Test Bank Conceptual Framework

Question 1

IFRS Requirements for Cash advancements and loans from bank overdrafts (CASH FLOW)

Answer 1

IFRS requires cash advances and loans from bank overdrafts to be classified as operating activities

Question 2

Consistency and Verifiability

Answer 2

are components of comparability, are both enhancing qualitative characteristics relating ot both relevance and faithful representation.

Question 3

ASC Topic 280 - External Revenues reported by reportable operating segments

Answer 3

Must be enough segments reported so that at least 75% of unaffiliated revenues is shown by reportable segments.
Sales to external customers total $30,000,000, so external revenues reported by reportable operating segments must be at least $22,500,000 (30,000,000 x 75%)

Question 4

Warranty liability (FV)

Answer 4

a company can elect the FV option to record its warranties it the warranty liability can be satisfied by contracting with a third party.

Question 5

Inventory Turnover

Answer 5

COGS/Average inventory

Average Inventory (Beg +End/2)

COGS
\+End Inv
=COG available for sale
- Purchases
=Beginning Inventory

Question 6

Dilutive Securities? Decrease the BEPS

Answer 6

7% convertible bond, issued at par, with each $1,000 bond convertible into 40 shares of common stock. TAX Rate 30% would have the following effects on the num and denom ($70 interst - $21 tax expense)/ 40 shares = $1.225 to 2 ratio, which would reduce the basic EPS of $1.29

Question 7

Cash Flow Financing Activities

Answer 7

Include all cash flows involving liabilities and owner’s equity other than operating items.

Include:

• Dividends Paid
• Proceeds from sale of treasury stock

Question 8

Impaired equipment

Answer 8

Undiscounted expected net future cash inflows (450) are less than the carrying amount of the equipment (500), therefore equipment is deemed impaired.

Impairment Calculation:
CV of Equip - FV of equip

Question 9

Concentration of Credit Risk

Answer 9

Credit risk is the risk of loss due to a particular borrower’s nonpayment loan. This would be risk for the same industry.

Question 10

Adjust service revenue from cash to accrual basis

Answer 10

Accrual:

Service Rev = Cash fees collected + End. AR - Beg AR + Beg unearned fees - ending unearned fees

Question 11

Return on common stockholders’ equity

Answer 11

(NI - Preferred Dividend)/ (Average common stockholder’s equity)

Beg comm + retain +end com+ retain/ 2

Question 12

Consumer Price Index

Answer 12

Use to compute information on a “Constant Dollar” basis

Question 13

Goodwill calculation

Answer 13

Consideration transferred
+ FV of noncontrolling interest
- FV of net identifiable assets
=Amount of goodwill

Question 14

Gain (loss) from a fire, etc. calculation of conversion of gain or loss

Answer 14

Proceeds 100,000 (from insurance)
+ Book value (BV - Half deprecation - 6 months (june))
= gain

Question 15

Operating Expenses (Selling Expenses and General and Admin expenses)

Answer 15

Selling expenses - related to sale of a company’s product

• Freight-out (cost of delivering goods to customers)
• Sales representatives salaries

G&A expenses - to company’s general operations

• Accounting and legal fees
• Officer’s salaries
• Insurance

Question 16

Interest expense, net of income taxes, on a convertible debt that is dilutive should be

Answer 16

IF convertible securities are deemed to be dilutive, then interet expense should be added back net income when computing diluted earnings per share.

Question 17

Identify Reportable segment tests

Answer 17

1. Operating segment’s revenue from all sources (internal and external) is 10% or more of the combined (internal and external) revenues of all of the company’s reported operating segment
2. Operating segment’s operating profit or loss (absolute value) is 10% or more of the greater of the following two amounts (absolute value)
   - combined operating profit of all operating segments that did not report an operating loss
   - the combined loss of all operating segments that did report an operating loss
3. The operatings segment’s identifiable assets are 10% or more of the combined assets of all operating segment

Question 18

Acid-test ratio(solvency ratio_

Answer 18

measures the ability to pay current liabilities from cash and near-cash items

(Cash + net receivables + Marketable securities) / (current liabilities)

Question 19

Debt to equity ratio

Answer 19

leverage ratio that measures the relative amount of leverage or debt a company has.

(Total liabilities / Common Stockholder’s equity)

Question 20

Bases of accounting used to prepare financial statements in conformity with a comphrensive basis other than GAAP

Answer 20

1. Cash basis

2. Basis of accounting used to file an income tax return.

Question 21

SEC form 10-Q represents

Answer 21

quarterly reviewed financial information and other information about the company

Question 22

COGS Manufactured

Answer 22

Beg Work In process
\+ Direct Materials used
\+ Direct Labor
\+ Factory Overhead
- Ending Work in Process
= COGs Manufactured

Question 23

Cost of Sales Formula

Answer 23

Beg Finished Good
+ COGs Manufactured
- Ending Finished Goods
= Cost of sales

Question 24

AR Turnover

Answer 24

Credit Sale / Average AR

Question 25

Cash Paid to suppliers

Answer 25

COGS (used as beg estimate for cash paid to suppliers)
+ (Inventory Increase)
+ (AP decrease)
= cash paid to suppliers

Question 26

Substantial doubt as a going concern

Answer 26

must be evaluated by management on an interim an annual basis

Question 27

IFRS requirements for INTERIM financial reporting

Answer 27

IFRS has no requirement for the presentation of interim financial statements, but if they are presented, four basic financial statements are required

Question 28

subsequent event recognition

Answer 28

loss for a recognized subsequent even should be reported in the current year financial statements

FYI - gains are not recognized until realized

Question 29

Variable Interest entity subject to consolidation if its equity is

Answer 29

Less than 10% of total assets

Question 30

Consolidated statements (prepared?)

Answer 30

Are prepared as if the parent and subsidiaries were one economic entity. From the point of view of the consolidated entity, any intercompany receivables or payables from parent to subsidiary or vice versa are NOT payable to or receivable from any outside company. The consolidated entity does not have a receivable or payable. Therefore, all of the intercompany receivables, payables, and advances are eliminated. Non are reported as intercompany receivables.

Question 31

Qualitative Faithful rep

Answer 31

completeness, neutrality, and freedom from error.

Question 32

How to report accumulated other comprehensive income

Answer 32

cumulated balance of other comprehensive income should be reported as a component of equity, separate from retained earnings and additional paid-in capital

Question 33

Acquisition date

Answer 33

Acquirer includes net income from the acquire only from the date of acquisition

Question 34

Basic earnings per share (WA)

Answer 34

Weighted-average shares outstanding is need for the basic earnings per share computation.
Calculated by multiplying the number of shares issued by the fraction of a year during which the stock was outstanding

Question 35

IFRS statement of cash flow (noncash transactions)

Answer 35

IFRS requires that significant noncash transactions be reported in the notes to the financial statements

Question 36

IFRS test for identifying operating segments

Answer 36

revenue test, profit or loss test, and an asset test

Question 37

of days sales in average inventories

Answer 37

(Average inventory at Cost) / (Average Sales per day at cost)

(beg inv + end inv/2) / (COGS/# of working days per year)

Question 38

disclose major customer data if sales to any single customer amount to at least

Answer 38

if 10% or more of the revenue of an enterprise is derived from sales to any single customer,

Question 39

Non-competition agreements

Answer 39

may be measured and included in goodwill

Question 40

Average # of days in operating cycle

Answer 40

average day sales in inventory + avg. day sales in AR