Questions 4 Flashcards
Which of the following documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards Codification?…..a. a proposed accounting standards update…..b. a proposed accounting research bullet in………c. a proposed staff accounting bulletin ……….d. a proposed statement of position
a. a proposed accounting standards update
Scott Corp sold a FA used for operations for greater than its carrying amount. Scott should report the transaction in the income statement using the:…….a. gross concept, showing the proceeds as part of the revenues and the carrying amount as part of expenses continuing operations section……..b. Net concept, showing the total gain as part of the discontinued operations, net of income taxes………….c. net concept, showing the total amount as an extraordinary item, net on income taxes…………..d. net concept, showing the total gain as part of continuing operations, not net of income taxes
d. net concept, showing the total gain as part of continuing operations, not net of income taxes
On Dec 2, Yr 1, Flint Corp’s board of directors voted to discontinue operations of its frozen food division and to sell the divisions assets on the open market as soon as possible. The division reported net operating losses of $20,000 in December and $330,000 in January. On February 26, Yr 2, sale of the divisions assets resulted in a gain of $90,000. Assuming that the frozen foods division qualifies as a component of the business and ignoring income taxes, what amount of gain/.loss from discontinued operations should flint recognize in its income statemnet for Yr 2?,,,……….a. 60,000b……….. 40,000……………..c.. -0-………….d. 90,000
a. 60,000
At December 31, Yr 2, Off Line Co. changed its method of accounting for demo costs from writing off the costs over two years to expensing the costs immediately. Off Line made the change in recognition of an increasing number of demos placed with customers that did not result in sales. Off line had deferred demos cost of 500,000 at Dec 31, Yr 1, 300,000 of which were to be written off in Yr 2 and the remainder in yr 3. Off line income tax rate is 30%. In its yr 3 financial statements, what amount should off line report as cumulative effect of change in accounting principle? …………….a. -0-……….b. ……..350,000…………c. 500,000…………d. 200,000
a. -0-…………………..A change in accounting for demo costs is a change in accounting principle inseparable from a change in estimate. When a change in accounting principle is considered inseparable from a change in estimate, the change is handled as a change in estimate - prospectively. No cumulative effect adjustment is made
How should the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate be reported?………..a. as a correction of an error………..b. as a component of income from continuing operations………..c. by restating the financial statements of all prior periods presented…………d. by footnote disclosure only
b. as a component of income from continuing operations
In September, Koff Cos operating plant was destroyed by an earthquake. Earthquakes are rare in the area in which the plant was located. The portion of the resultant loss not covered by insurance was 700,000. Koffs income tax rate for 1996 was 40%. In its year-end income statement, what amount should Koff report as extraordinary loss under US GAAP? ……………. a. -0- …………….b. 280,000 .c. 700,000……………d. 420,000
d. 420,000 …………….. For a loss to be reported as an extraordinary loss under US GAAP, the event causing the loss must be both unusual in nature and infrequent in occurrence. The earthquake in this case does meet these criteria so the loss is reported net of income tax effect as an extraordinary loss of 420,000 (60% of the total 700,000 loss)
During January Yr 2, Doe Corp, agreed to sell the assets and product line of it Hart division. The sale was completed on January 15, Yr 4 and resulted in a gain on disposal of 900,000. Hart operating losses were 600,000 for Yr 3 and 50,000 for the period January 1 through Yr 4. Disregarding income taxes, what amount of net gain (loss) should be reported in Doe’s comparative Yr4 and Yr 3 income statements? Yr 3 Yr 4 …………….a. (600,000) 850,000……………..b. (650,000) 900,000 ………….. c. 250,000 -0-……………….d. -0- 250,000
a. Yr 3 (600,000) Yr 4 850,000
On April 30, Deer Corp approved a plan to dispose of a component of its business. For the period January 1 through April 30, the component had revenues of 500,000 and expenses of 800,000. The assets of the component were sold on October 15 at a loss. In its income statement for the year ended December 31, how should Deer report the components from January 1 to April 30? ……………..a. 500,000 and 800,000 should be included should be included with revenue and expenses, respectively, as part of continuing operations……………. b. 300,000 should be reported as a loss from operations of a component and included in loss from discontinued operations. …………….. c. 300,000 should be reported as part of the loss on disposal of a component and included in loss from discontinued operations………….. d. 300,000 should be reported as an extraordinary loss
b. 300,000 should be reported as a loss from operations of a component and included in loss from discontinued operations. Once the decision has been made to dispose of a component of a business and that component meets the criteria to be classified as held for sale, the operating results of the component for the period reported on, and any gain or loss from the disposal, should be reported separately from continuing operations, net of tax. Int his question, the component was classified as held for sale and was sold in the same year.
In open market transactions, Gold Corp. simultaneously sold its long term investment in Iron Corp bonds and purchased its own outstanding bonds The broker remitted the net cash from the two transactions. Golds gain on the purchase its own binds exceeded its loss on the sale of the Iron Binds. Assume the transaction to purchase its own outstanding bonds is unusual in nature and has occurred infrequently. Under US GAAP Gold should report the : …………a. Effect of its bond transaction gain in income before extraordinary items, and report the Iron bond transaction as an extraordinary loss. …………….b. Net effect of the two transactions in income before extraordinary items……………… c. Effect of its own bond transaction as an extraordinary gains, and report the Iron bond transaction loss in income before extraordinary items. ………………. d. Net effect of the two transactions as an extraordinary gains.
c. Effect of its own bond transaction as an extraordinary gains, and report the Iron bond transaction loss in income before extraordinary items. ……………………….. These are two separate transactions because Gold Corp (1) sold Iron Corp bonds (an investment) for a loss and (2) bought back its own (Gold ) Corp bonds (a debt) for a gain
During the current year, both Raim Co and Cane Co suffered losses due to the flooding of the Mississippi River. Raim is located two miles from the river and sustains flood losses every two to three years. Cane, which has been located 50 miles from the river for the past 20 years, has never before has flood losses. How should the flood losses be reported in each company’s income statement under US GAAP? ………..a (R) as a component of income from continuing operations (C) as an extraordinary item. ……………… b. (R) as an extraordinary item (C) as a component of income from continuing operations……………….. c both as a component of income from continuing operations…………….. d. both as an extraordinary item
a (R) as a component of income from continuing operations (C) as an extraordinary item………………………………………….. Raim - component of income from continuing operations. Because Raim sustains flood losses every two to three years, the flood losses are not “infrequent” thus the flood loss is not an “extraordinary item” Cane - as am extraordinary item. Here, the flood losses are infrequent because Cane never before (in the past 20 year ) had a flood losses.
Lore Co changed from the cash basis of accounting to the accrual basis of accounting during the current year. The calculative effect of this change should be reported in Lore’s current year financial statement as:………… a. component of income before extraordinary items…………….. b. prior period adjustment resulting from the correction of an error………………. . c. component of income after extraordinary item………………. d. prior period adjustment resulting form the change in accounting principle.
b. prior period adjustment resulting from the correction of an error . …………………………. The cash basis for financial reporting is not a generally accepted accounting basis of accounting (GAAP) therefore it is an error. Correction of an error from a prior period is a reporting as prior period adjustment to retained earnings.
Which of the following should be included in general and administrative expenses?………. Interest and advertising
neither…..interest expense is a separate line item on the income statement . Advertising is classified as a selling expense.
Under US GAAP, a material loss should be presented separately as a component of income from continuing operations when it is:………….. a. unusual in nature and infrequent in occurrence………………. b. not usual in nature but infrequent in occurrence……………. c. an extraordinary item………………. d. a cumulative effect type change in accounting principles
b. not usual in nature but infrequent in occurrence……………………… Gains and losses that are unusual in nature or occurrence infrequently but not both, are presented as a component of income from continuing operations
On October 1, 20x4, Host Co approved a plan to dispose of one of the companys operating segment had actual and estimated operating losses as follow: 1.1.x4 to 9.30.x4 = (300,000), 10.1.x4 to 12.31.x4 = (200,000), 1.1.x5 to 3.31.x5 (400,000)…In its 20x4 income statment, what should Host report as a loss discontinued operations before income taxes?………… A. 200,000………….. B. 900,000……………. C. 500,000,,,,,,,,,,,,,,, D. 550,000
C. 500,000. In its 20x4 income statement ……………………………… Host would include in its loss from discontinued operations the 20x4 losses but not the projected 20x5 operating losses and not the projected gain on disposal.
During Year 2, Orca Corp decided to change fro the FIFO method of inventory valuation to the weighted-average (WA) method. Inventory balances under each method were as follows. January 1, year 2 FIFO = 71,000 and WA = 77,000….December 31, YR 2 FIFO = 79,000 and WA = 83,000……Orca’s income tax rate is 30%. Orca should report the accumulated effect of this accounting changes as an:……………….. A. extraordinary item………………… B. component of income from continuing operations……………….. C. adjustment to beginning retained earnings…………….. D. component of income after extraordinary items.
C. adjustment to beginning retained earnings………………the cumulative effect of a change in accounting principle is shown as an adjustment to beginning retained earnings.
