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.
