Random CPA Knowledge FAR

Question 1

Type one subsequent event

Answer 1

A type one subsequent event provides additional detail about conditions that existed at the balance sheet date.

Question 2

A company issues a $100,000 bond payable at a discount of 5%. How should the journal entry to record the issuance of the bond be made?

Answer 2

Debit bonds payable
Debit discount on bonds payable
Credit bonds payable

Question 3

What is the primary reason for creating a valuation allowance against a deferred tax asset?

Answer 3

To ensure the tax asset is not overvalued due to uncertainty in its realization.

Question 4

Trade receivables

Answer 4

Beginning Balance + Credit Sales – Cash Receipts

Question 5

How should a change in accounting principle inseparable from an accounting estimate be recorded?

Answer 5

As a component of income from continuing operations.

Question 6

What type of bonds mature in installments?

Answer 6

Serial bonds mature in installments rather than maturing all at once

Question 7

Statement of cash flows indirect method steps

Answer 7

Step 1 The indirect method starts with the net income. (direct method is easier).
Step 2: Add back non cash transactions (depreciation)
Step 3: Adjust for gains and losses on sale of assets. correct so that there’s no effect on cash flows.
Step 4: Adjust for changes in working capital no effect on the cash flows
Step 5: Calc cash flows from operating
Next is interest and financing adjustments. Then you can calculate the ending cash balance by doing the operating income-interest-financing=cash flows.

Question 8

Which inventory costing method is best for COGS vs ending inventory?

Answer 8

COGS=LIFO
Ending inventory FIFO

Question 9

What can be capitalized for a patent?

Answer 9

when a patent is added any legal costs to successfully defend the patent should be capitalized and amortized over the lesser of the patent’s useful economic life or its legal life.

Question 10

How do you know if a convertible bond will be anti-dilutive

Answer 10

Convertible bonds are anti-dilutive if converting them into common stock increases EPS above basic earnings per share
BasicEPS= NI/weighted average shares outstanding
Diluted EPS=

Question 11

double declining depreciation vs sum-of-the-years-digits method

Answer 11

Sum of the years digits method is an accelerated method of determining depreciation. In double declining you depreciate less of the asset over time.

Question 12

Where should other comprehensive income be located

Answer 12

It is reported in the balance sheet as a reduction of equity.

Question 13

Other comprehensive income

Answer 13

PUFI
pension adjustments
unrealized gains
foreign currency adjustments
instrument-specific credit risks

Question 14

comprehensive income formula

Answer 14

Net income+ other comprehensive income

Question 15

Accelerated filers 10-k 10-Q

Answer 15

Accelerated filers have 75 days after the fiscal year-end to file their annual report (10-K) and 40 days after the fiscal quarter ends to file their quarterly report (10-Q)

Question 16

Where does other comprehensive income show in the financials

Answer 16

In the balance sheet as a reduction of equity.

Question 17

What would be Measurable performance-related barriers that are typically indicative of conditions attached to promises (pledges) or resources received by a not-for-profit organization would include which of the following?

Answer 17

Entitlement to assets that are contingent upon the achievement of producing specific outputs or measurable outcomes.

Question 18

Contribution revenue recognition for not-for-profit organizations is based on the concept of:

Answer 18

Satisfying conditions

Question 19

The bonds will be anti-dilutive if basic earnings per share is no greater than a maximum of:

Answer 19

convertible bonds are anti-dilutive if converting them into common stock increases earnings per share above the basic earnings per share.

Question 20

Calculate the cash balance given: a company had net cash provided by operating activities of $351,000; net cash used by investing activities of $420,000; and cash provided by financing activities of $250,000. New England’s cash balance was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of $25,000 and proceeds of $40,000 were received from the sale. What was New England’s cash balance at the end of the year

Answer 20

New England’s cash balance at the end of the year includes the cash balance at the beginning of the year, the net cash provided by operating activities, the net cash used by investing activities, and the net cash provided by financing activities ($27,000 + $351,000 − $420,000 + $250,000 = $208,000).

Question 21

Not-for-profit financial statements

Answer 21

Statement of financial position
Statement of activities
Statement of cash flows

Question 22

retained earnings approach accomplishes what?

Answer 22

A “retained earnings appropriation” can be used to restrict earnings available for dividends.

Rule: A retained earnings appropriation debits (reduces) “unappropriated retained earnings” and sets up (credits) “appropriated retained earnings.” It does not affect the income statement.

Question 23

Year 1 income statement, what amount should be reported as interest income? a non-interest-bearing note that was purchased for the face amount with the he present value of 1 at 10% for three periods is 0.75.

Answer 23

A non-interest-bearing note should be recorded at its present value and calculated using the prevailing market interest rate. The market interest rate is then used to calculate interest on the note.

Question 24

Which of the following supplemental disclosures to the statement of cash flows is not required when the indirect method is used?

Answer 24

Reconciliation of net income to net cash provided by operating activities.

Question 25

During Year 11, Hadley declared and paid both the Year 11 dividend and the Year 10 dividend in arrears. How should Woody report the Year 10 dividend in arrears that was received in Year 11?

Answer 25

Include in Year 11 income from continuing operations. preferred stock dividends are not guaranteed

Question 26

Consolidated Business Inc. financial statements

Answer 26

lookup in super fast cpa notes

Question 27

Where in the financial statements should the balance be properly shown if accumulated other comprehensive income account at the end of the current year is a debit balance?

Answer 27

In the balance sheet as a reduction of equity.

Question 28

Retained earnings appropriation can be used to…

Answer 28

restrict earnings available for dividends

Question 29

Dollar value LIFO

Answer 29

inventory measured in units and at unit prices

Question 30

if stated rate of interest is less than the effective interest rate when the bond is issued

Answer 30

When the first interest payment is made, the discount is amortized. The discount amortization will increase interest expense for the period so that interest expense exceeds the interest payment to bondholders.

Question 31

U.S. Securities and Exchange Commission (SEC) regulations for the financial statement presentation and disclosure requirements of SEC filings can be found in:

Answer 31

Regulation S-X.

Question 32

5 steps to revenue recognition

Answer 32

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

Question 33

Where is other comprehensive income recorded?

Answer 33

in the balance sheet, used to effect equity.