MCQ Notes Flashcards
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How to record non-cash asset used to settle debt?
Revalue to FV with gain/loss recognized on asset.
What are the journal entries for stock dividend declaration & issuance?
Declaration: Dr R/E (FV of shares) Cr Stock dividend distribution (par) Issuance: Dr Stock Dividend Distribution Cr Common Stock
What are the primary qualitative characteristics of RELEVANCE and FAITHFUL REPRESENTATION?
Relevance: Predictive value, confirmatory value, materiality Faithful Representation: Neutrality, free from error, and completeness
What are the enhancing qualitative characteristics?
Verifiability, understandability, timeliness, and comparability
What Basic F/S required for MD&A State & Local?
Statement of Net Position & Activities (Governmental activities are reported, no fiduciary activities)
If USD is functional currency, which rate used to translate assets & liabilities?
When remeasuring into US dollars, the current rate (weighted avg) will be used for monetary items and for nonmonetary items carried at market. The historical rate (weighted avg) is to be used for nonmonetary items carried at cost. E.g. inventory carried at net realizable value should be remeasured using current rates because net realizable value is a market concept. Inventory & equities carried at cost are remeasured using historical rates.
Bonus: If FC = LC, Asset & Liabs translated @ current rate as of B/S date. Rev & Expense translated @ weighted average exchange rate for current year.
How do you account for partner withdrawal under bonus method (partner has unrecognised goodwill)?
First, remove her capital balance. Then reduce the remaining partner’s capital balances by their p/l ratio share of the unrecognised goodwill.
Where is a discontinued component reflected in f/s? How do you adjust operating income?
Current and prior f/s should show operating results of disposed segment (less tax) as a separate component of income. To restate Op income, take operating income as reported, add back discontinued operations loss, less income tax = income from continuing operations - restated.
How to compute combined revenue for consolidated companies?
Restate accounts as if intercompany transaction didn’t occur, e.g. if inventory sold, eliminate BOTH cost and markup.
What should the budgetary comparison schedule include in CAFR - Comprehensive Annual Financial Report?
General and Major Special Revenue Fund Types and annual budgets legally adopted. Enterprise and Pension Trust Funds are not required to be reported for budgetary compliance.
How do you determine if an individual segment is reportable?
If segment sales or profits are > 75% of total operating profits OR if segment assets > 10% of total operating assets
How do you calculate basic EPS?
(Net income - dividends of cumulative preferred stock/declared)/weighted average # of shares outstanding
When must a pension asset/liability be reported?
Asset: When PBO (projected benefit obligation) < Fair Value of Plan Assets Liability: When PBO > Fair Value of Plan Assets
Personal F/S: Where are estimated taxes (on excess of estimated current values of assets over their tax bases) reported?
How is business interest that constitues large amount of equity reflected?
Personal financial statements consist of …
Personal tax estimated income tax equals …
Between liabilities & net worth on the statement of financial condition.
Single amount equal to estimated current value of business interest.
A statement of financial condition and a statement of changes in net worth.
…difference between fair values and tax bases of assets & liabilities
How do you solve for Cost of Goods Sold when provided with cash payments information?
Cash payments to suppliers + Increase in AP (unrecorded purchases) - Increase in Inventory (purchases during period, they remain unsold) = COGS
How are investments in capital of partnership measured?
At FMV of assets contributed.
How is net periodic pension expense calculated?
+Service cost +Interest on PBO -Return on plan assets +Amortization of unrecognised service cost or Loss (incl actuarial) +Existing net obligation (amortization)
What’s the formula to calculate a bonus on excess over a certain amount of profit, e.g. 100K (but profit after bonus deducted is used to calculate income tax)?
B = x% * (income - 100K - B) 1.1=B
How do you calculate the maturity value of CoDs maturing in 5 years?
If not electing FV option, don’t use market rate. Investment x future amount of $1 at interest rate % & # of periods
How is a hybrid instrument requiring bifurcation treated?
Separate the embedded derivative instrument from the basic or “host” contract. The bond payable has interest rate per S&P 500. The instrument with call option - issuing company can buy back stock.
How do you calculate inventory cost under the weighted average method?
Add together all units + total cost, divide units by cost
How is the equity method applied to account for an acquisition?
The carrying amount is increased by the investor’s share of investee earnings & decreased by dividends received.
What effect does it have if trustees designate money for a building?
This doesn’t affect the asset classification.
What financial statements are required for an investment trust fund?
1.) Statement of fiduciary net position 2.) changes in fiduciary net position
When is enterprise wide disclosure regarding an external customer required?
When a company receives > 10% of revenue from an external customer
What are the formulas for calculating installment sales?
Gross Profit = Sale - COGS
Gross Profit % = GP/Sale Price
Earned GP = Cash Collections x GP%
Deferred GP = Installment Receivable x GP%
How are scholarships recorded in education current funds?
As a reduction to general revenue from tuition & fees, e.g. tuition for the faculty’s children.
Where do you report forex gain/loss if functional currency is reporting currency (USD)?
If functional currency IS reporting currency, remeasure and report gain/loss on the income statement. A foreign currency translation g/l (reported as sep component of stockholders’ equity) happens when translating entity’s functional currency into reporting currency.
FASB ASC 830 says ‘a transaction gain/loss shall be included in net income for pd when change occurs’ not as an extraordinary gain or as contra amount to asset.
If inventory previously written down recovers, can you revalue it to market value?
No, you can only revalue to the extent of previously recorded decline.
How is a donation received by a hospital recorded?
Contributions are revenue in the period received and recorded at FMV.
What are extraordinary items and where are they reported?
Extraordinary items must be unusual and infrequent in nature, e.g. an earthquake (unless you’re in San Francisco). They’re reported net of tax below continuing operations.
Non-extraordinary items are reported as a component of income from continuing operations but NOT net of applicable income taxes.
How are marketable securities valued in a personal statement of financial condition?
They’re valued at market price.
How is income calculated using the % of completion method?
Income is recognised as per the progress of completion. Calculate total costs incurred to date/estimated total cost. May need to divide costs incurred by (costs incurred + costs to finish) to get total or denominator. Multiply this % by (Expected Profit - profit recognized in previous periods).
Expected Profit: In the first year, this part of formula would be (Expected Revenue - Expected Total Costs).
Progress billings to date don’t necessarily reflect current costs incurred as they’re an accumulation.
Reflect progress billings over (cum profit + cum costs) as a liability & (cum profit + cum costs) over progress billings as an asset.
How do you calculate available for sale marketable equity securities historical cost?
Add back the unrealised loss including the tax benefit. It’s reported in OCI as a reduction to stockholder’s equity.
In a partnership liquidation, how is capital distributed to partners calculated?
Cash is distributed per each partner’s adjusted capital balance. Loss to date, sale of assets, and loans to partners are included. E.g. Beginning capital balance - loan - loss on sale of assets = adjusted capital balance.
What changes must be included on the statement of Other Comprehensive Income?
Disclose changes in unrealised gains/losses on available for sale securities, pension fund status, and foreign currency translation gain/loss.
If a capital lease is modified to an operating lease …
account for the lease as a sale-leasback.
How is the P&L adjusted for an error correction?
Prior periods are adjusted including Net Income, Retained Earnings, and other affected balances. Prior statements need to be restated only for presentation purposes if they’re used in comparatives. The actual journal entry: Dr R/E Cr Accumulated Depreciation
Where is the funding status of the pension reported?
On the balance sheet and statement of financial position.
Under IFRS, what method is used to calculated the defined benefit obligation?
Project-unit-credit method.
When do you recognize profit under the cost recovery method?
When the principal + interest > cost of the asset
Where is unrealized gain reported if not using the FV method?
Trading securities are reported at fair value and unrealised gain is reported in earnings of the period. other bonds are recorded at amortized cost.
ASC 825 allows firms to elect fair value when valuing securities. How is this applied in the period?
On an instrument-by-instrument basis, AFS and Held to Maturity securities are revalued to fair value and any gain or loss is recorded in earnings for the period. This includes instruments that are otherwise reported under the equity method.
What effect does the purchase or issuance of treasury stock have?
Treasury stock has no effect on shares issued.
What approach is segment reporting?
A management approach
In an acquisition, retained earnings under the full equity method …
=the retained earnings of the parent company after consolidation. Assets, liabilities, and goodwill are adjusted.
How do you record Fair Value of net identifiable assets in an acquisition?
Consideration paid. If it’s a bargain purchase, treat as a period gain.
How is wages in/outflow calculated using the direct cash flow method?
Start with accrual basis salary expense plus/minus the increase or decrease in wages payable.
What’s the carrying amount of the bond liability for the issuer?
Face value + unamortized bond premium
Forex gain/loss must be recorded if ..
spot rate at settlement date is different to transaction date.
What type of change is a business consolidation?
An accounting change, prior periods presented must be restated.
What is a perfect hedge?
It’s effective, meaning the gain/loss on an instrument offsets the gain/loss for a hedged item.
How to calculate unearned royalties?
Set up a T account. for roaylties receivable. Debit side includes beginning and ending balance, credit side includes cash received. Solve for royalties earned. Set up a t account for unearned royalties. The debit side includes royalties earned while the credit side includes beginning and ending balance. Solve for unearned royalties.
What are the 3 distinct characteristics of derivative instruments?
1) 1 or more underlying and 1 or more notional instrument. 2.) No initial investment required. 3.) Terms allow net settlement.
Bonus: 2 primary criteria must be met for a derivative to qualify as a hedge. Docs must show objective & strategy of hedge and hedging instrument & hedged item + how effectiveness will be assessed. Hedge must be highly effective throughout its life.
How do you calculate the future amount for a desired fund balance if you only know the present value factor?
Divide amount by P.V. factor.
How is an accounting estimate inseparable from an accounting change treated?
Treat this as a change in accounting estimate - record the change in current and future period financial statements.
What is one purpose of SEC’s regulation S-X?
S-X describes the form and content of financial statements that need to be filed with the SEC.
What is the function of a chief operating decision maker?
They allocate resources and assess performance of enterprise segments.
What type of accounting is not permissible under IFRS?
Push-down accounting
Where is the change in FV of servicing assets (if using FV method) reported?
In earnings for the period
What must be considered in interim reporting when estimating the effective tax rate?
Consider both foreign tax rates and capital gains.
Generally, convertible debt securities interest rate will be higher or lower than nonconvertible debt?
Lower
How do you calculate a depletion charge per unit?
Net cost of resource/units of resource
What must be included when calculating operating lease rental income?
Depreciation charge and maintenance costs. With operating leases, leased assets continue to be carried on the lessor’s balance sheet and are depreciated in the normal manner. They are not shown on the lessee’s balance sheet.
How do you calculate allowable for doubtful accounts expense?
Set up a T account. Debits include write-offs and adjustments to ending balance (e.g. bad debt expense). Credits include the beginning balance, the amount expensed during year 1, the unadjusted balance, and then the ending balance.
How are investments in life insurance valued?
At cash surrender value less outstanding loans on the po9licy.
How to calculate interest income on a sales-type equipment lease in 2nd year of lease period (worked example)?
Details: 8 year lease, 1st of annual payments of 600K due year 2. PV is 3.52M, discounted @ 10%. Compute the interest using an amortization table.
Reporting Pension Asset/Liability, worked example.
In its December 31, year 2 balance sheet, Rice should report pension asset/liability of…
Pension a/l= Excess of amount funded over amount recorded as pension expense. Year 2 pension expense = 162K (service cost 165K + interest on PBO 15K - act rtn plan assets (18K) = pension expense 162K. Yr 2 funding 185K - pension expense 162K = 23K. Yr 1 was 20, + Yr 2 23 = 43K in year 3.
How do you calculate bond carrying amount for a 50K face value 8% 5 year bond, 46.139K PV with yield 10%? Interest payble June & Dec.
Create a bond amortization table. Coupon payment at 4% is face of 50K * 4% interest for 1/2 yr). Interest expense is effective rate 5% x beg of pd carrying val. Amort of discount = diff between interest payment & expense.
How do you calculate net cash from operating activities (worked example)? Year 2 N.I. is 75K.
Incr in ADA is added to N.I. because reflects bad debt expense which isn’t a cash outflow. Same with decrease in prepaid rent - not a cash outflow.
Solve for amount for revenues, gains, and other support on statement of ops for not for profit hospital (worked example):
Formula: Hospital revenue - amount for charity care + net assets released from restrictions + other revenue. 500K - 100K + 50K + 80K = 500K
How do you compute LIFO inventory under the dollar value method (worked example)?
Compute each layer - year end of year 2 / price index vs. beg yr value. Multiply difference by price index and add to beg yr value, etc.
Consolidation Simulation Worked Example:
Eliminate investment in Sub, record goodwill and asset write-up
