NINJA MCQs Flashcards
Accumulated Benefit Obligation vs. Projected Benefit Obligation
Accumulated benefit obligation - based upon prior compensation
Project benefit obligation - based on future compensation.
Accumulated Benefit Obligation - present value of all future retirement payments attributed by the pension benefit formula to employee services rendered prior to that date and based on current and past compensation levels
Projected Benefit Obligation - The actuarial present value as of a date of all benefits attributed by the pension benefit formula to employee service rendered prior to that date. The projected benefit obligation is measured using assumptions as to future compensation levels if the pension benefit formula is based on those future compensation levels (pay-related, final-pay, final-average-pay, or career-average-pay plans)
For stock-based compensation, compensation award is based on the total instruments that …
Eventually Vest
For interim financial reporting, utilize which rate for taxes?
An estimate of the effective tax rate expected for the annual period is made at the end of each interim period.
R&D - Equipment with Alternative Use (For Current and Future Years)
Capitalized and depreciated.
All other R&D equipment for use in current year is expensed
Contingencies
Gain contingencies are NEVER ACCRUED due to conservatism
Probable - Accrue (if estimable) and Disclose
Reasonably Possible - Disclosed
Remote - Nothing
When debt is issued at a discount, interest expense over the term of debt equals the cash interest paid:
Plus discount
1) Issuing debt at discount occurs when effective rate is higher than stated rate.
2) The contractual interest is not sufficient and is supplemented by selling the bonds at less than face value.
3) Therefore, the discount is amortized over the term of the bonds by increasing interest expense above cash interest.
4) (A simple analysis is that a bond discount has a debit balance. Amortizing the discount requires a credit, which means that the offsetting entry must be a debit to interest expense to increase the expense.)
Internal Service Fund - J/Es for recording internal billings
Normal, ongoing activities of an internal service fund result in
Interfund/intergovernmental receivables (debits)
Operating revenues (credits)
The receivable is often recorded as a “due from ________ fund.”
The operating revenues may be subclassified, as in the case of this problem, as “interfund” or “intergovernmental.”
Capital Lease - Lessee J/Es
A lessee under a capital lease is required to allocate each minimum lease payment between reduction of obligation and interest expense.
Dr - Int. Exp and Liability, Cr - Cash
Interest expense (10% of $758,000) 75,800
Liabilities under capital lease
($200,000 - $75,800) 124,200
Cash 200,000
Foreign Currency Transactions and Translations - Hedging Purchase Commitment
Forward contract qualifies as a fair value hedge (rather than a cash flow hedge). Therefore, the change in fair value of the derivative (the forward contract) should be included in net income, as should the change in fair value of the hedged commitment. Accordingly, the $3,000 gain (100,000 francs × ($.90-$.93)) would be included in income from continuing operations.
The increase in the fair value of the hedged item, the purchase commitment, should be a $3,000 loss. The unrealized gain of $3,000 associated with the derivative (the hedging instrument) and the $3,000 unrealized loss associated with the hedged instrument (the purchase commitment) should result in a net unrealized gain/loss of $0. Thus, the net unrealized gain/loss included in income from continuing operations is $0
Additional Learning:
If the hedge associated with the derivative qualified as a cash flow hedge, the unrealized gain would be included in other comprehensive income rather than in net income.
10-K Accelerated Filers vs. Regular 10-K
10-Q: Accelerated Filers vs. Regular 10-Q
10-K Accelerated Filers vs. Regular
75 days vs. 90 days
10-Q: Accelerated Filers vs. Regular
40 days vs. 45 days
Criteria for a Capital Lease
Transfers ownership of the property to the lessee by the end of the lease term.
Contains a bargain purchase option.
The lease term equal to 75% or more of the estimated economic life of the leased property.
PV at the beginning of the lease term of the minimum lease equals or exceeds 90% of the excess of the fair value of the leased property
Nongovernmental, Not-For-Profit Voluntary Health Organization
Donor contributions to fund a resident camp - temporarily restricted
Membership fees - exchanged for revenues
Participants deposit for an entity-sponsored trip - Receipt of Cash and Liability To Provide the Promised Activity for Participants
Current Liabilities - Short Term Obligation Refinanced to Long-Term Obligation
If after date of BS but before BS is issued, long-term obligation or equity securities are issued for the purpose of refinancing the short-term to long-term then, exclude short-term portion that is going to be converted to long-term and only include the amount that is going to be paid to cover the short-term obligation.
Sale-Leaseback - How to tackle the problems
1) Check if lease qualifies as Capital Lease (TOBPO7590)
2) If so,
Any profit or loss on the sale shall be deferred and amortized in proportion to the amortization of the leased asset if a capital lease. (E.g. Sales Price - Carrying Value)
What are the rules for impairment on long-lived asset held for sale (disposal)?
A long-lived asset classified as held for sale (disposal) must be measured at the lower of its carrying amount or fair value less cost to sell.
A loss should be recognized for any initial or subsequent write-down to fair value less cost to sell. A gain should be recognized for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized for a write-down to fair value less cost to sell.
Prior year service cost is reflected
in the year and following years
Capital Lease - What occurs to the lessor? Does he record depreciation expense or interest revenue?
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.
SOCF - Interest payments are included in which section?
Operating activities
Grant trusts are allowed to do what 2 things?
Grantor trust meet the requirements of the Internal Revenue Code allowing it to qualify for
1) deferral of the employee compensation paid from it
2) available to pay the creditors of the employer in the case of the employer’s bankruptcy
Trust funds CAN NO LONGER be used by the employer to pay personal expenses.
Reverse purchase agreements should be disclosed in the following way:
1) Fund liability captioned ‘Obligations under reverse repurchase agreements,’
2) The underlying securities should be reported as ‘investments.’”
3) Interest cost should not be netted with interest earned on related investments.
4) Credit risk needs to be disclosed.
How should government-wide statement of activities report direct operating expenses, special and extraordinary expenses, and indirect operating expenses?
1) The government-wide statement of activities should present direct operating expenses by function
2) Special and extraordinary items are reported separately at the bottom of the statement of activities
3) Governments may allocate indirect expenses to benefiting functions, but they are not required to do so
Software Costs - What are expensed - costs incurred to develop after application development stage, costs incurred prior to application development stage, and training costs?
Costs incurred to develop software for internal use are capitalized after the application development stage is reached (in accordance with FASB ASC 350-40-35-4). The costs are amortized over the benefited period—four years in this case. Costs incurred prior to the application development stage are expensed, as are training costs incurred after the development stage
If a company enters into a contract to exchange a service for another service and provides their service but does not receive the other service? What should they record in their F/S?
Asset - for the prepaid other service
Revenue - for providing/ completing the service
Under IFRS for business combinations, what is the treatment for goodwill and recognizing an extraordinary gain on a bargain purchase option?
Goodwill is an option
Not allowed - Extraordinary gain on a bargain purchase option
Subsequent Events - What to do if an event reacquire bonds in excess of price sold for after BS date but before issuance of F/S?
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.
Under IFRS, the treatment for impairment is the following
1) Test for impairment by comparing the carrying value to the recoverable amount to determine impairment loss
2) The recoverable amount is the higher of the value in use (present value of discounted future cash flows) or net realizable value (sales proceeds less cost to sell).
Dollar-Value LIFO
$ 525,000 December 31, 20X1, inventory at base-year cost
- $500,000 January 1, 20X1, inventory at base-year cost
———-
$25,000 20X1 layer at base-year cost
x 1.10 20X1 index
———-
$27,500 20X1 layer at December 31, 20X1, cost
= Dollar-Value at current year = $500+$27.5=$527.5
Basic F/S of a not-for-profit are?
Not-for-profit entity are:
1) Statement of financial position (like a balance sheet)
2) Statement of activities
3) Statement of cash flows,
4) for voluntary health and welfare entities, a statement of functional expenses
NOL Benefit is equal to
NOL Loss Carryforward X Tax Rate
Single-step income statement revenues include:
Net sales revenue,
Interest revenue,
Gain on sale of equipment
Construction Interest Capitalization
Capitalization of interest is to record the cost of interest (as well as other time-related costs, such as taxes and insurance) paid to finance a long-term construction project (whether self-constructed or acquired from others and whether for self-use or for resale) as an asset and defer its recognition as an expense to future periods. It is not to exceed the total interest incurred during that period.
FASB ASC 835-20
Conceptually, the amount of interest to be capitalized is the interest that could have been avoided if the expenditures for the asset had not been made. It requires determination of average accumulated expenditures during each interim capitalization period and the capitalization rate (usually the purchaser’s incremental borrowing rate or a weighted-average interest rate).
Cash basis for determining taxable income - What is true?
Under any basis of accounting for income taxes, expenses are deductible only when paid or accrued.
There is no current deduction for capital expenditures.
The expense for capital expenditures will be recognized in the form of depreciation, amortization or depletion.
Comprehensive Income
Changes in equity for non-owner sources
Investments by owners is SPECIFICALLY EXCLUDED
Non-level lease payments must be recorded on a…
Straight line basis
Rent Expense (Debit)
Cash (Credit)
Lease Liability (Credit)
What occurs when a reclass of AFS sold?
Realized Loss = Cost - Selling Price
Reclassification = opposite of Unrealized G/L to OCI
If you net the Realized Loss and he Reclassification, then it prevents double counting and determines the correct Comprehensive Income.
To prevent including certain items in the determination of comprehensive income twice, reclassification adjustments are required for a transaction or event that has been included as a component of other comprehensive income and later becomes a component of net income.
Record Accrued Interest on a Receivable
Accrued Interest Receivable (Debit)
Interest Income (Credit)Donated Services (if specialized skill)
Reported as increase in EXPENSES and CONTRIBUTIONS
If not, any other donated services are not recognized. Footnote disclosure of the fair value of contributed services that are not recognized as revenue is encouraged but not required.
Net worth equals
is the excess of the estimated value of assets over the estimated amounts of liabilities, reduced by the tax associated with the difference between the estimated values and the tax basis of assets and liabilities.
Assets - Liabilities
Then, take Historical Cost of Assets vs. Current Value of Assets multiply by tax rate AND,
take Historical Cost of Liabilities vs. Current Value of Liabilities multiply by tax rate
Add, Assets - Liabilities + Tax Differences = Net worth
Special purpose fund examples are…
Sinking Fund
Petty Cash Fund
Payroll Cash Account
What is the most difficult characteristic to relate to government entities?
Relevance encompasses all of the other characteristics listed.
Consider for a minute that if the information provided in a financial report is not timely or reliable, it is not relevant. Furthermore, information can easily be developed that is timely, comparable, and consistent and, while it meets all of the characteristics, it still may not be relevant. In order for information to be judged relevant, there must be a close logical relationship between the information provided and its purpose.
Based on the diversity of the needs of the audience of potential users, the cost of developing relevant information that is capable of making a difference in a user’s assessment of a problem, condition, or event may be illusive and/or cost prohibitive.
What type of item requires prior period adjustments to Retained Earnings?
Prior period adjustments to retained earnings are only reported for errors in prior-year financial statements that resulted in an incorrect balance in retained earnings at the beginning of the year.
Prior-year errors in reporting other comprehensive income do not affect the beginning balance of retained earnings. Rather, they result in erroneous balances in accumulated other comprehensive income.
Fundraising activities
include publicizing and conducting fundraising campaigns, maintaining donor lists, conducting special fundraising events, preparing and distributing fundraising manuals and other materials, and other activities involved with soliciting contributions.
Effective tax rate
Taxable income (adjusted for nontax items, munis, interest paid on life insurance) x Tax Rate = Tax Payment
Tax Payment divided Total Income Earned = Effective Tax Rate
