Standards, Income Statement and Reporting Requirements

Question 1

Per FASB and IASB who are primary users of financial reports?

Answer 1

Creditors, Lenders and Investors

Question 2

Per FASB and IASB, what are the fundamental qualitative characteristics of useful information?

Answer 2

Faithful representation and Relevance.

Question 3

What type of characteristic is Comparability?

Answer 3

Comparability is an enhancing qualitative characteristic.

Question 4

Materiality is a component of which 3 items?

Answer 4

Relevance, Predictive Value, and Confirming Value

Question 5

What type of characteristic are Understandability and Timeliness?

Answer 5

Enhancing Qualitative Characteristics of Useful Financial Information

Question 6

What is Verifiability?

Answer 6

An enhancing qualitative characteristic.

Question 7

What is Neutrality?

Answer 7

A component of faithful representation.

Question 8

When does a debtor record a gain at the date of a restructure involving only a modification of terms?

Answer 8

When the prerestructure carrying amount exceeds the total future cash flows per the modification.

Question 9

How should a company report its decision to change from cash basis to accrual basis?

Answer 9

As a prior period adjustment net of tax, by adjusting the beginning balance of retained earnings.

Question 10

True or False. Cash flows from available-for-sale investments are included in investing activities.

Answer 10

True

Question 11

True or False. Cash flows from held-to-maturity investments are included in investing activities.

Answer 11

True

Question 12

How are assets presented in personal financial statements?

Answer 12

In personal financial statements, assets are generally presented at their estimated current values.

Question 13

What is the fair value option for reporting financial assets and financial liabilities?

Answer 13

An election can be made to value certain financial assets and financial liabilities at fair value.

Once the fair value option is elected, it is irrevocable.

If the fair value option is elected, it must be applied to the entire instrument and not a portion of the instrument.

Question 14

What is a financial asset? (3)

Answer 14

• Cash
• Evidence of an ownership interest in an entity
• A contract that conveys a right to receive cash or another financial instrument, or to exchange financial instruments on favorable terms.

Question 15

What is a financial liability?

Answer 15

A contract that imposes an obligation to deliver cash or another financial instrument.

Question 16

What is fair value?

Answer 16

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.

Question 17

When can a company elect to measure applicable financial assets or financial liabilities? (3)

Answer 17

• The date an eligible item is first recognized
• The date the entity enters into a firm commitment
• The date financial assets cease to qualify for fair value treatment due to specialized accounting rules.

Question 18

If a company is using the equity method of accounting, when can it elect to measure an investment at fair value?

Answer 18

The date the percentage of ownership changes and the entity is no longer required to consolidate.

Question 19

For debt modifications, when can a company elect the fair value option?

Answer 19

The date the debt is modified.

Question 20

If the fair value option is elected, when are any unrealized gains and losses reported?

Answer 20

In earnings for the period.

Available-for-sale security - reported on the income statement rather than in other comprehensive income.

Held-to-maturity secruity - no longer reported at amortized cost. Instead, marked to fair value at the end of the period and resulting unrealized gain or loss is reported on the income statement.

Question 21

What financial statement disclosures are required if the fair value option is elected? (2)

Answer 21

1. Present the aggregate fair value and non-fair value amounts in the same line with amounts measured a fair value parenthetically disclosed.
2. Present two separate line items for fair value and non-fair value carrying amounts.