FAR Final Review

Pension Costs (Formula)

+ Service cost (current) + Interest cost (on PBO) - Return on plan assets (expected or actual) + Amortization of unrecognized prior service cost ± Gains and losses ± E Amortization of existing net (assets) or obligation = net periodic pension cost for the period S -> current item "goes to "compensation" IR-> current items expensed AGE -> AOCI -> amortized out of I/S

Government-Wide Financial Statements

Economic resources measurement Accrual basis of accounting Government-wide reporting: Governmental: GRaSPP S Business type: E Excluded: CIPPOE Only major funds are reported separately; nonmajor funds are reported in aggregate. Government-wide financial statements: Statement of net position (BS) Statement of activities (IS) No statement of cashflows

Expenses classification and display NFP

Expenses are defined as programs or support services. 1) Program expenses: Relate to the mission of the organization. 2) Support services: Relate to the organization's administrative, membership development, and fundraising expenses. All expenses of NFP are reported on the statement of activities as "without donor restrictions."

Software cost GAAP vs IFRS

GAAP 1) Expense as R&D all costs up to and including point of technological feasibility (TF). TF is when detail program is completed or working model. 2) Cost after TF - Capitalize as software until production 3) Production = inventory IFRS -All R&D costs are expensed except for development costs.

Eleven fund types are classified in the following three generic categories:

Governmental, proprietary, fiduciary GRasPP, SE, CIPPOE

Fund Accounting Mechanics

Record -> BAE Closing -> BAE Budgetary: Activity: Encumbrance:

Split-Interest Agreements NFP

Split interest agreements are displayed separately on the NFP's financial statements, *measured at the FV or PV at acquisition*, and classified as donor-restricted. Dr Asset held in trust Cr Liability to beneficiary Cr Contribution revenue (with donor restrictions) Disbursements associated with split interest agreements are classified as financing activities on the statement of cash flows.

Foreign currency translation

Step 1: Adjust to GAAP Step 2: Local (foreign) Remeasure G/L - Income statement Step 3: Functional Translation G/L - Stockholders' equity Step 4: Reporting (parent) Remeasure: LC to LF Monetary-current Ins-PPE, intang = H PIC - H End RE (plug) Most Weighted Average COGS, depreciation, amortization, H G/L

MCQ- 09409 Big toys corporation uses a periodic inventory system. The company does a year-end inventory count and determines its interim inventory balance using the gross profit method. Big toys sells at a gross profit of 40%. On January 1, Year 1, Big Toys had beginning inventory of $400,000. During the first quarter of Year 1, Big Toys made purchases of $150,000 and had sales of $500,000. What would Big Toys report as ending inventory on its March 31, Year 1 interim balance sheet. a. $200,000 b. $250,000 c. $300,000 d. $350,000

b. $250,000 500,000 Sales - 300,000 COGS 60% (plug) = 200,000 GP 40% 400,000 BI + 150,000 Purchases = 550,000 CGAS - 300,000 COGS = 250,000 End inv.

MCQ-09280 Alvarado Company had the following common stock balances and transactions during the current year: What was Alvarado's current year weighted average shares outstanding for basic EPS? a. 78,000 b. 73,250 c. 72,500 d. 71,500

c. 72,500 60,000 x 12/12 = 60,000 x 1.10 = 66,000 10% stock split = Apply retroactively 9,000 x 8/12 = 6,000 3,000 x 2/12 = 500 Stock dividends and stock splits are treated as if they happened during the beginning of the year. 66,000 + 6,000 + 500 = 72,500 Total WACSO

Goodwill Impairment (GAAP) vs Goodwill Impairment (IFRS)

US GAAP Impairment Step 1 Is, CV > FV If yes, Step 2 CV - FV = goodwill impairment IFRS Impairment Step 1: Determine recoverable amount Use the higher of, FV less cost to sell or PV of future CF Step 2: Take the higher amount and plug it for RA CV - Recoverable amount

MCQ-09277 Sykes Corporation's comparative balance sheets at December 31, Year 2 and Year 1 reported accumulated depreciation balances of $800,000 and $600,000 respectively. Property with a cost of $50,000 and a carrying amount of $40,000 was the only property sold in Year 2.Depreciation charged to operations in Year 2 was: A. $190,000 B. $200,000 C. $210,000 D. $220,000

C. $210,000 Acccumulated depriciation (T-Account) ------------------------ | 600,000 Cr 10,000Dr | 210,000 (plug) ------------------------ 800,000 Cr 50,000 cost - 40,000 = 10,000 depreciation expense removed when property sold Dr Cash 50,0000 Dr Accum. depreciation 10,000 Cr Property 50,000 Cr Gain on sale 10,000 watch the 'final review explained really good.

MCQ-09316 Fernandez Company had an accounts receivable balance of​ $150,000 on December​ 31, Year 2 and​ $175,000 on December​ 31, Year 3. The company wrote off​ $40,000 of accounts receivable during Year 3. Sales for Year 3 totaled​ $600,000, and all sales were on account. The amount collected from customers on accounts receivable during Year 3​ was: A. $575,000 B. $531,000 C. $535,000 D. $600,000

C. $535,000 A/R (T-Account) ------------------------ 150,000 Dr | 40,000 Cr 600,000 Dr | *535,000 Cr (plug)* ------------------------ 175,000 Dr 150,000 + 600,000 = 750,000 A/R - 40,000 AFDA = 710,000 A/R 710,000 A/R - 175,000 = 535,000 Cash collected

Conversion Adjustments: Capital Assets (Step 1)

1. BOY capital assets of governmental activities (net of accumulated depreciation are recorded through worksheet entry. 2. The balance of capital expenditures is eliminated and replaced with assets acquired during the year. 3. Depreciation for the current period is recorded. 4. The balance in proceeds from sale of capital assets is eliminated, the assets and accumulated depreciation are removed, and the resulting gain or loss is recorded. 1) CAPITAL ASSET ACQUISITION Entry under MA (Governmental accounting) for capital acquisition: Dr Expenditure-Capital Outlay 100 Cr Cash 100 Worksheet entry: (Does not appear on FS at EOY) Dr Capital Asset 100 Cr Expenditure-Capital Outlay 100 Accrual basis (End product or what "survived") Dr Capital Asset 100 Cr Cash 100 2) DEPRECIATION Entry under MA (Governmental accounting) for depreciation: No Entry Worksheet entry: (Does not appear on FS at EOY) Dr Depreciation expense 10 Cr Accumulated depreciation 10 Accrual basis (End product or what "survived") Dr Depreciation expense 10 Cr Accumulated depreciation 10 3) SALE OF A CAPITAL ASSET Entry under MA (Governmental accounting) for sale of capital asset: Dr Cash 60 Cr Proceeds from sale 60 Worksheet entry: (Does not appear on FS at EOY) Dr Proceeds from sale 60 Cr Capital asset 45 Cr Gain on sale 15 Accrual basis (End product or what "survived") Dr Cash 60 Cr Capital asset 45 Cr Gain on sale 15

Determining major funds

10% test: fund amount has to be 10 percent higher than combined total governmental fund assets. 5% test: fund amount has to be 5 percent higher than combined total governmental and enterprise fund assets. -The general fund is ALWAYS a major fund-Internal service fund is not a major fund

MCQ-09258 Diamond inc. purchased the following available-for-sale debt securities at par during Year 1: Values as of 12/31/Year 1 Purchase price -- Fair value ABC. Corp. $50,000 $55,000 XYZ. Corp. $35,000 $30,000 On December 31, Year 1, Diamond determined that the present value of the principle and interest expected to be received on the investment in XYZ Corp. is $33,000. What will Diamond report as unrealized gain or loss on available-for-sale securities on its Year 1 statement of comprehensive income? A. $2,000 gain B. $5,000 gain C. $0 D. $$3,000 loss

A. $2,000 gain Cost -- Fair value -- Present value ABC. Corp. $50,000 $55,000 N/A XYZ. Corp. $35,000 $30,000 $33,000 OCI 55,000 - 50,000 = 5,000 unrealized gain 30,000 - 33,000 = ($3,000) unrealized loss $5,000 - $3,000 = $2,000 unrealized gain NI - Purchase price - PV principal & interest 33,000 - 35,000 - = ($2,000) unrealized loss

Non For Profit Basic Financial Statements

All NFP must prepare these 3 basic statements on the full accrual basis: 1) Statement of financial position (Balance sheet) 2)Statement of activities (Income statement) 3) Statements of cashflows Disclosure of functional expenses: -NFP organizations are required to present disclosure of functional expenses, analyzed by the object classification on the statement of activities (IS) or footnotes

MCQ_09397 The Burken Co. has one class of common stock outstanding and no other securities that are potentially convertible into common stock. During year​ 10, 100,000 shares of common stock were outstanding. In year​ 11, two distributions of additional common shares​ occurred: On April​ 1, 20,000 shares of treasury stock were​ sold, and on July​ 1, a​ 2-for-1 stock split was issued. Net income was​ $410,000 in year 11 and​ $350,000 in year 10. What amounts should Burken report as earnings per share in its year 11 and year 10 comparative income​ statements? Year 11 -- Year 10 A. $1.78 $3.50 B. $1.78 1.75 C. $2.34 $1.75 D. $2.34 $3.50

B. $1.78 1.75 100,000 x 12/12 = 100,000 x 2 = 200,000 20,000 x 9/12 = 15,000 x 2 = 30,000 The 2 for 1 stock split must be applied retroactively to earliest year presented. Yr 10 350,000 - 0 / 200,000 = 1.75 EPS Yr 11 410,000 - 0 / 2300,000 = 1.75 EPS

MCQ-09376 Sell2All Inc. accounts for its inventory under the installment sales method. In Year 1, Sell2All sold inventory with a cost of $300,000 for $400,000 and collected 100,000. In Year 2, Sell2All sold inventory with a cost of $500,000 for $750,000 and collected $400,000, including $100,000 related to Year 1 sales and $300,000 related to the Year 2 sales. What amount of earned gross profit should Sell2All report on its December 31, Year 2 balance sheet? A. $100,000 B. $125,000 C. $133,200 D. $400,000

B. $125,000

MCQ-09370 Hutchins Company had​ 200,000 shares of common​ stock, 50,000 shares of convertible preferred​ stock, and​ $2,000,000 of​ 10% convertible bonds outstanding during the current year. The preferred stock was convertible into​ 40,000 shares of common stock. During the current​ year, Hutchins paid dividends of​ $1.00 per share on the common stock and​ $2.00 per share on the preferred stock. Each​ $1,000 bond was convertible into 50 shares of common stock. The net income for the year was​ $1,000,000 and the income tax rate was​ 30%. Diluted earnings per share for the current year was​ (rounded to the nearest​ penny): A) $5.00 B) $3.35 C) $3.53 D) $3.06

Basic EPS = NI - Pref. div / WACSO 1,000,000 - (50,000OPS x $2) /200,000 = $4.50 Basic EPS -Bc it's convertible preferred use dividends declared of $2 per share -If it was cumulative preferred use amount that accumulates Dilutive EPS = NI - Pref. div + Saved pref div. + Saved Interest Expense (Net of tax) / WACSO + No. of CS issued on CPS + No. of CS issued on CB For the convertible preferred stock, the dividends that were paid are assumed not to have been paid (since the convertible preferred stock was assumed to have been converted). They are not "added back" but they are not subtracted like they were in the basic EPS computation. 1,000,000 - 100,000 Pref div + 100,000 Pref div + (2,000,000 x .10) (1-.30) = 1,140,00 Numerator 200,000 + 40,000 + 100,000 = 340,000 Denominator $2,000,000 CB / $1,000 Bond = $2,000 bonds $2,000 bonds x 50 CS per bond = 100,000 CS watch the final review explained really good.

Donated Services and Donated Works of Art

Contributions of services are recorded some of the time. The services must either enhance a physical asset or meet the following *(SOME) criteria*: they are Specialized skills Otherwise needed Measured Easily *Also, labor used to enhance long-lived asset meets (SOME) criteria also.* Services that meet the criteria are recorded as revenues and assets or expenses at their FV as follows: Dr Expense or asset Cr Contributions - Non-operating revenue Donated works of art are not required to be recorded by the recipient if all criteria are met: 1) The item is held for public viewing 2) The work of art is cared for by the NFP 3) Proceeds, if the art is sold, must be used to purchase other works of art.

MCQ- 09282 Mixon Corporation, a manufacturer of small tools, provided the following information from its accounting records for the year ended December 31, Year 1: Inventory at December 31, Year 1 (based on a physical count of goods in Mixon's plant at cost on December 31, Year 1) $1,750,000 Account payable at December 31, Year 1 $1,200,000 Nat sales (sales less sales returns) $8,500,000 Additional information is as follows: 1. Included in the physical count were tools billed to a customer FOB shipping point on December 31, Year 1. These tools had a cost of 280,000 and were billed at $35,000. The shipment was on Mixon's loading dock at 5:00PM on December 31, Year 1 waiting to be picked up by the common carrier. 2. Goods were in transit from a vendor to Mixon on December 31, Year 1. The invoice cost was $50,000. and the goods were shipped FOB shipping point on December 29, Year 1. What should be the adjusted inventory at December 31, Year 1? A. $1,750,000 B. $1,715,000 C. $1,700,000 D. $1,800,000

D. $1,800,000 FOB shipping point: Title passes to the buyer when goods are shipped. FOB shipping destination: Title buyer when buyer takes physical possession.

Diluted EPS

Dilutive EPS = NI - Pref. div + Saved pref div. + Saved Interest Expense (Net of tax) / WACSO + No. of CS issued on CPS + No. of CS issued on CB

New partners contribution (Partnerships)

Exact method: no goodwill or bonus is recorded, the exact amount that the new partner contributes is credited to his capital account. Bonus method: The old partnership capital plus the new partner's asset contribution is equal to the new partnership capital. Goodwill method: Going in investment control. Total new capital - (Old capital + New partner's investment).

Research and development (R&D) GAAP vs IFRS

GAAP R&D -All R&D cost are expensed except: 1) Software after feasibility 2) alternative use after future projects IFRS R&D -All R&D costs are expensed except for development costs.

Deferred Outflows and Inflows of Resources

GRaSPP SE PAPI *Deferred Outflows = Positive (+) future consumption of net assets.* *Deferred Inflows = Negative (-) future acquisition of net assets.* *Government-Wide Statement of Net Position* Assets + def. outlfows of resources - liabilities + def. inflows of resources = Net postion A - L = NP *Government Fund Balance Sheet* Assets + def. outlfow of resources = liabilities + def. inflows of resources + Fund balance = Fund balance A = L + Fund Balance

MCQ-09309 At December 31, Stephen Brothers Inc. has the following pension plan information: Fair value of plan assets, beginning of year $1,500,000 Fair value of plan assets, ending of year 1,590,000 Contributions 350,000 Benefits paid 425,000 Expected rate of return on plan assets 120,000 The expected return on plan assets was used to calculate net periodic pension cost. No actuarial gains or losses were incurred during the year. Stephen Brothers' effective tax rate is 40%. What is the net gain to be reported in Year 8 other comprehensive income under U.S. GAAP? a.$0 b.$27,000 c.$45,000 d.$165,000

Here is how you should answer this question; know this.........gain reported in OCT = Differences between expected return on plan asset vs. the actual amount. Now, what is your expected plan asset?$1,500,0000 X .07 = $77,000 What is the actual return on your plan asset?$1,100,0000 + $275,000+ (fill the blank) - $340,000 = $1,135,000blank is $100,000 Differences = $100,000 vs. $77,000 know this......net amount goes to OCT = $23,0000 X (1-.30) = $16,100or......$23,000 X .30 = $6,900$23,000 - $6,900 = $16,100 hint; Corridor approach is related to amortizing unrecog loss.......nothing to do with this Q.

Net Asset Classification

NFP net assets (like equity) are reported on the statement of financial position (BS) date and the change in net assets (like net income) on the statement of activities (IS). Without donor restrictions: Net assets free from donor restrictions. With donor restrictions: Only donors can restrict assets. The management board can only designate assets to be used for a specific purpose however designation is not a restriction. 1) *Purpose (donor restriction)*: The money must be spent as the donor stipulates (e.g., cancer research, youth education). 2) *Time (donor restriction)*: Donated assets may be restricted until a fixed period passes (e.g., a gift or a CD that must be held until maturity and then can be spent as the organization wishes). 3) *Acquisition of plant (donor restriction)*: The donates assets are classified as net assets with donor restrictions to purchase or build long-lived assets. -Purpose, time, acquisition of plant donor restrictions expire after time passes, when NFP uses assets for required purpose the restriction expires. 4) *Endowments (donor restrictions in perpetuity)*: Net assets contributed with donor restrictions, such as an endowment fund where the corpus (principal) must be retained in perpetuity and the principal can be used by the NFP in accordance to the donor's stipulations. This restriction never expires.

During year 1, Meriwether Construction Company started a construction job with a contract price of $3,000,000. The job was completed in year 2 and the company uses the percentage of completion method. The following information is available for year 1 and year 2: Year 1 Year 2 Cost incurred to date$500,000 $2,400,000 Estimated cost to complete 1,500,000 0 Billings to date 300,000 1,800,000 Collections to date 100,000 1,600,000 What amount of gross profit should Meriwether recognize for this job for year 2? A. $250,000 B. $1,000,000 C. $350,000 D. $600,000

Step 1: Contract price - total est. cost = GP Step 2: Cost to date / total est. cost = % completed Step 3: Step 1 x step 2 = GP earned to date Step 4: GP earned - GP previously recognized = current GP Year 1 Step 1: 3,000,000 - 2,000,000 = 1,000,000 GP Step 2: 500,000 / 2,000,000 = .25 % completed Step 3: 1,000,000 x .25 = 250,000 GP earned to date Year 2 Step 1: 3,000,000 - 2,400,000 = 600,000 GP Don't have to do Step 2 and Step 3 Step 4: 600,000 - 250,000 = *350,000 Current (Yr 2) GP*

University and Institutions of Higher Learning Revenue Recognition (NFP)

Student tuition and fees should be reported at gross amount. Scholarships, tuition waivers, and similar reductions are considered either expenses or a separately displayed allowance reducing revenue.

Lavery Company purchased a machine that was installed and placed in service on July 1, Year 1 at a cost of $240,000. Salvage value was estimated at $40,000. The machine is being depreciated over 10 years by the double declining balance method. For the year ended December 31, Year 2, what amount should Lavery report as depreciation expense? A. $48,000 B. $38,400 C. $32,000 D. $43,200

This question is the same as Lavery Company 1 with a different acquisition date. Double declining balance with a 10-year life indicates that the rate is 20% (double). Salvage value can be ignored because salvage value is not used in declining balance computations upfront. The calculation is as follows: *Rate = 240,000 cost / 10yrs = 24,000 Depriciation per yr 24,000 / 240,000 =.10 x 2 = .20* Cost 7/1/Y1 240,000 DDB for Year 1 first 6 months (24,000) (20% x $240,000 x 1/2) Balance 1/1/Y2 240,000 - 24,000 = 216,000 DDB for FULL Year 2 (43,200) (20% x $216,000 )

MCQ- Backdoor Inc. had 200,000 shares of $5 par common stock outstanding. The company declared a stock dividend of 100,000 shares when the market price was $25. By how much did additional paid-in capital increase when the dividend was distributed to the shareholders? A. $0 B. $500,000 C. $1,000,000 D. $2,500,000

This stock dividend is an example of a small stock dividend as 30,000 shares is 15% of the 200,000 shares outstanding. A small stock dividend (< 20-25% of outstanding stock) is recorded at the fair value of the stock on the date of declaration, as follows: Retained earnings (Dividend) 750,000 (30,000 x $25 *FMV*) Common stock 150,000 (30,000 x $5 par) Additional paid-in capital (plug) 600,000 When the stock dividend is declared it is a reduction of retained earnings. If the stock dividend had been large (> 20-25% of outstanding stock), the dividend is recorded at par value and no additional paid-in capital is recorded. In this problem, the dividend is a small stock dividend, which is recorded using the fair value of the stock on the date of declaration. Retained earnings (Dividend) 150,000 (30,000 x $5 *par*) Common stock 150,000 (30,000 x $5 par)

Impairment of Intangible Assets Other Than Goodwill

US GAAP Impairment Step 1: Is, CV > undiscounted future CF If yes, step 2: CV - FV = impairment loss IFRS Impairment Step 1: Determine recoverable amount Use the higher of, FV less cost to sell or PV of future CF Step 2: Take the higher amount and plug it for RA CV - Recoverable amount

MCQ- 09432 On January 1, Year 1, Black Dog Corp. began operations and issued 30,000 shares of $ 5 par common stock for $ 9/ share. On June 30, the company bought back 10,000 shares for $ 8/ share. Then, on September 15, the company resold 5,000 shares for $ 12/ share. What amount of total additional paid- in capital should Black Dog report on its December 31, Year 1 balance sheet if Black Dog uses the par value method to account for its treasury stock? a. $ 20,000 b. $ 120,000 c. $ 140,000 d. $ 165,000

Under the par value method, Black Dog would record the following journal entries for its Year 1 stock transactions: Jan. 1, Year 1—Issue 30,000 shares of $5 par common stock for $9/share: Dr Cash 270,000 (30,000 x $9) Cr Common stock 150,000C (30,000 x $5 par) Cr APIC—CS 120,000 (30,000 x $4) June 30, Year 1—Repurchase 10,000 shares for $8/share: Dr Treasury stock 50,000 (10,000 x $5 par) Dr APIC—CS 40,000 (10,000 x $4) This reverses the $4 from original entry Cr Cash 80,000 Cr APIC—TS 10,000 (10,000 x $1) $9 Issue price - $8 repurchase price = $1 gain Sept. 15, Year 1—Resell 5,000 shares for $12/share: Dr Cash 60,000 (5,000 x $12) Cr Treasury stock 25,000 (5,000 x $5 par) Cr APIC—CS (plug) 35,000 Therefore, total APIC on Black Dog's balance sheet at Dec. 31, Year 1 would be $125,000 ($120,000 from original issuance − $40,000 from repurchase using par method + $10,000 gain on repurchase + $35,000 from resale).

MCQ-09327 Simmons, Inc. uses the lower-of-cost-or-market method to value its inventory that is accounted for using the LIFO method. Data regarding an item in its inventory is as follows: Cost $26 Replacement cost 20 Selling price 30 Cost of completion and disposal 2 Normal profit margin 7 What is the lower of cost or market for this item? a. $21 b. $20 c. $28 d. $26

a. $21 GAAP uses the lower-of-cost-or-market method IFRS uses the lower-of-cost-and-net-realizable-value Step one: Replacement cost = 20 NRV (SP - CC) = 28 NRV - GP = 21 Use 21 bc it's middle number Step two Chose the lower of cost 26 or Mkt 21 21 is lower

MCQ-09234 The following information applies to Babydoll Company's defined benefit pension plan : Projected benefit obligation, December 31, year 7 $2,000,000 Projected benefit obligation, December 31, year 8 2,220,000 Fair value of plan assets, December 31, year 7 1,750,000 Fair value of plan assets, December 31, year 8 2,025,000 Unrecognized prior service cost, December 31, year 7 500,000 Year 8 Service cost 200,000 Expected benefits payable - year 9 400,000 Discount rate 6% Expected rate of return on plan assets 8% The company's employees have an average remaining service life of 10 years. The company has no unrecognized net gains or losses. What is the funded status of Babydoll's pension plan at December 31, year 7? a. $208,00 b. $221,200 c. $230,000 d. $243,200

+ Service cost (current) + Interest cost (on PBO) - Return on plan assets (expected or actual) + Amortization of unrecognized prior service cost ± Gains and losses ± E Amortization of existing net (assets) or obligation + S 200,000 + I 120,000 - R (140,000) + A 50,000 ± G ± E = $2300,000

Fund Balance Classification

-CA - CL = Fund Balance -GRaSPP -NUCAR Nonspendable: Resources that cannot be used bc of their form (i.e., inventories, prepaid inventories. Unassigned: Unassigned fund balance is the residual classification for the general fund. The general fund should be the only fund that shows a positive unassigned balance amount. Committed: Resources that can only be used by for specific purposes restricted by the government's highest *internal* personnel. Assigned: Resources constrained by the government's intent to be used for a specific purpose but are *neither restricted nor committed*. Restricted: Resources limited by *external* sources such as creditor, contributors, governments, etc.

Government financial statement

-Convert modified accrual to full accrual including LT debt, LT assets, LT liabilities. -Adding in the asset and liability balances from internal service fund along with any income earned through transactions with external parties. -Consolidating fund financial statements other than fiduciary funds.

Fiduciary funds

-Full accrual -Economic resources focus -Record fixed assets or long term debt, identical to commercial accounting Custodial: Account for resources in temporary custody and are not reported. Investment trust: Account for external investment pools. Private purpose: Used for activities not properly accounted for either as a pension or investment trust fund. Pension (and Other Employee Benefit): Pension trust funds for resources of defined benefit plans, defined contribution plans, post-employment benefit plans, and other long-term employee benefit plans.

Proprietary funds

-Full accrual -Economic resources focus -Record fixed assets or long term debt, identical to commercial accounting Internal service: Provide goods and services to other departments. Enterprise: Government services charged to outside users.

Recording subsequent events

-J/E of condition existed at of before BS date and new info. -No J/E for an event occurring after the balance sheet date, only disclose nature and estimate.

Governmental funds

-Modified accrual -Current financial resources measurement focus (No fixed assets or long term debt) -GRaSPP acronym *G*eneral: Ordinary operations of government Special *R*evenue: Special taxes or other restricted needs other than debt service or capital projects. a Debt *S*ervice: Accumulation of resources and payment of interest and principle. Capital *P*rojects: Resources used for construction of major capital assets. *P*ermanent: Resources principal is restricted but not the income.

Finance Capital Lease

-Ownership of the asset transfers from the lessor to the lessee by the end of the lease term. -Lessee has a written purchase option to purchase the asset and the lessee is "reasonably certain" to exercise. -Net present value of all lease payments and the guaranteed residual value is 90% or greater of assets FV. -The term of the lease is 75% of the Economic life of the asset. -Asset is specialized and will not have any alternative use for the lessor. If none of these criteria are met the lessor will classify the lease as an Operating (capital) lease. And the lessor will classify the lease a direct finance lease or an operating lease on the criteria.

Health Care Organizations Revenue Recognition (NFP)

-Patient service revenue should be accounted for on the accrual basis at usual customary fees, even if the amount is not expected to be collected. Although patient service revenue is accounted for on a gross basis, deductions are made from gross revenue for reporting purposes to display revenues net. Charity care, the value of services that a health care organization gives away, is not displayed in the financial statements. -Bad debt expense (operating expense) is recorded when the allowance is established after an evaluation of a patient's ability to pay. Otherwise, bad debts are recorded as a deduction from revenue.

CAFR basic financial structure

1) MD&A 2) Basic financials (govt. wide financial statements, fund financial statements, and notes to the financial statements) 3) Required supplementary information (RSI)

MCQ-09303 Birk Co. purchased 30% of Sled Co.'s outstanding common stock on December 31 for $200,000. On that date, Sled's stockholders' equity was $500,000, and the fair value of its identifiable net assets was $600,000. On December 31, what amount of goodwill should Birk attribute to this acquisition? A. $0 B. $20,000 C. $30,000 D. $50,000

B. $20,000 $200,000Purchase prive -$180,000 FV Identifiable NA = $20,000 Goodwill Identifiable net assets 600,000*.30 = 180,000

Conversion Adjsutment: LT Debt (Step 2)

1. BOY LT liabilities of government activities recorded through worksheet entries. 2. Convert this year's "bond proceeds" to bond liability (and premium if applicable). 3. Eliminate balance in "expenditure - bond payable" and reduce the balance of the liability. 4. Amortize premium/discount on bonds. 1) SALE OF BOND Entry under MA (Governmental accounting) for sale of bonds: Dr Cash 102 Cr OFS: Proceeds of Bonds 100 Cr OFS: Premium of Bonds 2 Worksheet entry: (Does not appear on FS at EOY) Dr OFS: Proceeds of Bonds 100 Dr OFS: Premium of Bonds 2 Cr Bond Payable 100 Cr Premium Bonds 2 Accrual basis (End product or what "survived") Dr Cash 102 Cr Bond Payable 100 Cr Premium Bonds 2 2)AMORTIZATION OF PREMIUM Entry under MA (Governmental accounting) for amortization of a bond: NO Entry Worksheet entry: (Does not appear on FS at EOY) Dr Premium on bonds .40 Cr Interest expense .40 Accrual basis (End product or what "survived") Dr Premium on bonds .40 Cr Interest expense .40 3)PRINCIPAL PAYMENT Entry under MA (Governmental accounting) for principal payment: Dr Expenditure - bond principle 100 Cr Cash 100 Worksheet entry: (Does not appear on FS at EOY) Dr Bonds payable 100 Cr Expenditure - bond principle 100 Accrual basis (End product or what "survived") Dr Bonds payable 100 Cr Cash 100

MCQ-09392 On January 1, Year 1 Red Crown Inc., purchased 25 percent of Red Hand Co.'s outstanding common shares and 40 percent of Red Leaf's Co.'s nonvoting preferred stock. Red Crown plans to hold the investment on a long-term basis. Red Hand reported net income of $300,000 for Year 1 and paid common stock dividends of $100,000. Red Leaf reported net income of $450,000 and paid preferred dividends of $200,000. On its December 31, Year 1, income statement, what amount of income from these investments should Red Crown reports? A. $105,000 B. $155,000 C. $205,000 D. $255,000

B. $155,000 When you own 20%-50% of a company's common stock you use the equity method. Dr Equity investment 75,000 (300,000 x .25) Cr Equity income 75,000 You use the fair value method because you own preferred stock not common stock. Dr Cash 80,000 (200,000 x .40) Cr Dividend revenue 80,000 75,000 + 80,000 = 155,00

Do It Right, Inc.'s actuary provided the company with the following information regarding its defined benefit pension plan for the year ended December 31, Year 7: Fair value of plan assets 5,580,000 Accumulated benefit obligation 3,400,000 Projected benefit obligation 4,930,000 Unrecognized prior service cost 400,000 Unrecognized transition obligation 275,000 Unrecognized net gain 140,000 Expected benefit obligation - Year 8 250,000 The company reported the net periodic pension cost of $310,000 on its income statement and made a $500,000 contribution to the pension plan during Year 7. The company's tax rate is 40%. What amount should Do It Right report in accumulated other comprehensive income related to its pension plan on the December 31, Year 7 balance sheet under U.S. GAAP? A. $321,000 B. $489,000 C. $535,000 D. 815,000

A. $321,000 Under U.S. GAAP, unrecognized prior service cost, unrecognized transition obligations or assets and unrecognized net gains or losses must be reported in accumulated other comprehensive income, net of tax, until recognized as a component of net periodic pension cost through amortization. Unrecognized prior service cost, transition obligations and net losses all increase pension expense when recognized and are therefore recorded as a debit to accumulated OCI. Unrecognized transition assets and net gains decrease pension expense when recognized and are therefore recorded as a credit to accumulated OCI. For Do It Right, the total pension related amount to be reported in accumulated OCI (before tax) is: Unrecognized prior service cost 400,000 Unrecognized transition obligation 275,000 Unrecognized net gain (140,000) Total535,000 + Service cost (current) + Interest cost (on PBO) - Return on plan assets (expected or actual) + Amortization of unrecognized prior service cost ± Gains and losses ± E Amortization of existing net (assets) or obligation = net periodic pension cost for the period S -> current item "goes to "compensation" IR-> current items expensed AGE -> AOCI -> amortized out of I/S

On July 1, Year 1, Cobb Company issued 9% bonds in the face amount of $1,000,000 which mature in ten years. The bonds were issued for $939,000 to yield 10% resulting in a bond discount of $61,000. Cobb uses the effective interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, Year 3, Cobb's unamortized bond discount should be: A. $52,810 B. $57,100 C. $48,800 D. $43,000

A. $52,810 Mkt rate > stated rate = discount Mkt rate < stated rate = premium The bond was issued at a discount. 7/1/Yr 1 Unamor. -- CV 61,000 939,000 7/1/Yr 2 Interest pmt -- Interest exp -- Amort. -- Unamor. -- CV 90,000 93,900 3,900 57,100 942,900 7/1/Yr 3 Interest pmt -- Interest exp -- Amort. -- Unamor. -- CV 90,000 94,290 4,290 52,810 947,190 1,000,000FV x .09 = 90,000 Int. pmt 939,000CV x .10 = 93,900 Int. exp 93,900 - 90,000 = 3,900 amortization 61,000 - 3,900 = 57,100 unamortized 939,000 + 3,900 = 942,000 CV 7/1/Yr 2 1,000,000FV x .09 = 90,000 Int. pmt 942,900CV x .10 = 94,290 Int. exp 93,900 - 90,000 = 4,290 amortization 61,000 - 4,290 = 52,810 unamortized 939,000 + 3,900 = 947,190 CV 7/1/Yr 3

MCQ-09293 The following data pertains to Tyne Co.'s investments in marketable equity securities: Trading securitiesCost - 150,000 Mkt value year 2 - 155,000 Mkt value year 1 - 100,000 Available for sale securities Cost 150,000 Mkt value Year 2 - 130,000 Mkt value year 1 - 120,000 What amount should Tyne report as unrealized gain (loss) in its Year 2 income statement? A. $55,000 B. $50,000 C. $60,000 D. $65,000

A. $55,000 1. Unrealized gain or losses from available for sale securities are not identified to Income statement, they are identified in *OCI*. Hence should not be considered. 2. Trading securities are revalued to market value every year and are identified on the *income statement*. Hence the gain or loss for the year is the difference between prior year mkt value and the current year mkt value.Answer = 55000 (155,000 - 100,000)

MCQ-09368 Money for Nothing Enterprises​ ("MNE") held the following​ available-for-sale debt securities during year​ 2: Amortized Cost -- Mkt Value 12/31/Y1 --Sales Price -- Market Value 12/31/Y2 Alpha Corp. $50,000 $53,000 $57,000 $0 Beta Corp. $35,000 $30,000 n/a $38,000 Omega Corp. $21,000 $27,000 n/a $24,000 What will MNE report as accumulated other comprehensive income on its​ 12/31/Y2 balance sheet​ (ignore taxes)? A. $6,000 B. $3,000 C. $8,000 D. $2,000

A. $6,000 Mkt Value 12/31/Y1 - Cost 53,000 - 50,000 = 3,000 unrealized gain 30,000 - 35,000 = (5,000) unrealized loss 27,000 - 21,000 = 6,000 unrealized gain 3,000 - 5,000 + 6,000 = 4,000 unrealized gain Mkt Value 12/31/Y2 - Cost 38,000 - 35,000 = 3,000 unrealized gain 24,000 - 21,000 = 3,000 unrealized gain 3,000 + 3,000 = 6,000 unrealized gain *If the question had asked for the unrealized holding gain in the stockholders' equity section of the balance sheet it would be 6,000 because accumulated OCI is shown on the balance sheet.*

MCQ-09708 A municipality that appropriately classifies a derivative as a hedge will account for an increase in the value of the derivative, which is reported as an asset, as: A. An increase in deferred inflows of resources. B. A decrease in deferred inflows of resources. C. An increase in deferred outflows of resources. D. A decrease in deferred outflows of resources.

A. An increase in deferred inflows of resources. Entry for the increase in value of a qualifying derivative instrument would be: Dr Derivative instrument Cr Deferred inflow of resources (gain) Entry for the decline in value of a qualifying derivative instrument would be: Dr Deferred outlfow of resources (loss) Cr Derivative instrument *Deferred Outflows = Positive (+) future consumption of net assets.* *Deferred Inflows = Negative (-) future acquisition of net assets.*

MCQ-09291 On November 1, Year 1, Mason Corp. issued $800,000 of its 10-year, 8% term bonds dated October 1, Year 1. The bonds were sold to yield 10%, with total proceeds of $700,000 plus accrued interest. Interest is paid every April 1 and October 1. What amount should Mason report for interest payable in its December 31, Year 12 balance sheet? A. $17,500 B. $16,000 C. $11,667 D. $10,667

B. $16,000 Interest payable is based on the Face amount of the bond x the stated rate x time. Interest accrues from the date of the bond, Oct 1, not the issue date. Since the interest payments are April 1 and Oct 1 the interest from April 1 to Oct 1 is already accounted for. We need to calculate the interest from Oct 1 to Dec 31 or 3 months. Thus our bond face is 800,000 our stated rate is 8% and our time is 3/12; therefore, accrued interest is 800,000 x .08 x 3/12 = 16,000.

MCQ-09260 On December 31,year 1, Eve Company leased a machine under a capital (finance) lease for a period of 10 years, contracting to pay $50,000von signing the lease and $50,000 on signing and $50,000 annually on December 31 of each of the next nine years. The present value at December 31, Year 1 of the 10 lease payments discounted at 10% was $338,000. At December 31, Year 2, Eve's total finance lease liability is: A. $303,980 B. $266,800 C. $259,200 D. $243,000

B. $266,800 December 31, Year 1 Cash pmt. -- Int exp. -- Amort. -- Unamort. -- CV 50,000-- NA -- NA -- NA -- 288,000 The liability after that payment is $288,000 ($338,000 − $50,000). December 31, Year 2 Cash pmt. -- Int exp. -- Amort. -- Unamort. -- CV 50,000 -- 28,800 -- 21,200 -- NA -- 266,800 $288,000 × 10% is $28,800. That amount is the interest component of the second payment. The difference between the $50,000 payment and the $28,800 is $21,200, and the $21,200 is the reduction of the long-term liability of the second payment; therefore the liability after the second payment is $266,800 ($288,000 − $21,200).

MCQ-09369 Giant Jobs, Inc. amended its overfunded pension plan on December 31, Year 7, resulting in the recognition of prior service cost of $700,000. On December 31, Year 7, Giant Job's employees had an average remaining service life of 20 years. The company has an effective tax rate of 30%. How should the prior service cost be reported in the December 31, Year 7 financial statements under U.S. GAAP? A. $490,000 increase in net periodic pension cost. B. $490,000 decrease in net periodic pension cost. C. $700,000 decrease in net income. D. $700,000 increase in pension benefit asset.

B. $490,000 decrease in net periodic pension cost. U.S. GAAP requires that a change in the funded status of a pension plan due to the incurrence of prior service cost from a plan amendment be reported in other comprehensive income with related tax effects in the period incurred, as follows: Dr Other comprehensive income 700,000 Cr Pension benefit asset 700,000 Dr Deferred tax asset 210,000 Cr Deferred tax benefit—OCI 210,000

MCQ-09360 On June 30, Year 1, Bluebird Inc. purchased a $750,000 tract of land for a new regional office.Costs related to purchasing the property and preparing the land for construction included: Legal fees$32,000 Title guarantee insurance 15,000 Cost to clear timber from land 18,000 Proceeds from sale of timber 7,000 Excavation costs for office building 20,000 In its December 30, Year 1 balance sheet, Boyd should report a balance in the land account of A. $797,000 B. $808,000 C. $815,000 D. $828,00

B. $808,000 Land = All cost up to excavating Bldg. = Excavtion forward Bc you are allowed to include the cost of clearing timber you are also allowed to include the proceeds from the sale of timber.

MCQ-09331 Stanberry Company sold​ $500,000 of net accounts receivable to Cork Company for​ $450,000. The receivables were sold outright on a without recourse​ basis, and Stanberry Company retained no control over the receivables.The journal entries to record the sale would be which of the​ following? A. Dr Cash $500,000 Cr Account receivable (net) $500,000 B. Dr Cash450,000 Cr Loss on Sale of Accounts Receivable 50,000 Cr Accounts Receivable (net) 500,000 C. Dr Cash450,000 Cr Unrealized loss on Accounts Receivable 50,000 Cr Accounts Receivable (net) 500,000 D. Dr Cash450,000 Cr Due from Cork Company 50,000 Cr Accounts Receivable (net) 500,000

B. Dr Cash450,000 Cr Loss on Sale of Accounts Receivable 50,000 Cr Accounts Receivable (net) 500,000 With recourse: seller retains the risk of any losses on collection. Without recourse: buyer assumes the risk of any losses on collection. When a business sells accounts receivable to a factoring company on a non-recourse basis, it should be recorded in the general journal as follows: 1. Credit Accounts receivable for the amount sold. 2. Debit Cash account for the amount of cash advance received. 3. Debit Loss on factoring for the amount of fee charged by factor. 4.Debit Due from factor for the amount retained by the factoring company. Dr Cash Dr Loss on factoring Dr Due from factor Cr Account receivable Accounting for factoring of accounts receivable with recourse requires different entries to be made in the general journal than the non-recourse one. Thus, selling accounts receivable to a factoring company requires the following journal entries: 1. Credit Accounts receivable for the amount sold. 2. Credit Recourse liability for the estimated amount of bad debts. 3. Debit Cash account for the amount of cash advance received. 4. Debit Loss on factoring for the amount of fee charged by factor and estimated amount of bad debts. 5. Debit Due from factor for the amount retained by the factoring company. Dr Cash Dr Loss on factoring Dr Due from factor Cr Recourse liability Cr Accounts recivable

MCQ-09372 During a period of rising prices, which U.S. GAAP inventory method reports the most current costs on the income statement and on the balance sheet? Income Statement - Balance Sheet A. LIFO LIFO B. LIFO FIFO C. FIFO LIFO D. FIFO FIFO

B. LIFO FIFO LIFO & prices increasing; causes ↓ end inventory ↓ A = L + E ↓; causes ↓ current assets Sales - COGS ↑ = profit ↓ "sell new inv. more expensive" FIFO & prices increasing; causes ↑ end inventory ↑ A = L + E ↑; causes ↑ current assets Sales - COGS ↓ = profit ↑ "sell old inv. cheap expensive" LIFO reports the most recent costs on the income statement, but reports the lowest ending inventory on the balance sheet because ending inventory includes the oldest costs.

MCQ-09353 Money for Nothing Enterprises​ ("MNE") held the following​ available-for-sale debt securities during year​ 2: Amortized Cost -- Mkt Value 12/31/Y1 --Sales Price -- Market Value 12/31/Y2 Alpha Corp. $50,000 $53,000 $57,000 $0 Beta Corp. $35,000 $30,000 n/a $38,000 Omega Corp. $21,000 $27,000 n/a $24,000 What will MNE report as unrealized gain on​ available-for-sale debt securities on its Year 2 statement of comprehensive income​ (ignore taxes)? A. $6,000 B. $8,000 C. $2,000 D. $3,000

C. $2,000 Mkt Value 12/31/Y1 - Cost 53,000 - 50,000 = 3,000 unrealized gain 30,000 - 35,000 = (5,000) unrealized loss 27,000 - 21,000 = 6,000 unrealized gain 3,000 - 5,000 + 6,000 = 4,000 unrealized gain Dr unrealized gain 4,000 Cr AFS debt securities 4,000 Mkt Value 12/31/Y2 - Cost 38,000 - 35,000 = 3,000 unrealized gain 24,000 - 27,000 = 3,000 unrealized gain 3,000 + 3,000 = 6,000 unrealized gain 6,000 unrealized gain Yr 2 - 4,000 unrealized gain Yr 1 = 2,000 Dr unrealized gain 2,000 Cr AFS debt securities 2,000 The Yr 1 debt securities unrealized gain is already on OCI for 4,000. For Yr 2 you only need to bring it up OCI to 6,000. The entry should as seen above for 2,000 (6,000 - 4,000). *If the question had asked for the unrealized holding gain in the stockholders' equity section of the balance sheet it would be 6,000 because accumulated OCI is shown on the balance sheet.*

MCQ-09375 On January 1, Year 1, Bluebird Inc. borrowed $10 million at a rate of 9% for five years and began construction of its new regional office building. Bluebird has no other debt. During Year 1, Bluebird's weighted average accumulated construction expenditures totaled $3,750,000. What should Bluebird report as interest expense on its income statement for Year 1? A. $337,000 B. $500,000 C. $562,000 D. $900,000

C. $562,000 General rule: Interest is expensed as incurred Exception: "During" construction (permit filed) for use in business "Expenditures" (Not borrowed) x rate = capitalized interest 10,000,000 x .09 = 900,000 Interest expense for Yr $3,750,000 x .09 = 337,500 Capitalized (Balance sheet) 900,000 Total interest cost - 337,500 Capitalized = $562,000 Interest expense for yr 1 (Income statement)

MCQ-09380 Star Co. leases a building to be used for office space to support its expanding building. The six-year nonrenewable lease will expire on December 31, Year 8. In January Year 5, Star made leasehold improvements of $72,000. The estimated useful life of the improvements is 10 years. Star uses the straight-line method of amortization. What amount should Star report to its June 30, Year 5, income statement. A. $3,600 B. $7,200 C. $9,000 D. $18,000

C. $9,000 The six-year nonrenewable lease will expire on December 31, Year 8. That means the lease began on December 31, Year 2. The lease improvements were made in January, Year 5 so you begin amortizing from then forward. The remaining life of the lease is 4 years (6yrs - 2yrs). The four-year remaining life of the lease is shorter than the 10-year life of the improvements. $72,000 / 4 = $18,000 for a full year's amortization, so the January 1−June 30 amortization is $18,000 / 2 = $9,000.

Ansley Inc. (which uses IFRS) has debt on its books with a current value of $425,000. For the first time in its history, the company receives debt modifications that will result in future cash flows totaling $280,000. A. Handle the change prospectively, and keep the carrying value the same. B. Handle the change prospectively, and lower the carrying value over time. C. Book a gain in current operations and reduce the carrying value of the liability. D. Book a reduction in interest expense and reduce the carrying value of the liability.

C. Book a gain in current operations and reduce the carrying value of the liability. In a modification, the debtor accounts for the effects prospectively and does not change the carrying amount or show a gain unless the carrying amount exceeds the total future cash payments specified by the terms.

MCQ-9310 At its date of incorporation, Glean, Inc., issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Glean acquired 30,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. Glean had made no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts? Retained Earnings -- Additional Paid-in Capital A. Decrease Decrease B. No effect Decrease C. Decrease No effect D. No effect No effect

C. Decrease No effect Glean uses the cost method. This means when the shares were required Treasury Stock would be debited for $480,000, and cash credited for $480,000. APIC would not be affected by the reacquisition of shares. It would only be impacted by the initial issuance (APIC-Common Stock). The loss should only be offset by R/E. You can't use APIC-Common stock to offset the loss. Under the cost method, the journal entries for this story should be: Issuance date: Dr Cash 11,000,000 Cr CS 10,000,000 Cr APIC-CS 1,000,000 Buying back at $16 Dr TS 480,000 Cr Cash 480,000 Re-issuance of TS for $12 Dr Cash 360,000 Dr R/E 20,000 Cr TS 480,000

MCQ-09340 Purple Corp. acquired treasury shares at an amount greater than their par value, but less than their original issue price. Compared to the cost method of accounting for treasury stock, does the par value method reports a greater amount for additional paid in capital and a greater amount for retained earnings? Additional paid in capital -- Retained earnings A. Yes Yes B. Yes No C. No No D. No Yes

C. No No The explanation came with this example: Par value of shares = $1,000 Original issue price = $1,200 ($1,000 par, $200 additional paid-in capital) Reacquisition price = $1,100 Original Issue at $12: Dr Cash $1,200 (100 x $12) Dr CS $1,000 (100 x $10) Cr APIC-CS $200 (100 x $2) Reacquisition of 100 shares at $11 under COST METHOD: Dr Treasury shares $1,100 (100 x $11) Cr Cash $1,100 Reacquisition of 100 shares at $11 under PAR VALUE METHOD: Dr Treasury shares (par value) $1,000 (100 x $10) Dr APIC - CS $200 (100 x $2) Cr Cash $1,100 Cr APIC - TS $100 (100 x $1 gain) $12 Issue price - 11 repurchase price = $1 gain Under the par method when you net the Dr APIC - CS $200 and the Cr APIC - TS $100 you will have a negative balance. The APIC account has a normal balance as a credit (positive) and when you net them it will have a 100 debit balance causing it to be negative.

MCQ-09290 On December 1, Year 1, Tom V.company entered into an operating lease for office space for its executives for 10years at a monthly rental of ＄200.000, increasing to $400.000 halfway through the lease. On that date, Tom V. paid the landlord the following amounts: First month's rent $200,000 Last month's rent $400,000 Installation of new carpet 600,000 Total $1,200,000 The entire amount was charged to rent expense in Year1. What amount should Tom V.have charged to expense for the year? A.$300,000 B.$1,200,000 C.$305,000 D.$200,000

C.$305,000 The lease agreement indicated that the rent would double halfway through the lease. First month's rent $200.000. Last month's rent $400.000 200,000 × 12 months × 5yrs = $12,000,000 400,000 × 12 months × 5yrs = $24,000,000 Total: $36,000,000 10yrs is equal to 120 months (10yrs x 12 months). An equivalent monthly rent=36,000,000 ÷ 120 months months=$300,000. Installation of new carpet is amortized using straight-line because it is an operating lease 600,000 ÷ 120 = $5,000. The total expense would be $300,000 + $5,000 =$305.000

During year 1, Innovative Technologies Corp. spent $900,000 developing a product which was granted a patent on June 30, Year 1. The company paid $20,000 in legal and other fees related to the patent registration process. On January 1, Year 2, the company paid $76,000 in legal fees related to the successful defense of the patent in a patent infringement lawsuit brought by the company's main competitor. The patent's legal life is 17 years and its economic life is 10 years. What will Innovative Technologies report as amortization expense related to the patent on its December 31, Year 2, income statement if the company uses U.S. GAAP? A. $1,000 B. $2,000 C. $9,500 D. $10,000

D. $10,000 6/30/Yr 1 (20,000 x 6/12) / 10yrs = 1,000 amortization expense 20,000 - 1,000 = 19,000 NBV / unamortized balance 1/1/Yr 2 [(76,000 + 19,0000) x 12/12] / (10yrs - 6/12yrs) = 95,000 / 9.5yrs = 10,000 amortization expense

On January 1, Year 1, Triton Tool Inc. purchased new production equipment for $160,000. The equipment has an estimated useful life of 5 years and an expected salvage value of $10,000. Triton has historically used sum-of-year's digits depreciation but is considering a change to double-declining balance depreciation. By how much will the depreciation expense reported on the 12/31/Y1 income statement change If the new depreciation method used for the new equipment? A. $6,667 B. $10,000 C. $10,667 D. $14,000

D. $14,000 Under sum-of-the-years digits depreciation, the Year 1 depreciation of the new production equipment is calculated as follows: *n(n+1)/2, where n = the useful life in years.* 5(5+1)/2 = 15 In the first year of this asset's useful life, the depreciation will be 5/15 of the amount to be depreciated. The second-year will use 4/15 and the fifth year will use 1/15.] Remaining life / SYD x (cost - salvage value) = 5/15 x ($160,000 - 10,000) = $50,000 Under double-declining balance depreciation, the Year 1 depreciation of the new production equipment is calculated as follows: *Rate = 160,000 cost / 5yrs = 32,000 Depriciation per yr 32,000 / 160,000 =.20 x 2 = .40* 40% x $160,000 = $64,000 Therefore, depreciation expense will increase by $14,000 in Year 1 if double-declining balance depreciation is used instead of sum-of-the-years digits depreciation.

MCQ-09318 On January 2, year 1, Kean Co. purchased a 30% interest in Pod Co. for $250,000. On this date, Pod's stockholders' equity was $500,000. The carrying amounts of Pod's identifiable net assets approximated their fair values, except for land whose fair value exceeded its carrying amount by $200,000. Pod reported net income of $100,000 for year 1, and paid no dividends. Kean accounts for this investment using the equity method. In its December 31, year 1 balance sheet, what amount should Kean report as investment in subsidiary? A. $210,000 B. $220,000 C. $270,000 D. $280,000

D. $280,000 Dr Equity investment 250,000 Cr Cash 250,000 Equity investment 30,000 (100,000 x .30) Equity income 30,000 250,000 + 30,000 = 280,000

MCQ-09345 Pate paid $50,000 and gave a plot of undeveloped land with a carrying amount of $320,000 and a fair value of $450,000 to Bizzell Co. in exchange for a plot of undeveloped land with a fair value if $500,000. The land was carries on Bizzell's books at $350,000. The exchange is one that has commercial substance under the U.S. GAAP. At what amount is the land received from Pate recorded on Bizzell's books? A. $370,000 B. $320,000 C. $500,000 D. $450,000

D. $450,000 *Dr Land 450,000* Dr Cash (if any) 50,000 Cr Old land (historical cost) 350,000 Cr Gain 150,000 (plug) *(FV of asset received less BV of asset given)*

Selected financial results for water works Inc.'s five operating segments were as follows: Segment -- Total revenues -- Total profit -- Total assets Rain $100,000 $70,000 $300,000 Snow 130,000 30,000 350,000 Ice 600,000 300,000 700,000 Hail 95,000 15,000 190,000 Steam 400,000 220,000 550,00 --------------------------------------- Total $1,325,000 $635,000 $2,090,000 The company had no intersegment sales. Which operating segment(s) is (are) deemed to be reportable segments? A. Ice only B. Ice and Steam C. Ice, Steam, and Snow D. Ice, Steam , Snow, and Rain

D. Ice, Steam , Snow, and Rain An operating segment is considered to be a reportable segment if it accounts for at least 10 percent of total revenues (external and intercompany) or total profits/losses or total assets. In this problem, 10 percent of total revenues is $132,500, so Ice and Steam qualify as reportable segments based on total revenues; 10 percent of total profits is $63,500, so Rain, Ice, and Steam qualify based on total profits; and 10 percent of total assets is $209,000, so Rain, Snow, Ice, and Steam qualify based on total assets. Hail is the only operating segment that does not qualify as a reportable segment based on the 10 percent size tests. Note that Rain, Snow, Ice, and Steam together account for $1,230,000 or 93 percent of total outside sales, which means that Water Works is reporting sufficient segment information based on the rule that reportable combined outside sales must be at least 75 percent of total outside sales.

Pass-Through Contributions to NFP Beneficiary

Donor -> Recipient (NFP) -> Beneficiary (NFP) Recipient Accounting: 1) *Without Variance Power* -If a recipient receives donations on behalf of another NFP and does cannot determine the use of the contribution, the donation is recorded as a liability. Dr Asset Cr Refundable advance liability 2) *With Variance Power* -If a recipient receives donations on behalf of another NFP and does determine the use of the contribution, the donation is recorded as revenue. Dr Asset Cr Revenue Beneficiary Accounting: 1) *Without Variance Power* -If a recipient receives donations on behalf of another NFP and does cannot determine the use of the contribution, the donation is recorded as revenue on the beneficiary's books. Dr Receivable Cr Contribution Revenue 2) *With Variance Power* -If a recipient receives donations on behalf of another NFP and does determine the use of the contribution, the donation is generally not recorded on the beneficiary's books unless a financial relationship exists. Recipients and beneficiaries are interrelated if: 1) One organization has the influence to the decision of the other 2) One organization has an ongoing interest in the other. Dr Interest in net assets Cr Change in interest in recipient net assets

NFP Revenue Recognition

Exchange revenue -Conditional promises are not recorded until conditions are met. Conditional gifts received in advance of satisfying the conditions are recorded as liabilities (Refundable in advance). Conditional promises to give are not recorded. -Conditional is not the same as restricted. Restricted -Resource inflows in NFP organizations are generally displayed in the financial statements as either revenue or support. *Revenue typically represent exchange transactions in which the NFP earns resources in exchange for for a service performed (e.g., fees).* *Support often represents unconditional contributions (e.g., cash contributions and unconditional promises).* Multiyear Pledges: Unconditional promises receivable over a period of years are recognized as an increase to net assets with donor restrictions since amounts have an implied time restriction. Receivables are recorded at their present value with the difference between face and present value recognized as contribution revenue over time, not interest. Other revenue transactions and issues: -Exchange transactions represent the sale of goods or services in exchange for a fee and are classified as revenues without donor restrictions.

MCQ-09396 The following information relates to the pension plan for the employees of Neal​ Co. Neal estimates that the average remaining service life is 16 years.​ Neal's contribution was​ $315,000 in Year 5 and benefits paid were​ $235,000. The amount of unrecognized net gain amortized in Year 5​ is: A. $12,750 B. $12,500 C. $9,688 D. $8,134

First, compare the beginning PBO with the beginning market-related value of assets. If the question does not give you the market-related value of assets, then you use the fair value of plan assets, as these amounts are generally not significantly different. Projected Benefit Obligation - $4,980,000. (The ending of Year 4 becomes the beginning of Year 5.) Market-related value of assets - $5,160,000. Then take 10% of the larger number of beginning PBO or the beginning market-related value of assets. Beginning market-related value of assets. $5,160,000 x 10% = $516,000. This is the amount of the corridor. The corridor amount is used to determine the amortization of unrecognized gains or losses: Unrecognized gains/losses - Corridor amount = Excess ÷ Avg remainingservice life = Minimum amortization Unrecognized net (gain) or loss 720,000 Less market-related value of assets (corridor) 516,000 Equal = 204,000 Divided by service life (given) 16 years Net gain amortized = 12,750

MCQ-09402 On its December 31, Year 2 balance sheet, Red Rock Candle Company reported accounts receivable $855,000, net of an allowance for doubtful accounts of $45,000. On December 31, Year 3, Red Rocks balance sheet showed gross accounts receivable of $922,000, and Red Rocks income statement reported sales of $3,000,000. During the year, accounts receivable of $35,000 were written off and $18,000 were recovered Based on past experience, 5% of Red Rock's ending accounts receivable are uncollectible. How much should Red Rock report as bad debt expense on its Year 3 income statement? a. $18,100 b. $35,000 c. $46,100 d. $150,000

Gross 900,000 - 45,000 AFDA = 855,000 NRV 12/31 Yr 2 Beginning AFDA Dr AFDA 45,000 Cr A/R 45,000 During Yr 3 35,000 A/R written off Dr AFDA 35,000 Cr A/R 35,000 During Yr 3 Recovery of 18,000 A/R Dr A/R 18,000 Cr AFDA 18,000 Dr Cash 18,000 Cr A/R 18,000 12/31 Yr 3 922,000 x .05 expected uncollected = 46,100 AFDA AFDA (T-Account) ------------------------ 35,000 Dr | 45,000 Beg. Cr | 18,000 Recovery Cr | *18,100 BDE Cr (plug)* ------------------------ 46,1000 Dr AFDA is a contra asset account and has a credit balance. -Good explanation on the final review.

Accounting for Marketable Securities NFP

Investments in securities are displayed at their FV and increases and decreases in FV of securities are classified *without donor restrictions in the statement of activities (IS) unless there are donor restrictions.* *Investment income (dividends and interest) are reported in the period earned in the net category as either with or without donor restrictions.* Investment returns are reported net of any related investment expense. Endowment: NFP account for assets in with donor restrictions that are perpetual in nature in endowment funds. Generally, the NFP cannot use the principal/corpus having donor restrictions but can use earnings from the investments. Underwater Endowments: When underwater endowments FV at the reporting date (EOY) is less than the required amount to be maintained. *Must be reported at FV with accumulated losses with do not restrictions.*

Types of investments

Level 1 - Trade-in very active markets for identical assets or liabilities. (i.e., common stock) Level 2 - Trade-in active markets, but tend to be based on dealer quotations or alternative sources supported by observable investments or inputs that trade in inactive markets. (i.e., mortgage-backed securities) Level 3 - Trade infrequently and have unobservable inputs, discounted cash flows. (i.e., limited partnership)

MCQ-09395 The year 11 balance sheet of Cool Tools, Inc. reported the following fixed asset balances: Year 11 -- Year 10 Fixed assets $160,000 $128,000 Accumulated depreciation (53,000) (41,000) Fixed assets, net $107,000 $87,000 On January 1, year 11, Cool Tools purchased fixed assets for $ 50,000 and sold fixed assets with an original cost of $ 18,000 and a book value of $ 6,000 for $ 10,000. Cool Tools made no other long- term asset purchases or sales during year 11. What is Cool Tools net cash used in investing activities and the amount of the depreciation adjustment to the operating section of Cool Tools statement of cash flows prepared using the indirect method? Net Cash Used in Investing Activities Depreciation Adjustment in Operating Section a. $ 32,000 $ 12,000 b. $ 32,000 $ 24,000 c. $ 40,000 $ 12,000 d. $ 40,000 $ 24,000

NBV PPE (T-Account) ------------------------ 87,000 Dr | *824,000 Cr Current Yr depreciation (Plug)* 50,000 Dr (Buy) | 6,000 Cr NBV (Given) ------------------------ 107,000 Dr 87,000 + 50,000 - 6000 = 131,000 - 107,000 = 24,000 *NBV increases with anything that you buy. NBV decreases with current year depreciation and the NBV of any asset sold.* (50,000) Cash outflow to buy FA +10,000 Cash inflow from sale od FA = 40,000 Net cash used in investing activities watch the final review explained really good.

Statement of Cash Flows

NFP can use the direct and indirect method. Operating activities: -Include applicable agency transactions. -Include receipts of resources without donor restrictions designed by the governing body to be used for long-lived assets Investing activities: -Include proceeds from the sale of works of art -Include investment in equipment. -Include proceed from the sale of assets that were received in prior periods and whose sale proceeds were donor-restricted to investment in equipment or other long-term assets (i.e., long lived assets (stock)). Financing activities: -Include cash received (cash inflow) with donor-imposed restrictions limiting its use to purchases of LT assets or annuity agreements. -Disbursements (cash outflows) of these donor-restricted contributions for either investments or the purpose for which they were intended are classified as investing activities.

MCQ-09288 On July 1, Year 1, Houston Corp. purchased 3,000 shares of Astro Company's 10,000 outstanding shares of common stock for $20 per share. On December 15, Year 1, Astro paid $40,000 in dividends to its common stockholders. Astro's net income for the year ended December 31, Year 1, was $120,000, earned evenly throughout the year. In its Year 1 income statement, what amount of income from this investment should Houston report? a. $36,000 b. $18,000 c. $12,000 d. $6,000

b. $18,000 You own 3,000 / 10,000 shares giving you 30% control, use the equity method. Dr Equity investment 60,000 (3,000 x $20) Cr Cash 60,000 Dr Cash 12,000 (40,000 x .30) Cr Equity investment 12,000 Dr Equity investment 18,000 (120,000 x .30 x 6/12) Cr Equity income 18,000

MCQ-09327 Simmons, Inc. uses the lower-of-cost-and-net-realizable-value to value its inventory that is accounted for using the FIFO method. Data regarding an item in its inventory is as follows: Cost $26 Replacement cost 20 Selling price 30 Cost of completion and disposal 2 Normal profit margin 7 What is the lower of cost or market for this item? a. $18 b. $26 c. $28 d. $30

b. $26 IFRS uses the lower-of-cost-and-net-realizable-value GAAP uses the lower-of-cost-or-market method One step only Chose the lower of cost 26 or NRV (SP - CC) 28 26 is lower

MCQ- 09426 On January 1, Year 1, Black Dog Corp. began operations and issued 30,000 shares of $ 5 par common stock for $ 9/ share. On June 30, the company bought back 10,000 shares for $ 8/ share. Then, on September 15, the company resold 5,000 shares for $ 12/ share. What amount of total additional paid- in capital should Black Dog report on its December 31, Year 1 balance sheet if Black Dog uses the cost method to account for its treasury stock? a. $ 20,000 b. $ 120,000 c. $ 140,000 d. $ 165,000

c. $ 140,000 Under the cost method, Black Dog would record the following journal entries for its Year 1 stock transactions: Jan. 1, Year 1—Issue 30,000 shares of $5 par common stock for $9/share: Dr Cash 270,000 (30,000 x x$9 selling price) Cr Common stock 150,000 (30,000 x x$5 par) Cr APIC—CS 120,000 (30,000 x x$4 par) June 30, Year 1—Repurchase 10,000 shares for $8/share: Dr Treasury stock 80,000 (10,000 x x$8 repurchase price) Cr Cash 80,000 Sept. 15, Year 1—Resell 5,000 shares for $12/share: Dr Cash 60,000 (5,000 x $12 sales price) Cr Treasury stock 40,000 (5,000 x $8 repurchase price) Cr APIC—TS (plug) 20,000 Therefore, total APIC on Black Dog's balance sheet at December 31, Year 1 would be $140,000 ($120,000 from original sale + $20,000 from sale of treasury stock).

MCQ-09264 The following information pertains to Burnel Corporation's defined benefit pension plan for year 1: Service cost $ 160,000 Actual and expected gain on plan assets 35,000 Unexpected loss on pension plan assets related to a Year 1 disposal of a subsidiary 40,000 Amortization of unrecognized prior service cost 5,000 Annual interest on pension obligation 50,000 What is Burnel's net periodic pension cost for the period? a. $ 250,000 b. $ 220,000 c. $ 210,000 d. $ 180,000

d. $ 180,000 + Service cost (current) + Interest cost (on PBO) - Return on plan assets (expected or actual) + Amortization of unrecognized prior service cost ± Gains and losses ± E Amortization of existing net (assets) or obligation = net periodic pension cost for the period S -> current item "goes to "compensation" IR-> current items expensed AGE -> AOCI -> amortized out of I/S + S $160,000 + I 50,000 - R + A 5,000 ± G (35,000) ± E = $180,000

MCQ-09398 The Loyd Company had 150 units of product Omega on hand at December 1, Year 1, costing $400 each. Purchases of product Omega during December were as follows Date -- Units -- Unit Cost December 7 -- 100 $440 December 14 -- 200 $460 December 29 -- 300 $500 Sales during December were 500 units on December 30. Assume a periodic inventory system is used. The cost of ending inventory at December 31, Year 1 under the weighted average method would be: a. $100,000 b. $104,000 c. $115,000 d. $125,000

d. $115,000 BI + Purchases = CGAS - End Inv. = COGS or BI + Purchases = CGAS - COGS / Sold = End inv. 150 BI + 600 Purchases = 750 CGAS - 500 COGS / Sold = 250 End inv. "Newest inv." Unsold $400 x 150 = $60,000 $440 x 100 = $44,0000 $460 x 200 = $92,000 $500 x 300 = $150,000 Total cost = $346,000 $346,000 / 750 total unit = $461.33 per unit 250 End inv. x $461.33 per unit = $115,000 Cost of ending inv. Dec 31, Yr 1

MCQ-09386 The Loyd Company had 150 units of product Omega on hand at December 1, Year 1, costing $400 each. Purchases of product Omega during December were as follows Date -- Units -- Unit Cost December 7 -- 100 $440 December 14 -- 200 $460 December 29 -- 300 $500 Sales during December were 500 units on December 30. Assume a periodic inventory system is used. The cost of ending inventory at December 31, Year 1 under the FIFO method would be: a. $100,000 b. $104,000 c. $115,000 d. $125,000

d. $125,000 BI + Purchases = CGAS - End Inv. = COGS or BI + Purchases = CGAS - COGS / Sold = End inv. 150 BI + 600 Purchases = 750 CGAS - 500 COGS / Sold = 250 End inv. "Newest inv." Unsold 250 End inv. x $500 = $125,000 Cost of ending inv. Dec 31, Yr 1