Week 1

Question 1

Regarding proposed accounting standards, what does the term ‘negative economic consequences’ mean?

Answer 1

A firm’s reduced ability to raise capital or higher costs of capital associated with maintaining the new standard.

Question 2

When a firm changes from cash basis to accrual basis and cannot determine BB Supplies Inventory, what is the effect on Net Income and OE in that first year of the change?

Answer 2

Supplies Expense will be understated, causing net income to be overstated. However, OE is unaffected because the ending inventory is determinable.

Question 3

What is encompassed by ‘relevance’ when referring to accounting information?

Answer 3

Relevant information is predictive and confirmatory

Faithful information is complete, neutral, and free from error

Comparability pertains to each of the above characteristics

Question 4

What is the objective of interim reporting?

Answer 4

To present reasonable information in a timely fashion, vs. exact information.

Question 5

What is the difference between deferral and accrual adjustments?

Answer 5

Deferral adjustments (depreciation, deferred revenue, and even adjustments from PPD Rent) occur after payment or receipt.
Accrual adjustments accrue for items that are yet to be paid.

Question 6

What are some examples of items recorded at net realizable value or settlement rate?

Answer 6

Warranty obligations, AR; used for inventory when applying LCM

Question 7

Define realization.

Answer 7

The process of converting noncash resources and rights into cash or claims to cash.

Question 8

What is the common essential quality that all assets share, per SFAC 6 (Elements of Financial Statements)?

Answer 8

Service potential or future economic benefit - an asset must provide a future benefit in order to be recorded as such.

Question 9

Define revenue per SFAC 6 (Elements of Financial Statements).

Answer 9

Inflows of assets or settlements of liabilities as a result of primary operations.

Question 10

According to SFAC 7 (Using Cash Flow Information & PV in Accounting Measurements), what is the objective of using PV in an accounting measurement?

Answer 10

To capture the economic difference between sets of future cash flows. When used at initial measurement, the objective is to estimate fair value. Entity specific measurements (Value in Use) attempt to capture value in the context of the entity.

Question 11

What is one of the main exclusions for use of ASC 820 (Fair Value Measurement)?

Answer 11

Inventory is one of the main items excluded from the application of ASC 820

Question 12

What is the determination of FV based upon?

Answer 12

A hypothetical transaction, an exit price, and the highest and best use of an asset by market participants.

Question 13

Is a change in valuation approach to determine fair value considered a change in estimate or a change in principle?

Answer 13

Change in estimate; but the disclosures for change in estimate are not required in this instance.

Question 14

What is the appropriate basis for determining fair value for an asset or liability?

Answer 14

Exit Price: The price that would be received to sell the asset under current market conditions, or paid to be rid of the liability.

Question 15

When an entity uses fair value measurement, what type of disclosure is encouraged but not required?

Answer 15

Combined disclosures about fair value measurements required by all pronouncements.

Question 16

The majority of FV measurement disclosures must be made in both interim and annual reports. True or False?

Answer 16

False.

Methods and significant assumptions are only required to be included in annual reports.

Question 17

Are FV disclosures required intended to replace the kind and amount of information that would have been provided if the FV option was not being used?

Answer 17

No. FV disclosures should provide the same kind and amount of information that would have otherwise been provided.

Question 18

What is the purpose of the SEC’s enforcement of the corporate registration requirements of the ‘33 Act?

Answer 18

The enforcement is intended to provide information allowing SEC to ensure that investors are provided adequate information to base their decisions upon.

Question 19

When a company is required to report FS’ on Form 10-Q, in addition to the current Quarter-End, the entity must report a Balance Sheet(s) for what period(s)?

Answer 19

The last audited Balance Sheet (the preceding fiscal year-end) is required to be presented with the current quarter.

Question 20

What is the max time allotted for accelerated and large accelerated filers to file the required 10-K Forms?

Answer 20

Accelerated Filers - aggregate WW market value of $75M-700M and has 75 days to file 10-K
LARGE AF’s - aggregate value >$700M and have 60 days to file.

Question 21

What is the max time allotted for accelerated and large accelerated filers to file the required 10-Q Forms?

Answer 21

Accelerated Filers - aggregate WW market value of $75M-700M and has 45 days to file 10-Q
LARGE AF’s - aggregate value >$700M and have 40 days to file.

Question 22

What is the prime objective of the IFRS Foundation?

Answer 22

To take account, as appropriate, of the needs different sizes and types of entities in diverse economic settings.

Question 23

As defined by IFRS, what is an SME (small-medium sized entity)?

Answer 23

The entity doesn’t have public accountability and publishes general purpose financial statements for external users.

Question 24

How does the CIP account function for Percentage of Completion and Completed Contract methods of revenue recognition?

Answer 24

Current asset/inventory account that is debited only when costs are incurred (pg 411 in bookshelf)

Question 25

Which item on the IS is not subject to intraperiod tax allocation?

Answer 25

Operating income is a subtotal above income from continuing operations, and only the items below this point are subject to income tax.

Question 26

How is Cost of Goods Manufactured Calculated, given COGS and Inventory data?

Answer 26

COGS - Change in Inventory during the year = COGM

OR COGM + Change in Inventory = COGS

Question 27

What is the measure of Comprehensive Income for a period?

Answer 27

It is the sum of net income and OCI for the period.

Question 28

What is included in the Statement of Changes in (Owner’s) Equity?

Answer 28

This statement reconciles all beginning and ending balances.

Question 29

What is the formula to determine average collection period in AR?

Answer 29

365/AR Turnover

*AR TO: Net Credit Sales/Avg. Net AR

Question 30

What is the times interest earned ratio?

Answer 30

Operating Income/Interest Expense

Operating income is income before interest/tax expense.

Question 31

How are assets reported in personal financial statements, particularly life insurance?

Answer 31

Assets are reported at estimated current market value, and life insurance is reported at cash value, less any applicable loans against the policy.

Question 32

The Private Company Council (PCC) has issued modified accounting for what aspect of Goodwill?

Answer 32

PCC allows private companies to amortize GW for a period not to exceed 10 years.

Question 33

Under IFRS for SME’s, what method can be used to account for an investment in another entity over which the investor has significant influence?

Answer 33

Either the cost or equity method may be used under IFRS for SME’s, where GAAP only allows the equity method.

Question 34

Is IFRS for SME’s considered to be an OCBOA?

Answer 34

No. But IFRS for SMEs is considered to be an acceptable alternative to OCBOA.

Question 35

According to the IASB Framework, what are the essential characteristics of an asset?

Answer 35

An asset must be controlled by the entity and be expected to generate future economic benefits.

Question 36

Does the IASB have any enforcement authority?

Answer 36

No.

Question 37

Does the Statement of Cash Flows include information about conversions from debt to equity?

Answer 37

Yes; this is an example of an item required to be listed in the supplemental disclosure schedule.

Question 38

In the Statement of Cash Flows, are transfers within the same category (IE, cash for cash equivalents) disclosed?

Answer 38

No; this kind of transaction would not be reported because there is no effect on the relevant category.

Question 39

What is included in Income Tax Payable amounts of Personal Financial Statements?

Answer 39

Any income taxes owed for completed tax years, the completed portion of the year, as well as estimated tax on the difference between estimated current values and tax bases of assets/liabilities (this diff reported as separate line b/t liabilities and net worth).

Question 40

How is ‘land held for resale’ classified in the Balance Sheet?

Answer 40

Land held for resale is considered to be a current asset because it is expected to be sold w/in the year.