Wrong questions Flashcards
Which of the following is the proper treatment of the cost of equipment used in research and development activities that will have alternative future uses?
Capitalized and depreciated over its estimated useful life.
In non-monetary exchanges with cash how is gain recognized?
Gain is recognized as the proportionate percentage of the cash paid. If the cash is 20% of the transaction, 20% of the gain over book value is reported.
A balance arising from the translation or remeasurement of a subsidiary’s foreign currency financial statements is reported in the consolidated income statement when the subsidiary’s functional currency is
The US dollar, not foreign currency.
When the subsidiary’s functional currency is the foreign currency, financial statements will be translated into US dollars and the translation adjustment is reported in other comprehensive income, not on the income statement. When the functional currency is the US dollar, the financial statements are remeasured and the remeasurement adjustment is included in income.
Realization is:
the conversion of an item or service into cash or a claim to cash as would be the case when equipment is sold for a note receivable. Realization occurs at the time that an entity converts goods or services into accounts receivable, and not necessarily when the receivable is collected.
Faithful Representation
Free from error, Neutrality, Completeness
Roger is never on the FENCe
Under IFRS the equity method of accounting is used for both joint operations and joint ventures. Joint ventures involve both shared control and rights to the arrangement’s net assets. Joint operations involve shared control but no rights to the arrangement’s net assets, and are accounted for with an equity method approach known as
The equity method accounting approach used for joint operations under IFRS is known as the proportionate consolidation approach.
Under book value method, for conversion of bonds into stock, which bond value is used to compute APIC?
Carrying value
The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest plus:
the present value of future interest payments, calculated using the market rate of interest
What is the maximum amount of interest that may be capitalized under GAAP.
The maximum amount of interest that may be capitalized under GAAP is based on the weighted average cumulative expenditures for the year.
When USD is functional and reporting currency but not local currency, when preparing statements
Remeasure from local currency to USD.
Appropriate methods for recognizing expenses are:
Cause and effect, such as charging inventory to cost of goods sold
Systematic and rational allocation, such as depreciation of property and equipment
Immediate recognition, such as recognizing salaries expense as it is incurred.
What does comprehensive income include?
Comprehensive income includes all changes to equity other than owner-related items.
Recognition is;
Booking an item in the financial statements.
Recognize when it meets the definition of an element, can be measured in monetary terms, item is relevant and faithfully represented.
Realization is:
Converting non-cash to cash or cash claim
How is inventory valued in IFRS?
Under IFRS, all inventory is valued at the lower of cost or net realizable value.
Accumulated other comprehensive income is reported in which of the following financial statements?
The statement of financial position.
What are the Statements of Financial Accounting Concepts intended to establish?
The objectives and concepts for use in developing standards of financial accounting and reporting.
According to the FASB conceptual framework, comprehensive income includes:
Comprehensive income includes all changes to equity other than owner-related items.
According to the FASB conceptual framework, which of the following is an enhancing quality that relates to both relevance and faithful representation?
The enhancing qualitative characteristics of financial reporting relate to both relevance and faithful representation. They are (Roger is CUT-V – CUT like a V) comparability, understandability, timeliness, and verifiability.
How is fair value determined when there is no principle market?
When there is no principle market, the value is determined using observable market data from the most advantageous market, which is the market in which the entity’s proceeds, net of transaction and transportation costs, is the greatest.
What are the objectives of financial reporting?
The objectives of financial reporting include providing information that is useful to investors and creditors, providing information about an entity’s resources and claims against them, reporting changes in the entity’s economic resources and claims, reporting performance measured using accrual accounting, measuring financial performance in terms of cash flows, and reporting changes in economic resources and claims from sources other than the entity’s financial performance. Indirectly providing information about management’s performance regarding its stewardship responsibility is an additional objective.
What are the 3 basic elements of financial reporting?
assets, liabilities, and equity or net assets. Revenues, expenses, gains, and losses are elements of comprehensive income, which is a component of equity
What are appropriate methods for recognizing expenses?
cause and effect, such as charging inventory to cost of goods sold; systematic and rational allocation, such as depreciation of property and equipment; and immediate recognition, such as recognizing salaries expense as it is incurred.
In order for an item to qualify for recognition on the financial statements, it should:
meet the definition of an element of financial statements; be measurable with reasonable reliability; be relevant to users; and is based on information that is representationally faithful, verifiable, and neutral.
asset valuation accounts are
Neither assets nor liabilities
Consistency and feedback relate most closely to which two of the following accounting concepts, respectively?
Predictive value and confirmatory value
What are the 4 types of pronouncements at the highest level of authority, in order of authority?
FASB Statements of Financial Accounting Standards, FASB Interpretations, AICPA Accounting Principles Board Opinions, and AICPA Accounting Research Bulletins.
Under IFRS, when may financial liabilities be measured at fair value?
Under IFRS, financial liabilities are generally measured at amortized cost. They may be measured at fair value, however, when it will result in more relevant information. IFRS does not provide for the election of a fair value option.
Speculation Derivatives
Non-hedge. Income Statement in Continuing Operations
Fair Value Hedges
For something already owned or a firm purchase commitment. loss or gain in Income Statement in Continuing Operations. Corresponding loss or gain for hedged item.
Cash Flow Hedges
For forecasted future transactions. Balance Sheet in OCI
USE SPOT RATE to compute
reported at its fair value on the balance sheet and any increases or decreases are recognized as unrealized gains or losses in other comprehensive income. The hedged item is accounted for in the same manner as if it were not being hedged. When changes in the hedged item are reported in income, under its normal accounting procedures, the corresponding amounts will be reclassified from other comprehensive income and recognized in income.
Foreign Currency Hedges
For when functional currency is not USD. Balance Sheet in OCI.
Held to maturity
Carried at cost. Discount or premium amortized using effective interest method.
Trading Securities
Reported at FMV at statement date. Gains or Losses reported in net income (from continuing operations) on the income statement.
Available for Sale
Reported at FMV on statement date. Cumulative amount of unrealized gain or loss reported as part of Stockholder’s Equity, Accumulated OCI. and also as a valuation allowance reducing the investment account
Forward Exchange Contract
A derivative, reported at fair value on every balance sheet date and unrealized gains and losses are recognized in the period of the change in the exchange rate.
IFRS Inventory Valuation
Lower of Cost or Net Realizable Value
LIFO Valuation
Lower of Cost or Market, but must calculate replacement cost, ceiling (NRV) and floor (NRV - normal profit margin) and pick the number in the middle as market.
To calculate impairment loss
Comparing the sum of the undiscounted future cash flows over the remaining life of the asset to its carrying value reveals that an impairment loss has occurred. The amount of loss is determined by comparing the asset’s book value to its fair value.
Which inventory costing method would a company that wishes to minimize net income in a period of rising prices use?
LIFO will end up with the lowest ending inventory and highest cost of sale
When an asset is exchanged for another asset in a nonmonetary transaction that lacks commercial substance, how do we handle gain and the amount recorded for the new asset if no cash exchanged?
Gain is only recognized if there is boot and only a proportionate share as compared to the total gain on fair values. With no recognized gain, the amount recorded for the new asset is the carrying value of the old asset
Which inventory costing method would a company that wishes to maximize profits in a period of rising prices use?
FIFO
Foreign Currency Transactions are recognized
At the spot rate on the date of transaction.
Functional currency is:
The currency that has the greatest influence on the transactions of the company.
Financial instruments in a foreign currency are:
Remeasured at the spot rate on the balance sheet date. Increase or decrease is recognized as income or loss.
If not hedged, then forward exchange contract is
Reported at Fair Value and gains and losses reported on income statement. Based on the forward rate at date of contract. Adjusted for financial statements using appropriate forward rate.
How are component units presented in a city’s combined financial statements?
Discrete presentation. Separately elected officials, and not primary to the government itself.
Permanent funds account for an: report resources that are:
Restricted such that only earnings, not principal, may be expended for the support of government programs for the benefit of a government or its citizens. The principal must be invested in perpetuity.
Governmental Funds. (focus, emphasis, funding, reporting method and list of funds)
Budgetary focus
Current financial resources
Funded by taxation and mandatory payments
Modified Accrual
5 funds, General, Special Revenue, Capital Projects, Debt Service, and Permanent.
Proprietary Funds. (focus, emphasis, funding, reporting method and list of funds)
Operations focus Economic Resource approach Funded by voluntary payments Accrual Resemble businesses 2 funds, Internal Service and Enterprise Funds
Fiduciary Funds. (focus, emphasis, funding, reporting method, and list of funds)
Accounting for assets economic Resource approach Funded by voluntary payments Accrual Resemble non-profits 4 funds, Pension Trust, Investment Trust, Private Purpose Trust, Agency fund.
List the modified accrual funds:
PD Consents to Smoking Grass Permanent Debt Service Capital Projects Special Revenue General
List the accrual funds:
I PIPE Alot - Accrual Funds record depreciation Internal Service Pension Trust Investment Trust Private Purpose Trust Enterprise Fund Agency Fund
Describe the General Fund.
Governmental Fund Modified Accrual Ordinary operations of Government Funded by property taxes Unassigned Fund Balance
Describe the Special Revenue Fund.
Governmental Fund Modified Accrual Earmarked things Funded by fees and grants Restricted or Committed fund balance
Describe the Capital Projects Funds
Governmental Fund
Modified Accrual
Major capital acquisitions or construction
Funded by special tax revenues or bonds
Restricted or Committed or Assigned fund balance
Describe the Debt Service Fund
Governmental Fund
Modified Accrual
Interest and principal payments on government debt
Funded by property taxes and transfers
Restricted, Committed or Assigned fund balance
Describe the Permanent Fund
Governmental Fund Modified Accrual Invested on a permanent basis, reported at Fair Value Funded by investment earnings Restricted.
Describe the Internal Service Fund
Proprietary Fund
Accrual
Provide goods and services to other funds
Funded by billings for services
Describe the Enterprise Fund
Propietary Fund
Accrual
Most like a business, like a water utility
Funded by charging for services, voluntary payments
Describe the Pension Trust Fund
Fiduciary Fund
Accrual
Post-retirement employee benefits
RSI - funding progress and employer contributions
Describe the Investment Trust Fund
Fiduciary Fund
Accrual
Invests pooled resources
Describe the Private Purpose Trust Fund
Fiduciary Fund
Accrual
