Test Bank MCQ 2

Question 1

What type of account is Stock subscriptions receivable?

Answer 1

It is not an asset but rather a contra-equity account. There is no increase in OE for the unpaid portion.

Question 2

What are the initial payment journal entries for stock subscriptions?

Answer 2

debit:
cash (amount of payment)
stock subscriptions receivable (sum of remaining payments)

credit:
common stock subscribed (par x # of shares subscribed )
contributed capital in excess of par (contract price - par) x (# of shares)

Question 3

What are the journal entires for subsequent payments for stock subscriptions?

Answer 3

debit:
cash (amount of payment)

credit:
stock subscriptions receivable (amount of payment)

Question 4

What are the journal entries for issuance of shares after final payment for stock subscriptions?

Answer 4

debit:
common stock subscribed (par x # of shares subscribed)

credit:
common stock (par x # of shares subscribed)

Question 5

How is goodwill impairment measured under IFRS?

Answer 5

Under IFRS goodwill impairment is measured in a one-step process. The carrying value of the cash generating units (CGU) is compared to the recoverable amount. If the CV > recoverable amount the goodwill is impaired. The impairment loss is the recoverable amount - the CV.

Question 6

How are financial liabilities (such as bonds) reported under IFRS?

Answer 6

IFRS provides that financial liabilities may be reported at amortized cost or at the fair value through profit or loss (FVTPL). If FVTPL is elected, the resulting gain or loss is recognized in profit or loss for the period.

Question 7

AICPA.900527FAR-TH-FA
A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance.
In a statement of cash flows, what amount is included in investing activities for the above transaction?

Answer 7

The amounts paid to purchase plant assets and passive investments, such as stocks and bonds from other firms, are investing cash outflows. When part of the purchase price is financed, as in this question, only the cash amount paid is disclosed in the statement of cash flows. The noncash activity schedule would disclose the acquisition price and amount financed with the mortgage.

Question 8

AICPA.060238FAR-AR

The funded ratio of a pension plan compares:

Answer 8

According to GASB Statment No. 68 (para 46(b)(1)(d), governmental employers must report as required supplemental information, the pension plan’s fiduciary net position as a percentage of the actuarially determined total pension liability.

Question 9

CACL-0133 (modified)
Under IFRS, when can short term debt that the issuer intends to refinance long term be reclassified as a noncurrent liability on it’s year end financial statement?

Answer 9

If the issuer has executed an agreement to refinance by year end.

In contrast, US GAAP rules permit debt to be reclassified if the issuer has the intent and ability to refinance before the issuance of the financial statements.

Question 10

assess.AICPA.FAR.bond.fair-0047 (modified)

Can the fair value option be applied to leases?

Answer 10

Leases are not eligible for the fair value option.

The fair value option for liabilities is limited to financial liabilities. Lease liabilities are excluded.

Question 11

AICPA.100946FAR-NSI-SIM
Which, if any, of the following transfers between categories is possible under IFRS No. 9 for investments in debt securities?

Amortized cost to fair value,
Fair value to amortized cost:

Answer 11

Yes, Yes.

Under IFRS No. 9, investments in debt securities may be (1) transferred from amortized cost (when the investment originally meets both the business model test and the cash flow characteristic test) to fair value when the investment fails to continue to meet both the business model test and the cash flow characteristic test and (2) transferred from fair value to amortized cost when an investment that originally fails to meet both the business model test and the cash flow characteristic test subsequently meets both tests.

Question 12

How is implied goodwill determined?

Answer 12

Implied goodwill is determined by comparing the fair value of the reporting unit to the fair value of the identifiable assets.

Question 13

What is used in the pre-step for goodwill impairment to determine if it is more likely than not that the reporting unit is less than its carrying value?

Answer 13

Qualitative factors.

Question 14

AICPA.090241FAR-SIM

A hedge to offset the risk of loss on a recognized asset or liability is which of the following types of hedge?

Cash flow hedge.

Fair value hedge.

Either a cash flow hedge or a fair value hedge, at management’s discretion.

Neither a cash flow hedge nor a fair value hedge.

Answer 14

Answer: Either a cash flow hedge or a fair value hedge, at management’s discretion.

A hedge to offset the risk of loss on a recognized asset or liability could be either a cash flow hedge or a fair value hedge, at management’s discretion. If the risk of loss on the recognized asset or liability being hedged is from changes in exchange rates, the hedge would be classified as a cash flow hedge.

Question 15

PVC-0006
Which of the following statements is true?

All financial assets and financial liabilities must be valued at fair value.

No financial assets or financial liabilities can be valued at fair value.

Debt modifications may be valued at fair value.

Debt modifications must be valued at fair value.

Answer 15

Answer: Debt modifications may be valued at fair value.

An election can be made to value certain financial assets or financial liabilities at fair value. Modification of debt is eligible for such valuation. However, the fair value election is not a requirement.

Question 16

AICPA.900507FAR-TH-FA
On December 31, 20x5, special insurance costs, incurred but unpaid, were not recorded.

If these insurance costs were related to work-in-process, what is the effect of the omission on accrued liabilities and retained earnings in the December 31, 20x5 balance sheet?
Accrued liabilities, Retained earnings

No effect, No effect

No effect, Overstated

Understated, Overstated

Answer 16

Answer: Understated, No effect

Accrued liabilities are understated because the insurance costs were incurred but not paid. The firm has an obligation for coverage received. The omitted journal entry is:

Work in process

Accrued payables

Retained earnings is unaffected because no expense has been incurred. The omission of the above entry has no effect on expenses or retained earnings.

Work in process is an asset. When work in process is completed and sold, this part of the total cost of work in process will be expensed.

Question 17

(AICPA.930501FAR-P2-FA)

Rudd Corp. had 700,000 shares of common stock authorized and 300,000 shares outstanding at December 31, Year 1. The following events occurred during Year 2:

January 31	Declared 10% stock dividend
June 30	Purchased 100,000 shares
August 1	Reissued 50,000 shares
November 30	Declared 2-for-1 stock split
At December 31, Year 2, how many shares of common stock did Rudd have outstanding?

560,000
600,000
630,000
660,000

Answer 17

Answer: 560,000

Stock dividends and splits increase the number of shares outstanding on the date of distribution by the percentage effect implied by the dividend (10%) or split (100% or multiply by 2). The number of shares outstanding at 12/31/Year 1 = [300,000(1.10) - 100,000 + 50,000]2 = 560,000.

Treasury shares reduce the number of shares outstanding, and reissuance increases the number of shares outstanding. The total number of shares outstanding just before the split (280,000) is doubled in a 2-for-1 split.

Question 18

AICPA.110583FAR (modified)

How do you convert from cash basis net income to accrual basis net income?

Answer 18

The general rule to convert from cash to accrual is to add decreases in liabilities and increases in assets, and subtract increases in liabilities and decreases in assets.

Question 19

(FA-0029)

A donated fixed asset for which the fair value has been determined should be recorded as a debit to fixed assets and a credit to

Retained earnings.
Capital stock.
Deferred income.
Other income.

Answer 19

Answer: Other income

Per ASC Topic 958, income is earned as a result of a donation.

Question 20

(AICPA.090641FAR-II-F)

After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Which of the following statements about subsequent reversal of a previously recognized impairment loss is correct?

It is prohibited.
It is required when the reversal is considered permanent.
It must be disclosed in the notes to the financial statements.
It is encouraged, but not required.

Answer 20

All intangibles are subject to impairment, but the resulting impairment losses cannot be reversed. Although impairment losses on plant assets held for disposal can be reversed to the extent of previous losses, this is not the case for intangibles.