Final FAR Review Deck 2

Question 1

What are trading securities reported at and where is the unrealized gains or losses reported?

Answer 1

Trading securities are reported at fair value on the financial statement and unrealized gains and losses are reported on the income statement

Question 2

What are available for sale securities reported at?

Answer 2

Available for sale securities are reported at fair value on the financial statement

Question 3

What is held to maturity securities reported at?

Answer 3

Held to maturity securities are reported at amortized cost on the financial statement

Question 4

What is the equity method investments?

Answer 4

This is the method used when an investor owns more than 20% but less 50% of voting shares in an entity and/or has “significant influence” over the investee

Question 5

What is the voting interest model?

Answer 5

This is when an investor owns more than 50% of the voting stock

Question 6

Under the acquisition method, What is recorded during consolidation? CAR IN BIG

Answer 6

CAR- Common stock, APIC, and retained earnings of the subsidiary are eliminated
I- The parent company’s investments in the subsidiary is eliminated
N- Noncontrolling interest is created if the parent owns less than 100 percent of the subsidiary
B- Balance sheet of the subsidiary is adjusted to fair value for 100% of assets and liabilities
I- Identifiable intangible assets of the subsidiary are recorded at their fair value
G- Goodwill (or Gain) is required

Question 7

Under US GAAP how is goodwill calculated?

Answer 7

Goodwill= Fair value of a subsidiary - Fair value of a subsidiary’s net assets

Question 8

Under IFRS how is goodwill calculated?

Answer 8

Goodwill= Acquisition cost- Fair value of the subsidiary’s net assets acquired

Question 9

When is a lease classified as a finance lease?

Answer 9

When one of the five listed (OWNES) criteria is met
- Ownership transfer to lessee at end of lease
- Written purchase option exists (purchase option < estimated fair value)
- The present value of the minimum lease payments is > ninety (90) percent of the fair value of the leased property
- The lease term is > seventy-five (75) percent of the asset’s economic life
- The asset is specialized such that it will not have an expected, alternative use to the lessor when the lease term ends
If none of the above criteria are met, it should be treated as operating by the lessee

Question 10

What are the three types of cash flow on a cash flow statement?

Answer 10

• Operating
• Investing
• Financing

Question 11

What is operating on the statement of cash flow and what does it include?

Answer 11

Operating: Changes in cash resulting from business
operations
⁃ Cash received from customers
⁃ Dividend income
⁃ Interest income/expense
⁃ Cash paid for business expenses

Question 12

What is Investing on the statement of cash flow and what does it include?

Answer 12

Investing: Changes in cash resulting from investing activities
⁃ Purchase/sale of investments or long-term assets
⁃ Making loans (getting a loan would be financing)

Question 13

What is financing on the statement of cash flow and what does it include?

Answer 13

Financing: Changes in cash resulting from financing
activities
⁃ Issuing and selling company stock
⁃ Purchasing treasury stock
⁃ Getting a loan (also making payments on a loan)
⁃ Paying dividends
⁃ Issuing bonds

Question 14

What is the earnings per share (EPS) equation?

Answer 14

Earnings per share (EPS)= Net income-preferred stock dividends/ Weighed Avg # of outstanding common stock

Question 15

What are the required financial statements for a defined benefit pension plan?

Answer 15

-Statement of net assets available for benefits as of the end of the plan year
-Statement of changes in net assets available for benefits
for the year then ended

Question 16

What are the required financial statements for a defined contribution pension plan?

Answer 16

• Statement of net assets available for benefits as of the end of the plan year
• Statement of changes in net assets available for benefits

Question 17

How do you reconcile bank balance to book balance ?

Answer 17

Bank balance
Add: Deposits in transit
Less: Outstanding checks
\+/- Bank errors
\+/- Errors on ledgers
= Book balance

Question 18

What is the allowance method?

Answer 18

Allowance
\+ Beginning Balance 
- Write offs (WO's)
\+ Provision for BD
\+ Recovery
= Ending Balance

Question 19

How is FIFO and average-cost method valued?

Answer 19

Lower of cost of

net realizable value

Question 20

How is LIFO valued?

Answer 20

This uses lower of cost or market

Question 21

What is is the lower of cost or market?

Answer 21

This is replacement cost subject to a ceiling and floor. If replacement cost is in between the ceiling and floor, then use replacement cost.
Ceiling = NRV
Floor = NRV - profit margin

Question 22

When are cost capitalized?

Answer 22

• Costs to get the asset ready to use
• Costs to extend the asset’s useful life or increase
  productivity (Maintaince cost is not included)

Question 23

What is included from the cost of inventory?

Answer 23

Included:
• Purchase returns
• Freight-in (shipping costs to get the inventory to the
warehouse)
• Sales tax on acquisition
• Insurance on transit

Question 24

When do you record an impairment cost?

Answer 24

When its fair value becomes less than carrying value.

Question 25

What is excluded from the cost of inventory?

Answer 25

• Freight out- this is a selling expense

* Interest on purchase - this is financing

Question 26

What accounts are monetary?

Answer 26

• Account Receivable

- Long term debt

Question 27

What accounts are non-monetary?

Answer 27

• Inventory
• Fix Assets
• Common Stock
• COGS
• Depreciation
• Prepaid assets

Question 28

What value is the remeasure method valued on the balance sheet and income statement?

Answer 28

Balance sheet 
- Monetary = Yr end
- Non-Monetary = Historical 
   Rate
Income Statement
- Weighted average (not related 
   to B/S)

Question 29

What value is the translation method valued on the balance sheet and income statement?

Answer 29

Balance sheet
- Assets and liability = Yr end
- Common stock = Historical
Income statement
- Weight Average

Question 30

What are the two financial statement that a governmental funds?

Answer 30

• Balance sheet

- Statement of revenue, expenditures, and changes in fund balance

Question 31

What are the two financial statement that a proprietary funds?

Answer 31

• Statement of net position

- Statement of revenues, expenses, and changes in fund net position

Question 32

What are the two financial statement that a fiduciary funds?

Answer 32

• Statement of fiduciary net position

- Statement of changes in fiduciary net position

Question 33

What is underlying?

Answer 33

Is a specified price or rate, such as a stock price.

Question 34

What is the notional amount ?

Answer 34

Is a specified unit of measure, such as # of

shares.

Question 35

What is settlement amount?

Answer 35

Is determined by the underlying being multiplied by the notional amount (notional * Underlying)

Question 36

What is lower of cost or market?

Answer 36

This is replacement cost subject to a ceiling and floor. If
replacement cost is in between the ceiling and floor, then use replacement cost.
Ceiling = NRV
Floor = NRV - profit margin

Question 37

how do you calculate Net realizable value (NRV)?

Answer 37

Net realizable value (NRV) = Selling price - Costs of

completion

Question 38

How do you calculate the funded status?

Answer 38

Funded status= Fair value of plan assets-PBO

Question 39

How do you calculate the ending funded status (pension . benefit asset/liability)?

Answer 39

Beginning funded status (pension benefit asset/liability)
+ Contribution
- Service cost
- Interest cost
+ Expected return on plan assets
- Prior service cost incurred in the current period due to plan amendment
+ Net gains incurred during the current period
- Net losses incurred during the current
= Ending funded status (pension . benefit asset/liability)