FAR SET 5 Flashcards
On June 15 of the current year, Solid Co., decided to change from moving average inventory system to the FIFO inventory system. Solid uses IFRS, is on a calendar year basis, and complies with IFRS minimum comparative reporting requirements. The cumulative effect of the changes is shown as an adjustment to beginning retained earnings on the balance sheet for:
January 1 of the prior year
Under IFRS, each of the following is a disclosure requirement related to the correction of a material prior period error, except:
A description of the internal controls put in place to prevent the occurrence of the error in the future periods.
Thorpe Co.’s income statement for the year ended December 31 reported net income of $74,100. The auditor raised questions about the following amounts that had been included in net income:
Unrealized loss on decline in market value of available-for-sale investments in debt ($5,400)
Gain on early retirement of bonds payable (net of $11,000 tax effect) $22,000
Adjustment to profits of prior years for errors in depreciation (net of $3,750 tax effect) ($7,500)
Loss from fire (net of $7,000 tax effect) ($14,000)
The loss from the fire was an infrequent but not unusual occurrence in Thorpe’s line of business. Thorpe’s December 31 income statement should report net income of:
Net Income before adjustments
+ Unrealized loss in market value of available-for-sale investments in debt for which should not have affected net income
+ Correction of error of prior period which should not have affected net income
= Net income after adjustments
In single period statements, which of the following should not be reflected as an adjustment to the operating balance of retained earnings?
Effect of a decrease in the estimated life of depreciable equipment.
Which of the following is the minimum reporting requirement for a company that is preparing its first IFRS financial statements?
Three statements of financial position.
A partial listing of a company’s accounts is presented below:
Revenues $80,000
Operating Expenses $50,000
Foreign currency translation adjustment gain, net of tax $4,000
Income tax expense $10,000
What amount should the company report as net income?
Revenues
- Operating expenses
-income tax expense
= Net Income
Net income excludes other comprehensive income items.
A company reports the following information as of December 31:
Sales Revenue $800,000
COGS $600,000
Operating expenses $90,000
Unrealized holding gain on AFS debt securities, net of tax $30,000
What amount should the company report as comprehensive income as of December 31?
Comprehensive income is equal to net income + other comprehensive income.
Net Income=
Sales Revenue
- COGS
- Operating expenses
Other Comprehensive income=
Unrealized holding gain on AFS debt securities, net of tax
Net Income
+Other Comprehensive Income
= Comprehensive Income
Which of the following items is not classified as “other comprehensive income?”
Foreign currency translation adjustments
Gains from extinguishment of debt
Minimum pension liability equity adjustment for a defined-benefit pension plan
Unrealized gains for the year on available-for-sale debt securities
Gains from extinguishment of debt are a component of net income, not other comprehensive income.
Other comprehensive income includes: Changes in the funded status of a pension plan, unrealized gains and losses on AFS debt securities, foreign currency items and the effective portion of cash flow hedges.
Which of the following statements is correct regarding comprehensive income?
Accumulated other comprehensive income is reported in the stockholders’ equity section of the balance sheet.
A company that uses IFRS reports the following information as of December 31:
Pension gain $175,000
Foreign currency translation loss $120,000
Revaluation surplus from revaluation of fixed assets $50,000
Unrealized gain on AFS debt security $32,000
Unrealized loss on trading security $20,000
Revaluation loss from revaluation of intangible assets $18,000
What amount should the company report as other comprehensive income as of December 31?
Pension gain - Foreign currency translation loss \+ Revaluation surplus from revaluation of fixed assets \+ Unrealized gain on AFS debt security = Other comprehensive income
The unrealized loss on the trading security and the revaluation loss will be reported in net income, not other comprehensive income, as of December 31.
Which of the following is true regarding the presentation of comprehensive income? Must be shown on the face of the income statement. Related tax effects for components must be disclosed.
Comprehensive income may be shown on the face of a combine “Statement of income and comprehensive income” a separate section below net income, or in a separate “statement of comprehensive income.”
The income tax expense or benefit allocated to components must be disclosed, either on the face of the statement or in notes to the statement.
One of the elements of a financial statement is comprehensive income. Comprehensive income excludes changes in equity resulting from which of the following?
Comprehensive income includes all changes in equity during a period except those resulting from owner investments and distributions to owners.
Accumulated other comprehensive income is reported in which of the following financial statements?
Accumulated other comprehensive income is a balance sheet account and is reported in the statement of financial position.
According to the FASB conceptual framework, which of the following would cause earnings to differ from comprehensive income?
Unrealized holding loss from AFS debt securities is a component of other comprehensive income, which is not included in net income and would thus cause earnings to differ from comprehensive income.
Frame Co. has an 8% note receivable dated June 30, Year 1, in the original amount of $150,000. Payments of $50,000 in principal plus accrued interest are due annually on July 1, Year 2, Year 3, and Year 4. In its June 30, Year 3, balance sheet, what amount should Frame report as a current asset for interest on the note receivable?
The current asset for interest on June 30, Year 3, is the interest to be received within one year. Interest to be received on July 1, Year 3 is:
$100,000 balance of note * 8% = $8,000
