46% FAR section 1 (51% now)

In its 20X1 income statement, Kilm Co. reported cost of goods sold of $450,000. Changes occurred in several balance sheet accounts as follows: Inventory $160,000 decrease Accounts payable—suppliers 40,000 decrease What amount should Kilm report as cash paid to suppliers in its 20X1 cash flow statement, prepared under the direct method? $250,000 $330,000 $570,000 $650,000

330,000 330k + 160k - 40k = 330k The requirement is to determine the current period's amount of cash paid for goods acquired from suppliers no matter when the goods were acquired. Therefore, the total purchases made during the current period (whether on credit or for cash) and the amount of purchases from the previous period not paid for in the previous period must be examined because they represent the amount that could have been paid to suppliers during the current period. A decrease in inventory during the period indicates that purchases were less than the cost of goods sold. Therefore, the current period's amount of purchases is determined by subtracting the decrease in inventory from cost of goods sold. The ending accounts payable represents what is still owed to suppliers at the end of the current period for purchases. A decrease in accounts payable during the current period indicates that suppliers were paid an amount of cash greater than the amount of the current period's purchases. Therefore, adding the decrease in accounts payable to purchases of the period yields the cash paid to suppliers in the current period.

large accelerated filer 700mil + 10-Q days after the end of the period

40 days

accelerated filer 75mil - 700mil 10-Q days after the end of the period

40 days (less time for the big 2 filers)

non-accelerated filer (<70M) 10-Q days after the end of the period

45 days

A company had the following transactions during the year: Principal payments on notes payable $48,000 Interest payments on notes payable 8,000 Cash payment to purchase 100 shares of another company's common stock 25,000 What amount is classified as cash outflow for financing activities in the company's statement of cash flows? $48,000 $56,000 $73,000 $81,000

48,000 Financing activities are those activities that provide financing or use financing. They include the issuance and repurchase of a company's own stock, cash dividend payments to shareholders, and the issuance and repurchase of debt. Interest on debt is an operating activity while purchase of another company's stock is an investing activity. The only answer choice that meets the definition of financing is principal payments on notes payable for $48,000, which is a form of debt repayment.

On December 31, 20X1, Dahlia, a nongovernmental not-for-profit entity, purchased a vehicle with $15,000 unrestricted cash and received a donated second vehicle having a fair value of $12,000. Dahlia expects each vehicle to provide it with equal service value over each of the next five years and then to have no residual value. Dahlia has an accounting policy implying a time restriction on gifts of long-lived assets. In Dahlia's 20X2 statement of activities, what depreciation expense should be included under changes in net assets without donor restrictions? $2,400 $0 $3,000 $5,400

5400 Nongovernmental not-for-profit entities must depreciate all fixed assets used in operations except land. All expenses of nongovernmental not-for-profit entities must be reported as changes in net assets without donor restrictions. Donated assets must be recorded at fair value at the date of donation. Therefore, the depreciation expense both of the purchased vehicle ($15,000 ÷ 5 years, or $3,000) and of the donated vehicle ($12,000 ÷ 5 years, or $2,400) must be reported under changes in net assets without donor restrictions. The total depreciation expense of the two vehicles is $5,400.

Peters Corp.'s capital structure was as follows: 12/31/X1 12/31/X2 Outstanding shares of stock: Common 110,000 145,000 Convertible preferred 10,000 0 8% convertible bonds 1,000,000 500,000 On May 1, 20X2, the preferred shares were converted into 20,000 shares of common stock. The 8% bonds are convertible into 30,000 shares of common stock. On July 1, $500,000 of the bonds were converted. Net income for 20X2 was $850,000. Assume that the income tax rate is 30%. What is the basic earnings per share for 20X2? $6.80 $6.54 $5.86 $6.50

6.50 I. Computation of weighted-average shares: 1 - CS outstanding 1/1/2 = 110,000 2 - Conversion of preferred stock 5/1/x2 = 13,333 (20k x 8/12) An additional 20k shares were outstanding from May 1 until year-end.) 3 - Conversion of convertible bonds 07/01/x2 15,000*6/12 = 7500. (One half of the bonds were converted, so an additional 15,000 shares were outstanding from July 1 until year-end.) 4 - Total weighted average shares = 130,833. II. Basic EPS: Basic EPS = Net income / Weighted-average number of outstanding common shares= $850,000 / 130,833= $6.50 Note: Preferred dividends are not deducted from Net Income in the basic EPS calculations due to the fact that the preferred stock is convertible. For the purposes of this calculation, the 10,000 shares of preferred stock are converted to 20,000 shares of common, which assumes that there were no preferred dividends. (FASB ASC 260-10-45-10)

large accelerated filer 700mil + 10-K days after the end of the period

60 days

Dove Inc. owns 100% of Flom Co. On January 2, 20X3, Dove sold equipment with an original cost of $120,000 and a carrying amount of $84,000 to Flom for $108,000. It is Dove's policy to use straight-line depreciation with a useful life of 10 years for equipment like that sold to Flom. The equipment had no residual value. Flom is using straight-line depreciation over 6 years with no residual value. In Dove's December 31, 20X3, consolidating worksheet, by what amount should depreciation expense be decreased? 0 6,000 12,000 18,000

6000 Depreciation expense on a consolidated basis should be depreciation that would have been expensed on Dove's books if the equipment had not been sold. The unrealized gain of the sale of equipment to Flom is located in the cost of the equipment on Flom's books. Deprec on Flom's books = 108,000 / 6 = 18,000 (unrealized gain) Deprec on Dove's books (original cost) = 120,000 / 10 = 12,000 18,000 - 12,000 = 6,000 difference in depreciation (Dove's books should be decreased by 6000).

Tulip Co. owns 100% of Daisy Co.'s outstanding common stock. Tulip's cost of goods sold for the year totals $600,000 and Daisy's cost of goods sold totals $400,000. During the year, Tulip sold inventory costing $60,000 to Daisy for $100,000. By the end of the year, all transferred inventory was sold to third parties. What amount should be reported as cost of goods sold in the consolidated statement of income?

600000 tulip COGS + 400000 daisy COGS- 100,000 daisy's cost to purchase T's inventory = 900,000 consolidated COGS Since Daisy sold all of the inventory purchased from Tulip, Daisy would have recognized $100,000 in cost of goods sold (COGS). As Daisy is a 100%-owned subsidiary, 100% of the COGS from Tulip is eliminated (i.e., intercompany profits and losses). Total COGS on the consolidated statement of income is $900,000 ($600,000 + $400,000 − $100,000).

accelerated filer 75mil - 700mil 10-K days after the end of the period

75 days

A company is an accelerated filer that is required to file Form 10-K with the U.S. Securities and Exchange Commission (SEC). What is the maximum number of days after the company's fiscal year-end that the company has to file Form 10-K with the SEC? 60 days 75 days 90 days 120 days

75 days Annual 10-K reports are due within 75 days for fiscal years for accelerated filers as defined in 17 CFR 240.12b-2. The requirement is 90 days for other filers. The deadline for filing quarterly reports (10-Q) is 40 days for accelerated filers.

Zest Co. owns 100% of Cinn, Inc. On January 2, 20X1, Zest sold equipment with an original cost of $80,000 and a carrying amount of $48,000 to Cinn for $72,000. Zest had been depreciating the equipment over a 5-year period using straight-line depreciation with no residual value. Cinn is using straight-line depreciation over three years with no residual value. In Zest's December 31, 20X1, consolidating worksheet, by what amount should depreciation expense be decreased? $24,000 $0 $16,000 $8,000

8000 When dealing with unrealized gains or losses in a consolidated financial statement setting, the objective is to defer unrealized gains to establish both historical cost balances and recognize appropriate income within the consolidated financial statement. The unrealized gain of the sale of the equipment to Cinn is located in the cost of the equipment on Cinn's books. Depreciation expense on a consolidated basis should be the depreciation that would have been expensed on Zest's books if the equipment had not been sold. Depreciation on Cinn's books (unrealized gain) (72k / 3 years) = 24,000 Depreciation on Zest's books (original cost) (80k / 5) = 16000. 24k - 16k = 8000.

non-accelerated filer (<70M) 10-K days after the end of the period

90 days (less and less time for the bigger filers)

Costs of joint activities like mailings and telethons are required to be reported as fundraising activities unless certain criteria are satisfied. Which of the following is not one of those criteria? - One or more of the purposes of the activity is to accomplish some program function or management and general responsibility of the entity. - The audience for the activity was chosen based on some criteria other than the ability to make contributions. - The content of the activity motivates the audience to take specific actions other than making contributions, and these actions support the program goals or fulfill a management and general responsibility of the entity. - All of the answer choices are conditions under which joint activities are not required to be reported as fundraising activities.

All of the answer choices are conditions under which joint activities are not required to be reported as fundraising activities. There are three conditions that must be met to allow a nongovernmental not-for-profit to report costs of joint activities in a category other than fundraising activities. Those three conditions are: - one or more of the purposes of the activity is to accomplish some program function or management and general responsibility of the entity; - the audience for the activity was chosen based on some criteria other than the ability to make contributions; and - the content of the activity motivates the audience to take specific actions other than making contributions, and these actions support the program goals or fulfill a management and general responsibility of the entity. Therefore, all of the answer choices are conditions under which joint activities are not required to be reported as fundraising activities.

On December 30, 20X1, Hale Corp. paid $400,000 cash and issued 80,000 shares of its $1 par value common stock to its unsecured creditors on a pro rata basis pursuant to a reorganization plan under Chapter 11 of the bankruptcy statutes. Hale owed these unsecured creditors a total of $1,200,000. Hale's common stock was trading at $1.25 per share on December 30, 20X1. As a result of this transaction, Hale's total stockholder's equity had a net increase of: $1,200,000. $800,000. $80,000. $100,000.

Amount owed to unsecured creditors = 1,200,000 - cash paid = (400,000) - CS issued at fair value = 80k x 1.25 = (100,000) = gain on restructuring = 700,000. Common stock would be increased by 80,000 (80k sh x $1 par). APIC would be increased by 80k sh x (1.25-1) = 20,000. The net increase in Hale Corp.'s stockholders' equity is 800,000. 700k gain on restructuring + 100k inc in s/e resulting from issuance of the additional shares (at market).

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

As reporting for an integral part of an annual period 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 of the following disclosures should prospective financial statements include? Summary of significant accounting policies Summary of significant assumptions Both summary of significant accounting policies and summary of significant assumptions Neither summary of significant accounting policies nor summary of significant assumptions

BOTH summary of significant accounting policies and summary of significant assumptions

Financial statements prepared by a voluntary health and welfare nongovernmental not-for-profit organization must report expenses by the following classification(s): Both functional and natural Neither functional nor natural Natural Functional

Both functional and natural Accounting standards for not-for-profit entities require expenses to be disclosed by both functional and natural classifications. The choice to only report one or the other is not allowable.

Green Co. had the following equity transactions at December 31: Cash proceeds from sale of investment in Blue Co.(carrying value $60,000) $75,000 Dividends received on Grey Co. stock 10,500 Common stock purchased from Brown Co. 38,000 What amount should Green recognize as net cash from investing activities in its statement of cash flows at December 31?

Cash proceeds from the sale of an investment are a cash inflow and cash paid to purchase stock is a cash outflow. Both are investing activities. $75,000 - $38,000 = $37,000

Which of the following should be disclosed as supplemental information in the statement of cash flows? Cash flow per share Conversion of debt to equity Both cash flow per share and conversion of debt to equity Neither cash flow per share nor conversion of debt to equity

Conversion of debt to equity FASB ASC 230-10-45-3 states very specifically that "financial statements shall not report an amount of cash flow per share." Also, "information about all investing and financing activities of an enterprise during a period that affects recognized assets or liabilities, but that does not result in cash receipts or cash payments in the period, shall be reported in related disclosures." (FASB ASC 230-10-50-3) Converting debt to equity is cited as an example of the latter category of items.

When a nongovernmental not-for-profit entity has board-designated net assets, where should the amounts and purposes of these net assets be disclosed? Either on the face of the statement of financial position or in the notes to the financial statements On the face of the statement of financial position but not in the notes to the financial statements In the notes to the financial statements but not on the face of the statement of financial position Neither on the face of the statement of financial position nor in the notes to the financial statements

EITHER on the face of the statement of financial position or in the notes to the financial statements (don't think about the fact that board designated is unrestricted, we know that. but if there is a board designation it has to be reported on the face or in the notes to the FS)

According to the FASB conceptual framework, which of the following situations violates the concept of reliability? - Data on segments having the same expected risks and growth rates are reported to analysts estimating future profits. - Financial statements are issued nine months late. - Management reports to stockholders regularly refer to new projects undertaken, but the financial statements never report project results. - Financial statements include property with a carrying amount increased to management's estimate of market value.

Financial statements include property with a carrying amount increase to management's estimate of market value. Clearly, values assigned to property based on management's estimate of fair value are not representationally neutral and would not be considered reliable as defined by the SFAC 5. Late financial statements violate timeliness (relevance), not reliability. NOTE THE TERM RELIABILITY HAS BEEN CHANGED TO FAITHFUL REPRESENTATION

In a not-for-profit entity, which of the following should be included in total expenses? Grants to other organizations and depreciation Grants to other organizations Depreciation Neither grants to other organizations nor depreciation

Grants to other organizations and depreciation Per FASB ASC 720-25-25-1, contributions made by a business are considered expenses of the period. Not-for-profit entities recognize expenses the same way as businesses, so the contribution would be considered an expense with the other expenses of the period. FASB ASC 958-720-45-15 lists depreciation as an expense.

Belle, a nongovernmental not-for-profit entity, received funds during its annual campaign that were specifically promised by the donor to another nongovernmental not-for-profit health entity. How should Belle record these funds? Increase in assets and increase in liabilities Increase in assets and increase in revenue Increase in assets and increase in deferred revenue Decrease in assets and decrease in fund balance

Increase in assets and increase in liabilities Donors often use 1 non-for profit as an intermediary to forward donations to the ultimate recipient. If the intermediary has the right to redirect the resources, then it would recognized restricted support or revenue. In this case, Belle has been given specific instructions to forward the resources to another entity and has been given no discretion. It is acting as an agent. "Deferred revenue" and "fund balance" are governmental terms not used for a private not-for-profit.

Alpha Hospital, a large not-for-profit entity, has adopted an accounting policy that does not imply a time restriction on gifts of long-lived assets. Alpha's board designates $1,000,000 to purchase investments whose income will be used for capital improvements. Income from these investments, which were not previously accrued, is received. Indicate the manner in which this transaction affects Alpha's financial statements. No required reportable event Increase in net assets with donor restrictions Increase in board-restricted net assets Increase in unrestricted revenues, gains, and other support

Increase in unrestricted revenues, gains, and other support When resources are under control of the governing board and not specifically restricted by an outside donor, the resources are considered unrestricted and the resulting income is unrestricted revenue. The designation "board-restricted net assets" does not exist.

In the preparation of the statement of activities for a nongovernmental not-for-profit entity, all expenses are reported as decreases in which of the following net asset classes? Total net assets Net assets without donor restrictions Net asset with donor restrictions Expenses are not reported on the statement of activities.

Net assets without donor restrictions The FASB states that a statement of activities shall report expenses as decreases in net assets without donor restrictions.

Bear Co. prepares its statement of cash flows using the indirect method. Bear sold equipment with a carrying value of $500,000 for cash of $400,000. How should Bear report the transaction in the operating and investing activities sections of its statement of cash flows? Operating activities: $100,000 addition to net income; Investing activities: $400,000 cash inflow Operating activities: $100,000 addition to net income; Investing activities: $500,000 cash inflow Operating activities: $100,000 subtraction from net income; Investing activities: $400,000 cash inflow Operating activities: $100,000 subtraction from net income; Investing activities: $500,000 cash inflow

Operating activities: $100,000 addition to net income; Investing activities: $400,000 cash inflow. add losses under the indirect method!!!! The net loss (400k - 500k = (100,000)) would be removed (added back) from net income. The cash from the sale would be included as a cash inflow from investing activities.

According to the FASB conceptual framework, which of the following is not an essential characteristic of a revenue? Revenues can result from peripheral or incidental transactions. Revenues are inflows or other enhancements of assets. Revenues can result from major or central operations. Revenues can result from delivering or producing goods or rendering services.

Revenues can result from peripheral or incidental transactions. SFAC 6, Elements of Financial Statements, defines revenues as "inflows or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations." Because revenues result from the major ongoing or central operations of an entity, inflows from peripheral or incidental transactions are not revenues.

The Securities and Exchange Commission was created under which of the following acts? The 1933 Securities Act The 1934 Securities Exchange Act The Tax Equity and Fiscal Responsibility Act Both the 1933 Securities Act and 1934 Securities Exchange Act

The 1934 Securities Exchange Act Both the 1933 Securities Act and the 1934 Securities Exchange Act were designed to restore investor confidence after the 1929 stock market crash. The 1933 act contains accounting and disclosure requirements for the initial offering of stocks or bonds. In addition to requirements for secondary market offerings, the 1934 Securities Exchange Act created the Securities and Exchange Commission (SEC).

Which of the following is not a required disclosure by a not-for-profit entity (NFP)? The nature and amounts of different restrictions that impact when the donor-restricted net assets can be used Any governing board actions that result in self-imposed limits on the use of resources The amounts and purposes of board designations of net assets with donor restrictions The types of donor restrictions

The amounts and purposes of board designations of net assets with donor restrictions NFPs are required to disclose information about the nature, type, and amount of the different types of restrictions that impact how and and when, if ever, the donor-restricted net assets can be used. Disclosures are also required about the amounts and purposes of board designations of net assets without (not with) donor restrictions. Any governing board actions that result in self-imposed limits on the use of resources will also be disclosed in the notes to the financial statements.

Parisian Company has bonds that have an original maturity of 10 years. The bonds will mature and be retired on May 25, Year 17. Parisian established a bond sinking fund, as required by the bond indenture (contract). The bond sinking fund will be used to retire the bonds when they mature in May of Year 17. How should the bonds be classified in the December 31, Year 16, balance sheet? The bonds should be classified as a current liability. The bonds should be classified as a long-term liability. Parisian can choose whether to classify the bonds as either current or noncurrent. Because of the sinking fund, Parisian can eliminate both the bonds and the sinking fund from the balance sheet.

The bonds should be classified as a long-term liability. Even though the bonds will mature in less than one year, they are classified as long-term liabilities (not current maturities of long-term liabilities) because the cash to be used to pay off the bonds is restricted and has therefore been classified as a long-term asset. Bonds in this situation should not be classified as current liabilities. Choice of classification (current vs. long-term) is not permitted. The presence of both the liability and the related asset (bond-sinking fund) are not offset on the balance sheet but are both reported in total.

ABC Foundation, a not-for-profit entity, has, over the years, received a number of donations that the donors wish to be held permanently. Although most of these were donations of cash and investments, the organization also received two parcels of land with buildings on them. The donors' wishes were that the real estate not be sold but be used by the organization or rented with the income used for any organizational purpose. Which of the following is false regarding the reporting for these net assets with donor restrictions? The real estate holdings would be included with the other net assets with donor restrictions, with additional information included in the notes to the statements. The real estate holdings would be included with the other net assets with donor restrictions, with no other details offered. The real estate holdings would be included with the other net assets with donor restrictions, with additional information shown on the face of the statements. The real estate holdings would be included with the other net assets with donor restrictions, with additional information shown on the face of and in the notes to the financial statements.

The real estate holdings would be included with the other net assets with donor restrictions, with no other details offered. In addition to the sum of the two classes of net assets, the FASB requires information about the nature and amounts of the different types of restricted assets of a not-for-profit entity to be disclosed. Disclosure could be on the face of the statements, in the notes to the statements, or by a combination of both.

The AICPA's "Statement of Standards for Accountants' Services on Prospective Financial Information" governs the preparation of prospective financial statements. It requires that accountants provide summaries of the significant accounting policies and the assumptions used to prepare these forward-looking statements.

The same full disclosure principle that guides the preparation of historical financial statements applies to the reporting of prospective financial statements.

According to the FASB conceptual framework, which of the following is not an essential characteristic of a gain? They can result from all other transactions and other events and circumstances affecting an entity. There is an increase in net assets. They can result from peripheral or incidental transactions. They can result from revenues or investment by owners.

They can result from revenues or investment by owners. SFAC 6, Elements of Financial Statements, defines gains as "increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners." Because gains are distinct from revenues, transactions that result in revenues are not gains. Investments by owners are contributions, not gains.

What is the purpose of SFAC 4 as stated in that concepts statement? All of the answer choices are correct. To provide a basis for establishing detailed accounting and reporting standards for nonbusiness entities To provide the methods for preparing financial statements for nonbusiness entities To provide detailed accounting and reporting standards for nonbusiness entities

To provide a basis for establishing detailed accounting and reporting standards for nonbusiness entities SFAC 4, Objectives of Financial Reporting by Nonbusiness Organizations, represents the most recent expression of the overall purposes and related objectives of financial reporting by nonbusiness organizations. The purposes and related accounting and reporting objectives set forth in SFAC 4 are concepts—not standards—and are designed to provide a basis for establishing detailed accounting and reporting standards.

What is the purpose of SFAC 4 as stated in that concepts statement? To provide the methods for preparing financial statements for nonbusiness entities To provide a basis for establishing detailed accounting and reporting standards for nonbusiness entities To provide detailed accounting and reporting standards for nonbusiness entities All of the answer choices are correct.

To provide a basis for establishing detailed accounting and reporting standards for nonbusiness entities SFAC 4, Objectives of Financial Reporting by Nonbusiness Organizations, represents the most recent expression of the overall purposes and related objectives of financial reporting by nonbusiness organizations. The purposes and related accounting and reporting objectives set forth in SFAC 4 are concepts—not standards—and are designed to provide a basis for establishing detailed accounting and reporting standards.

What is the primary purpose of the statement of activities of a nongovernmental not-for-profit organization? To report the change in net assets for the period To report the liquidity of the entity as of a specific date To report assets, liabilities, and net assets as of a specific date To report the cash flow position of the entity for the period

To report the change in net assets for the period The nongovernmental not-for-profit organization does not earn a profit in the sense that a for-profit entity would. Instead, the not-for-profit organization records the difference between revenues and expenses as a change in net assets for the accounting period. Each revenue, expense, gain, or loss must be classified according to the net asset class affected and reported based on restrictions or functional subclassification.

According to the FASB conceptual framework, an entity's revenue may result from: an increase in an asset from incidental transactions. a decrease in an asset from primary operations. an increase in a liability from incidental transactions. a decrease in a liability from primary operations.

a decrease in a liability from primary operations. SFAC 6, Elements of Financial Statements, notes: "In concept, revenues increase assets rather than decrease liabilities, but a convenient shortcut is often to directly record reduction of liabilities." An example would be the earning of currently unearned revenue. (Unearned revenue would decrease while earned revenue would increase.) Revenues (and expenses) relate to primary operations rather than incidental transactions. Incidental transactions result in gains and losses.

Bake Co.'s trial balance included the following at December 31, 20X1: Accounts payable $ 80,000 Bonds payable, due 20X2 300,000 Discount on bonds payable 15,000 Deferred income tax liability 25,000 The deferred income tax liability is not related to an asset for financial accounting purposes and is expected to reverse in 20X2. What amount should be included in the current liability section of Bake's December 31, 20X1, balance sheet (statement of financial position)? $390,000 $365,000 $395,000 $420,000

accounts payable + bonds payable - discount on bonds (exclude deferred income tax liability) 80k + 300k - 15k = 365,000 deferred tax liabilities are all classified as noncurrent.

the statement of activities provides information about the change in

amount & nature of net assets by reporting on changes in net assets with donor restrictions and without donor restrictions for period of time.

the statement of financial position is comparable to a ______________ and reports _______________________ at a point in time.

balance sheet. assets liabilities and net assets. **net assets reclassifications

A company had 400,000 shares of common stock issued and outstanding on January 1, year 1, and had the following equity transactions for year 1: Transactions Date Issued 200,000 new shares for cash April 1 Issued new shares as a result of a 3-for-1 stock split July 1 Purchased 300,000 shares treasury stock for cash October 1 What should the company use as the denominator for the calculation of basic earnings per share for the year ended December 31, year 1?

basic EPS = net income - pref dividends / weighted-average common shares outstanding retroactive stock split treatment (3 for 1) 400,000 original x 3 = 1,200,000 (treat as if it happened at the beg of the year). 1,200,000 x 3/12 = 300,000. add: 400k + 200k = 600,000. add 1,200,000+600,000 x 6/12 = 900,000 1,800,000 - 300,000 purchased treasury stock = 1,500,000 1,500,000 x 3/12 = 375,000 add: 300k + 900k + 375k = 1,575,000

Special purpose frameworks:

basis of accounting other than GAAP: - Cash basis - tax basis - regulatory basis - contractual basis - other basis

In a statement of activities of the People's Environmental Protection Association, a voluntary community organization, depreciation expense should: not be included. be included as an element of support. be included as an element of other changes in fund balances. be included as an element of expense.

be included as an element of expense. As a voluntary community organization, the People's Environmental Protection Association is considered a not-for-profit entity as described in the FASB Accounting Standards Codification Glossary. FASB ASC 958-360-35-1 provides that a not-for-profit entity "shall recognize the cost of using up the future economic benefits or service potentials of its long-lived tangible assets (as) depreciation (expenses)."

Redwood Co.'s financial statements had the following information at year-end: Cash $ 60,000 Accounts receivable 180,000 Allowance for uncollectible accounts 8,000 Inventory 240,000 Trading debt securities 90,000 Prepaid rent 18,000 Current liabilities 400,000 Long-term debt 220,000 What was Redwood's quick ratio?

cash + (A/R - allowance for uncollectibles = net A/R) + trading debt securities / current liabilities (60k + (180k - 8k) + 90k ) / 400,000 = 0.81 to 1 All of the assets are current. Inventory and prepaid rent (assets) are excluded from the quick ratio.

How should unconditional promises to give received by a nongovernmental not-for-profit entity that will be collected over more than one year be reported? Long-term contributions receivable, valued at the expected collection amount Contributions receivable, valued at their present values Deferred revenue, valued at present value Contributions receivable, valued at the amount promised

contributions receivable, valued at their present values Unconditional contributions receivable expected to be collected over more than one year should be valued using present discounted value techniques and appropriate assumptions. The contributions receivable are valued at present values, NOT future values. The contributions should be recognized as revenue in the period they are made and not deferred.

According to the FASB's conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of: comparability. cost-benefit. faithful representation. relevance.

cost-benefit. SFAC 8, chapter 3, paragraph QC5, identifies two fundamental qualitative characteristics—relevance and faithful representation. SFAC 8, chapter 3, paragraph QC19, identifies four enhancing characteristics—comparability, verifiability, timeliness, and understandability. In SFAC 8, chapter 3, paragraph QC35, the requirement that benefits exceed costs was identified as a pervasive constraint. Costs are imposed when reporting financial information, and those costs must be justified. The FASB was clearly concerned about the cost-benefit constraint.

Which of the following information should be disclosed in the summary of significant accounting policies? Refinancing of debt subsequent to the balance sheet date Guarantees of indebtedness of others Criteria for determining which investments are treated as cash equivalents Adequacy of pension plan assets relative to vested benefits

criteria for determining which investments are treated as cash equivalents In FASB, ASC, in a discussion of cash and cash equivalents, states "an entity shall disclose its policy for determining which items are treated as cash equivalents." Note: The above requirement was embedded in a long paragraph discussing cash equivalents. The wording of the correct answer choice, particularly "criteria," indicates a relation to policy, whereas none of the other answers imply such a relationship.

what is a quick ratio?

current asset / current liabilities current assets = exclude inventory and prepaid assets

During a period when an enterprise is under the direction of a particular management, its financial statements will directly provide information about: both enterprise performance and management performance. management performance but not directly provide information about enterprise performance. enterprise performance but not directly provide information about management performance. neither enterprise performance nor management performance.

enterprise performance but not directly provide information about management performance. Financial statements provide direct information about enterprise performance because the primary focus of the statements is to provide information about the financial performance of that enterprise by providing information about earnings. The same cannot be said, however, in regard to management performance. The financial statements depict only indirect information concerning management performance. (Direct information related to management performance would be provided in internal managerial performance reports but not in the external financial statements.)

the term reliability is still used in SFAC 5, even though it has changed to ________________ in SFAC 8.3

faithful representation

cash paid for principal on a long-term note payable should be included in

financing activities

cash paid for the purchase of treasury stock should be included in

financing activities

Articulation means that financial statements are: fundamentally interrelated. separate and self-balancing. unaffected by each other. totally dependent on each other.

fundamentally interrelated. Articulation means that the elements of financial statements are fundamentally interrelated in two ways: (1) beginning balance + changes = ending balance, and (2) assets = liabilities + equity. The concept of double-entry accounting (i.e., debits = credits) incorporates these relationships. In this way, financial statements show different aspects of the same transaction or event affecting the entity. Financial statements are not separate and self-balancing—the balance sheet is dependent upon the current period income or loss from the income statement to be balanced. Similarly, financial statements are affected by the other financial statements—changes in balance sheet elements (assets and liabilities) are reflected in the statement of cash flows.

Which of the following is not an item that is required to be disclosed about reportable segments' profit or loss (assuming that the item was included in the determination of profit or loss)? - Interest revenue - Income tax expense or benefit - Insurance expense - Equity in the net income of investees accounted for by the equity method

insurance expense FASB ASC 280-10-50-22 specifically lists the following as requiring disclosure: Revenues from external customers Revenues from transactions with other operating segments of the same enterprise Interest revenue Interest expense Depreciation, depletion, and amortization expense Unusual items as described in FASB ASC 220-20-45-1 Equity in the net income of investees accounted for by the equity method Income tax expense or benefit Significant noncash items other than depreciation, depletion, and amortization expense Insurance expense is not one of the items that requires disclosure.

purchase of property, plant and equipment is included in

investing activities

Which of the following transactions is included in the operating activities section of a cash flow statement prepared using the indirect method? Purchase of treasury stock Investment revenue recognized on an equity method investment Purchase of property, plant, and equipment Payment of principal on a long-term note payable

investment revenue recognized on an equity method investment Investment revenue recognized on an equity method investment is included in net income. If an entity is using the indirect method, an adjustment to remove the investment revenue must be made to remove the effect from operating activities. Cash paid for the purchase of treasury stock and cash paid for principal on a long-term note payable are included in financing activities. Purchase of property, plant, and equipment is included in investing activities.

Which of the following is not a special-purpose framework? - Cash receipts and disbursements basis of accounting - Basis of accounting used by an entity to file its income tax return - Basis of accounting used by an entity to comply with the financial reporting requirements of a government regulatory agency - Modified cash basis of accounting where some fixed assets are capitalized while others are expensed

modified cash basis of accounting where some fixed assets are capitalized while others are expensed. for the modified cash basis to be an acceptable form, the modifications must be applied logically and consistently. Capitalizing some fixed assets while expensing others would not represent a consistent or logical application of the framework.

Ute Co. had the following capital structure during 20X1 and 20X2: Preferred stock, $10 par, 4%cumulative, 25,000 shares issuedand outstanding $ 250,000Common stock, $5 par, 200,000shares issued and outstanding 1,000,000 Ute reported net income of $500,000 for the year ended December 31, 20X2. Ute paid no preferred dividends during 20X1 and paid $16,000 in preferred dividends during 20X2. In its December 31, 20X2, income statement, what amount should Ute report as basic earnings per share?

net income = 500,000 minus attributed to preferred stock for 20x2: (25,000*10*0.04) = 10,000 = 500,000-10,000 = 490,000 / 200,000 outstanding CS = 2.45 EPS Note: The $16,000 dividends paid in 20X2 included only the $10,000 (i.e., 25,000 × $10 × .04) preferred dividend requirement for 20X2. Dividends in arrears should have been included in the previous year's computation of earnings per share. The current year's dividends accrued, and only the current year's dividends on cumulative preferred stock, whether declared or not, should be deducted from net income in calculating EPS. Dividends in arrears would have been included in the EPS calculation in previous years.

Which of the following items is included in accumulated other comprehensive income or loss? - Unrealized gains and losses from the ineffective portion of a derivative properly designated as a cash flow hedge - Unrealized holding gains or losses on investments in equity securities - A reduction of shareholders' equity related to employee stock ownership plans - Prior service costs not previously recognized as a component of net periodic pension costs

prior service costs not previously recognized as a component of net periodic pension costs Unrealized gains and losses from the ineffective portion of a derivative properly designated as a cash flow hedge and unrealized holding gains or losses on investments in equity securities are recognized immediately in income. A reduction of shareholders' equity related to employee stock ownership plans is generally the result of an increase in a related liability, not income.

According to the FASB conceptual framework, predictive value is an ingredient of: faithful representation. relevance. both faithful representation and relevance. neither faithful representation nor relevance.

relevance SFAC 8.3, "Qualitative Characteristics of Useful Financial Information," identifies predictive value and confirmatory value as components of relevance. Financial information is capable of making a difference in decisions if it has predictive value, confirmatory value, or both.

Contractual asset or liability disclosures identified in Statement of Financial Accounting Concepts 8 (SFAC 8), Chapter 8, include all of the following except: reporting segments. legal terms. degree of nonperformance risk. method used to calculate the cash flow.

reporting segments. SFAC 8 provides a summary of potential additional disclosures for assets and liabilities resulting from financial instruments or other contracts: the contractual or legal terms (e.g., timing of receipts and disbursements), degree of credit or nonperformance risk, potential effect related to inability to pay or perform, and method used to determine the cash flows. Reporting segments are not one of the suggested disclosure items.

The SEC's rulemaking procedures identified on their website include which of the following steps? Issue identification Commission deliberation Rule adoption None of the answer choices are correct.

rule adoption SEC website: 1. concept release 2. rule proposal 3. rule adoption

When entities face risk due to a lack of diversification, they must include disclosures in the notes to the financial statements about "vulnerability to concentrations." Which of the following is not a necessary criterion of a "vulnerability to concentrations"? The concentration exists at the date in the financial statements. The concentration makes the entity vulnerable to the risk of a severe impact in the near term. Severe impact events are those that are catastrophic. There is a reasonable possibility that the events resulting in a severe impact related to the concentration will occur in the near term.

severe impact events are those that are catastrophic "vulnerability to concentrations" risks: - such a concentration exists at the date of the financial statements - the concentration makes the entity vulnerable to the risk of a near-term severe impact - it is at least reasonably possible that the events that could cause the severe impact will occur in the near term

The net asset reclassifications of a nongovernmental not-for-profit organization would be reported on which of the following? Statement of financial position Statement of activities Statement of cash flows Statement of functional expenses

statement of activities The statement of activities provides information about the change in amount and nature of net assets by reporting on changes in net assets with donor restrictions and net assets without donor restrictions for a period of time. The statement of financial position is comparable to a balance sheet, and reports assets, liabilities, and net assets (rather than equity) at a point in time. Cash receipts and cash payments are reported on the statement of cash flows.

cash receipts and cash payments are reported on the

statement of cash flows

A public entity sells steel for use in construction. One of its customers accounts for 43% of sales, and another customer accounts for 40% of sales. What should the entity disclose in its annual financial statements about these two customers? The payment terms of accounts receivable due from each of the two customers The amount of the entity's revenue from each of the two customers The names of the two customers The financial condition of the two customers

the amount of the entity's revenue from each of the 2 customers remember the 10%+ rule per customer revenue needs to be segmented. If revenues from transactions with a single external customer amount to 10% or more of an entity's revenues, the business must disclose that fact, the total amount of revenues from each such customer, and the identity of the segments reporting the revenues. A major customer is a single customer, or a group of entities, known to a reporting enterprise to be under common control. The identity, payment terms, and financial condition of the customers do not need to be disclosed.

A company has a 22% investment in another company that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements? The names and ownership percentages of the other stockholders in the investee company The reason for the company's decision to invest in the investee company The company's accounting policy for the investment Whether the investee company is involved in any litigation

the company's accounting policy for the investment **need to include the company's use of the equity method. The equity method must be used if the company has significant influence over the company whose stock has been acquired. Generally, 20% ownership is evidence of significant influence, but it is possible that other factors would indicate otherwise. Consequently, the use of the equity is the selection of an accounting principle from existing alternatives (equity method or cost method).

Statement of Financial Accounting Concepts 8 (SFAC 8), Chapter 8, states that noncontractual asset disclosures could include all of the following except for: the nature of the asset. the degree of nonperformance risk. the quality of the asset. the location of the asset.

the degree of nonperformance risk. SFAC 8 provides a summary of potential additional disclosures. For assets, the following items should be disclosed: the nature, quality, and location of the asset; future cash flows; relation to other line items; and significant contractual, statutory, regulatory, or judicial restrictions. The degree of nonperformance risk of the asset is not one of the suggested disclosures.

Each of the following is a component of the changes in the net assets available for benefits of a defined benefit pension plan trust, except: the net change in fair value of each significant class of investments. the net change in the actuarial present value of accumulated plan benefits. contributions from the employer and participants. benefits paid to participants.

the net change in the actuarial present value of accumulated plan benefits. The statement of changes in net assets must include the following: The change in fair value of each significant type of investment Investment income Contributions from employers Contributions from participants Contributions from other identified sources Benefits paid to participants Payments to insurance entities to purchase contracts Administrative expenses Only the net change in the actuarial present value of accumulated plan benefits is not included in this list.

According to the FASB conceptual framework, which of the following is not an essential characteristic of a gain? - There is an increase in net assets. - They can result from all other transactions and other events and circumstances affecting an entity. - They can result from peripheral or incidental transactions. - They can result from revenues or investment by owners.

they can result from revenues or investment by owners Gains definition = increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners.

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? $3,000 $17,000 $20,000 $23,000

$17,000 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=======

The Seasoned Village, a voluntary health and welfare entity devoted to supporting the elderly, received a $2,500,000 permanent endowment during the year. The donation carried the stipulation that the income and investment appreciation is to be used to maintain its senior center. The endowment fund reported a net investment appreciation of $182,000 and investment income of $100,000. The organization spent $147,000 to maintain its senior center during the year. What amount of change in net assets with donor restrictions should the organization report as a result of these transactions? $100,000 $135,000 $282,000 $2,635,000

$2,635,000 The change in net assets with donor restrictions includes the original donation of $2,500,000, any increases from investment income ($100,000) and net investment appreciation ($182,000) that the donor restricted to use for the senior center, and any decreases from the amount of resources spent for the restricted purpose ($147,000). These net assets released from restrictions reduce net assets with donor restrictions and increase net assets without donor restrictions by $147,000. Therefore, the change in net assets with donor restrictions is $2,500,000 + $182,000 + $100,000 − $147,000, or $2,635,000.

Motocrossers Inc. is a nongovernmental not-for-profit entity that maintains a motocross facility. Motocrossers received an unrestricted pledge of $90,000 from one of the riders who trained on the track early in his career. Of the promised amount, $60,000 was designated by the donor for use during the current year, and $30,000 was designated for next year. Twelve percent (12%) of the contributions receivable are expected to be uncollectible. What amount should Motocrossers report as restricted support (contributions) in the statement of activities for the current year? $26,400 $30,000 $86,400 $90,000

$26,400 Of the $90,000 of contributions, $60,000 designated for use during the current year would have been collected in full by the date of the financial statements issued as of the end of the year. This $60,000 would be reported in the statement of activities as unrestricted support. Of the remaining $30,000, 12% or $3,600 is estimated to be uncollectible. Therefore, the $26,400 anticipated to be collected in the subsequent year is reported in the statement of activities as restricted support (due to the time restriction).

A company had the following outstanding shares as of January 1, Year 2: Preferred stock, $60 par, 4%, cumulative 10,000 shares Common stock, $3 par 50,000 shares On April 1, Year 2, the company sold 8,000 shares of previously unissued common stock. No dividends were in arrears on January 1, Year 2, and no dividends were declared or paid during Year 2. Net income for Year 2 totaled $236,000. What amount is basic earnings per share for the year ended December 31, Year 2? $4.21 $3.79 $3.66 $4.07

$3.79 Net income - preferred cumulative dividend = 236k - (600k x 0.04) = 212,000. WACSO = 50k shares / (8000*9/12) = 56,000 shares. Basic EPS = 212,000 / 56000 = 3.79 shares.

Karr, Inc., reported net income of $300,000 for 20X1. Changes occurred in several balance sheet accounts as follows: Equipment $25,000 increase Accumulated depreciation 40,000 increase Note payable 30,000 increase Additional Information During 20X1, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000. In December 20X1, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000. Depreciation expense for the year was $52,000. In Karr's 20X1 statement of cash flows, net cash provided by operating activities should be: $340,000. $352,000. $357,000. $347,000.

$347,000. reported 20x1 net income = 300,000 + depreciation expense 52,000 - gain on sale of equipment (5000) = net cash flow from operating activities 347,000. Note: All items that are included in net income that do not affect net cash provided from, or used for, operating activities such as depreciation of property, plant, and equipment and amortization of finite-life intangible assets. This includes all items whose cash effects are related to investing or financing cash flows, such as gains or losses on sales of property, plant, and equipment and discontinued operations (which relate to investing activities), and gains or losses on extinguishment of debt (which relate to financing activities). (FASB ASC 230-10-45-28).

During the first quarter of the current year, Tech Co. had income before taxes of $200,000, and its effective income tax rate was 15%. Tech's previous-year effective annual income tax rate was 30%, but Tech expects its current-year effective annual income tax rate to be 25%. In its first-quarter interim income statement, what amount of income tax expense should Tech report? $60,000 $0 $30,000 $50,000

$50,000 The current year effective annual tax rate is used for interim reports: 200,000 x 0.25 = 50,000.

The following information is from Mabel Co.'s year-end financial statements for the current and previous years: Current Year Previous Year Prepaid expenses $ 10,000 $ 20,000 Accounts payable 50,000 30,000 Land 250,000 600,000 Land was sold during the current fiscal year for cash, resulting in a loss of $40,000. What is Mabel's net adjustment to net income to determine net cash from operating activities? $(70,000) $70,000 $0 $30,000

$70,000 +40k loss on land +10k dec +20k inc current liab = 70k include the loss on land!!! not land itself The reconciliation from net income to net cash flows from operating activities reconciles is required under the indirect method (as the operating section) or the direct method (as a reconciliation to the statement of cash flows). It begins with net income; adjusts for non-cash expenses, losses, and gains in the income statement; and is further adjusted for the net change in current assets and current liabilities. The reconciliation would add back the loss of $40,000 to net income, add $10,000 for the decrease in current assets (prepaid expenses) and add $20,000 for the increase in current liabilities (accounts payable) for a total positive adjustment of $70,000 ($40,000 + $10,000 + $20,000). The decrease in land would be recorded in the investing section of the statement of cash flows for the amount actually received in cash.

some examples of OCI

- foreign currency translation gains or losses - gains and losses (effective portion only) on derivative instruments that qualify as cash flow hedges - unrealized holding gains and losses on available-for-sale debt securities - pension or post retirement gains or losses (not recognized immediately as a component of net periodic benefit cost) - prior service costs or credits

During the current year, the local humane society, a nongovernmental not-for-profit entity, received a $100,000 permanent endowment from Cobb. Cobb stipulated that the income must be used to care for older horses that can no longer race. The endowment reported income of $8,000 in the current year. What amount of unrestricted contribution revenue should the humane society report for the current year? $108,000 $8,000 $100,000 $0

0 Endowments that must be maintained in perpetuity (permanent endowment), as well as income from the endowment, are classified as restricted revenues.

In a statement of cash flows, which of the following items is reported as a cash outflow from financing activities? 1 Payments to retire mortgage notes 2 Interest payments on mortgage notes 3 Dividend payments I, II, and III II and III I only I and III

1 and 3 Cash outflows from financing activities include cash payments for dividends and principal payments to creditors. Interest payments are cash flows from operating activities.

Selected information from the separate and consolidated balance sheets and income statements of Para, Inc., and its subsidiary, Shel Co., as of December 31, 20X1, and for the year then ended is as follows: Pare Shel Consolidated Balance sheet accounts Accounts receivable $ 52,000 $ 38,000 $ 78,000 Inventory 60,000 50,000 104,000 Income Statement accounts Revenues $400,000 $280,000 $616,000 Cost of goods sold 300,000 220,000 462,000 Gross profit 100,000 60,000 154,000 Additional information: During 20X1, Pare sold goods to Shel at the same markup on cost that Pare uses for all sales. On December 31, 20X1, what was the amount of Shel's payable to Pare for intercompany sales? $12,000 $58,000 $6,000 $64,000

12,000 a/r = 52+38k = 90k - consolidated a/r 78k = a/r eliminated in consolidation = 12,000 Intercompany receivables and payables are always eliminated in the consolidation process. Therefore, the $12,000 eliminated must represent the amount Shel owed to Pare for intercompany sales.

The following information was taken from Baxter Department Store's financial statements: Inventory at January 1 $ 100,000 Inventory at December 31 300,000 Net sales 2,000,000 Net purchases 700,000 What was Baxter's inventory turnover for the year ending December 31? 2.5 3.5 5 10

2.5 inventory turnover = COGS / average inventory COGS = beg inv + net purchases - ending inv

Baker Co. began its operations during the current year. The following is Baker's balance sheet at December 31: Baker Co.BALANCE SHEET Assets Cash $192,000 Accounts receivable 82,000 Total assets $274,000======== Liabilities and stockholders' equity Accounts payable $ 24,000 Common stock 200,000 Retained earnings 50,000 Total liabilities and stockholders' equity $274,000======== Baker's net income for the current year was $78,000 and dividends of $28,000 were declared and paid. Common stock was issued for $200,000. What amount should Baker report as cash provided by operating activities in its statement of cash flows for the current year? $20,000 $192,000 $50,000 $250,000

20,000 78,000 net income - inc in a/r - increase in a/c payable = 20,000 net cash provided by operating activities.

Reed Co.'s 20X1 statement of cash flows reported cash provided from operating activities of $400,000. For 20X1, depreciation of equipment was $190,000, impairment of goodwill was $5,000, and dividends paid on common stock were $100,000. In Reed's 20X1 statement of cash flows, what amount was reported as net income? $105,000 $205,000 $305,000 $595,000

205,000 400k - 190k - 5k = 205k Dividends paid are reported as financing activities. The reconciliation of net income and cash provided by operating activities would reflect both of the other items as they are noncash expenses and losses. Net income + Depreciation expense + Goodwill impairment loss = Cash provided by operating activities X + $190,000 + $5,000 = $400,000 X = $205,000

Child Care Centers, Inc., a not-for-profit entity, receives revenue from various sources during the year to support its day care centers. The following cash amounts were received during 20X1: $2,000 restricted by the donor to be used for meals for the children $1,500 received for subscriptions to a monthly child care magazine with a fair market value to subscribers of $1,000 $10,000 to be used only upon completion of a new playroom that was 75% complete at December 31, 20X1 What amount should Child Care Centers record as contribution revenue in its 20X1 Statement of Activities?

2500 Restricted contributions are recognized as revenue when received or promised. The $2,000 restricted for meals is recognized as restricted revenue. Conditional promises to give are not recognized as revenue until all conditions are met. The $10,000 represents a conditional promise since it may not be used until completion of a new playroom. Therefore, none of the $10,000 is recognized as revenue currently. Exchange transactions represent actions that involve a reciprocal transfer between the organization and the donor. In these situations, the amount given by the donor that is recognized as contribution revenue is reduced by the fair market value of the consideration given by the organization to the donor. The $1,500 received for subscriptions represents a $1,000 payment for the subscription and a $500 unrestricted contribution. Total contribution revenue is:Restricted $2,000Unrestricted 500Total revenue $2,500

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. In Pare's December 31, 20X1, consolidated balance sheet, what amount should be reported as noncontrolling (minority) interest in net assets? $0 $30,000 $45,000 $105,000

30,000 According to FASB ASC 810-10-20, a noncontrolling interest is "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.