FAR Questions

Question 1

Under IFRS, a financial instrument is calculated at AMORTIZED cost if:

Answer 1

1. Entity’s business model is to hold the asset to collect scheduled cash flows, and
2. Those cash flows consist exclusively of principal and interest payments

** All other instruments are reported at FAIR VALUE (not amortized cost)

Question 2

FASB amends the Accounting Standards Codification by issuing ____

Answer 2

Accounting Standards Updates

Question 3

Fair value characteristics are: (MOST)

Answer 3

1. Market-based measure
2. Orderly transaction at a specific measurement date
3. Sale of asset or transfer of liability (i.e., exit price)
4. Three levels of input called the fair value hierarchy

Question 4

(FASB) (Fair value hierarchy for eligible assets/liabilities)

Level 1:
Are there _______ (quoted prices) in active markets for IDENTICAL items? If yes, then use Level 1

Level 2:
Are there observable inputs (other than Level 1 inputs) for _____ items? If yes, then use Level 2

Level 3:
Use ______ inputs that reflect assumptions to determine fair value

Answer 4

Observable inputs; similar; unobservable

Question 5

Representational faithfulness consists of: (FNC)

Answer 5

1. Free from errors
2. Neutral
3. Complete

Question 6

Relevance helps to maximize the _______ of financial statements.

Answer 6

predictive value

Question 7

____ and ______ are the most liquid current assets.

Answer 7

Cash; cash equivalents

Question 8

Cash and cash equivalents consist of: (CSMN)

Answer 8

1. Checking
2. Savings
3. Money market accounts
4. Negotiable paper (e.g., bank checks)

Question 9

Compensating balances are _______ that a ____ may require of a borrower

Answer 9

restricted deposits; lender

Question 10

Legally restricted compensating balances are recorded either as ____ or _____

Answer 10

current asset (besides cash); long-term asset

Question 11

Informally restricted compensating balances are reported as ____

Answer 11

cash

Question 12

Restricted cash is subject to _____ and is NOT available for _____ in an entity’s current operations

Answer 12

limitations; general use

Question 13

Because its use is limited, _______ must be presented SEPARATELY from cash

Answer 13

restricted cash

Question 14

Cash items that are restricted as to _____ or ____ must be disclosed SEPARATELY

Answer 14

withdrawal; usage

Question 15

The times interest earned ratio measures the _____

Answer 15

ratio of the entity’s income that would be available to pay interest to the actual amount of interest incurred.

** Income before interest and taxes / Amount of interest

Question 16

GAAP requires _______ model to be used when accounting for credit losses (i.e., bad debt)

Rather than reducing A/R directly, expected credit losses accumulate in the ____ contra account.

Answer 16

current expected credit loss (CECL)

allowance for credit

Question 17

The CECL model requires A/R to be _____ during the period during which the account becomes _____ (matching principle).

Answer 17

uncollectible; written off

Question 18

An overdrawn bank account is reflected on the balance sheet based on whether ______

Answer 18

there are other accounts at the same bank

Question 19

All accounts held at the ______ are netted and reported as either current assets/liabilities

Accounts held in ______ CANNOT be netted

Answer 19

same bank

different banks

Question 20

When determining sales under CASH BASIS accounting, set up a T account for A/R and solve for the _____ collected.

A/R is increased for _____ and _______.

A/R is decreased for ______ and _____

Answer 20

cash

credit sales; reinstatement of accounts

collections from customers; write-offs

Question 21

Current assets are future economic benefits that will be used/converted into cash within _____ or ______ (whichever is longer).

Any portion of a current asset that is reserved for long-term purposes (e.g., cash reserved for a bond sinking fund) will be classified as ____.

Answer 21

1 year; operating cycle

long-term

Question 22

Examples of “current assets”: (CRTIP)

Answer 22

1. Cash
2. Receivables
3. Temporary investments (trading securities)
4. Inventory
5. Prepaid expenses

Question 23

Selling inventory on A/R results in decrease to ____, and increase of _____ (NOT current liabilities)

Answer 23

inventory; accounts receivable

Question 24

(Period of inflation) Purchasing power of:

1. Monetary asset:____
2. Monetary liability:____
3. Nonmonetary items: _____

Answer 24

1. Loss
2. Gain
3. N/A

Question 25

(Period of deflation) Purchasing power of:

1. Monetary asset:____
2. Monetary liability:____
3. Nonmonetary items: _____

Answer 25

1. Gain
2. Loss
3. N/A

Question 26

To present effects of changing prices (i.e., inflation/deflation),, only ____ may affect purchasing power.

Answer 26

Monetary items (fixed in dollar amount; does not vary with changing prices)

Question 27

Current cost of inventory, when measured in CONSTANT dollars, does not account for _____.

When measured in NOMINAL dollars, it includes effects of _______.

Answer 27

inflation

Question 28

Total assets = ______

Answer 28

Assets - Asset contra accounts (e.g., accumulated depreciation, allowance for credit losses) +/- Asset valuation accounts (e.g., AFS-unrealized losses/gains)

Question 29

Holding gain/loss on inventory = ______

Answer 29

Difference between replacement cost and purchase price