Review Flashcards
1
Q
In financial reporting for segments of a business enterprise, segment data may be aggregated
A
Per ASC Topic 280, two or more operating segments may be aggregated into a single operating segment if all of the aggregation criteria are met, or if after performing the 10% test a majority of the aggregation criteria are met.
2
Q
Under IFRS, intangible assets may be accounted for using the revaluation model only if
A
An active market exists for the intangible asset.
3
Q
Tech Co. bought a trademark on January 2, two years ago. Tech accounted for the copyright as instructed under the provisions of ASC Topic 350 during the current year. The intangible was being amortized over forty years. The carrying value at the beginning of the year was $38,000. It was determined that the cash flow will be generated indefinitely at the current level for the trademark. What amount should Tech report as amortization expense for the current year?
A
$0
ASC Topic 350 states that intangibles with indefinite useful lives should not be amortized; they should be examined periodically for impairment.
4
Q
How much revenue should Albury’s Debt Service Funds record for the year ended December 31, year 1, using modified accrual accounting?
A
The GASB Codification Section 1800, states that transfers from a fund receiving revenue to a fund through which the resources are to be expended is considered another financing source. Interfund transfers of this nature should be distinguished from revenues, expenses, or expenditures in the financial statements. Financial resources received in other funds for transfer to the Debt Service Funds do not constitute revenue to the Debt Service Fund. Therefore, the only revenue to be recorded is the $600,000 investment income.
5
Q
Assume a private firm elects to early adopt ASU 2014-08: Business Combinations: Accounting for Intangible Assets in a Business Combination. Noncompetition agreements:
A
ASU 2014-18 allows (not requires) private firms, in a business combination, to measure noncompetition agreements as part of goodwill.
6
Q
Which of the following is an appropriate income approach for developing fair value measurements?
A
Using present value techniques to discount cash flows
7
Q
Leverage equation
A
Avg total assets/Avg Shareholder’s equity
8
Q
Return on equity
A
Net income/Avg Shareholder’s equity
9
Q
Return on assets (investment)
A
Net income/Average total assets
10
Q
ROE=ROA x Leverage
A
NI/SE=NI/TA x TA/SE
11
Q
AR Turnover
A
Sales/Avg AR
12
Q
Total asset turnover
A
Sales/Avg total assets
13
Q
Profit margin (return on sales)
A
Net income/sales
14
Q
Return on common stockholder’s equity
A
(Net income-preferred dividends)/ Avg stockholder’s equity
15
Q
Book value per share
A
Total common stockholder’s equity/# shares outstanding
16
Q
Madden Company owns a tract of land which it purchased in year 1 for $100,000. The land is held as a future plant site and has a fair market value of $140,000 on July 1, year 4. Hall Company also owns a tract of land held as a future plant site. Hall paid $180,000 for the land in year 3 and the land has a fair market value of $200,000 on July 1, year 4. On this date Madden exchanged its land and paid $50,000 cash for the land owned by Hall. It is expected that the cash flows from the two tracts of land will not be significantly different. At what amount should Madden record the land acquired in the exchange?
A
Per ASC Topic 845, if the cash flows of the two assets are not significantly different, the transaction lacks commercial substance and is recorded at book value. Therefore, the land acquired is recorded at total of the cash paid ($50,000) and the book value of the land surrendered ($100,000), or $150,000. The economic gain of $40,000 ($140,000 market value less $100,000 book value) is not recognized.
17
Q
Assume Able does not elect the fair value option to value financial liabilities. Able’s annual sinking-fund requirement on the guaranteed debentures is $4,000 per year. What amount should Able report as current maturities of long-term debt in its December 31, year 1 balance sheet?
A
The portion of bonds, notes, and other long-term debt that matures within the next year is called current maturities of long-term debt and is reported as a current liability. When only a part of certain long-term debt is to be paid in the next 12 months (such as with installment notes or serial bonds), the maturing part is reported as current and the balance as long-term. Therefore, Able should report $13,000 as current maturities of long-term debt ($3,000 note due in year 2, plus $10,000 installment of 8% note due in year 2). The sinking fund requirement ($4,000) is not debt.
18
Q
Wind Co. incurred organization costs of $6,000 at the beginning of its first year of operations. How should Wind treat the organization costs in its financial statements in accordance with GAAP?
A
Expensed immediately
Start-up costs and organization costs should be expensed as incurred.
19
Q
Murphy Co. had 200,000 shares outstanding of $10 par common stock on March 30 of the current year. Murphy reacquired 30,000 of those shares at a cost of $15 per share, and recorded the transaction using the cost method on April 15. Murphy reissued the 30,000 shares at $20 per share, and recognized a $50,000 gain on its income statement on May 20. Which of the following statements is correct?
A
Murphy’s net income for the current year is overstated.
This answer is correct because it is not appropriate to recognize gains or losses on treasury stock transactions.
20
Q
Which of the following is false?
A
Components of other comprehensive income may not be shown net of tax-related effects.
Components of other comprehensive income can be shown either net of tax-related effects or before tax-related effects with the aggregate income tax effects shown as one amount.
21
Q
Parker Corporation prepares its financial statements in accordance with IFRS. Parker uses the revaluation model for reporting plant, property, and equipment. Parker paid $400,000 for equipment on January 5, year 1. The equipment is valued at $410,000 on December 31, year 1. The $10,000 gain should be included in
A
A revaluation surplus account in other comprehensive income.
22
Q
Saba Co. bought a tract of land, paying $800,000 in cash and assuming an existing mortgage of $200,000. The municipal tax bill disclosed an assessed valuation of $700,000. How much should Saba record as an asset for this land acquisition?
A
$1 million
The cost principle requires that assets be recorded at historical cost. The purchased cost is deemed to be an objective measure of fair market value. Therefore, the assessed valuation has no impact on the recorded cost. Historical cost includes all costs incident to the acquisition of the asset. In this case, Saba Co. gave up $800,000 of cash and assumed liabilities of $200,000. The assumption of a liability is the equivalent of a payment of cash.
23
Q
An enterprise must disclose all of the following about each reportable segment if the amounts are used by the chief operating decision maker
A
- Revenues from external customers
- Intersegment revenues
- Interest revenue and expense (reported separately unless majority of segment’s revenues are from interest and management relies primarily on net interest revenue to assess performance)
- Depreciation, depletion, and amortization expense
- Unusual or infrequently occurring items
- Equity in the net income of investees accounted for by the equity method
- Income tax expense or benefit
- Significant noncash item
24
Q
A purchased patent has a remaining legal life of 15 years. It should be
A
Amortized over its useful life if less than 15 years.
Per ASC Topic 350, a patent is to be amortized over its useful life, not to exceed its legal life of 17 years. The remaining legal life of this patent is 15 years. Thus, it should be amortized over 15 years or its useful life, whichever is shorter.
25
On December 31, year 1, the New Bite Company had capitalized costs for a new computer software product with an economic life of 4 years. Sales for year 2 were 10% of expected total sales of the software. At December 31, year 2, the software had a net realizable value equal to 80% of the capitalized cost. The unamortized cost reported on the December 31, year 2 balance sheet should be
75% of capitalized cost.
Per ASC 985, the annual amortization of capitalized software costs shall be the greater of
(1) The ratio of the software’s current sales to its expected total sales, (10%-given)
or
(2) The straight-line method over the economic life of the product. (25%=1/4 years)
26
Under the IFRS revaluation model for accounting for plant, property, and equipment
There are no rules regarding the frequency of revaluation.
27
For the year 1 fall semester, Brook University assessed its students $4,000,000 (net of refunds), covering tuition and fees for educational and general purposes. However, only $3,700,000 was expected to be realized because tuition remissions of $80,000 were allowed to faculty members’ children attending Brook and scholarships totaling $220,000 were granted to students who were not required to perform services for the student aid. What amount should Brook include in educational and general current funds revenues from student tuition and fees?
$3,780,000
Scholarships, for which no services are required, are to be recorded as a reduction in revenue. Tuition remissions for faculty children are considered expenses (compensation).
28
Under IFRS, the method used when preferred shares are converted into ordinary shares is
Book value method.
29
Which of the following should be expensed as incurred by a franchise with an estimated useful life of 10 years?
Periodic payments to the franchisor based on the franchisee’s revenues.
30
The composite depreciation method
Does not recognize gain or loss on the retirement of single assets in the group
If an individual asset is retired before the average life of the group is reached, the resulting gain or loss is buried in the accumulated depreciation account. The composite and group depreciation are processes of averaging the service lives of a number of assets and taking depreciation on the entire group as if it were an operating unit.
31
How should an unusual event not meeting the current criteria for an extraordinary item be disclosed in the financial statements?
Shown as a separate item in operating revenues or expenses and supplemented by a footnote if deemed appropriate.
Note that such items should not be shown net of income taxes.
32
Under IFRS, specific identification accounting for inventory is required for
Required for inventory that is not interchangeable or goods that are produced and segregated for specific projects.
33
Birk Co. purchased 30% of Sled Co.’s outstanding common stock on December 31, Year 1, for $200,000. On that date, Sled’s stockholders’ equity was $500,000, and the fair value of its identifiable net assets was $600,000. Assume Birk Co. uses the equity method to account for this investment. On December 31, Year 1, what amount of goodwill should Birk attribute to this acquisition?
$20,000
Investments between 20% and 50% of the outstanding stock are presumed to give the investor significant influence over the investee and as such should be accounted for under the equity method.
34
In an arm’s-length transaction, Company A and Company B exchanged nonmonetary assets with no monetary consideration involved. The exchange was deemed to have commercial substance for both Company A and Company B, and the fair values of the nonmonetary assets were both clearly evident. The accounting for the exchange should be based on the
Fair value of the asset surrendered.
35
Fogg Co., a US company, contracted to purchase foreign goods. Payment in foreign currency was due 1 month after the goods were received at Fogg’s warehouse. Between the receipt of goods and the time of payment, the exchange rates changed in Fogg’s favor. The resulting gain should be included in Fogg’s financial statements as a(n)
Component of income from continuing operations.
According to ASC Topic 830, a foreign currency transaction is a transaction denominated in a currency other than the entity’s functional currency (remeasurement). Denominated means that the balance is fixed in terms of the number of units of foreign currency, regardless of changes in the exchange rate. In this type of transaction, the entity assumes the risk of fluctuating exchange rates which would result in the incurrence of a gain or loss. Per ASC Topic 830, such gains or losses are reported as a component of income from continuing operations.
36
Number of days’ sales in average inventories
Average inventory at cost /Average sales per day at cost
37
In accordance with GASB 35, a public college or university that chooses to report both governmental and business-type activities should prepare which of the following financial statements?
Statement of cash flows for the proprietary funds
Statement of revenues,expenditures, and changes in fund balances for the governmental funds
38
Whether recognized or unrecognized in an entity’s financial statements, disclosure of the fair values of the entity’s financial instruments is required when
According to ASC 825-10-25, disclosure of the fair values of an entity’s financial instruments is required when it is practicable to estimate the values. The provisions of ASC 825-10-50 also indicate that the statement applies only to material items.
39
A change in the periods benefited by a deferred cost because additional information has been obtained is
ASC Topic 250 states that a change in the periods benefited by a deferred cost should be treated as a change in accounting estimate. Changes in accounting estimates are accounted for in the period of change and future periods if the change affects both.
40
Vista, a private, not-for-profit health and welfare organization, purchased stock in XYZ Corp. using net assets with donor restriction and paid $50,000. The investment represents less than 2% interest in XYZ. At the end of the year, Vista received a cash dividend of $3,000, and the value of the XYZ stock at year-end was $65,000. On its statement of activities from the current year, what amount would Vista report from XYZ?
$18,000 increase in net assets without donor restriction
According to FASB ASC 958, Not-for-Profit Entities, the unrealized gain on XYZ of $15,000 and the dividend revenue ($3,000) from the unrestricted investments would be included in the statement of activities as net assets without donor restriction
41
Quarry Company enters into a contract with Eclipse Manufacturing to purchase a large piece of machinery. The contract includes both the machine and installation for a single total contract sales price. Quarry does not have the specialized expertise to install the machine, and Eclipse commonly includes installation as part of the single contract price it quotes its customers. How should Eclipse allocate the contract price to the performance obligation(s)?
The contract includes a single performance obligation. The machine and the installation are not distinct because the installation requires special expertise that Eclipse commonly provides to its customers.
42
A nonprofit, private hospital should report its healthcare receivables at net realizable value on the balance sheet. Which of the following allowances would be deducted from the hospital’s gross receivables from healthcare services to determine their net realizable value?
I. Allowance for uncollectible accounts
II. Allowance for contractual adjustments
III. Allowance for employee discounts
43
Enterprise-wide disclosures are required by
Per ASC Topic 280, enterprise-wide disclosures are to be reported by all public business enterprises, including those with a single reportable segment. ASC Topic 280 does not apply to not-for-profit organizations or nonpublic enterprises.
44
Key Corp. issued 1,000 shares of its nonvoting preferred stock for all of Lev Corp.’s outstanding common stock. At the date of the transaction, Key’s nonvoting preferred stock had a market value of $100 per share, and Lev’s tangible net assets had a book value of $60,000. In addition, Key issued 100 shares of its nonvoting preferred stock to an individual as a finder’s fee for arranging the transaction. As a result of this capital transaction, Key’s total net assets would increase by
A business acquisition is accounted for using fair values; the net assets acquired are recorded at their fair value or the fair value of the stock issued, whichever is more objectively determinable. In this case, the fair value of the stock issued is a better measure of the value of the purchase (1,000 shares × $100 per share = $100,000). The total cost of acquiring the net assets is the fair value of the preferred stock ($100,000). The finder’s fee is treated as an expense of the period.
45
Elizabeth Hospital, a nonprofit hospital affiliated with a religious group, should prepare which of the following financial statements?
According to the AICPA Audit and Accounting Guide Health Care Organizations, the basic financial statements for a hospital include a balance sheet, a statement of operations, a statement of changes in net assets, and a statement of cash flows.
46
From a theoretical viewpoint, which of the following costs would be considered inventoriable?
Freight-In
Warehousing
All costs incurred to acquire goods or to prepare them for sale are inventoriable. Freight-in is a cost incurred to acquire goods, and warehousing is a cost incurred to store goods awaiting sale.
47
Esmond Bank approves a 10-year loan to Matt Schweitzer. In doing so, Esmond Bank incurs $2,000 of loan origination costs (attorney fees, title insurance, wages of employees’ direct work on loan origination). The loan origination fees shall be
Deferred and recognized over the life of the loan as an adjustment of yield (interest income)
48
Which of the following does not qualify as an underlying?
Stock shares
Exchange rates, commodity prices, and an insurance index all qualify as underlyings. Shares of stock is a notional amount, not an underlying.
49
An example of a notional amount is
Number of barrels of oil.
Notional amounts are the referenced associated asset or liability that is commonly a number of units such as barrels of oil.
50
What amount would be reported as total revenues, gains, and other support on the statement of operations for not for profit hospital?
The amount should include the hospital revenue less the amount related to charity care and the bad debt provision, plus the net assets released from restrictions used for operations, and plus the other revenue, or $460,000 ($500,000 − $100,000 − $70,000 + $50,000 + $80,000).
51
The Plaza Company was organized late in year 1 and began operations on January 1, year 2. Plaza is engaged in conducting market research studies on behalf of manufacturers. Prior to the start of operations, the following costs were incurred:
Under generally accepted accounting principles, what is the amount of organization costs charged to income for year 2?
Organizational costs include the attorney’s fees and meetings of incorporators, state filing fees, and other organizational expenses. Under generally accepted accounting principles, per ASC Subtopic 720-15, they should be expensed immediately. Leasehold improvements are amortizable assets but do not qualify as organization costs.
52
Cobb Co. purchased 10,000 shares (2% ownership) of Roe Co. on February 12, year 2. Cobb received a stock dividend of 2,000 shares on March 31, year 2, when the carrying amount per share on Roe’s books was $35 and the market value per share was $40. Roe paid a cash dividend of $1.50 per share on September 15, year 2. In Cobb’s income statement for the year ended October 31, year 2, what amount should Cobb report as dividend income?
$18000
No dividend revenue is recognized when an investor receives a proportional stock dividend, because the investor continues to own the same proportion of the investee as before the stock dividend.
53
According to GASB 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, which of the following categories of required supplementary information should be disclosed in the financial reports of state and local governments?
GASB 34 requires five categories of required supplementary information.
* Management’s Discussion and Analysis;
* Schedule of Funding Progress and Schedule of Employer Contributions (these schedules relate to pension disclosures);
* Budgetary Comparison Schedules (this disclosure is for governmental funds)
* Information about Infrastructure Assets Reported Using the Modified Approach; and
* Certain information about Risk Financing Activities.
54
Solen Co. and Nolse Co. exchanged similar trucks with fair values in excess of carrying amounts. In addition, Solen paid Nolse to compensate for the difference in truck values and the transaction lacks commercial substance. As a consequence of the exchange, Solen recognizes
Neither a gain nor a loss.
Per ASC Topic 845, exchanges that lack commercial substance are recorded at book value. Therefore, gains on these exchanges are recognized only to the extent that boot is received. Since no boot is received by Solen, neither a gain nor loss would be recognized.
55
For IFRS reporting, what valuation methods are used for intangible assets?
The cost model or the revaluation model.
56
Tone Company is the defendant in a lawsuit filed by Witt in year 1 disputing the validity of a copyright held by Tone. At December 31, year 1, Tone determined that Witt would probably be successful against Tone for an estimated amount of $400,000. Appropriately, a $400,000 loss was accrued by a charge to income for the year ended December 31, year 1. On December 15, year 2, Tone and Witt agreed to a settlement providing for cash payment of $250,000 by Tone to Witt, and transfer of Tone's copyright to Witt. The carrying amount of the copyright on Tone's accounting records was $60,000 at December 15, year 2. What would be the effect of the settlement on Tone's income before income tax in year 2?
Lawsuit liability 400,000
Gain from settlement of lawsuit 90,000
Cash 250,000
Copyright 60,000
57
Taylored Corp. factors $200,000 of accounts receivable in a transaction in which control is surrendered and without recourse to Rich Corp. on July 1, year 1. Rich assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable. In addition, Rich charged 15% interest computed on a weighted-average time to maturity of the receivables of 41 days. Taylored will receive and record cash of
Taylored will receive the value of the receivables ($200,000), reduced by $10,000 for the amount of the holdback ($200,000 × .05), $6,000 withheld as fee income ($200,000 × .03), and $3,370 withheld as interest expense ($200,000 × .15 × 41/365). Therefore the correct answer is $180,630 ($200,000 − $6,000 − $3,370 − $10,000).
58
In financial reporting of segment data, which of the following must be considered in determining if an industry segment is a reportable segment?
Intersegment sales are included in segment revenue to determine if the segment revenue is 10% or more of the combined segment revenues. Sales to unaffiliated customers are used to determine if 75% of unaffiliated revenues have been reported by the segments.
59
In which of the following pension instances would the pension asset/liability adjustment (net of tax), be reported on the balance sheet for a particular year?
Only when the projected benefit obligation exceeds plan assets.
This answer is correct because ASC Topic 715 requires a pension liability to be recognized if the fair value of plan assets is less than the projected benefit obligation.
60
Hiller Company manufactures equipment which is sold or leased. On December 31, year 1, Hiller leased equipment to Drake Company for a 5-year period expiring December 31, year 6, at which date ownership of the leased asset is transferred to Drake. Equal payments under the lease are $20,000 and are due on December 31 of each year. The first payment was made on December 31, year 1. Collectibility of the remaining lease payments is reasonably assured, and Hiller has no material cost uncertainties. The normal sales price of the equipment is $77,000 and Hiller’s cost is $60,000. For the year ended December 31, year 1, how much income should Hiller recognize from the lease transactions?
The lease is a sales-type lease because title to the leased asset transfers, collectibility is reasonably assured, there are no material cost uncertainties, and a manufacturer’s profit exists. Therefore, the lessor would recognize sales of $77,000 and cost of sales of $60,000, resulting in a profit of $17,000. There is no interest income in year 1 since the sale occurs on the last day of the year.
61
Which of the following characteristics does not relate to prior period adjustments?
There are three criteria for a prior period adjustment. These criteria are as follows: (1) the effect of the adjustment is material to income from continuing operations, (2) the adjustment can be identified with a prior period, and (3) the amount of the adjustment could not be estimated in prior periods.
62
Which of the following is issued to shareholders by a corporation as evidence of the ownership of rights to acquire its unissued or treasury stock?
Stock warrants
Stock warrants are issued to existing shareholders so that they can purchase additional shares of stock in order to maintain their ownership percentage.
63
Financial instruments may be recognized as
Either assets or liabilities until settlement.
64
Which of the following is not an underlying, according to ASC Topic 815?
Each of the other choices meets the basic definition of an underlying, which is any financial or physical variable that has either observable changes or objectively verifiable changes.
65
A statement of functional expenses is required for which one of the following private nonprofit organizations?
ASU 2016-14, all NFP organizations must report expenses by nature and function in one place - in the face of the statement of activities, as a schedule in the notes to the financial statements, or as a separate financial statement.
66
Authorized common stock is sold on a subscription basis at a price in excess of par value. Additional paid-in capital should be recorded when the subscribed stock is
Contracted for
67
Which of the following statements is correct concerning start-up costs?
Costs of start-up activities, including organization costs, should be expensed as incurred.
68
During a period of inflation, an account balance remains constant. When supplemental statements are being prepared, a purchasing power gain is reported if the account is a
Monetary liability.
er ASC Topic 255, the dollar amounts of monetary assets and liabilities are fixed or determinable without reference to future prices or specific goods or services. If the general price level changes, a purchasing power gain (loss) may occur on monetary items.
69
Envoy Co. manufactures and sells household products. Envoy experienced losses associated with its small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest of Envoy’s operations. Envoy plans to sell the small appliance group with its operations. This represents a strategic shift. What is the earliest point at which Envoy should report the small appliance group as a discontinued operation?
When Envoy classifies it as held-for-sale.
70
Bell Co. is a defendant in a lawsuit that could result in a large payment to the plaintiff. Bell’s attorney believes that there is a 90% chance that Bell will lose the suit, and estimates that the loss will be anywhere from $5,000,000 to $20,000,000 and possibly as much as $30,000,000. None of the estimates are better than the others. What amount of liability should Bell report on its balance sheet related to the lawsuit?
In this case, ASC Topic 450 requires accrual of the lower limit of the estimate of probable loss, and disclosure of the possible amounts. Therefore, this answer is correct; Bell should accrue $5,000,000.
71
For a capital lease, the amount recorded initially by the lessee as a liability should
Not exceed the fair value of the leased property at the inception of the lease.
72
Not-for-profit hospitals should prepare which of the following financial statements?
Not-for-profit hospitals should prepare a balance sheet, a statement of operations, a statement of changes in net assets, and a statement of cash flows.
73
On March 1, year 1, Playa Corporation issued bonds with a fair value of $1,000,000. Playa prepares its financial statements in accordance with IFRS.
What methods may Playa use to report the bonds on its December 31, year 1 statement of financial position?
IFRS provides that financial liabilities may be reported at amortized cost or at the fair value through profit or loss (FVTPL).
74
In a sale-leaseback transaction, the seller-lessee retains the right to substantially all of the remaining use of the equipment sold. The profit on the sale should be deferred and subsequently amortized by the lessee when the lease is classified as a(n)
Capital lease or
| Operating lease
75
When in its financial statements should a company disclose information about its concentration of credit risk?
The notes to the financial statements.
76
Derivative financial instruments include
1. Interest rate and foreign currency swaps
2. Currency swaps
3. Interest rate caps/floors/collars
77
Initial direct costs are
Expensed currently for sales-type leases.
78
An issuer of bonds uses a sinking fund for the retirement of the bonds. Cash was transferred to the sinking fund and subsequently used to purchase investments. The sinking fund
Increases by revenue earned on the investments.
The sinking fund is increased when periodic additions are made to the fund and when revenue is earned on the investments held in the fund. When cash is used to purchase investments, the components of the fund change (i.e., cash is invested and replaced by bonds or other securities), but the total fund balance is not affected.
79
The term chief operating decision maker
Refers to a function.
80
On January 1, year 1, Kent Corporation purchased a machine for $50,000. Kent paid shipping expenses of $500 as well as installation costs of $1,200. The machine was estimated to have a useful life of 10 years and an estimated salvage value of $3,000. In January year 2, additions costing $3,600 were made to the machine in order to comply with pollution control ordinances. These additions neither prolonged the life of the machine nor did they have any salvage value. If Kent records depreciation under the straight-line method, depreciation expense for year 2 is
Additions increase the service potential of an asset and thus should be charged to the asset. The pollution control additions of $3,600 made at the beginning of year 2 are to be amortized over the remaining 9 years with no salvage value, resulting in a $400 per year cost. Thus the depreciation for year 2 is $5,270 ($4,870 + $400).
81
On which of the following dates is a public entity required to measure the cost of employee services in exchange for an award of equity interests, based on the fair market value of the award?
Date of grant.
82
Russell Hospital, a nonprofit hospital affiliated with a private university, provided $250,000 of charity care for patients during the year ended December 31, Year 1. The hospital should report this charity care
Only in the notes to the financial statements for Year 1.
83
Which of the following is used to account for probable uncollectible accounts?
Due from factor accounts for sales discounts, sales returns, and sales allowance while recourse liability accounts for probable uncollectible accounts.
84
An estimated loss from a loss contingency that is probable and for which the amount of the loss can be reasonably estimated should
Be accrued by debiting an expense account and crediting a liability account or an asset account.
85
In a statement of cash flows (using indirect approach for operating activities), an increase in inventories should be presented as a(n)
Deduction from net income.
86
All principal and interest due in year 1 were paid on time. What is the total amount of expenditures that Albury’s Debt Service Funds should record for the year ended December 31, year 1, using modified accrual accounting?
GASB Codification Section 1600, principal and interest on general obligation long-term debt are typically not recognized as expenditures until due.
87
How should a nongovernmental not-for-profit organization report depreciation expense in its statement of activities?
It should be included as a decrease in net assets without donor restriction.
88
The test for recoverability of operational assets per ASC Topic 360 uses
Undiscounted cash inflows less related outflows.
89
A company has a long-lived asset with a carrying value of $120,000, expected future cash flows of $130,000, present value of expected future cash flows of $100,000, and a market value of $105,000. What amount of impairment loss should be reported?
$0
An impairment occurs when the carrying amount of a long-lived asset exceeds its fair value. However, an impairment loss is only recognized if the carrying amount of the asset is not recoverable. The carrying value is considered not recoverable if it exceeds the sum of the expected value of the undiscounted cash flows of the asset.
90
Which SEC form discloses information about material events?
Form 8-K
91
Nala Inc. reported deferred tax assets and deferred tax liabilities at the end of year 3 and at the end of year 4. For the year ended year 4 Nala should report deferred income tax expense or benefit equal to the
Deferred income tax expense or benefit is the net change during the year in an enterprise’s deferred tax liabilities or assets.
92
Company X acquired for cash all of the outstanding common stock of Company Y. How should Company X determine in general the amounts to be reported for the inventories and long-term debt acquired from Company Y?
Under the acquisition method, the acquired assets and liabilities are reported at their fair values. Therefore, Company X should report Company Y’s inventories and long-term debt at their fair values.
93
In year 1, Beech City issued $400,000 of bonds, the proceeds of which were restricted to the financing of a capital project. The bonds will be paid wholly from special assessments against benefited property owners. However, Beech is obligated to provide a secondary source of funds for repayment of the bonds in the event of default by the assessed property owners. In Beech’s basic financial statements, this $400,000 special assessment debt should
The debt related to Beech’s capital project is treated as general obligation debt and should be reported as any other general obligation debt (i.e., in the government-wide statements only).
94
Brockton City’s water utility, which is an Enterprise Fund, submits a bill for $9,000 to the General Fund for water service supplied to city departments and agencies. Submission of this bill would result in
Recognition of revenue by the water-utility fund and of an expenditure by the General Fund.
95
Which of the following is not a type of foreign currency hedge?
The four foreign currency hedges are
(1) an unrecognized firm commitment,
(2) available-for-sale securities,
(3) foreign currency denominated forecasted transactions, and
(4) net investments in foreign operations.
96
Which currency ratio should Gordon use to convert its income statement to US dollars at yearend?
Per ASC Topic 830, if the functional currency equals the local currency, the current rate method is used. This answer is correct because the current rate method requires income statement items (revenues and expenses) to be translated using the weighted-average rate, $1.55.
97
Neely Co. disclosed in the notes to its financial statements that a significant number of its unsecured trade account receivables are with companies that operate in the same industry. This disclosure is required to inform financial statement users of the existence of
Concentration of credit risk.
The company has a concentration of credit risk in one industry. Credit risk is the risk of loss due to a particular borrower’s nonpayment of a loan.
98
A statement of financial position, which reports net assets with donor restriction and net assets without donor restriction, is required for which one of the following organizations?
Non-government, not for profit entity
99
Dee's inventory and accounts payable balances at December 31, 20X5, increased over their December 31, 20X4, balances.
Should these increases be added to or deducted from cash payments to suppliers to arrive at 20X5 cost of goods sold?
cash paid to suppliers + increase in AP - increase in inventory=COGS
100
Company N donated computer equipment to a university (a nonreciprocal transfer). The fair value of the computer equipment was determinable. The difference between the fair value of the nonmonetary asset transferred and its recorded amount at the date of donation should be recognized in Company N’s income statement when the difference results in a
ASC Topic 958 states that both gains and losses on nonmonetary, nonreciprocal transfers (donations) are to be recorded. The gain or loss is calculated as the difference between the fair value of the nonmonetary asset transferred and its recorded amount at the date of donation
101
What term does IFRS use to refer to a capital lease?
Finance lease
102
The gross margin method uses historical sales margins to estimate the cost of inventory.
True, This method is typically used for interim reporting only because it may not be precise enough for the year-end financial statements.
103
The dollar-value LIFO method preserves old inventory costs by charging current costs to cost of goods sold
True, The dollar-value LIFO method groups inventory into layers and charges the most recent items to cost of goods sold before using older layers which have older inventory costs.
104
Under the dollar-value LIFO method, increases and decreases in a layer would be measured based upon the change in the total dollar value of the layer.
True
105
The link-chain method uses a cumulative index to value the base cost of ending inventory.
True
106
Under the LIFO method, an inventory liquidation will result in higher profits in a period of rising prices.
In a period of rising prices, a liquidation of older inventory, which carries lower costs, will result in a decline in the cost of goods sold and higher profits.
107
Which of the following accounts should Moon City close at the end of its fiscal year?
Expenditures.
When closing its books for the fiscal year-end, Moon City should close all temporary accounts and not balance sheet accounts. This answer, Expenditures, is a temporary account. Balance sheet accounts include Cash Investments, Payables, Fund Balances and Fund Balances Reserved for Encumbrances.
108
How much should be accounted for in a Special Revenue Fund or Funds?
Special Revenue Funds are funds established to receive funds from specific sources (e.g., city’s share of state gasoline tax revenue) to be expended for a legally restricted current purpose (e.g., street maintenance). Excluded from this definition are trusts and major capital projects.
109
In Soan County's General Fund Statement of Revenues, Expenditures, and Changes in Fund Balances, which of the following has an effect on the excess of revenues over expenditures?
Purchase of fixed assets
Under the modified accrual basis of accounting, the purchase of fixed assets are classified as Capital Expenditures and is one of the expenditure types included in determining the excess (deficiency) of revenues over expenditures. The other three answers are items that appear in different sections of the Statement of Revenues, Expenditures, and Changes in Fund Balance. The payment to a debt service (i.e., a transfer out) is in the Other Financing Sources and Uses section of the statement. Special items include proceeds from the sale of capital assets, which appear below the section for Other Financing Sources and Uses of the statement.
110
On the government-wide Statement of Net Position, prepared in accordance with GASB 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, internal service fund activities are normally reported in
Governmental activities.
According to GASB 34, internal service fund activities are normally reported in governmental activities on the government-wide Statement of Net Assets.
111
Proceeds from the general obligation bonds should be recorded in the:
Capital Projects Fund.
A Capital Projects Fund is used to account for financial resources to be used for the construction or acquisition of capital assets, except for those to be financed by Proprietary Funds or Trust Funds.
112
The lessee’s net carrying value of an asset arising from the capitalization of a lease would be periodically reduced by the
Depreciation/amortization of the asset.
113
The fair value option election applies to all of the following items except for
Pensions
