III. Select Transactions Flashcards
How is the percentage-of-completion method used in a construction contract to identify what is the liability or asset?
The percentage-of-completion method uses a construction-in-progress account to record the costs accumulated during the period. A progress billings account is used to record the billings made on the long-term projects.
At the end of the year, if the construction-in-progress account is greater than the progress billings, an asset is recognized. If the balance in the construction-in-progress account is less than the progress billings account, a liability is recognized.
According to ASC Topic 815, any financial or physical variable that has either observable changes or objectively verifiable changes qualifies as a(n)
Underlying
An underlying is commonly a specified price or rate such as a stock price, interest rate, currency rate, commodity price, or a related index. However, any physical or financial variable with observable changes or objectively verifiable changes qualifies as an underlying.
What is the general criterion for a hedging instrument?
The general criteria for a hedging instrument are that sufficient documentation must be provided at the beginning of the process and the hedge must be “highly effective” throughout its life.
Disclosures related to financial instruments that are used as hedging instruments must include what information?
- Objectives and strategies for achieving them.
- Context to understand the instrument.
- Risk management policies.
- A list of hedged instruments.
A company issued rights to its existing shareholders to purchase for $15 per share, 5,000 unissued shares of common stock with a par value of $10 per share. When and how much is Common Stock credited?
$10 per share when the rights are exercised.
In financial reporting for segments of a business enterprise, segment data may be aggregated
Before performing the 10% tests if all of the aggregation criteria are met.
What are the two types of annuities relating to leases and what are their conditions?
Annuity Due: Lease payment is due at the beginning of the lease period
Ordinary Annuity: Lease payment is due at the end of the lease period
What are the 5 criteria that is ANY one is true makes a lease a Finance Lease?
- If ownership transfers at the end of the lease
- If there is a purchase option at the end of the lease that the lessee is reasonably certain to exercise
- If the lease term is greater than or equal to 75% of the useful life of the leased asset
- If the present value of the lease payments is greater than or equal to 90% of the FMV of the leased asset
- If the asset is specialized in nature such that is has no alternative use to the lessor after the lease
What is the formula for a “direct quotation” in terms of foreign exchange rates? What is it for an “indirect quotation”?
A DIRECT QUOTATION states the domestic price of one unit of a foreign currency (eg, $0.11 USD per 1.00 JPY)
An INDIRECT QUOTATION is the foreign price of 1 unit of domestic currency (eg, 0.89 JPY per $1.00 USD
What are the effects of a firm commitment denominated in a foreign currency hedge with a forward exchange contract?
A net gain or loss can be reported if the changes in value of the firm commitment (hedged item) and the forward contract (hedging instrument) are not identical. Additionally, as a result of hedging a firm commitment, an otherwise unrecognized asset or liability may have to be recognized to offset any gain or loss recognized on the forward contract.
What are Permanent and Temporary Differences regarding income taxes?
Permanent differences are basically things that will always be treated the same regarding income taxes (eg, tax-exempt interest received from muni bonds, life insurance premiums on key employees)
Temporary differences are items that are recognized in different years depending on if its the company’s tax return or books – Basically, this is due to timing (eg, An example of a timing difference is rent income. Accrual accounting will only allow revenue to be recorded when it is earned, but if a company receives an advance payment of rental income, it must report this under taxable income on its tax return)
