Other MCQs

Question 1

What are debenture bonds?

Answer 1

Unsecured bonds

Question 2

What are serial bonds?

Answer 2

Mature in installments at various dates

Question 3

How is life insurance reported on a personal statement of financial condition?

Answer 3

Assets are presented at estimated current values.

Life insurance is reported at cash value less related outstanding lonans

Question 4

How is an impairment loss on a long lived asset recorded?

Answer 4

The impairment loss is recorded as additional accumulated depreciation

Question 5

Why does a switch from FIFO to LIFO affect current ratio?

Answer 5

In a period of rising inventory prices, current ratio will be reduced because inventory carrying value will be reduced (lower valuation) and higher cost of goods sold.

Current ratio includes current assets which includes current inventory.

Question 6

Which funds are reported only in general purpose government fund financial statements and not in the government-wide statements?

Answer 6

Fiduciary resources because they are not available to finance government programs.

Question 7

Dividends Received Deduction

Answer 7

70% of Dividends Received by Corporations is never taxed. Permanent difference, no deferred tax liability.

Question 8

Returns of Merchandise

Answer 8

If anticipated and estimable, defer portion of profit in proportion to estimated returns.

Question 9

Valuing Bonds with Warrants

Answer 9

Not detachable, entire value to debt.

Detachable:
If value of both Bonds and Warrants is known, allocate proportionately between them
Value (Warrants or Bonds/Total Value X Total Proceeds

If value of one is know, allocate remaining value to the other.
Total Proceeds less Value Bonds (Warrants) = Value Warrants (Bonds)

Question 10

Consolidate COGS

Answer 10

COGS 1 + COGS 2 - COGS paid + Deferred Gain (on any goods still in Inventory bc EI is part of COGS calculation)

Question 11

Entity Acquisition with Equipment with FV > CV

Answer 11

100% of the step-up to FV less 100% of the depreciation proportional to the step-up is added to the Assets of Parent and Assets of Sub in the Consolidated Statements regardless of percent of Sub acquired.

Question 12

Big Company acquires 90 percent of Little Company on January 1, Year One. On that date, Little has unpatented technology that has not previously been recorded but is worth $100,000. It should have a life of five years. In addition, goodwill of $40,000 is recognized. By the end of Year One, Little reports net income for the period of $300,000. What amount should be recognized on the Year One financial statements as the noncontrolling interest in the net income of Little?

Answer 12

In the consolidation process, the amount allocated to the unpatented technology must be amortized. That amount will be $20,000 per year ($100,000 divided by five years). Conversely, goodwill is no longer amortized but rather checked annually for impairment. Thus, from a consolidation perspective, the income attributed to the subsidiary is $280,000 ($300,000 reported net income less amortization for the year of $20,000). The outside ownership (the noncontrolling interest in Little) holds 10 percent of the outstanding shares. Therefore, the noncontrolling interest in the net income of Little for this year is $28,000 ($280,000 times 10 percent).

Question 13

In-process research and development

Answer 13

U.S. GAAP states that all future benefits that can be separated and sold or in which the company holds contractual rights should be identified and reported as intangible assets at fair value. In-process research and development qualifies and is, thus, capitalized at the fair value at the date of acquisition.

Question 14

The test for goodwill impairment

Answer 14

The test for goodwill impairment is a two-step approach. 1. The book value of the division as a whole is compared to its fair value. If fair value is greater, goodwill is not viewed as having been impaired and the testing process stops.

2. If book value is greater, the second step in the process must be carried out. The fair value of the individual assets other than goodwill must be compared to the fair value of the reporting unit as a whole to determine the current value of goodwill. If that figure is lower then the current reported value of goodwill, the reported asset is reduced and a loss recognized.

Question 15

When less than 100 percent ownership is achieved, the fair value of the company as a whole must be determined to arrive at the goodwill to be recognized.

Answer 15

This total fair value can be determined using any one of the following:

1. the market price of the shares
2. the discounted amount of the expected future cash flows
3. price paid by the new parent for the controlling portion

Question 16

Consolidated Assets

Answer 16

Under normal conditions, consolidated assets are:

1. book value of the two companies added together
2. plus any allocations established at the date of acquisition
3. subsequent intercompany balances owed by one company in the business combination to the other company, the two balances are offset or eliminated.

The entire amount is eliminated in consolidation regardless of the percentage of ownership.

Question 17

Consolidated COGS

Answer 17

When the original transfer was made, the buyer recorded a purchase that becomes a component of its cost of goods sold although the merchandise was not bought from an outside party but, rather, resulted from an intercompany transfer. That artificial increase in cost of goods sold must be removed. In addition, ending inventory (another component of cost of goods sold) is overstated because inventory contains an unrealized gain that inflated the recorded cost. This unrealized gain is deferred by increasing cost of goods sold.

Still holds all inventory:
Consolidated cost of goods sold
$600,000 COGS 1 plus $500,000 COGS 2 less $100,000 intercompany purchase plus $10,000 deferral of ending unrealized gain

Consolidated total assets
$700,000 Assets 1 plus $400,000 Assets 2 LESS $10,000* unrealized gain in ending inventory
*or less 100,000 inventory 2 plus 90,000 inventory 1

Sold all inventory:
Consolidated cost of goods sold
$600,000 COGS 1 plus $500,000 COGS 2 less $100,000 intercompany purchase (no further COGS adj)

Consolidated total assets
$700,000 Assets 1 plus $400,000 Assets 2 less $100,000 intercompany sale (no inventory adj)

Question 18

Regardless of the number of operating segments that a publicly-held company has, specific information must be disclosed for the enterprise as a whole. Which of the following disclosures is not required?

Answer 18

Profitability inside and outside of country is not required

Required disclosures include:

1. major customers (single customer >= 10% rev)
2. revenues by product line
3. amount of sales generated outside of the country

Question 19

company’s income tax expense-deferred reported

Answer 19

report the amount necessary to adjust the deferred liability from the beginning balance to the ending balance

Question 20

In an acquisition, every intangible should be identified if it has fair value. For recognition to be required:

Answer 20

1. the parent must either gain contractual rights to the asset (such as the noncompetition agreement) or
2. be able to separate the intangible from the subsidiary and be able to sell it (such as the unpatented technology and the secret formula).

The company does not have legal rights to the employee (unless there is an employment contract). A person cannot be separated from the subsidiary and sold.

Question 21

How many different types of proprietary funds can exist within a state or local government?

Answer 21

1. Enterprise funds - account for activities such as a subway system or a municipal swimming pool which offer a service to the PUBLIC for a user fee.
2. Internal service funds - account for activities such as vehicle garage or data processing center which offer a service to the OTHER AREAS OF GOVERNMENT for a user charge.

Question 22

Diluted EPS for Stock Options and Warrants

Answer 22

Treasury Stock Method - proceeds from exorcise are used to purchase treasury stock at the average price per that period

Question 23

Recognition of imposed nonexchange revenue (property taxes).

Answer 23

Receivable is recognized when an enforceable claim has been achieved based on applicable law and appears as an asset.

Revenue cannot be recognized until the period in which the money is required to be spent (or the first period in which use is allowed). Until then it is reported as deferred revenue

Question 24

Accounting of an asset, such as this manufacturing plant, at the time it qualifies as being held for sale.

Answer 24

Reclassify on balance sheet and report at:
lower of book value or net realizable value

If book value is lower, there is neither a gain nor loss recognized.

If net realizable value is lower, a loss must be recorded to reflect the drop in reported value.

Depreciation of the asset is stopped when it qualifies as being held for sale.

Question 25

Revenue recognition and tax impact of the installment sales method,

Answer 25

Revenues are recognized immediately for financial reporting purposes. Tax impact is delayed until cash is collected. Future taxable income will increase taxes in the future, necessitating a deferred income tax liability at the present time.

Question 26

Gain on Trade

Answer 26

FV Asset given up Less CV Asset given up Only if the fair value given up is NOT KNOWN, is the fair value of the asset received used for reporting purposes.

Question 27

Remeasurement of transactions denominated in a currency outside of its normal currency/ functional currency

Answer 27

In a remeasurement, cash, receivables, and payables are remeasured up or down whenever the exchange rate changes. Inventory is not cash, a receivable, or a payable so it stays at original value and becomes cost of goods sold at that value when sold. The gross profit is the sales price (unaffected) less the cost of goods sold (unaffected).

Question 28

If this proposed transaction meets several rules, the asset must be classified as held for sale.

Answer 28

If all of these rules are met, the asset is reported at the lower of its book value or net realizable value making a loss is possible: 1. an active program to find a buyer is in place 2. the price is reasonable, the property is immediately available 3. the sale is expected in one year. . If a reduction is required, a loss is recognized.

Question 29

GOV | Budgetary amounts are recorded at the beginning of the period and then reversed out of the balances at the end.

Answer 29

Estimated revenues is reported (as a debit) to indicate the amount that is expected. Credit budgetary fund balance. Appropriations are reported (as a credit) to show the amount approved expenditures for the period. Debit budgetary fund balance. A surplus is indicated through a credit balance in the budgetary fund balance account. (More revenue) An anticipated deficit is indicated through a debit balance in the budgetary fund balance account. (More expense)

Question 30

Recognition of Derived tax revenues (income tax, sales tax)

Answer 30

Taxes on events (the earning of income or the making of a sale). Recognize revenue within the government-wide financial statements (which use accrual accounting) for the period in the taxed event occurs. In fund-based financial statements (for the governmental funds), modified accrual accounting is applied so that an additional standard must be met for revenue recognition. The resources must also be available (quickly enough so that the money can be used to pay current obligations). Often a policy that “available” is identified as anything received in 60 days. Thus, amounts to be collected in the first two months of the next year are viewed as available to pay for prior year expenditures and recognized in that prior year within the fund-based financial statements.

Question 31

Total income tax expense

Answer 31

Income Tax Expense (current) plus Income Tax Expense-Deferred (DTL) Less DTA?

Question 32

There can be as many as five components each year in the computation of pension expense for a defined benefit pension plan.

Answer 32

1. The service cost (the increase in the obligation because employees have worked an additional year) 2. Interest on the debt (projected benefit obligation). 3. Income on the plan assets based on the expected rate rather than the actual rate. Earnings reduce the amount of pension expense (plan assets times the expected rate of return). 4. Prior service cost 5. Significant net gain or net loss

Question 33

NFP that serves as a conduit for the money to another NFP.

Answer 33

The initial NFP does not typically recognize any contributed support at all (instead a liability would be recognized upon receipt). The designated recipient NFP recognizes contributed support as soon as the donation is first made. If NFP is been given variance powers to change the beneficiary, it does gain control over the money and contributed support is recognized upon receipt. The final beneficiary must wait until the money is actually conveyed before recognition is made of the contributed support.

Question 34

Capitalization and amortization of software.

Answer 34

Only the costs incurred after a computer software project has reached the point of technological feasibility are capitalized as an intangible asset. That cost must then be amortized each year based on the larger of: 1. the straight-line method or 2. percentage of sales method This expense decreases the (net?) balance of the capitalized asset.

Question 35

Accounting for internal and external costs of acquiring a subsidiary

Answer 35

US GAAP requires that both internal and external costs of acquiring a subsidiary be expensed as incurred. Stock issuance costs that are incurred are recorded as a reduction in paid-in capital in the consolidated financial statements. Previous rules recorded internal costs as expenses as incurred although direct external consolidation costs were capitalized. That rule has now been changed.

Question 36

Accounting for Stock Appreciation Rights versus Stock Options

Answer 36

SAR = Receipt of cash based on difference between exercise price and market price. SAR = Liability not equity. Same objectives: to estimate FV at measurement date Measurement Date: Settlement Date - SAR/Liability (remeasured each EOY until settlement) Grant Date - Options/Equity

Question 37

Forward exchange contract for an unrecorded purchase commitment as the purpose of the hedge.

Answer 37

The value of the forward exchange contract is based on the forward exchange rate. Gain/loss recognized on the forward exchange contract rate for shorter remaining time period at year end (not spot rate). If the company also has a made a commitment for the purchase of inventory, and even though no recording has been made; a gain should be recognized to counterbalance the loss recognized on the forward exchange contract at that same figure. Normally, commitments are not reported but, to show the impact of the hedge, the commitment is recorded based solely on the change in value of the forward exchange contract.

Question 38

Acquisition of long-lived assets that have alternative future uses currently used in R&D.

Answer 38

Research and development costs are expensed as incurred. One exception is the acquisition of long-lived assets that have alternative future uses. Cost is recorded as an asset Annual depreciation recognized as R&D expense as long as the property is used for that type of project. The cost of R&D equipment with no alternative future use is is expensed immediately.

Question 39

Enterprise fund's fund-based financial statements capital financing activity in statement of cash flows

Answer 39

Cash flows from capital financing activities report the amounts spent on capital assets as well as the transactions relating to that funding. Buying and selling equipment, constructing assets and debts incurred or paid. Grants that do not relate to a capital asset or its funding are not included as a capital financing activity.

Question 40

3 Dates: 1. company declares a cash dividend 2. payable to owners of record 3. checks to be mailed

Answer 40

A company paying a dividend will record the financial impact (a reduction in retained earnings) on the Date of Declaration. The owners getting the dividend will not record any revenue until the Date of Record

Question 41

Effect of foreign currency translation

Answer 41

In a translation, all assets and liabilities are reported at the CURRENT exchange rate. Gain/Loss reported in accumulated other comprehensive income in the stockholders' equity section of the balance sheet. In a remeasurement, only monetary assets and liabilities (as well as any balance reported at fair value) are reported at the current exchange rate.

Question 42

Accounting for Fair Value/Cash Flow Hedges

Answer 42

The fair value hedge is bought to offset a possible loss from an asset or liability that is recorded at fair value. Since the account being hedged is recorded at fair value, its gain or loss will go into net income. Thus, the offsetting gain or loss on the hedge is also put into net income. A cash flow hedge is bought to ensure that an appropriate amount of cash is received or paid. There is not a reported gain or loss to be eliminated. Therefore, any gain or loss on a cash flow hedge is temporarily put into accumulated other comprehensive income (in stockholders’ equity) until it is terminated. The gain/loss will go from accumulated other comprehensive income to net income in the year when the derivative comes due.

Question 43

restructuring costs

Answer 43

Because of the temptation to manipulate estimations, restructuring costs are recognized when incurred.

Question 44

Determine goodwill for acquisition of less than 100%

Answer 44

When less than 100 percent ownership is achieved, the fair value of the company as a whole must be determined to arrive at the goodwill to be recognized. Total fair value can be determined using either: 1. market price of the shares 2. discounted amount of the expected future cash flows 3. price paid by the new parent for the controlling portion upped/divided by ownership percentage . Goodwill: The fair value of the company as a whole less the the fair value of the identifiable assets and liabilities

Question 45

Gain in sales-leaseback arrangement

Answer 45

Normally deferred and written off over the life of the lease as a reduction in depreciation expense. Exception is when the leaseback is for a relatively short period of the asset’s life and the gain is recorded immediately.

Question 46

The impact that the earnings on plan assets have on the computation of pension expense

Answer 46

Plan assets will often be a relatively large amount and earnings can vary significantly from year to year. If the actual figure was used, pension expense would also vary considerably. Because much of the pension expense computation is based on difficult and complex estimations, a system has been devised to avoid such income swings. The actual return is used to monitor the balance of the plan assets. However, only the expected earnings are used each year as a component of pension expense. The difference in expected and actual earnings is recorded in a deferred gain or loss account and is only amortized to pension expense in subsequent years if the balance becomes especially large. (Corridor?)

Question 47

Actual vs Expected returns in Pension accounting/calculations

Answer 47

Pension Expense - expected return used to reduce the expense (not actual) EOY Plan Asset balance - actual earnings included (not expected) The difference in expected and actual earnings is recorded in a deferred gain or loss account and is only amortized to pension expense in subsequent years if the balance becomes especially large. (Corridor?)

Question 48

Pension Asset/Liability

Answer 48

PBO: The Service Cost is recognized at the end of the year, so no interest is recognized on PBO in Year One. Interest is recognized and increases PBO (liability) in subsequent years. Plan Assets: Interest income increases Plan Assets according to date of contribution. If funding is at year's end, no income is earned. Pension Asset/Liability: The projected benefit obligation (liability) is netted against the plan assets to determine pension asset/liability that should be recognized.

Question 49

Current Liabilities

Answer 49

Use of Current Assets to satisfy the liability, otherwise noncurrent. Debt paid with land (noncurrent asset) is noncurrent regardless of timing of payment. Debt refinanced before the financial statements are issued is noncurrent since company has certainty that its current assets will not be used. Debt not yet refinanced but having a noncancellable agreement to refinance signed before the financial statements are issued (assures no use of current assets) is noncurrent.

Question 50

GOV Current Financial Resources vs. Current Assets/Liabilities

Answer 50

Assets that can or will be turned into cash through the normal operations of the government. Provide government officials with the money that will be used to meet obligations as they come due. For the governmental funds, the focus is on the inflow and outflow of these current financial resources.

Question 51

IFRS/GAAP accounting for convertible bonds

Answer 51

IFRS, any amount extra that is received for a bond because of its convertibility is recorded as equity rather than as a liability. According to US GAAP, the entire amount received is reported as a liability until such time as the bond is actually converted.

Question 52

Treasury Stock accounting/Par Value

Answer 52

Treasury Stock account reflects money that has been returned to members of its ownership Shows up within stockholders' equity as a negative balance. Par value method: T/S Balance = # T/S shares x Par Value APIC T/S is calculated based on cost of T/S over/under par until RE.

Question 53

Types of TE NFP

Answer 53

Section 501 (c) (3) tax-exempt - charitable, educational, or scientific Section 501 (c) (1) - organizations created under acts of Congress (such as Federal Credit Unions) Section 501 (c) (4) - political advocacy groups can qualify as organizations although donations are not tax deductible for the donor. Section 501 (c) (6) - business leagues, chambers of commerce, and the like

Question 54

Accounting for a parking lot

Answer 54

land improvement account

Question 55

Whether the lessor normally sells the property

Answer 55

can affect the accounting by the lessor but is not relevant to whether it is a capital lease or not.

Question 56

income tax expense-deferred

Answer 56

amount to adjust the deferred liability from the beginning balance to ending balance

Question 57

Receivable (Assset) adjusted from/to: $4,800 (40,000 vilseks times $.12 exchange rate) $5,600 (40,000 vilseks times $.14 exchange rate)

Answer 57

IF 1. Translation Gain/Loss: All Assets/Liabilities are reported at current exchange rate and reported within accumulated other comprehensive income which is reported in the stockholders' equity section of the balance sheet. 2. Remeasurement - only monetary assets and liabilities (as well as any balance reported at fair value) are reported at the current exchange rate and reported in the income statement.

Question 58

Recognize liability for termination benefits

Answer 58

If employees are entitled to receive termination benefits regardless of when they leave or if they will not be retained to render service beyond the minimum retention period, a liability for the termination benefits should be recognized: at its Fair Value at the Communication Date (The minimum retention period should not exceed the legal notification period, or in the absence of a legal notification requirement, 60 days.)

Question 59

Interest/Dividends and SOCF | GAAP/IFRS

Answer 59

US GAAP: Interest received or paid is Operating Dividends received are Operating Dividends paid are Financing IFRS: Consistent OIF Interest/Dividends paid are Operating or Financing Interest/Dividends received are Operating or Investing Interest for payments capitalized are consistent with underlying asset

Question 60

SYD

Answer 60

Subtract Salvage Value Multiply first SYD fraction by x/12 months With mid years SYD fraction 1 is used for applicable x/12 months remaining before SYD fraction 2 is used for applicable x/12 months

Question 61

IFRS footnote disclosure

Answer 61

IFRS is principle-based, with fewer rules and standards than GAAP. Consequently, disclosure of the reasoning behind the information on the financial statements requires a great deal of footnote disclosure, including a footnote for accounting policies.

Question 62

Revalue its assets to fair value each year - IFRS

Answer 62

Recognize applicable depreciation first. Compare to fair value. Increase (credit) OCI if there is a gain. Increase expense (debit) to decrease NI if there is a loss.

Question 63

Difference between IFRS and US GAAP regarding lease capitalization.

Answer 63

The life of the lease only has to be a “major portion” of the expected life of the asset under IFRS, unlike 75% under US GAAP.

Question 64

Difference between IFRS and US GAAP regarding prior service cost

Answer 64

Under IFRS, recorded immediately as an expense to the extent it relates to benefits that have vested. Under US GAAP, it is recorded within accumulated other comprehensive income and then amortized to expense over the years those employees are expected to work.

Question 65

Impairment loss US GAAP/IFRS

Answer 65

Under US GAAP, no impairment loss is recognized if the book value can be recovered through future cash flows (undiscounted). Impairment is Book Value less Fair Value. Under IFRS, a loss must be recognized if the book value exceeds the higher of: Present Value of the Future Cash Flows OR Fair Value less necessary Costs to Sell (NRV) Impairment is the difference (off applicable or PVCF?)

Question 66

When a contingent loss is judged to be probable within a range of amounts and no number within that range is viewed as more likely

Answer 66

US GAAP requires the recognition of the lowest number in that range. IFRS requires the recognition of the midpoint in the range.

Question 67

R&D expenses IFRS/GAAP

Answer 67

Research expenditures are recognized immediately as expenses under both US GAAP and IFRS. For US GAAP, development costs are also expensed as incurred. However, under IFRS, development costs are capitalized if certain requirements are met including a belief that future economic benefits are probable and that the product being developed is technically and commercially feasible.

Question 68

Defense of intangible asset IFRS/GAAP

Answer 68

Under US GAAP, the cost of defending the right to an intangible asset is added to the cost of the asset. Under IFRS, that same cost is expensed as incurred (unless the cost increases the future benefits to be derived from the asset).

Question 69

LCM IFRS/GAAP

Answer 69

Under US GAAP, market value for inventory is its replacement cost unless that figure is above a ceiling (net realizable value) or below a floor (net realizable value less a normal profit). Under IFRS, market value is always net realizable value.

Question 70

Biological assets IFRS/GAAP

Answer 70

Under US GAAP, reported at historical cost less accumulated depreciation like most other long-lived assets. Under IFRS, biological assets are reported at fair value less the estimated cost that it would take to sell them (NRV).

Question 71

Derivatives are acquired for one of two reasons.

Answer 71

First, they can be used as protection against losses on other contracts. For example, this company might have a payable due in three months in a foreign currency and fear the value of that currency will jump so that the payment will be higher than anticipated. Setting up a receivable (hedge) will create an off-setting impact. Any future loss on the payable will be cancelled out by a gain on the receivable. Second, the company may simply have felt that the value of the foreign currency would be going up so the contract was obtained as an investment for speculation purposes.

Question 72

Reporting derivatives

Answer 72

The fair value of all derivatives must be determined at reporting dates and reported as either assets or liabilities. If the value of the foreign currency has risen in relation to the US dollar, the contract will have a positive value and be reported as an asset. If the value of the foreign currency has fallen in relation to the US dollar, the contract will have a negative value be reported as a liability.

Question 73

The value of a FORWARD EXCHANGE CONTRACT (speculative or hedge future pmt) is based on the FORWARD EXCHANGE RATE. It is recorded as an Asset or Liability at Fair Value. There is GAIN/LOSS ON CHANGE OF RATE FOR APPLICABLE REMAINING CONTRACT DURATION.

Answer 73

IF company also has a made a COMMITMENT for the purchase of inventory (NO RECORDING has been made). Reflect the purpose of the hedge, GAIN/LOSS should be recognized to counterbalance ANY GAIN/LOSS recognized on the forward exchange contract. No income effect is reported. IF company also has a PAYABLE already incurred, that debt is REMEASURED at the spot (or current) rate. The CHANGE in the liability creates a GAIN OR LOSS. The company recognizes NET LOSS/GAIN IF contract was based on speculation rather than as a hedge, the change in value (GAIN/LOSS) is reported in net income for the period.

Question 74

Functional Currency

Answer 74

Currency of company's Primary Cash Flows

Question 75

Ace might be a foreign subsidiary that is being consolidated with a US parent company or Ace might be a US company making a purchase from a foreign supplier so that a remeasurement is appropriate. What gain or loss is reported in each case at the end of Year One?

Answer 75

In the translation of a foreign subsidiary, all assets and liabilities are adjusted at year-end to the new exchange rate. Therefore, both balances of a single transactionare translated (debit and credit). Any gain in one is offset by loss in the other. In contrast, in the remeasurement of an individual transaction, only monetary assets and liabilities (cash, receivables, payables, receivables) are adjusted to new exchange rates creating gain/loss.

Question 76

direct financing lease income

Answer 76

There is no income at the start of the lease but only interest revenue over the life of the payments. The lessor always uses the implicit interest rate built into the contract. Because there is no immediate profit (as in a sales type lease), all of the money to be received in excess of the cost will be interest. Cost serves as the beginning principal balance (without interest). The first payment ( if annuity due) reduces the principal immediately. The interest rate x remaining principal is interest revenue. Once interest is earned, it is compounded on to the principal until paid.

Question 77

sales-type lease

Answer 77

lessor is a manufacturer/dealer of product normal profit (sales price less cost) is recognized at the beginning of the lease Total payments in excess of the sales price will be recorded over time as interest revenue (deferred). Sales price is left as the principal. The first payment (if annuity due) reduces principal. Interest is principal times interest rate times time. Total income for Year One is normal profit plus interest revenue.

Question 78

capital lease (lessor)

Answer 78

discount future payments using the LESSER of: lessor's incremental borrowing rate OR lessor's implicit rate in the lease (if known)

Question 79

Topic 275 of the FASB's Accounting Standards Codification is entitled “Risks and Uncertainties.” The primary subject discussed in this topic is:

Answer 79

disclosures required to facilitate a user's evaluation of an entity's risks and uncertainties

Question 80

primary purpose of a statement of cash flows

Answer 80

provide relevant information about the cash receipts and cash payments of an enterprise during a period

Question 81

The sales related to expected exchanges for merchandise of equal or greater value

Answer 81

Recognized as revenue in the period in which the original sale is made with no adjustment for the expected exchanges because the entire amount of the original sale is expected to result in an inflow of assets.

Question 82

To determine the issue price for a bond,

Answer 82

cash flows from the bond should be discounted at the yield, or market, rate cash flows include the principal repayment and interest payments calculated at the stated rate net proceeds are the issue price less the cost to issue the bonds.

Question 83

Basic EPS and Dividends

Answer 83

The current year's dividends accrued, and only the current year's dividends on cumulative preferred stock, whether declared or not, should be deducted from net income in calculating EPS. Dividends in arrears would have been included in the EPS calculation in previous years.