General Purpose Financial statement

Question 1

What is the prepaid expense ?

Answer 1

This is the unexpired amount at year end.

Question 2

Cash basis revenue

Answer 2

Cash basis revenue is the total cash collected. That includes cash collected for services that are yet to be performed (unearned revenue). Deduct AR as this is an accural basis revenue. If there is a decrease in AR, then decrease is cash.

Question 3

Cash to Accural basis service revenue formula

Answer 3

Cash collected + End AR - Beginning AR + Begining UR - End UR

Question 4

How to convert to accrual basis operating expenses

Answer 4

Use JE entry to see the effect of the transactions on operating expenses. Example- an increase in accrued liabilities will be - DR expenses and CR liability. Accrued expenses increases expenses. The general rule is that asset have opposite effect & liabilities have direct effect.
For prepaid- DR prepaid and CR cash.

Question 5

Cash to Accrual

Answer 5

The general rule from cash to accrual is to add decreases in liabilities and deduct increases. And add increase to assets and deduct decreases to assets. The opposite is true for accrual to cash.

Question 6

Accrual to cash basis income.

Answer 6

The rule is to add decreases in asset. Deduct increases in assets. This have opposite effect.
Deduct decreases in liabilities and add increases in liabilities. This have a direct effect.

Question 7

Measurements base used in financial reporting

Answer 7

Market value, Historical costs, Discounted cash flow, Replacement cost, NRV.
Discounted cash flow used for asset capitalized under long term lease.

Question 8

FV guidance by ASC 820

Answer 8

There is no FV guide for legal services received in exchange for an entity’s stocks.

Question 9

Discontinued operation

Answer 9

Discontinued operations is reported separately in the income stmt for both s

Question 9

Discontinued operation

Answer 9

Discontinued operations is reported the same for both single and multiple income statements

Question 10

Comprehensive income

Answer 10

Applies only to full set of financial statements- Cash flow statement, BS, Income statement. Do not apply to NFP

Question 10

Comprehensive income

Answer 10

Applies only to full set of financial statements- Cash flow

Question 11

Cash flow direct method

Answer 11

Cash collected- Add decreases in AR & deduct increases in AR.

Question 12

Cash flow direct method

Answer 12

Cash paid
Dr increase in Inventory & CR decreases
Cr AP increases & dr decrease

Question 13

Cash flow direct method- CGS or Cash paid

Answer 13

Can be asked to adjust CGS/ Cash paid. If so, the JE entry is opposite of each other

Question 14

Cash flow question

Answer 14

Pay attention to the question. They can ask for inflows, outflows, or the net amount

Question 15

Discontinued operations

Answer 15

When committed to dispose, the loss/gain for the entire yr of operation plus the estimated loss to dispose is recognized. Only actual operating income or loss is recognized. Estimated operating loss or gain is NEVER RECOGNIZED. Only estimated disposal loss is recognized.
No estimated gain to dispose is recognized due to conservatism.

Question 16

Discontinued operations

Answer 16

Must be approved sale and represents a strategic shift in operations

Question 17

Group asset accounting

Answer 17

Depreciation for a group asset is for the entire asset group. The amount of depreciation related to an asset is unknown in the group method.

Question 18

Involuntary conversation of asset

Answer 18

The Gain or loss is the difference between the proceeds received and

Question 18

Involuntary conversation of asset

Answer 18

The Gain or loss is the difference between the proceeds received and

Question 18

Involuntary conversation of asset

Answer 18

The Gain or loss is the difference between the proceeds received and

Question 18

Involuntary conversation of asset

Answer 18

The Gain or loss is the difference between the proceeds received and NBV of the converted asset regardless of whether or not the preceed is reinvested

Question 19

Involuntary conversation of asset

Answer 19

The Gain or loss is the difference between the proceeds received and

Question 20

Discontinued operations rules.

Answer 20

1. Include the operating gain or loss in the year mgt made the decision to see.
2. Includes estimated loss to sell. This sometimes needs to be calculated- FV minus CV at date of sale.
3. Do not include estimated gain- conservatism.
4. Do not include estimated operating loss or income. On

Question 21

Investment in subsidiary using the cost method

Answer 21

The parent does not recognize income or loss when using the cost method. Only recognize the share of its dividend as income.
Dr cash/ dividend receivable
Cr dividend income

Question 22

Consolodation- equity method

Answer 22

In equity method consolidation, the parents net income equals the consolidated net income

Question 22

Consolodation- equity method

Answer 22

In equity method consolidation, the parents net income equals the consolidated net income

Question 22

Consolodation- equity method

Answer 22

In equity method consolidation, the parents net income equals the consolidated net income

Question 22

Consolodation- equity method

Answer 22

In equity method consolidation, the parents net income equals the consolidated net income

Question 23

Consolodation- equity method

Answer 23

In equity method consolidation, the parents net income equals the consolidated net income

Question 24

Consolidation- full equity method accounting.

Answer 24

Under the full equity method of accounting (full ownership), consolidated RE equal the RE of the parent.

Question 25

Monetary and non Monetary item

Answer 25

A monetary item is one that is fixed or determined without reference to future prices.