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FAR > Wiley MCQ - Comprehensive > Flashcards

Wiley MCQ - Comprehensive Flashcards

1
Q

What is the cost-to-cost method calculation for percentage-of-completion construction accounting?

A

Current year’s profit = Costs to date/Total expected cost × Expected profit - Profit recognized in previous periods

Only income recognized in prior periods is used in the calculation - progress billings to date are not.

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2
Q

Which fundamental characteristic of accounting information allows users to generate predictions?

A

Relevance

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3
Q

How are progress billings recorded under completed contract method?

A

Contra asset

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4
Q

How are progress billings recorded under percentage-of-completion method?

A

Contra asset

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5
Q

Are cash dividends paid included in cash flows from operations?

A

No, they are a financing activity

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6
Q

How are marektable securities reported in personal financial statements?

A

Market Value

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7
Q

How are discontinued operations and extraordinary items that occur at midyear initially reported?

A

Included in net income and disclosed in the notes to interim financial statements.

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8
Q

What exchange rate is used when calculating accumulated depreciation on PP&E of a foreign subsidiary?

A

Historical exchange rate, not weighted average

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9
Q

Are temporary differences between tax and book income affecting future periods included in computation of current tax expense for the year?

A

No. Current portion and portion due based on temporary differences must be reported separately.

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10
Q

When a company elects not to bifurcate a hybrid instrument and accounts for the hybrid instrument at fair value, which method(s) of disclosure are permissible?

A

As a separate line item for fair value and non–fair value instruments on the balance sheet.
-OR-
As an aggregate amount of all hybrid instruments with the amount of the hybrid instruments at fair value shown in parentheses on the balance sheet.

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11
Q

The proceeds from a bond issued with detachable stock purchase warrants should be accounted for

A

Partially as stockholders’ equity, and partially as bonds payable.

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12
Q

Which type of entity is required to report on business segments?

A

Publicly traded enterprises.

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13
Q

SFAS 117, Financial Statements of Not-for-Profit Organizations, focuses on

A

Basic information for the organization as a whole.

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14
Q

How is cash paid to suppliers calculated?

A

Cash paid to suppliers = COGS +/- Increase/Decrease in inventory +/- Decrease/Increase in A/P

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15
Q

What must be disclosed for each reportable segment?

A
  1. Revenues from external customers
  2. Intersegment revenues
  3. Interest revenue and expense (reported separately unless majority of segment’s revenues are from interest and management relies primarily on net interest revenue to assess performance)
  4. Depreciation, depletion, and amortization expense
  5. Unusual items, extraordinary items
  6. Equity in the net income of investees accounted for by the equity method
  7. Income tax expense or benefit
  8. Significant noncash item
    Cost of goods sold is not specifically included as a required disclosure.
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16
Q

What is the appropriate basis for valuing fixed assets acquired in a business combination accounted for as a business acquisition carried out by exchanging cash for common stock?

A

Fair value.

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17
Q

Property other than cash which is part of the initial investment in the partnership would be recorded for financial accounting purposes at the:

A

Fair market value at the date of the investment.

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18
Q

Under IFRS, how is the discount rate for pensions determined?

A

Market yield at the end of the reporting period for high-quality corporate bonds having a similar term or maturity.

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19
Q

A capital lease is re-negotiated to terms of an operating lease. How is the change in lease terms treated?

A

As a sales-leaseback.

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20
Q

How is gross margin computed?

A

Sales - COGS (Sales commissions/payroll is not calculated in COGS)

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21
Q

When should a long-lived asset be tested for recoverability?

A

When events or changes in circumstances indicate that its carrying amount may not be recoverable.

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22
Q

An entry to initially record a cash dividend should be made on the date of:

A

Declaration

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23
Q

Is push-down accounting appropriate under GAAP?

A

Yes

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24
Q

Is push-down accounting appropriate under IFRS?

A

No

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25
Q

Deferred income tax expense resulting from temporary differences related to depreciation of plant assets should be presented in a statement of cash flows (using indirect approach for operating activities) as a (n)

A

Addition to net income.

26
Q

When is an asset improvement cost capitalized?

A

When it improves the efficiency of the asset or extends its useful life.

27
Q

How is the life insurance expense for corporations calculated?

A

Premiums paid - increase in cash surrender value for period - dividends received

28
Q

How should prior services costs be treated with regard to a defined benefit plan?

A

Prior service costs should be amortized by assigning an appropriate amount to each future period of service of each employee who is expected to receive benefits under the plan at the date of the amendment. The amortized amount should be included in pension expense during those future service periods.

29
Q

What are the distinguishing characteristics of a derivative instrument?

A
  1. One or more underlyings and one or more notional amounts
  2. No initial net investment or smaller net investment than required for contracts with an expected similar response to market changes, and
  3. Terms that require or permit net settlement, net settlement by means outside the contract, and delivery of an asset that is substantially the same as net settlement.
30
Q

How are hybrid instruments accounted for?

A

At fair value if an election is made not to bifurcate the hybrid instrument.

31
Q

When are contingent gains reported?

A

When recognized - they are not accrued for

32
Q

When are contingent losses reported?

A

Contingent losses are accrued for if probable. They are disclosed if reasonably possible or probable.

33
Q

How is the final cash distribution treated under the installment method of cash distribution for partnerships?

A

The final cash distribution is not based on the profit (loss) ratio.

34
Q

Where are gains/losses reported under the revaluation model?

A

Comprehensive income.

35
Q

Is the stated rate or the yield rate used to calculate bond present values?

A

Yield rate

36
Q

Do financial statements provide information about management performance?

A

No, only enterprise performance.

37
Q

What are the steps in the FASB process to issue new accounting standards update?

A
  1. The FASB identifies a financial reporting issue.
  2. The FASB Chairman adds a project to the technical agenda.
  3. Public meetings are held.
  4. An exposure draft (proposed accounting standards update) is issued.
  5. A public roundtable is held.
  6. The FASB staff collects and analyzes all comments and the FASB redeliberates the proposed standard at public meetings.
  7. The FASB issues an Accounting Standards Update by simple majority vote. It becomes part of the Accounting Standards Codification.
38
Q

Under which act was the SEC created?

A

1934 Securities Exchange Act

39
Q

What are the steps in the SEC rule making process?

A
  1. Concept Release
  2. Rule Proposal
  3. Rule Adoption
40
Q

To determine the accounting treatment for a transaction, a governmental entity must first refer to:

A

The Codification of Governmental Accounting and Financial Reporting Standards.

41
Q

Reporting inventory at the lower of cost or market is a departure from the accounting principle of:

A

Historical cost.

42
Q

What are the primary characteristics of governmental structure?

A

(1) The representative form of government and the separation of powers
(2) The federal system of government and the prevalence of intergovernmental revenues
(3) The relationship of taxpayers to services received

43
Q

What is the main objective of governmental reporting?

A

Accountability.

44
Q

For governmental entities, what does the main objective of Accountability consist of?

A
  1. Interperiod equity: Financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services.
  2. Budgetary and fiscal compliance: Financial reporting should demonstrate whether resources were obtained and used in accordance with the entity’s legally adopted budget; it should also demonstrate compliance with other finance-related legal or contractual requirements.
  3. Service efforts costs and accomplishments: Financial reporting should provide information to assist users in assessing the service efforts, costs, and accomplishments of the governmental entity.
45
Q

What is the current ratio?

A

Current assets/current liabilities

46
Q

What is the quick ratio?

A

Current assets-inventory/current liabilities

47
Q

In applying these criteria, operating segments may be combined in order to meet these criteria if they have the following similar characteristics:

A
  1. Nature of products and services
  2. Nature of the production processes
  3. Type or class of customer
  4. Distribution methods for products or services
  5. Nature of regulatory environment (if appropriate)
48
Q

How is net cash received from bond issuance calculated?

A

Cash from bonds + accrued interest - issuance costs

49
Q

What are the three conditions required to exclude a subsidiary from consolidation?

A

(1) it is wholly or partially owned and its other owners do not object to nonconsolidation
(2) it does not have any debt or equity instruments publicly traded
(3) its parent prepares consolidated financial statements that comply with IFRS.

50
Q

How is reported revenue calculated with percentage-of-completion method?

A

Current costs + Expected costs to complete = Total Costs
Current Costs/Total Costs = % complete
Total expected revenue - Total Costs = Expected profit
Expected profit x % complete = current reported revenue

51
Q

In financial reporting for segments of a business enterprise, when may segment data be aggregated?

A

Before performing the 10% tests if all of the aggregation criteria are met.

52
Q

A derivative financial instrument is described as:

A

A contract that has its settlement value tied to an underlying notional amount.

53
Q

How is cash surrender value of life insurance policy on officer calculated?

A

The portion of the premium not coded to insurance expense is an increase in cash surrender value.

54
Q

What is the purpose of the modified cash basis of accounting?

A

Modified cash basis financial statements are intended to provide more information to users than cash basis statements while continuing to avoid the complexities of GAAP and the modified cash basis does not comply with GAAP unless there are no material differences in this method and GAAP.

55
Q

In financial statements prepared on an income-tax basis, how should the nondeductible portion of expenses, such as meals and entertainment, be reported?

A

Included in the expense category in the determination of income

56
Q

Is accrued interest included as bond payable?

A

No, it is reported as interest payable. Only the discounted/premium bond amount payable is recorded as bonds payable.

57
Q

Private companies may choose to not apply VIE (Variable Interest Entity) accounting if:

A
  1. both the lessee (private company) and lessor are under common control; the lessee (private company) has a lease arrangement with the lessor;
  2. the majority of activities between the lessee and lessor are related to leasing activities; and
  3. guarantees/collateral provided by the lessee for the lessor are less in value than the asset leased by the lessee.
58
Q

What is VIE accounting (Variable Interest Entity)?

A 
DEFINITION OF 'VARIABLE INTEREST ENTITY - VIE'
An entity (investee) in which the investor has obtained less than a majority-owned interest, according to the United States Financial Accounting Standards Board. A variable interest entity (VIE) is subject to consolidation if certain conditions exist.
59
Q

In what section of the statement of cash flows is bond amortization reported?

A

Operating section

60
Q

How is average days in operating cycle calculated?

A

Average days sales in inventories + average days sales in A/R

61
Q

When is present value of an annuity due used?

A

When the first payment is due at the beginning of the first period.

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