Becker F1

A "Held for Sale" component is recorded at

"The lower of it's carrying amount or FV-costs to sell"

On July 1, Year 1, Balt Co. exchanged a truck for 25 shares of Ace Corp.'s common stock. On that date, the truck's carrying amount was $2,500, and its fair value was $3,000. Also, the book value of Ace's stock was $60 per share. On December 31, Year 1, Ace had 250 shares of common stock outstanding and its book value per share was $50. What amount should Balt report in its December 31, Year 1 balance sheet as investment in Ace assuming the transaction had commercial substance? a. $1,500 b. $1,250 c. $3,000 d. $2,500

$3,000 (fair value of the truck surrendered). If a nonmonetary exchange has commercial substance, the transaction is accounted for using the FV of the asset surrendered or received, whichever is more evident. The FV of the truck is $3,000 on the date of the exchange, and it does not provide the fair value of the stock (don't use the book value of the stock as an "approximation" of the fair value); therefore, the $3,000 fair value of the truck is used for measuring the transaction.

Which of the following is included in other comprehensive income? a. Unrealized holding gains and losses on trading securities. b. Unrealized holding gains and losses that result from a debt security being transferred into the held-to-maturity category from the available-for-sale category. c. The difference between the accumulated benefit obligation and the fair value of pension plan assets. d. Foreign currency translation adjustments.

(P.U.F.E.) Choice "d" is correct. The four main components of other comprehensive income include: Pension changes in funded status: due to gains/losses, prior service costs, and net transition assets or obligations. Unrealized gains and losses: unrealized holding gains/losses on available for sale securities and unrealized holding gains and losses on debt securities transferred from the held to maturity to available for sale classification. Foreign currency items, including translation adjustments. The effective portion of cash flow hedges.

3 Items commonly included in Discontinued Operations:

1-Results of operations of components 2-Gain/loss on disposal of the component 3-Impairment loss of the component

4 Steps for converting from cash basis to accrual basis:

1. Add increases in current assets. 2. Subtract decreases in current assets. 3. Add decreases in current liabilities 4. Subtract increases in current liabilities.

In an exchange of dissimilar assets under IFRS, an entity received equipment with a fair value equal to the carrying amount of the other assets given up. The entity also paid cash. As a result of the exchange, the entity recognized: a. A gain determined by the proportion of cash paid to the total transaction value. b. A loss equal to the cash given up. c. Neither a gain nor a loss. d. A loss determined by the proportion of cash paid to the total transaction value.

A loss equal to the cash given up. Under IFRS, exchanges of dissimilar assets are regarded as exchanges that generate revenue and all gains and losses are recognized.

Changing from a Cash basis to Accrual is an:

Accounting ERROR! Take care of it retro. Cash is not GAAP!

Under US GAAP, what basis should all FS be presented in?

Accrual basis

Assets of a discontinued operation:

Are no longer depreciated or amortized

Full set of FS:

BS, IS, Comprehensive income, Cash flows, Statement of changes in owner's eqity

Change in acct principle FS presentation

Beg RE of earliest FS presented, then retro on ones being presented

Cost constraint:

Benefit must outweigh the cost of gathering and presenting information

What is the proper treatment of the cost of equipment used in research and development activities that will have "alternative future uses"?

Capitalized and depreciated over its estimated useful life.

Events resulting in Estimate changes:

Changes in lives of PPE, adj of year end accrual of officer's salaries/bonuses, Write-downs of obsolete inv, Settlement of litigation

Timber Co., was evaluating the likelihood of collecting various accounts receivable currently on its books. This evaluation resulted in the decision to change from the direct recognition method to the installment method for recognizing receivables. The accounting treatment for this change is best characterized as: a. Prospective. b. Retroactive. c. Cumulative. d. Restatement.

Choice "a" is correct. A change from direct recognition to the installment method is a change in accounting principle inseparable from a change in accounting estimate that is treated like a change in accounting estimate, prospectively.

Which of the following factors determines whether an identified segment of an enterprise should be reported in the enterprise's financial statements? I.The segment's assets constitute more than 10% of the combined assets of all operating. II.The segment's liabilities constitute more than 10% of the combined liabilities of all operating segments. a. I only. b. II only. c. Neither I nor II. d. Both I and II.

Choice "a" is correct. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule does not apply for the segment's liabilities. The candidate does have to remember the 10% and also the 10% of "what." Choice "b" is incorrect. For segment reporting, if an identified segment's assets constitute more than 10% of the combined assets of all operating segments, the segment should be reported. The same rule does not apply for the segment's liabilities.

During Year 1, Lyle Co. incurred $400,000 of research and development costs in its laboratory to develop a product for which a patent was granted on July 1, Year 1. Legal fees and other costs associated with the patent totaled $82,000. The estimated economic life of the patent is 10 years. What amount should Lyle capitalize for the patent on July 1, Year 1 under U.S. GAAP? a. $82,000 b. $482,000 c. $0 d. $400,000

Choice "a" is correct. Legal fees and other costs associated with registering a patent are capitalized. Research and development costs are expensed under U.S. GAAP.

Which of the following is the minimum reporting requirement for a company that is preparing its first IFRS financial statements? a. Three statements of financial position. b. Two statements of financial position. c. One statement of cash flows. d. One statement of comprehensive income.

Choice "a" is correct. Per IFRS 1 (First-Time Adoption of International Financial Reporting Standards), an entity's first financial statements should include at least: Three balance sheets (statements of financial position), Two statements of comprehensive income, Two separate income statements, Two statements of cash flows, Two statements of changes in equity, and Related notes, including comparative information.

Which of the following items in not required to be presented in an exhibit prepared using XBRL when a filer submits Form 10-K to the SEC? a. Management's discussion and analysis. b. Summary of significant accounting policies. c. Statement of comprehensive income. d. Balance sheet.

Choice "a" is correct. The MD&A is not required to be presented in an exhibit prepared using XBRL. The SEC's Interactive Data Rule requires a U.S. public company submitting a Form 10-K to present financial statements, including the balance sheet, statement of comprehensive income, and all footnotes, and any applicable financial statement schedules, in an exhibit prepared using XBRL.

On June 15 of the current year, Solid Co. decided to change from moving average inventory system to the FIFO inventory system. Solid uses IFRS, is on a calendar year basis, and complies with IFRS minimum comparative reporting requirements. The cumulative effect of the change is shown as an adjustment to beginning retained earnings on the balance sheet for: a. January 1 of the prior year. b. December 31 of the current year. c. June 15 of the current year. d. January 1 of the current year.

Choice "a" is correct. Under IFRS, when an entity records a change in accounting principle, the entity must (at a minimum) present three balance sheets (end of current period, end of prior period, and beginning of prior period) and two of each other financial statement (current period and prior period). The cumulative effect adjustment is shown as an adjustment to beginning retained earnings on the balance sheet for the beginning of the prior period, which would be January 1 of the prior year.

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. $0 b. $10,000 c. $4,000 d. $6,000

Choice "a" is correct. When there is an unlimited right of return, nothing should be recorded as sales revenue unless four conditions are satisfied. These conditions are the following:

The cumulative effect of a change in accounting estimate should be shown separately: a. On the income statement after income from continuing operations and before extraordinary items. b. It should not be recorded separately on any financial statement. c. On the retained earnings statement as an adjustment to the beginning balance. d. On the income statement above income from continuing operations.

Choice "b" is correct. A change in estimate is handled prospectively. No cumulative effect adjustment is made and no separate line item presentation is made on any financial statement. If a material change is being made, appropriate footnote disclosure is necessary.

Alta Co. spent $400,000 during the current year developing a new idea for a product that was patented during the year. The legal cost of applying for a patent license was $40,000. Also, $50,000 was spent to successfully defend the rights of the patent against a competitor. The patent has a life of 20 years. What amount should Alta capitalize related to the patent? a. $40,000 b. $90,000 c. $50,000 d. $490,000

Choice "b" is correct. Development costs of a new product idea are a direct expense. Legal fees incurred to apply for a patent and to successfully defend the patent rights are capitalized as an asset.

How should a first-time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position? a. Current adjustments should be recognized in profit or loss and noncurrent adjustments should be recognized in retained earnings. b. All of the adjustments should be recognized directly in retained earnings or, if appropriate, in another category of equity. c. All of the adjustments should be recognized in profit or loss. d. Adjustments that are capital in nature should be recognized in retained earnings and adjustments that are revenue in nature should be recognized in profit or loss.

Choice "b" is correct. Per IFRS 1 (First-Time Adoption of International Financial Reporting Standards), Section 1.11, adjustments go directly to retained earnings or if appropriate, another category of equity at the date of transition to IFRS.

According to the FASB and IASB conceptual frameworks, which of the following correctly pairs a fundamental qualitative characteristic of useful information with one of its components? a. Faithful representation and verifiability. b. Relevance and materiality. c. Relevance and timeliness. d. Faithful representation and predictive value.

Choice "b" is correct. Under the FASB and IASB conceptual frameworks, relevance is a fundamental qualitative characteristic, and materiality is a component of relevance.

Which of the following documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards Codification? a. A proposed statement of position. b. A proposed accounting research bulletin. c. A proposed accounting standards update. d. A proposed staff accounting bulletin.

Choice "c" is correct. A proposed accounting standards update is prepared by the FASB as part of the due-process activities.

The matching principle: a. Matches revenues against expenses in the same accounting period. b. Matches expenses and losses against revenues and gains in the same accounting period. c. Matches expenses against revenues in the same accounting period. d. Matches revenues and gains against expenses and losses in the same accounting period.

Choice "c" is correct. Expenses are necessarily incurred to generate revenues. All expenses incurred to generate a particular revenue should be recorded in the same period in which the revenue is recorded.

Adam Corp. uses IFRS and had the following infrequent transactions during Year 1: A $190,000 gain on reacquisition and retirement of bonds. The material event is also considered unusual for Adam Corp. A $260,000 gain on the disposal of a component of a business. Adam continues similar operations at another location. A $90,000 loss on the abandonment of equipment. In its Year 1 income statement, what amount should Adam report as total infrequent net gains that are not considered extraordinary? a. $100,000. b. $450,000. c. $360,000. d. $170,000.

Choice "c" is correct. IFRS prohibits the reporting of gains/losses as extraordinary. Therefore, none of the infrequent items are extraordinary under IFRS:

An entity has modified liability for its interactive data (XBRL) exhibits for a period: a. Ending on October 31, 2014. b. Of 30 days after the earlier of the due date or filing date of the related report or registration statement. c. Of 24 months from the time the filer first is required to submit interactive data files. d. Ending on June 15, 2011.

Choice "c" is correct. XBRL exhibits submitted to the SEC are subject to modified liability for 24 months from the time the filer first is required to submit interactive data files. The modified liability provision will terminate completely on October 31, 2014, but will end sooner than this date for most entities.

Which of the following qualifies as a reportable segment? a. 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. b. 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. c. Corporate headquarters, which oversees $1 billion in sales for the entire company. d. North American segment, whose assets are 12% of the company's assets of all segments, and management reports to the chief operating officer.

Choice "d" is correct. Assets of the North American segment exceed 10% combined assets of all operating segments. Choice "b" is incorrect. Eastern Europe segment does not report to the chief operating officer.

According to the FASB and IASB conceptual frameworks, useful information must exhibit the fundamental qualitative characteristics of: a. Neutrality and verifiability. b. Understandability and timeliness. c. Comparability and materiality. d. Faithful representation and relevance.

Choice "d" is correct. The fundamental qualitative characteristics of useful financial information are relevance and faithful representation.

Goodwill should be tested for value impairment at which of the following levels under U.S. GAAP? a. Each identifiable long-term asset. b. Entire business as a whole. c. Each acquisition unit. d. Each reporting unit.

Choice "d" is correct. U.S. GAAP requires that goodwill be tested for impairment at the reporting unit level. The evaluation of goodwill impairment involves two major steps. Step 1: Identify potential impairment by comparing the fair value of each reporting unit with its carrying amount, including goodwill. Step 2: Measure the amount of goodwill impairment loss by comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill.

Enhancing Qualitative characteristics

Compare and verify in time to understand

3 parts of Faithful Representation:

Completeness, neutrality, freedom from error

Goodwill should be tested for impairment at what level under IFRS?

Each cash-generating unit.

Goal of the Private Company Council (PCC)

Establish alternatives to GAAP and to make private company FS more relevant, less complex, and more cost beneficial

FEDPRIA

FASB, Emerging Issues Task Force, Derivative Issues, acct Principles Board, acct Research bulletins, acctg Interpretations, AICPA

Authoritative literature included in the Codification

FEDPRIA

Historical cost principle:

Financial info should be recorded at cost, not FV

Neutrality:

Free from bias in selection or presentation

NOT extraordinary items:

G/L from abandonment of PPE, Large write-off of AR, inv, intangibles, or securities, Foreign currency trans, Losses from Strikes by employees

Non-operating section:

Gains/losses, interest, other income and exps

According to the IASB conceptual framework, which of the following is an underlying assumption of financial statement preparation and presentation? a. Historical cost. b. Monetary unit. c. Periodicity. d. Going concern.

Going Concern - The ONLY IASB assumption is Going Concern

Income Statement Nemonic

IDEA

IDEA and how it's reported

Income from continuing operations, Income from Discontinued operations (net of tax), extraordinary items (net of tax), change in Accounting principle(net of tax)-reported on statement of RE

Relevance:

Info is relevant if it is capable of making a difference in the decisions made by users

Exit/disposal costs examples:

Involuntary employee termination benefits, Costs to terminate a contract (not capital lease) Costs to "consolidate" facilities/relocate employees

To Be classified as Extraordinary:

Material, Unusual, AND infrequent

A component of a business is "held for sale" and reported in discontinued operations when...

Mgt commits to a plan to sell, The component is avail for immediate sale in present condition There's an active program to locate a buyer Sale is probable within 1 yr Sale of component is being actively marketed Represents a strategic shift/major effect on operations (major line, major geographic area)

Accounting Standards Updates are:

NOT authoritative literature, but do provide background info, update the code and describe the basis for conclusions on the update.

Material unusual OR infrequent items are reported:

Net of Tax in the Non-operating section

Changes in accounting Entity: (2 things)

Net of Tax, Restate to reflect FS as if the entity had always been there!

Changes in accounting Principle: (3 things)

Net of Tax, Retrospective, in Statement of RE

Changes in accounting estimates: (3 things)

Net of tax, Prospective, in statement of RE

Extraordinary losses are reported

Net of tax, on the IS

Operating section:

Normal course of business stuff: Sales, COGS, SG&A, depreciation

Discontinued operations are reported:

On the Income statement, Net of tax

3 parts of Relevance:

Predictive Value, Confirming value, Materiality

Change in depreciation method is handled:

Prospectively

Changes in accounting principle that are "inseparable" from a change in estimate are reported:

Prospectively - such as change in depreciation method

Elements of Financial Statements:

REGL ALE needs ID

SEC standard included in the Codification:

Regulation For Acct I S Emerging

Regulation For Acct I S Emerging:

Regulation S-X, Financial Reporting Releases Accounting series releases Interpretative releases Staff accounting bulletins EITF Topic D and SEC comments

Fundamental Qualitative characteristics:

Relevance & faithful representation

Faithful representation:

Reliable. "Completely neutral is free from error"

Error Correction:

Restate everything!

How is profit recognized under the Completed Contract method?

Revenue is recognized when the contract is complete, however expected losses are recognized immediately in their entirety.

REGL ALE needs ID

Revs, exps, gains, losses, assets, liabs, equity, investments by owners, Distributions to owners

Multi-step Income Statement:

Separates everything into Operating and non-operating

Recognize a liab for exit/disposal costs when:

They have more than a plan Note: a "plan" by itself is not enough!

Conceptually, interim financial statements can be described as emphasizing which of the following enhancing qualitative characteristics? a. Faithful Representation b. Relevance c. Timeliness d. Verifiability

Timeliness

Single Step Income Statement

Total exps (including income tax exp) are subtracted from total revs...All incomes at top, all exps subtracted below

Operating losses on discontinued operations are recognized when?

in the periods they occur

A component deemed "held for sale" is reported:

net of tax, under discontinued operations

What does IFRIC do?

provides guidance on newly identified financial reporting issues not addressed by IFRS and assists the IASB in convergence process