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Question 1

If there is commercial substance to an exchange, the exchange is measured at:

Answer 1

Fair Value. The gain is equal to the old asset’s fair value and it’s book value. If the fair value was 30 and its book value is 25, the gain is 5.

Question 2

How does retail inventory method establish lower of cost or market valuation for ending inventory?

Answer 2

By excluding net markdowns from the cost to retail ratio.

Question 3

Can consolidated financial statements be prepared from a business combination that was accounted for using the acquisition method OR the pooling of interests method?

Answer 3

Yes to both. The pooling of interest method CANNOT be used anymore for business combinations, combinations that happened before that still need to be consolidated.

Question 4

Does a foreign sub using the local currency as its functional currency has their financials translated or remeasured?

Answer 4

Translated.

Question 5

Does a foreign sub using US dollars as its functional currency has their financials translated or remeasured?

Answer 5

Remeasured.

Question 6

Under translation, common stock is translated at the what exchange rate?

Answer 6

The historic exchange rate.

Question 7

500 shares of 6%, $100 par callable preferred stock are called at $101. The shares were issued at $103 per share. What is the journal entry to record the retirement?

Answer 7

DR preferred stock for 50,000DR PIC-preferred for 1,500CR PIC retirement of preferred for 1,000CR Cash for 50,500

Question 8

Working capital:

Answer 8

current assets - current liabilities

Question 9

Acid test:

Answer 9

(cash + net receivables)/current liabilities

Question 10

Acc Rec turnover:

Answer 10

Sales/ avg net receivables

Question 11

Inventory turnover:

Answer 11

COGS/ avg inventory

Question 12

Times interest earned:

Answer 12

earnings before interest & taxes EBIT/ interest expense

Question 13

Return on total assets:

Answer 13

(net income + after-tax interest expense)/ avg total assets

Question 14

Return on equity:

Answer 14

Net income / avg owners equity

Question 15

Dividend payout ratio

Answer 15

Common dividends / net income

Question 16

What are the 2 primary qualitative characteristics?

Answer 16

Relevance and Faithful representation

Question 17

2 components of relevance:

Answer 17

Predictive value and confirmatory value

Question 18

3 components of Faithful Representation

Answer 18

Completeness, neutrality, and free from material error

Question 19

What are the 4 enhancing characteristics?

Answer 19

Comparability, verifiability, timeliness, and understandability

Question 20

Times interest earned is:

Answer 20

income before interest and income tax over interest expense

Question 21

What is a central characteristic of a joint venture?

Answer 21

Shared control. None of the participating parties are likely to have unilateral control of the joint venture.

Question 22

What is the defensive-interval ratio?

Answer 22

The ratio of quick assets to daily operating expenditures. The ratio is showing the length of time in days that the firm can operate with its present liquid resources- so it’s a liquidity measure.

Question 23

Inventory turnover ratio:

Answer 23

COGS/ avg inventory for the period

Question 24

Where are G/L on remeasurment and translation booked?

Answer 24

Remeasurement is on the income statement, translation go in an equity account. Remeasurement is when the foreign sub’s currency is the US dollar. It’s translation if the sub’s currency is the local foreign currency.

Question 25

Receivables turnover ratio:

Answer 25

Net sales / avg net accounts receivable

Question 26

What statements are usually included in personal financial statements?

Answer 26

A statement of financial condition and a statement of changes in net worth.

Question 27

If a donation is conditional, how should it be accounted for?

Answer 27

As a refundable advance.

Question 28

For donation of specialized services to a nonprofit, at what value should they be recognized?

Answer 28

Fair value.

Question 29

For a NP, are contributions spread over a few years restricted or non restricted?

Answer 29

The contribution in the current year is non restricted(unless it comes with an actual restriction), and the contributions for future years are recognized at present value and are RESTRICTED.

Question 30

When are the payments for an “Annuity Due” made?

Answer 30

At the beginning of each period.