Reporting the Results of Operations Continued

Question 1

True or False.

Unearned consulting fees are subtracted from your cash-basis consulting revenue.

Answer 1

FALSE.

Unearned consulting fees will be ADDED for the cash-basis consulting revenue.

Question 2

WHAT type of transaction would require a prior period adjustment?

Answer 2

Recognizing Revenue that should have been deferred in the previous year as “earned.”

i.e. THIS would require an adjustment to your Retained Earnings

Question 3

WHAT is the FORM 8-K used for?

Answer 3

TO report events of major significance that occur between a public entity’s reporting periods

Question 4

WHAT are the (4) Items reported in “other comprehensive income?”

Answer 4

1) Derivatives and cash flow hedges
2) Excess adjustment of Pension Benefit Obligation (PBO) and FV of plan assets at year end
3) Net unrealized gains or losses on “available-for-sale” securities
4) Translation adjustments for foreign currency

Question 5

HOW should a company handle a Loss from discontinued operations if it expects this loss in the following year

Answer 5

Retrospectively

Meaning if the Loss occurs in 20X2 and the Measurement date is 20X1 then the Loss would be “Retrospectively” recognized in 20X1 NOT 20X2

Question 6

True or False.

The single-step format includes subtotals such as gross profit, operating income and income before taxes

Answer 6

FALSE.

The single-step format does not include subtotals such as gross profit, operating income and income before taxes

i.e. NONE of these items would qualify

Question 7

True of False.

Gains and Losses resulting from early retirement of debt are amortized.

Answer 7

FALSE.

Gains and losses resulting from early retirement of debt are not amortized.

THEY are reported in the period of the retirement as an increase or decrease in Income from Continuing Operations

Question 8

WHAT items are subject to the application of intra-period income tax allocation?

Answer 8

(1) Discontinued operations
(2) Income from continuing operations
(3) Components of other comprehensive income
(4) Extraordinary items

Question 9

WHAT are the minimum reporting requirement for a company that is preparing its first IFRS financial statements?

Answer 9

Three statements of financial position

Companies preparing their first IFRS financial statements are required to present Statements of Financial Position for three years, for comparative purposes

Question 10

WHEN is an entity required to disclose the asset and liability fair values of its financial instruments in its financial statements?

Answer 10

WHEN it is practicable to estimate those values, or if the aggregated fair values are material to the entity

Question 11

WHAT Securities and Exchange Commission (SEC) regulation contains the financial statement presentation and disclosure requirements of SEC filings?

Answer 11

Regulation S-X

i.e. IT contains the regulations for the financial statement presentation and disclosure requirements of SEC filings

Question 12

WHAT is an example of payments from a related party transaction by a company that should be disclosed in the notes to the financial statements?

Answer 12

Purchase of real estate from an officer

i.e. If an entity enters into a transaction with an officer, such as the purchase or sale of real estate, the transaction would be considered a related party transaction

Question 13

True or False.

A first-time adopter of IFRS should recognize adjustments required to present its opening IFRS Statement of Financial Position with all adjustments recognized as profit or losses.

Answer 13

FALSE.

A first-time adopter of IFRS should recognize adjustments required to present its opening IFRS Statement of Financial Position with all adjustments recognized directly in retained earnings OR if appropriate in another category of “equity”

Question 14

True or False.

The Summary of Significant Accounting Policies describes the client’s accounting results.

Answer 14

FALSE.

The summary of significant accounting policies describes the client’s accounting principles and methods, NOT results.

Question 15

WHAT is the affect on Assets and Retained Earnings if a company that purchased and recorded goods in transit purchased f.o.b. shipping point at year end failed to record this in their Ending Inventory?

Answer 15

Ending Inventory would be understated – Causing Cost of Goods Sold to Overstated (i.e. Goods Available for Sale – Ending Inventory = COGS)

Which then causes Retained Earning to be Understated (i.e. Goods Available for Sale – Ending Inventory = COGS. Sales Revenue – COGS = Gross Profit)

Question 16

WHEN are changes in accounting policies under IFRS allowed (i.e. Permitted)?

Answer 16

IF the change;

(1) will result in a more RELIABLE and more RELEVANT presentation of the financial statements; or
(2) is required by IFRS

Question 17

Would a change in the expected service life of an asset require an entity to report Proforma effects of retroactive application?

Answer 17

1 - It is reported by applying the new estimate in the current and all future periods

NO.

WHY? - Because a change in the expected service life of an asset is a change in accounting estimate

Question 18

Fill in the Blank.

A change in ___A____ is reported __B____ in the period of the change and for ___C___ if the change affects both.

Answer 18

A. accounting estimate

B. prospectively

C. future periods

Question 19

True or False.

Whenever it is impossible to determine whether a change in an estimate or a change in accounting principle occurred, the change should be considered a change in PRINCIPLE.

Answer 19

FALSE.

Whenever it is impossible to determine whether a change in an estimate or a change in accounting principle occurred, the change should be considered a change in ESTIMATE, NOT principle.

Question 20

WHAT type of related-party transaction by a company should be disclosed in the notes to the financial statements?

Answer 20

THE payment for Consulting fees paid to a marketing research firm, of which one of their partners is also a director of the company

WHY? - Because the transaction raises question as to whether the consulting firm was the most appropriate firm for the engagement and whether the fee arrangement was negotiated on an arms-length basis