Test 3- Incorrect Questions

Question 1

What must be present to require the disclosure of the estimated effects of a change in an estimate used in the preparation of financial statements

Answer 1

1. It is reasonably possible that the estimate will change in the near term
2. The effect of a change in estimate would be material

Question 2

How do you calculate the total prize expense to be recorded in the financial statement

Answer 2

First payment
+ PV of additional payments
= expense in Year 1 income statement

Question 3

Is market research related to a major product for the company considered to be an R&D expense?

Answer 3

Yes

Question 4

What are the requirements for a segment to be considered a reportable segment?

Answer 4

The segment must meet one of the 10% size tests:

1. revenues
2. reported profit/loss
3. Assets

Question 5

What are the 3 tests for reportable segments

Answer 5

1. Revenues
2. Reported profit/loss
3. Assets

Question 6

How should end of years officers bonuses be reported?

Answer 6

They should be accrued at year-end and included in total accrued salaries.

Question 7

How should expenses be reported throughout the year?

Answer 7

Actual and estimated expenditures benefiting all interim periods equally should be expensed ratably throughout the year

Question 8

How would 150,000 for unanticipated repairs to office equipment be reported throughout the year

Answer 8

it would be expensed ratably throughout the year

Question 9

How are deferred income taxes that are based on temporary differences be classified on the balance sheet?

Answer 9

non-current deferred tax liability

Question 10

How do you calculate ending Asset Retirement Obligation (ARO)?

Answer 10

Beginning ARO + PV of new ARO + Accretion Expense - ARO settled during the period

Question 11

Where does allowance for doubtful accounts belong on the balance sheet?

Answer 11

Current assets

it is subtracted/contra account

Question 12

Where does discount on BP belong on the balance sheet?

Answer 12

Non-current liability

It is subtracted/contra account

Question 13

How is treasury stock reported on the balance sheet

Answer 13

negative/contra account

Question 14

when should a loss on inventory be accounted for?

Answer 14

When the loss is probable and estimable and the loss must be recorded in full

Question 15

What is included in the cost of land

Answer 15

Cost of land includes all costs necessary to put it in the place and condition for construction of the building

Question 16

Are legal fees and title insurance included in the cost of land

Answer 16

Yes

Question 17

How do you calculate goodwill

Answer 17

LOOK UP

Question 18

How do you calculate accounts receivable turnover in days?

Answer 18

365/ Accounts rec turnover

Accounts rec turnover= net credit sales/ average net rec

Question 19

What costs are included in patent capitalization?

Answer 19

Purchase price + Acquisition costs + Legal fees (if successful)

Question 20

What if you have two patents and they are challenges and one wins and one losses…what amounts are capitalized

Answer 20

you would capitalize all amounts for the winning patent… The other patent would not be capitalized at all. This means the purchase price would not be included, the acquisition costs and the losing fees

Question 21

How is a majority voting interest achieved?

Answer 21

Majority voting interest is achieved when

1) control over an investee is established
2) more than 50% of the voting stock of the investee has been acquired.

Question 22

when an entity reissues financials what is the rule about recognizing events that occur during that period?

Answer 22

When an entity reissues financial statements, the entity should not recognize events (adjust for events) that occured between the date the original financial statements were issued or available to be issued and the date the financial statements were reissued.

Question 23

what is the journal entry for when taxpayers are billed for property taxes?

Answer 23

D: Property Taxes Receivable
Cr: Revenues

Question 24

What is the rule for losses related to percentage complete method and the completed-contract method?

Answer 24

for both the percentage of completion and completed contract methods, the entire estimated loss is recorded for a loss contract in progress (not only the loss incurred to date)

Question 25

What happens when a company pledges their accounts receivable to another group?

Answer 25

When a company assigns receivables in return for a loan, the assigning (company that owns the accounts) company will retain title to the receivables and will use the proceeds collected from the receivables to repay the loan

Question 26

Who retains title of the AR when AR is pledged?

Answer 26

The assigned company (the company that has the AR)

Question 27

Who assumes responsibility for collecting AR when Ar is assigned to another company?

Answer 27

the main company

Question 28

How are donated services recorded for a NFP

Answer 28

Record as increase in revenues, gains, and other support without donor restrictions

Question 29

How would the following be recorded by NFP?
receiving an investment subject to the donor’s requirement that investment income be used to pay for services consistent with the mission

Answer 29

• Increase in net asset with donor restrictions

The investor is still choosing how the money will be used

Question 30

How do you evaluate impairment loss?

Answer 30

step 1: Determine if impairment exists:
sum of undiscounted cash flows vs. CV
Step 2: Carrying value - FV

Question 31

What document is issued as part of the due-process activities of the financial accounting standards board for amendment of FASB codification

Answer 31

A proposed accounting standards update

Question 32

What is a proposed accounting standards update

Answer 32

Released when deciding whether to make an amendment to the codificaiton

Question 33

How a hospitals long term debt reported in the city’s financial statement

Answer 33

Recorded as a long term debt in the component unit column of the government-wide long-term debt in financial statements

Question 34

How do you record AP using the net method

Answer 34

Accounts payable gross amount
- purchase discounts in AP balance available
AP net of purchase discounts

Question 35

Question 25

Answer 35

Look up

Question 36

What is the income approach

Answer 36

Determines fv by converting future amounts including current cash flow or earnings to a single discounted amount
Requires the discount rate

Question 37

For a capital lease, the amount recorded initially by the lessee as a liability should normally

Answer 37

Equal the present value of the minimum lease payments at the beginning of the lease

Question 38

How are discontinued operations that occur at midyear initially reported?

Answer 38

Included in NI and disclosed in the notes to the interim financial statements

Question 39

What is the amount of interest expense recorded for the year for a capital lease

Answer 39

interest rate x PV of lease payments = interest expense

Question 40

Question 26- discontinued operations

Answer 40

look up

Question 41

How are hospital funds restricted

Answer 41

in the same manner as NFP

Question 42

How is compensation expense recorded?

Answer 42

compensation cost is measured on the grant date and is charged to compensation expense over the service period (year 1 and year 2)
Total compensation expense / service period

Question 43

What is the underlying cost

Answer 43

the rate that is agreed on to be paid (upfront)

Question 44

What is the notional amount

Answer 44

the amount of money that is agreed to be sold

Question 45

What is the initial investment for a forward contract?

Answer 45

There is no initial investment for forward contracts

Question 46

What is the settlement amount

Answer 46

(underlying amount x amount)