Random Quiz #3

Question 1

When a govt Enterprise fund receives interest from an investment, how is this interest treated in a statement of cash flows?

Answer 1

Unlike GAAP business principles, govt acctg treats this interest as cash inflow from INVESTING.

Question 2

Treatment for a probable and estimable gain

Answer 2

Gain contingencies are never accrued, but they ARE DISCLOSED

Question 3

What are the 3 essential characteristics of an Asset?

Answer 3

P – C – T

1. provides a Probable future benefit
2. under the Control of the entity
3. results from past Transaction or event

Question 4

Given COGs for Parent & Sub, What do you need to eliminate to arrive a P’s COGs?

Answer 4

1. Eliminate percentage of Subs. inventory that was sold.

2. Eliminate percentage of mark-up (Parent Sales/COGS) x Subs remaining inventory.

Question 5

Under completed contract method, total revenue is recog when?

Answer 5

In the period in which the contract is completed [Completed-contract method - duh] Ignore anything about “progress billings”

Question 6

When reporting currency remeasured to functional currency - 7600 gain. When translated - 8100 gain. How much is a gain in I/S?

Answer 6

Remeasurement = I/S
Translation = B/S (OCI)
(remember… ‘translation from foreign curr’ is the T in DENT)

Question 7

when is a nonrefundable lease bonus, paid by a lessee recognized?

Answer 7

Over the life of the lease. (Treated as part of minimum lease payments and recognized over the term of the lease.)

Question 8

Under IFRS an intangible asset is considered identifiable if it is:

Answer 8

Separable OR

Arises from contractual or legal rights.

Question 9

Treatment - Change in accounting principle

GAAP to GAAP

Answer 9

Retrospective

Beginning of first year presented; Direct effects only; result in adjustment to RE on B/S

Question 10

Tmt - Change in Accounting Estimate

Answer 10

Prospective - current and future; must disclose impact on f/s; if acct chg inseparable from chg in est, treat as change in estimate. (inc. chg depreciation method)

Question 11

Tmt - Change in Accounting Entity

Answer 11

Retrospective - prior periods presented are corrected; any remaining balance affects RE, net of tax, as a prior period adjustment.

Question 12

Tmt - Correction of Error

Answer 12

RetroACTIVE - Prior F/S restated’ difference in presentation and disclosure from Change in Principle,

3 disclosures:

1. Effect on line items,
2. Cumulative effect,
3. Stmt that previous f/stmts have been restated.

Question 13

Lease Liability balance

determine efficiently

Answer 13

pvLL x ImpRate
= IntExp - Pmt
=Amortization Amt

Question 14

Disclosures for defined benefit pension plan

Answer 14

NO: Estimates of future contributions for next 5 years! 
YES: 
Plan description
Pension Expense by component
Weighted Ave. Disc. Rate

Question 15

How report pledges in a non-govt. NFP that will be collected over more than one year?

Answer 15

As Pledges Recvbl at PV

pledges to be received over more than one year, thus rpt at PV

Question 16

Use in Current Asset formulas:

Answer 16

Incl Cash, A/R, Inventory from off the B/S

Question 17

Diluted EPS numerator

Answer 17

Interest on dillutive bonds (net of tax) must be added back to Net Income to compute diluted EPS.

• Determine annual interest
• Add in any amortization of discount, (premium too?)
• Multiply total interest by tax rate
• Add Interest net (minus) of tax to Net Income for numerator in EPS.

Question 18

When asked ‘what will improve current ratio’ fastest way to answer

Answer 18

Boil answers down to ST L, LT L inc or decrease and ST-A, or LT -A increase or decrease. Looking for either increase in S-T Assets or in both top and bottom to increase ratio.

Question 19

When decision is made to dispose of a segment, how would you report the revenue and expenses incurred from the beginning of the period through the date on which the decision was made?

Answer 19

Reported as gain or loss from a discontinued segment.

Income from Discontinued Operations

Question 20

Deferred Tax Assets per IFRS…..

Answer 20

Required that all deferred tax assets be recognized as NONCurrent and off-settable by income

Question 21

What is included in inventory for consignment items on the sellers B/S?

Answer 21

Unsold inventory - YES
Freight Out (to ship to consignor) - YES
Reimbursable advertising - NO
Commission - NO

Question 22

TRICKY Q: B/S given along with extra info including 300,000 in prepaid income tax. Asks for Current Asset total on B/S at year end.

Answer 22

If you look at Rev minus Exp, Income = 1 M. x Tax Rate of .30 = 300,000 so you must surmise that the PPD Tax was reclassified from CA to Inc. Tax Expense and do not include it in your CA total.

Question 23

Using Effective Interest Method, INTEREST PAYABLE (int. paid, int payment is what x what? Stays the same

Answer 23

Face Value x STATED or contractual Interest Rate

cv x eff rate = int exp - int pybl (cash pmt) = amort amt

Question 24

Using Effective Interest Method, INTEREST EXPENSE is what x what? Changing always

Answer 24

CV x EFFECTIVE Interest Rate

(cv x eff rate = int exp - int pybl (cash pmt) = amort. amt

Question 25

In Basic Earnings per Share, do you subtract

a) Preferred Dividends that have been declared
b) Cumulative Preferred Dividends from current year
c) Cumulative Preferred Dividends from past year

Answer 25

a) Yes - Pref. Divs (must be declared but not nec. paid)
b) Yes - Cum. Pref. Divs. (current year only)
c) No - Cum Pref Divs from prior year

Question 26

Basic EPS formula

Answer 26

Net Income - Preferred Dividends/
Wtd Ave. Shares Outstanding

Basic EPS is concerned only with the common stockholders, so any preferred divs must be taken out of equation. If there is NET LOSS, Add the Pref. Divs.

Question 27

Joe has an investment in 50% of common stock of Vohl Corp. Cost was $20,000. FV in 20x1 is 180,000. Vohl’s NI was 300,000 and Divs Paid were 40,000. How much does Joe record investment at in personal financial statements?

Answer 27

Investments in personal financial statements should be recorded at their estimated FAIR MKT VALUE as of the date of the statements ($180,000 in Joe’s case).

Question 28

How do you calculate the intrinsic value of a stock option?

Answer 28

The market price less the strike price (exercise price).

Question 29

Looking at B/S and I/S of Parent and Subsidiary, given info such as stock purchases between P & S, tax rate, inventory values, and more. “What should consolidated Net Income be?”

Answer 29

Stockholder Equity and Net Income will be the same for a consolidated B/S as for the individual statements of the parent only. All complex info was ignored in this problem and NI came right off the I/S (parent)