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FAR > I. Conceptual Framework and Financial Reporting > Flashcards

I. Conceptual Framework and Financial Reporting Flashcards

1
Q

Gain on sale of plant asset is classified as what on the statement of cash flows under the indirect method?

A

The gain on the sale of a plant asset is a non-cash item that is used to reconcile net income to cash flows from operations

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2
Q

Classify the following as O, I, F: Proceeds from the issuance of common stock

A

Financing

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3
Q

Classify the following as O, I, F: Proceeds from the issuance of convertible bonds

A

Financing

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4
Q

Classify the following as O, I, F: Borrowings under a line of credit

A

Financing

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5
Q

Classify the following as O, I, F: Dividends paid

A

Financing

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6
Q

Classify the following as O, I, F: Payments to retire mortgage notes

A

Financing cash outflows

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7
Q

Classify the following as O, I, F: Interest payments on mortgage notes

A

Operating: All interest payments are defined as operating cash flows

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8
Q

Working Capital

A

Working Capital = Current assets minus current liabilities

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9
Q

Classify the following as O, I, F: Classify the following as O, I, F: Interest payments on mortgage notes

A

Financing

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10
Q

Classify the following as O, I, F: Cash effects of transactions involving making and collecting

A

Investing

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11
Q

What are required disclosures involving sources of risk and uncertainty?

A
  1. Nature of the entity’s operations
  2. Use of estimates in financial statements
  3. Certain significant estimates
  4. Current vulnerability due to significant concentrations in certain aspects of operations
  5. The entity’s ability to exist as a going concern
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12
Q

If the parent uses the equity method to carry on its books the investment in a subsidiary, will the carrying value of the investment normally change following a combination?

A

Yes, the carrying value of the investment will change as the equity of the subsidiary changes

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13
Q

If the parent uses the cost method to carry on its books the investment in a subsidiary, will the carrying value of the investment normally change following a combination?

A

No, carrying value will normally not change

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14
Q

Which of the following financial statements (BS, IS), if any, prepared by a parent following an operating period that occurred after a business combination, is likely to be different from financial statements it prepares immediately before the business combination?

A

Yes both a parent’s balance sheet and income statement prepared following an operating period that occurred after a business combination are likely to be different from financial statements it prepares immediately before the business combination. As a result of the combination, the parent will have on its balance sheet an investment account (and probably other accounts/amounts) that it did not have before the combination as well as the effects of post-combination transactions on the assets, liabilities, and equities of the parent and its subsidiaries. In addition, whereas the consolidated income statement prepared immediately before (or immediately after) the combination will consist of only the parent’s revenues and expenses, an income statement prepared after an operating period will include the subsidiaries’ revenues and expenses as well as the result of post-combination transactions on the revenues and expenses of the parent.

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15
Q

True or False: A firm may elect to use fair value to measure and report the financial asset “Investment in debt securities to be held to maturity,” instead of using the traditionally required amortized cost method.

A

True

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16
Q

Under IFRS, what are the three conditions required to exclude a subsidiary from consolidation?

A

The three required conditions are:

(1) it is wholly or partially owned and its other owners do not object to nonconsolidation;
(2) it does not have any debt or equity instruments publicly traded; and
(3) its parent prepares consolidated financial statements that comply with IFRS.

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17
Q

What form of a business combination will require the preparation of consolidated financial statements?

A

Acquisition

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18
Q

In the _____ and ______ forms of business combination, only one firm will remain after the combination. Therefore, there will not be two (or more) sets of financial statements to consolidate.

A

merger; consolidation

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19
Q

What are the three elements of Relevance?

A

Predictive Value, Confirmatory Value, Materiality

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20
Q

What are the three elements of Faithful Representation?

A

Completeness, Neutrality, Free from Error

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21
Q

What are the four enhancing qualities?

A

Comparability, Variability, Timeliness, Understandability

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22
Q

Increases in net assets from incidental or peripheral transactions affecting an entity.

A

Gains

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23
Q

The process of converting noncash resources and rights into cash or claims to cash.

A

Realization

24
Q

The process of formally recording an item in the financial statements of an entity after it has met existing criteria and been subject to cost-benefit constraints and materiality thresholds.

A

Recognition

25
Q

All changes in net assets of an entity during a period except those resulting from investments by owners and distributions to owners.

A

Comprehensive Income

26
Q

Inflows or other enhancements of assets of an entity or settlements of its liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing operations.

A

Revenues

27
Q

The amount of cash, or its equivalent, that could be obtained by selling an asset in orderly liquidation.

A

Current Market Value

28
Q

A performance measure concerned primarily with cash-to-cash cycles.

A

Earnings

29
Q

Quoted prices in an inactive market (rather than an active market) for an identical asset is what level?

A

2

30
Q

Two approaches are available for applying interest rates to average accumulated expenditures for the purpose of capitalizing interest. These approaches are called the specific method and the weighted average method. In some cases, these approaches yield the same results. Two situations may be encountered in practice for a specific period:

(1) average accumulated expenditures exceed total interest bearing debt (principal) and
(2) the interest rates on all interest bearing debt instruments are the same.

Which situation yields the same results for the two approaches?

A

Both

31
Q

Deferred taxes are classified as current or non-current?

A

non-current

32
Q

Dividends in arrears on cumulative preferred stock:

are considered to be a current or non-current liability.

A

non-current

33
Q

On February 1, year 1, Blake Corporation issued bonds with a fair value of $1,000,000. Blake prepares its financial statements in accordance with IFRS. What methods may Blake use to report the bonds on its December 31, year 1 statement of financial position?

A

Amortized Cost
Fair value through profit or loss

IFRS provides that financial liabilities may be reported at amortized cost or at the fair value through profit or loss (FVTPL). If FVTPL is elected, the resulting gain or loss is recognized in profit or loss for the period.

34
Q

What type of cost is Freight out?

A

Is a manufacturing cost. Is incurred after the inventory reaches its salable condition so it is not an inventoriable cost.

35
Q

Inventory turnover ratio =

A

cost of sales / average inventory

36
Q

Calculation for number of times inventory is “turned over”

A

365/Inventory turnover ratio

37
Q

What are quick assets?

A

Assets which are considered very liquid and which can be turned into cash relatively quickly

38
Q

Quick ratio =

A

(Current assets - Inventory - Prepaids) / (Current liabilities)

OR

(Cash + Cash Equiv + Marketable securities + AR) / Current Liabilities

39
Q

Accounts receivable turnover =

A

Credit sales / average accounts receivable

40
Q

Is inventory a current and quick asset?

A

Inventory is a current asset but not a quick asset

41
Q

On the date of a business combination using acquisition accounting, the consolidated stockholders’ equity will equal what?

A

On the date of a business combination using acquisition accounting, the consolidated stockholders’ equity will exactly equal the parent company stockholders’ equity. This will continue to be the case as long as the parent company uses a complete equity method of accounting for the subsidiary.

42
Q

Billing in excess of costs on long-term contracts is a current or noncurrent liability?

A

Current Liability - this is similar to unearned revenue

43
Q

Calculate Average days’ operating cycle

A

Avg days’ sales in inventories + Avg days’ sales in AR

44
Q

What does average days’ sales in inventories measure?

A

Measures the number of days from the purchase of inventory to the sale of inventory

45
Q

What does average days’ sales in AR measure?

A

Measures the number of days from the sale of inventory to the collection of cash

46
Q

According to the IASB Framework, the two criteria required for incorporating items into the income statement or statement of financial position are that:

A

It meets the definition of an element and can be measured reliably

47
Q

Proceeds from sale is what type of cash flow?

A

Investing cash flow (will not be reduced by a gain on a sale of used equipment)

48
Q

If the assets were sold by the selling affiliate at a price greater than the carrying value to the selling affiliate and there was a failure to eliminate intercompany fixed asset balances, would you have overstated income or loss?

A

Overstatement of income

49
Q

OIF? Collection of proceeds from a note payable.

A

Financing

50
Q

OIF? Collection of a note receivable.

A

Investing

51
Q

What is comprehensive income?

A

Net income plus or minus unrealized gains and losses on debt securities classified as available for sale are recognized in comprehensive income for the period.

52
Q

T/F: Cash flows from available-for-sale and held-to-maturity investments are both included in investing activities.

A

True

53
Q

A contract with a significant financing component will generate what type of revenue?

A

Both sales and interest revenue. The seller is essentially providing financing to the buyer and the buyer is paying interest for the financing.

54
Q

A company issued rights to its existing shareholders without consideration. The rights allowed the recipients to purchase unissued common stock for an amount in excess of par value. When the rights are issued, which of the following accounts will be increased? CS; APIC

A

Neither. When stock rights are issued to existing stockholders without consideration, no entry is required because no stock has been issued and no cash has been received. Therefore, there is no effect on the common stock or additional paid-in capital accounts until the rights are exercised.

55
Q

IFRS requires a classified Statement of Financial Position. What are the required classifications?

A

Under IFRS, the classified Statement of Financial Position has just two classifications: Current and Non-current. Both assets and liabilities are divided into these two classifications, with Non-current being the default category.

56
Q

Under IFRS, the approach used in segment reporting is known as?

A

Management approach

FAR (4 decks)

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