F7 Stockholder's Equity, EPS, Statement of Cashflows Becker 2016

On March 1, year 1, Agront Corporation issued 10,000 shares of its $1 par value common stock for all of the outstanding stock of Barcelo Corporation, when the fair market value of Agront's stock was $50 per share. In addition, Agront made the following payments in connection with this business combination: Finder's and consultant's fees $20,000 SEC registration costs 7,000 Agront's acquisition cost would be capitalized at

$500,000 This answer is correct. Per ASC Topic 805 the finder's and consultant's fees should be expensed. The SEC registration costs should be netted against the additional paid-in capital account.

The following data relates to Nola Co.'s defined benefit pension plan as of December 31, year 3: Unfunded accumulated benefit obligation $140,000 Unrecognized prior service cost 45,000 Pension asset (liability) (80,000) What amount should Nola report as excess of additional pension liability over unrecognized prior service cost in its statement of stockholders' equity?

0 This answer is correct. ASC Topic 715 outlines the reporting requirements for pension liabilities, and a pension liability is recognized on the balance sheet when the projected benefit obligation exceeds the fair value of plan assets. There is no longer an additional pension liability reported as part of stockholders' equity.

Treasury Stock

A corporation buys back its own stock

Retirement of Options J/E

C/S APIC R/E T/S C/S T/S

Compensation Expense

Calculated on Grant Date Allocated throughout service period IN accordance with matching principle

Five Components of Stockholder's Equity

Capital Stock Additional Paid in Capital Retained Earnings Accumulated OCI Treasury Stock

Cost Method J/E

Cash C/S APIC

Book Value per common share formula

Common Shareholder's Equity/Common Shares Outstanding

According to the FASB conceptual framework, which of the following does not relate to both relevance and faithful representation? A. Comparability B. Confirmatory value Incorrect C. Verifiability D. Timeliness

Comparability, verifiability, timeliness, and understandability are qualitative characteristics that enhance the usefulness of information that is relevant and faithfully represented.

According to the FASB conceptual framework, which of the following does not relate to both relevance and faithful representation? A. Comparability B. Confirmatory value Incorrect C. Verifiability D. Timeliness

Comparability, verifiability, timeliness, and understandability are qualitative characteristics that enhance the usefulness of information that is relevant and faithfully represented. Thus, comparability, verifiability and timeliness all relate to both relevance and faithful representation. Confirmatory value is a component of relevance.

Compensation Expense J/E

Compensation Expense Additional Paid in Capital

Sun Co. is a wholly owned subsidiary of Star Co. Both companies have separate general ledgers and prepare separate financial statements. Sun requires stand-alone financial statements. Which of the following statements is correct?

Consolidated financial statements (including the financial information of both corporations) should only be prepared by Star and not by Sun. A company that controls another company must prepare consolidated financial statements. Star owns 100% of Sun and must consolidate the financial statements of the two companies.

Dilutive Securities

Convertible Securities Warrants and other items Contracts

Which of the following qualifies as an operating segment?

Corporate headquarters, which oversees $1 billion in sales for the entire company. North American segment, whose assets are 12% of the company's assets of all segments, and management reports to the chief operating officer. South American segment, whose results of operations are reported directly to the chief operating officer, and has 5% of the company's assets, 9% of revenues, and 8% of the profits. Eastern Europe segment, which reports its results directly to the manager of the European division, and has 20% of the company's assets, 12% of revenues, and 11% of profits.

Yellow Co. spent $12,000,000 during the current year developing its new software package. Of this amount, $4,000,000 was spent before it was at the application development stage and the package was only to be used internally. The package was completed during the year and is expected to have a 4-year useful life. Yellow has a policy of taking a full-year's amortization in the first year. After the development stage, $50,000 was spent on training employees to use the program. What amount should Yellow report as an expense for the current year? A. $1,600,000 B. $2,000,000 Incorrect C. $6,012,500 D. $6,050,000

Costs incurred to develop software for internal use are capitalized after the application development stage is reached (in accordance with FASB ASC 350-40-35-4). The costs are amortized over the benefited period—four years in this case. Costs incurred prior to the application development stage are expensed, as are training costs incurred after the development stage. Therefore, the amount expensed is: Pre-development stage costs $4,000,000 Amortization of capitalized costs: $8,000,000 / 4 years 2,000,000 Training costs 50,000 ---------- Total expenses $6,050,000

A company used the percentage-of-completion method to account for a 4-year construction contract. Which of the following would be used in the calculation of the income recognized in the second year? Income previously recognized OR Progress billings to date

Current year's profit = Costs to date Total expected cost × Expected profit − Profit recognized in previous periods Based on this formula, only income previously recognized is required in the calculation. Progress billings to date is an accumulation of amounts billed, and the balance in the account does not normally coincide with the costs incurred to date.

On December 30, Devlin Co. sold goods to Jensen Co. for $10,000, under an arrangement in which (1) Jensen has an unlimited right of return and (2) Jensen's obligation to pay Devlin is contingent upon Jensen's reselling the goods. Past experience has shown that Jensen ordinarily resells 60% of goods and returns the other 40%. What amount should Devlin include in sales revenue for this transaction on its December 31 income statement? A. $10,000 Incorrect B. $6,000 C. $4,000 D. $0

D This arrangement is not substantially different from a consignment. Devlin does not meet the requirements for a sale until Jensen has sold the goods.

Grant Date

Date the option is issued

Non-Cumulative Preferred Stock

Dividends not paid in any year do not accumulate

Retained Earnings

Does not include treasury stock or AOCI

On December 31, 20X1, Date Co. awaits judgment on a lawsuit for a competitor's infringement of Date's patent. Legal counsel believes it is probable that Date will win the suit and indicated the most likely award together with a range of possible awards. How should the lawsuit be reported in Date's 20X1 financial statements?

If Date Co. wins the lawsuit, the award paid to Date will be a gain. FASB ASC 450-30-50-1 provides that gain contingencies should not be reflected in the accounts (i.e., accrued) but that adequate disclosure should be made in notes to the financial statements. A loss contingency would be reported by accrual for the most likely award or for the lowest amount of the range of possible awards if no amount can be considered most likely. (FASB ASC 450-20-25-4)

In Baer Food Co.'s 20X2 single-step income statement (statement of profit or loss), the section titled "Revenues" consisted of the following: Net sales revenue $187,000 Results from discontinued operations: Loss from operations of component (net of $1,200 tax effect) $(2,400) Gain on disposal of component (net of $7,200 tax effect) 14,400 12,000 Interest revenue -------- 10,200 Gain on sale of equipment 4,700 Cumulative change in 20X0 and 20X1 income due to change in inventory method (net of $750 tax effect) 1,500 ------- Total Revenues $215,400 ======== In the revenues section of the 20X2 income statement, Baer Food should have reported total revenues of:

Items to be included in the revenue section of the 20X2 income statement: Net sales revenue $187,000 Interest revenue 10,200 Gain on sale of equipment 4,700 -------- Total revenues $201,900 =======

Convertible Preferred Stock

May be exchanged for common stock at a specified date

Income Available to Common Shareholders

Net Income -Dividends Declared on non-cumulative preferred stock - Dividends accumulated on cumulative preferred stock

Retained Earnings Formula

Net Income -Dividends(Cash, property, stock dividends) +/- Prior Period Adjustments +/- Accounting Changes reported retrospectively +/- Adjustment from Quasi Reorganizations

Where does AOCI go on the balance sheet and how is it presented?

AOCI goes on the shareholder's equity section of the balance sheet and it must be presented seperately

During Year 2, a former employee of Dane Co. began a suit against Dane for wrongful termination in November of Year 1. After considering all of the facts, Dane's legal counsel believes that the former employee will prevail and will probably receive damages of between $1,000,000 and $1,500,000, with $1,300,000 being the most likely amount. Dane's financial statements for the year ended December 31, Year 2, will not be issued until February of Year 3. In its December 31, Year 2, balance sheet, what amount should Dane report as a liability with respect to the suit? A. $0 Incorrect B. $1,000,000 C. $1,300,000 D. $1,500,000

A loss contingency must be accrued if it is probable that the loss will occur and the amount can be reasonably estimated. If a range of loss can be estimated, the best estimate within the range is accrued. Since legal counsel believes that $1,300,000 is the most likely amount to be collected, Dane should report this amount as a liability.

On January 2, 20X1, Pare Co. purchased 75% of Kidd Co.'s outstanding common stock. Selected balance sheet data on December 31, 20X1, is as follows: PARE KIDD Total assets $420,000 $180,000 ======== ======== Liabilities $120,000 $ 60,000 Common stock 100,000 50,000 Retained earnings 200,000 70,000 -------- -------- $420,000 $180,000 ======== ======== During 20X1, Pare and Kidd paid cash dividends of $25,000 and $5,000, respectively, to their shareholders. There were no other intercompany transactions. The combination is accounted for as an acquisition (initiated in a fiscal year beginning after December 15, 2008). In Pare's December 31, 20X1, consolidated balance sheet, what amount should be reported as noncontrolling (minority) interest in net assets? A. $0 B. $30,000 C. $45,000 Incorrect D. $105,000

According to FASB ASC 810-10-20, a noncontrolling interest is: Quote The portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. A noncontrolling interest is sometimes called a minority interest. The ownership interests in the subsidiary that are held by owners other than the parent is a noncontrolling interest. The noncontrolling interest in a subsidiary is part of the equity of the consolidated group. The noncontrolling (minority) interest is the interest of third parties in the acquired company (Kidd). Noncontrolling interest = Noncontrolling holding x Net assets of Kidd = (1.00 - 0.75) x ($50,000 + $70,000) = 0.25 x $120,000 = $30,000 Net assets can be computed in either of two ways: (1) book values of stockholders' equity or (2) book value of assets less book value of liabilities. Here, the book values of stockholders' equity are $50,000 for common stock and $70,000 for retained earnings.

A company has the following accrual-basis balances at the end of its first year of operation: Unearned consulting fees $ 2,000 Consulting fees receivable 3,500 Consulting fee revenue 25,000 The company's cash-basis consulting revenue is what amount?

Accrual basis consulting fee revenue $25,000 Unearned consulting fee-- cash received with no revenue 2,000 Consulting fees receivable-- revenue with no cash received (3,500) -------- Cash basis revenue $23,500

Pare, Inc., purchased 10% of Tot Co.'s 100,000 outstanding shares of common stock on January 2, 20X1, for $50,000. On December 31, 20X1, Pare purchased an additional 20,000 shares of Tot for $150,000. There was no goodwill as a result of either acquisition, and Tot had not issued any additional stock during 20X1. Tot reported earnings of $300,000 for 20X1. What amount should Pare report in its December 31, 20X1, balance sheet as investment in Tot?

Acquisition cost of first 10,000 shares $ 50,000 Acquisition cost of additional 20,000 shares 150,000 Pare's share of Tot Co.'s 20X1 earnings under equity method (10% x $300,000) 30,000 ------- Total $230,000

Cumulative Preferred Stock

All or part of preferred dividend not paid in any year accumulates and must be paid for in the future before dividends are paid

Quasi-Reorganization

An accounting adjustment that revises the capital structure of a corporation as its been legally reorganized.

A subsidiary, acquired for cash in a business combination, owned equipment with a market value in excess of book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would treat this excess as

Any amount paid in excess of BV to the extent of FV will be treated as a revaluation of the equipment.

Posy Corp. acquired treasury shares at an amount greater than their par value, but less than their original issue price. Compared to the cost method of accounting for treasury stock, the par value method reports a greater amount for: Incorrect A. additional paid-in capital. B. retained earnings. C. both additional paid-in capital and retained earnings. D. neither additional paid-in capital nor retained earnings.

Assume: Par value of shares = $1,000 Original issue price = $1,200 ($1,000 par, $200 additional paid-in capital) Reacquisition price = $1,100 (1) Reacquisition using cost method: Dr. Cr. Treasury shares $1,100 Cash $1,100 (2) Reacquisition using par value method: Dr. Cr. Treasury shares $1,000 Additional paid-in capital 100 Cash $1,100 The entry under the par value method reduces additional paid-in capital (i.e., the amount is not "greater"), while retained earnings are not affected. Note The question asks if the amount is "greater," not just if the account is affected.

The Private Company Decision-Making Framework has been developed by the: Incorrect A. AICPA. B. FASB. C. IASB. D. None of the answer choices are correct.

B FASB

Stock Dividends and Stock Splits

Both must be treated as if they occured at the beginning of the year

On December 31, 20X1, Date Co. awaits judgment on a lawsuit for a competitor's infringement of Date's patent. Legal counsel believes it is probable that Date will win the suit and indicated the most likely award together with a range of possible awards. How should the lawsuit be reported in Date's 20X1 financial statements? A. In note disclosure only Incorrect B. By accrual for the most likely award C. By accrual for the lowest amount of the range of possible awards D. Neither in note disclosure nor by accrual

If Date Co. wins the lawsuit, the award paid to Date will be a gain. FASB ASC 450-30-50-1 provides that gain contingencies should not be reflected in the accounts (i.e., accrued) but that adequate disclosure should be made in notes to the financial statements. A loss contingency would be reported by accrual for the most likely award or for the lowest amount of the range of possible awards if no amount can be considered most likely. (FASB ASC 450-20-25-4)

Which of the following is not an IFRS requirement regarding foreign currency translation?

If the functional currency is not the same as the presentation currency, gains or losses are deferred to future periods. This answer is correct because under IFRS reporting, if the functional currency is not the same as the presentation currency, gains or losses are charged to other comprehensive income, not deferred to future periods.

Blythe Corp. is a defendant in a lawsuit. Blythe's attorneys believe it is reasonably possible that the suit will require Blythe to pay a substantial amount. What is the proper financial statement treatment for this contingency? Incorrect A. Accrued and disclosed B. Accrued but not disclosed C. Disclosed but not accrued D. No disclosure or accrual

If the possibility that a company will be required to pay a contingent liability is reasonably possible, the liability is not required to accrue the liability. However, the nature of the liability and an estimate of the loss (or range of loss) must be disclosed.

On January 1, year 2, Ott Company sold goods to Fox Company. Fox signed a noninterest bearing note requiring payment of $60,000 annually for seven years. The first payment was made on January 1, year 2. The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present value factors is as follows: Periods Present value of 1 at 10% Present value of ordinary annuity of 1 at 10% 6 .56 4.36 7 .51 4.87 Ott should record sales revenues in January year 2 of

In a PV computation, one must look at the first rent to see if it is an ordinary annuity or an annuity in advance. The first rent falls on the same day as the PV computation, so these are beginning-of-year payments. However, annuity in advance factors are not given. If the first rent is ignored, the series of the remaining six payments is an ordinary annuity. The PV of the note is equal to the first payment ($60,000) plus the PV of the remaining six payments (60,000 × 4.36 = $261,600). Thus, sales revenue of $321,600 is recorded ($60,000 + $261,600 = $321,600). Alternatively, the "6" period PV of ordinary annuity factor could be converted to an annuity in advance by adding 1.00 to obtain 5.36 which is then multiplied by $60,000 to obtain $321,600.

Jensen performed legal services to assist Balm Co. in accomplishing its initial organization. Jensen accepted 1,000 shares of $5 par common stock in Balm as payment for his services. The Balm shares were not yet publicly traded, but they had a book value of $4 per share. Jensen provided 48 hours of service, which is normally billed at $125 per hour. By what amount should the common stock account increase? A. $1,000 B. $4,000 C. $5,000 Incorrect D. $6,000

In general, accounting for nonmonetary exchanges is based on fair value. The asset received should be recorded at the fair value of the asset surrendered OR the fair value of the asset received, whichever is more clearly evident. Since Balm's stock is not yet trading, the fair value of the services provided (48 hours × $125/hour = $6,000) is more readily determinable. The common stock account will increase by its par value of $5,000; the remaining $1,000 will be an increase to Additional Paid-in Capital.

On September 1, 20X1, Canary Co. sold used equipment for a cash amount equaling its carrying amount for both book and tax purposes. On September 15, 20X1, Canary replaced the equipment by paying cash and signing a note payable for new equipment. The cash paid for the new equipment exceeded the cash received for the old equipment. How should these equipment transactions be reported in Canary's 20X1 statement of cash flows?

Included in cash inflows from investing activities per FASB ASC 230-10-45-12 are "receipts from sales of property, plant, and equipment and other productive assets." This pronouncement also includes, under the category of cash outflows from investing activities, "payments at the time of purchase or soon before or after purchase to acquire property, plant, and equipment and other productive assets." (FASB ASC 230-10-45-13) Canary Co. should treat the cash payments related to the equipment separately as both a cash inflow and cash outflow in the statement of cash flows.

Basic EPS

Income Available to Common Shareholders/Weighted Average Number of Common Shares Outstanding

The following information pertains to Smith's personal assets and liabilities on December 31, 20X1: Historical Estimated Current Estimated Current Cost Value Amounts ---------- ----------------- ----------------- Assets $500,000 $900,000 Liabilities 100,000 $80,000 Smith's 20X1 income tax rate was 30%. In Smith's personal statement of financial condition on December 31, 20X1, what amount should be reported as Smith's net worth?

Net worth is the excess of the estimated value of assets over the estimated amounts of liabilities, reduced by the tax associated with the difference between the estimated values and the tax basis of assets and liabilities. Smith's net worth is computed as follows: Estimated value of assets $900,000 Estimated amount of liabilities (80,000) Tax on difference between estimated values and tax basis: Assets ($900,000 - $500,000) $400,000 Liabilities ($100,000 - $80,000) 20,000 -------- $420,000 Tax rate 30% -------- Tax (126,000) --------- Net worth $694,000 =========

Where is EPS shown

On the face of the income statement

The Town of Starbuck's general fund received a notice of a federal grant award for an expenditure-driven (reimbursement) grant in the amount of $2,000,000. Included with the notice was an advance of $1,000,000. During the year, the Town incurred $1,400,000 of program expenditures of which $800,000 were considered eligible qualifying expenditures. No additional money had been received from the grantor during the year. What amount of grant revenues would be reported for the year by the general fund? A. $800,000 B. $1,000,000 Incorrect C. $1,400,000 D. $2,000,000

On the modified accrual basis, revenues should be recognized when all applicable eligibility requirements are met and the resources are available. The $800,000 considered to be eligible qualifying expenditures would be recognized as grant revenues for the year. The resources received in excess of qualifying expenditures would be considered deferred revenues.

Vesting Date

Period in which an employee has to perform services in order to earn the right to exercise the options

Preferred Stock

Preference relating to either dividends or liquidation

Option Price

Price at which underlying stock can be purchased

Declaration Date of Dividends J/E

R/E Dividends Payable

Appropriated Retained Earnings J/E

R/E- Unappropriated R/E- Appropriated

Which of the following is used to account for probable uncollectible accounts?

Recourse Liability

Which SEC document provides instructions for filing the nonfinancial statement forms required under the Securities Act of 1933?

Regulation S-K contains the instructions for filing the nonfinancial statement forms required by the SEC. Regulation S-X contains information regarding the financial statements that must be submitted to the SEC. There are no such documents as the "SEC Form Guide" or "Regulation 10-K-I (Instructions)."

What to do if prior periods are presented

Retroactively adjust for time periods

Quasi Reorganization Procedures

Revalue Assets to their lower fair value and liabilities to their present value Bring Retained Earnings to 0 R/E must be dated on the balance sheet

WACSO Formula

Shares Outstanding at the beginning of the period + Shares sold during the period(time-weighted basis) - Shares reacquired during the period(time-weighted basis) + Stock Dividend and Stock split( Retroactively) - Reverse Stock Split( Retrocactively)

GASB 1600.103 requires governmental entities to issue which two sets of financial statements?

Since budgetary compliance requires governmental entities to prepare cash-basis budgets, GASB 1600.103 requires the issuance of two financial statements: The balance sheet or statement of net position The statement of revenue and expenses or statement of activities

How would the proceeds received from the advance sale of nonrefundable tickets for a theatrical performance be reported in the seller's financial statements before the performance? Incorrect A. Revenue for the entire proceeds B. Revenue to the extent of related costs expended C. Unearned revenue to the extent of related costs expended D. Unearned revenue for the entire proceeds

Revenue is normally considered to be earned and recognizable when an exchange occurs. In this case, the exchange will occur when the performance is presented. Until that occurs, the entire proceeds from advance ticket sales should be treated as unearned revenue because before the performance the theatrical group has not earned the revenue. The nonrefundability of the tickets reflects the fact that no right of return exists for the buyer (i.e., the buyer cannot return the tickets). The nonrefundability in no way relieves the theatrical group of its obligation to earn the revenue by presenting the performance. (If the performance were canceled, the theatrical group would not earn the revenue and would be obligated to refund the proceeds from the advance ticket sales.)

SFAC 4 suggests what performance indicators for nonbusiness organizations? Incorrect A. Net income B. Information about the nature and relationship between inflows and outflows of resources C. Information about service efforts and accomplishments D. Information about both the nature and relationship between inflows and outflows and service efforts and accomplishments

SFAC 4, Objectives of Financial Reporting by Nonbusiness Organizations, notes that the performance of nonbusiness organizations is usually not subject to direct competition in markets as is that of business enterprises. Thus, other controls have been introduced to ensure efficient and effective operation (i.e., funds, budgets, donor restrictions). SFAC 4 observes that nonbusiness organizations generally have no single indicator of performance such as profit or net income, and suggests two performance indicators for nonbusiness organizations: Information about the nature and relationship between inflows and outflows of resources Information about service efforts and accomplishments

SFAC 4 suggests what performance indicators for nonbusiness organizations? Net income B. Information about the nature and relationship between inflows and outflows of resources C. Information about service efforts and accomplishments D. Information about both the nature and relationship between inflows and outflows and service efforts and accomplishments

SFAC 4, Objectives of Financial Reporting by Nonbusiness Organizations, notes that the performance of nonbusiness organizations is usually not subject to direct competition in markets as is that of business enterprises. Thus, other controls have been introduced to ensure efficient and effective operation (i.e., funds, budgets, donor restrictions). SFAC 4 observes that nonbusiness organizations generally have no single indicator of performance such as profit or net income, and suggests two performance indicators for nonbusiness organizations: Information about the nature and relationship between inflows and outflows of resources Information about service efforts and accomplishments

Additional Paid in Capital Components

Sale of treasury stock at gain Quasi-Reorganization The issuance of liquidating dividends Conversion of bonds Declaration of small stock dividends

Both Curry City and the State have a general sales tax on all merchandise. Curry City's tax rate is 2% and the State's rate is 4%. Merchants are required by law to remit all sales tax collected each month to the State by the 15th of the following month. By law, the State has 45 days to process the collections and to make disbursements to the various jurisdictions for which it acts as an agent. Sales tax collected by merchants in Curry total $450,000 in May and $600,000 in June. Both merchants and the State make remittances in accordance with statutes. What amount of sales tax revenue for May and June is included in the June 30 year-end financial statements of the State and Curry? Incorrect A. State: $1,050,000; Curry: $0 B. State: $1,050,000; Curry: $350,000 C. State: $700,000; Curry: $350,000 D. State: $300,000; Curry: $150,000

Sales taxes are classified as a form of derived tax revenue. According to GASB N50.113, revenues should be recognized when the underlying exchange transaction occurs. (On the modified accrual basis of accounting, revenues should be recognized when the underlying exchange has occurred and the resources are available.) In this question, the underlying sales transactions took place before June 30. Also, the resources are considered to be available because the resources are received in the current year or soon enough thereafter to be used to pay the current year's bills, i.e., within 60 days of year-end (15 days for remittance to the state plus 45 days for distribution to the city). Thus, the full amount collected, $1,050,000, would be recognized by either the state or the city. Distribution of the amount: The total percentage of the tax collected is 6% (4% + 2%). The amount to Curry City = $1,050,000 × 2/6 = $350,000 The amount to State = $1,050,000 × 4/6 = $700,000

A not-for-profit voluntary health and welfare entity should report a contribution for the construction of a new building as cash flows from which of the following in the statement of cash flows? A. Operating activities B. Financing activities Incorrect C. Capital financing activities D. Investing activities You answered C. The correct answer is B.

Submit A not-for-profit voluntary health and welfare entity should report a contribution for the construction of a new building as cash flows from which of the following in the statement of cash flows? A. Operating activities B. Financing activities Incorrect C. Capital financing activities D. Investing activities You answered C. The correct answer is B. According to FASB ASC 958-230-55-3, a contribution to a not-for-profit restricted to long-term purposes like construction shall be reported as a cash flow from financing activities. Cash flows received from investment income restricted by donor stipulation to the same purposes also are reported as financing activities, not as operating activities.

FASB ASC 270-10-45-1 concluded that interim financial reporting should be viewed primarily in which of the following ways? Incorrect A. As useful only if activity is spread evenly throughout the year B. As if the interim period were an annual accounting period C. As reporting for an integral part of an annual period D. As reporting under a comprehensive basis of accounting other than GAAP

The Financial Accounting Standards Board in FASB ASC 270-10-45-1 noted that "each interim period should be viewed primarily as an integral part of an annual period."

Which event(s) should be included in a statement of cash flows for a governmental entity? Cash inflow from issuing bonds to finance city hall construction Cash outflow from a city utility representing payments in lieu of property taxes

The basic government-wide financial statements include the statement of net position and the statement of activities, but not a cash flow statement. The fund financial statements include statements of cash flows for proprietary funds but not for governmental funds. The proprietary funds, except for the internal service funds, make up the business-type operations of a government. A city-owned utility is a prototypical example of a business-type activity that would be recorded in a proprietary fund. In contrast, construction of a city hall building is a general government operation that would be recorded in a governmental fund.

A company has the following accrual-basis balances at the end of its first year of operation: Unearned consulting fees $ 2,000 Consulting fees receivable 3,500 Consulting fee revenue 25,000 The company's cash-basis consulting revenue is what amount? A. $19,500 B. $23,500 C. $26,500 D. $30,500

The company's cash-basis consulting revenue is $23,500: Accrual basis consulting fee revenue $25,000 Unearned consulting fee-- cash received with no revenue 2,000 Consulting fees receivable-- revenue with no cash received (3,500) -------- Cash basis revenue $23,500

Exercise Date

The date by which the option holder must exercise the option

Deficits accumulated during the development stage of a company should be:

The same basic financial statements are issued for both an established company and a company in the development stage. Deficits are reported as part of stockholders' equity.

Submit In Dart Co.'s Year 2 single-step income statement, as prepared by Dart's controller, the section titled "Revenues" consisted of the following: Sales $250,000 Purchase discounts 3,000 Recovery of accounts written off 10,000 -------- Total revenues $263,000 In its Year 2 single-step income statement (statement of profit or loss), what amount should Dart report as total revenues? A. $250,000 B. $253,000 C. $260,000 D. $263,000

The single-step income statement presents all revenue and gains in the upper part of the statement. Purchase discounts are shown as deductions in the expense section. Recovery of accounts written off has no effect on the income statement since cash is increased and allowance for doubtful accounts is decreased.

In Dart Co.'s Year 2 single-step income statement, as prepared by Dart's controller, the section titled "Revenues" consisted of the following: Sales $250,000 Purchase discounts 3,000 Recovery of accounts written off 10,000 -------- Total revenues $263,000 In its Year 2 single-step income statement (statement of profit or loss), what amount should Dart report as total revenues?

The single-step income statement presents all revenue and gains in the upper part of the statement. Purchase discounts are shown as deductions in the expense section. Recovery of accounts written off has no effect on the income statement since cash is increased and allowance for doubtful accounts is decreased. $250,000

At the beginning of the year, Cann Co. started construction on a new $2 million addition to its plant. Total construction expenditures made during the year were $200,000 on January 2, $600,000 on May 1, and $300,000 on December 1. On January 2, the company borrowed $500,000 for the construction at 12%. The only other outstanding debt the company had was a 10% interest rate, long-term mortgage of $800,000, which had been outstanding the entire year. What amount of interest should Cann capitalize as part of the cost of the plant addition? Incorrect A. $140,000 B. $132,000 C. $72,500 D. $60,000

The total interest cost during the year includes the $500,000 at 12% interest ($500,000 × 0.12 = $60,000) and the interest on the other debt ($800,000 × 0.10 = $80,000). There cannot be more than $140,000 interest capitalized (the total interest accrued of $60,000 and $80,000). The weighted-average accumulated expenditures take into account the amounts expended on the building during the year based on how much of the year occurred after the payment. The $200,000 paid in January was paid at the beginning of the year and was outstanding all year ($200,000 × 12/12 of the year, or $200,000). The May payment was only outstanding for May through December for 8/12 of the year, so $600,000 × 8/12 = $400,000 weighted-average expenditure. The December payment was made for only the last month, or 1/12 of the year, for an expenditure of $300,000 × 1/12 = $25,000. The total weighted-average accumulated expenditures were thus $200,000 + $400,000 + $25,000, for a total of $625,000. The capitalized interest cost on these expenditures is based on the interest rates of the debt outstanding during the year, first, to the extent of any specific construction debt, i.e., the $500,000 at 12%. The interest capitalized on the first $500,000 of expenditures is based on 12%, or $60,000, and the interest on the remaining $125,000 of expenditures ($625,000 - $500,000) is paid at the rate of 10% for another $12,500 of capitalized interest. Thus, the total of the capitalized interest is $60,000 and $12,500, for a total of $72,500.

A sale of goods, denominated in a currency other than the entity's functional currency, resulted in a receivable that was fixed in terms of the amount of foreign currency that would be received. Exchange rates between the functional currency and the currency in which the transaction was denominated changed. The resulting gain should be included as a

This answer is correct because ASC Topic 830 states that the increase (decrease) in expected functional currency cash flows is a foreign currency transaction gain (loss) that shall be included in determining net income for the period in which the exchange rate changes. The gain (loss) is shown on the income statement under other income as part of income from continuing operations.

On April 1, year 1, Girard Corporation issued at 98 plus accrued interest, 200 of its 10%, $1,000 bonds. The bonds are dated January 1, year 1, and mature on January 1, year 11. Interest is payable semiannually on January 1 and July 1. From the bond issuance Girard would realize net cash receipts of

This answer is correct. $200,000 of bonds are issued at 98 plus accrued interest (3 months, from January 1 to April 1). The cash received for the bonds is 98% of $200,000, or $196,000. The cash received for the accrued interest is $5,000 ($200,000 × 10% × 3/12). Therefore, cash receipts total $201,000 ($196,000 + $5,000).

When equipment held under an operating lease is subleased by the original lessee, the original lessee would account for the sublease as a(n)

This answer is correct. A sublease arises when the lease agreement between the two original parties remains in effect, and the leased property is released to a third party by the original lessee. Per ASC Topic 840, when equipment held under an operating lease is subleased by the original lessee, the sublease is still considered to be an operating lease by the original lessee.

An employer's obligation for postretirement health benefits that are expected to be fully provided to or for an employee must be fully accrued by the date the

This answer is correct. ASC Topic 715 requires that the employer's obligation for postretirement health benefits that are expected to be fully provided to or for an employee must be fully accrued by the date that the employee is fully eligible for benefits.

I. A private, not-for-profit hospital earned interest on investments which were board-designated. II. A voluntary health and welfare organization received unconditional promises to give (pledges) which will not be received until the beginning of year 2.

This answer is correct. Interest earned on board-designated investments is reported as unrestricted revenue. When the governing board of a not-for-profit organization places designations on assets, they are designating the use of unrestricted net assets. Therefore, income earned on board-designated investments represents an increase in unrestricted net assets. Unconditional promises to give are reported in the period the pledges are made, not in the period of cash collection. However, since the contributions will not be received until year 2, the contributions should be reported as an increase in temporarily restricted net assets on the statement of activities for year 1 because of this time restriction.

On August 1, year 1, Kern Company leased a machine to Day Company for a 6-year period requiring payments of $10,000 at the beginning of each year. The machine cost $48,000, which is the fair value at the lease date, and has a useful life of 8 years with no residual value. Kern's implicit interest rate is 10% and present value factors are as follows: Present value of an annuity due of $1 at 10% for 6 periods 4.791 Present value of an annuity due of $1 at 10% for 8 periods 5.868

This answer is correct. Lease payments receivable is debited for the gross investment in the lease, which includes the minimum lease payments plus any unguaranteed residual value. Since there is no residual value in this problem, gross investment is simply the minimum lease payments (6 rentals at $10,000 each, or $60,000).

Information with respect to Bruno Co.'s cost of goods sold for year 1 is as follows: Historical Cost Units Inventory, 1/1/Y1 $1,060,000 20,000 Production during year 1 5,580,000 90,000 6,640,000 110,000 Inventory, 12/31/Y1 2,520,000 40,000 Cost of goods sold $4,120,000 70,000

This answer is correct. Per ASC Topic 255, cost of goods sold is restated into average current cost by multiplying units sold (70,000) by the average current cost during the year. Average current cost is the current cost at the beginning of the year, plus the current cost at the end of the year, divided by 2. ($58 + $72) ÷ 2 = $65 Therefore, cost of goods sold restated into average current cost is $4,550,000 (70,000 × $65).

If losses in the amount of $2,750 (net of tax) on available-for-sale securities have been previously included in other comprehensive income, what amount would be the reclassification adjustment when the securities are sold? Assume a 30% tax rate.

This answer is incorrect because deducting the $2,750 would mean that the loss is deducted three times, once in net income upon sale of the securities and twice in other comprehensive income. 2750

The following information is available for Bart Company for year 1: Disbursements for purchases $580,000 Increase in trade accounts payable 50,000 Decrease in merchandise inventory 20,000 Cost of goods sold for year 1 was

This answer is incorrect. The basic cost of goods sold formula is Beg. inv. + Net Purchases - End. inv. = CGS To compute cost of goods sold from the information given, cash paid for purchases must be adjusted for increases (decreases) in both accounts payable and merchandise inventory. Cash payments for purchases during year 1 were $580,000. In addition, accounts payable increased by $50,000, indicating that total purchases exceeded cash payments for purchases by $50,000. Merchandise inventory decreased by $20,000, which means beginning inventory exceeded ending inventory by $20,000. This decrease in inventory must be added to cash payments for purchases to compute the cost of goods sold of $650,000. Cash paid for purchases $580,000 + Increase in AP 50,000 + Decrease in inv 20,000 Cost of goods sold $650,000

n January 2, year 1, Beal, Inc. acquired a $70,000 whole-life insurance policy on its president. The annual premium is $2,000. The company is the owner and beneficiary. Beal charged officer's life insurance expense as follows: Year 1 $2,000 Year 2 1,800 Year 3 1,500 Year 4 1,100 Total $6,400 In Beal's December 31, year 4 balance sheet, the investment in cash surrender value should be

This answer is incorrect. The cash surrender value (CSV) of a life insurance policy is considered an asset of the policy owner. Generally, part of each year's insurance payment increases the CSV of the policy, so when the payment is made the asset account is debited for the amount of the increase, while the rest of the payment is recorded as insurance expense. Therefore, Beal's cumulative journal entry for year 1- year 4 is Insurance expense 6,400 (given) CSV 1,600 (plug) Cash 8,000 (4 years × $2,000) In the 12/31/Y4 balance sheet, the investment in CSV should be reported at $1,600.

Beck, the active partner in Beck & Cris, receives an annual bonus of 25% of partnership net income after deducting the bonus. For the year ended December 31, year 1, partnership net income before the bonus amounted to $300,000. Beck's year 1 bonus should be

This answer is incorrect. The problem states that the bonus is 25% of partnership net income after deducting the bonus. The solutions approach is to write an equation and solve for the bonus (B). B = % (NI − B) B = .25($300,000 − B) B = $75,000 − .25B 1.25B = $75,000 B = $60,000

Par Value Method

Treasury stock is recorded at par

Cost Method

Treasury stock is recorded at the Reacquisition cost

When a capital lease entered into by a governmental unit represents the acquisition of a general capital asset, the acquisition should be reflected as: Incorrect A. an expenditure but not as an other financing source. B. an other financing source but not as an expenditure. C. both an expenditure and an other financing source. D. neither an expenditure nor an other financing source.

Under the current financial resources measurement focus used in governmental funds, neither capital assets nor long-term liabilities are recorded in those funds. However, the inception of a capital lease should be reported in the governmental fund from which the lease payments will be made. GASB 1800.128 states in this regard: "When a capital lease represents the acquisition or construction of a general fixed asset, the acquisition or construction of the general fixed asset should be reflected as an expenditure and (an) other financing source..." This is a "wash" entry that has no effect on fund balance.

Fara Co. reported bonds payable of $47,000 on December 31, 20X1, and $50,000 on December 31, 20X2. During 20X2, Fara issued $20,000 of bonds payable in exchange for equipment. There was no amortization of bond premium or discount during the year. What amount should Fara report in its 20X2 statement of cash flows for redemption of bonds payable?

Using the basic accounting equation, Beginning balance + Additions - Deletions = Ending balance: Bonds payable on 12/31/X1 (beginning inventory) $47,000 Plus bonds issued in 20X2 20,000 ------- Subtotal 67,000 Less bonds payable on 12/31/X2 (ending inventory) 50,000 ------- Bonds redeemed in 20X2 (presumably for cash) $17,000 =======

Vane Co.'s trial balance of income statement accounts for the current year ended December 31 included the following: Debit Credit Sales $575,000 Cost of sales $240,000 Administrative expenses 70,000 Loss on sale of equipment 10,000 Sales commissions 50,000 Interest revenue 25,000 Freight out 15,000 Loss on early retirement of LT debt 20,000 Uncollectible accounts expense 15,000 Totals $420,000 $600,000 ======== ======== Vane's income tax rate is 30%. In Vane's year-end multiple-step income statement, what amount should Vane report as income after income taxes from continuing operations? A. $126,000 Incorrect B. $129,500 C. $140,000 D. $147,000

Vane should report $126,000, calculated as follows: Net income before taxes ($600,000 - $420,000) $180,000 Income taxes ($180,000 x 0.30) 54,000 Net income from continuing operations $126,000

Which of the following should be disclosed in a summary of significant accounting policies? A. Basis of consolidation Incorrect B. Concentration of credit risk of financial instruments C. Composition of plant assets D. Adequacy of pension plan assets in relation to vested benefits

When financial statements are issued purporting to present fairly the financial position, cash flows, and results of operations in accordance with generally accepted accounting principles, a description of all significant accounting policies of the reporting enterprise is required. Examples of accounting principles and methods for which disclosure of policy is frequently made include, but are not limited to, depreciation methods, consolidation basis, interperiod tax allocation, inventory pricing, and revenue recognition methods. The concentration of credit risk, composition of plant assets, and adequacy of pension plan assets are not disclosed in the summary of significant accounting policies.

A company's foreign subsidiary operation maintains its financial statements in the local currency. The foreign operation's capital accounts would be translated to the functional currency of the reporting entity using which of the following rates? A. Historical exchange rate B. Functional exchange rate Incorrect C. Weighted-average exchange rate D. Current exchange rate at the balance sheet date

When translating the capital accounts of a subsidiary, the historical exchange rate is used for the capital stock account and additional paid-in capital. This date cannot be earlier than the date the parent acquired the investment in the subsidiary.