MCQs 1 Flashcards

Question

Dodd Corp. is preparing its December 31 current-year financial statements and must determine the proper accounting treatment for the following situations: - For the current year ended December 31, Dodd has a loss carryforward of $180,000 available to offset future taxable income. However, there are no temporary differences. Based on an analysis of both positive and negative evidence, Dodd has reason to believe it is more likely than not that the benefits of the entire loss carryforward will be realized within the carryforward period. - On 12/31 of this year, Dodd received a $200,000 offer for its patent. Dodd’s management is considering whether to sell the patent. The offer expires on 2/28 of next year. The patent has a carrying amount of $100,000 at 12/31. Assume a current and future income tax rate of 30%. In its current-year income statement, Dodd should recognize an increase in net income of: - $0. - $54,000. - $70,000. - $124,000.

Answer 1

$54,000 The deferred tax asset is a tax benefit (lowering of this year’s income tax expense) and will increase net income by the total amount of the expected benefit amount of $54,000 ($180,000 deduction × 0.30 (the future tax rate of 30%)).

Answer 2

either a gain or a loss FASB ASC 225-20-45-16 contains the following requirement: "A material event or transaction that an entity considers to be of an unusual nature or of a type that indicates infrequency of occurrence or both shall be reported as a separate component of income from continuing operations." This applies to both gains and losses.

Answer 3

$8,000 The payable has been accruing since July at the rate of $2,000 per month ($24,000 ÷ 12) and is at $8,000 when paid. Semi-annual realty tax payment = $12,000 Monthly tax accrual = $12,000 / 6 months = $2,000 November 1, 20X1, entry to pay taxes: Prepaid real estate taxes 4,000 Real estate taxes payable 8,000 Cash 12,000

Answer 4

Advocate groups within the state

Answer 5

$11,000 A business combination occurs when two or more business enterprises are brought under common control and into one accounting entity (e.g., mergers, consolidations, or acquisitions). Acquisition costs and restructuring costs must be recognized separately from the acquisition itself in the acquirer’s post-combination financial statements in accordance with GAAP—usually expensed. The legal fees and due diligence costs that total $11,000 are considered acquisition costs and should be expensed in the current year. Debt issuance and debt registration costs are part of the consideration given, and recorded in conjunction with the debt itself.

Answer 6

other The letter of transmittal and the statistical section required for a CAFR and GFOA's certificate are neither basic statements nor required supplemental information.

Answer 7

When events or changes in circumstances indicate that its carrying amount may not be recoverable FASB ASC 360-10-35-21 states that an entity must review long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Answer 8

Governments should only present that information needed to support their analysis of financial position and results of operations prescribed by GASB Statement 34 for MD&A. GASB 2200.109, which codifies elements of GASB Statement 34, indicates that MD&A “should be confined to the topics discussed” in the included list. Footnote 8 adds that information about other than the prescribed topics should be provided elsewhere in the financial statements.

Answer 9

report information about the overall government without displaying individual funds or fund types. The government-wide financial statements consist of a statement of net position and a statement of activities. Those statements should “report information about the overall government without displaying individual funds or fund types” (GASB 2200.110). The statements should be prepared using the accrual basis of accounting and distinguish between governmental and business-type activities. Information about fiduciary funds should not be included in the statements.

Answer 10

$3.79 Basic earnings per share (EPS) is net income divided by weighted-average common stock outstanding (WACSO). Net income must be reduced by preferred cumulative dividends. Net income - Preferred cumulative dividend = $236,000 - ($600,000 × 0.04) = $212,000 WACSO = 50,000 shares + (8,000 shares × 9/12) = 56,000 shares Basic EPS = $212,000 ÷ 56,000 shares = $3.79/share

Answer 11

$5,000 A contingent liability must be reported if it is probable that the liability will occur and the amount can be reasonably estimated. Boxes sold 100,000 Estimated redemption percentage x 0.50 Estimated redemptions 50,000 Box tops already redeemed 40,000 Remaining box tops to be redeemed 10,000 Box tops per redemption / 2 Estimated glasses to be provided 5,000 Cost per glass ($2 - $1) $ 1 Estimated liability $ 5,000

Answer 12

A detailed description of the plan, including employee groups covered

Answer 13

$15,000 ``` Beg. Inv $40,000 + Purchases 480,000 - COGS 465,000 [A] = End. Inv 55,000 - Sold inventory 5,000 = Loss 50,000 - 70% reimbursed by insurance 35,000 = Final loss 15,000 ``` [A] Sales of $620,000 x 25% = $155,000 $620,000 - 155,000 = $465,000

Answer 14

$5,000 The amount by which the net periodic pension cost exceeds the contribution is $20,000 ($90,000 – $70,000), and that amount, plus an additional $5,000 of liability must be recognized on the balance sheet, for a total underfunded pension amount of $25,000 (projected benefit obligation of $103,000 – plan assets of $78,000).

Answer 15

additional paid-in capital. Only additional paid-in capital is an acceptable way to account for this donated land. The land has to be added to the assets, so a memo entry is not sufficient.

Answer 16

Murphy's net income for the current year is overstated. Gains and losses do not result from buying and selling your own equity shares. Therefore, no gain should have been reported on the resale of the treasury stock. Net income was overstated as a result.

Answer 17

$145,000. Jorge is paying more for advertising services than the fair value of those services, so the excess of $5,000 ($25,000 price paid – $20,000 fair value) is a refund of part of the $150,000 sale. Therefore, Jorge records revenue of $145,000 ($150,000 – $5,000).

Answer 18

$75,800 A lessee under a capital lease is required to allocate each minimum lease payment between reduction of obligation and interest expense. This allocation should reflect a constant interest rate (the 10% indicated for the Mars Co. lease) over the lease term. Interest expense (10% of $758,000) 75,800 Liabilities under capital lease ($200,000 - $75,800) 124,200 Cash 200,000

Answer 19

Accumulated other comprehensive income is reported in the stockholders' equity section of the balance sheet.

Answer 20

$630,000 The total liability that needs to be recognized is for the lump sum and the present value of the periodic payments ($475,000 + $155,000 = $630,000). It is not to be offset against the reduction in accrued pension costs.

Answer 21

a special item. A temporary impairment does not require expense recognition and would not be reported. As an unusual and infrequent occurrence, this expense would not be included with the other operating expenses of the program (Public Works). Both extraordinary and special items are defined as unusual and infrequent in nature. However, special items are significant transactions under management's control. The acquisition of the new equipment that suddenly caused the obsolescence of the existing building resulted from management action. Both extraordinary items and special items are reported separately at the bottom of the statement of activities.

Answer 22

a debit to the carrying value of the related asset. While a company records the legal liability (a credit), it also records the same amount as an increase (a debit) in the carrying value of the related asset.

Answer 23

Interest should be capitalized on qualifying assets.

Answer 24

Bond discount amortization

Answer 25

both commonly controlled companies and companies under common management.

Answer 26

Serial bonds Serial bonds are a set of related bonds issued at the same time but which mature at intervals over time.

Answer 27

Expense FASB ASC 835-20-25-5 provides: "The capitalization period shall end when the asset is substantially complete and ready for its intended use." Therefore, the $147,000 in construction financing incurred after completion of construction should be expensed.

Answer 28

format and content of financial information submitted to the SEC.

Answer 29

$51,600 The current portion of the income tax expense is the year’s taxable income multiplied by the tax rate. The remaining part of the income tax expense is the deferred or noncurrent part. Current portion of Taxable Current income tax expense = income x tax rate = $129,000 x 40% = $51,600

Answer 30

$18,000. Lundy has financial accounting income of $90,000 ($225,000 × 0.40) and this income is not recognized for tax purposes until received in dividends later on. Of course, Lundy did receive some dividends already, $30,000 ($75,000 × 0.40). Thus, $60,000 of deferred income for tax purposes will generate a future tax due, a deferred tax liability now of $18,000 ($60,000 × the future tax rate of 0.30).

Answer 31

both embodies an obligation to repurchase the issuer's equity shares and requires or may require the issuer to settle the obligation by transferring assets.

Answer 32

Liability: $2,730; Expense: $765 Payroll tax liability: Federal income tax withheld $1,200 Employee FICA (7.65% x $10,000) 765 Employer FICA (7.65% x $10,000) 765 ------ Total $2,730 Payroll tax expense: Employer FICA (7.65% × $10,000) = $765

Answer 33

$955,000. Accounting Standards Update (ASU) 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts; the recognition and measurement guidance for debt issuance costs were not affected by the amendments. Amortization of debt issuance costs also shall be reported as interest expense; issue costs will no longer be reported in the balance sheet as deferred charges.

Answer 34

$73,500 At December 31, 20X1, the total lease liability was $76,364 (the sum of the current portion of $1,364 and the long-term portion of $75,000). The $9,000 payment made on January 2, 20X2, was for the $1,364 current portion and the interest of $7,636 ($9,000 - $1,364). After the January 2, 20X2, payment, the total lease liability is $75,000. Interest for 20X2 is $7,500 ($75,000 × 10% implicit rate). Therefore, the reduction in principal that will be included in the January 2, 20X3, payment will be $1,500, which is the $9,000 payment minus $7,500 interest for 20X2. This $1,500 represents the current portion of the lease liability. Therefore, the long-term portion of the liability at December 31, 20X2, is the $75,000 total lease liability less the $1,500 current portion, or $73,500.

Answer 35

$0 The cruise ship qualifies for interest capitalization. Qualifying assets, per FASB ASC 835-20-15-5, include “assets that are constructed or otherwise produced for an entity's own use (including assets constructed or produced for the entity by others for which deposits or progress payments have been made).” The down payment means that the weighted-average accumulated expenditures each year will be at least $3,000,000. Therefore, all of the interest on the note is capitalized during each year of construction. No interest expense related to the note should be reported in the income statement during the construction period.

Answer 36

The minimum number of funds consistent with legal requirements and sound financial administration

Answer 37

does not represent a payable in the usual sense in which the term “payable” is used in financial statements.

Answer 38

Prior-year 12/31 retained earnings, no; Prior-year 12/31 interest payable, yes The cost of the merchandise purchased (and sold by the end of the year) should have been based on the present value of the note used to pay for them, not the face amount. Since the note paid a higher rate of interest than what was required as a yield, the note would have a premium, a higher value than face. Thus, the note's present value was higher than its face amount, and the higher value should have been added to purchase cost and moved to cost of goods sold. The lower value that was used for purchase cost understated the cost of goods sold. If cost of goods sold was understated, then net income was wrong and retained earnings was not correct. Interest payable, however, is based on the face amount of the note and the stated payment rate, so it is correct.

Answer 39

Capital projects fund In governmental accounting, the measurement focus and basis of accounting used depend on the nature of the fund. The flow of current financial resources measurement focus and the modified accrual basis are used in the governmental funds where revenues and expenditures are recorded, such as the General, Special Revenue, Capital Projects, Debt Service, and Permanent Funds.

Answer 40

$5,750 Initial amount of lease $135,000 Less first payment 20,000 Lease amount applicable to last half of 20X1 $115,000 Times interest rate (10% x 6/12 year) x .05 Interest revenue for 20X1 $ 5,750 ========

Answer 41

General Interfund transfers are flows of assets (such as cash) without expectation of repayment. Interfund transfers of governmental funds (e.g., the General Fund) are reported as “other financing uses” in the funds making the transfer and as “other financing sources” in the funds receiving the transfer. In proprietary funds (i.e., enterprise and internal service funds), transfers should be reported after nonoperating revenues and expenses as transfers in (out). Transactions in the pension fund are typically reported as revenues and expenses, not interfund transfers.

Answer 42

As an asset of $10,000 and a liability of $4,000 Grove City's special revenue fund would have an asset equal to the amount “due to special revenue fund from the general fund.” The amount “due to agency fund from special revenue fund” is a liability of the special revenue fund. It is not acceptable to “net” these two accounts.

Answer 43

A gain of $25,000 in the income statement The following entry is necessary on Toigo's books on November 20, to record the purchase of the inventory: ``` Inventory 625,000 Accounts Payable (500,000 x $1.25) 625,000 ``` The following entry is necessary on December 31, the balance sheet date, to remeasure the payable denominated in a foreign currency at the exchange rate at the balance sheet date: ``` Accounts Payable (500,000 x ($1.25 - $1.20) 25,000 Exchange Gain 25,000 ``` The exchange gain is included in the determination of net income.

Answer 44

a recording error.

Answer 45

$500,000 The FASB requires that the fair value method be used for stock options. The fair value method recognizes the cost of consideration received for employee services to be the fair value at the grant date of the stock options ($15). The servicing period is the three-year vesting period. The company should report $500,000 [(100,000 × $15) ÷ 3] of share-based compensation expense for the year ended December 31, year 2.

Answer 46

$770,000 The change in net assets with donor restrictions includes the original donation of $700,000, any increases from investment income ($50,000) and net investment appreciation ($80,000) that the donor restricted to use for the senior center, and any decreases from the amount of resources spent for the restricted purpose ($60,000). These net assets released from restrictions reduce net assets with donor restrictions and increase net assets without donor restrictions by $60,000. Therefore, the change in net assets with donor restrictions is $700,000 + $80,000 + $50,000 − $60,000, or $770,000.

Answer 47

Debt service The government-wide financial statements do not report the information that is included in the fiduciary funds. Agency, private-purpose trust, and pension trust are all fiduciary funds. The debt service fund reports the payment of interest on the government's general long-term debt such as general obligation bonds. Interest expense on general long-term debt should be reported in the government-wide statement of activities.

Answer 48

Sale-leaseback FASB ASC 840-40-15-6 requires that “if a change in the provisions of a capital lease gives rise to a new agreement classified as an operating lease, the transaction shall be accounted for under the sale-leaseback requirements.”

Answer 49

property taxes are recorded. Crediting the revenues control account signifies either that cash has been collected, or that a valid receivable exists. In practice, when property taxes are levied, a receivable is created. The debit to property taxes receivable is offset by a credit to revenues to the extent that the taxes are “susceptible to accrual;” that is, both measurable and available to pay liabilities of the fiscal period.

Answer 50

$437,000 When applying the dollar-value LIFO retail method, you need to (as in dollar-value LIFO) restate ending-year retail to base-year prices: $660,000 ÷ 1.10 (1 + 10% increase) = $600,000 This is a $100,000 increase in the ending-year retail amount over the retail amount at the beginning of the year (in base-year prices). Now, determine the ending inventory using dollar-value LIFO retail directly, by adding to the beginning inventory of $360,000 the new layer of $100,000 multiplied by both the new layer’s cost-to-retail percentage and the new layer price level of 1.1: $360,000 + ($100,000 × 0.7 × 1.1) = $437,000

Answer 51

$20,500 “With recourse” means that the financial entity where the note was discounted can collect fully from Davis Co. in the event the maker does not honor the note. Davis Co. should disclose the full amount ($20,500) of the note as a contingent liability in its December 31, 20X1, financial statements, because it is reasonably possible that Davis will have to make good on the note.

Answer 52

Statement of cash flows The key to this question is that this is a not-for-profit entity, not a government. The basic financial statements for a not-for-profit entity are statement of financial position (like a balance sheet), statement of activities, statement of cash flows, and for voluntary health and welfare entities, a statement of functional expenses.

Answer 53

Cash flow per share

Answer 54

Financing activities A contribution to a not-for-profit restricted to long-term purposes like construction shall be reported as a cash flow from financing activities. Cash flows received from investment income restricted by donor stipulation to the same purposes also are reported as financing activities, not as operating activities.

Answer 55

$60,000 Recall that “each partner has an equal initial capital balance…” Thus, since Cor contributed assets valued at $60,000, Eng's total contribution must also equal $60,000—goodwill valued at $40,000 in addition to the $20,000 cash.

Answer 56

Agency fund The debt service transactions of a special assessment [debt] issue for which the government is not obligated in any manner should be reported in an agency fund…rather than [in] a debt service fund, to reflect the fact the government's duties are limited to acting as an agent for the assessed property owners and the bondholders.

Answer 57

a controlling majority of the members of its governing board are appointed by state government officials.

Answer 58

$20,000 When a sale of property is made and a gain is realized on the sale, if the seller immediately leases the property back from the new owner, that is sometimes a justification for deferring recognition of the gain on the sale. If the sale of the asset is for a realized loss, as here, of $20,000 (sales price of $430,000 less carrying amount of $450,000), then a loss is usually recognized immediately. There is an exception to this, and such is the case here. The loss is realized in the sales price, but the sales price is artificially too low. The asset is actually worth more than its selling price and more than its carrying value. In such a case, the loss is deferred.

Answer 59

$2,300 impairment loss. An impairment loss is recognized on an exchange of similar productive assets if the carrying amount of the asset exceeds its fair value on the date of exchange. For Winn, an impairment loss of $2,300 ($16,800 carrying amount less $14,500 fair value) should be recognized.

Answer 60

how the governmental entity met its cash requirements.

Answer 61

Capitalize; depreciation is required. Proprietary funds (including enterprise funds and internal service funds) are reported using the economic resources measurement focus and the accrual basis of accounting. Essentially, this means they are reported using a revenue and expense model. In this model, equipment is recorded and reported as capital assets (the term used for fixed assets in government reporting). Because expenses are reported, depreciation expense must be calculated and reported.

Answer 62

$0 Settam would not record additional net assets without donor restrictions resulting from this donation because the entire donation is subject to donor-stipulated requirements. The answer choice of $2,000,000 is incorrect because the $2,000,000 of donated shares increase net assets with donor restrictions because the investment is to be held indefinitely, and no dividends have yet been received. The answer choice of $8,000,000 is incorrect because the donation will also be accounted for as net assets with donor restrictions until the renovation occurs.

Answer 63

As a component of income from continuing operations Whenever a change in accounting principle is inseparable from a change in an accounting estimate, the change should be considered as a change in estimate. Changes in estimates are handled prospectively.

Answer 64

Using fair value at the date of the financial statements

Answer 65

No gain or loss in the income statement; $3,000 asset in the balance sheet Normally, in a nonmonetary exchange, the asset received should be recorded at the fair value of the asset surrendered or the fair value of the asset received, whichever is more clearly evident. However, there are three exceptions in which the exchange is recorded at the carryover amount, not fair value. One of those exceptions is for exchange transactions that lack commercial substance, as does the exchange above. Isle should record the new copy machine at the carryover amount of $3,000 and not any gain or loss.

Answer 66

$15,000 Both of these lawsuits are gain contingencies, which are generally not recognized until it is virtually certain that there are rights to receive the amounts involved. Thus, the amounts that are yet to be received, and subject to the uncertainty of an appeal process, should not be recognized yet. However, the $15,000 award that has not been appealed can be taken now as pretax gain.

Answer 67

exercise date.

Answer 68

Financial capital is applied to both currently reported net income and comprehensive income.

Answer 69

restricted as to use by the donor, grantor, or other source of the resources. In hospital accounting, as in accounting for other not-for-profit entities, restricted funds are restricted as to use by the donor, grantor, or other party external to the organization.

Answer 70

$140,000 The cost of land includes the cost to buy and also the cost to make it ready for its intended use, which in this case includes the cost of tearing down the old building. The cost to tear down the building (less the salvage revenue) is a cost to make the land ready for its intended use, which is to put up the new building on it. Purchase price of land $100,000 Cost of razing building $50,000 Less proceeds from sale of scrap 10,000 40,000 ------ ------- Capitalized cost of land $140,000

Answer 71

$24,000 Annual dividend requirement on preferred = $100 × .06 = $6/share × 20,000 shares = $120,000. 20X1 cumulative dividends $120,000 20X2 regular preferred dividends 120,000 Total dividends paid for 20X2 $240,000 x 2,000 sh / 20,000 shares, Wood Co. x 0.10 $ 24,000

Answer 72

by retrospective application to the financial statements of all prior periods presented. A change in accounting entity is reported under the retrospective approach. All financial statements presented must be restated to reflect the new accounting entity.

Answer 73

1.33 The price index for the 20X1 inventory layer is determined by dividing the 20X1 inventory layer at the current (end of the year) cost of $200,000 by the inventory at the base-year cost of $150,000. Inventory: at Base- at Current- Date Year Cost Year Cost January 1, 20X0 $ 90,000 $ 90,000 20X0 layer 20,000 30,000 20X1 layer 40,000 80,000 December 31, 20X1 $150,000 $200,000 $200,000 / $150,000 = 1.33

Answer 74

$155,000 The balance in the account at Big Bank of $155,000 would be the only amount included in cash. The negative balance in Small Bank would be classified as a current liability.

Answer 75

$900,000 Special revenue funds are used to account for resources raised from revenues that are either restricted or committed for expenditure for specific general government purposes other than capital outlay or debt service. Capital projects funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays. The sidewalks are capital in nature and would not be part of a special revenue fund but of a capital fund, whereas the road repairs are not capital but maintenance.

Answer 76

Redesign of a product prerelease

Answer 77

when promises to give cash are initially recognized, an expense for estimated uncollectible promises should be recorded.

Answer 78

($1,000,000) Howard should recognize a $1,000,000 loss for year 1. Generally, a portion of contract revenue is recognized on an estimated basis in each period covered by the contract. However, if there is an estimated loss, the total estimated loss on the contract is recognized in the period in which the loss becomes apparent and estimable. Actual costs incurred to date $ 2,000,000 Estimated costs to complete 6,000,000 Total estimated cost $ 8,000,000 Less contract price 7,000,000 Estimated loss on contract $(1,000,000)

Answer 79

$87,170 Residual value is the estimated fair value of the leased asset at the end of the lease and can be either guaranteed or unguaranteed by the lessee. Guaranteed residual values (GRV) are usually included in the minimum lease payments (MLP); in other words, the present value of the MLP of $348,680 already includes the present value of the GRV of $20,000. Therefore, annual depreciation is $87,170 ($348,680 ÷ 4-year lease term).

Answer 80

As a loss from continuing operations

Answer 81

purchase common stock at the average market price.

Answer 82

deducted in determining the net income of the combined corporation for the period in which the costs were incurred.

Answer 83

Report the interest from the notes payable benefiting specific functions as a direct expense of those functions and report the remaining interest as a separate line as an indirect expense. Interest that clearly derives from borrowing that is essential to support a program should be reported as a direct expense of that program, and interest that does not qualify as a direct expense should be reported as a separate line. The two types of interest should not be combined.

Answer 84

1. Identify the contract(s) with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligation

Answer 85

$5,000 Non-level lease payments must be expensed on a straight-line basis. Year 1 $25,000 Year 2 30,000 Year 3 35,000 Total rent payments $90,000 Lease term 3 years Yearly rent $30,000 The entry for the first payment would be: Rent expense 30,000 Cash 25,000 Lease liability 5,000

Answer 86

$52,000 LTTI had a purchase commitment for 600,000 units (200,000 × 3) and purchased 80,000 units. By canceling sales of the product, LTTI has a loss of $52,000 (520,000 units × .10).

Answer 87

all governmental and internal service funds that provide services to the governmental functions. The governmental activities portion of the government-wide statements reports the functions also reported in the general and other governmental funds. Internal service funds providing services for governmental functions are also included. Fiduciary fund information is not shown within the government-wide financial statements.

Answer 88

Internal service fund The internal service fund, a proprietary fund, is the only answer choice in which capital assets and related depreciation are recorded. The other answer choices are governmental funds in which neither capital assets nor depreciation expense are recorded.

Answer 89

The customer has not accepted the asset but has legal title to the asset.

Answer 90

Operating income Operating income is a subtotal well before income tax expense. Income tax expenses during the period are specifically allocated to the other three answer choices (discontinued operations, income from continuing operations, and prior-period adjustments).

Answer 91

the original contractual rate.

Answer 92

Estimates a standalone selling price by reference to the total transaction price less the sum of the observable standalone selling prices of other goods or services promised in the contract

Answer 93

$120,000 Income tax expense—current is the tax currently payable ($400,000 × 0.30 = $120,000). Journal Entry: Tax expense-current 120,000 Tax payable 120,000

Answer 94

neither the expected rate on plan assets nor the actual return on plan assets.

Answer 95

Disclosure only Information which becomes known after the balance sheet date, but before the financial statements are issued, should be disclosed to keep the financial statements from being misleading. The gains or losses associated with the redemption and issuance of the bonds would be reported and disclosed in the 20X2 financial statements.

Answer 96

income determination

Answer 97

$60,000 When one is recognizing a lease transaction as a capital lease for the lessor, one has an account for the gross receivable under the lease. This account keeps track, in undiscounted fashion, of the entire lease rental payments to be received by the lessor. Here the gross receivables balance at the beginning of the lease is all six payments of $10,000, or $60,000.

Answer 98

Letter of transmittal

Answer 99

Enterprise

Answer 100

Rent expense

Answer 101

program revenues.

Answer 102

$50,000 increase The donor's gift of $2 million is considered an increase in net assets with donor restrictions because the donor directed that it be perpetually held as an investment. The investment revenue and the gain on the value of the investment are both also considered an increase in net assets with donor restrictions as the donor directed how investment income is used. If the donor had not explicitly directed the use of investment gains on the endowment, such gains would be considered an increase in net assets without donor restrictions.

Answer 103

$50,000 Because Macklin had performed all services required to earn the initial franchise fee, the refund period had passed, and operations were started in the current year, it should recognize all of the initial franchise fee as revenues unless collectibility of the $40,000 receivable is not reasonably assured. The question does not raise any concerns about collectibility of the receivable.

Answer 104

In the period of change and future periods if the change affects both

Answer 105

$45,000 Present value of note = 75 × $600,000 = $450,000 Interest income for 20X1 = 0.10 × $450,000 = $45,000

Answer 106

face value of the bonds at the beginning of the period by the contractual interest rate.

Answer 107

Charges for services

Answer 108

$0 The debt is a long-term liability and would not appear on the balance sheets of the governmental funds, although it would be reported in the governmental activities section of the government-wide statement of net position. The interest that is due very early in the following year has been deposited in the debt service funds. The expenditure for debt service would usually be recognized in the year of payment. The expenditure and related liability could be recognized in the debt service fund but is not required in the December 31, 20X1, statements. Therefore, the correct answer is $0.

Answer 109

Exempt from federal taxation

Answer 110

internally generated cash flow projections for a related asset or liability.

Answer 111

$0 All intercompany liabilities are eliminated in the consolidation process.

Answer 112

The entity would allocate a portion of the contract price to the implicit promise, recognizing revenue and the related cost of the promise, as it is provided to the customer.

Answer 113

$174,000 Service cost $150,000 Interest cost 0 Amortization of past service cost 24,000 Expected return on plan assets 0 Amortization of unrecognized gain/loss 0 $174,000 ========

Answer 114

$2,500 Restricted contributions are recognized as revenue when received or promised. The $2,000 restricted for meals is recognized as restricted revenue. Conditional promises to give are not recognized as revenue until all conditions are met. The $10,000 represents a conditional promise since it may not be used until completion of a new playroom. Therefore, none of the $10,000 is recognized as revenue currently. The $1,500 received for subscriptions represents a $1,000 payment for the subscription and a $500 unrestricted contribution. Total contribution revenue is: Restricted $2,000 Unrestricted 500 Total revenue $2,500

Answer 115

I only “Governmental entities should report securities lent (the underlying securities) as assets in their balance sheets.” “Securities lending transactions collateralized by letters of credit or by securities that the governmental entity does not have the ability to pledge or sell unless the borrower defaults should not be reported as assets and liabilities in the balance sheet.”

Answer 116

estimated historical cost. If determining the actual historical cost of general infrastructure assets is not practical because of inadequate records, public institutions reporting as special-purpose governments should report the estimated historical cost for major general infrastructure assets.

Answer 117

$18,000 Deferred tax benefits only come about from temporary differences, like depreciation and warranty costs. When depreciation for tax purposes is in excess of depreciation for financial accounting, then it will not give rise to a benefit, but instead to a liability. This leaves only the warranty costs, which do give rise to a deferred tax benefit, since the warranty costs will defer to future years' additional tax deductions. $60,000 × 0.30 = $18,000

Answer 118

Confirmatory value

Answer 119

AFV will SPICE up your GOODNIght - AFV: Assets to Fair Value - SPICE: Stock, Paid-in Capital, Retained Earnings of Subsidiary are eliminated - GOODNIght: Record GOODwill and Noncontrolling Interest, eliminate Investment account

Answer 120

Loss on discontinued operations Comprehensive income is defined as "Change in equity (net assets) of an entity during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.”

Answer 121

understated by the difference between the note’s face amount and the note’s October 1 present value. The cost of the merchandise purchased (and sold by the end of the year) should have been based on the present value of the note used to pay for them, not the face amount. Since the note paid a higher rate of interest than what was required as a yield, the note would have a premium, a higher value than face. Thus, the note's present value was higher than its face amount. The higher value should have been added to purchase cost and moved to cost of goods sold. The lower value that was used for the purchase cost understated the cost of goods sold.

Answer 122

The adjusted market assessment approach

Answer 123

Temporary transfers

Answer 124

$43,000 Goods owned by Opal, which are out on consignment, and goods in transit FOB shipping (title to goods passed to Opal upon shipment) are included in year-end inventory. Goods held by Opal on consignment for another entity are not included. Opal's inventory should be reduced by: Markup on merchandise out on consignment: (40% x $40,000) 16,000 Goods held on consignment by Opal: 27,000 Total reduction $43,000 =======

Answer 125

Permanent funds Special revenue funds are classified as governmental funds. The other governmental funds are the general fund, capital projects funds, debt service funds and permanent funds. Governmental funds use the modified accrual basis of accounting.

Answer 126

$1,980,000 The government-wide statement of activities is prepared using full accrual accounting and the economic resources measurement focus, which requires revenues to be recognized when due to the government regardless of the date of receipt. The estimated collectible revenue in this case is 99% of the property tax levy, or $1,980,000. That $15,000 of the expected uncollectible $20,000 (1% of the levy) is written off does not change the revenue recognition.

Answer 127

$2,100,000 credit balance. The complete entry to record the adopted budget is: Estimated revenues 30,000,000 Appropriations control 27,000,000 Estimated transfer to debt service 900,000 Budgetary Fund Balance 2,100,000

Answer 128

Neither general funds nor fiduciary funds

Answer 129

Certain information may be presented either on the face of the financial statements or in the notes to the financial statements. Disclosure in the notes to the financial statements is needed only when the information required to be disclosed is not displayed on the face of the financial statements.

Answer 130

sales revenues plus the decrease in accounts receivable from the beginning to the end of the year.

Answer 131

$3,333,333 Costs incurred to develop software for internal use are capitalized after the application development stage is reached. The costs are amortized over the benefited periods—three years in this case.

Answer 132

$210,000 Here the available produced finished inventory has a buyer already under contract obligation to buy, and a guaranteed minimum price, so revenue recognition upon production is appropriate. The inventory can be carried at net realizable value, and the sales price can be recognized as revenue in Year 1, upon production, of $210,000 (300,000 pounds × $0.70 a pound, the set minimum price for Year 1).

Answer 133

$1,220,000 If an alternative use exists, the cost is capitalized as a tangible or intangible asset and depreciated or amortized. The periodic depreciation or amortization is identified as R&D expense as long as the asset is used in R&D activity. If no alternative use exists, the expenditure is charged to R&D in the period of acquisition. Depreciation on equipment with an alternate use ($100,000 / 5) $20,000 Equipment for current project 200,000 Research and development salaries 400,000 Material and labor costs 600,000 Total $1,220,000

Answer 134

Unrestricted contribution The board, not the donor, imposes restrictions on use of the gift. When resources are under control of the governing board and not specifically restricted by an outside donor, the resources are considered unrestricted and the resulting income is unrestricted revenue.

Answer 135

$5,000 When the purchase order is approved by Elm City, the estimated amount is recorded in the journal entry: Encumbrances 5,000 Fund Balance--Reserved for Encumbrances 5,000 When the purchase order is filled for $4,950, the entry is reversed, for the original estimated amount of the purchase order: Fund Balance--Reserved for Encumbrances 5,000 Encumbrances 5,000 The actual amount of expenditures may be more or less than the estimated amount, but that does not affect the amount by which the encumbrance or the Budgetary Fund Balance—Reserved for Encumbrances are reversed.

Answer 136

Expense $1,100,000 as incurred. A prototype is a preliminary or first model, often built for demonstration purposes (not production) from which other forms are copied or developed. Both the $1,000,000 and the $100,000 qualify as R&R cost and should therefore be expensed as incurred.

Answer 137

All of the answer choices are correct.

Answer 138

The minimum lease payments plus residual value

Answer 139

$900,000 The lease obligation is recorded at the lower of the present value of the minimum lease payments ($1,000,000) or the fair value ($900,000) of the asset. Executory costs are not included in the amount capitalized as minimum lease payments receivable by the lessor or obligation under capital lease by the lessee. Arena should report the capital lease obligation at $900,000.

Answer 140

$188,813 The inception of a lease is the date of the lease agreement. Rental expense should be as of that date. When the lease payments begin later than the inception date, the lease payments must be spread evenly over the longer period of time, which includes the months between the inception date and the beginning of the lease payments. $28,900 × 56 months = $1,618,400 $1,618,400 ÷ 60 months = $26,973.33 $26,973.33 × 7 months (June through December) = $188,813

Answer 141

a disclosure of $20,000. Dividends for 20X1 (3,000 x $100 x.05) $15,000 Dividends for 20X2 (3,000 x $100 x.05) 15,000 Total dividends for 20X1 and 20X2 $30,000 Less dividends paid in 20X2 10,000 Dividends in arrears $20,000 ======= Dividends in arrears are not an accrued liability until actually declared. Thus, the reporting of dividends in arrears is achieved through disclosure either on the face of the balance sheet or in the notes.

Answer 142

be valued at historical cost. When you cease using a building in operations, you cease depreciating it. If it is to be sold soon, it will be reclassified as held for sale. However, it will still be carried at no more than its original cost less depreciation accumulated (which would be below historical cost).

Answer 143

fundamentally interrelated. Articulation means that the elements of financial statements are fundamentally interrelated in two ways: (1) beginning balance + changes = ending balance, and (2) assets = liabilities + equity.

Answer 144

Milton will retain control of the receivables. Under a pledge, an account receivable is used as collateral for a loan. Milton continues to collect the receivables and applies the collection to the loan balance.

Answer 145

Accumulated depreciation of equipment Monetary assets are cash or items whose amounts are fixed in terms of numbers of dollars. All of the assets are monetary assets except for accumulated depreciation.

Answer 146

0.81 to 1 Quick ratio = Current assets (excluding Inventories and Prepaid assets) ÷ Current liabilities: (Cash + Net A/R + Trading debt securities) ÷ Current liabilities ($60,000 + ($180,000 - $8,000) + $90,000) ÷ $400,000 = 0.81 All of the assets listed are current. Inventory and prepaid rent are excluded from the quick ratio.

Answer 147

Because the art will be displayed in general government buildings, the governmental activities would show revenue from donations of $2,000,000 and an expense of $2,000,000. The city council's formal policy for the donated collection of American art meets the three criteria that permit the city to avoid capitalization of the art collection. If the collection is not capitalized, it would not be listed among the capital assets used for governmental activities, and depreciation would not be reported. In the year of the donation, a recipient government should recognize a revenue as well as an expense in the same amount.

Answer 148

$550,000 Under IFRS, after an impairment loss has been recognized, if facts change and the estimated value of the asset has increased, the impairment loss can be considered recovered and, to the extent of the recovered loss, the impairment can be undone. Here, the building has recovered some of the loss and can be written back up to the current estimated value in use of $550,000.

Answer 149

$27,500 The revenue under the lease is the $50,000 each year, and the expenses include the depreciation and the property tax for the year. The broker’s fee ($15,000) should be amortized equally based over the 10 years of the lease, or $1,500 a year. Thus, the net rental income should be $27,500: $50,000 – $12,000 – $9,000 – $1,500 = $27,500

Answer 150

$798,000 This building is treated as a leasehold improvement. Although the land lease is for 21 years, the building will be in use for 20 years; thus, the depreciation period for the building is 20 years: Cost / Life = $840,000 / 20 years = $42,000/year Building cost - Depreciation = Carrying value of building $840,000 - $42,000 = $798,000

Answer 151

An interest in a variable interest entity that the entity is required to consolidate

Answer 152

Depreciation expense: No; Interest revenue: Yes A lease with transfer of title meets the criteria to be classified as a capital lease. The lessor (Able) should remove the asset from the books, record a receivable, and recognize interest revenue from the receivable.

Answer 153

upon the liquidation or termination of the reporting entity.

Answer 154

$32,300 Research and development costs should be “charged to expense when incurred.” The $34,000 cost of registration would be capitalized and amortized over the 10-year economic life. 20X1 amortization: $34,000 / 10 years = $3,400 x 6/12 = $1,700 Carrying value at 12/31/X1: $32,000 - 1,700 = $32,300

Answer 155

$248,000 Bond issue cost related to bonds retired = 1/2 of $6,000 = $3,000 Bond issue cost amortized by 06/02/X6 = 5/15 of $3,000 = $1,000 Face amount of bonds retired (1/2 of $500,000) = $250,000 Less unamortized bond issue costs ($3,000 - $1,000) = 2,000 Bond carrying value prior to retirement $248,000 (Used to compute gain or loss on retirement)

Answer 156

$1,020,000 Debt issue costs are considered part of the cost of issuing the bonds and are therefore included in the cost of the bonds and amortized over the life of the debt. Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Amortization of debt issuance costs is reported as interest expense. The remaining items are considered part of the cost of the land.

Answer 157

An outflow equal to the 20X1 principal payments only Only the principal portion of the monthly lease payments would be reported as cash outflow for financing activities in Dewey Co.'s 20X1 statement of cash flows. Note: Interest is a cash outflow that is classified as an operating activity.

Answer 158

Other gain/loss: $(4,000) The total gain/loss in this case is the difference between the carrying value of the debt, $105,000, and the carrying value of the machine, $109,000 and its fair value of $96,000 conceivably could be deemed to be an impairment loss.

Answer 159

$2,005 Net proceeds of the loan were $194,000 and the effective interest rate was 12.4%. The journal entry to record the December 31, 20X1, accrual of interest would be: Accrued Interest Receivable 2,005 Interest Income 2,005 (12.4% x $194,000 x 1/12) The interest income reflects the effective interest rate applied to the net proceeds received. This is an application of the “effective interest” method.

Answer 160

decreases net assets without donor restrictions. Management and general expenses are reported in a separate functional classification from program expenses. They are shown as expenses and not as an offset to revenues. All expenses in the statement of activities are classified as changes in net assets without donor restrictions.

Answer 161

The goods or services are not interdependent or interrelated.

Answer 162

increase in the projected benefit obligation due to the passage of time.

Answer 163

Asset and liability approach This method focuses on the calculation of deferred tax assets and liabilities, and calculates the periodic expense or benefit as the change in the asset or liability from the prior balance sheet date.

Answer 164

$60,000 If net income after the bonus and the taxes was $360,000, then (taking the tax expense back first) income before taxes was $600,000 (using the after-tax back to pre-tax conversion formula, $360,000 ÷ 0.6 = $600,000, 0.6 = 1 less the tax rate of 40%). Now, the bonus is equal to 10% of the income after deducting the bonus, which would be the income before taxes of $600,000. Thus the bonus is 0.10 × $600,000, or $60,000.

Answer 165

a capital projects fund. Depreciation expense is not recorded in any governmental fund since governmental funds account for neither depreciable assets nor expenses (the measurement focus of governmental funds is on expenditures, not expenses). Capital assets and related depreciation expenses are accounted for in proprietary funds and fiduciary funds. The only governmental fund type listed in the responses to this question is the capital projects fund, so this is the appropriate response.

Answer 166

$3,300,000 At the end of Year 1, the company was 20% finished with a project costing $7,500,000 total, so they must have already expended $1,500,000 (0.20 × 7,500,000). By the end of Year 2, the company was 60% done with a total estimate of $8,000,000 cost, so by the end of the year, the total costs expended so far must have been $4,800,000 (0.60 × $8,000,000). During Year 2, the additional costs to go from $1,500,000 total cost to $4,800,000 total cost must have been expended, for a total year 2 cost of $3,300,000 ($4,800,000 – $1,500,000).

Answer 167

$300,000 Interest payments are included in operating activities. Cash payments to acquire equity instruments are included in investing activities. Only payments of dividends to stockholders are included in financing activities.

Answer 168

major fund reporting requirements do not apply to internal service funds.

Answer 169

12 months Current items cover a period which is the company operating cycle (6 months) or a year, whichever is longer, and a year is longer than six months. Thus, for this company, items covering a 12-month period going forward are current.

Answer 170

program revenues Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government's general revenues. Revenues derived from those who purchase, use, or directly benefit from the goods or services of a program, even those beyond the reporting government's boundaries, are always considered program revenues.

Answer 171

$66,240 The four promised payments are valued at present value by using the given interest factor of 3.312 ($20,000 × 3.312 = $66,240).

Answer 172

the notes contain disclosures related only to required supplementary information.

Answer 173

Rule adoption There are three steps involved in the rulemaking process: Concept Release, Rule Proposal, Rule Adoption

Answer 174

Expenditures—salaries, debit 250,000; Salaries payable, credit 250,000

Answer 175

Enterprise fund Enterprise funds are used to report any activities for which a fee is charged, and 55% of the library's needs are covered by fees.

Answer 176

$4,100,000 of other financing uses, $5,000 of expenditures, and $4,160,000 of other financing sources to the debt service fund.

Answer 177

$16,000 Minimum purchase commitment for 20X2 and 20X3 (100,000 units x $.10/u x 2 years) $20,000 Less scrap recovery (100,000 units x $.02 x 2 years) 4,000 Probable loss from purchase commitment $16,000 ======= Note: The question asks for the probable loss from purchase commitment (i.e., the loss for the remaining two years on the contract). The loss on the 250,000 units already in inventory is not considered part of this loss; it would be reported as an operating loss due to the write-down of inventory due to obsolescence.

Answer 178

A statement of cash flows should be presented for proprietary funds only. Governments should present a statement of cash flows for proprietary funds using the direct method of presenting cash flows from operating activities.

Answer 179

A change from the income tax basis of accounting to the accrual basis Changes in accounting principle use the retrospective approach, whereby all prior years’ financial statements presented should be restated and the cumulative effect of the change should be reported in the retained earnings statement. The only answer choice which is a change in principle requiring restatement is a change from the income tax basis of accounting to the accrual basis.

Answer 180

$300,000 Transfers are other financing sources and are never recognized as revenues. If the receivable is associated with an unrestricted grant or with a restricted grant for which all eligibility requirements have been met, the state grant should be reported as revenues.

Answer 181

$100,000 While a government’s full accrual financial statements recognize pension expense primarily based upon changes in the pension liability during the year, the modified accrual financial statements recognize pension expenditures primarily based upon a funding approach. Therefore, the government would recognize the full $100,000 contribution as pension expense for the year.

Answer 182

$688,500 The discount rate to get the present value of the payments is the lower of the lessee’s incremental borrowing rate, or the rate implicit in the lease, if known to the lessee. The lower of these two here is the implicit rate in the lease that is known to the lessee, which is 9%. Thus, the amount of the lease liability will be based here on the present value factor for an annuity due of 7 years based on 9% (5.5) multiplied by the annual rental of $153,000: 5.5 × $153,000 = $841,500 However, since the first payment was just made, lower that amount to get the remaining liability at the end of the year: $841,500 − $153,000 = $688,500

Answer 183

$264,000 Total obligation $257,000 Add: undiscounted cash flow 68,000* Accretion expense 26,000 Deduct: payment (87,000) --------- $264,000 * The original undiscounted cash flow of $110,000 should be adjusted to the discounted estimate.

Answer 184

EBIT / Interest Expense

Answer 185

$800,000 Regardless of whether you are reporting the revenue at the fund or entity-wide level, the basic recognition criterion is the same: when all applicable eligibility requirements are met. The availability requirement does not apply with entity-wide statements, but availability does not make a difference in this case.

Answer 186

The rights and obligations under an insurance contract that is not a financial instrument (because it requires or permits the insurer to provide goods or services rather than a cash settlement) but whose terms permit the insurer to settle by paying a third party to provide those goods or services

Answer 187

$19,000 Total capital of new partnership ($60,000 + $20,000 + $15,000) $95,000 Times capital credit percentage to Grant x .20 Equals capital credit allowed to Grant $19,000 ======= Note: Grant is given a “bonus” equal to $4,000, the excess of his $19,000 capital credit over the $15,000 fair value of land invested.

Answer 188

statutory consolidation.

Answer 189

$40,000 liability The recognition of the $100,000 expense for tax purposes in advance of the point it is recognized under GAAP allows the company to defer payment of taxes on $100,000 of GAAP income for the current year. The tax expense, from a GAAP perspective, is incurred because of current-year income and should be matched to the current year. This means that a current-year tax expense is not paid in the current year, but will be paid in the future.

Answer 190

$885,000 Since (1) assets equals liabilities plus equity and (2) the $120,000 amount of liabilities is a given, the key is to compute the December 31, 20X0, balance of equity. The transactions described affected equity as follows: Issuance of stock on 1/1/X0 $750,000 Revenues 82,000 Expenses (64,000) Declaration of cash dividend (3,000) Equity 12/31/X0 $765,000 ========= Therefore, total assets must be $885,000, as shown below: Assets = Liabilities + Equity Assets = $120,000 + $765,000 Assets = $885,000

Answer 191

accrued if attributable to employees' services already rendered. Four conditions are necessary for accrual of employees' compensation for future absences: 1. rights to compensation vest or accumulate, 2. payment of compensation is probable, 3. amount of payment can be reasonably estimated, and 4. the compensation is attributable to employees' services already rendered.

Answer 192

$6,000 Income tax expense for the second quarter is the total income for quarters one and two times the effective rate, less the income tax expense recorded at the end of the first quarter. Income before tax (Q1 & Q2) $30,000 Tax rate x 25% Total expense for Q2 $7,500 Less: Expense from Q2 (1,500) Income tax expense, Q2 $6,000

Answer 193

$9,000 The recognized but as yet unreceived income will generate a future tax consequence, a future tax liability. However, dividends received by a corporation are eligible for a dividends-received deduction, and thus only a smaller taxable amount (multiplied by the tax rate) will eventually be paid. Taft's recorded equity in Flame earnings $180,000 Less dividends received in 20X1 30,000 Temporary difference before dividend deduction 150,000 Less dividends received deduction (80% x $150,000) 120,000 Net amount of temporary difference $ 30,000 Times tax rate x 30% Deferred income tax liability, noncurrent $ 9,000 ========

Answer 194

Equipment and facilities included in estimated total current cost of closure and post-closure care should not be reported as capital assets.

Answer 195

Exempt from federal taxation

Answer 196

A reconciliation of ending retained earnings to net cash flow from operations

Answer 197

$59,000 Baker has earned the initial franchise fee and there is no indication that collectibility of the receivable is not reasonably assured. Therefore, Baker should recognize all the revenue for the initial franchise fee. The amount to be recognized is the cash received ($25,000) plus the present value of the future payments ($34,000). The difference between the $40,000 of future payments and their present value will be recognized as interest revenue over the 4-year period.

Answer 198

Serial bonds, $475,000; Debenture bonds, $400,000 Serial bonds mature in installments (only part of the total principal is paid back each year, so only some of the total bonds are paid off each year) and thus are described as maturing annually. Thus, the serial bonds are the 9.375% bonds and the 10% bonds for a total of $475,000 ($275,000 + $200,000). Debenture bonds are unsecured debt, and so these are the 9.375% and the 11.5% bonds for a total of $400,000 ($275,000 + $125,000).

Answer 199

It recognizes gains and losses immediately.

Answer 200

Other comprehensive income will be increased. Prior service cost is a benefit granted to current workers in respect of their prior service. It is recognized as an expense over the remaining service lives of the benefited workers. Until then, it is recognized as a part of the total projected benefit obligation, and debited to other comprehensive income (thus lowering other comprehensive income). As prior service cost is recognized as an expense, it is credited to (taken out of) other comprehensive income (thus increasing it).

Answer 201

required using the full governmental model.

Answer 202

Operating activities

Answer 203

$0 Revenue for long-term contracts is recognized over time when any one of the following criteria is met: the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs; the entity’s performance creates or enhances an asset, such as work-in-process (WIP), that the customer controls as the asset is created or enhanced; or the entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. This arrangement does not qualify for revenue recognition over time, because the asset the seller is creating has an alternative use to it. Therefore, EriK must wait until completion of the contract before recognizing revenue.

Answer 204

credit to appropriations control, $27,000,000. Budgetary journal entries record estimated amounts, and are only posted at the beginning and end of the fiscal year. Estimated transfers of resources between and among funds are reported in the governmental fund operating statement as Other Financing Sources or Uses, as appropriated, and NOT combined with Appropriations. A typical journal entry to record the budget is as follows: Estimated Revenues xxx Appropriations xxx Budgetary Fund Balance xx

Answer 205

The costs, if any, that would be incurred to transport the asset or liability to (or from) its principal (or most advantageous) market

Answer 206

Credit tax anticipation notes payable

Answer 207

$16,000 Year 1 depreciation = $100,000 × ((100% ÷ 10) × 2) = $20,000 Year 2 depreciation = ($100,000 - $20,000) × 0.20 = $16,000

Answer 208

The amount is increased by the excess of the replacement forest land's cost over the condemned forest land's carrying amount.

Answer 209

$17,000,000 "Early enough in the next period" cannot exceed 60 days for property taxes; therefore, most governments apply the same limits to other revenue sources. The first item, Year 3 property taxes, is collected in the same year and so would be recognized as revenue. The second item, Year 2 taxes collected in Year 3, is recognized in the year collected or Year 3. The third item, Year 3 taxes but not collected until January of Year 4, would be recognized as revenue in Year 3, as the collection happens within the 60-day limit.

Answer 210

disclosure

Answer 211

the carrying amount of similar assets of competitors.

Answer 212

The other asset group should be tested for an impairment loss before goodwill is tested. oodwill must be tested for impairment at least annually. However, it must be tested between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Additionally, if the carrying amount of a reporting unit is zero or negative, goodwill of that reporting unit shall be tested for impairment on an annual or interim basis if an event occurs or circumstances exist that indicate that it is more likely than not that a goodwill impairment exists. If any other assets are to be tested for impairment at the same time as goodwill is to be tested, those assets must be tested for impairment before goodwill is tested.

Answer 213

Both fund accounting and budgetary accounting

Answer 214

Preferred stock: $25,000; Additional paid-in capital: $(2,500); Retained earnings: $0 The entry to record the redemption and retirement of the preferred stock: 11% Preferred stock (.25 x 2,000 x $50) 25,000 APIC - pref stk ($25,000 - $22,500) 2,500 Cash 22,500

Answer 215

$3,000 A debtor that issues or otherwise grants an equity interest to a creditor to settle fully a payable shall account for the equity interest at its fair value. The difference between the fair value of the equity interest granted and the carrying amount of the payable settled shall be recognized as a gain on restructuring of payables. Wood should recognize a gain on restructuring of debt of $3,000 ($28,000 − $25,000).

Answer 216

FASB The Financial Accounting Standards Board (FASB) found the need to develop a financial reporting framework for smaller privately managed businesses.

Answer 217

Profit on sale, $720,000; Interest revenue, $146,000 When accounting for a capital lease from the perspective of the lessor, one needs to decide if the lease is sales type or direct financing. In a sales-type lease, there is an element of gross profit recognized by the lessor at the beginning of the lease, generally based on the difference between the sales price and the cost of the item to the lessor. Here that gross profit recognized immediately is $720,000, the difference between the selling price and the cost of the equipment ($3,520,000 – $2,800,000). After the first payment is received, the remaining lease obligation will be paid like a long-term liability, with interest accruing on the unpaid balance. The unpaid balance for the first year is generally the difference between the selling price and the rent payment (when the payment is made at the start of the year). The unpaid balance for interest to accrue on is thus $2,920,000 ($3,520,000 – $600,000). The interest accrues from the payment in July to the end of the year, thus $146,000 ($2,920,000 × 0.1 × 6/12).

Answer 218

As restricted support of the present value of $10,000 Contribution revenues (support) from gifts, grants, bequests, and so on are reported in the period they are unconditionally promised or received, whichever is earlier. Revenues are measured at the present value (or net realizable value for any contributions expected to be received within a year after the unconditional promise was made); recognition of contribution revenues is not deferred because donations are restricted. The pledge is classified as restricted since it will be satisfied by expending resources for the restricted purpose (i.e., building the addition to the kennel).

Answer 219

All of the choices listed may be component units. All of the listed organizations—governmental, not-for-profit, and for-profit—may be a component unit of the primary government. For the purposes of defining the governmental financial reporting entity, it is not required that the component unit of the primary government be a governmental or not-for-profit organization. A for-profit corporation could be a component unit if the elected officials of the primary government are financially accountable.

Answer 220

The end of preceding fiscal year Form 10-Q is used to file quarterly reports with the SEC. Required financial statements include a quarterly and end of the preceding fiscal year balance sheet. If the company is subject to seasonal fluctuations, a balance sheet for the corresponding quarter of the prior fiscal year is required.

Answer 221

the needs of the users of the information.

Answer 222

Financial statements include property with a carrying amount increased to management's estimate of market value. To be reliable, information about an item must be representationally faithful, verifiable, and neutral. To be reliable, information must be sufficiently faithful in its representation of the underlying resource, obligation, or effect of events and sufficiently free of error and bias to be useful to investors, creditors, and others in making decisions. Clearly, values assigned to property based on management's estimate of fair value are not representationally neutral and would not be considered reliable.

Answer 223

A proposed accounting standards update