CPA 17
On January 2, 20X2, Lake Mining Co.'s board of directors declared a cash dividend of $400,000 to stockholders of record on January 18, 20X2, payable on February 10, 20X2. The dividend is permissible under law in Lake's state of incorporation. Selected data from Lake's December 31, 20X1, balance sheet are as follows: Accumulated depletion $100,000Capital stock 500,000Additional paid-in capital 150,000Retained earnings 300,000 The $400,000 dividend includes a liquidating dividend of:
$100,000. The liquidating dividend is that portion of the cash dividend that exceeds the balance in retained earnings because other equity accounts must be debited. Thus, for Lake: Total amount of January 2, 20X2, cash dividend $400,000Less: Retained earnings balance 300,000Liquidating dividend $100,000======== Liquidating dividends are a return of the investment rather than a return on the investment.
In Year 1, Gamma, a not-for-profit organization, deposited at a bank $1,000,000 given by a donor to purchase endowment securities. The securities were purchased January 2, Year 2. At December 31, Year 1, the bank recorded $2,000 interest on the deposit. In accordance with the bequest, this $2,000 was used to finance ongoing program expenses in March of Year 2. At December 31, Year 1, what amount of the bank balance should be included as current assets in Gamma's statement of financial position?
$2,000 In this situation, the income from the endowment is available to fund current program expenses (those incurred within the year). Since the principal of the endowment is designated for security investments (which are not current assets), only the income related to the investment is current, since it is intended to be expended within the coming year.
Information pertaining to dividends from Wray Corp.'s common stock investments for the year ending December 31, 20X1, follows: On September 8, 20X1, Wray received a $50,000 cash dividend from Seco, Inc., in which Wray owns a 30% interest. A majority of Wray's directors are also directors of Seco. On October 15, 20X1, Wray received a $6,000 liquidating dividend from King Co. Wray owns a 5% interest in King Co. Wray owns a 2% interest in Bow Corp., which declared a $200,000 cash dividend on November 27, 20X1, to stockholders of record on December 15, 20X1, payable on January 5, 20X2. What amount should Wray report as dividend income in its income statement for the year ending December 31, 20X1?
$4,000 Dividends are recorded as income (revenue) when the dividend is declared for investments in equity securities not accounted for under the equity method. Dividend income for 20X1 = Dividends from Bow Corp.= 0.02 x $200,000= $4,000 Note: The investment in Seco, Inc., would be accounted for using the equity method so the dividends would be treated as "recovery of investment." Under the equity method, a proportionate share of income is recognized "as earned." The liquidating dividend from King Co. is not income, but rather a return of investment to owners.
At the acquisition date, July 2, 20X1, reporting unit R has a fair value of $370,000 and a carrying amount (including goodwill of $100,000) of $470,000. On December 31, 20X1, the fair value of the assets and liabilities assigned to reporting unit R is $330,000, and the fair value of R is $400,000. The goodwill impairment loss reportable is:
$70,000. Impairment of goodwill is a one-step process: Compare: (a) Year-end fair value of reporting unit $400,000(b) Carrying amount, including goodwill 470,000 Difference $ 70,000 The fair value of the reporting unit as a whole, including goodwill, must be considered. If (b) exceeds (a), record an impairment loss and reduce goodwill by the difference to the extent the difference does not exceed the carrying value of goodwill. In this case, (b) exceeds (a), so the goodwill impairment loss is $70,000. If (a) exceeds (b), there is no impairment.
An enterprise fund must be used when which of the following criteria are met? The activity is financed with debt that is secured solely by a pledge of the net revenues from fees of the activity. Goods or services are provided on a cost-reimbursement basis. Laws require that the cost of providing services be recovered with fees and charges, rather than with taxes.
Activities are required to be reported as enterprise funds if either I or III is true. In addition, if pricing policies of the activity establish fees and charges designed to recover costs, an enterprise fund must be used. The language describing funds as providing goods and services "on a cost-reimbursement basis" applies to internal service funds. I and III
How should the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate be reported?
As a component of income from continuing operations FASB ASC 250-10-45-18 requires that whenever a change in accounting principle is inseparable from a change in an accounting estimate, the change should be considered as a change in estimate. Changes in estimates are handled prospectively. That is, previously reported information in previous financial statements is not adjusted, nor is a cumulative effect of the change reported. Prospective treatment only requires utilization of the change(s) in the current period as it effects the current period's income. It is part of income from continuing operations because no special disclosure is required on the face of the income statement under the prospective approach.
Under current generally accepted accounting principles, which approach is used to determine income tax expense?
Asset and liability approach The FASB determines income tax expense by requiring an asset and liability approach to the expense. This method recognizes that tax expense is the result of current-year activities and preceding-year activities. This method focuses on the calculation of and change in deferred tax assets and liabilities, current income tax payable, and valuation allowances, and calculates the periodic expense or benefit as the change in the asset or liability from the prior balance sheet date. Note that all deferred tax assets and liabilities are classified as long term on the balance sheet.
Estimates are a necessary part of the preparation of financial statements. It is necessary to explicitly communicate to the users of the financial statements that estimates have been used and that many of the amounts reported are approximations rather than exact amounts. This understanding should help users to make better decisions. Disclosure of certain significant estimates must be made when which of the following conditions are present?
Both of the conditions described must be present.
On January 2, 20X1, Nast Co. issued 8% bonds with a face amount of $1,000,000 that mature on January 2, 20X7. The bonds were issued to yield 12%, resulting in a discount of $150,000. Nast incorrectly used the straight-line method instead of the effective interest method to amortize the discount. How is the carrying amount of the bonds affected by the error?
December 31, 20X1: Overstated; January 2, 20X7: No effect When the bond's yield requires a discount, the bond's interest expense is based (early on) on a lower principal, and thus the expense applying straight-line would be higher (it is an average expense for the term). The discount amortization would be too high for the first year (overstating bond carrying value), but under both methods at the end of the term, the carrying amounts will be the bond face amount. Carrying amount on 1/2/X1 = $1,000,000 - $150,000 = $850,000 Amortization of discount: Using straight-line = $150,000 / 6 yrs= $25,000 / yr.Using effective interest = (0.12 x $850,000) - (.08 x $1,000,000)= $22,000
Dodd Corp. is preparing its December 31 current-year financial statements and must determine the proper accounting treatment for the following situations: For the current year ended December 31, Dodd has a loss carryforward of $180,000 available to offset future taxable income. However, there are no temporary differences. Based on an analysis of both positive and negative evidence, Dodd has reason to believe it is more likely than not that the benefits of the entire loss carryforward will be realized within the carryforward period. On 12/31 of this year, Dodd received a $200,000 offer for its patent. Dodd's management is considering whether to sell the patent. The offer expires on 2/28 of next year. The patent has a carrying amount of $100,000 at 12/31. Assume a current and future income tax rate of 30%. In its current-year income statement, Dodd should recognize an increase in net income of:
Dodd Corp. is preparing its December 31 current-year financial statements and must determine the proper accounting treatment for the following situations: For the current year ended December 31, Dodd has a loss carryforward of $180,000 available to offset future taxable income. However, there are no temporary differences. Based on an analysis of both positive and negative evidence, Dodd has reason to believe it is more likely than not that the benefits of the entire loss carryforward will be realized within the carryforward period. On 12/31 of this year, Dodd received a $200,000 offer for its patent. Dodd's management is considering whether to sell the patent. The offer expires on 2/28 of next year. The patent has a carrying amount of $100,000 at 12/31. Assume a current and future income tax rate of 30%. In its current-year income statement, Dodd should recognize an increase in net income of: $54,000.
Which of the following statements about leases is incorrect?
FASB Topic 842 does not apply to (1) leases of intangible assets, inventory, and assets under construction; (2) leases to explore for or use minerals, oil, natural gas, and similar nonregenerative resources; or (3) leases of biological assets, including timber. The customer must have a right to control the asset for the transaction to be classified as a lease. Entities to a lease transaction must identify the separate lease components within the contract. A low-value exemption is not contained in FASB ASC 842. The guidance in FASB ASC 842 applies to all lease transactions regardless of dollar value.
Babcock Company owes $50,000 to Mendenhall Corporation. Babcock also has an account receivable from Mendenhall of $45,000. Babcock wants to offset these items and report a net payable of $5,000 in their balance sheet. Which of the following is not required for Babcock to report these items in this manner?
Generally, the offsetting of assets and liabilities in the balance sheet is improper unless a right of setoff exists. The four criteria to establish a right of setoff that permits a firm to report items in an offsetting manner are: -each of the two parties owes the other determinable amounts, -the reporting party has the right to set off the amount owed with the amount owed by the other party, -the reporting entity intends to set off, and -the right of setoff is enforceable by law. A signed agreement is the only answer choice that is not one of the four criteria. Babcock must have a signed agreement from Mendenhall to report the items in an offsetting manner.
Juniper Corporation, which began operations on January 1, 20X8, appropriately uses the installment method of accounting. The following information pertains to Juniper's operations for the year 20X8: Installment sales $600,000 Cost of installment sales 400,000 Selling & administrative expenses 50,000 Collections on installment sales 180,000 In its December 31, 20X8, balance sheet, what amount of deferred gross profit should Juniper report related to the installment sales?
Gross profit is calculated as net sales revenues less cost of goods sold. The amount of deferred gross profit to be reported is equal to total gross profit less the gross profit realized through cash collections. Total gross profit for the installment sale is computed as follows: $600,000 - $400,000 = $200,000. Selling and administrative expenses are period costs and are not considered when assessing the gross profit reported by Juniper. The amount of gross profit realized is based on the gross profit percentage and the total cash collections. The gross profit percentage on the installment sales is computed as follows: ($600,000 - $400,000) ÷ $600,000 = 33%. Cash collections of $180,000 are multiplied by the gross profit percentage to arrive at the total gross profit realized of $60,000 ($180,000 × .33). Total gross profit of $200,000 less realized gross profit of $60,000 equals $140,000 of deferred gross profit to be reported at the end of the year.
Which of the following conditions must exist in order for an impairment loss to be recognized? The carrying amount of the long-lived asset is less than its fair value. The carrying amount of the long-lived asset is not recoverable.
II only FASB ASC 360-10-35-17 establishes a recoverability test to determine when an impairment loss is to be recognized. If the undiscounted sum of estimated future cash flows from an asset or asset group is less that the asset's or asset group's book value, an impairment loss may need to be recognized. The impairment loss is the difference between the book value of the asset(s) and its (their) fair value. Note that there is not an impairment loss if the fair value exceeds the carrying amount.
How should a U.S. publicly traded company report a change in fair value of a hedged available-for-sale security attributable to foreign exchange risk if the hedge is a fair value hedge?
In earnings Fair value hedges that are properly reported and documented require the company to report a change in fair value of the hedged asset directly to earnings. Note this is different from a cash flow hedge, which reports the change in value in other comprehensive income. The cost basis does not change as the original price remains unchanged and a contra-asset is not appropriate. The question does not state which direction the fair value changed.
Mare Co.'s December 31, 20X1, balance sheet reported the following current assets: Cash $ 70,000 Accounts receivable 120,000 Inventories 60,000 Total $250,000 An analysis of the accounts disclosed that accounts receivable consisted of the following: Trade accounts $ 96,000Allowance for uncollectible accounts (2,000)Selling price of Mare's unsold goodsout on consignment at 130% ofcost, not included in Mare'sending inventory 26,000Total $120,000 On December 31, 20X1, the total of Mare's current assets is:
Mare's consigned goods should be carried at cost, not selling price. Goods out on consignment remain the property of the consignor and must be included on the consignor's balance sheet at cost. Thus: Cost of consigned goods = Selling price / 1.30= $26,000 / 1.30= $20,000 This would reduce the accounts receivable balance by $26,000 to $94,000. Current assets: Cash $ 70,000 70,000 Accounts receivable 120,000 (26,000) 94,000 Inventories 60,000 20,000 80,000 Total current assets $250,000 ( 6,000) 244,000
On January 1, 20X1, Card Corp. signed a 3-year, noncancelable purchase contract, which allows Card to purchase up to 500,000 units of a computer part annually from Hart Supply Co. at $.10 per unit and guarantees a minimum annual purchase of 100,000 units. During 20X1, the part unexpectedly became obsolete. Card had 250,000 units of this inventory at December 31, 20X1, and believes these parts can be sold as scrap for $.02 per unit. What amount of probable loss from the purchase commitment should Card report in its 20X1 income statement?
Minimum purchase commitment for 20X2 and 20X3 (100,000 units x $.10/u x 2 years) $20,000Less scrap recovery (100,000 units x $.02 x 2 years) 4,000Probable loss from purchase commitment $16,000
During 20X1, Krey Co. increased the estimated quantity of copper recoverable from its mine. Krey uses the units of production depletion method. As a result of the change, which of the following should be reported in Krey's 20X1 financial statements?
Neither cumulative effect of a change in accounting principle nor pro forma effects of retroactive application of new depletion base An increase in the estimated quantity of copper recoverable from its mine represents a change in accounting estimate. FASB ASC 250-10-45-17 provides that a change in accounting estimate be accounted for in the period of change or the period of change and future affected periods if both are affected by the change. Also, "a change in an estimate should not be accounted for by restating amounts reported in financial statements of periods or by reporting pro forma amounts for prior periods." Therefore, no is the appropriate answer for both suggested treatments.
How should unrealized holding gains and losses be reported for available-for-sale and held-to-maturity debt securities, respectively?
Other comprehensive income, not recognized
A county that operates a capital projects fund for infrastructure needs had the following information available on transactions for the current year: Proceeds from debt issuance $1,000,000Transfer from general fund 500,000Special assessments 400,000Fees for extra services 100,000 How much would the capital projects fund report as other financing sources for the current year?
Other financing sources appear in the statement of revenues, expenditures, and changes in fund balance. Other financing sources include transfers to and from other funds, as well as proceeds from debt issuances (usually bonds) and proceeds from capital asset sales. In this problem, the proceeds from debt ($1,000,000) and the transfer from the general fund ($500,000) are both positive other financing sources in the total amount of $1,500,000 ($1,000,000 + $500,000). The special assessments and fees for services would both be reported as revenues. $1,500,000
Which of the following statements is correct concerning the appearance of noncontrolling interest on the income statement?
Revenues, expenses, gains, losses, net income or loss, and other comprehensive income are reported in the consolidated financial statements at the consolidated amounts, which include the amounts attributable to the owners of the parent and the noncontrolling interest.
What is the purpose of SFAC 4 as stated in that concepts statement
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.
Timp, Inc., had the following common stock balances and transactions during 20X1: 01/01/X1 Common stock shares outstanding 30,000 02/01/X1 Issued a 10% common stock dividend 3,000 07/01/X1 Issued common stock for cash 8,000 12/31/X1 Common stock outstanding 41,000====== What was Timp's 20X1 weighted-average shares outstanding?
Shares Fraction Weighted Shares Outstanding x of Year = Outstanding 33,000 (1) x 12/12 = 33,000 8,000 x 6/12 = 4,000Total weighted-average shares outstanding = 37,000 ====== Note: The common stock dividend shares require "retroactive" treatment. They are assumed to be outstanding throughout all periods presented.
Lake County received the following proceeds that are legally restricted to expenditure for specified purposes: Levies on affected property owners to install sidewalks: $500,000 Gasoline taxes to finance road repairs: $900,000 What amount should be accounted for in Lake's special revenue funds?
Special revenue funds are used to account for resources raised from revenues that are either restricted or committed for expenditure for specific general government purposes other than capital outlay or debt service. Capital projects funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays. The sidewalks are capital in nature and would not be part of a special revenue fund but of a capital fund, whereas the road repairs are not capital but maintenance. $900,000
On January 1, 20X1, Crater, Inc., purchased equipment having an estimated salvage value equal to 20% of its original cost at the end of a 10-year life. The equipment was sold December 31, 20X5, for 50% of its original cost. If the equipment's disposition resulted in a reported loss, which of the following depreciation methods did Crater use?
Straight-line Choice "C" is correct. After 5 years of straight-line depreciation over a 10-year life, accumulated depreciation would equal 50% of the net unrecoverable cost (80% times cost) or 40% of the original cost, leaving a book value of 60% times the original cost. When the asset was sold for 50% of its original cost, this amount was less than book value, resulting in a loss. Choice "d" is incorrect. After 5 years of double-declining balance depreciation over a 10-year life, accumulated depreciation would equal .67232 of the original cost leaving a book value of .32768 times original cost. When the asset was sold for 50% of its original cost, this amount was greater than book value, resulting in a gain. Choice "a" is incorrect. After 5 years of sum-of-the-years'-digits depreciation over a 10-year life, accumulated depreciation would equal .58182 of the original cost leaving a book value of .41818 times original cost. When the asset was sold for 50% of its original cost, this amount was greater than book value, resulting in a gain. Choice "b" is incorrect. The composite method is appropriate for a collection of assets that are dissimilar in nature.
Asp Co. was organized on January 2, 20X1, with 30,000 authorized shares of $10 par common stock. During 20X1 the corporation had the following capital transactions: January 5: issued 20,000 shares at $15 per share. July 14: purchased 5,000 shares at $17 per share. December 27: reissued the 5,000 shares held in treasury at $20 per share. Asp used the par value method to record the purchase and re-issuance of the treasury shares. In its December 31, 20X1, balance sheet, what amount should Asp report as additional paid-in capital in excess of par?
Summary journal entries: Dr. Cr. Jan. 5 Cash (20,000 x $15) 300,000 Additional paid-in capital(20,000 x ($15 - $10)) 100,000 Common stock (20,000 x $10) 200,000 July 14 Treasury stock (5,000 x $10) 50,000 Additional paid-in capital(5,000 x ($15 - $10)) 25,000* Retained earnings(5,000 x ($17 - $15)) 10,000 Cash (5,000 x $17) 85,000Dec. 27 Cash (5,000 x $20) 100,000 Additional paid-in capital(5,000 x ($20 - $10)) 50,000 Treasury stock (5,000 x $10) 50,000 Balance of additional paid-in capital 12/31/X1 =$100,000 - $25,000 + $50,000 = $125,000* (5,000 shares / 20,000 shares) x $100,000 = 25% x $100,000 = $25,000 OR* 5,000 shares x ($15 original issue price per share -$10 par value share) = $25,000
On January 1, Year 1, Alpha Co. signed an annual maintenance agreement with a software provider for $15,000 and the maintenance period begins on March 1, Year 1. Alpha also incurred $5,000 of costs on January 1, Year 1, related to software modification requests that will increase the functionality of the software. Alpha depreciates and amortizes its computer and software assets over five years using the straight-line method. What amount is the total expense that Alpha should recognize related to the maintenance agreement and the software modifications for the year ended December 31, Year 1?
The annual expenses would be the $15,000 maintenance contract multiplied by 10/12 of the year covered, or $15,000 × 10/12 = $12,500 from March to the end of the year. Also, expenses would cover 1/5 ($1,000) of the $5,000 from the other costs for one of the five years: $12,500 + $1,000 = $13,500 total.
A county's balances in the general fund included the following: Appropriations $435,000Encumbrances 18,000Expenditures 164,000Vouchers payable 23,000 What is the remaining amount available for use by the county?
The appropriations included in the adopted budget of the general fund represent the maximum authorized for expenditure during the period. If $164,000 has already been expended and another $18,000 has been encumbered or committed, then only $253,000 remains available for spending. The vouchers payable represent past expenditures waiting only for cash payment. $253,000
On July 1, year 7, Dean Co. issued, at a premium, bonds with a due date of July 1, year 12. Dean incorrectly used the straight-line method instead of the effective interest method to amortize the premium. How were the following amounts affected by the error at June 30, year 12?
The choice of method to amortize a bond premium or discount affects the timing of the interest expense but does not affect the total expense or premium amortized over the bond's maturity. Over the maturity period of the bond, the premium or discount will be amortized to zero. At the bond's maturity on June 30, year 12, the bond premium will have been amortized to zero under both methods and the full premium recognized in interest expense and closed to retained earnings. The timing of the expense would differ, but the total impact to retained earnings and carrying value at the bond's maturity would be identical (ignoring income taxes). Bond carrying amount: No effect Retained earnings: No effect
Fern Co. has net income, before taxes, of $200,000, including $20,000 interest revenue from municipal bonds and $10,000 paid for officers' life insurance premiums where the company is the beneficiary. The tax rate for the current year is 30%. What is Fern's effective tax rate?
The first step is to know the taxable income. Net income for accounting purposes before tax would be the starting point. Adjust this number up or down for nontaxable or nondeductible items. The municipal interest income would be nontaxable, so this would be subtracted from accounting income and the insurance premiums would be nondeductible (since they relate to nontaxed income) and would need to be added. Thus, net income before taxes of $200,000 minus the municipal bond interest of $20,000, plus the insurance premiums $10,000 equals taxable income of $190,000: $200,000 - $20,000 + $10,000 = $190,000 Taxable income times the tax rate equals tax due of $57,000: $190,000 × 0.30 = $57,000 The effective tax rate would be the total tax due divided by the total income earned: $57,000 ÷ $200,000 = 0.285 (28.5%)
Which of the following statements about leases is incorrect?
The guidance in FASB Topic 842 applies to leases on intangible assets, inventory, and assets under construction. FASB Topic 842 does not apply to (1) leases of intangible assets, inventory, and assets under construction; (2) leases to explore for or use minerals, oil, natural gas, and similar nonregenerative resources; or (3) leases of biological assets, including timber. The customer must have a right to control the asset for the transaction to be classified as a lease. Entities to a lease transaction must identify the separate lease components within the contract. A low-value exemption is not contained in FASB ASC 842. The guidance in FASB ASC 842 applies to all lease transactions regardless of dollar value.
On June 1 of the current year, Cross Corp. issued $300,000 of 8% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of interest expense should Cross report?
The interest is calculated as: Principal ($300,000) × Interest Rate (8%) × Time (7 months ÷ 12 months) = $14,000
Lion Co.'s income statement for its first year of operations shows pretax income of $6,000,000. In addition, the following differences existed between Lion's tax return and records: Tax Accounting Return Records Uncollectible accounts expense $220,000 $250,000 Depreciation expense 860,000 570,000 Tax-exempt interest revenue - 50,000 Lion's current-year tax rate is 30% and the enacted rate for future years is 40%. What amount should Lion report as deferred tax expense in its income statement for the year?
The permanent difference from tax-exempt interest does not produce deferred taxes. Uncollectible accounts ($220,000 - $250,000) $(30,000) Depreciation expense ($860,000 - $570,000) 290,000 Net temporary differences $260,000 Tax rate x .40 Deferred tax expense $104,000
Which of the following is not one of the criteria for classification as a finance lease?
The present value of the lease payments being substantially all (not a major part) of the fair value is one of the five finance lease criteria. The five FASB criteria for a finance lease are (1) transfer of ownership, (2) purchase option reasonably certain to exercise, (3) the lease term is the major part of the economic life of the asset, (4) the present value of the lease payments is substantially all of fair value, and (5) there is no alternative use for the asset.
Which of the following statements would most likely be included among a set of financial statements prepared in conformity with a special purpose framework?
The statement of cash receipts and disbursements The statement of cash receipts and disbursements would likely be found in a set of financial statements prepared under the cash basis of accounting, a special purpose framework. A statement of operations, financial position, and statement of comprehensive income would all likely be found in financial statements prepared under accrual accounting following U.S. GAAP.
On July 31, 2015, Dome Co. issued $1,000,000 of 10%, 15-year bonds at par and used a portion of the proceeds to call its 600 outstanding 11%, $1,000 face value bonds, due on July 31, 2024, at 102. On that date, unamortized bond premium relating to the 11% bonds was $65,000. In its 2015 income statement, what amount should Dome report as gain or loss, before income taxes, from retirement of bonds?
Upon the retirement of a bond, the difference between the reacquisition price (what you pay) and the carrying amount of the bond is a gain or loss. Carrying value of 11% bonds $600,000 + $65,000 = $665,000Less: Call price 600,000 x 102% = 612,000Pretax gain from retirement of bonds $ 53,000
Lily City provides funding for its postemployment benefits other than pension plans primarily on a pay-as-you-go basis. The plan does not meet the criteria specified in GASB Statement 75 to be a trusted "other postemployment benefit" (OPEB) plan. The following information relates to the OPEB plan at the end of the year: Total OPEB liability $10,000,000 OPEB plan fiduciary net position 1,000,000 Net OPEB liability 9,000,000 What amount should Lily City report as an OPEB liability in its government-wide financial statements?
While many governments fund their OPEB plans primarily on a pay-as-you-go basis, they are required to report the true liability for those benefits in their government-wide financial statements. If a government's OPEB plan is administered through a trust that meets specified criteria in GASB Statement 75, the net OPEB liability will be reported. However, if the criteria is not met, the total OPEB liability will be reported ($10,000,000) and any assets set aside for OPEB benefits will continue to be reported as assets of the government.
Comprehensive income includes all of the following, except:
dividends to shareholders. Comprehensive income is defined in the FASB's conceptual framework as "the change in equity (net assets) of a business enterprise, during a period, from transactions and other events and circumstances from nonowner sources." Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Dividends are a distribution to owners and would therefore not be included in comprehensive income. The other three answer choices (revenues from external customers, interest expense to bondholders, and loss from a tornado) would be included.
Baker Co. uses the calendar year as its accounting year. During 20X1, Congress enacted new tax legislation that changed the tax rate for 20X2 from 30% to 40%. The tax rate for 20X3 and following years remained at 30%. Baker has only one type of temporary difference or carryforward—a taxable temporary difference. Accordingly, Baker had a deferred tax liability at the beginning of 20X1 and will have a deferred tax liability at the end of 20X2. With regard to the change in tax rates, Baker should:
include the effect of the change on the January 1, 20X1, deferred tax liability in income from continuing operations of 20X1.
Some events provide evidence regarding conditions that did not exist on the balance sheet date, but arose subsequently and do not require an adjustment of the balance sheet. Assuming that the item is material, an example of a subsequent event that requires adjustment is:
loss on account receivable resulting from customer's bankruptcy. The loss on account receivable resulting from a customer's bankruptcy relates to an account that existed on the balance sheet date and an adjustment is needed. FASB ASC 855-10 provides guidance as to subsequent events that require recognition: "An entity shall recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements." (FASB ASC 855-10-25-1)
Financial statement line item explanations which may require additional information for full disclosure purposes include all of the following except:
nature of primary activities.
Financial statement line item explanations which may require additional information for full disclosure purposes include all of the following except
nature of primary activities. Many financial statement line item explanations, such as local denomination demand deposits, do not require further explanatory information. However, other line items require varying degrees of disclosure. A summary of potential additional disclosures is as follows: For assets: the nature, quality, and location; future cash flows; relation to other line items; and significant contractual, statutory, regulatory, or judicial restrictions. For assets and liabilities resulting from financial instruments or other contracts: 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. Other disclosures could include equity instrument terms or conditions, potential effects of changing accounting methods, breakdown of aggregated line items, alternative measurements, and the line item's relation to other line items.
The statement of net assets available for benefits of an employee benefit plan must include the following, except:
net assets reflecting all investments at cost.
The billings for transportation services provided to other governmental units are recorded by the internal service fund as:
operating revenues. Internal service funds are established to account for activities that one department within a government undertakes for the benefit of (1) other departments within that same government (usual case), and (2) (sometimes) other governments, at prices approximating their external exchange value. This question illustrates an exchange-like reciprocal interfund activity. Interfund services provided and used should be reported as revenues in seller funds and expenditures or expenses in purchaser funds (GASB 1800.102). Transportation appropriations is a budgetary account. The term "exchange" describes interfund transactions, but is not used as an account title. Intergovernmental resource flows between different governments would be recognized as revenues or expenses/expenditures.
A town's basic financial statements include information for major and nonmajor governmental funds. There were no internal service or enterprise funds. One of the nonmajor funds is the Road Tax fund, which accounts for a share of tax moneys remitted by the state on a prorated basis. Individual fund statements with prior-year comparative data would have to be presented for the Road Tax fund if:
state law requires prior-year comparative data for any individual fund receiving a prorated share of state tax collections.
A company that wishes to disclose information about the effect of changing prices should report this information in:
supplementary information to the financial statements. FASB ASC 255-10-50-1 provides that "a business entity that prepares its financial statements in U.S. dollars and in accordance with U.S. generally accepted accounting principles is encouraged, but not required, to disclose supplementary information on the effects of changing prices." This information would be supplementary information to the financial statements.
