CPA Conceptual

Park, Inc. acquired 100% of Gravel Co.'s net assets. On the acquisition date, Gravel's accounting records reflected $50,000 of costs associated with in process R&D activities. The fair value of the in process R&D activities was $400,000. Park's consolidated intangible assets will increase by what amount, if any, as a result of the acquisition of the in process R&D activities?

$400,000 When one entity purchases another entity, the transaction is considered a business combination. To account properly for a business combination, all assets acquired and liabilities assumed will be measured at fair value. Any amount paid in excess of the identifiable fair value of net assets is recorded to goodwill. Though the cost of the in process R&D to Gravel Co was $50,000 its fair value was $400,000 and will be recorded as an asset on Park's books at that amount.

The definition of a smaller reporting company with respect to market value, as established by the SEC, includes companies with less than exactly what amount in public equity float?

$75 million As defined by the SEC, a large accelerated filer has worldwide market value of outstanding common equity held by noqaffilitates of $700 million or more, and an accelerated filer has worldwide market value of $75 million or more, but less than $700 million. Therefore, a small filer has worldwide market value of outstanding common equity held by non affiliates of less than $75 million.

On October 1, Velec Co, a US company, contracted to purchase foreign goods requiring payment in euros one month after their receipt at Velec's factory. Title to the goods passed on December 15th. The goods were still in transit on December 31. Exchange rates were one dollar to 22 euros, 20 euros and 21 euros on October 1, December 15th and December 31, respectively. Velec should account for the exchange rate fluctuation as:

A gain included in net income before discontinued operations. This transaction would first be journalized when title transfer to the buyer on December 15. At fiscal year-end, the exchange rate has increased from one dollar to 20 euros on 12/15 to one dollar to 21 euros on 12.31, so a foreign exchange gain would be recognized.

Which of the following is an intangible asset that is subject to the recoverability test when testing for impairment?

A patent

Under Regulation S-X, an entity's interim financials filed with the SEC should include all of the following, except:

A statement of cash flows for the most recent quarter. It should include a statement of cash flows for the period between the end of the preceding fiscal year and the end of the most recent fiscal quarter, and for the corresponding period for the preceding fiscal year. The financial statements may also present statements of cash flows for the cumulative 12 month period ended during the most recent fiscal quarter and for the corresponding preceding period.

When the allowance method of recognizing uncollectible accounts is used, how would the collection of an account previously written off affect accounts receivable and the allowance for uncollectible accounts?

AR- No effect Allowance- Increase Under the allowance method, the following entries are recorded: 1. To restore the account previously written off: Dr. A/R Cr. Allowance for uncollectible accounts 2. To record the cash collection on the account: Dr. Cash Cr. A/R

Leisure Time Corp. follows the practice of paying all employees for vacation. The vacation pay is not vested, but it carries over for one year if unused. The obligation for earned but unused vacation should be:

Accrued as a current liability

When collectibility is reasonably assured, the excess of the subscription price over the stated value of the no par common stock subscribed should be recorded as:

Additional paid-in capital when the subscription is recorded When the collectibility is reasonably assured, the excess of the subscription price over the stated value of the no par common stock subscribed should be recorded as APIC when the subscription is received

Which method of recording uncollectible accounts expense is consistent with accrual accounting?

Allowance: Yes Direct Write-Off: No

Kale Co. purchased bonds at a discount on the open market as an investment and has the intent and ability to hold these bonds to maturity. Absent an election of the fair value option, Kale should account for these bonds at

Amortized Cost Bond investments which are intended to be held until the maturity date are classified as held-to-maturity securities and are reported at their amortized cost.

Invern, Inc. has a self-insurance plan. Each year, retained earnings is appropriated for contingencies in an amount equal to insurance premiums saved less recognized losses from lawsuits and other claims. As a result of a Year 10 accident, Invern is a defendant in a lawsuit which it will probably have to pay damages of $190,000. What are the effects of this lawsuit's probable outcome on Invern's Year 10 financial statements?

An increase in both expenses and liabilities.

When accounting for income taxes, a temporary difference occurs in which of the following scenarios?

An item is included in the calculation of net income in one year and in taxable income in a different year.

The market price of a bond issued at a premium is equal to the present value of its principal amount:

And the present value of all future interest payments, at the market (effective) interest rate

The effect of a change in accounting principle, that is inseparable from the effect of a change in accounting estimate should be reported:

As a component of income from continuing operations, in the period of change and future periods if the change affects both.

The reconciliation of governmental fund financial statements to a government-wide presentation would most likely be found in a city's:

Basic Financial Statements

Which of the following is not a comprehensive basis of accounting other than GAAP?

Basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution. A comprehensive basis of accounting other than GAAP would include: -cash basis and modified cash basis -tax basis -prescribed regulatory basis -other basis with substantial support

A derivative designated as a fair value hedge must be: I. Specifically identified to the hedged asset, liability or unrecognized firm commitment II. Expected to be highly effective in offsetting changes in the fair value of the hedged item

Both I and II A derivative may be designated and qualify as a fair value hedge if a set of criteria relating to the derivative and the hedged item are met. The most significant criteria are: 1. There is formal documentation of the hedging relationship between the derivative and the hedged item 2. The hedge must be expected to be highly effective in offsetting changes in the fair value of the hedged item and the effectiveness is assessed at least every three months 3. The hedged item is specifically identified 4. The hedged item presents exposure to changes in fair value that could affect income

In what fund type should the proceeds from special assessment bonds issued to finance construction of sidewalks in a new subdivision be reported?

Capital projects fund Accounting for special assessments for capital improvements is similar to contractors accounting and is part of capital projects fund or enterprise fund, whichever is appropriate

Which of the following should not be disclosed in an enterprise's statement of cash flows prepared using the indirect method?

Cash flow per share Financial statements should not report an amount of cash flow per share. Neither cash flow nor any component of it is an alternative to net income as an indicator of an enterprise's performance, as reporting per share amounts might imply.

Fogg, a US company, contracted to purchase foreign goods. Payment in foreign currency was due one month after the goods were received at Fogg's warehouse. Between the receipt of goods and the time of payment, the exchange rates changed in Fogg's favor. The resulting gain should be included in Fogg's financial statements as a(an):

Component of income from continuing operations RULE: Gains and losses resulting from foreign exchange transactions that are an "extension" of the parent's domestic operations are included as a component of "income from continuing operations" in the period in which they occur

Which of the following is not a cost associated with exit and disposal activities?

Costs associated with the retirement of a fixed asset

In recording its budgetary accounts in its governmental funds at the beginning of the fiscal year, a municipal government would:

Credit appropriations control Journal Entry: Dr. Estimated Revenue Control Dr. Budgetary Control Cr. Appropriations Control Cr. Budgetary Control

A material overstatement in ending inventory was discovered after the year-end financial statements of a company were issued to the public. What effect did this error have on the year-end financial statements?

Current Assets: Overstated Gross Profit: Overstated

Taxes collected and held by Franklin County for a separate school district would be accounted for in which fund?

Custodial

Harland County received a $2,000,000 capital grant to be equally distributed among its five municipalities. The grant is to finance the construction of capital assets. Harland had no administrative or direct financial involvement in the construction. In which fund should Harland record the receipt of cash?

Custodial Fund

In computing the weighted-average number of shares outstanding during the year, which of the following midyear events must be treated as if it had occurred at the beginning of the year?

Declaration and distribution of stock dividend

Bal Corp. declared a $25,000 cash dividend on May 8 to shareholders of record on May 23, payable on June 3. As a result of this cash dividend, working capital

Decreased on May 8th Working capital is decreased on the declaration date Rule: a liability of a cash dividend is incurred and recorded on the declaration date

The employer net pension liability for the Gold City Fire Department decreased by $200,000 from Year 1 to Year 2 as a result of a change in actuarial assumptions used to value the employer net pension liability. As a result of this change, Golf City will display the following on its Year 2 government-wide financials:

Deferred inflows of resources of $200,000 Changes in a government's pension liability that result from changes in actuarial assumptions are accounted for as deferred outflows and deferred inflows. The reduction in the liability is a deferred inflow presented between liabilities and net position on the statement of net position

Which of the following statements is correct regarding deferred revenues recorded by a company that provides services to customers?

Deferred revenue is a liability until the service has been performed

Which format must an enterprise fund use to report cash flow operating activities in the statement of cash flows?

Direct Method

Which of the following is correct concerning financial statement disclosure of accounting policies?

Disclosure of accounting policies is an integral part of the financial statements

Which of the following is not a disclosure requirement related to risks and uncertainties under GAAP?

Disclosure of vulnerability due to all identified concentrations. Identified concentrations only need to be disclosed if all of the following are met: 1. The concentration exists at the financial statement date. 2. The concentration makes the entity vulnerable to the risk of a near-term severe impact. 3. It is at least reasonably possible that the events that could cause the severe impact will occur in the near-term.

In Year 1, a contract dispute between Dollis Co and Brooks Co was submitted to binding arbitration. In Year 1, each party's attorney indicated privately that the probable award in Dollis' favor could be reasonably estimated. In Year 2, the arbitrator decided in favor of Dollis. When should Dollis and Brooks recognize their respective gain and loss?

Dollis' Gain: Year 2 Brooks' Loss: Year 1 Dollis' gain contingency cannot be recognized until it is settled and realized in Year 2. In Year 1, Brooks' loss contingency is probable and estimable and must be recognized

Which of the following does not affect an internal service fund's change in net position?

Due from other funds Due from other funds appears on the balance sheet. They are not a component of changes in net position.

When a purchase order is released, a commitment is made by a govermental unit to buy a computer to be manufactured to specifications for use in property tax administration. This commitment should be recorded in the general fund as an

Encumbrance

An internal service fund of a municipality would have the same basis of accounting as a(an):

Enterprise Fund The Enterprise funds are proprietary funds and use the accrual basis of accounting, the same as the Internal Service funds.

A segment of Ace Inc. was discontinued during Year 1. Ace's loss from discontinued operations should not:

Exclude operating losses from the date the decision to dispose of the segment was made until the end of Year 1. Ace's loss on discontinued operations should not exclude operating losses from the date the decision to dispose of the segment was made until the end of Year 1. All Year 1 operating losses should be included.

Bale Co. incurred $100,000 of acquisition costs related to the purchase of the net assets of Dixon Co. The $100,000 should be

Expensed as incurred in the current period

Peel Co. received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it uses the fair value method or the equity method of accounting?

Fair Value: No Equity: No Under the fair value method, receipt of a dividend is recorded as income and does not affect the investment account. Under the equity method, receipt of dividends is recorded as a decreased in the investment account.

How should a nongovernmental, not-for-profit entity report donor-restricted cash contributions for long-term purposes in its statement of cash flows?

Financing activity inflow Cash contributions restricted by the donor for long-term purposes must be reported as a cash inflow in the financing activities section of the statement of cash flows, segregated from other financing activities.

The financials of governments have focused on two forms of accountability. Government-wide financials focus the reader on accountability in which way(s):

Fiscal Accountability: No Operational Accountability: Yes Governmental-wide financials focus on operational accountability and funds focus on fiscal accountability

Which of the following conditions or events would least likely raise substantial doubt about an entity's ability to continue as a going concern?

Flood damage to an insured warehouse

Which of the following SEC forms is not a periodic (quarterly, semi-annial, annual) filing?

Form 8-K

Which of the following funds of a local government would report transfers to other funds as an other financing use?

General

The only fund that should show a positive amount in its unassigned fund balance classification would be the:

General Fund

The portion of special assessment debt maturing in 5 years, to be repaid from general resources of the government, should be reported in the:

Government-wide statement of net position

When the fair value of an investment in debt securities exceeds its amortized cost, how should each of the following debt securities be reported at the end of the year?

Held to Maturity: Amortized Cost Available for Sale: Fair Value

Which of the following will not have separate earnings per share calculation and disclosure under GAAP? I. Extraordinary items of the period II. Discontinued operations III. Unrealized gains/losses on AFS securities

I and III Extraordinary items are no longer recognized under GAAP. Only discontinued operations have separate earnings per share calculations and disclosures. Unrealized gains and losses on AFS securities are part of OCI. OCI income items are direct charges to stockholders' equity and do not affect net income. They have no earnings per share calculations and disclosures.

A major difference between GAAP and IFRS guidance for considering going concern is:

IFRS does not offer guidance on the basis of accounting to use in case of imminent liquidation. GAAP provides specific guidance about preparing financial statements and necessary disclosures when liquidating is imminent.

Alpha Omega Inc. has a subsidiary located in Mexico, for which it uses the translation/current rate method in its consolidation process. Which of the following statements is(are) true? I. Sales in Mexican pesos would be translated into USD at the year-end exchange rate II. Any translation gain or loss would be reported in OCI

II only Under the translation method, any gain or loss is reflected in OCI

In the exchange of non monetary assets that lack commercial substance:

If boot is paid, all realized losses are fully recognized. In any exchange, all realized losses are fully recognized in accordance with the principle of conservatism.

How should a gain from the sale of used equipment for cash be reported in a statement of cash flows using the indirect method?

In operating activities as a deduction from income

Giaconda, Inc. acquires an asset for which it will measure the fair value by discounting future cash flows of the asset. Which of the following terms best describes this fair value measurement approach?

Income The income approach converts future amounts, including cash flows or earnings to a single discounted amount to measure fair value.

A nongovernmental NFP organization's statement of activities is similar to which of the following for-profit financial statements?

Income statement

Blunder Bus Corp. has an $85,000 balance in its Deferred Tax Asset account. Blunder has determined that is more likely than not that $50,000 of its deferred tax asset will not be realized in the future. Under GAAP, Blunder should:

Increase this period's income tax expense by $50,000. Writing down a deferred tax asset increases (debits) income tax expense and increases (credits) the Deferred Tax Valuation Allowance in the amount that is expected to go unrealized.

When a property dividend is declared and the market value of the property exceeds its book value, the excess

Increases net income for the period. A property dividend is recorded at the fair value of the property to be distributed. The property has to be adjusted to fair value with the adjustment affecting earnings for the period. APIC is not affected.

When valuing certain financial instruments, a company that has elected the fair value measurement option must apply the accounting measurement based on which of the following?

Instrument-by-instrument basis

Each of the following would be considered a Level 2 observable input that could be used to determine a liability's fair value, except:

Internally generated cash flow projections for a related asset or liability Internally generated cash flow projection is based on "unobservable" inputs reflecting a company's "own assumptions" about the way the related asset or liability would be priced.

Lyon Co. estimated its ending inventory using a method based on the financial statements of prior periods in order to prepare its quarterly interim financial statements. What type of inventory system and method of estimating ending inventory is Lyon using?

Inventory system: Periodic Method of estimating ending inventory: Gross profit method A company using a periodic inventory system must estimate inventory and cost of goods sold in interim financial statements because periodic systems do not continuously update inventory accounts throughout the year. The gross profit method is a way to estimate values under a periodic system using gross profit percentages from previous reporting periods and applying that percentage to current period sales revenue.

General purpose external financial reporting of a corporation focuses primarily on the needs of which of the following users?

Investors and creditors and their advisors

The cumulative effect of a change in accounting estimate should be shown separately:

It should not be recorded separately on any financial statement. A change in estimate is handled prospectively. No cumulative effect adjustment is made and no separate line item presentation is made on any financial statement. If a material change is being made, appropriate footnote disclosure is necessary.

A company recently moved to a new building. The old building is being actively marketed for sale, and the company expects to complete the sale in four months. Each of the following statements is correct regarding the old building, except:

It will be valued at historical cost The old building being actively marketed for sale will be valued at the lower of its book value or net realizable value (fair value less the costs to sell)

Which of the following should be included in the introductory section of a local government's annual financial report?

Letter of transmittal

Nack City received a donation of a valuable painting. Nack planned to add the painting to its collection and display it in the protected exhibition area of city hall. Nack had a policy that if such donated art works were sold, the proceeds would be used to acquire other items for its collections. Which of the following would be correct regarding the donated painting?

May be capitalized, but it is not required and depreciation is not required Donated works of art meeting certain criteria are eligible for optional capitalization at the election of the government receiving the works or art and depreciation is not required even if the government elects to capitalize.

BCA Tech, a new company, produces welcomes and other computer-related software products. The company recently received a contract to produce and deliver over 500,000 webcams to be distributed evenly over the next 20 months. If the company would like to use an output method to recognize revenue during the first year of the contract, which of the following methods would be most appropriate?

Milestones achieved

Murphy Co. had 200,000 shares outstanding of $10 par common stock on March 30 of the current year. Murphy reacquired 30,000 of those shares at a cost of $15 per share and recorded the transaction using the cost method on April 15. Murphy reissued the 30,000 shares at $20 per share and recognized a $50,000 gain on its income statement on May 20. Which of the following statements is correct?

Murphy's net income for the current year is overstated Net income or retained earnings will never be increased though treasury stock transactions. Murphy Co. incorrectly recognized a gain from the issuance of the treasury stock and as such overstated Murphy's net income for the current period.

When should a conditional pledge to a nongovernmental NFP organization be recognized as revenue?

NEVER Only unconditional pledges should be recognized as revenue

Pharma, a nongovernmental NFP organization, is preparing its year-end financials. Which statement(s) are required?

NFP organizations are required to produce 1. Statement of financial position 2. Statement of activities 3. Statement of cash flows

At the beginning of the year, a lessee signs a five-year lease that contains a written purchase option, which the lessee is reasonably certain to exercise. In preparing the annual cash flow statement after year-end, the lessee's cash flow from operations will be:

Negatively impacted by variable lease payments and not included in the lease liability.

According to the FASB and IASB conceptual frameworks, what does the concept of faithful representation include?

Neutrality

Hut Co. has temporary differences that will reverse during the next year and decrease taxable income. These differences relate to current assets. The deferred income taxes based on these temporary difference should be classified in Hut's balance sheet as a:

Noncurrent asset A temporary difference that decreases future taxable income results in the recognition of a deferred tax asset, which will be reported as non current. All DTAs and DTLs are reported as non current on the balance sheet

Management's evaluation of the entity's ability to continue as a going concern should:

Occur for each annual and interim reporting period

During the current year, Ace Co. amortized a bond discount. Ace prepares its statement of cash flows using the indirect method. In which section of the statement should Ace report the amortization of the bond discount?

Operating Activities

Hunt Community Development Agency (HCDA), a financially independent authority, provides loans to commercial businesses operating in Hunt County. This year, HCDA made loans totaling $500,000. How should HCDA classify the disbursements of loans on the cash flow statement?

Operating Activities Rule: Government proprietary funds (enterprise and internal service) prepare a statement of cash flows in a manner similar to commercial enterprises

Which of the following would be considered an element of comprehensive income?

Operating Losses: Yes Revenues: Yes Foreign Currency Translation Adjustment: Yes Comprehensive income is the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income is the total of all components of comprehensive income including net income and OCI

Through an internal service fund, New County operates a centralized data processing center to provide services to New's other governmental units. In Year 1, this internal service fund billed New's parks and recreation fund $150,000 for data processing services. What account should New's internal service fund credit to record this $150,000 billing to the parks and recreation fund?

Operating revenues control The $150,000 billing to the parks and recreation fund would be credited to operating revenues control in the internal revenue service fund. The journal entry would be: Dr. Due from other funds $150,000 Cr. Operating revenues control $150,000

Can Do Co. neglected to amortize the premium on outstanding ten-year bonds payable. What is the effect of the failure to record premium amortization on interest expense and bond carrying value?

Overstate, overstate

P Company owns 30% of the voting common stock of S company. P will probably use the equity method of accounting to accounting to account for this investment because:

P is assumed to be able to exercise significant influence over the affairs of S Co.

Which of the following should be disclosed for each reportable operating segment of an enterprise under GAAP?

P&L: Yes Total Assets: Yes For each reportable segment of an enterprise, both P&L and total assets should be disclosed under GAAP. In disclosure questions, if you are not sure, disclose the most rather than the least.

Which of the following costs is unique to post retirement health-care benefits?

Per capita claims

Company J acquired all of the outstanding common stock of Company K in exchange for cash. The acquisition price exceeds the fair value of net assets acquired. How should Company J determine the amounts to be reported for the plant and equipment and long-term debt acquired from Company K?

Plant and equipment- Fair Value Long-term debt- Fair Value When the acquisition price exceeds the fair value of net assets acquired, assets and liabilities should be presented at fair value.

Pahn, a nongovernmental NFP organization, received an unconditional pledge of $50,000. The donor stipulated that the pledge must be used in the next fiscal year. Pahn received and spent the $50,000 in the next year. For the current fiscal year, what element of Pahn's statement of financial position will increase as a result of the unconditional pledge?

Pledge Receivables

The Lester Corporation prepares its second quarter interim report under GAAP. In preparing the reports, Lester will most likely:

Prepare the interim report with less due diligence than it would use for the annual report in order to issue it faster

Feline County established the Calico Landfill as a separate legal entity to operate the city's solid waste landfill. The landfill's operating budget and capital improvement projects are subject to the approval of the county commission. The financial statements of the Calico Landfill should be:

Presented discretely as a component unit Component units that do not meet the criteria for blended reporting (governing boards of component and primary government are substantially the same or the component unit exclusively serves the primary government) are reporting discretely

When purchasing a bond, the present value of the bond's expected net future cash inflows discounted at the market rate of interest provides what information about the bond?

Price

Which of the following revenues should generally be recorded in the accounting period in which they become susceptible to accrual (regardless of timing of collection) by a state or local governmental body?

Property Tax Revenues: No Public Parking Revenues: No Income Tax Revenues: No Sales Tax Revenues: No Revenues are recognized when measurable and available. Revenues are accrued when earned. Revenues must not only be earned but also collected (generally) within 60 days of year end for recognition in governmental fund financial statements.

According to the FASB conceptual framework, for financial reporting to be useful, it must:

Provide information useful for making business and investment decisions

On 12/31/X1, the end of its fiscal year, S Co held a derivative instrument which it had acquired for speculative purposes during November, Year 1. Since the acquisition the fair value had increased materially. On 12/31, how should the increase in the fair value of the derivative be reported by S in its financials?

Recognized in current net income for Year 1. Gains (and losses) resulting from the change in fair value of derivatives not held (or issued) for hedging purposes should be recognized in net income in the period during which the fair value changes. To accomplish that, the derivative would be adjusted to its new fair value and a gain or loss recognized in current net income.

Gains and losses from changes in the fair value of a derivative designated and qualified as a fair value hedge should be:

Recognized in current net income in the period in which the fair value of the derivative changes

Which of the following should a company classify as R&D expense?

Redesign of a produce prerelease

According to the FASB and IASB concept frameworks, which of the following correctly pairs a fundamental qualitative characteristic of useful information with one of its components?

Relevance and materiality

In complying with GASB 34, a government will present separate fund financial statements for its governmental and proprietary funds. The purpose of this presentation is to:

Report additional and detailed information about the primary government RULE: Separate fund financial statements should be presented for governmental and proprietary funds to report additional and detailed information about the primary government.

A retained earnings appropriation can be used to:

Restrict earnings available for dividends RULE: A retained earnings appropriation debits (reduces) "unappropriated retained earnings" and sets up (credits) "appropriated retained earnings". It does not affect the income statement

Which of the following transactions is an expenditure of a governmental unit's general fund?

Routine employer contributions from the general fund to a pension trust fund

Perez, Inc. owns 80% of Senior, Inc. During Year 1, Perez sold goods with a 40% gross profit to Senior. Senior sold all of these goods in Year 1. For Year 1 consolidated financial statements, how should the summation of Perez and Senior's income statement items be adjusted?

Sales and cost of goods sold should be reduced by the intercompany sales.

Bonds payable issued with scheduled maturities at various dates are called

Serial Bonds: Yes Term Bonds: No

When the allowance method of recognizing bad debt expense is used, the allowance would decrease when a(an):

Specific uncollectible account is written off

The Harrison School of Fine Arts is organized as a NFP institution of higher learning. The Harrison School is required to produced which of the following financial statements?

Statement of Financial Position: Yes Statement of Activities: Yes Statement of Cash Flows: Yes Statement of Functional Expense: No

Which of the following statements is not required for not-for-profit organizations?

Statement of Retained Earnings

Which of the following is a required financial statement for an investment trust fund?

Statement of changes in fiduciary net position.

The FASB's due process for setting accounting standards includes which of the following procedures?

The FASB can seek information about accounting and reporting issues by holding public forums, usually based on an exposure draft.

In Year 10, hail damaged several of Toncan Co's vans. Hailstorms had frequently caused similar damage to Tocan's vans. Over the years, Toncan had saved money by not buying hail insurance and either paying for repairs, or selling damaged vans and then replacing them. In Year 10, the damaged vans were sold for less than their carrying amount. How should the hail damage cost be reported on the Year 10 financials under US GAAP?

The actual Year 10 hail damage loss in continuing operations, with no separate disclosure Actual hail damage must be reported. Because the hailstorms are frequent, the damage is not considered unusual. Thus, the damages would be shown in continuing operations. No separate disclosure is necessary since hail damage is a common occurrence.

A public entity sells steel for use in construction. One of its customers accounts for 43% of sales, and another customer accounts for 40% of sales. What should the entity disclose in its annual financial statements about these two customers?

The amount of the entity's revenue from each of the two customers

Which of the following is not a valuation technique that can be used to measure the fair value of an asset or liability?

The impairment approach The impairment approach is not used to measure the fair value of an asset or liability. Instead, when an entity is determining whether an asset has been impaired, the entity will use the market approach, the income approach or the cost approach to determine the fair value of the asset.

An investor uses fair value through net income to account for an investment in common stock. Dividends received this year exceeded the investor's share of investors undistributed earnings since the date of investment. The amount of dividend revenue that should be reported in the investor's income statement for the year would be:

The portion of the dividends received this year that were not in excess of the investor's share of investee's undistributed earnings since the date of investment. RULE: Dividend revenue, under the fair value method, should be recognized to the extent of cumulative earnings since acquisition and return of capital beyond that point

This transaction will cause an increase to stockholders' equity:

The sale of treasury stock sold at less than cost

Which of the following financial statements would provide information about the ongoing revenues and expenses associated with a voluntary health and welfare organization?

The statement of activities The statement of activities provides information about the ongoing revenues and expenses associated with a voluntary health and welfare organization similar to the income statement in commercial settings

Which of the following is least likely to represent an actual debt covenant?

Times interest earned must stay below a specific level The higher the times interest earned (EBIT/Interest expense), the better it is for the company paying interest on the debt. A more appropriate debt covenant would be for the times interest earned to stay above (rather than below) a specific level.

What is the primary objective of financial reporting?

To provide information that is useful for economic decision making

How would the purchase of treasury stock affect each of the following?

Total Stockholders' Equity: Decrease Earnings per Share: Increase The purchase of treasury stock would decrease stockholders' equity and the number of outstanding share. As such, the amount of EPS increases.

How would the proceeds received from the advance sale of nonrefundable tickets for a theatrical performance be reported in the seller's financial statements before the performance?

Unearned revenue for the entire proceeds

Which of the following is a Level 3 input to valuation techniques used to measure the fair value of an asset?

Unobservable inputs for the asset

Water Co. owns 80% of the outstanding common stock of Fire Co. On December 31st, Year 1, Fire sold equipment to water at a price in excess of Fire's carrying amount, but less than its original cost. On a consolidated balance sheet at December 31, Year 1, the carrying amount of the (cost less accumulated depreciation) equipment should be reported at:

Water's original cost less Fire's recorded gain RULE: Fixed asset cost is based on original cost from the outside world and remains the same on the consolidated financial statements

A transaction was reported as a non monetary exchange of assets. Under which of the following circumstances should the exchange be measured based on the reported amount of the non monetary asset surrendered?

When the transaction lacks commercial substance. When a transactions involving a non monetary exchange lacks commercial substance, the reported amount of the non monetary asset surrendered is used to record the newly acquired asset. If the transaction has commercial substance, the fair value approach is used.

Cahn Co. applies straight-line amortization to its organization costs for income tax purposes, but expenses all costs as incurred for financial statement reporting. For tax purposes, a 15-year period is used. Cahn has no other temporary differences, has an operating cycle of less than 1 year, and has taxable income in all years. Cahn should report both current and non-current deferred income tax assets at the end of:

Year 1: No Year 14: No All deferred tax assets and deferred tax liabilities are reported as non-current

All of the following regarding notes to the basic financial of governmental entities are true, except:

the notes contain disclosures related to required supplementary information-required supplementary information is reported before (MD&A) or after (budget, infrastructure, pension) the basic financial statements. The notes to the financial statements are integral to the financial statements and include important disclosures about the basic financial, not the required supplementary information.