MCQ Flashcards
Which fee is capitalized with business combination (acquisition) ? Debt service issuance fee, finder’s fee, attorney fee, valuation fee?
Debt service issuance fee. (Dr Bond issue cost-asset acount). All other fees are expensed.
Rent free period treatment?
Matching principle. Treat like discount of total rent–allocate total rent evenly. Same for lessor and lesser.
A inventory transaction with foreign company is contracted in Year 1, but delivery takes place in year 2, what exchange rate is used for balance sheet recognition of the goods?
A/P is rec’d using balance sheet date spot rate. When inventory’s rec’d, use historical rate. Diff is unrealized gain or loss on I/S, which results change in A/P at B/S date and payment date, if not paid upfront.
How is a discount of notes receivable calculated? Discount amount? Holder receives?
Discount amount= maturity value of note * discount rate.( rates are all annual, /12 to get per month’s–months that bank’s entitled to).
Holder receives=maturity value- discount amount.
What should be disclosed in Summary of Significant Accounting Policies?
“policies and method” about consolidation, depreciation, inventory pricing, franchising revenue etc.
But NOT details/ yearly computation or composition etc.
What are executory costs of leases?
Insurance, maintnance, and taxes. Appraisal, credit report, contingent rent and etc are not.. Should be excluded from the calculation of minimu Lease payments(of which the PV is used to rec liability or asset), even though may be paid by lessee. (because these costs really “should” fall into lessor’s cost)
How is IFRS goodwill impairement done? Other assets?
At the cash generating unit level. Carrying value of the CGU is compared with it’s recoverable amount, which is the GREATER of NRV (sell) and it’s value in use (keep) (present value of future cash flow). If impaired, impairment is first allocated to goodwill then other assets.
Other assets are the same methodology without the allocation part.
How is R&D cost treated under IFRS?
Research is expensed. Development cost after meeting certain critiria (technological feasibility, future benefit, ability, etc) can be capitalized into intangible assets.
How are Intangible Assets with Finite Lives tested for impairment under US GAAP? Indefinite lives? How about fixed assets?
Finite life same with fixed assets–2 steps–1.compare carrying value with undiscounted future net cash flows, if impaired, then step 2. impairment loss equal to the difference between the carrying amount of the asset and its fair value (discounted cash flow).
Indefinite lives– step 2 only.
How is a bond priced?
PV of future interest payments (annuity) at market rate+ PV of principle at market rate.
When to record lease obligation amortizations? Year end accrual?
When payments are made, part is interest, part is amortization of lease obligation (carrying amount). At year end, interest expense and interest payable are accrued but not the reduction of liability.
How to calculate net periodic pension cost?
current Service cost(PV)+Interest cost-Return on plan assets+Amortization of prior service cost - Gains(+loss)(expense or corridor amortization) +(-)amortization of Existing net liability or assets (transition)
What’s the quantitative threshold for “reportable segment” to be reported seperately, instead of grouped in “all other segments”?
10% size test–revenue(internal or external), profit or loss, asset. Any one of the three would be enough.
75% “reporting sufficiency” test– even if doesn’t meet the 10% size test, enough segments should be included to have at least 75% external revenue accounted for.
When to use installment sales method? What’s rec’d at time of sale?
When collectibility can not be reasonably estimated, treat as installment sales, rec revenue when received (cash basis) not at sale. earned profit=cash collection * profit percentage.
At sale, Dr receivable, Cr inventory, Cr deferred gross profit (contra receivable). Earned profit at collection is then Cr’d against deferred gross profit.
How is completed contract method (GAAP only) accounted for on B/S and I/S during, and after completion?
During Construction, B/S only.
Dr Construction in progress
Cr A/P
Dr A/R(contracts receivable)
Cr Progress Billing.
When completed, move to I/S
Dr Progress billing
Cr Revenue
Dr Cost of construction
Cr Construction in progress
When buying inventory from intercompany, what accounts need to be adjucted to eliminate extra profit paid to affiliates?
Cost of good sold and ending inventory balance.
How to do error correction of F/S?
Restate. Adjust the earlist beginning retained earnings presented.
How is inventory valued under IFRS?
Lower of cost or net realizable value(selling price-cost to sale/dispose)
What are other comprehensive income items?
Pension adjustments; Unrealized Gains and Losses (available for sale securities); Foreign Currency Items; Effective Portion of Cash Flow Hedges; + Revaluation Surplus (IFRS only).
Under GAAP, is R&D cost expensed or capitalized?
Internal R&D costs are expensed. Exceptions(capitalized)- legal fees and cost of successful defense of the asset; registration or consulting fees; design cost (trademark etc); direct cost to secure the asset (instead of internally develop etc).
What items are recorded in AOCI regarding pension plans?
Unrecognized prior service cost(GAAP only, not IFRS);
Difference (G/L) between real and expected return on plan assets (when expected return is used);
G/L due to actuarial changes(when company chooses not to rec in I/S right away). (G increase AOCI L decrease AOCI.)
(Rare)–Underfunding(net obligation)/over funding(net asset) of existing plans as of 1987–FV plan asset-PBO.
The deferred tax benefit/expense is also rec’d in AOCI.
Under U.S. GAAP, all majority-owned subsidiaries (domestic and foreign) must be consolidated except when?
significant doubt exists regarding the parent’s ability to control the subsidiary, such as when:
1 . The subsidiary is in legal reorganization, or
2. Bankruptcy and/or the subsidiary operates under severe foreign restrictions.
How are the G/L recorded resulted from treasury stock reissue transactions under Cost method? J/E?
Direct adjustment to S’s equity(APIC-T/S) not through net income. BUT loss may decrease retained earnings if APIC-T/S (attn: not the original APIC-C/S) is not large enough to absorb the loss(at reaquiring or reissuing).
Buy back-Dr T/S at cost, Cr cash. Reissue at gain- Dr Cash, Cr T/S(@cost), APIC-T/S. Reissue at loss- Dr cash, Dr APIC-T/S (if any), Dr Retained earnings (if needed), Cr T/S(@cost).
Timing for WACSO? Stock dividend, split, convertibles, option, warrants,contingent shares?
Stock dividend and spilits– as if done at the beginning of year.
Converibles options etc.–for diluted EPS only, as if exercised at beginning of year or issue date if later.
Contingent shares–diluted EPS only, at the date all conditions are met.
Which franchise fees are capitalized as intangible assets and amortized over life, which are expenses?
The PV of total initial franchise fee is capitalized (downpayment+PV of later payments) .
Ongoing service fees (royalty) are expenses.
What’s pension plan’s funded status?
Fair value of plan assets - Projected Benefit Obligation
Which fund types are included in governmental funds(modified accrual, current only)?
GRaSPP- General fund, special Revenue fund, and debt Service fund, capital Projects fund, Permanent fund.
Which fund types are included in proprietary funds(full accrual, economic resources measurement)?
Business type activities. SE- internal Service fund (building maintnance), Enterprise fund(utilies system).
Which fund types are included in fiduciary funds(full accrual, economic resources measurement)?
PAPI-Pension trust funds, Agency trust funds, Private purpose trust funds, Investment trust funds.
What items are included in CFI?
purchase or sale of noncurrent assets:
- making loan to others
- trading securities(if noncurrent), AFS securities, and HTM investments.
- cash purchase/ dispose of PP&E.
- aquiring other entity under acquisition method using cash.
What’s the difference between large and small stock dividends? Treatment?
less than 20%–small- reduce R/E by FMV(par+APIC) of stock.
More than 25%–large- reduce R/E by par of stock.
Either way, no change in total equity, no dividend income to shareholder, reduce basis.
When calculating diluted EPS for option, how many shares are “assumed” to be outstanding, add to denominator of WACSO?
number of shares issued(outstanding)-exercise price*number of shares converted/ ave market price
How to measure assets and liabilities on a personal financial statements? FV or cost?
Estimated current value. (think about my MINT)
How is asset impairment presented on I/S? B/S?
I/S- a component of Income from continuing operations before income taxes.
B/S- reducing the carrying value of the asset to its lower fair value.
What are the components(category) of SE PAPI funds’ net position?
RUN. Restricted, Unrestricted, Net investment in capital assets(invested).
What are these SEC forms? 10K, 10Q, 11K, 8K, Form 3,4,5? Deadlines for 10Q?
10k-annual report. 60,75,90 days for large accelerated(equity>700m), accelerated(equity>75m), and all others.
10-Q- quarterly report. 40 days and 45 days after quarter end for accelerated(large and small) and others(non accelerated).
11K-anual report of employee benefit plans.
8K-major corporate events.
3,4,5-filed by over 10% owner of a class of equity.
What’s current ratio?
working capital ratio=current asset/current liability
What’s the effect of overstated ending inventory on COGS and NI?
COGS=beginning inv.+ new purchase- ending inv. So, COGS is understated.
NI therefore is overstated.
When disposal of a component has been determined, should the company record estimated G/L from disposal?
NO. All costs/ G/L should be rec’d when occurred. For current period only report actual impairment loss, loss from operation, after tax.
When to include goods in inventory when shipping is involved?
When legal title transfers. FOB shipping point-buyer’s inventory during shipping, and “freight in” is part of inventory cost. FOB destination- seller’s during shipping, “freight out” is selling expense.
Transactions reported in the statement of retained earnings instead of income statement? Before tax or net of tax?
accounting principle changes(retrospective), and correction of errors (restate). These are rec’d net of tax.
What’s the basis of new asset received from nonmonetary exchange?
With commercial substance(future cash flow chagnes)- FV given.
Without commercial substance- FV given - gain not rec’d =plug.
No boot received=no gain rec’d.
less than 25% received is boot= proportinal gain rec’d. 25% or more received is boot= both parties rec full gain. In this case, FV given.
How to calculate noncontrolling interest in the consolidated balace sheet for subsequent years, not at acquisition?
In the equity section. Ending NCI=Beginning NCI+ NCI share of Net income- NCI share of dividends (This is the equity method)
When is the local currency considered functional?
When the subsidiary is self-contained, integrated within the country; day to day operation does not depend on the oversea parent; and local economy is not highly inflationary.
Which government funds need to have statement of cash flow reporting?
SE (proprietary) only-internal service fund and Enterprise fund.
How to record expired stock options?
Noncompensatory- no J/E, was never rec’d.
Compensatory- Dr APIC-stock option, Cr APIC-expired stock option. Original J/E was: Dr compensation exp, Cr APIC- stock option. So, even if expired, compensation expense is not affected. Total equity N/C at both times.
Which statement of a pension plan(not the sponsor company) reports the transaction of distributing benefits?What are other statements required by GAAP?
Statement of changes in net asset available for benefits.
- Statement of net assets available for benefits;
- Statement of Changes in …..
- Statement of accumulated plan benefits (liability).
- Statement of changes in accumulated plan benefits.
