MCQs question Flashcards
What amount of bond premium should be amortized in Wood’s debt service fund by end of Dec.31 Y1?
$0.00, There is no premium or discount amortization in government funds since there measurement focus is source and uses of financial resources.
Which type of event should be reported separately as a component of income from cont. operation?
Event or Items that are “UNUSUAL” in nature and/or “Infrequently” occurring are reported separately as a component of income from continue operations.
How to calculate the last year of a contract accounted for by the percentage of completion method?
Annual gross profit = (Total cost incurred/total expected cost)*(total expected gross profit) - total profit previously recognized. NOTE: in the final year, ACTUAL rather expected amounts are used.
the CAF report of the governmental unit included a statistical section?
Yes. there are 3 sectioms: intro, basic fin stmt with required supplement information by GASB 34, and the statistical section. However, the stat section is not part of BASIC fin stmt.
Working capital formula
Current Asset - Current Liabilities
Which of the characteristics of service efforts and accomplishments is the most difficult to report for a governmental entity?
- Comparability
- Timeliness
- Consistency
- Relevance
Relevance - when info must be bear a logical relationship with the needs for its purpose. It must be reliable, which is hard to achieve then others(Comparability, Consistency, and Relevance)
When & how to recognize the gain & loss on litigation?
- Gain recognize only after settled and realized.
2. Loss contingency is PROBABLE and ESTIMATED and MUST be Recognized prior the settlement
Is the recognition of depreciation expense always required for externally published fund financial statement of public colleges and private not-for-profit colleges?
1.For private not-for-profit -colleges - YES
2. For “public colleges” - not always. if they use fund model - NO.
NOTE: Depr. exp would be recognized in the government-wide fin stmt.
For governement fund report how to record repair due to flooding which is not unusual, but has been infrequent in the last few years?
- Record as expenditures.
2. if flood is Extraordinary item if both UNUSUAL and INFREQUENT.
For company who manage defined contribution retirement (pension) plan, what is IS & B/S name?
- IS - Stmt of Net Assets Available for Benefits.
- B/S - Stmt of Changes in Net Assets Available for Benefits.
NOTE: IS Net Asset available for benefit = B/S ending balance (stmt of changes in net assets available for benefits.
How to record dividend income under the fair value method?
FV method used when investor own less than 20% of common stock & DON’T have influence over the investee. Earnings are not Recorded by the investor & dividends payout is not affecting investment account. (Don’t Reduce it)
Interim Fin Stmt can be described as emphasizing which of the enhancing qualitative characteristics
Timeliness. - Interim fin stmt emphasize timeliness by providing fin info based on actual performance to date and estimate prior to year end.
AR turnover formula
Sales Net / Average AR net
How to document stock options to an employee expire?
Reclassify the remaining balance from APIC stock option (debit) to APIC expired stock option (credit).
Which of following would result in an operating cash inflow under the direct method?
- Increase in inventory
- Increase in AP
Increase in AP since company borrowing more versus paying an expense and is classified as cash inflow under direct method.
How to calculate the change in net position for governmental activities?
CPAS RIDES
Start balance (Change in fund Balance)
1. +Capital outlay
2. +Principal pmt on debt (exclude any pmt which where not made this year)
3. -Asset disposal
4. -Source (other financing, debt proceeds)
5. +Revenue accrual (did not pay yet)
6. - Interest accrual
7. - Depreciation Expense
8. +Internal Service fund change in net position
Remember that here we are reconciling the change in fund balance to the change in net position - our “income statements”. We are looking of item that are treated differently in modified and full accrual accounting.
How determine entity should be report as primary gov unit or component unit
1.Separately
2.Elected governing body
3.Legal separate entity
4.Financially independent status.
If all criterias met, its Primary gov. If the did not meet them, it will component unit.
How to determine blended vs discrete unit?
If unit exclusively serve the primary gov and it failed to qualify as legally independent entity, report as BLENDED.
If you fail blended req, then unit presented discreetly (as a sep column).
Which of the following items would be reported by a custodial fund?
- Stmt of cash flow
- Revenue and exp
- Curr assets & curr Liabilities
- The fund balance
custodial fund ONLY report curr assets & liabilities ( and no fund balance). Because fund periodically transferred to recipients. By year end, the fund have no balance. There is no cash flow report, no revenue & expenses, no fund balance.
What criterias fund need to meet to qualify to be treated as major funds?
Major funds require a fund be both:
- 10% of its fund (INDIVIDUAL) category’s assets, revenues, or expenditures/expenses
- and 5% of the COMBINED governmental and enterprise assets and revenues, and expenses.NOTE: General Fund always treated as a major fund.
In order to determine EPS, interest exp, net of applicable income taxes, on convertible debt that is dilutive should be added or deducted?
- Added back to net income for diluted EPS
2. Ignore for basic EPS.
Which fin stmt are required to be presented for Special purpose government engaged only in business type activities (such as utilities)?
1 The fin stmt required for enterprise funds, including MD&A and RSI (req. supplement information): stmt of net position (B/S), stmt of revenue, expenses and changes in net position (I/S), stmt of cash flow, and footnotes
Will sale of treasury stock at LEAST than cost result on decrease in stockholders equity?
YES. Cash Debit APIC Debit RE Debit Treasury Stock Credit
Can you reverse subsequent of an impairment loss?
NO. ITs prohibited under US GAAP
What diff under the equity method vs making fair value election method for investment?
Under the equity method, Thomas’s portion of Jefferson’s income would increase the investment account on Thomas’s books, and dividends from Jefferson would decrease this same investment account and are not considered income. Under the fair value method, changes in the fair value of the investment (stock price) will be reflected in income for the period, and any dividends received are included in income for the period. Thomas would not report any changes on the investment based on the results of Jefferson’s operations, like it would under the equity method.
Principal ptm on short -term debt & interest pmt on short-term debt which section of Cash Flow Stmt it will be reported?
- Principal Pmt- FINANCING Activities
2. Interest pmt on loan - OPERATING Activities.
The company provides compensatory stock option to employees. How comp records 30% of the stock options expired? (not exercised)
To document the expired options, the APIC -stock option is DEBITED & APIC - expired stock options account is CREDITED.
How to reflect a discount on the contract with multiple obligations?
Allocate it proportionally across all obligation within the contract.
The debt service fund issued a bond on March 2nd, with interest payable on March 1 (Y2) and Sep 1. The fiscal year end on June 30, how many months of interest payable should be listed on fin stmt?
ZERO. The debt fund uses the modified accrual basis of accounting, which will accrue interest only when its legally due (Sep 1), not at an interim date (June 30).
Under Fair Value method (less 25% ownership), how record income & dividend from company invested?
Under the fair value method, changes in the fair value of the investment (stock price) will be reflected in income for the period, and any dividends received are included in income for the period. Thomas would not report any changes on the investment based on the results of Jefferson’s operations, like it would under the equity method.
Under Equity method (over 25% investment) , how record income & dividend from company invested?
Under the equity method, Thomas’s portion of Jefferson’s income would increase the investment account on Thomas’s books, and dividends from Jefferson would decrease this same investment account and are not considered income.
How to calculate the amount of accretion expense for the year related to the asset retirement obligation?
An asset retirement obligation(ARO) is when there will be a large disposal or cleanup cost at the end of an asset’s useful life, and it is a liability that increases over the life of the asset. Each year, the increase in the ARO is called the “accretion expense”, and is calculated from the ‘credit adjusted risk free’ interest rate and the fair value of the ARO. In this case, the accretion expense is $100,000 x 10% = $10,000.
The functional currency of subsidiary comp may be :
- Foreign entity’s local currency,
2.The currency which is fin stmt is presented, which is the curr of the parent - A foreign currency other than the one in which the foreign entity maintains its books.
Fun curr of com depends upon the environment in which the entity generates and expenses cash.
HOWEVER, if the local currency has high inflation over 3 years, it can not be used.
Lessor VS Lessee
Leasor is the owner of the asset. Lessee is renter who pays rent.
