Financial Reporting

Question 1

The management’s discussion and analysis (MD&A) section of an annual report (Form 10-K).

Answer 1

The MD&A section is included in SEC filings. It addresses in a nonquantified manner the prospects of a filer.

Question 2

Integral Corp. is subject to the reporting provisions of the Securities Exchange Act of 1934. For its current fiscal year, Integral filed the following with the SEC: quarterly reports, an annual report, and a periodic report listing newly appointed officers of the corporation. which of the following was Integral required to do?

Answer 2

A covered corporation is required to file annual (10-K), quarterly (10-Q), and current events (8-K) reports with the SEC. The 10-K report contains information about the entity’s business activities, securities, management, related parties, disagreements about accounting principles and disclosure, audited financial statements, etc.

Question 3

Which of the following adjustments is necessary to convert cash receipts to revenues as reported on an accrual basis?

Answer 3

Subtract ending contract liability from cash receipts from customers.

Question 4

Which of the following statements is correct concerning corporations subject to the reporting requirements of the Securities Exchange Act of 1934?

Answer 4

Current reports must be filed on Form 8-K describing specified material events. Examples are (1) changes in control of the registrant, (2) the acquisition or disposition of a significant amount of assets not in the ordinary course of business, (3) bankruptcy or receivership, (4) resignation of a director, and (5) a change in the registrant’s certifying accountant.

Question 5

Regulation S-X disclosure requirements of the Securities and Exchange Commission (SEC) apply to

Answer 5

The requirements for filing interim financial statements and pro forma financial information.

Question 6

Earnings Per Share

Answer 6

Net Income- Preferred Stock Dividends/ Weighted Average # of Outstanding Common Shares

Question 7

United Common Stock

Answer 7

Is a treasury stock that should be reported as a contra item in the shareholders equity section. The total equity is Common Stock minus deficit in retained earning- treasury stock.
CN-RE(DEFICIT)- TS(Listed as untied common stock under current assets)

Question 8

A defined benefit pension plan had the following activity during the fiscal year:
Dividends and interest received
$ 92,000
Contributions received from employers and employees
340,000
Administrative expenses
45,400
Investments purchased
155,000
Increase in fair value of investments at year end
36,750
What should be reported as the total additions in the pension plan’s statement of changes in net assets available for benefits?

Answer 8

Dividends and interest received plus contributions received from employers and employers plus the increased in fair value of investments at the end of the year.

Question 9

What is the company’s cash-basis income/loss from operations at the end of Year XX?

Answer 9

Under the cash basis of accounting, revenues and expenses are recognized when cash is received or paid, respectively, regardless of when goods are delivered or received or when services are rendered. Thus, the company’s cash-basis operating loss for Cash Sales – Expenses paid).

Question 10

Among a set of financial statements prepared in conformity with a special purpose framework.

Answer 10

The statement of cash receipts and disbursements is for a special purpose framework not prepared under GAAP.

Question 11

Basic Financial Statement under GAAP

Answer 11

Under U.S. GAAP, the set of basic financial statements is (1) the balance sheet (the statement of financial position), (2) the statement of income (the statement of operations), (3) the statement of comprehensive income, (4) the statement of changes in equity, and (5) the statement of cash flows.

Question 12

recognize revenue for the goods is when

Answer 12

The performance obligation is satisfied and revenue is recognized when the customer obtains control of a promised asset. The indicators of the transfer of control that should be considered include (1) the entity’s present right to payment for the asset, (2) the customer’s legal title to the asset, (3) the entity’s transfer of physical possession of the asset, (4) the customer’s significant risks and rewards of ownership of the asset, and (5) the customer’s acceptance of the asset.

Question 13

Available-for-sale debt securities are measured at fair value in the financial statements.

Answer 13

Unrealized holding gains or losses on their remeasurement to fair value, that are not related to credit losses, are reported in OCI. On 12/31/Year 3, the amount reported was $130,000. The increase in the fair value in Year 4 of $30,000 ($160,000 – $130,000) is recognized as an unrealized holding gain in Year 4 OCI. Fair Value of Year XX- Fair Value of Year XX

Question 14

determination of taxable income may be presented in different sections of the financial statements. Accordingly, intraperiod tax allocation is required

Answer 14

income tax expense or benefit is allocated to (1) continuing operations, (2) discontinued operations, (3) other comprehensive income, and (4) items debited or credited directly to shareholders’ equity.

Question 15

Two required financial statements of a defined contribution retirement plan?

Answer 15

A statement of net assets available for benefits of the plan and a statement of changes in net assets available for benefits.

Question 16

Comprehensive basis of accounting other than generally accepted accounting principles?

Answer 16

A comprehensive basis of accounting other than GAAP may be (1) a basis that the reporting entity uses to comply with the requirements or financial reporting provisions of a regulatory agency; (2) a basis used for tax purposes; (3) the cash basis, and modifications of the cash basis having substantial support, such as recording depreciation on fixed assets or accruing income taxes; or (4) a definite set of criteria having substantial support that is applied to all material items, for example, the price-level basis. However, a basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution does not qualify as governmentally mandated or as having substantial support.

Question 17

Total revenues

Answer 17

Total Revenue- (Discontinued operations (Income from operations of component unit) minus Income tax)

Question 18

What is the accrual-based revenue for Year XX?

Answer 18

Under the accrual method, revenues and gains are realized when goods or services have been exchanged for cash or claims to cash, not when that cash is collected. Consequently, given that total cash collected

Question 19

What amount should Gold report as current assets

Answer 19

Current assets include, in descending order of liquidity, (1) cash and cash equivalents; (2) certain individual trading, available-for-sale, and held-to-maturity debt securities; (3) receivables; (4) inventories; (5) prepaid expenses; and (6) certain individual investments in equity securities. Current assets are reasonably expected to be realized in cash, sold, or consumed within 1 year or the normal operating cycle of the business, whichever is longer.

Question 20

As of December 1, Year 2, a company obtained a $1,000,000 line of credit maturing in 1 year on which it has drawn $250,000, a $750,000 secured note due in 5 annual installments, and a $300,000 3-year balloon note. The company has no other liabilities. How should the company’s debt be presented in its classified balance sheet on December 31, Year 2, if no debt repayments were made in December?

Answer 20

Current liabilities are obligations that are expected to be fulfilled within 1 year or the operating cycle, whichever is longer. Thus, the $250,000 of credit drawn and the current portion of the secured note ($750,000 ÷ 5 years = $150,000) are considered current liabilities ($250,000 + $150,000 = $400,000). The 3-year balloon note and the noncurrent portion of the secured note of $600,000 ($750,000 – $150,000) will be classified as long-term liabilities ($300,000 + $600,000). A balloon note is a loan in which only one payment is due upon maturity.

Question 21

Retained Earnings

Answer 21

(Beginning retained earnings (Revenues- expenses )* (1- tax rate)

Question 22

COGS

Answer 22

Cost of Sales (cost of goods manufactured) + beginning finished goods inventory - ending inventory

Question 23

Net Income

Answer 23

(Assets - Liabilities)-( CapitalStock+ Additional paid in capital - dividends paid )

Question 24

General and administrative expenses

Answer 24

General and administrative expenses are incurred for the direction of the entity as a whole and are not related entirely to a specific function, e.g., selling or manufacturing.

Accounting, legal and other fees + Other cost not related to selling or manufacturing

Question 25

in the determination of a present value, which of the following relationships is true?

Answer 25

As the discount rate increases, the present value decreases. Also, as the discount period increases, the present value decreases.

Question 26

total equity

Answer 26

Total credits to equity equal $1,750,000 (Common stock at par + Additional paid-in capital + Retained earnings). The treasury stock recorded at cost is subtracted from (debited to) total equity, and the unrealized holding loss on available-for-sale securities is debited to other comprehensive income, a component of equity. Because total debits equal $70,000 (Cost of treasury stock + Unrealized loss on available-for-sale securities).

Question 27

In the preparation of the statement of activities for a nongovernmental NFP, most expenses are reported as decreases in which of the following minimum required net asset classes?

Answer 27

Most expenses of an NFP must be reported as decreases in net assets without donor restrictions. An exception is investment expense. It must be netted against investment return and reported in the same net assets category.

Question 28

Materiality and relevance are both defined by

Answer 28

by their ability to influence or make a difference to a decision maker. Relevance is a fundamental qualitative characteristic. Relevant information is able to make a difference in user decisions. To do so, it must have predictive value and/or confirmatory value. However, information is material if it is probable that an omission or misstatement of an item in a financial report will affect the judgment of a reasonable person who relies on the information. Materiality is entity-specific, whereas relevance is a general idea about what is useful to investors.

Question 29

Form 8-K

Answer 29

Current report to disclose material events. It must be filed within four business days after an event. Some examples of material events include (1) a change in control of the registrant, (2) acquisition or disposition of a significant amount of assets not in the ordinary course of business, (3) bankruptcy or receivership, (4) resignation of a director, and (5) a change in the registrant’s certifying accountant.

Question 30

The objective of present value when used to determine an accounting measurement for initial recognition purposes is to

Answer 30

The objective of present value measurements is to estimate fair value by distinguishing the economic differences between sets of future cash flows that may vary in amount, timing, and uncertainty.

Question 31

One of the elements of financial statements is comprehensive income. Comprehensive income for a period excludes changes in equity resulting from which of the following?

Answer 31

According to the FASB’s conceptual framework, comprehensive income of a business entity is the periodic change in equity of a business from nonowner sources.

Question 32

Which of the following is not a theoretical basis for the allocation of expenses?

Answer 32

Profit maximization is not a theoretical basis for the allocation of expense. The allocation of expenses on such a basis would subvert the purpose of GAAP to present fairly the results of operations and financial position because expenses would not be reported.

Question 33

A U.S. public company with a worldwide public float of $800 million at the end of the second quarte

Answer 33

Large accelerated filers [companies with a public float (the market value of shares held by the public) of $700 million or more] must file Form 10-K within 60 days of the last day of the fiscal year.

Question 34

Changes to existing authoritative GAAP for nonissuer, nongovernmental entities are communicated by the Financial Accounting Standards Board through the issuance of

Answer 34

The Financial Accounting Standards Board (FASB) updates the Accounting Standards Codification (ASC) by issuing Accounting Standards Updates (ASUs).

Question 35

Using the capital maintenance approach, the net income (loss) for the year is calculated as

Answer 35

The financial capital maintenance approach requires that comprehensive income be determined by finding the change in equity (net assets) after adjusting for investments by, and distributions to, owners
Changes in net assets + capital stock sold- dividends declared

Question 36

Which of the following is considered a pervasive constraint by the FASB’s conceptual framework?

Answer 36

Cost is a pervasive constraint on the information provided by financial reporting.

Question 37

If the company is an accelerated filer, what is the latest date that the 10-Q should be filed with the U.S. SEC?

Answer 37

Form 10-Q (quarterly report) must be filed within 40 days (e.g., March 31-May 10) of the last day of the first three fiscal quarters by large accelerated filers (public float of $700 million or more)

Question 38

Relevance is a fundamental qualitative characteristic of useful accounting information

Answer 38

A fundamental qualitative characteristic of useful accounting information

Question 39

A nongovernmental not-for-profit organization may report on which of the following basis and remain in compliance with generally accepted accounting principles (GAAP)?

Answer 39

Thus, to remain in compliance with GAAP, a nongovernmental not-for-profit organization should apply the accrual basis of accounting.

Question 40

Under cash-basis accounting

Answer 40

Credit of Sales - collections - Accrued Salaries

Question 41

conditional pledge to a nongovernmental NFP organization be recognized as revenue

Answer 41

A conditional promise to give is not recognized until the condition is substantially met (i.e., the barrier is overcome).

Question 42

Bonds payable

Answer 42

Number of bonds * face value .

Total Fair Value is Bond w/o warrants / market value of the warrents

Answer 43

Under the interest method, interest expense is equal to the carrying amount of the bonds at the beginning of the interest period times the market (yield) rate of interest. For the first 6-month interest period, interest expense is $21,240 [$354,000 issue price × 12% yield rate × (6 ÷ 12)]. The periodic interest payment is $20,000 [$400,000 face amount × 10% coupon rate × (6 ÷ 12)]. The $1,240 ($21,240 – 20,000) difference is the amount of discount to be amortized during this first interest period. Amortization reduces the balance in the bond discount account. Thus, the balance of the unamortized bond discount account at June 30, Year 1, is $44,760 ($46,000 previous balance – $1,240 current-period amortization).

Question 44

Interest paid at end of first year

Answer 44

Face Value * Percent issued

Question 45

Contribution revenue

Answer 45

Contributions of services are recognized if they (1) create or enhance nonfinancial assets or (2) (a) require special skills, (b) are provided by those having such skills, and (c) would usually be purchased if not donated.