Trouble Topics

Question 1

A gain that is both unusual and infrequent should be reported as which of the following?

Comprehensive Income
Net of tax, following disc ops
Income from Cont Ops, net of tax
Income from Cont Ops

Answer 1

Income from Cont Ops as it’s own line item and above the income tax line (gross)

Question 2

Which one should be reported as a component of comprehensive income?

Additional Capital Contribution
Deferred Revenue
Dividend Paid
Foreign-currency translation adjustment

Answer 2

Foreign Currency Translation

Deferred Revenue is a liability
other 2 are Owner’s Transactions

Question 3

The balance in the accumulated other comprehensive income account at the end of the current year is a debit balance. Where in the financial statements should the balance be properly shown?

Answer 3

In the balance sheet at a reduction of equity

Question 4

What is the difference in where OCI and AOCI hit in the financials?

Answer 4

OCI is reported as part of Comprehensive Income

OCI is closed out to AOCI, therefore all changes impact Equity directly (balance sheet).

Question 5

When do you record the gain on subscribed stock ?

What is the JE?

Answer 5

You record the gain when the subscription is received / recorded

To record:

Cash = # shares x “payment”
Subscription Received = # shares x stated/par value
CR Common Stock Subscribed = # shares x par
APIC is of course excess or shortage

Question 6

How is a gain/loss on sale of fixed asset reported?

Answer 6

Net Concept (proceeds less carrying value) as part of cont ops NOT net of tax (above income tax line)

Question 7

Fair Value is related to acquisition costs?
Fair Value includes bot transportation and transaction costs?

Answer 7

FALSE Fair Value is for exit, not acquisition

FALSE Only includes transportation costs

Question 8

10-Q Filing Timelines

Answer 8

Large-Accelerated = 40 Days
Accelerated = 45 Days
Non-large = either 60 or 90 days?

Question 11

What does a bond hit?

Answer 11

Bonds hit oci because it’s an available for sale debt security

Question 12

Do you adjust a held to maturity security to fair value?

Answer 12

No

Question 13

How do you treat an unrealized bond gain if you purchased 500 bonds for face value of 1000.?

Answer 13

When calculating unrealized gain on bonds, if you don’t buy the number of bonds equal to the face value then you prorate the gain
Example. 500 bonds bought with a face value of 1000 goes up in value by 56 per bond. Because you only bought 500, you need to prorate the gain to 28 per bond

Question 14

If a bond with a face value of 1000 (500 quantity) is valued at 1056 in y2 and then1044 in y3
Is yy3 a loss or gain.?

Answer 14

It’s a loss because it’s based on last estimated value of 1056

Question 15

If a bond with a face value of 1000 (500 quantity) is valued at 1056 in y2 and then1044 in y3
Is yy3 a loss or gain.?

Answer 15

It’s a loss because it’s based on last estimated value of 1056

Question 16

Retirement benefits for employees are increased by 500k. How and where is this reported and what is the effect ?

Answer 16

This increase is treated as an increase in expense for the company and since pension adjustments are part of oci, the balance of oci decreases. Since oci is a component of comprehensive income then technically income is reduced (net income remains unaffected)

Question 17

What is a cash flow hedge and how are gains and losses reported

Answer 17

A cash flow hedge is an derivative contract investment instrument where you buy into something other than stock and hope it makes money no if it does make money this increases comprehensive income because hedges are part of oci
The old rule said it had to be effective to be reported but that’s no longer thebcase

Question 18

US Imported for 790,000 Yen.
Exchange Rates
$0.013
$0.020
READ THE QUESTION…
Journal Entry at time of purchase?

Answer 18

.013 x 790,000 = 10,270

Purchases (whatever inventory) $10,270
AP (cr) 10,270

Question 19

How many additional shares for Diluted EPS purposes?
Simpson Corporation computed its diluted earnings per share for the current year ended September 30. The company had 200,000 shares outstanding at the beginning of the year, issued 60,000 shares at April 1, and reacquired 2,000 shares to be held in its treasury on July 1. The company also had 2,000 options outstanding exercisable at $40 per share. The average market price of Simpson’s shares during the year was $50. The common stock equivalents added to the company’s weighted average shares outstanding used for basic earnings per share was computed using the treasury stock method.

Answer 19

Options are additional common stock shares whose Excise Price is netted against the average market price.
Number of shares - sum [(#shares x excise $) /average market price)]
2000 - sum [(2000*40) / 50]
2000 - 1600 = 400 additional shares

Question 20

A nongovernmental not-for-profit organization received a $2 million gift from a donor who specified it be used to create an endowment fund that would be invested in perpetuity. The income from the fund is to be used to support a specific program in the second year and beyond. An investment purchased with the gift earned $40,000 during the first year. At the end of the first year, the fair value of the investment was $2,010,000. What is the net effect on net assets with a donor restriction at year end?

Answer 20

The question is asking about year 1, and so at the end of year one, both the fair value of the endowment, $2,010,000 and the $40,000 income will be included in net assets with a donor restriction.

Question 21

What are encomburences

Answer 21

Encumbrances are a specific type of budget transaction used in governmental fund types. Enterprise funds – which are business type programs or transactions – don’t use encumbrance accounting.

Question 22

What is the most appropriate title for a statement of financial position prepared under a framework that is modified for a non-profit organization?

Answer 22

For non-profit organizations, the emphasis is often on net assets rather than a traditional balance sheet format. “Statement of Net Assets – Non-Profit Organization” provides a clear and accurate description of the statement’s purpose and framework. The other titles are more aligned with for-profit organizations or do not specifically indicate the non-profit nature.

Question 23

When preparing the cash flow statement using the direct method, how are cash receipts from customers calculated?

Answer 23

Cash receipts from customers are calculated by adjusting sales revenue for changes in accounts receivable. If accounts receivable increases, it means that not all sales revenue was collected in cash, hence the deduction.

Question 24

When is an impairment test request required?
How do you perform the impairment test

Answer 24

If the carrying g amount exceeds undiscounted future cash flows
Fair value - cost to sell

Question 25

Why does amortization of a bond reduce its arraying value?

Question 26

What COGS and Ending Inventory movement (up or down) is needed for a lower inventory turnover ratio in an inflationary economy?

Answer 26

COGS needs to decrease and ending inventory increase (FIFO)

Question 27

How do you determine COGS when using Moving Average?

Answer 27

COGS is based (here) on the actual units sold
this method uses a side by side table comparison to track purchase/sales with ending balances that are calculated after each sale
Ending Inventory is based on what is left over after the sales

Question 28

How does the Repurch of Common Stock impact Owner’s Equity and Book Value Per Share?

Answer 28

Total Stockholders Equity Decreases
Book Value Per Share - Increases (BV = B.V / C.S and both reduce)

Question 29

How would a 5% stock dividend declared affect APICK and Retained Earned, when FMV > Par?

Answer 29

The FMV of the dividend (not a split) is capitalized (transferred) from Retained Earnings to Capital Stock and APIC

Therefore, RE decreases and APIC increases

Question 30

Regarding Stock Dividends, what is the difference between Total Capitalization and Relative Capitalization?

Answer 30

Total Capitalization does 2 things:
1) It tells us the $ Value for the # shares in class of stock has (based on Par $)
2) Its used to give us the Relative Cap. %
(# shares / total Cap)
For example:
Preferred C/S has 20 shares of $5 Par 9%
Regular C/S has 100 shares of $2 Par
1) Total Capitalization = 20 x5 + 100 x 2 = $300
2) Relative Cap % = 20/300 and 100/300

Relative Capitalization is the percentage that tells us how much of the leftovers each class of stock gets (# of shares for each class/ total capitalization)

For Example:
Preferred