Financial Statement Accounts

Question 0

4 Steps to Calculate Dollar Value LIFO

Answer 0

1. Convert ending inventory to base year costs
2. Determine the increase in inventory at base year cost
3. Convert the current year layer to current year costs
4. Add current layer to beginning of year dollar value LIFO to derive end of year dollar value LIFO.

Question 1

Under IFRS, what is a cash generating unit (CGU)?

Answer 1

A CGU is the smallest group of assets that can be identified that generates cash flows independently of the cash flows from other assets.

Question 2

What 2 criteria are used to determine if post-acquisition costs should be capitalized?

What is not a criteria?

Answer 2

1. Increase in useful life
2. Increase in productivity or efficiency including cost reduction

The criterion for capitalizing post-acquisition costs is not whether the market value of the overall asset is increased.

Question 3

What is the “successful efforts method-definition of asset”?

Answer 3

The successful efforts method capitalizes only the cost of exploration efforts that locate the resource. Only the efforts that yield a probable future benefit are capitalized. This is a direct application of the asset definition, which requires that an asset have a probable future benefit.

Question 4

What cost flow assumptions can/cannot be used for inventory valuation under IFRS?

FIFO - First-In-First-Out
LIFO - Last-In-First-Out
WAC - Weighted Average Cost

Answer 4

FIFO - Yes
LIFO - No
WAC - Yes

Question 5

What is the difference between IFRS and US GAAP for goodwill?

Answer 5

IFRS - Goodwill is considered to have a limited life and is amortized over that life, not to exceed 10 years.

US GAAP - Goodwill is assumed to have unlimited life and is not amortized.

Question 6

What is the difference between a term bond and a serial bond?

Answer 6

Term bond - a bond that matures on a single date

Serial bond - a bond that matures in multiple dates

Question 7

[Bonds] How do you calculate the issue price of bond with a different yield than the stated rate? (2 parts)

Answer 7

1) + PV of Bond Face Value at current yield
2) + PV of Ordinary Annuity for Bond Interest

= Bond price at current yield (sold at either discount or a premium

Question 8

[Bond Payable] Explain the difference between interest payable and interest expense.

Answer 8

Interest payable - Face value x Stated rate

Interest expense - NBV x Current Yield

The difference between the two rates is the amount of amortized premium/discount.

Question 9

[Revenue Recognition] What are the 4 criteria for recognizing revenue?

Answer 9

1. Persuasive evidence of an arrangement exists
2. Delivery has occurred or services have been provided
3. The seller’s price is fixed or determinable
4. Collectibility is reasonably assured

Question 10

5 Categories of Events Causing Changes to Owner’s Equity

Answer 10

1. Income for the Period: Revenues & Expenses
2. Other Comprehensive Income for the Period
3. Effects of Transactions with Owners
4. Accounting Principle Changes
5. Prior Period Adjustments

Question 11

What is Accumulated Benefit Obligation?

Answer 11

Present Value of unpaid future retirement benefits on Balance Sheet date consisting of 1) service rendered to that date, 2) current salary levels

Question 12

5 Components of Pension Expense

Answer 12

1. Service Cost (SC) - Increase in PBO due to service for the year
2. Interest Cost - Growth in PBO for period due to passage of time
3. Expected Return on Plant Assets - Expected amount of growth in the pension fund for the year
4. Amortization of Prior Service Costs (PSC)
5. Amortization of Net Gain/Loss

Question 13

4 Pension Expense Items that lead to ending net gain or loss that carry over to the next period

Answer 13

1. Amortization
2. Beginning net gain or loss
3. PBO gain or loss for the period
4. Asset gain or loss for the period

Question 14

3 Required Disclosures for Employee Sponsored Pension Plans

Answer 14

1. Description of the Plan
2. Amount of Pension Expense by Component
   a. Current Service Cost
   b. Interest Cost
   c. Return on Plan Asset
3. The Weighted Average Discount Rate used in Pension Calculations

Question 15

6 Specific Permanent Differences between Taxable Income and GAAP Income

Answer 15

1. Tax-Free Interest Income - ex. Muni bond, included in GAAP income, but not Taxable Income
2. Life Insurance Expense - for key employees where corp is beneficiary are not tax-exempt, but are a GAAP expense
3. Proceeds on Life Insurance - not taxable, but included as GAAP gain
4. Dividends Received Deduction - counted as GAAP income, but not portion not included in taxable income
5. Fines & Penalties - GAAP expenses, but not tax deductible
6. Depletion - GAAP based on cost of resources used up, tax based upon revenues from resources sold

Question 16

Year End Tax Accrual Entry

Answer 16

Dr. Income Tax Expense (plug)
Dr. Deferred Tax Asset
Cr. Deferred Tax Liability
Cr. Income Tax Payable (taxable income x tax rate)

Question 17

Deferred Tax Assets

vs.

Deferred Tax Liabilities

Answer 17

DTA - temporary differences that are deductible from taxes in future periods

DTL - temporary differences that are taxable in future periods