Test Bank MCQ 8 Flashcards
TREPA-0100
According to the IASB Framework, the financial statement element that is defined as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants, is
Revenue.
Income.
Profits.
Gains.
ANSWER: Income
This answer is correct because the IASB Framework has five elements: asset, liability, equity, income, and expense.
The definition given is that of income.
Note that income includes both revenues and gains.
Profits are income less expenses.
The term “gain” is not included in the IASB Framework.
Revenue is a term defined in the FASB Concept Statements.
assess.AICPA.FAR.sec.report-0028
U.S. Securities and Exchange Commission (SEC) regulations for the financial statement presentation and disclosure requirements of SEC filings can be found in
Regulation S-B.
Regulation S-K.
Regulation S-T.
Regulation S-X.
Regulation S-X governs the form and content of financial statements and financial statement disclosures for publicly traded entities.
(assess.AICPA.FAR.sec.report-0028)
What is U.S. Securities and Exchange Commission (SEC) Regulation S-B.?
Regulation S-B no longer exists. In 2008, Regulation S-B was consolidated into Regulation S-K and other regulations. Regulation S-B addressed the reporting of smaller businesses. Regulation S-X governs the form and content of financial statements and financial statement disclosures for publicly traded entities.
assess.AICPA.FAR.sec.report-0028
What is Regulation S-K?
Regulation S-K governs the form and content of nonfinancial disclosures provided by public entities.
assess.AICPA.FAR.sec.report-0028
What is Regulation Regulation S-T?
Regulation S-T prescribes the rules and requirements associated for electronic filing essential in the SEC’s database, EDGAR.
(DETX-0019) (modified)
According to ASC Topic 740, Income Taxes, which of the following items should affect current income tax expense for year 3?
Interest on a 2006 tax deficiency paid in year 3.
Penalty on a 2006 tax deficiency paid in year 3.
Change in income tax rate for year 3.
Change in income tax rate for year 4.
Per ASC Topic 740, income tax expense includes the following components:
1. Current tax expense or benefit
2. Deferred tax expense or benefit, exclusive of (5) below
3. Investment tax credits and grants
4. The benefits of operating loss carryforwards
5. Adjustments of a deferred tax liability or asset for enacted changes in tax laws or a change in the tax status of an enterprise.
Since current tax expense/benefit depends on the tax rate, a change in the income tax rate for year 3 will affect the amount of income tax assessed in year 3.
PVD-0004
For a defined benefit pension plan, the discount rate used to calculate the projected benefit obligation is determined by the
Expected return on plan assets,
Actual return on plan assets
Yes,Yes
No,No
Yes,No
No,Yes
ANSWER: No,No
Per ASC Topic 715, the assumed discount rate should reflect the rates at which pension benefits could be effectively settled. This rate is sometimes referred to as the “settlement rate.” To determine the settlement rate, it is appropriate to look at rates implicit in current prices of annuity contracts that could be used to settle the obligation under the defined benefit plan. The expected return on plan assets is not used to calculate the projected benefit obligation. The actual return on plan assets is also not used to calculate the projected benefit obligation.
TREPA-0086
Baker Co. has a franchise restaurant business. On January 15 of the current year, Baker charged an investor a franchise fee of $65,000 for the right to operate as a franchisee of one of Baker’s restaurants. A cash payment of $25,000 towards the fee was required to be paid to Baker during the current year. Four subsequent annual payments of $10,000 with a present value of $34,000 at the current market interest rate represent the balance of the fee which is expected to be collected in full. The initial cash payment is nonrefundable and no future services are required by Baker. What amount should Baker report as franchise revenue during the current year?
$0
$25,000
$59,000
$65,000
ANSWER:$59,000
Revenue on a franchise agreement should be recognized when the franchisor has substantially performed all material services and conditions, and collectibility is reasonably assured. Baker should recognize $59,000 in revenue: the initial cash payment ($25,000) plus the present value of the future cash payments ($34,000).
AICPA.900531FAR-P1-FA
On December 31, 2005, Bain Corp. sold a machine to Ryan and simultaneously leased it back for 1 year. Pertinent information at this date follows:
Sales price $360,000
Carrying amount 330,000
Present value of reasonable lease rentals ($3,000 for 12 months @ 12%) 34,100
Estimated remaining useful life 12 years
In Bain’s December 31, 2005 balance sheet, the deferred revenue from the sale of this machine should be
$34,100.
$30,000.
$4,100.
$0.
This is a minor leaseback because the present value of the rentals is less than 10% of the fair value of the property; therefore, none of the gain is deferred. The conceptual basis for immediate recognition of the gain is that the sale is the dominant part of the transaction. The leaseback is a very minor part.
However, $30,000 would be a correct answer if the present value of the lease payments were between 10% and 90% of fair value. In that case, the entire gain of $30,000 ($360,000 − $330,000) would be deferred. Only gains in excess of the present value of lease payments would be recognized immediately under those circumstances.
AICPA.920516FAR-P1-FA
On December 1, 2005, Tigg Mortgage Co. gave Pod Corp. a $200,000, 12% loan.
Pod received proceeds of $194,000 after the deduction of a $6,000 nonrefundable loan origination fee. Principal and interest are due in 60 monthly installments of $4,450, beginning January 1, 2006. The repayments yield an effective interest rate of 12% at a present value of $200,000 and 13.4% at a present value of $194,000.
What amount of accrued interest receivable should Tigg include in its December 31, 2005 balance sheet?
$4,450
$2,166
$2,000
$0
ANSWER: $2,000
The term “accrued interest receivable” refers to the cash amount of interest due. The cash amount of interest due is based on the contractual interest rate and face value. The loan origination fee is a way of increasing the effective interest but it does not affect the cash interest component. The $2,000 accrued interest = (.12)(1/12)($200,000).
AICPA.101171FAR
Which of the following statements are required to be presented for special-purpose governments engaged only in business-type activities (such as utilities)?
Statement of Net Position only.
Management’s Discussion and Analysis (MD&A) and Required Supplementary Information (RSI) only.
The financial statements required for Governmental Funds, including MD&A.
The financial statements required for Enterprise Funds, including MD&A and RSI.
ANSWER: The financial statements required for Enterprise Funds, including MD&A and RSI.
Special-purpose governments engaged in business-type activities follow the reporting standards required for Enterprise Funds, which are a Statement of Net Position; Statement of Revenues, Expenses, and Changes in Net Position; Statement of Cash Flows; and appropriate disclosures in MD&A, and RSI.
AICPA.083735FAR-SIM
Choose the best association of terms in the natural resources accounting area with the conceptual framework.
Successful efforts method-matching.
Full costing method-definition of asset.
Depletion-fair value accounting.
Successful efforts method-definition of asset.
ANSWER:
Successful efforts method-definition of asset.
The successful efforts method capitalizes only the cost of exploration efforts that locate the resource. As such, only those efforts that yield a probable future benefit are capitalized. This is a direct application of the asset definition, which requires that an asset have a probable future benefit.
