Gleim SU2 - Financial Statements

Question 1

Current assets include

Answer 1

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
(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 2

Under IFRS, a current liability is classified as noncurrent if the entity

Answer 2

(1) intends to refinance on a noncurrent basis and
(2) demonstrates an ability to complete such a refinancing. demonstrated by entering into an agreement to refinance or to reschedule payments on a long-term basis.
Under IFRS, a current liability may be classified as noncurrent only if the agreement to refinance or reschedule payments on a noncurrent basis is completed before the reporting date.

Question 3

The statement of financial position, also known as the balance sheet reports what?

Answer 3

an entity’s financial position at a moment in time

Helps assess liquidity, financial flexibility, profitability, and risk.

Question 4

Under U.S. GAAP, a current liability is classified as noncurrent if the entity

Answer 4

(1) intends to refinance on a noncurrent basis and
(2) demonstrates an ability to complete such refinancing. demonstrated by entering into an agreement to refinance or to reschedule payments on a long-term basis. Such an agreement may be completed after the reporting date but before the financial statements are issued.

Question 5

How does the single-step income statement classify items included in Net Income?

Answer 5

As either revenues or expenses
1) Discontinued operations
2)Extraordinary items
must be reported below income from continuing operations

Question 6

The transactions not included in net income are

Answer 6

1) Transactions with owners,
2) Error corrections,
3) Items reported initially in OCI
4) Transfers to and from appropriated retained earnings,
5) Effects on prior periods of accounting changes.

Question 7

Formula for Cost of Goods Manufactured

Answer 7

Ending FG inventory
+Purchases
–Beginning FG inventory
=Cost of goods manufactured

Question 8

Formula for Cost of Goods Sold

Answer 8

COGS =
Beginning Inventory +
Purchases During the Period
– Ending Inventory.

Question 9

Selling expenses are

Answer 9

Incurred in selling or advertising:
Examples include
Sales rep salaries,, commissions, and travel expenses;
Sales department rent, salaries, and depreciation;
Communications (e.g., Internet) costs.
Shipping costs to customers.
Adv costs, expsed as incurred or when adv first occurs.
The accounting policy chosen must be applied consistently to similar advertising activities.
(cooperative advertising). The revenues related to the transactions that created such obligations generally are recognized before reimbursement. Accordingly, the obligations must be accrued and the advertising costs expensed when the related revenues are recognized

Question 10

Administrative (general) expenses

Answer 10

Accounting, legal, and other fees for prof. services;
Officers’ salaries;
Insurance;
Wages of office staff;
Miscellaneous supplies; and
Office occupancy costs.

Question 11

The single-step income statement provides

Answer 11

one grouping for revenues and gains and one for expenses and losses. one subtraction necessary to arrive at net income

recognized amounts not included in continuing operations are reported in a separate section for discontinued operations

Question 12

If Intra-period tax allocation is required. Income tax expense or benefit is allocated to

Answer 12

Continuing operations (which is net of tax)
Discontinued operations,
Other comprehensive income
Items dbtd or crdtd directly to other components of equity.

Question 13

Difference Between Operating Income and Income from Continuing Operations

Answer 13

Continuing operations income is net of tax

Question 14

Material items that are unusual in nature, infrequent in occurrence, or both are reported as

Answer 14

a separate component of income from continuing operations.

not be reported net of taxes.

Gains or losses of a similar nature that are not individually material must be aggregated.

The nature and financial effect of each item is disclosed in the notes to the financial statements or reported in the income statement.

The effects of such items on earnings per share must not be presented on the income statement.

Question 15

OCI includes

Answer 15

(1) unrealized gains and losses on investments in debt securities classified as available-for-sale securities (except those that are hedged items in a fair value hedge);
(2) gains and losses on derivatives designated and qualifying as cash flow hedges;
(3) certain amounts associated with recognition of the funded status of postretirement defined benefit plans;
(4) certain foreign currency items.
5) Prior service costs not previously recognized as a component of net periodic pension costs are reported under other comprehensive income.

Question 16

Foreign currency items included in OCI are

Answer 16

(1) a gain or loss on a hedging derivative in certain cash flow hedges,
(2) the gain or loss on a hedging derivative or nonderivative in a hedge of a net investment in a foreign operation (treated as a translation adjustment) (3) translation adjustments.

Question 17

A statement of changes in equity presents changes during the accounting period in the separate equity accounts for

Answer 17

retained earnings
common stock
preferred stock
additional paid-in capital
accumulated OCI
noncontrolling interest.

Question 18

changes in retained earnings can result from the following adjustments:
What financial statement is it part of

Answer 18

reported onStatement of change in equity.

Net income (loss) for the period;
Any prior-period adjustments, net of tax
Dividends declared
Certain other rare items, e.g., reissuance of treasury stock under the cost method

Retained earnings are sometimes appropriated (restricted) to a special account to disclose that earnings retained in the business (not paid out in dividends) are being used for special purposes

Question 19

A company pays more than the fair value to acquire treasury stock. The difference between the price paid to acquire the treasury stock and the fair value should be recorded as

Answer 19

Apart from cash paid or received, a firm cannot recognize assets, liabilities, gains, or losses from transactions in its own stock. Treasury stock is reported on the balance sheet as a subtraction from equity.