Repeated Wrong Answers

Question 1

What’s the relationship between PV and discount rate?

Answer 1

The higher the discount rate and the longer the discount period, the lower the present value. However, PV and FV move together, only the discount goes the opposite way. The discount period increasing means the PV will be lower as it takes longer to reach goal.

Question 2

What’s the difference between Comprehensive Income and Equity?

Answer 2

CI includes Net Income but EXCLUDES equity changes from owner sources.
SHE

Question 3

How to calculate Interest Revenue on a Note Receivable?

Answer 3

Receivable (payments * term) - PV of Note.

Question 4

Under the Allowance Method for A/R, what are the J/E to (1) record periodic bad debt expense and, (2) write-off the same?

Answer 4

1- Record periodic BDE:
BDE - DB
Allowance for uncollectible - CR
This means the Income statement is affected every period (unless reversed for recoveries)

2- Write off:
Allowance for uncollectible - DB
A/R - CR
This means only B/S is affected as the write-off take place.

3- RARE: Customer written-off actually ends up paying:
Cash - DB
Allowance for BDE - CR

Question 5

Present Value Relationships

Answer 5

As the discount rate increases, the present value decreases. Also, as the discount period increases, the present value decreases.

As the discount rate decreases, present value increases. Also, as the discount period gets shorter, the present value increases.

Increased future cash flows increase the present value.

Question 6

Some Stock transactions affect BEPS and DEPS for the entire year, not just since the date announced. What are they?

Answer 6

They are Stock Splits and Stock dividends, they affect the calculation for WAVGS from day 1.

A stock dividend or split occurring at any time must be treated as though it occurred at the beginning of the earliest period presented for purposes of computing the weighted-average number of shares.

Question 7

FOR DEPS, Convertible Preferred Common stock is ALWAYS dilutive, Why?

Answer 7

Because the conversion from Pref Stock to C/S does NOT affect the Numerator (Net Income), however, it affect the denominator by increasing the C/S. Hence, it is ALWAYS dilutive on its own.

Question 8

For St of Cash Flows, where is the purchased of Treasury Stock classfied?

Answer 8

Financing Activities

Question 9

Under the EQUITY method for investments how do you account for dividends received?

Answer 9

The receipt of a cash dividend from the investee does NOT affect equity-based earnings. The entry is to debit cash and credit the investment. SU5.4

However, they dividends would be income under the >50% consolidation method

Question 10

For inventory valuation on B/S, there are 2 methods: Lower of Cost or NRV and Lower of Cost or Market. Which inventory costing methods fall under each?

Answer 10

Under the LCorNRV = FIFO and Average Cost
Under LCM = LIFO and Retail (this is a 2 set system where Market = MIDDLE between 3 options: NRV floor, NRV ceiling, Replacement.

Question 10

For inventory valuation on B/S, there are 2 methods: Lower of Cost or NRV and Lower of Cost or Market. Which inventory costing methods fall under each?

Answer 10

Under the LOWER of Cost or NRV = FIFO and Average Cost
Under LCM = LIFO and Retail (this is a 2 set system where Market = MIDDLE between 3 options: NRV floor, NRV ceiling, Replacement.

NRV is SELLING PRICE - Completion & Disposal Cost.
NRV FLOOR is NRV - Profit Margin
NRV CEILING is SELLING PRICE - Completion & Disposal Cost
Cost is purchase price of raw materials

Question 11

What happens to Net income if Finished goods inventory is overstated?

Answer 11

Ending Inventory being overstated leads to a LOWER COGS

The lower COGS leads to an OVERSTATED NET INCOME

+ End INV = - COGS = +NI

Question 12

What are types of Bonds?

Answer 12

Serial bonds mature in installments at various dates.

Debentures are unsecured bonds. These can be callable and guaranty bonds

Question 13

A Defined Contributions Pension Fund requires 2 Financial Statements. What are they called?

Answer 13

A defined contribution plan must present

(1) a statement of net assets AVAILABLE for benefits of the plan as of the plan end year, should present the total assets, total liabilities, and net assets available for benefits.
(2) a statement of CHANGES in net assets available for benefits of the plan for the year then ending, should present the effects of significant changes in net assets during the year.

Question 14

When calculating BEPS and DEPS denominator, there are 3 scenarios that need to affect the whole period, regardless of the date of the event, What are those 3?

Answer 14

STOCK SPLITS
Stock dividends
Convertible Bonds.

Question 15

Governmental entities have Required Supplemental Information (RSI) to attach to F/S, what’s on them?

Answer 15

A comprehensive annual financial report should be prepared annually. It includes introductory, financial, and statistical sections. The financial section contains management’s discussion and analysis (MD&A), which is required supplementary information (RSI). MD&A is an analysis of financial activities based on currently known facts, decisions, or conditions expected to significantly affect financial position or results of operations.
Other RSI includes (1) schedules, (2) statistical data, (3) budgetary comparison schedules, and (4) other information that is an essential part of financial reporting. It should be presented with, but not as a part of, the basic financial statements of a governmental entity.

Question 16

In Governmental accounting, “Expenditures” are recorded when payments are made, NOT transferred. What are transfers from the General Fund called?

Answer 16

Expenditures are decreases in fund financial resources. Expenditures do not result from an interfund transfer. In a governmental fund, a transfer is an other financing use (source) in the transferor (transferee) fund. When the general fund transfers funds to the debt service fund, an other financing use instead of an expenditure is recorded in the general fund.

When the payment was made from the debt service fund, the debt service fund recognizes the expenditure. The amount recognized includes the reduction in liability (the principal) of $20,000 and the interest expense of $5,000, totaling $25,000.

Question 17

Budgetary comparison schedules must be reported for this FUND…

Answer 17

General Fund

Certain information must be presented as RSI in addition to MD&A. Budgetary comparison schedules must be reported only for the general fund and each major special revenue fund with a legally adopted annual budget. A schedule includes (1) the first complete appropriated budgets; (2) the final appropriated budgets; and (3) the actual inflows, outflows, and balances stated on the budgetary basis of accounting.

Question 18

Formula for Calculating Interest Expense on a Bond

Answer 18

`YR1 = Issued value (discount or premium)  X Effective % = Interest Expense
YR2 = CV X Effect % = Interest Expense 2

CV = Carrying value = Original issued amount - amortized premium (amortized premium = Interest Expense - Constant payment)
Constant payment is Face value X stated %

Question 19

Treasury Stock reduces value of shares “issued” or “outstanding”?

Answer 19

Outstanding

Question 20

What is the test for impairment and frequency?

Answer 20

Annual

The impairment test compares the carrying amount of the reporting unit, including goodwill, with its fair value. A goodwill impairment loss is recognized for the amount by which the carrying amount of the reporting unit, including goodwill, exceeds its fair value.

Question 21

When do you know that a non-monetary exchange of assets lacks commercial substance?

Answer 21

When the question states the Cash Flows ARE NOT expected to Change significantly.