Financial Statements Flashcards
Required disclosures for an entity with plans that mitigate/alleviate substantial doubt regarding its ability to continue as a going concern include all of the following except:
Conditions giving rise to the substantial doubt about its ability to continue as a going concern.
Management’s evaluation of the significance of the conditions or events.
Management’s plan that alleviated the substantial doubt about its ability to continue as a gong concern.
Management’s intended plans to alleviate substantial doubt about its ability to continue as a going concern.
Management’s intended plans to alleviate substantial doubt about its ability to continue as a going concern.
This answer is correct. Conditions giving rise to substantial doubt, management’s evaluation of the significance of the events, and management’s plans that alleviated the doubt are all required disclosures when an entity has alleviated substantial doubt about its ability to continue as a going concern. Management’s intended plans are disclosed when substantial doubt has not been alleviated.bt about its ability to continue as a going concern.
Which of the following is not a reason to prepare prospective financial information?
To aid in considering a change in accounting or operations.
To aid in preparation of the budget.
To obtain external financing.
To meet the requirements of GAAP.
To meet the requirements of GAAP.
This answer is correct. The preparation of prospective financial information is not required by GAAP
ASC Topic 825 for the fair value option election applies to all of the following items except for
Firm commitments that involve financial instruments.
Warranties that can be settled by paying a third party.
Held-to-maturity investments.
Leases.
Leases.
This answer is correct. ASC Topic 825 provides that the fair value option does not apply to leases.
Under IFRS, interest and dividends received may be reported on the statement of cash flows as
Operating activities only.
Investing activities only.
Either operating or investing activities.
Neither operating nor investing activities.
Either operating or investing activities.
This answer is correct because under IFRS, interest and dividends received may be reported on the statement of cash flows as either operating or investing activities. Although an entity has reporting discretion, it must be reported consistently.
Partners C and K share profits and losses equally after each has been credited in all circumstances with annual salary allowances of $15,000 and $12,000, respectively. Under this arrangement, C will benefit by $3,000 more than K in which of the following circumstances?
Only if the partnership has earnings of $27,000 or more for the year.
Only if the partnership does not incur a loss for the year.
In all earnings or loss situations.
Only if the partnership has earnings of at least $3,000 for the year.
In all earnings or loss situations.
This answer is correct. Since the salary allowances are credited to the partners’ accounts before sharing the profits and losses, C will always benefit by $3,000 ($15,000 − $12,000). In the event of a profit situation, C will receive $3,000 additional income. In a loss situation, C’s salary will offset $3,000 additional loss and therefore C will benefit by this amount.
Taft Inc. began operations in year 1. For the year ended December 31, year 1, the company reported the following information:
Net income $300,000 Dividends paid on common stock 40,000 Unrealized loss from available-for-sale securities (42,000) Credit translation adjustments 17,000 Taft does not elect the fair value option for reporting its financial assets. Taft Inc. has comprehensive income in year 1 of $275,000 $258,000 $235,000 $317,000
This answer is correct. Taft’s comprehensive income for year 1 is $275,000. Comprehensive income for year 1 consists of the following amounts:
Net income for year 1 $300,000
Other comprehensive loss:
Unrealized loss on available-for-sale securities $(42,000)
Translation adjustments $ 17,000 (25,000)
Comprehensive income for year 1 $275,000
The dividends paid on the common stock do not affect the amount reported for comprehensive income. Other comprehensive income (loss) is comprised of the following components.
* Unrealized gains and loss on available-for-sale securities;
* Translation adjustments related to investments in foreign companies;
* Minimum pension liability adjustment;
* Reclassification to avoid double counting of items reported in other comprehensive income (loss) in a prior or current year that are reported in net income of the current year.
On January 1, Year 2, Dart, Inc. entered into an agreement to sell the assets and product line of its Jay Division, considered a segment of the business. This activity is considered a strategic shift. The sale was consummated on December 31, Year 2, and resulted in a gain on disposition of $400,000. The division’s operations resulted in losses before income tax of $225,000 in Year 2 and $125,000 in Year 1. Dart’s income tax rate is 30% for both years. In a comparative statement of income for year 2 and Year 1, Dart should report a gain (loss) from discontinued operations for the years 2 and 1 of
Year 2 Year 1 $ 122,500 $0 $ 122,500 $(87,500) $(157,500) $(87,500) $(157,500) $0
This answer is correct. Financial statements of current and prior periods should disclose the results of the operations of the disposed component, less applicable taxes, as a separate component of income. Therefore, the discontinued operations should be reported separately, net of taxes, for both Year 2 and Year 1. The computations are
Year 2 Year 1
Discontinued operations:
Loss from operating discontinued segment -0- $(87,500)**
Gain on disposal of discontinued segment 122,500* -0-
Loss from discontinued operations $122,500 $(87,500)
- [($400,000 − $225,000) − 30% ($400,000 − $225,000)].
- [$125,000 − (30% × $125,000)].
A partnership agreement specifies that 5% interest is to be paid on the weighted-average capital balance for each partner throughout the year. Abel had a beginning capital balance of $100,000. Abel withdrew $30,000 cash on April 1 and on June 1; Abel contributed land with a fair value of $50,000 to the partnership. No other events related to the capital count occurred throughout the year. How much interest should be credited to Abel’s capital account? $0 $5,000 $5,333 $5,500
This answer is incorrect because Abel is to receive interest on the weighted-average capital balance, not the beginning balance ($100,000 × 5% = $5,000). Abel is to receive 5% interest on the weighted-average capital balance. The weighted-average capital balance and interest are calculated as follows:
Beginning capital $100,000 × 3/12 = $ 25,000
Withdrawal of $30,000 $70,000 × 2/12 = $ 11,667
Contribution of $50,000 $120,000 × 7/12 = $ 70,000
Weighted-average balance $ 106,667
Interest rate 5%
Interest $ 5,333
