 20X1 because the inventory was sold in that period. Therefore, expenses were understated, resulting in an overstatement of 20X1 net income and of the December 31, 20X1, retained earnings. The unrecorded accounts payable means that liabilities were understated at December 31, 20X1.

Answer 1405

$4,000,000 liability due at maturity in 30 years plus a $105,000 contra liability to be amortized as a component of interest over 15 years, and a $160,000 additional liability to be amortized as a component of interest over 30 years. This “current” refunding used the proceeds of the new debt to repay the old debt in its entirety. For current refundings reported in the government-wide statements, GASB D20.108 states that the difference between the reacquisition price of the old debt and the net carrying amount of the new be amortized over the shorter of the remaining life of the old debt or the life of the new debt, and debt issue costs be deferred. Cash flows for the refunding included outflows of $100,000 for call premium and $5,000 for issuance costs to be amortized over the remaining life of the old bonds, and a $160,000 premium on the new bonds to be amortized for the life of the new bonds. Therefore, for the 15-year remaining life of the retired bond, the difference between the reacquisition price of the old debt and the carrying value of the new debt is being amortized as a component of interest. View referenced content in book. 2412 Fund Accounting Concepts and Application *VIDEO EXPLANATION

Answer 1406

$1,250,000. FASB ASC 810-10-10-1 states: Quote The purpose of consolidated financial statements is to present…the results of operations and financial position of a parent company and all its subsidiaries…as if the consolidated group were a single economic entity. The consolidation adjustment does not affect any of Beni's stockholders' equity accounts: 1,000,000 + 250,000 = $1,250,000 Dr. Cr. Actual entry: Investment in Carr $430,000 Cash $430,000 Consolidated adjustment: Assets (at fair value) $800,000 (1) Goodwill 30,000 (2) Liabilities $400,000 Investments in Carr 430,000 (1) Assets at fair value = $750,000 + $50,000 = $800,000 (2) Goodwill = Cash paid - (fair market value of assets - Liabilities) = $430,000 - ($750,000 + $50,000 - $400,000) = $430,000 - $400,000 = $30,000 Carr's stockholders' equity is eliminated for consolidated financial statement purposes, but Beni's stockholder's equity was not increased. Beni simply used its assets to acquire the net assets of Carr. View referenced content in book. 2315 Business Combinations

Answer 1407

nonoperating revenues. Proprietary funds of governments, including enterprise funds, report unrestricted grants and restricted operating grants as nonoperating revenues. Restricted capital grants are reported as capital contributions. Neither contributed capital nor expenditures are reported for proprietary funds. View referenced content in book. 2423 Proprietary Funds Financial Statements

Answer 1408

$105,000 When plan amendments are made, additional benefits are sometimes applied retroactively to employees for service rendered in prior years. This increase in the benefits to be paid to employees represents a cost to the employer. GAAP requires that this cost be recognized as a component of pension expense over the remaining service years of the affected employees. FASB ASC 715-30-25-4 requires that the unrecognized prior service cost be recognized as a component of other comprehensive income. The amortization of the unrecognized prior service cost is recognized as an increase in pension expense and as a reduction of the unrecognized amount remaining in accumulated other comprehensive income. Prior service costs $600,000 Expected service years / 2,000 -------- Cost per service year $ 300 Service years completed this year x 350 -------- Unrecognized prior service cost amortization $105,000 View referenced content in book. 2264 Retirement Benefits

Answer 1409

Allowance for doubtful accounts / AR, net

Answer 1410

separate legal standing as a sole proprietorship, partnership, corporation, or corporate joint venture. An important dimension of FASB ASC 280-10-50-1 is the notion of operating segments, which are defined as components of a business enterprise: - that engage in business activities from which the enterprise may earn revenues and incur expenses (including transactions with other segments), - whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resource allocation and to assess performance, and - for which discrete financial information is available. View referenced content in book. 2390 Segment Reporting

Answer 1411

both unrestricted and permanently restricted. FASB ASC 958-225-45-1 indicates that the Statement of Activities for a not-for-profit entity shall report the amount of change in permanently restricted net assets, temporarily restricted net assets, and unrestricted net assets for the period. View referenced content in book. 2512 Statement of Activities

Answer 1412

In operating activities as a deduction from income The cash proceeds from a sale of used equipment would be treated as a cash inflow from investing activities. Since these cash proceeds include both carrying value of the equipment and the gain from the sale, this gain would need to be deducted from income in order to avoid “double counting.” Recall that: View referenced content in book. 2135 Statement of Cash Flows Quote All items that are included in net income that do not affect net cash provided from, or used for, operating activities such as depreciation of property, plant, and equipment and amortization of finite-life intangible assets. This includes all items whose cash effects are related to investing or financing cash flows, such as gains or losses on sales of property, plant, and equipment and discontinued operations (which relate to investing activities), and gains or losses on extinguishment of debt (which relate to financing activities). Thus, when using the indirect method, a gain from sale of used equipment for cash should be reported in operating activities as a deduction from income. View referenced content in book. 2135 Statement of Cash Flows

Answer 1413

eventually vest. The provisions of FASB ASC 718-10-30-10 through 30-12 indicate that the total amount of compensation cost recognized at the end of the service period should be based on the number of instruments for which the requisite service period has been rendered (that is for the requisite service period has been completed). An entity must base initial accruals of compensation cost “on the estimated number of instruments for which the requisite service period is expected to be rendered. That estimate shall be revised if subsequent information indicates that the actual number of instruments is likely to differ from previous estimates.” The final revised estimate is the number of instruments that eventually vest. View referenced content in book. 2265 Stock Compensation (Share-Based Payments)

Answer 1414

decreasing annual insurance expense. Typical journal entry for payment of life insurance premiums (no increase in cash surrender value): Dr. Cr. Insurance expense xx Cash xx As the cash surrender value of the policy started to increase, the typical journal entry for payment of life insurance premiums would become: Dr. Cr. Cash surrender value of life insurance x Insurance expense xx Cash xx Note In each periodic entry as cash surrender value increases, insurance expense decreases.

Answer 1415

Agency fund The correct answer is agency fund, a fiduciary fund that “should be used to report resources held by the reporting government in a purely custodial capacity.” The general and special revenue funds report resources to be expended by the government itself. A private-purpose trust fund, also a fiduciary fund, reports trust arrangements in which the government holds the principal and assures that the income benefits the appropriate individuals, private organizations, or other governments. GASB 1300 View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1416

evenly over the contract year as the services are performed. When the customer pays the annual fee, the related revenue should be recognized evenly over the contract year at a rate of $45 (i.e., $540 ÷ 12 months). There is no present value or imputed interest because the contracts do not extend beyond one year.

Answer 1417

July 20, 20X1 FASB ASC 420-10-25-4 provides that the costs of one-time termination benefits be recognized and measured at its fair value on the communication date. View referenced content in book. 2340 Exit or Disposal Activities and Discontinued Operations

Answer 1418

$10,000 Changes in the value of a liability for an asset retirement obligation must be measured by applying an interest method of allocation using a credit-adjusted, risk-free interest rate. Accretion expense would be: $100,000 × 0.10 = $10,000 View referenced content in book. 2310 Asset Retirement and Environmental Obligations

Answer 1419

$155,000** For 20X2: Beginning Ending accounts + Sales - Collections = accounts receivable receivable $50,000 + Sales - $175,000 = $30,000 Sales = $175,000 + $30,000 - $50,000 Sales = $155,000

Answer 1420

Capitalized and depreciated over its estimated useful life Only equipment that has an alternative use is capitalized and depreciated. Other expenditures should be expensed immediately. Quote Elements of costs shall be identified with research and development activities as follows (see [FASB ASC] 350-50 for guidance related to website development): Materials, equipment, and facilities. The costs of materials (whether from the entity's normal inventory or acquired specially for research and development activities) and equipment or facilities that are acquired or constructed for research and development activities and that have alternative future uses (in research and development projects or otherwise) shall be capitalized as tangible assets when acquired or constructed. The cost of such materials consumed in research and development activities and the depreciation of such equipment or facilities used in those activities are research and development costs. However, the costs of materials, equipment, or facilities that are acquired or constructed for a particular research and development project and that have no alternative future uses (in other research and development projects or otherwise) and therefore no separate economic values are research and development costs at the time the costs are incurred. FASB ASC 730-10-25-2 View referenced content in book. 2388 Research and Development Costs

Answer 1421

$0 All intercompany liabilities are eliminated in the consolidation process. The amounts are not included as assets or liabilities on the consolidated balance sheet. View referenced content in book. 2315 Business Combinations *VIDEO EXPLANATION We should not see the impact of our internal transactions in our consolidated financial transactions - we should be left with external transactions.

Answer 1422

Property taxes GASB N50.104 groups nonexchange revenues into four different categories: derived tax revenues, imposed nonexchange revenues, government-mandated nonexchange transactions, and voluntary nonexchange transactions. Property taxes are an imposed nonexchange revenue because they are levied or imposed by government on nongovernmental entities and they are not assessments on exchange transactions. Income and sales taxes are derived tax revenues as they are assessments imposed on exchange transactions. A federal grant would be either a voluntary or mandated nonexchange transaction depending on the terms of the grant. View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 1423

a component of income from continuing operations. Fogg should include the gain as a component of income from continuing operations according to the provisions of FASB ASC 830-20-35-1: Quote A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes. View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward …

Answer 1424

$1,075,00 Derived tax revenues are reported when the underlying transaction has occurred, and for the modified accrual method of accounting, when the resource is considered to be available. At the fund level, the General Fund computes revenues using the modified accrual method. Furthermore, governmental entities report revenues net of any allowance for doubtful accounts. A total of $100,000 of the beginning receivable had been deferred and $50,000 was classified as doubtful. Therefore, the balance ($300,000) would have been previously recognized as revenue of a prior period. When you subtract the $300,000 of prior-year revenues from current-year receipts ($1,250,000) and add to it that portion of the ending receivable considered to be available at year-end ($125,000) you have revenues for the current year equal to $1,075,000. Beginning receivables $450,000 Beginning deferred revenues (100,000) --------- $350,000 Beginning doubtful accounts (50,000) --------- Prior-year revenues $300,000 ========= Current-year receipts $1,250,000 Prior-year revenue 300,000 ----------- $950,000 Available at end of year 125,000 ----------- Current-year revenue $1,075,000 =========== View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1425

The minimum number of funds consistent with legal requirements and sound financial administration Governmental accounting is only required to have one fund, the general fund. Other funds can be added to meet budgetary and legal requirements. Therefore, the answer choices, "a general fund and a special revenue fund as required by GAAP" and "a special revenue fund and a general fund as required by the city manager," are obviously wrong as two funds are never required. The answer choice, "the minimum number of funds consistent with the needs of the city accountant," while logical, as the city accountant may determine the appropriate number of funds, is ignoring potential legal requirements of various budgetary needs. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1426

31,000 increase. According to FASB ASC 230-10-45-12, cash inflows from investing activities include receipts from sales of property, plant, and equipment. These receipts include directly related proceeds of insurance settlements. Cash proceeds from "sale" of destroyed building: Book value of building $100,000 - $48,000 = $52,000 Less amount of loss 21,000 ------- Cash proceeds $31,000 =======

Answer 1427

Both gain from major currency reevalulation and gain from increase in contract's price in continuing operations FASB ASC 225-20-45-2–45-4 provides for extraordinary item treatment of events or transactions which are both unusual in nature and infrequent in occurrence. The pronouncement contains a listing of items (examples) which should not be considered extraordinary items. Gains or losses from major currency revaluation and adjustments on long-term contracts are included in that listing; thus, both of the items mentioned should be reported in continuing operations and not be accorded extraordinary item status. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 1428

Ending inventory in current year dollars / ending inventory in base year dollars You use that multiplier to convert current year prices to base year prices

Answer 1429

Miro's deferred tax asset should be reduced by $554 in 20X2. During 20X0 and 20X1, the amount of taxes paid was higher than justified by its GAAP income. The amount of the “overpayment” equals the temporary difference in the GAAP basis of the asset ($240,000 - $50,000, or $190,000) and its tax basis ($240,000 - $32,000, or $208,000) at December 31, 20X1, times the 40% tax rate in effect at December 31, 20X1. More taxes have been paid than justified by GAAP income; therefore, the company has an asset for this “prepayment.” The asset is called a deferred tax asset. The temporary difference is $18,000, making the deferred tax asset at December 31, 20X1, $18,000 × 40%, or $7,200. Changes in depreciation methods are accounted for prospectively. Therefore, the change to the straight-line method for GAAP purposes does not eliminate the temporary difference. However, straight-line depreciation for GAAP purposes in 20X2 will be less than that for tax purposes. GAAP depreciation is $190,000 ÷ 13 years, or $14,615. The GAAP basis of the asset at December 31, 20X2, is $240,000 - $64,615, or $175,385; the tax basis is $240,000 - $48,000, or $192,000. The temporary difference is reduced to $16,615. The deferred tax asset at December 31, 20X2, is $16,615 × 40%, or $6,646. Therefore, the deferred tax asset balance decreased by $554 during 20X2. Straight- GAAP Line Tax Deferred Depreciation Depreciation Diff Rate Tax ------------ ------------ ---------- ---- -------- 20X0 $30,000 - $16,000 = $14,000 x 0.40 = $5,600 20X1 20,000 - 16,000 = 4,000 x 0.40 = 1,600 20X2 14,615 - 16,000 = -1,385 x 0.40 = -554 ------- ------- ------- ------ $64,615 $48,000 $16,615 $6,646 ($240,000 - $20,000 - $30,000) ÷ 13 = $14,615 $16,000 - $14,615 = $1,385 $1,385 × 0.40 = $554 View referenced content in book. 2270 Income Taxes

Answer 1430

When events or changes in circumstances indicate that its carrying amount may not be recoverable FASB ASC 360-10-35-21 states that an entity must review long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. View referenced content in book. 2370 Impairment

Answer 1431

1. Issue date 2. Face value- this is usually stated at 10, $1,000 bonds for a total of $10,000 3. Coupon rate or stated interest rate- this determines the cash interest paid 4. Effective rate or yield rate- this determines interest expense and bond price 5. Interest payment dates- this is usually twice a year 6. Maturity date of bond a. Again, if the market rate is greater than stated rate, there is a discount

Answer 1432

$1,800,000 Governmental entities should recognize revenues from property taxes, net of estimated refunds and estimated uncollectible amounts. Property tax revenues are recognized when they become available. Available means when due, or past due and receivable within the current period and collected within the current period, or expected to be collected soon enough thereafter to be used to pay liabilities of the current period. Such time, thereafter, shall not exceed 60 days. If unusual circumstances occur which justify a period greater than 60 days, the governmental unit should disclose the period being used and the facts that justify it. It is estimated that 90% of the September 1, 20X1, levy will be collected during the period January 1, 20X2, through February 28, 20X3 (2,000,000 × 90% = 1,800,000). A total of 90% ($1,800,000) should be recognized in 20X2. The 5% estimated uncollectible levy is included in the balance at February 28, 20X3, that will “be collected later, or go uncollected.” View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 1433

Variable Interest Entities (VIE) In certain instances the relationship with lessors do not need to be evaluated as a VIE.

Answer 1434

$10,000 The correct amount of depreciation for all 10 years is $100,000 ÷ 10 = $10,000. The correction of the error for Year 1 would not affect the amount of depreciation expense for Year 2. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 1435

$3,425,000 FASB ASC 915-340-25-1 provides that: Quote Generally accepted accounting principles (GAAP) that apply to established operating entities shall determine whether a cost incurred by a development stage entity is to be charged to expense when incurred or is to be capitalized or deferred. Therefore, regular GAAP applies to costs that are expensed. Research and development $ 750,000 $ 900,000 Laboratory operations 175,000 550,000 General and administrative 225,000 685,000 Depreciation 25,000 115,000 Total $1,175,000 $2,250,000 Total: $1,175,000 + $2,250,000 = $3,425,000

Answer 1436

concentration of credit risk. Credit risk is the potential loss from any party to an agreement failing to perform. Credit risk must be disclosed. Off balance-sheet risk occurs when the amount of a loss exceeds the related asset. Market risk disclosure is encouraged, but not required.

Answer 1437

The excess of total assets over total liabilities of a corporation. It represents the sources of the net assets of the corporation.

Answer 1438

part of the comprehensive financial report but not part of the basic financial statements. The basic financial statements required of state and local governments report fund financial statements for governmental and proprietary funds, focusing on major funds with nonmajor fund information aggregated or combined. The details of the aggregation of nonmajor funds are shown in the combining fund statements, which are not considered part of the basic financial statements but that are included in the financial section of comprehensive annual financial report. The financial statements are not reported as notes or required supplementary information. View referenced content in book. 2420 Format and Content of Comprehensive Annual Financial …

Answer 1439

$20,000 expense The estimated cost to dismantle the depot and remove the underground storage tanks would be expensed during the 10 years the assets were being used. Only the annual amortization of the estimated costs ($150,000 ÷ 10) plus the additional, unexpected expense $5,000 would be recognized at the end of the assets' lives.

Answer 1440

$90,000. First, add the beginning inventory and purchases in the cost column: $180,000 + $1,020,000 = $1,200,000 When seeking the lower of cost or market method for the retail method, add, in the retail column, first only the beginning inventory, the purchases, and the net markups: $250,000 + $1,575,000 + $175,000 = $2,000,000 Divide these subtotals, to get the cost-to-retail ratio: $1,200,000 ÷ $2,000,000 = 0.6 Next, from the subtotal in the retail column, subtract the sales, normal losses, and markdowns, leaving an ending inventory, at retail, of $150,000: $2,000,000 – $1,705,000 – $20,000 – $125,000 = $150,000 The final step to get the ending inventory at lower of average cost or market is to take the ending inventory at retail of $150,000 and multiply it by the cost to retail ratio of 0.6: $150,000 × 0.6 = $90,000

Answer 1441

$2,800 Spirit should report $2,800 depreciation expense for the year ending December 31, Year 6: Original cost $48,000 Depreciation Years 1-5 ($4,000 x 5 yrs.) 20,000 ------- Book value at beginning of Year 6 $28,000 Year 6 depreciation ($28,000 / 10) $ 2,800

Answer 1442

$1,300,000 Term bonds are bonds which are scheduled to be outstanding for a fixed period of time, or term. The 10% subordinated debentures are serial bonds, bonds which mature at regular intervals over a specified time period.

Answer 1443

$885,000. Since (1) assets equals liabilities plus equity and (2) the $120,000 amount of liabilities is a given, the key is to compute the December 31, 20X0, balance of equity. The transactions described affected equity as follows: Issuance of stock on 1/1/X0 $750,000 Revenues 82,000 Expenses (64,000) Declaration of cash dividend (3,000) --------- Equity 12/31/X0 $765,000 ========= Therefore, total assets must be $885,000, as shown below: Assets = Liabilities + Equity Assets = $120,000 + $765,000 Assets = $885,000

Answer 1444

$6,000 Under the installment sales method, the gross profit on sales is deferred and recognized as cash is actually collected. The gross profit percentage is the realized gain divided by the contract price. This gross profit percentage is multiplied by any cash received to determine the gain to be included in net income. Cash received in the third year $15,000 Gross profit percentage $20,000/$50,000 = 0.40 ------- Gross profit in Year 3 $ 6,000 View referenced content in book. 2251 Revenue Recognition

Answer 1445

$5,560 The first thing one needs to answer this question is the annual payment needed to pay the note. Because the note yields a higher rate (9%) than it pays (8%), the note should have a discount. Since the note has a stated rate of 8%, the annual payments will be based on the present value of an ordinary annuity based on the 8%: Thus, the annual payment is $20,000 ÷ 3.993, or $5,009 annually. The present value of the note, however, and thus the initial discount is based on the yield percentage of 9%. Therefore, the note's initial present value is the payment amount multiplied by 3.89 ($5,009 × 3.89), or $19,485. The total amount of interest revenue one earns on a note is related to the total payments and also the present value of the note, with a discount recognized here initially, on this note. The total amount to be received on this note is 5 × $5,009, for a total of $25,045. Interest is generally the amount returned over and above the amount originally recognized, which was the $19,485 originally. Thus, the total interest revenue is $25,045 - $19,485, or $5,560.

Answer 1446

$512,000 Beginning inventory $122,000 Purchases 540,000 Freight-in 10,000 -------- Cost of goods acquired 672,000 Add transportation to consignees 5,000 ------- Cost of goods available $677,000 Less ending inventory Held by Kam $145,000 Held by consignees 20,000 165,000 -------- ------- Cost of goods sold $512,000 View referenced content in book. 2251 Revenue Recognition

Answer 1447

Life insurance expense is debited for $2,000. Enterprises often carry life insurance policies on the lives of key officers and employees. If the enterprise is the beneficiary, the cash surrender value of the policy is an asset of the enterprise. The amount to be charged to expense is the amount of such premiums paid less the increase in cash surrender value during the period. *$5,000 premium less $3,000 increase in cash surrender value = $2,000

Answer 1448

I only FASB ASC 855-10-20 defines subsequent events: Quote Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. View referenced content in book. 2392 Subsequent Events

Answer 1449

Derived tax revenue Derived tax revenues result from taxes assessed on exchange transactions. The tax on hotel charges fits this description. Other examples are sales taxes, personal and corporate income taxes, and motor fuel taxes. View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 1450

Both interest expense and extraordinary items FASB ASC 280-10-50-22 states, among other things, that: Quote An enterprise also shall disclose the following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker: a. Revenues from external customers b. Revenues from transactions with other operating segments of the same enterprise c. Interest revenue d. Interest expense e. Depreciation, depletion, and amortization expense f. Unusual items as described in [FASB ASC 225-20-45-16] g. Equity in the net income of investees accounted for by the equity method h. Income tax expense or benefit i. Extraordinary items j. Significant noncash items other than depreciation, depletion, and amortization expense. (Emphasis added) The question specifies that both interest expense and extraordinary items were included in determination of segment profit. Therefore, both must be disclosed. View referenced content in book. 2390 Segment Reporting

Answer 1451

property tax revenues. The general fund is defined as the fund that should be used to account for all financial resources except those that are required to be accounted for in another fund. While at first this may seem like the General Fund is “residual” in nature, actually, as its name implies, the General Fund typically is the dominant fund within a city's financial structure. The General Fund is normally used to account for many of a city's general government activities. In most jurisdictions, property tax revenues are considered “general revenues” and so should be accounted for in the General Fund. (In contrast, major construction activities would be accounted for in Capital Projects Funds, payment of interest and principal on tax-supported debt would normally be accounted for in a Debt Service Fund, and revenues from earmarked sources to finance designated activities would be accounted for in a Special Revenue Fund.) View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1452

$50,000 The bonus payable to the CEO has been earned by the CEO as of December 31, 20X1, and should be reported as a liability in the balance sheet at that date. The company does not have a liability for dividends payable until (and unless) the board declares the dividend as anticipated on January 16, 20X2. Prior to that date, the company has no legal obligation to pay the dividend to its stockholders.

Answer 1453

$1,980,000 The government-wide statement of activities is prepared using full accrual accounting and the economic resources measurement focus, which requires revenues to be recognized when due to the government regardless of the date of receipt. The estimated collectible revenue in this case is 99% of the property tax levy, or $1,980,000. That $15,000 of the expected uncollectible $20,000 (1% of the levy) is written off does not change the revenue recognition. Property taxes are considered an “imposed nonexchange revenue.” View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 1454

a. The allowance is a contra account to AR i. Income statement approach 1. This approach estimates bad debt as a % of SALES, and it directly calculates the amount of bad debt expense ii. Balance sheet approach 1. This approach estimates bad debt allowance as a % of AR instead of sales, and it directly calculates the ending balance of the allowance account Dr. Uncollectible Accounts Expense Cr. Allowance for Uncollectible Accounts

Answer 1455

$15,000 FASB ASC 710-10-25-7 provides that “an employer is not required to accrue a liability for nonvesting accumulating rights to receive sick pay benefits…” Thus, North Corp.'s liability for compensated absences at December 31, 20X1, is $15,000 for the 150 vacation days (at $100 per day). View referenced content in book. 2261 Compensated Absences

Answer 1456

$69,000 Ambrose has already received $400,000. Because collections are expected to be $19,000 short of $470,000 ($470,000 minus $451,000), Ambrose will not receive the entire $50,000 held by the bank but only $31,000 ($50,000 less $19,000). Thus, Ambrose expects to collect a total of $431,000 for its $500,000 in receivables leaving a $69,000 loss 500 - [400 + 31] = 69,000

Answer 1457

$170,000 The contributions that donors intend to be used to finance the next year's operations are temporarily restricted support. Promises that donors intend to be used to finance current-year operations are reported as unrestricted support after deducting the uncollectible portion of the receivables. $300,000 - $100,000 = $200,000 $200,000 × 0.15 = $30,000 $200,000 - $30,000 = $170,000 View referenced content in book. 2521 Support, Revenues, and Contributions

Answer 1458

Testing in search of product or process alternatives Research and development is a process to discover new knowledge, which would include testing in search of product or process alternatives. Periodic design changes to an existing product, engineering follow-up in an early phase of commercial production, and legal work in connection with a patent application are not involved in discovering new knowledge. View referenced content in book. 2388 Research and Development Costs

Answer 1459

The financial statements required for proprietary funds such as enterprise funds, including MD&A and RS Special-purpose governments engaged only in business-type activities are required to report by presenting the financial statements required for proprietary funds (enterprise funds and internal service funds) including notes, MD&A, and RSI. View referenced content in book. 2424 Fiduciary Funds Financial StatementsI

Answer 1460

Three The economic resources measurement focus and the accrual basis of accounting are used for proprietary funds and fiduciary funds. Proprietary funds consist of enterprise and internal service funds. GASB 1300.102.b indicates both enterprise and internal service funds use accrual accounting. The pension trust fund is a fiduciary fund. GASB 1300.102.b details that fiduciary funds use the accrual basis of accounting. The current financial resources measurement focus and the modified accrual basis of accounting are used for governmental funds. The general fund, capital projects fund, special revenue fund, and debt service fund are all governmental funds. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1461

$0 Information provided supports the indirect method of computing net cash provided by operating activities. Only the increase in inventory and the decrease in accounts payable affect operating activities. The mortgage payment and the bonds issued are financing activities. The purchase of securities is an investing activity. View referenced content in book. 2135 Statement of Cash Flows

Answer 1462

$22,500 The interest expense is: Principal × Interest rate × Time In this case, it is: $1,000,000 × .09 × .25 = $22,500

Answer 1463

the cash receipts and cash disbursements of an enterprise during a period. FASB ASC 230-10-10-1 contains standards for the financial accounting and reporting of an enterprise's cash flows. This pronouncement notes: “The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an enterprise during a period.” The information provided in the statement of cash flows must be used in conjunction with the related disclosures and other financial statements to assess differences between net income and associated cash receipts and disbursements, an enterprise's ability to generate future positive net cash flows, and an enterprise's ability to meet cash operating needs. View referenced content in book. 2135 Statement of Cash Flows

Answer 1464

Current Assets / Current Liabilities Put working capital in a ratio form.

Answer 1465

$347,000. Using the indirect method, Karr computes cash flow from operating activities as follows: Reported 20X1 net income $300,000 Add depreciation expense 52,000 Deduct gain on sale of equipment ( 5,000) --------- Net Cash flow from operating activities $347,000 ========= Note All items that are included in net income that do not affect net cash provided from, or used for, operating activities such as depreciation of property, plant, and equipment and amortization of finite-life intangible assets. This includes all items whose cash effects are related to investing or financing cash flows, such as gains or losses on sales of property, plant, and equipment and discontinued operations (which relate to investing activities), and gains or losses on extinguishment of debt (which relate to financing activities). (FASB ASC 230-10-45-28) View referenced content in book. 2135 Statement of Cash Flows

Answer 1466

Increase in unrestricted revenues, gains, and other support The donation of a professional service, which the hospital would otherwise have to pay out cash for, is reportable as a donation and would increase unrestricted revenues, gains, and other support. It would also increase expense. FASB ASC 958-605-25-16 View referenced content in book. 2512 Statement of Activities

Answer 1467

Income from continuing operations, with separate disclosure (either on the face of statement or in the notes) ASB ASC 830-30-45-17 provides that: Quote It is also necessary to recognize currently in income all exchange gains and losses from remeasurement of monetary assets and liabilities. FASB ASC 830-30-45-18 states: Quote An analysis of the changes…shall be provided in a separate financial statement, in notes to the financial statements, or as a part of a statement of changes in equity. View referenced content in book. 2367 Translation of Foreign Currency Financial Statements

Answer 1468

a combining statement of fiduciary net position—fiduciary funds. Fiduciary fund information should cover all fiduciary funds of a government with a separate column for each fiduciary fund type: pension trust funds, investment trust funds, private-purpose trust funds, and agency funds. A combining statement including all fiduciary funds would not be used. Further, the agency fund does not report a statement of changes in fiduciary net position. It consists only of assets and liabilities that are reported on the financial statement date in the statement of fiduciary net position. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1469

$4,875 Non-level lease payments must be expensed on a straight-line basis. ``` Year 1 12 x $3,000 = $ 36,000 Year 2 12 x $4,500 = 54,000 Year 3 12 x $6,000 = 72,000 Year 4 12 x $6,000 = 72,000 --------- Total rent payments $ 234,000 Lease term / 48 --------- Monthly rent $ 4,875 ``` View referenced content in book. 2380 Leases

Answer 1470

retrospectively as an adjustment of the beginning-of-period balance of retained earnings of the earliest year presented. FASB ASC 250-10-45-5 mandates that voluntary changes in accounting principle be recognized using the retrospective approach, in which the cumulative effect is reported as an adjustment of the beginning-of-year retained earnings of the earliest year presented. The only exception is when the FASB issues a new pronouncement and mandates in that pronouncement that a change in accounting principle made to comply with that pronouncement should be made by including the cumulative effect in net income of the year of change. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 1471

When the underlying transaction takes place When a state (provider) shares a portion of revenues resulting from its sales tax with local governments (recipients), both provider and recipient governments should account for the event as a voluntary or government-mandated nonexchange transaction, as indicated by the specific situation. Thus, recipient governments would recognize an asset “when all eligibility requirements have been met or when resources are received, whichever is first.” Because the sharing is based on a continuing appropriation (no annual appropriation required), eligibility requirements are met as each sales transaction occurs. GASB N50.130 View referenced content in book. 2446 Nonexchange Revenue Transactions

Answer 1472

$60,000 in each of Years 1 through 5 This is a deferred compensation arrangement, and the cost of the future payments must be accrued as earned. The payments of $100,000 paid each year over three years total $300,000 and, if they are equally earned over Years 1 through 5, then they are an expense at the rate of $60,000 a year ($300,000 ÷ 5). View referenced content in book. 2262 Deferred Compensation Arrangement

Answer 1473

Estimate only the best estimate to settle and discount amounts of estimated loss to present value When a range of amounts that may be lost in a lawsuit are established, the best number in the range must be chosen to accrue. The chosen amount must always be discounted to present value. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 1474

$197,600 The receivable should initially be recorded at the spot rate on the date of the transaction. 200,000 euros × $0.988 = $197,600 View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward …

Answer 1475

Expenditure The statement of revenues, expenditures, and changes in fund balances would report all expenditures, including the expenditure of fund resources to acquire a new police car. An expense is not reported in a governmental fund because the term “expense” relates to accrual accounting and the governmental fund uses modified accrual accounting. Assets are not reported in a statement of revenues, expenditures, and changes in fund balance. Further, noncurrent assets or an asset labeled “property, plant, and equipment” would not be reported in any governmental fund financial statement that does not include noncurrent items. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1476

$85,132 The cost of equipment is the price paid to acquire it, or the value paid out (or liability taken on) in the purchase. In this case, the cost of the equipment is the $10,000 paid, plus the value of the note payable, which is the face value of $100,000, less the discount of $24,868. This gives a total cost of $10,000 + 1$00,000 – $24,868 = $85,132.

Answer 1477

A statement of financial condition and a statement of changes in net worth Personal financial statements are financial statements of individuals (or families). They are generally prepared to organize and plan financial affairs. The basic set of personal financial statements includes (1) a statement of financial condition that presents assets and liabilities at estimated current values on an accrual basis where personal net worth is the difference between total assets and liabilities, and (2) a statement of changes in net worth (optional) that shows sources of increases and decreases in net worth. FASB ASC 274-10 View referenced content in book. 2151 Personal Financial Statements

Answer 1478

The correction of a mathematical error in the calculation of prior years' depreciation The correction of an error in prior year financial statements requires restatement of the financial statements. A prior period adjustment to beginning retained earnings is required to correct the retained earnings for the error. Changes in estimates and changes in depreciation methods are accounted for prospectively. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 1479

$50,000 gain The gain or loss on the settlement of the ARO liability is the difference between the ARO liability on settlement date of $220,000 and the actual settlement cost of $170,000. FASB ASC 410-20-40-2 requires the initial liability of $100,000 to be increased to the expected cash flow adjusted for market risk and inflation. Since the expected cash payment for the ARO liability was $220,000, a gain on settlement of $50,000 results. Note Accounting for ARO liability is similar to the treatment of bonds payable. The liability is initially recorded at its present value and is amortized. Amortization is recorded with a debit to accretion expense and a credit to ARO liability. View referenced content in book. 2310 Asset Retirement and Environmental Obligations

Answer 1480

``` Beg Inventory Add: Purchases Less: Purchase returns Less: Purchase discounts Add: Freight-in ```

Answer 1481

1. Only debt investments are in this category 2. Investment is carried at AMORTIZED cost 3. Recognized interest as earned 4. Can be current or non current on balance sheet depending on maturity date

Answer 1482

A loss is recognized immediately, because assets received should not be valued at more than their cash equivalent price. In general, the accounting for nonmonetary exchanges should be based on fair value, which is the same basis as that used in monetary transactions. The asset received should be recorded at the fair value of the asset surrendered or the fair value of the asset received, whichever is more clearly evident. The difference between this fair value and the book value of the asset surrendered should be recognized as a gain or loss at the time of the exchange. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 1483

$1,085,000 Accounts receivable on January 1, 20X1 $ 650,000 Credit sales for 20X1 + 2,700,000 ------------ Subtotal $3,350,000 Sales returns for 20X1 $ 75,000 Accounts written off in 20X1 40,000 Collection from customers 2,150,000 2,265,000 --------- ------------ Accounts receivable on December 31, 20X1 $1,085,000 ============ Note The question concerned the accounts receivable account, not net accounts receivable, so estimated uncollectible accounts were not considered.

Answer 1484

$9,000 FASB ASC 830-20 (Foreign Currency Transactions) provides that a gain or loss on a forward contract is computed by multiplying the foreign currency amount of the forward contract by the difference between the spot rate at the balance sheet date and the spot rate at the date of inception of the forward contract. Hunt's reported foreign exchange gain = 300,000 British pounds x ($1.65 - $1.62) per British pound = $9,000 View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward …

Answer 1485

Charges for services The GASB has prescribed that fines and forfeitures are included in charges for services. They result from direct charges to those who are directly affected by a program or service, even though they receive no benefit. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 1486

2.0 times Inventory turnover is the relationship of cost of goods sold to average inventory. Thus, to compute it, one needs the cost of goods sold for the year and the average of the beginning and ending inventory balances. The cost of goods sold is $18,000. Beginning inventory is $6,000. Ending inventory is the beginning inventory plus purchases, less cost of goods sold, and thus ending inventory is $12,000, computed as follows: $6,000 (Beginning inventory) + $24,000 (Purchases) – $18,000 (Cost of goods sold) = $12,000 The average of the beginning and ending inventory is $9,000, computed as follows: $6,000 (Beginning inventory) + $12,000 (Ending inventory) = $18,000 $18,000 ÷ 2 =$9,000; thus, the inventory turnover is $18,000 ÷ $9,000, or 2 times.

Answer 1487

All of the answer choices are required disclosures. All of the listed disclosures are required under FASB ASC 815-10-50-1A: Its objectives for holding or issuing those instruments Its context needed to understand those objectives Its strategies for achieving those objectives View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 1488

$10,000 Net income $11,000 Unrealized loss on available-for-sales securities (3,000) Foreign currency translation adjustment 2,000 -------- Comprehensive income $10,000 Other comprehensive income includes foreign currency translation adjustments and unrealized holding gains or losses on available-for-sale securities. The change in accounting principle is an adjustment to retained earnings. The increase in common stock is not reflected in the income statement.

Answer 1489

20X2: $91,000; 20X1: $(175,000) FASB ASC 205-20-45-3 states: Quote In a period in which a component of an entity either has been disposed of or is classified as held for sale, the income statement of a business entity or statement of activities of a not-for-profit entity (NFP) for current and prior periods shall report the results of operations of the component.... The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period(s) in which they occur. The gain or loss from the disposal should be reported separately net of income tax effects, as a component of income. Loss in 20X1: $250,000 - (.3 x $250,000) = $175,000 Gain in 20X2 Gain on disposal $450,000 Loss on operations - 320,000 -------- Gain before taxes $130,000 Tax at 30% - 39,000 -------- Gain from discontinued operations $91,000 ASB ASC 205-20-45-3 goes on to state: Quote The results of discontinued operations, less applicable income taxes (benefit), shall be reported as a separate component of income before extraordinary items (if applicable). For example, the results of discontinued operations may be reported in the income statement of a business entity as follows: Income from continuing op before income taxes $XXXX Provision for income taxes XXX ----- Income from continuing operations $XXXX Discontinued operations (Note ____): Loss from operations of discontinued component X (including loss on disposal of $____) $XXXX Income tax benefit XXXX ----- Loss on discontinued operations XXXX ----- Net Income $XXXX ===== View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 1490

An overall description of the plan FASB ASC 715-20-50-1 requires that the following items be disclosed: A description of the plan's key elements, such as investment policies Components of pension expense Reconciliation of projected benefit obligation and fair value of plan assets Funded status Rates used in measuring benefit amounts (discount, return on plan assets, compensation) Best estimates of next year's contributions to the plan FASB ASC 715-20-50-1 also requires the following additional disclosures: For each annual statement of income presented, the amounts recognized in other comprehensive income, showing separately the net gain or loss and net prior service cost or credit. Those amounts shall be separated into amounts arising during the period and reclassification adjustments of other comprehensive income as a result of being recognized as components of net period benefit cost for the period. For each annual statement of income presented, the net transition asset or obligation recognized as a reclassification adjustment of other comprehensive income as a result of being recognized as components of net periodic benefit cost for the period. For each annual statement of financial position presented, the amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit costs, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation. The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the fiscal year that follows the most recent annual statement of financial position presented, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation. The amount and timing of any plan assets expected to be returned to the business entity during the 12-month period, or operating cycle if longer, that follows the most recent statement of financial position presented. Thus, the only answer choice that is not required is the overall description of the plan. View referenced content in book. 2264 Retirement Benefits

Answer 1491

$24,000 "Market" upper limit = Net realizable value = Selling price - Processing costs = $40,000 - $12,000 = $28,000 "Market" lower limit = Net realizable value - Normal profit margin = $28,000 - 10% ($40,000) = $24,000 Replacement cost is less than market lower limit, and therefore: “market” is $24,000 and this value, $24,000, is lower than the $26,000 cost. Chewy should report chocolate inventory on December 31, 20X1, at lower of cost or market of $24,000.

Answer 1492

directly on the combining statements, on divider pages or in a separate section. Narrative explanations of combining and individual fund statements should be presented on divider pages, directly on the statements and schedules, or in a separate section according to GASB 2200.211. Notes to the financial statements, RSI, or MD&A are not options for locating these narratives. View referenced content in book. 2428 Combining Statements and Individual Fund Statements …

Answer 1493

$10,000 Fundraising activities include publicizing and conducting fundraising campaigns, maintaining donor lists, conducting special fundraising events, preparing and distributing fundraising manuals and other materials, and other activities involved with soliciting contributions. Membership development activities are separate from fundraising activities when members receive significant benefits. The presence of member benefits is indicated by the brochure. FASB ASC 958-720-45-9 and 45-11 View referenced content in book. 2512 Statement of Activities

Answer 1494

$243,150 FASB ASC 840-10-25-41 requires use of the interest rate implicit in the lease when: this rate can be determined and the implicit rate is less than lessee's incremental rate. Present value of NINE lease payments at December 31, 20X1 (at implicit rate) $316,500 Less December 31, 20X1 payment 50,000 -------- PV of lease obligation at beg of 20X2 $266,500 Add 20X2 interest at 10% (.10 x 266,500) 26,650 -------- Lease obligation prior to 12/31/X2 payment $293,150 Less December 31, 20X2, payment 50,000 -------- Capital lease liability on 12/31/X2 balance sheet $243,150 ======== View referenced content in book. 2380 Leases

Answer 1495

Debit encumbrances control Encumbrance entries are recorded in budgetary accounts to prevent overspending of appropriations and to assure compliance with budget authorizations. Encumbrances are recorded when purchase orders are approved for goods or services based on their estimated costs as follows: Encumbrances--Control DR Fund Balance--Reserve for Encumbrances CR When the purchase order is filled, the encumbrance entry is reversed and an expenditure for the actual liability incurred is recorded. An alternative to the “Fund Balance —Reserve for Encumbrances” account is to simply use “Reserve for Encumbrances.” View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1496

$6,000 Sales for 20X1 $60,000 Less: Collections in 20X1 $35,000 Accounts written off in 20X1 5,000 40,000 ------- ------- Uncollected Sales on 12/31/X1 $20,000 Times gross profit rate x 0.30 ------- Equals deferred gross profit on 12/31/X1 $ 6,000 ======= View referenced content in book. 2251 Revenue Recognition

Answer 1497

As a component of income from continuing operations FASB ASC 250-10-45-18 requires that whenever a change in accounting principle is inseparable from a change in an accounting estimate, the change should be considered as a change in estimate. Changes in estimates are handled prospectively. That is, previously reported information in previous financial statements is not adjusted, nor is a cumulative effect of the change reported. Prospective treatment only requires utilization of the change(s) in the current period as it effects the current period's income. It is part of income from continuing operations because no special disclosure is required on the face of the income statement under the prospective approach. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 1498

An expense and liability of $10,000 is recognized. KLU has incurred expenses for travel and lodging and has a corresponding liability for unearned revenue. The revenue from providing advertising time is not earned and cannot be recognized as revenue until the advertising time actually has been provided for Hotel Co. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 1499

Current financial resources Governmental funds specifically address current financial resources. While similar to the concept of working capital, which covers current assets and liabilities, it is different. The accounting in governmental funds typically follows a budget. The assets that can be spent are grouped with the appropriate liabilities. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1500

year 20X1, and following years only. FASB ASC 715-30-35-10 requires that prior service cost be included in pension expense in the year of the plan amendment (including initiation of a plan) in the year of the amendment and the future years of service of each employee active at the date of the amendment who is expected to receive benefits under the plan. Thus, Tern's prior service cost will be recognized in pension expense (reflected in Tern's income statement) in 20X1 and the future period of service of each employee active at the date of the amendment who is expected to receive benefits under the plan. The unrecognized prior service cost should be reflected in the accumulated other comprehensive income included in the stockholders' section of Tern's December 31, 20X1, balance sheet. View referenced content in book. 2264 Retirement Benefits

Answer 1501

Credit interfund revenues Modified accrual and encumbrance accounting are features of governmental fund accounting. Internal service funds, one of the two kinds of enterprise funds that use accrual accounting, account for those activities that one department within a government undertakes for the benefit of (1) other departments within that same government (usual case) and (2) (sometimes) other governments, at predetermined prices. Billings to departments within the same government are considered “interfund services provided and used.” Thus, the normal, ongoing activities of an internal service fund result in interfund/intergovernmental receivables (debits) and operating revenues (credits). The receivable is often recorded as a “due from ________ fund.” The operating revenues may be subclassified, as in the case of this problem, as “interfund” or “intergovernmental.” Deferred revenue can mean cash received before the correct time period for the revenue, or a receivable for current revenue not received as cash until later. The latter interpretation is the definition used for this question. View referenced content in book. 2445 Interfund Activity, Including Transfers

Answer 1502

neither the cash paid to the seller nor the face amount of the bond. If the investor buys a bond at a discount, then the bond will be carried at the discount price initially, which is below the face amount of the bond. However, if the investor buys a bond between interest payment dates, the investor will pay (in part) for the already accrued interest that the investor will soon receive back. Thus, the carrying amount of the bond will actually be less than the total the investor pays to acquire the bond, both its discount price plus the amount paid for the interest receivable.

Answer 1503

When the transaction lacks commercial substance A nonmonetary exchange is generally measured based on the fair market value of the assets exchanged. If the exchange lacks commercial substance, the asset is measured at its book value before the exchange. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 1504

potential common shares of the parent for consolidated diluted EPS. Securities of a subsidiary that are convertible into parent company's common stock are potential common shares for diluted EPS. View referenced content in book. 2335 Earnings per Share

Answer 1505

Unrestricted net assets FASB ASC 958-225-45-7 states that “a statement of activities shall report expenses as decreases in unrestricted net assets.” Total net assets is comprised of all three net asset classes. Temporarily restricted and permanently restricted net assets report revenues and reclassifications, but not expenses. View referenced content in book. 2512 Statement of Activities

Answer 1506

II only Insurance recoveries normally will be reported on the statement of cash flows as cash flows from investing activities. However, on the statement of activities certain transactions involving collection items not capitalized are reported separately from items of revenues, gains, expenses, and losses. One possible presentation format would be a separate section captioned “Change in Net Assets Related to Collection Items Not Capitalized.” Types of transactions contained therein would be proceeds from sale of collection items, collection items purchased but not capitalized, and proceeds from insurance recoveries on destroyed or stolen collection items. View referenced content in book. 2513 Statement of Cash Flows

Answer 1507

As an asset of $10,000 and a liability of $4,000 Grove City's special revenue fund would have an asset equal to the amount “due to special revenue fund from the general fund.” The amount “due to agency fund from special revenue fund” is a liability of the special revenue fund. It is not acceptable to “net” these two accounts. View referenced content in book. 2445 Interfund Activity, Including Transfers

Answer 1508

$2,675,000 The lessee should capitalize the present value of the minimum lease payments. The minimum lease payments in this lease were the seven annual beginning-of-the-year payments of $500,000 each. There was not a bargain purchase option, and the lessee did not guarantee any portion of residual value. The amount that should be capitalized is the $500,000 annuity payment times the present value of an annuity due for seven years (5.35), or $2,675,000. View referenced content in book. 2380 Leases

Answer 1509

An interest expense that is greater than the cash payment made to bondholders Interest expense is Carrying amount × Effective interest rate. Cash payment amount is Face amount × Stated interest rate. In this example, the stated rate is less than the effective rate, so the cash payment is less than the interest expense.

Answer 1510

The net change in the actuarial present value of accumulated plan benefits. The statement of changes in net assets must include the following: The change in fair value of each significant type of investment Investment income Contributions from employers Contributions from participants Contributions from other identified sources Benefits paid to participants Payments to insurance entities to purchase contracts Administrative expenses

Answer 1511

Increase in permanently restricted net assets When investments are donated and the principal of those funds cannot be expended, those investments are permanently restricted. Therefore, Alpha must record an increase in its permanently restricted net assets. View referenced content in book. 2511 Statement of Financial Position

Answer 1512

Not-for-profit voluntary health and welfare entities are not subject to SEC governance and so are not required to adopt IFRS The SEC is leading the IFRS adoption in the United States for publicly traded entities. Currently adoption of IFRS in not-for-profit voluntary health and welfare entities is not required. View referenced content in book. 2501 Not-for-Profit (Nongovernmental) Accounting and …

Answer 1513

LCM is applied to inventory no matter what cost assumption is being used. Just remember that for the ASU 2015-11 update, the new method of not using a ceiling and floor and just NRV only applies to FIFO or average cost, NOT LIFO or the retail inventory method. If market price for the inventory is less than the cost on the books, the inventory is impaired and must be written down.

Answer 1514

$2,000 Under the cost method, the shares bought back are recorded in the treasury stock account at cost. When reissued at more than this cost, the difference is recorded as paid-in capital from treasury stock transactions. Therefore, the paid-in capital from treasury stock transactions is ($10 - $6) × 500 shares, or $2,000. View referenced content in book. 2250 Equity

Answer 1515

$24,000 Annual dividend requirement on preferred = $100 × .06 = $6/share × 20,000 shares = $120,000. Preferred dividends paid in 20X2: 20X1 cumulative dividends $120,000 20X2 regular preferred dividends 120,000 -------- Total dividends paid for 20X2 $240,000* x 2,000 sh / 20,000 shares, Wood Co. x 0.10 -------- $ 24,000 * The preferred stock dividend pays all required dividends in full. Note The 5% common stock dividend is not income. The increased number of shares simply serves to divide the total equity into smaller units. View referenced content in book. 2250 Equity

Answer 1516

$4,000 Under the cost method, dividends are recorded as income (revenue) when the dividend is declared. Dividend income for 20X1 = Dividends from Bow Corp. = .02 x $200,000 = $4,000 Note The investment in Seco, Inc., would be accounted for using the equity method so the dividends would be treated as “recovery of investment.” Under the equity method, a proportionate share of income is recognized “as earned.” The liquidating dividend from King Co. is not income, but rather a return of investment to owners.

Answer 1517

As an expenditure The acquisition of capital assets with general fund financial resources should be recorded as a general fund expenditure. The capital asset itself is not recorded in the general fund (or any other governmental fund). Because the general fund uses the current financial resources measurement focus, long-lived assets are not recorded or capitalized. Because the general fund recognizes expenditures when a fund liability occurs, depreciation is not recorded. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1518

I and III only FASB ASC 740-10-50-6 requires that a “public entity shall disclose the approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets (before allocation of valuation allowances)”. FASB ASC 740-10-50-8 states that a “nonpublic entity shall disclose the types of significant temporary differences and carryforwards but may omit disclosure of the tax effects of each type.” FASB ASC 740-10-50-3 states, “An entity shall disclose…the amounts and expiration dates of operating loss and tax credit carryforwards for tax purposes…” There is no requirement to disclose permanent differences. View referenced content in book. 2270 Income Taxes

Answer 1519

Both I and II Receipts deriving from a not-for-profit entity's ongoing major or central activities or operations are considered revenues. Revenues for health care organizations include fees charged for patient care. Both room and board fees for patients and recovery room fees represent revenues from services provided to patients or residents. FASB ASC 958-605-25-2 View referenced content in book. 2450 Accounting and Reporting for Governmental Not-for-…

Answer 1520

program revenues. Programs are financed with program revenues and general revenues. Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government's general revenues. Financing from outside parties that is restricted to a specific program or programs is considered program revenue. GASB 2200.135 View referenced content in book. 2421 Government-Wide Financial Statements

Answer 1521

$6,000 Taxable amount of rental payment $40,000 Less book amount of rental payment (6/12 x $40,000) -20,000 ------- Temporary difference $20,000 Times tax rate applicable to future period(s) x 0. 30 Deferred tax asset = $ 6,000 View referenced content in book. 2270 Income Taxes

Answer 1522

$758,300 The balance on December 31 should be $1,000,000 less the payment of principal made on December 30. 9/30 Balance $1,000,000 Payment 264,200 Interest* (22,500) 241,700 12/31 Balance 758,300 * $1,000,000 × 9% × 1/4 * VIDEO EXPLANATION 264,200 x 4 = 1,056,800 -1,000,000 -------------- 56,800 $264,200 payment = some of it are principal and some of it are interest payments How much of this is principal and how much is interest payment so we can deduct the principal from 1,000,000 to get to our ending note payable!! So the way we do that: 1,00,000 x 9% = $90,000 If we were to have this $1m outstanding for a whole year at 9%, we would pay $90,000 of interest. However we are only looking at a quarter (3 months) so: 90,000 x 3/12 = 22,500 amount of interest we pay that is a part of 264,200 that we pay so: 264,200 - 22,500 = 241,700 principal 1st pmt ---> 1,000,000 NP - 241,700 principal pmt we've made = $758,300 Ending balance as of December What we need to remember for Note Payable is we're reporting it SEPARATE from the amount of interest payable. Liability separate from note payable.

Answer 1523

Between liabilities and net worth FASB ASC 274-10-45-12 specifies that: Quote Estimated income taxes shall be presented between liabilities and net worth in the statement of financial condition. View referenced content in book. 2151 Personal Financial Statements

Answer 1524

total net position. The government-wide statement of activities explains changes in total net position. Retained earnings, net income, and equity are terms that apply to for-profit entities. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 1525

before any cumulative effect of accounting changes and after discontinued operations. An extraordinary item (a transaction that is both unusual in nature and infrequent in occurrence) should appear after discontinued operations and before any cumulative effect of accounting changes. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 1526

20X3 interest revenue recognized; 20X3 amount recognized smaller than 20X2 JCK is the lessor. The principal issue is whether the lease is an operating lease or qualifies as a “capital type” lease (either direct financing or sales-type). To qualify as a “capital type” lease, it first must meet one of the four criteria specified in FASB ASC 840-10-25-1 applicable to lessees. One of those criteria is that the lease is a capital lease if the lease term is 75% or more of the estimated economic life of the lease property. Since the 8-year lease term is 80% of the estimated economic life (8 years ÷ 10 years), at least one of those four criteria is met. In addition, a lessor must apply two additional criteria: collectibility of the minimum lease payments must be reasonably predictable and no important uncertainties can surround the amount of unreimbursable costs yet to be incurred by the lessor under the lease. There is no evidence in this case that these latter two criteria are not met. Thus, JCK should account for the lease as a “capital type” lease (either direct financing or sales-type). Whether it qualifies as a direct financing lease or as a sales-type lease in this particular case does not matter. In either case, the receipt of the payments will be accounted for under the interest method, which means that the portion of the equal semiannual payments received is recognized as interest revenue each year and the amount recognized in 20X3 will be less than that recognized in 20X2. If the lease had been an operating lease, the payments received would have been recognized as rent revenue (rather than interest revenue) and would have been the same each year. View referenced content in book. 2380 Leases

Answer 1527

All of the answer choices are true statements regarding the hybrid method. The hybrid method is a combination of the cash and accrual methods. Generally, a company using the cash method must use the accrual method for the accounts involved in computing cost of goods sold and gross profit if inventory is a material income-producing factor. The cash method can be used for all other accounts.

Answer 1528

20% of Sago's net income to June 30 and 95% of Sago's net income from July 1 to December 31, 20X3 According to FASB ASC 805-10-25-10, “In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in earnings.” According to FASB ASC 810-10-45-5, the acquirer's financial statements for the period should include only the cash inflows and outflows, revenues and expenses, and other effects of the acquiree's operations after the acquisition date. Based on this doctrine, Phillips would accrue 20% of Sago's net income to June 30, 20X3, and 95% (20% + 75%) of Sago's net income for the remainder of the year. View referenced content in book. 2325 Miscellaneous Problem Areas

Answer 1529

prospectively. FASB ASC 250-10-45-5 requires that changes in depreciation methods be accounted for prospectively. Accordingly, the carrying amount (book value) of the machine at January 1, 20X2, should be depreciated over the remaining life of the machine. At January 1, 20X2, the carrying amount is $40,000 (i.e., $50,000 acquisition cost less $10,000 accumulated depreciation), which should be depreciated over the remaining 50,000 machine hours at a rate of $.80 per machine hour (i.e., $40,000 ÷ 50,000 hours = $.80). The depreciation amount to be recognized in 20X2 is the number of machine hours used in 20X2 × $.80. View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 1530

Expensed computer software costs Estimates are a necessary part of the preparation of financial statements. It is necessary to explicitly communicate to the users of the financial statements that estimates have been used and that many of the amounts reported are approximations rather than exact amounts. This understanding should help users to make better decisions. (FASB ASC 275-10-05-6) Certain significant estimates are those estimates involving a situation where it is reasonably possible that the estimate will change in the term and the effect of the change will be material. Disclosure must include the nature of the uncertainty and an indication that it is at least reasonably possible that this change in the estimate will occur in the near term. (FASB ASC 275-10-50-8) Examples of items that might require disclosure under this topic include the following (FASB ASC 275-10-50-15): - Inventory subject to rapid technological obsolescence - Specialized equipment subject to technological obsolescence - Environmental remediation-related obligations - Contingent liabilities for obligations of other entities - Amounts reported for long-term obligations, such as amounts reported for pension and postemployment benefits - Estimated net proceeds recoverable, the provisions for expected loss to be incurred, or both, on disposition of a business or assets View referenced content in book. 2389 Risks and Uncertainties

Answer 1531

$32,000 Interest expense for 20X2 $85,000 Less: Interest paid in 20X2 -68,000 ------- Increase in accrued interest $17,000 Add: December 31, 20X1, accrued balance 15,000 ------- Accrued interest on December 31, 20X2 $32,000 =======

Answer 1532

understated by $60,000 Cost of merchandise = Sales price / Markup + 100% = $75,000 / 1.25 = $60,000 Since the sale was not recorded until January 5 and the merchandise was included in Astor's inventory, Astor's cost of goods sold was understated by this $60,000 amount.

Answer 1533

Net credit sales / Average AR, net

Answer 1534

In the period received at fair value Unconditional contributions, whether promised or received as cash, are recognized as revenue in the period received. Contributions revenue should be measured at fair value, not donor's book value. Donor intentions to give, rather than unconditional promises, are not considered revenue. FASB ASC 958-605-25-2 and 30-2 View referenced content in book. 2511 Statement of Financial Position

Answer 1535

continuity. The basic accounting principle that states that an entity is assumed to have a life that is indefinite or at least sufficiently long for it to accomplish its objectives and fulfill its legal obligations is the principle of continuity or going concern. The principles of periodicity, separate entity, and consistency support other accounting practices. View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 1536

$7,500 gain Gains and losses arising from foreign currency transactions (“transactions denominated in a currency other than the functional currency”) “arise when monetary assets and liabilities (such as the account receivable in this question) are denominated in a currency other than the functional currency and the exchange rate between the currencies changes.” These changes “increase or decrease expected functional currency cash flows” and “shall be included in determining net income for the period in which the exchange rate changes” (i.e., the receivable is revaluated at the spot rate at year-end and again when the payment is received). Thus, Cano would revalue the receivable at $.19/franc and report a $2,500 ($250,000 × (.19 - .20)) foreign transaction loss at December 31, 20X1. Then, in its 20X2 income statement, Cano again revalues the receivable (from $.19 to $.22) and reports a $7,500 gain ($250,000 × (.22 - .19)). View referenced content in book. 2362 Foreign Currency Transactions Other Than Forward …

Answer 1537

The STATED RATE: this is the rate in the note and determines the actual cash payment of interest each period. The EFFECTIVE RATE or YIELD RATE: is the market rate of interest. If the note is to be reported at present value, then you use the effective rate. Stated rate Effective rate = premium - adjunct account to the note - amortized over the life of the note - decreases the liability of the note

Answer 1538

365 / *Inventory turnover *Inventory turnover = COGS/Avg Inv This measures the average number of days inventory is sold or used.

Answer 1539

$38,000 Straight-line rate for 5-year life = 1/5 = 20% 200% double-declining rate = 200% x Straight-line rate = 2.00 x 20% = 40% 20X0 depr (40% x $50,000) $20,000 20X1 depr (40% x ($50,000 - $20,000)) 12,000 20X2 depr (1/3 x ($50,000 - $20,000 - $12,000)) 6,000 ------- Total accu depr on Dec 31, 20X2 $38,000 ======= Note In the third year the remaining useful life (here, three years) is used to compute the straight-line depreciation rate (here, 1/3) on the remaining depreciable value. Assume no salvage value.

Answer 1540

A decrease in the liabilities of the entity An underfunded pension plan means the projected benefit obligation (liability) exceeds the fair value of the plan assets and is shown as a liability. An increase in the asset value reduces the net liability of the entity. View referenced content in book. 2264 Retirement Benefits

Answer 1541

Bonds that can be matured before the maturity date a specified price

Answer 1542

$50,000 Because Macklin had performed all services required to earn the initial franchise fee, the refund period had passed, and operations were started in the current year, it should recognize all of the initial franchise fee as revenues unless collectibility of the $40,000 receivable is not reasonably assured. The question does not raise any concerns about collectibility of the receivable. View referenced content in book. 2112 Financial Accounting Standards Board (FASB)

Answer 1543

A long-term liability A long-term liability is a liability scheduled to mature beyond one year. As of the end of the reporting period, it is clear that Taylor intends to refinance the debt and that it is scheduled to mature in three years. Consequently, it should be classified as a long-term liability.

Answer 1544

$53,050 We have no way of finding the unadjusted ending month balance per books in the cash account, but we can find the corrected ending cash balance from the information given by starting with the ending bank balance. The ending bank balance is $54,200 and when we add the deposits in transit and subtract outstanding checks from this balance, we should have the corrected ending balance. Thus, starting with $54,200 and adding the $350 deposit in transit, and then subtracting the $1,500 checks outstanding, we get $53,050. The other items would be adjustments to unadjusted ending cash balance, which we do not have, the check error being the company's error, not the bank's error.

Answer 1545

$7.00. The book value of common stock is $7.00/share, calculated as follows: Book value/sh = Total Equity - Liq value to preferred /No. shares common stock outstanding $1,025,000(a) - $325,000(b) = ------------------------------------------- 100,000 shares $700,000 = -------------- 100,000 shares = $7.00/share a Total SHE = $250,000 + $350,000 + $125,000 + $300,000 = $1,025,000 b Preferred value = Par + Premiums + Dividends in arrears = $250,000 + $50,000 + $25,000 = $325,000

Answer 1546

$3.79 Basic earnings per share (EPS) is net income divided by weighted-average common stock outstanding (WACSO). Net income must be reduced by preferred cumulative dividends. Net income - Preferred cumulative dividend = $236,000 - ($600,000 × 0.04) = $212,000 WACSO = 50,000 shares + (8,000 shares × 9/12) = 56,000 shares Basic EPS = $212,000 ÷ 56,000 shares = $3.79/share View referenced content in book. 2335 Earnings per Share

Answer 1547

$75,800 A lessee under a capital lease is required to allocate each minimum lease payment between reduction of obligation and interest expense. This allocation should reflect a constant interest rate (the 10% indicated for the Mars Co. lease) over the lease term. The journal entry to record Mars' December 31, 20X1, payment would be: Dr. Cr. Interest expense (10% of $758,000) 75,800 Liabilities under capital lease ($200,000 - $75,800) 124,200 Cash 200,000 View referenced content in book. 2380 Leases

Answer 1548

2. Or, they make it easy by saying something like, “ABC issued $100,000 of bonds at 97”. This means they issued the bonds at a discount, and you multiply 100,000 by .97 to get the present value of the bond price a. Bonds issued at “102 or 103, etc” just mean there is a premium and you would multiply the bond price by 1.02 or 1.03 to get the present value 3. When you’re figuring out interest payments and amounts, keep track of your dates and the number of payments each year. a. If the stated rate is 10% and there is an interest payment twice each year, remember to either use 5% (half of 10) to get the payment, or to multiply the face amount by 10% and then divide it in half to get each payment b. If bonds are issued on something like Oct 1 and they ask you what the interest expense for the year was, remember that it’s only 3 months instead of 6 or 12. Keep the dates in mind and the # of months that are applicable to the question they are asking.

Answer 1549

Yes, as long as the design is likely to be feasible and marketable or profitable to use internally for future production Once a development project reaches the stage of a working model or prototype, and is found to be technologically feasible and financially affordable to complete, then it can be capitalized, and additional development costs added to its cost on the company books. The asset can be intended for sale or internal use, so long as it is expected to be valuable for that purpose.

Answer 1550

Fair value with gains and losses reported in the statement of activities Investments should be reported at fair value on the statement of financial position with gains and losses reported on the statement of activities as a change in net assets. View referenced content in book. 2521 Support, Revenues, and Contributions

Answer 1551

$9,000 FASB ASC 274-10-35-9 provides that assets be reported at their estimated current values. Specifically regarding life insurance: Quote The estimated current value of an investment in life insurance is the cash value of the policy less the amount of loans against it. Barton's reported investment in life insurance: $12,000 - 3,000 -------- $9,000 View referenced content in book. 2151 Personal Financial Statements

Answer 1552

$1,710,000 Goods shipped FOB shipping point in transit at the end of the period are considered the buyer's and should be included on the buyer's records. The goods in the shipping area were not in transit and therefore should be included in inventory. Inv on Dec 31, 20X1, per physical count $1,500,000 Unrecorded purchase (in transit) 90,000 Goods *not "sold" Dec 31, 20X1 (not shipped) 120,000 ---------- Adjusted inventory on Dec 31, 20X1 $1,710,000 ========== *If goods were shipped, then the 120,00 would not be included since the customer will incur the cost!!

Answer 1553

Capitalize; depreciation is required. Proprietary funds (including enterprise funds and internal service funds) are reported using the economic resources measurement focus and the accrual basis of accounting. Essentially, this means they are reported using a revenue and expense model. In this model, equipment is recorded and reported as capital assets (the term used for fixed assets in government reporting). Because expenses are reported, depreciation expense must be calculated and reported. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1554

Debit expenditures control. Modified accrual and encumbrance accounting are features of governmental fund accounting. In this instance, the receipt of supplies and approval of the related invoices indicate that an expenditure and a liability should be recorded in the governmental fund which is to pay for the supplies. Any encumbrance entry previously recorded for the supplies should be reversed (credit encumbrance control). View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1555

Extraordinary item The loss from the hurricane would be an extraordinary item in accordance with FASB ASC 225-20-45-2. Gains and losses must meet both criteria of being unusual in nature and infrequent in occurrence to be classified as extraordinary. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 1556

$45,000 The losses on the investment previous to this year have already been recognized in earnings. The losses from this year up until the reclassification from trading to available for sale (from $575,000 at the end of last year down to $530,000 when the reclassification was made) of $45,000 are recognized as a loss in earnings this year. Any loss after that goes into other comprehensive income. *So the loss from June 30,00 from $530,000 to $490,000 = $40,000 is recognized as loss into other comprehensive income.

Answer 1557

Carlton's income statement will have to be revised to include the earnings per share data. FASB ASC 260 requires that earnings per share be presented on the face of the income statement of publicly held enterprises. View referenced content in book. 2335 Earnings per Share

Answer 1558

Between liabilities and net worth FASB ASC 274-10-45-12 specifies that: Quote Estimated income taxes shall be presented between liabilities and net worth in the statement of financial condition.

Answer 1559

$0 After an impairment loss is recognized, the reduced carrying amount of the asset should be treated as the new cost and the restoration of the impairment is not recognized. View referenced content in book. 2370 Impairment

Answer 1560

$0 Indefinite life intangibles are not amortized. They must be tested for impairment each year to determine if their value has been impaired. If fair value of an indefinite life intangible is less than book value, the asset is impaired. When this occurs, an impairment loss is recognized and the asset is written down to its fair value. Amortization expense is never reported on indefinite life intangibles, however.

Answer 1561

$250,000 FASB ASC 470-10-45-14 states that a short-term obligation should be excluded from current liabilities if: Quote After the date of an enterprise's balance sheet but before that balance sheet is issued, a long-term obligation or equity securities have been issued for the purpose of refinancing the short-term obligation on a long-term basis… Based on this requirement, Largo, Inc., should exclude $500,000 ($750,000 less the $250,000 prepayment) of the note payable—the amount refinanced—from current liabilities. Thus, $250,000 of the note payable, which was paid on January 12, 20X2, would be included in current liabilities on December 31, 20X1. The 250,00 was paid on January 12, 20X2 BUT the question was asking the current liabilities for December 31, 20X1!!

Answer 1562

$17,000 Using the basic accounting equation, Beginning balance + Additions - Deletions = Ending balance: Bonds payable on 12/31/X1 (beginning inventory) $47,000 Plus bonds issued in 20X2 20,000 ------- Subtotal 67,000 Less bonds payable on 12/31/X2 (ending inventory) 50,000 ------- Bonds redeemed in 20X2 (presumably for cash) $17,000 =======

Answer 1563

Option (Futures Contract) 200,000 Unrealized holding gain-equity 200,000 Since the price of gold has risen, the value of the futures contract (the derivative) increased in value. Since the contract was a 6-month contract, it expires on December 31, 20X1, and has a fair value just before it expires of $200,000 ($4,200,000 price of gold at December 31, 20X1, less $4,000,000 contract price of the futures contract). That $200,000 increase in fair value of the derivative results in a debit to the Futures Contract account (an asset) of $200,000 and a credit to unrealized gain of $200,000. Since the futures contract serves as a hedge of an “anticipated” transaction (the probable purchase of 10,000 ounces of gold on January 1, 20X2), if it satisfies all other conditions for a hedge, the derivative represents a cash flow hedge rather than a fair value hedge. Accordingly, the unrealized gain of $200,000 would be included in other comprehensive income rather than in net income. View referenced content in book. 2355 Derivatives and Hedge Accounting

Answer 1564

$145,000 Total capital prior to admission of Capp = $348,000 + $232,000 = $580,000. Since Capp is contributing an amount exactly equal to 20% of final capital, the $580,000 represents 80% of final capital. Final capital = $580,000 / .80 = $725,000 Less Alfa and Beda capital 580,000 -------- Contribution to be made by Capp $145,000

Answer 1565

78 Days' sales in inventory = (Average inventory ÷ Cost of goods sold) × Working days per year: (($336,000 + $288,000) ÷ 2) ÷ $1,200,000 = 0.26 0.26 × 300 days = 78 days View referenced content in book. 2137 Consolidated and Combined Financial Statements

Answer 1566

Date of grant Both the intrinsic value method and the fair market value method use the grant date to measure the cost for stock issued to employees. View referenced content in book. 2265 Stock Compensation (Share-Based Payments)

Answer 1567

$87,000. Reported net income $74,100 Add back: Unrealized loss on investments available-for-sale (Note 1) 5,400 Prior period correction (Note 2) 7,500 ------- Corrected net income $87,000 ======= FASB ASC 225-20-45-2 states, “Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Thus, both of the following criteria shall be met to classify an event or transaction as an extraordinary item: “Unusual nature. The underlying event or transaction should possess a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity, taking into account the environment in which the entity operates… “…The underlying event or transaction should be of a type that would not reasonably be expected to recur in the foreseeable future, taking into account the environment in which the entity operates.…” FASB ASC 320-10-45-8A specifies that unrealized losses from investments classified as available-for-sale be included in other comprehensive income, but not in net income. FASB ASC 250-10-05-4 states that the correction of an error in financial statements of a prior period should be accounted for and reported as a prior period adjustment and should not affect income of the current period. The loss from fire is not an extraordinary item; however, it remains in the net income statement regardless of whether or not it is extraordinary. Items that are unusual in nature or infrequent in occurrence (but not both) are to be presented as a separate line item of income from continuing operations. Also, the fact that it is listed net of tax is irrelevant to how it is presented in the income statement, as tax would also be shown in income—not simply netted to the loss. The gain on early retirement of bonds payable is part of the income statement, so it is not adjusted out of the reported net income of $74,100.

Answer 1568

at estimated fair value when received. This question refers to one of the fundamental governmental accounting and financial reporting principles. GASB 1100.106 states, “Donated capital assets should be recorded at their estimated fair value at the time of acquisition plus ancillary charges, if any.” View referenced content in book. 2443 Capital Assets and Infrastructure Assets

Answer 1569

$146,000. Under the circumstances, the changes in the useful life and salvage value require new calculation of depreciation expense using the new estimation: Depreciation for 20X1 - 20X3 = ($264,000 / 8) x 3 years = $99,000 Carrying value at 1/1/X4 = ($264,000 - $99,000) = $165,000 Depreciation for 20X4 = ($165,000 - $24,000) / 3 years = $141,000 / 3 years = $47,000 Accumulated depreciation on 12/31/X4 = $99,000 + $47,000 = $146,000 Note FASB ASC 250-10-45-17 provides that the effects of a change in accounting estimates be accounted for in the period of change and future periods (prospective treatment). View referenced content in book. 2305 Accounting Changes and Error Corrections

Answer 1570

$195,700. Payment made at the beginning of a period is an annuity in advance. Thus, Ashe Corp. should use the following computation: 5.1100z = $1,000,000 z = $1,000,000 / 5.1100 z = $195,695 (rounded to $195,700) ``` where: z is the amount of deposit Future value is $1,000,000 Periods of future value is 4 Future value of annuity in advance of 1 at 10% for 4 periods is 5.1100 ```

Answer 1571

Hake will record a loss of $73,000 on the redemption of the bonds. Hake suffered a loss of $73,000 on the redemption of the bonds. The journal entry for the extinguishment of the debt would appear as follows: June 30, 20X1 Dr. Cr. Loss 73,000 Bonds Payable 1,000,000 Cash 1,020,000 Bond Discount 53,000 To record the redemption of bonds payable at 102. The semiannual interest payment which was made by Hake for June 30, 20X1, was $40,000 ($1,000,000× .08÷2). The interest expense was $47,000 ($940,000 × .10 ÷ 2) using the effective interest rate method. The amortization of bond discount was $7,000 ($47,000 - $40,000). The unamortized bond discount as of June 30, 20X1, was $53,000 given that the unamortized bond discount on January 1, 20X1, was $60,000 ($1,000,000 - $940,000). The carrying amount of the bonds as of January 1, 20X1, ($940,000) was given in the question. * VIDEO EXPLANATION - Only been outstanding for 6 months. Issued on January 1st and redeemed on June 30th. - Look at notes!! (Amortization table)

Answer 1572

IFRS is more principles-based than U.S. GAAP. The U.S. generally accepted accounting principles (GAAP) are a very rule-based set of standards. The International Financial Reporting Standards (IFRS) tend to be based on principles rather than rules.

Answer 1573

Income statement In discussing the financial statements for not-for-profit entities (NFPs), the FASB Codification states a “statement of activities for NFPs is the financial statement that an NFP issues instead of a business entity's income statement.” FASB ASC 958-225-05-1 View referenced content in book. 2512 Statement of Activities

Answer 1574

20X1: $125,000; 20X2: $50,000 FASB ASC 360-10-35-40 provides that when an entity is classified as held for sale, the unit must be written down to the fair value, so “a loss shall be recognized for any initial or subsequent write-down to fair value less cost to sell.” Wand's 20X1 loss from operations is $100,000 and the write-down to FMV is $25,000 and is reported in 20X1. The operating loss in 20X2 is $50,000, so Wand would report a $50,000 loss from discontinued operations before income taxes in 20X2. FASB ASC 205-20-45-3 states: Quote The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period(s) in which they occur. The results of discontinued operations, less applicable income taxes (benefit), shall be reported as a separate component of income before extraordinary items (if applicable). For example, the results of discontinued operations may be reported in the income statement of a business entity as follows: Income from continuing op before inc taxes $XXXX Income taxes XXX ----- Income from continuing operations (a) $XXXX Discontinued operations (Note X): Loss from operations of discontinued component X (including loss on disposal of $XXX) $XXXX Income tax benefit XXXX ----- Loss on discontinued operations XXXX ----- Net Income $XXXX ===== (a) This caption should be modified appropriately when an entity reports an extraordinary item. If applicable, the presentation of per-share data will need similar modification. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 1575

All of the answer choices are necessary. If a computer software arrangement does not require significant production, modification, or customization of software, revenue shall be recognized when all of these criteria are met. FASB ASC 985-605-25-3 View referenced content in book. 2391 Software Costs

Answer 1576

projected benefit obligation. The service cost component is the portion of pension expense that represents an estimate of the increase in pension benefits payable (specifically, the increase in the projected benefit obligation) as a result of employee services rendered in the current period. View referenced content in book. 2264 Retirement Benefits

Answer 1577

manufacturing overhead Manufacturing overhead should be included in the cost of manufactured goods. Interest costs should not be capitalized to inventories manufactured routinely in large quantities.

Answer 1578

$14,500 The sale was for $80,000, but a 10% commission of $8,000 was paid, so the net revenue was $72,000. The cost of the goods sold was 2/3rds of cost and freight of $72,000 and $7,500 (2/3rds of $79,500, or $53,000). The gross profit would be $72,000 less $53,000, or $19,000. The net profit is gross profit less the advertising of $4,500, thus $14,500. View referenced content in book. 2251 Revenue Recognition

Answer 1579

$15,000 In FASB ASC 958-605-30-2, the FASB states, “Contributions received shall be measured at their fair values,” and FASB ASC 958-320-35-1 states that “investments in debt securities shall be measured at fair value.” Fair value of readily traded securities is found by considering current market values. The original cost to the donor and the current brokerage costs are not used by the not-for-profit recipient in valuing the contribution. View referenced content in book. 2521 Support, Revenues, and Contributions

Answer 1580

Sales x (1 - GP%) = COGS

Answer 1581

$60,000. Gain on troubled debt restructuring for May Corp. in 20X6 is computed as follows: Gain = Total due on debt - Required restructured payment = Principal + Accrued interest - (Restructured principal + Required interest) = ($1,000,000 + $40,000) - ($950,000 + $30,000) = $1,040,000 - $980,000 = $60,000 *WATCH VIDEO EXPLANATION FIRST!!$248,000

Answer 1582

face value of the bonds at the beginning of the period by the contractual interest rate. Whether the bond is issued at a premium or discount or at par, the interest payable (in cash) is calculated the same way: face value (principal) of the bonds times coupon (contractual interest rate). The same is true for the straight-line method as well. Interest expense for the period is the carrying value times the effective rate. Multiplying the face value of the bonds at the beginning of the period by the effective interest rates, or multiplying the carrying value of the bonds at the beginning of the period by the contractual interest rate have no accounting use per se.

Answer 1583

First identify the accounts that will be used in the entry. We already know this is a bad debt entry because we are asked to record bad debt. The percentage of sales method is an allowance method. We are also told that the company is estimating bad debt, so this is clearly not a company that uses direct write-off. Therefore, we will be using Allowance for Doubtful Accounts and Bad Debt Expense. Time to calculate the amount of the transaction. The company estimates that 1.5% of credit sales are uncollectible. Therefore, we will use credit sales. $2,900,000 x 1.5% = $43,500 What is this number? When using the percentage of sales method, we multiply a revenue account by a percentage to calculate the amount that goes on the income statement. That means we are calculating bad debt expense. The amount of expense is proportional to the amount of revenue. Dr. Bad Debt Expense 43,500 Cr. Allowance for DA 43,500 What is the balance in Allowance for Doubtful Accounts? The account had a credit balance of $17,000 before the adjustment. The entry from December 31 would be added to that balance, making the adjusted balance $60,500. The percentage of sales method does not factor in the existing balance in Allowance for Doubtful Accounts. *That is why you add the credit balance of Allowance for Doubtful Accounts to the amount of Bad Debt Expense!!

Answer 1584

Liability of $200,000; asset of $300,000 Company Plan A is underfunded by $200,000, the amount of the projected benefit obligation less the fair value of plan assets, and Plan B is overfunded by $300,000, the excess of plan assets over the obligation. The underfunded plan is a liability and the overfunded plan is an asset. Both must go onto the balance sheet and you do not net or offset the asset versus the liability. View referenced content in book. 2264 Retirement Benefits

Answer 1585

Salaries of fundraisers for funds used in research Salaries of staff researchers and costs of equipment and laboratory supplies used in research should all be classified as program expenses because they are expenses of the research program that fulfill the purpose for which Arkin Corporation exists. Only the salaries of the fundraisers would be classified as supporting activities. Support services consist of fundraising expenses, management and general expenses, and membership development expenses. View referenced content in book. 2512 Statement of Activities

Answer 1586

reported as a reduction in income before extraordinary items. FASB ASC 845-10-30-1 requires that: Quote A transfer of a nonmonetary asset to a stockholder or to another entity in a nonreciprocal transfer should be recorded at the fair value of the asset transferred, and a gain or loss should be recognized on the disposition of the asset. Since the market value of the merchandise was less than its carrying amount, Evie Corp. should report the resulting loss as a reduction in income before extraordinary items. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 1587

Regional Coalition for Poverty Services Of the entities listed, only the Regional Coalition for Poverty Services is clearly a voluntary health and welfare entity required to provide a statement of functional expenses that details the natural classification of expenses in addition to the functional classification provided by all not-for-profits in the statement of activities. A voluntary health and welfare entity provides voluntary services to segments of society using public support. FASB ASC 958-720-45-5 View referenced content in book. 2501 Not-for-Profit (Nongovernmental) Accounting and …

Answer 1588

If investors buy the bonds at a discount, the difference between the face value of the bonds and the amount of cash received is recorded in a discount on bonds payable account. This happens when investors want a higher return on their investment because the stated interest rate is lower than the market interest rate. The entry would be: Debit Credit Cash xxx Discount on bonds payable xxx Bonds payable xxx

Answer 1589

fair value. The statement of net assets of a pension plan must include net assets reflecting all investments at fair value. FASB ASC 962-205-45-2

Answer 1590

Plus discount Issuance of debt at a discount occurs when the effective interest rate is higher than the stated interest rate. The contractual interest is not sufficient and is supplemented by selling the bonds at less than face value. Therefore, the discount is amortized over the term of the bonds by increasing interest expense above cash interest. (A simple analysis is that a bond discount has a debit balance. Amortizing the discount requires a credit, which means that the offsetting entry must be a debit to interest expense to increase the expense.)

Answer 1591

Cash effects of transactions obtaining resources from owners and providing them with a return on their investment Financing activities are associated with a company's liabilities and stockholders' equity. The list of financing activities in FASB ASC 230-10-45-14 and 45-15 therefore includes cash effects of transactions obtaining resources from owners and providing them with a return on their investment

Answer 1592

i. These are costs that are included in the asset account instead of being expensed. There are basically two categories: 1. Costs to get the asset ready to use a. Usually any cost necessary to bring the asset to its intended use and location, so it would include: sales tax, testing costs, shipping costs, etc 2. Costs to extend the asset’s useful life or increase productivity ii. If a cost just maintains the asset, like an oil change, this is a regular expense and is NOT capitalized

Answer 1593

I and II GASB 2200.140 states that all revenues are general revenues unless they are required to be reported as program revenues. All taxes, even those levied for a specific purpose, are general revenues. Program revenues consist of charges for services and program-specific grants and contributions. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 1594

$580,000 Bond sinking fund bal (Dec 31, 20X1) $450,000 20X2 additional investment $90,000 Dividends on investments 15,000 Interest revenue 30,000 135,000 ------- -------- Subtotal $585,000 Administration costs - 5,000 -------- Bond sinking fund balance (Dec 31, 20X2) $580,000 ======== Carrying value of bonds payable is a (net) liability, and is not reported as a noncurrent investment.

Answer 1595

$1,240,000 In accounting for business combinations, the stockholders' equity of the acquired entity is eliminated against the investment account. As a result, consolidated retained earnings include only the retained earnings of the parent company. Thus, the Owen Corp. consolidated balance sheet on December 31, 20X1, would show a retained earnings amount of $1,240,000, an amount equal to Owen's separate retained earnings. View referenced content in book. 2322 Fundamentals of Consolidated Worksheets(Acquisition …

Answer 1596

Retained earnings is debited for $300. When the 30% dividend is issued, 1,000 shares are outstanding. Thus, 30% of 1,000 shares (300 shares) will be issued in the stock dividend. A 30% stock dividend is a large stock dividend that lowers retained earnings only by the par value of the newly issued shares. No additional paid-in capital is recorded, and common stock is credited for 300 × $1 par for $300, and retained earnings is debited by the same amount. The fair value of the stock is not used. Retained earnings $300 Common Stock $300

Answer 1597

major fund reporting requirements do not apply to internal service funds. Major fund reporting requirements do not apply to internal service funds. Therefore, they are usually combined for financial reporting and presented individually with combining statements. The other answer choices are not sufficient explanations for the town's presentation of the internal service fund financial information. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1598

$71,200 *This is from cash-basis to accrual basis, that's why you didn't need to do the opposite signs! Accrual-basis net income is computed as follows: Beginning Effect on of Year End of Year Accrual Net Income --------- ----------- ------------------ Cash-basis net income $70,000 Accounts payable $ 3,000 $ 1,000 2,000 Unearned revenue 300 500 -200 Wages payable 300 400 -100 Prepaid rent 1,200 1,500 300 Accounts receivable 1,400 600 -800 ------- Accrual net income $71,200

Answer 1599

$2,000 In this situation, the income from the endowment is available to fund current program expenses (those incurred within the year). Since the principal of the endowment is now in security investments (which are not current assets), only the income related to the investment is current, since it is intended to be expended within the coming year. View referenced content in book. 2511 Statement of Financial Position

Answer 1600

Transactions between related parties cannot be presumed to have been carried out on an arm's-length basis and representations about transactions between related parties should not imply that they are equivalent to arm's-length transactions unless such representations can be substantiated. According to FASB ASC 850-10-50-5, transactions between related parties cannot be presumed to have been carried out on an arm's-length basis. In addition, representations about transactions between related parties should not imply that they are equivalent to arm's-length transactions unless such representations can be substantiated. View referenced content in book. 2387 Related Parties and Related Party Transactions

Answer 1601

noncurrent asset. An overfunded plan is recognized as an asset, but only in the noncurrent assets section. View referenced content in book. 2264 Retirement Benefits

Answer 1602

1.5 The acid-test or quick ratio divides total cash and accounts receivable over total current liabilities. Thus, the acid-test ratio will be, at the end of the year, 1.5, computed as follows: $300 + $1,200 = $1,500 $1,500 ÷ $1,000 = 1.5

Answer 1603

completion of depreciation on the asset so that its carrying value is equal to its expected salvage value. A significant decrease in the market value of the asset, a significant adverse change in the business climate, an accumulation of costs significantly in excess of the amount originally expected to acquire or construct the asset are all factors listed in FASB ASC 360-10-35-21 as warranting an assessment for impairment. Completion of the depreciation process, resulting in a carrying amount equal to estimated salvage value, does not indicate an impairment. FASB ASC 805-20-55-4 adds long-term customer relationship assets of financial institutions, such as depositor—and borrower—relationship intangible assets and credit cardholder intangible assets to the list of assets requiring assessment for impairment. View referenced content in book. 2370 Impairment

Answer 1604

a gain equal to the difference between the fair value and carrying amount of the truck given up. FASB ASC 845-10-30-1 specifies that the accounting for nonmonetary exchanges generally should be accounted based on fair values, which is the same basis as that used for monetary transactions. FASB ASC 845-10-30-3 provides three exception cases in which a nonmonetary exchange should be recorded based on the recorded amount (book value) of the assets surrendered: 1. Fair value is not determinable. 2. Exchange transaction is to facilitate sales for customers. 3. Exchange transaction lacks commercial substance. In determining if a nonmonetary exchange has commercial substance, the key issue is to determine if the exchange is expected to significantly change the entity's future cash flows. FASB ASC 845-10-30-4 specifies that the entity's future cash flows are expected to change significantly if either of the following criteria is met: 1. The configuration (risk, timing, and amount) of the future cash flows of the asset(s) received differs significantly from the configurations of the future cash flows of the asset(s) transferred. 2. The entity-specific value of the asset(s) received differs from the entity-specific value of the asset(s) transferred, and the difference is significant in relation to the fair values of the assets exchanged. In Sable's case, criterion (1) likely is met because the configuration of the future cash flows associated with the asset received differs from the future cash flows of the asset surrendered. Note, for example, that Sable had a cash inflow at the time of the exchange that would not have occurred at that time without the exchange. Therefore, the exchange has commercial substance and must be accounted for based on fair value. Accordingly, Sable would recognize a gain equal to the difference between the fair value and the carrying amount of the truck given up. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 1605

disclosed but not accrued as a liability. FASB ASC 450-20-25-2 requires accrual of a loss contingency when a loss is probable and the amount of such loss can be reasonably estimated. When a loss is not accrued because of the absence of one or both of these conditions, but a loss is reasonably possible, a loss contingency should be disclosed but not accrued. View referenced content in book. 2330 Contingencies, Commitments, and Guarantees (Provisions)

Answer 1606

$650,000 Research and development is defined as a planned search aimed at discovery of new knowledge and translation of the research findings into a plan or design. The research and development costs are incurred prior to commercial production of the product. R&D costs are reported as an expense, not an asset. Salaries $250,000 + Design $400,000 = Total $650,000 View referenced content in book. 2388 Research and Development Costs

Answer 1607

8 to 1. The price-earnings ratio is P/E = Stock price ÷ EPS (earnings per share). The net earnings per common share is $9: ($1,200,000 – $300,000) ÷ 100,000 = $9 Price-earnings ratio: $72 ÷ $9 = $8

Answer 1608

All of the answer choices are discontinued operations. Discontinued operations must be related to a component of a business. A component of an entity is comprised of the operations and cash flows that can be clearly distinguished. An operating segment or reportable segment of an entity qualifies as an operation. Disposition, phasing out, or changing a portion of the assets of a component would not meet the definition of a discontinued operation. View referenced content in book. 2345 Extraordinary and Unusual Items

Answer 1609

$2,170,000 The items shipped to the company on December 22 shipping point should be added to inventory, even though the items were lost. The title to the goods transferred at the time the common carrier picked them up and the goods were part of the company inventory upon receipt by the common carrier. (The common carrier owes the company the price of the goods lost in transit, but that is a separate legal matter.) The items that were returned to the vendor in the prior year (with the vendor’s approval) should be taken out of purchases and removed from the payables for the year. The goods shipped FOB destination that did not arrive until January were not the company inventory until the title passed in January (upon arrival), so they should not be added to payables. Thus, the end-of-year payables should be $2,170,000: $2,200,000 + $40,000 – $70,000 = $2,170,000

Answer 1610

$2,500,000 Tuition and fee revenues should be reported net of tuition discounts and allowances with the discount or allowance amount parenthetically disclosed on the face of the statement. Tuition waivers are a kind of discount that lowers net tuition received from specific students. Uncollectible accounts are recognized with the use of an allowance for government college and university accounting. View referenced content in book. 2450 Accounting and Reporting for Governmental Not-for-…

Answer 1611

Legal costs associated with obtaining a patent on a new product Assets are probable future economic benefits obtained or controlled by a particular enterprise as a result of past transactions or events. (SFAC 6.25) The incorrect answer choices are research and development costs. Since there is a great deal of uncertainty about the future benefit of these costs, they must be expensed. (FASB ASC 730-10-05-3) View referenced content in book. 2121 Financial Reporting by Business Entities

Answer 1612

Change in unrestricted net assets All expenses for not-for-profit entities must be reported as decreases, or changes, in unrestricted net assets. View referenced content in book. 2512 Statement of Activities

Answer 1613

Property taxes receivable--current 600,000 Property tax revenue 575,000 Allowance for uncollectible property taxes 25,000 GASB N50.115 indicates governments should recognize revenues from property taxes net of estimated uncollectible amounts. The entire levy would not be considered revenue because $25,000 of it is estimated to be uncollectible. The $25,000 of uncollectible taxes is not considered a bad debt expense because the measurement focus of a governmental fund is on expenditures, decreases in resources, rather than expenses. View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1614

Neither straight-line nor double-declining balance Under all of the depreciation methods, a depreciable asset is not depreciated past the point that Cost - Accumulated depreciation = Salvage value. Consequently, the maximum amount of accumulated depreciation is Cost - Salvage value. Neither straight-line nor double-declining balance would result in accumulated depreciation equal to the original cost.

Answer 1615

Reported as part of stockholder's equity. The same basic financial statements are issued for both an established company and a company in the development stage. Deficits are reported as part of stockholders’ equity.

Answer 1616

As in all journal entries, the first step is to figure out which accounts will be used. Because this is just another version of an allowance method, the accounts are Bad Debt Expense and Allowance for Doubtful Accounts. On to the calculation, since the company uses the percentage of receivables we will take 6% of the $530,000 balance. $530,000 x 6% = $31,800 Now to consider what this amount is. We used Accounts Receivable in the calculation, which means that the answer would appear on the same statement as Accounts Receivable. Therefore, we have to consider which of our accounts would appear on the balance sheet with Accounts Receivable. Allowance for Doubtful Accounts is a contra-asset account so that is what we calculated. The adjusted balance in Allowance for Doubtful Accounts should be $31,800. Since the current balance is $17,000, we need to increase the balance to $31,800. We do this by crediting the account $14,800. The $14,800 is the amount of Bad Debt Expense that must be recorded. Dr. Bad Debt Expense 14,800 Cr. Allowance for DA 14,800 *The adjusted balance in Allowance for Doubtful Accounts should be $31,800 and since there is already a credit balance on the Allowance for Doubtful Account of $17,000, we need to SUBTRACT 17,000 from 31,800 to get 14,800.

Answer 1617

$851,000 Total net assets $875,000 Less: Treasury stock 24,000 -------- Net assets reported on balance sheet $851,000 ======== Note Idle machinery, cash surrender value of life insurance on corporate executives, and marketable equity investments valued at fair value should appear in the asset section of the balance sheet. Treasury stock should be presented as a reduction of stockholder's equity, not as an asset.

Answer 1618

$990,000. The carrying value of the debt, initially, the bond liability, is $990,000, computed as the number of bonds multiplied by the face amount per bond, multiplied by the issue percentage: 1,000 bonds × $1,000 face × 0.99 = $990,000

Answer 1619

Accumulated benefit obligation The glossary of FASB ASC 715-30 (Compensation—Retirement Benefits; Defined Benefits Plans—Pension) defines the projected benefit obligation as follows: “The actuarial present value as of a date of all benefits attributed by the pension benefit formula to employee service rendered prior to that date. The projected benefit obligation is measured using assumptions as to future compensation levels if the pension benefit formula is based on those future compensation levels (pay-related, final-pay, final-average-pay, or career-average-pay plans).” FASB ASC 715-30-20 states, “The accumulated benefit obligation differs from the projected benefit obligation in that it includes no assumption about future compensation levels.” Accumulated benefit obligation is based upon prior compensation. Project benefit obligation is based on future compensation. View referenced content in book. 2264 Retirement Benefits

Answer 1620

$4,300 The interest paid for the year from June 30, Year 2. to June 30, Year 3. is based on the face amount ($100,000) multiplied by the stated 7% payment rate: $100,000 × 0.07 = $7,000 The interest expense using the interest method is based on the carrying amount of the debt multiplied by the yield of the debt: $105,000 × 0.06 = $6,300 The premium amortized from June 30, Year 2, to June 30, Year 3, is the difference of these two amounts: $7,000 – $6,300 = $700 Thus, the premium of $5,000 on June 30, Year 2, ($105,000 – $100,000, carrying amount less face amount) is lowered by the $700 premium amortization down to $4,300: $5,000 – $700 = $4,300

Answer 1621

Agency fund GASB S40.119 states: “The debt service transactions of a special assessment [debt] issue for which the government is not obligated in any manner should be reported in an agency fund…rather than [in] a debt service fund, to reflect the fact the government's duties are limited to acting as an agent for the assessed property owners and the bondholders.” View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1622

$0 A debt service fund is a governmental fund used to account for the accumulation of resources for the payment of general long-term debt principal and interest. As a governmental fund, the modified accrual basis of accounting is used. (Amortization is an allocation system used in the accrual basis of accounting to determine interest expense. Amortization does not change the financial resources of a governmental-type fund or the amount paid out or “expended” for interest, and is thus not recorded in governmental-type funds.) The amount of premium amortized is $0. View referenced content in book. 2412 Fund Accounting Concepts and Application

Answer 1623

Sale-leaseback FASB ASC 840-40-15-6 requires that “if a change in the provisions of a capital lease gives rise to a new agreement classified as an operating lease, the transaction shall be accounted for under the sale-leaseback requirements.” View referenced content in book. 2380 Leases

Answer 1624

$7.36 Convertible bonds do not affect basic earnings per share. They are used in computing diluted earnings per share. When the preferred stock dividend preference is cumulative, the current-year dividend on preferred stock must be deducted each year in computing the numerator for basic earnings per share, regardless of the amount of preferred dividends actually declared and/or paid. Comma's basic earnings per share for the current year is: ($200,000 - *$16,000) ÷ 25,000 weighted-average shares outstanding $184,000 ÷ 25,000 shares = $7.36 per common share *8,000 x $20 x 10% = $16,000 View referenced content in book. 2335 Earnings per Share

Answer 1625

$25,000, the additional value received in cash over and above the value of the bonds alone valued as normal debt When convertible debt is issued under IFRS rules, the value of the bonds alone is treated as a liability on the corporation's books, measured just as normal debt is, the present value with a reasonable discount rate, of the amounts to be paid. Once the present value of the bonds alone valued as normal debt is taken from the cash proceeds, the remaining cash received in the bond issuance is allotted to the equity account accounting for the conversion option. The cash proceeds were 1.05 multiplied by $300,000, or $315,000. This amount minus $290,000 leaves $25,000 value of the equity conversion right.

Answer 1626

$41,000 Hake would record $41,000 for the foreign currency translation adjustment on December 31, 20X1. Calculated as follows: Foreign Applicable Currency Exchange Amounts Rates Dollars -------- ---------- ------- Net assets at January 2, 20X1 (date of purchase) 720,000 $.45 $324,000 Net income, 20X1 250,000 .42 105,000 ------- -------- Net assets at December 31, 20X1 970,000 $429,000 ======= ======== Net assets at December 31, 20X1 970,000 .40 $388,000 ======= ======== Net Assets 12/31/X1 (original exchange rates) $429,000 Less Net Assets 12/31/X1 (present exchange rate) -388,000 -------- Foreign Currency Adjustment =$ 41,000 ======== View referenced content in book. 2367 Translation of Foreign Currency Financial Statements

Answer 1627

January 15, 20X1 At the date of dividend declaration (January 15, 20X1), an entry to reduce retained earnings and record a dividend liability is made. No entry is necessary on the date of record (January 28, 20X1). On the payment date (February 9, 20X1), both cash and the dividend liability are reduced.

Answer 1628

Net common stock: Decrease; Additional paid-in capital: Decrease; Retained earnings: Decrease Journal entry for acquisition of treasury stock using par value method: Dr. Cr. Treasury stock (common stock) XXX Additional paid-in capital XX Retained earnings X Cash XXXX The debit to Retained Earnings is for the excess of reacquisition cost over original issue price. Note Common stock outstanding decreases. Additional paid-in capital decreases. Retained earnings decreases.

Answer 1629

$20,000 Baker should report $20,000 as net cash provided by operating activities: Net income $78,000 Adjustments Increase in AR ($82,000) Increase in AP 24,000 (58,000) -------- Net cash provided by operating activities $20,000 View referenced content in book. 2135 Statement of Cash Flows

Answer 1630

$48,000 Type Market Total Stock Shares x Price = Market = Ratio x Proceeds ----- ------ ------ ------ ----- -------- $36,000 Common 1,000 x $36 = ----------- = 40% x $80,000 $90,000* =ALLOCATION: $32,000 ------------------------------------------------------------------------------------- $54,000 Preferred 2,000 x $27 = ---------- = 60% x $80,000 $90,000 =ALLOCATION: $48,000 *($36,000 + $54,000) View referenced content in book. 2250 Equity

Answer 1631

Expense FASB ASC 835-20-25-5 provides that: Quote The capitalization period shall end when the asset is substantially complete and ready for its intended use. Therefore, the $147,000 in construction financing incurred after completion of construction should be expensed.

Answer 1632

on the face of the income statement. Basic EPS is reported on the face of the income statement. View referenced content in book. 2335 Earnings per Share

Answer 1633

$665,000 Contributions receivable expected to be collected within a year (and the related revenues) are reported net of estimated uncollectible contributions. Further, if the contributions are multi-year, the receivables (and the corresponding revenues) must be reported at present value. $400,000 + $300,000 = $700,000 $700,000 × 0.05 = $35,000 $700,000 - $35,000 = $665,000 View referenced content in book. 2511 Statement of Financial Position

Answer 1634

Prepaid insurance: $3,400; Insurance expense: $1,100 Prepaid insurance on November 1, 20X1 $3,600 Less November and December expense 2($3,600/36 months) 200 ------ Prepaid insurance on December 31, 20X1 $3,400 ====== Insurance expense Total payments Prepaid insurance on December 31, 20X1 = for insurance - balance = ($90 + $4,410) - $3,400 = $4,500 - $3,400 = $1,100 Note Because the trial balance does not show a prepaid amount for the $3,600, and the $90 amount is too small to relate reasonably to the renewal policy, it can be assumed that the books need to be adjusted to transfer the correct prepaid amount ($3,400) from expense and expense the $90, which likely represents the expired remainder of the old policy.

Answer 1635

$581,000 Only the costs which are directly associated with the condemned property should be included in the determination of the gain on the condemnation (i.e., the appraisal fee and closing attorney fee: $2,500 + $3,500 = $6,000). Thus, the gain is calculated on the following total: $575,000 Carrying value + 6,000 Direct costs of condemnation -------- $581,000 The costs associated with acquiring the replacement property will apply to the new property. View referenced content in book. 2386 Nonmonetary Transactions (Barter Transactions)

Answer 1636

Expense FASB ASC 835-20-25-5 provides that: Quote The capitalization period shall end when the asset is substantially complete and ready for its intended use. Therefore, the $147,000 in construction financing incurred after completion of construction should be expensed. View referenced content in book. 2213 Property, Plant, and Equipment

Answer 1637

$308,000 Consolidated current assets before eliminations $320,000 Less intercompany profit on remaining inventory purchased from Kent (Note 1) (12,000) Adjusted consolidated current assets =$308,000 Note 1: Computation of intercompany profit: Gross profit rate = $48,000 / $240,000 = 20% Gross profit in inventory = 20% x $60,000 = $12,000 Note also that since Clark owns less than 20% of Dean, Inc., and does not exert significant influence, the gross profit from the sale to Dean does not require elimination. View referenced content in book. 2324 Elimination of Intercompany Profits and Losses(…

Answer 1638

$14,000 Cash provided by operating activities is computed as follows: Cash received from customers $25,000 Total cash received $25,000 Interest paid to bank on note 3,000 Cash paid to employees 8,000 ------- Total cash paid out 11,000 Net cash provided 14,000 Cash received from sale of equipment is included in investing activities. View referenced content in book. 2135 Statement of Cash Flows

Answer 1639

Both I and II GASB 1300 defines a fund “as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations…” (Emphasis added) View referenced content in book. 2411 Measurement Focus and Basis of Accounting

Answer 1640

in a column separate from the direct expenses. Governments choosing to allocate indirect expenses should report them in a column separate from the direct expenses to enhance comparability with other governments that do not allocate. Therefore, the direct and indirect expenses should not be combined for reporting purposes. Special and extraordinary expenses are reported separately at the bottom of the statement of activities. Transfers are appropriate between governmental funds or to display transactions, not cost allocation, between the governmental activities and business-like activities of a government. View referenced content in book. 2421 Government-Wide Financial Statements

Answer 1641

Troubleshooting in connection with breakdowns during commercial production FASB ASC 730-10-20 defines research and development as follows: Quote Research is planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service or a new process or technique in bringing about a significant improvement to an existing product or process. Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or use. View referenced content in book. 2388 Research and Development Costs