MCQ Review 12 Flashcards
List related party transactions don’t need to be disclosed
(1) compensation arrangements (officers’ salaries and expenses),
(2) expense allowances
(3) other similar items in the ordinary course of business
How do IFRS and US GAAP view differently on interim financial reporting?
- Each interim period is viewed as a discrete reporting period under IFRS and as an integral part of an annual period under U.S. GAAP.
- Under U.S. GAAP, each interim period is viewed as an integral part of an annual period to which it relates. Thus, an inventory loss from a market decline may be deferred if no loss for the year is reasonably anticipated.
- Under IFRS, each interim period is viewed as a discrete reporting period. Accordingly, an inventory loss from a market decline must be recognized in the interim period even if no loss for the year is reasonably anticipated.
What is the requirements of disclosure of related parties under US GAAP?
(1) the nature of the relationship involved
(2) a description of the transactions for each period an income statement is presented and such other information as is deemed necessary to an understanding of the effects of the transactions
(3) the dollar amounts of transactions for each period an income statement is presented and the effects of any change in the method of establishing their terms
(4) amounts due from or to related parties as of the date of each balance sheet, including the terms of settlement
(5) certain tax information required by GAAP if the entity is part of a group that files a consolidated tax return.
Is ‘Costs to level land to make it usable for the company’s purposes’ depreciable asset?
- NO, it is cost of land.
- Site preparation costs [clearing, draining, filling, leveling the property, and razing existing buildings, minus any proceeds (such as timber sales)] are costs of the land, not of the building to be constructed on the land.
When the FV of the investment, classified as AFS, value declined below the amortized cost and permanent in nature, what is the proper treatment?
- Earnings section of the income statement and writing down the cost basis to FV.
- If a decline in fair value of an individual available-for-sale security below its amortized cost basis is other than temporary, the amortized cost basis is written down to fair value as a new cost basis. The write-down is deemed to be a realized loss and is included in earnings.
How do bond issue costs reported?
- Issue costs should be reported in the balance sheet as deferred charges to be amortized over the life of the bonds.
- They should not be combined with bond premium or discount. Issue costs are incurred to bring a bond to market.
(1) lawyers’, accountants’, and underwriters’ fees
(2) engraving and printing costs
(3) registration costs
(4) promotion costs
is internally developed R & D capitalized or expensed?
- it must be expensed when incurred
- Only relatively minor related costs, such as patent registration fees and legal fees, can be capitalized.
What is the proper treatment for internally generated goodwill under US GAAP and IFRS?
-Under both U.S. GAAP and IFRS, internally generated goodwill must not be recognized as an asset. Goodwill can be recognized only in a business combination.
How is book value per share calculated?
- The book value per share of common stock equals net assets available to common shareholders divided by ending common shares outstanding.
- Net assets available to common shareholders can also be stated as total equity minus liquidation value of preferred stock.
When should a lessor recognize in income a nonrefundable lease bonus paid by a lessee on signing an operating lease?
-Given that the lease bonus is nonrefundable, it should be considered part of the rental payments. Regardless of when the rental payments are actually received, the lessor should recognize rental revenue on a straight-line basis over the lease term.
