FAR review Deck

Question 1

TRUE or FALSE: Discontinued Operations should (always) include operating losses from the date the decision to dispose of the segment was made.

Answer 1

TRUE

Question 2

What is the impact of Stock dividend less than 20-25%?

Answer 2

Small stock dividends (less than 20-25%) has the following impact -

Stockholders Equity - NO CHANGE
Retained Earnings - DECREASE.

Question 3

TRUE or FALSE: Stock dividends, Stock Splits or Reverse Stock Splits changes common stocks outstanding retroactively hence impacting on EPS calculations.

Answer 3

TRUE.

Question 4

TRUE or FALSE: Accumulated Other Comprehensive Income is reported in the stockholder’s equity section of the balance sheet.

Answer 4

TRUE.

Question 5

TRUE or FALSE: A separate statement of comprehensive income is required

Answer 5

FALSE.
Comprehensive income cab be reported in the separate statement of comprehensive income or in a single statement of income and comprehensive income.

Question 6

How Liquidating Dividends affects on APIC and Retained Earnings?

Answer 6

DRECRESES BOTH APIC AND RETAINED EARNINGS.

Question 7

TRUE OR FALSE:
No Consignment Sales is recognized until the period of consignment is expired.

Answer 7

TRUE

Question 8

what Journal Entry to record for Consignment Sales when period is expired?

Answer 8

ACCOIUNTS RECEIVABLE - DEBIT
CONSIGNMENT SALES - CREDIT

Question 9

Effects of RIGHTS SHARES issued and exercised

Answer 9

RIGHTS SHARES ARE ISSUEED NO CONSIDERATION IS GIVEN, NO IMPACT ON COMMON STOCK AND APIC

WHEN RIGHTS ARE EXERCISED FOR CONSIDERATION IT INCREASES COMMON STOCK AND APIC.

Question 10

What cost are capitalized as an Asset and When?

Answer 10

Capitalize all costs necessary to put a fixed assets in place, in the required condition, at the proper time for its intended use.

Capitalize costs that improve the quality, efficiency or productive capacity of a fixed asset.

Question 11

What costs should be Capitalized for Land?

Answer 11

Cost of land includes all costs necessary to put the land in place and condition for construction of the plant.

Any proceeds from the sale of any existing buildings (or standing timber, or soil) or scrap are deducted from the cost of the land.

Question 12

When recoverability test is performed? and on which type of Assets?

Answer 12

The recoverability test is ONLY performed on intangible assets with a limited (useful) life.

The recoverability test compares undiscounted future cash flows to the carrying value of the asset. If the carrying value is greater, then fair value test would be performed.

Patent has limited (finite) life - classified as Intangible Asset.

Question 13

TRUE or FALSE:
Legal fees to defend Patent are capitalized when the defense is successful.

Answer 13

TURE!

Legal fees to defend patents are capitalized as asset ONLY when if is successful in defending the case

Question 14

TRUE or FALSE:
Development costs of new product are capitalized as Patent.

Answer 14

FALSE!

Only Legal fees in successful defending Patent are capitalized as an asset.

Question 15

TRUE or FALSE:
Intangible asset should be amortized over the LESSER of the useful economic life or legal life.

Answer 15

TRUE!
for example - If Useful Economic life of an asset is 25 years but the legal life is 30 years. Assets should be amortized for 25 years.

Question 16

How impairment loss is tested for Long-Lived assets?

Answer 16

If the carrying value of an asset is LESS THAN the Sum of Undiscounted future Cash Flows, NO impairment loss should be recognized

Question 17

How a change from Cash basis accounting to Accrual accounting is reported or disclosed in financial statements?

Answer 17

A change from Cash basis accounting to Accrual basis accounting is reported as correction of an error by adjusting the prior period to retained earnings. Cash basis accounting is not governed as GAAP accounting hence considered as Error in Accounting.

Question 18

Formula for Return on Equity ratio

Answer 18

NET INCOME minus PREFERECE DIVIDEND (if available) DIVIDED BY
AVERAGE TOTAL EQUITY

Question 19

Formula for Days in Inventory ratio

Answer 19

ENDING INVENTORY (As of the balance sheet date) DIVIDED BY COGS MULTIPLIED by 365 (or days in the period)

Question 20

Formula for Return on Assets

Answer 20

NET INCOME DIVIDED BY AVG TOTAL ASSETS

Question 21

How to derive depreciation % for Double Declining balance?

Answer 21

The double declining balance % is calculated as Straight Line TIMES 200%.
For example: if the useful life of the asset under straight line is 10 years, the % under double declining would be -

1/10 *200% = 20%

Question 22

What is Avoidable interest cost and When is it capitalized?

Answer 22

Avoidable interest is the interest cost that could have been avoided if the funds were not borrowed to complete the construction or project.

Avoidable interest is capitalized when the total (actual) interest cost is GREATER THAN avoidable interest.
For example: if total actual interest is $30,500 and avoidable interest is $12,500 (i.e. $30,500 > $12,500), the full off avoidable interest is capitalized to the construction or project costs.

Question 23

TRUE or FALSE:

Units-of-production depreciation method reflects that an asset’s service potential declines with use.

Answer 23

TRUE!

Question 24

What is the criteria for accruing a Contingent Liability (or Loss)?

Answer 24

A contingent liability or loss should be accrued in the financial statements if the liability or loss is PROBABLE and ESTIMABLE at the reporting date.

Question 25

TRUE or FALSE:

Non-interest bearable notes payable are reported at present value of future cash flows.

Answer 25

TRUE!

Question 26

What is lease?

Answer 26

Lease is contractual agreement between a lessor and lessee where lessor conveys the right to use an asset (ROU) and lessee agrees to pay consideration to the lessor.

Question 27

TRUE or FALSE:
Variable lease payments not included in the lease liability are treated as cash outflows from operations hence will have a negative impact on the cash flow from operations.

Answer 27

TRUE!

Question 28

What are the criteria of Finance Lease?

Answer 28

If one of the following conditions are met, lease is classified as FINANCE LEASE -

1. Transfer of Ownership of Asset at the end of the lease to Lessee.
2. Purchase Option written in the lease agreement and Lessee is reasonable certain to exercise.
3. Lease Term > (exceeds) 75% or more of the assets’ useful economic life.
4. PV of Lease payments > (exceeds) 90% or more of the fair value of the leased asset.
5. Specialized nature of the leased asset that there is no other alternative use to Lessor at the end of the lease.

Question 29

How assets is amortized under finance lease?

Answer 29

With Finance Lease, Lessee should amortize the leased asset over its economic life when there is written purchase option or when the lessee takes the ownership of the asset

Question 30

Difference between annuity due and ordinary annuity?

Answer 30

Annuity DUE means Lease Payments are made at the beginning of each period.

Ordinary Annuity means Lease payments are made at the END of the period.

General Rule: IF no specific information is provided on lease payments, ALWAYS use Ordinary Annuity PV factor.

Question 31

What type of financial statements Not-for-Profit required to report?

Answer 31

Not-for-Profit required to present following financial statements:
1. Statement of Financial Position
2. Statement of Activities
3. Statement of Cash Flow

Question 32

What guidance FASB ASC 958 has for Non-Profit?

Answer 32

FASB - ASC 958 provides general guidance on Not-for-Profit primarily focusing on basic information for
the organization as a whole. The standard establishes guidance for general purpose external financial
statements provided by a not-for-profit organization.

Question 33

What classification is required for reporting of expenses by NFP?

Answer 33

Functional classification in the statement of activities and natural classification analyzed by function in the notes to the financial statements.

Question 34

What is functional classification of expenses and what do they include?

Answer 34

Functional classifications of expenses categorize costs as program and support services.

Program Services - relates to the purpose and mission of the NFP

Support Services - includes Management & General, Fundraising and Membership development

Question 35

When the restricted donations received are treated as without donor restricted?

Answer 35

Donor-imposed restrictions that are met in the same period they are received may be recorded as
support (contribution revenue) without donor restrictions, provided that the organization
discloses and consistently applies this accounting policy.