FAR MCQ

A foreign subsidiary of a U.S. parent company should measure its assets, liabilities and operations using the: a) subsidiary's local currency b) subsidiary's functional currency c) U.S. dollar d) best available spot rate

(b)

Cor-Eng Partnership was formed on January 2, 20X1. Under the partnership agreement, each partner has an equal initial capital balance accounted for under the goodwill method. Partnership net income or loss is allocated 60% to Cor and 40% to Eng. To form the partnership, Cor originally contributed assets costing $30,000 with a fair value of $60,000 on January 2, 20X1, while Eng contributed $20,000 in cash. Drawings by the partners during 20X1 totaled $3,000 by Cor and $9,000 by Eng. Cor-Eng's net income was $25,000. Eng's initial capital balance in Cor-Eng is:

Journal entry to form partnership: Dr. Cr. Cash 20,000 Other Assets (at fair value) 60,000 Goodwill 40,000 Cor (Capital) 60,000 Eng (Capital) 60,000

Cuthbert Industrials, Inc., prepares 3-year comparative financial statements. In Year 3, Cuthbert discovered an error in the previously issued financial statements for Year 1. The error affects the financial statements that were issued in Years 1 and 2. How should the company report the error?

the financial statements for Years 1 & 2 should be restated; the cumulative effect of the error on Years 1 & 2 should be reflected in the carrying amounts of assets and liabilities as of the beginning of YEar 3

FASB ASU 2016-10 enhanced the guidance on the concept of distinctiveness. Which of the following factors is not accurate related to this concept?

the goods or services are not interdependent or interrelated.

According to the Statements of Financial Accounting Concepts, completeness is an ingredient of: Faithful Representation Relevance

Faithful representation

The FASB's conceptual framework explains both financial and physical capital maintenance concepts. Which capital maintenance concept is applied to currently reported net income, and which is applied to comprehensive income?

Financial capital is applied to both currently reported ent income and comprehensive income. SFAC 6

When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. Management most likely would consider, as a mitigating factor, the entity's plans to: a) sell one of its successful and well-known product brands b) purchase a substantial equity ownership stake in a key supplier c) increase the annual dividend payment to reward stockholders for maintaining ownership in the entity d) make substantial investment in R&D to become a competitor in the market for an emerging technology

(a) Management's plans to deal with the current situation could mitigate the adverse effects and often involve plans to increase cash inflows. Examples of these plans would be: plans to dispose of assets, plans to borrow money or restructure debt, plans to reduce or delay expenditures, or plans to increase ownership equity.

Anchor Co. owns 40% of Main Co.'s common stock outstanding and 75% of Main's noncumulative preferred stock outstanding. Anchor exercises significant influence over Main's operations. During the current period, Main declared dividends of $200,000 on its common stock and $100,000 on its noncumulative preferred stock. What amount of dividend income should Anchor report on its income statement for the current period related to its investment in Main?

An entity that exerts significant influence over another company in which it owns stock must use the equity method to account for its investment. Under this method, dividends received from an investee reduce the carrying amount of the investment but are not included in the income of the investor. However, an investment in preferred stock does result in dividend income. Consequently, Anchor will report dividend income of $100,000 × 0.75 ($75,000)

A city council designates funds in the enterprise fund for future equipment replacement. The enterprise fund should report this as:

An unrestricted component of net position.

Alpha Hospital, a large not-for-profit entity, has adopted an accounting policy that does not imply a time restriction on gifts of long-lived assets. Alpha received investments subject to the donor's requirement that investment income be used to pay for outpatient service. Indicate the manner in which this transaction affects Alpha's financial statements.

Increase in net assets with donor restrictions.

Zinc Co.'s adjusted trial balance on December 31, 20X1, includes the following account balances: Common stock ($3 par) $600,000 Additional paid-in capital 800,000 Treasury stock (at cost) 50,000 Net unrealized loss on available-for sale debt securities 20,000 Net unrealized loss on investment in equity securities 15,000 Retained earnings appropriated for uninsured earthquake losses 150,000 Retained earnings (unappropriated) 200,000 What amount should Zinc report as total stockholders' equity in its December 31, 20X1, balance sheet?

Only the unrealized loss from the debt securities classified as available-for-sale is included in shareholder's equity as a component of accumulated comprehensive income. The net unrealized loss on investment in equity securities is included in net income. CONTRIBUTED CAPITAL: Common stock $ 600,000 Additional paid-in capital 800,000 Total contributed capital $1,400,000 Retained earnings ($150,000 appropriated) 350,000 Subtotal $1,750,000 Less accumulated comprehensive income (unrealized loss on available-for-sale debt securities) $20,000 Less Treasury stock at cost 50,000 70,000 Total stockholders' equity $1,680,000 ==========

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

Net income reported in 20X2 $500,000Attributed to preferred stock:For 20X2 ($25,000 x $10 x .04) (See Note) 10,000Income attributable to common shares $490,000 Note: The $16,000 dividends paid in 20X2 included only the $10,000 (i.e., 25,000 × $10 × .04) preferred dividend requirement for 20X2. Dividends in arrears should have been included in the previous year's computation of earnings per share. Earnings per share = $490,000 / 200,000 shares= $2.45 The current year's dividends accrued, and only the current year's dividends on cumulative preferred stock, whether declared or not, should be deducted from net income in calculating EPS. Dividends in arrears would have been included in the EPS calculation in previous years.

According to the FASB conceptual framework, an entity's revenue may result from:

A decrease in a liability from primary operations

In its December 31 balance sheet, Butler Co. reported trade accounts receivable of $250,000 and related allowance for uncollectible accounts of $20,000. What is the total amount of risk of accounting loss related to Butler's trade accounts receivable, and what amount of that risk is off-balance sheet risk?

Risk of accounting loss: $230,000; Off-balance sheet risk: $0

A company reports the following information for year 1: Sale of equipment $20,000Issuance of the company's bonds 10,000Dividends paid 5,000Purchase of stock of another company 2,000Purchase of U.S. Treasury note 2,000Income taxes paid 2,000Interest income received 500 What is the company's net cash flow from financing activities?

$5,000 Cash Flows from Financing Activities: Issuance of the company's bonds $10,000 Dividends paid (5,000) Net Cash Flows from Financing Activities $ 5,000 ========

Rune Co.'s checkbook balance on December 31, was $10,000. On that date, Rune held the following items in its safe: $4,000 check payable to Rune, postdated January 3, and not included in the December 31 checkbook balance, in collection of a sale made in December $1,000 check payable to Rune, deposited December 15 and included in the December 31 checkbook balance, but returned by the bank on December 30 stamped "NSF." The check was redeposited on January 2, and cleared on January 9. What amount should Rune report as cash in its December 31, balance sheet? a. $9,000 b. $10,000 c. $13,000 d. $14,000

(a)

Accrual accounting involves accruals and deferrals. Which of the following best describes accruals and deferrals? a. accruals: expected future cash receipts & payments; deferrals: past cash receipts & payments b. Accruals: past cash receipts and payments; deferrals: expected future cash receipts and payments c. Both are concerned with expected future cash receipts and payments d. Both are concerned with past cash receipts and payments

(a) Accrued items represent economic events that have already occurred, such as expenses, but have not yet been settled or paid. Deferrals represent items that have been settled or paid for in advance, but their associated underlying economic event has not yet occurred.

The budget for the City of Goodville for the year ending December 31 was adopted and recorded on January 2 of the same year. After recording the budget, the accounting records showed a debit balance of $50,000 in the Budgetary Fund Balance account. What does this indicate? a. Appropriations are $50,000 greater than extimated revenues b. estimated revenues are $50,000 greater than appropriations c. Appropriations are $50,000 greater than revenues d. Revenues are $50,000 greater than appropriations

(a) Annual budgets of estimated revenues and estimated expenditures are prepared for most governmental-type funds. The approved budgets of such funds are recorded in budgetary accounts in the accounting system to provide control over governmental fund revenues and expenditures. Budgetary journal entries record estimated amounts. Budgetary fund balance is the difference between estimated revenues and estimated expenditures; it can have a debit or credit balance. The following is typical of the general fund's entry to record the budget where estimated expenditures (i.e., appropriations) exceed estimated revenues: Estimated Revenue Control 40,000 Budgetary Fund Balance 50,000 Appropriations Control 90,000

Conceptually, interim financial statements can be described as emphasizing: a. timeliness over faithful representation b. faithful representation over relevance c. relevance over comparability d. comparability over neutrality

(a) Interim financial statements emphasize timeliness over faithful representation. As stated in FASB ASC 270-10-45-1: "Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise." Note: Timeliness is mentioned, but faithful representation is not.

In Soan County's general fund statement of revenues, expenditures, and changes in fund balances, which of the following has an effect on the excess of revenues over expenditures? a. purchase of fixed assets b. payment to a debt service fund c. special items d. proceeds from the sale of capital assets

(a) Purchase of fixed assets is an example of an expenditure and reduces the excess of revenues over expenditures. Transfers between funds are recorded as "other financing sources and uses." Proceeds from the sale of capital assets is an example of a special item. Special items are shown on the statement after the excess of revenue over expenditures.

Mirr, Inc., was incorporated on January 1, 20X0, with proceeds from the issuance of $750,000 in stock and borrowed funds of $110,000. During the first year of operations, revenues from sales and consulting amounted to $82,000, and operating costs and expenses totaled $64,000. On December 15, 20X0, Mirr declared a $3,000 cash dividend, payable to stockholders on January 15, 20X1. No additional activities affected owners' equity in 20X0. Mirr's liabilities increased to $120,000 by December 31, 20X0. On Mirr's December 31, 20X0, balance sheet (statement of financial position), total assets should be reported at: a) $885,000 b) $882,000 c) $878,000 d) $875,000

(a) Since (1) assets equals liabilities plus equity and (2) the $120,000 amount of liabilities is a given, the key is to compute the December 31, 20X0, balance of equity. The transactions described affected equity as follows: Issuance of stock on 1/1/X0 $750,000 Re venues 82,000 Expenses (64,000) Declaration of cash dividend (3,000) Equity 12/31/X0 $765,000 ========= Therefore, total assets must be $885,000, as shown below: Assets = Liabilities + Equity Assets = $120,000 + $765,000 Assets = $885,000

The basic financial statements of a general purpose government should include: a. government-wide financial statements, fund financial statements, and the notes to the financial statements b. fund financial statements and the notes to the financial statements c. government-wide financial statements and fund financial statements d. government-wide financial statements and the notes to the financial statements

(a) The basic financial statements include government-wide financial statements, fund financial statements, and the notes to the financial statements per GASB 2200.102. The minimum requirements for general purpose external financial reporting include, in addition to the basic financial statements, management's discussion and analysis, and required supplementary information other than management's discussion and analysis.

Rabb Co. records its purchases at gross amounts but wishes to change to recording purchases net of purchase discounts. Discounts available on purchases recorded from last October 1 to this September 30 totaled $2,000. Of this amount, $200 is still available in the accounts payable balance. The balances in Rabb's accounts as of and for the current year ended September 30 before conversion are: Purchases $100,000 Purchase discounts taken 800 Accounts payable 30,000 What is Rabb's current-year accounts payable balance as of September 30 after the conversion? a. $29,800 b. $29,200 c. $28,800 d. $28,200

(a) The difference between gross and net reporting is that at gross reporting, the discounts are not recognized in the carrying values of the accounts until payment is made. Thus, the accounts in question will be carried at their full gross amounts due (not less the discount available). The account that will be affected by the change is the accounts payable account that keeps track of the payments still due, at their full gross amount due of $30,000. The purchases already paid for have been adjusted for any available discount and do not require adjustment now. Any expired discounts are also no longer available and any purchases they relate to should stay at gross amounts due. The unexpired discounts that are still available to take, the $200, should be adjusted into the carrying value of accounts payable now still outstanding, and that is the only adjustment to make. Thus, what needs to be done is to restate accounts payable down by the $200 unexpired discounts, from $30,000 to $29,800.

Ballard Corporation has a dispute with the IRS that will result in a probable additional payment of taxes. At the end of 20X7, Ballard recorded a liability of $480,000 related to the dispute. On February 14, 20X8, final resolution of the dispute was reached. The judgment required Ballard to pay additional taxes of $535,000 with no penalties or interest. What is the journal entry, if any that Ballard Corporation should record for this event and include in the 20X7 financial statements that are scheduled to be issued on March 3, 20X8? a. Loss on tax settlement Dr $55,000 Tax Liability Cr $55,000 b. Loss on Tax settlement Dr $535,000 Tax liability Cr $535,000 c. Tax liability Dr $55,000 Loss on tax settlement Cr $55,000 d. no entry is needed to record the event

(a) The event occurring on February 14, 20X8, provided new information about a financial statement item that existed at the end of 20X7. Therefore, the effect of this event needs to be recorded in the financial statements to be issued in March of 20X8. Because the amount of tax Ballard must pay increased, an additional loss of $55,000 ($535,000 − $480,000) needs to be recorded along with an additional liability of $55,000. Additional information about this event should also be disclosed in the notes to the financial statements.

Where in its financial statements should a company disclose information about its concentration of credit risks? a. no disclosure is required b. the notes to the financial statements c. supplementary information to the financial statements d. management's report to shareholders

(b)

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

(b) All deferred tax liabilities (and deferred tax assets) are classified as noncurrent. All of the remaining items listed are considered current as they are due and payable within the next year. Accounts payable 80,000 Bonds Payable 300000 Disc on Bonds payable (15000) Total $365,000

Conn Co. reported a retained earnings balance of $400,000 at December 31 of the previous year. In August of the current year, Conn determined that insurance premiums of $60,000 for the 3-year period beginning January 1 of the previous year had been paid and fully expensed in that year. Conn has a 30% income tax rate. What amount should Conn report as adjusted beginning retained earnings in its current-year statement of retained earnings? a. $420,000 b. $428,000 c. $440,000 d. $442,000

(b) Conn should report $428,000: Beginning retained earnings as originally reported $400,000 Over expense of $40,000 - Tax of 30% ($12,000) 28,000 Corrected beginning retained earnings $428,000

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

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

The Town of Starbuck's general fund received a notice of a federal grant award for an expenditure-driven (reimbursement) grant in the amount of $2,000,000. Included with the notice was an advance of $1,000,000. During the year, the Town incurred $1,400,000 of program expenditures of which $800,000 were considered eligible qualifying expenditures. No additional money had been received from the grantor during the year. What would be the amount of deferred revenues reported at the end of the year by the general fund? a. $0 b. $200,000 c. $600,000 d. $1,200,000

(b) Normally, resources provided before that period of qualifying activity should be recognized as deferred revenues. Insofar as the amount of qualifying expenditures was less than the amount of the advance, the deferred revenues would be equal to the difference. Advance received $1,000,000 Qualifying expenditures 800,000 Deferred revenues $ 200,000========== GASB N50.118

How should state appropriations to a state university choosing to report as engaged only in business-type activities be reported in its statement of revenues, expenses, and changes in net position? a. operating revenues b. nonoperating revenues c. capital contributions d. other financing sources

(b) Revenues from state appropriations for other than capital-asset-related purposes are recorded as nonoperating revenues. Capital contributions and other financing sources are reported in other revenues, expenses, and transfers.

According to the FASB conceptual framework, which of the following does not relate to both relevance and faithful representation? a. comparability b. confirmatory value c. verifiability d. timeliness

(b) SFAC 8.3 ("Qualitative Characteristics of Useful Financial Information"), paragraph QC19, states: "Comparability, verifiability, timeliness, and understandability are qualitative characteristics that enhance the usefulness of information that is relevant and faithfully represented." Thus, comparability, verifiability and timeliness all relate to both relevance and faithful representation. Confirmatory value is a component of relevance.

On October 1 of the current year, a U.S. company sold merchandise on account to a British company for 2,000 pounds (exchange rate, 1 pound= $1.43). At the company's December 31 fiscal year end, the exchange rate was 1 pound = $1.45. The exchange rate was $1.50 on collection in January of the subsequent year. What amount would the company recognize as a gain/loss from foreign currency translation when the receivable is collected? a. $0 b. $100 c. $140 d. -$140

(b) The foreign currency exchange gain will be recognized for the change in exchange rate between December 31 and the January collection date. $1.45-$1.5 = $0.05 x 2,000 pounds = $100 gain

Babcock Company owes $50,000 to Mendenhall Corporation. Babcock also has an account receivable from Mendenhall of $45,000. Babcock wants to offset these items and report a net payable of $5,000 in their balance sheet. Which of the following is not required for Babcock to report these items in this manner? a) Babcock has the right to set off the amt owed with the amount owed by the party b) Babcock must have a signed agreement from Mendenhall to report the items in an offsetting manner c) Babcock's right to offset the times is enforceable by law d) The amounts owed by Babcock and Mendenhall to each other are clearly determinable

(b) The four criteria to establish a right of setoff that permits for a firm to report items in an offsetting manner are: 1. each of the two parties owes the other determinable amounts, 2. the reporting party has the right to set off the amount owed with the amount owed by the other party, 3. the reporting entity intends to set off, and 4. the right of setoff is enforceable by law.

Several years ago, Old Town received a bequest with instructions to keep the principal invested and use the earnings for salaries and recreation department workers. Where would the city report the use of the earnings for fund and government-wide financial reporting? a. Fund balance: special revenue fund/general revenues in government wide b. Fund balance: special revenue fund/program revenues in gov wide c. Fund balance: general fund/program revenue in gov wide d. Fund balance: general fund/general revenues

(b) The principal of the bequest will be accounted for in a permanent fund for the fund statements and as part of the net position of governmental activities for the government-wide statements. The use of investment earnings is specified for a particular purpose, so the use would be reported in a special revenue fund for the fund-based statements. Both the permanent fund and the special revenue fund are governmental funds. As the use is specified for a particular program, recreation, rather than for optional governmental use, it would be displayed in the government-wide statement of activities as program revenues.

Yola Co. and Zaro Co. are fuel oil distributors. To facilitate the delivery of oil to their customers, Yola and Zaro exchanged ownership of 1,200 barrels of oil without physically moving the oil. Yola paid Zaro $30,000 to compensate for a difference in the grade of oil. On the date of the exchange, cost and market values of the oil were as follows: Yola Zaro Cost $100,000 $126,000 Market Values $120,000 $150,000 In Zaro's income statement, what amount should be reported from the exchange of the oil? a. $0 b. $4,800 c. $24,000 d. $30,000

(b) This is a nonmonetary transaction without commercial substance, and thus full gain is not recognized yet, but is instead deferred. Some cash is received, though, so some gain is recognized. $30,000 cash out of a market value of the exchange of $150,000 is 20% of the transaction being in cash, so 20% of the gain is recognized now. Zaro's gain is $150,000 - $126,000, or $24,000, and 20% of $24,000 is $4,800, the gain recognized now.

Roro, Inc., paid $7,200 to renew its only insurance policy for three years on March 1, 20X1, the effective date of the policy. On March 31, 20X1, Roro's unadjusted trial balance showed a balance of $300 for prepaid insurance and $7,200 for insurance expense. What amounts should be reported for prepaid insurance and insurance expense in Roro's financial statements for the 3 months ending March 31, 20X1? a) Prepaid insurance: $7,000; Insurance expense: $300 b) Prepaid insurance: $7,000; Insurance expense: $500 c) Prepaid insurance: $7,200; Insurance expense: $300 d) Prepaid insurance: $7,300; Insurance expense: $200

(b) This question indicates that on Roro's unadjusted trial balance the full 3-year premium of $7,200 for the renewal of the policy has been expensed. The prepaid insurance account still contains $300 of unamortized premiums from the old policy. The accountant must make adjusting entries to achieve the following: *Expense the remaining premium of the old policy (DR Insurance Expense 300; CR Prepaid Insurance 300). *Transfer the premium for the new policy to the prepaid insurance account (DR Prepaid Insurance 7,200; CR Insurance Expense 7,200). *Amortize one month of expense on the new policy (DR Insurance Expense 200; CR Prepaid Insurance 200). Calculation of account balances: Monthly amortization: policy cost/36 months 7200/36 = $200 p/month Prepaid Insurance balance on 3/31/x1 = POlicy cost - 1 month amortization = 7200-200 =$7000 Insurance expense on 3/31/x1 Amortization of prior policy $300 March amort of renewal 200 Total expenses on 3/31/x1 $500

Arpco, Inc., a for-profit provider of healthcare services, recently purchased two smaller companies and is researching accounting issues arising from the two business combinations. Which of the following accounting pronouncements are the most authoritative? a. AICPA Statements of Position b. FASB Accounting Standards Codification c. FASB Statements of Financial Accounting Concepts d. FASB Statements of Financial Accounting Standards

(b) Under FASB ASC 105-10-15-1, effective for financial statements issued for interim and annual periods ending after September 15, 2009, the Accounting Standards Codification (ASC) is the single source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority.

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

(b) When dealing with unrealized gains or losses in a consolidated financial statement setting, the objective is to defer unrealized gains to establish both historical cost balances and recognize appropriate income within the consolidated financial statement. The unrealized gain of the sale of the equipment to Flom is located in the cost of the equipment on Flom's books. Depreciation expense on a consolidated basis should be the depreciation that would have been expensed on Dove's books if the equipment had not been sold. Depreciation on Flom's books (unrealized gain)($108,000 ÷ 6) $18,000 Depreciation on Dove's books (original cost)($120,000 ÷ 10) 12,000 Difference $6,000

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

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

According to the FASB conceptual framework, which of the following is not an essential characteristic of a liability? a. Arising from a present obligation b. Based on a past event c. Requires future transfer of assets d. Probable future sacrifice of economic benefits

(c) SFAC 6, Elements of Financial Statements, defines a liability as a "probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events." Because liabilities can be reduced via providing services, a future transfer of assets is not required.

On March 15, year 2, a calendar-year company issued its year 1 financial statements. On March 1, year 2, a fire destroyed the company's only manufacturing plant, Which of the following statements is correct regarding the treatment of the loss is the December 31, year 1, financial statements? a. the loss should not be recognized or disclosed in year 1 b. the loss should be recognized in year 1 FS c. the loss should be disclosed and not recognized in the year 1 FS d. any probable insurance recoveries should be recognized in year 1 FS

(c) Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. There are two types of subsequent events. Type 1 events are recognized in the financial statements and consist of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (that is, recognized subsequent events). Type 2 events are not recognized and consist of events that provide evidence about conditions that did not exist at the date of the balance (as is the case for this situation). Some Type 2 subsequent events may be of such a nature that they must be disclosed to keep the financial statements from being misleading. For such events, an entity shall disclose the nature of the event and an estimate of its financial effect. Destruction of the only manufacturing plant would be a disclosure Type 2 event.

Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of: a. consistency b. going concern c. matching d. substance over form

(c) The definition of matching is recording expenses and expired costs necessary to generate revenue in the same period as the revenue.

What is the primary objective of financial reporting? a. to provide economic information that is comprehensible to all users b. to provide management with an accurate evaluation of their financial performance c. to provide forecasts for future cash flows and financial performance d. to provide information that is useful for economic decision making

(d) SFAC 5 states that one of the characteristics of financial statements is to provide financial information (not managerial or economic) that is useful to decision making. SFAC 5 states that financial statements individually and collectively contribute to meeting the objectives of financial reporting, with each financial statement providing a different kind of information. Financial reporting is based upon past performance, not future performance or future cash flows.

Wood City, which is legally obligated to maintain a debt service fund, issued the following general obligation bonds on July 1, 20X1: Term of bonds 10 yearsFace amount $1,000,000Issue price 101Stated interest rate 6% Interest is payable January 1 and July 1. What amount of bond premium should be amortized in Wood's debt service fund for the year ended December 31, 20X1? a. $1,000 b. $500 c. $250 d. $0

(d) A debt service fund is a governmental fund used to account for the accumulation of resources for the payment of general long-term debt principal and interest. As a governmental fund, the modified accrual basis of accounting is used. (Amortization is an allocation system used in the accrual basis of accounting to determine interest expense. Amortization does not change the financial resources of a governmental-type fund or the amount paid out or "expended" for interest, and is thus not recorded in governmental-type funds.) The amount of premium amortized is $0.

Which of the following items of stockholders' equity can either be an increase or a decrease to total stockholders' equity? a) Paid-in capital in excess of par b) Treasury stock c) Preferred stock (with par value) d)Accumulated other comprehensive incom

(d) Accumulated other comprehensive income (AOCI) can either increase or decrease total stockholders' equity because the elements of AOCI can be either cumulative gains or losses. Paid-in capital in excess of par increases total stockholders' equity. Treasury stock decreases total stockholders' equity. Preferred stock (with par value) increases total stockholders' equity.

Wollongong Company decided to begin using dollar-value LIFO at the beginning of 20X5. The inventory value at January 1, 20X5, was $250,000. The current cost of the inventory at December 31, 20X5, was $306,000. At the end of 20X6, the current cost of the inventory was $288,750. The relevant index at the end of 20X5 was 1.02 and at the end of 20X6 was 1.05. The amounts Wollongong should report for inventory at the end of 20X5 and 20X6 are: a. $300,000 (20x5) & $275,500 (20x6) b. $301,000 (20x5) & $276,250 (20x6) c. $306,000 (20x5) & $276,250 (20x6) d. $301,000 (20x5) & $275,500 (20x6)

(d) Adjusting 20X5 ending inventory results in cost at base-year prices of $300,000 ($306,000 ÷ 1.02). The $300,000 cost at base-year prices includes two layers: beginning of 20X5 layer = $250,000 and end of 20X5 layer = $50,000. The adjustment of the end of 20X5 layer to current-year prices = $50,000 × 1.02 = $51,000. $250,000 + $51,000 = $301,000 is reported for inventory at the end of 20X5. Adjusting 20X6 ending inventory results in cost at base-year prices of $275,000 ($288,750 ÷ 1.05). The $275,000 cost at base-year prices includes two layers: beginning of 20X5 layer = $250,000 and end of 20X5 layer = $25,000. Because the cost at base-year prices at the end of 20X6 is less than the cost at base-year prices at the end of 20X5 ($275,000 vs. $300,000), the layer created in 20X5 is reduced to $25,000 ($50,000 − $25,000). The adjustment of the end of 20X5 layer to current-year prices = $25,000 × 1.02 = $25,500. $250,000 + $25,500 = $275,500 is reported for inventory at the end of 20X6.

A sale of goods, denominated in a currency other than the entity's functional currency, resulted in a receivable that was fixed in terms of the amount of foreign currency that would be received. Exchange rates between the functional currency and the currency in which the transaction was denominated changed. The resulting gain should be included as a: a. Translation gain reported as a component of comprehensive income b. Translation gain reported as a component of income from continuing operations c. Transaction gain reported as a component of comprehensive income d. Transaction gain reported as a component of income from continuing operations

(d) Event described is a foreign currency transaction, not FC translation. G/L would be reported as component of income from continuing operations for the current period

Instead of the usual cash dividend, Evie Corp. declared and distributed a property dividend from its overstocked merchandise. The excess of the merchandise's carrying amount over its market value should be: a. ignored b. reported as a separately disclosed reduction of retained earnings c. reported as an ordinary loss, net of income taxes d. reported as a reduction in income

(d) FASB ASC 845-10-30-1 requires that "a transfer of a nonmonetary asset to a stockholder or to another entity in a nonreciprocal transfer should be recorded at the fair value of the asset transferred, and a gain or loss should be recognized on the disposition of the asset." Since the market value of the merchandise was less than its carrying amount, Evie Corp. should report the resulting loss as a reduction in income.

What are the measurement focus and basis of accounting for the government-wide financial statements? a. current financial resources & modified accrual b. economic resources & modified accrual c. current financial resources & accrual d. economic resources & accrual

(d) GASB 1600.103 states that the financial statements prepared for government-wide reporting "should be prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues, expenses, gains, losses, assets, deferred outflows of resources, liabilities, and deferred inflows of resources...should be recognized when the exchange takes place." This contrasts with governmental fund accounting, which recognizes transactions when cash is received or disbursed or expected to be received or disbursed within a short time.

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

(d) Reliability was addressed in SFAC 5.63. Specifically, the FASB noted: "To be reliable, information about an item must be representationally faithful, verifiable, and neutral. To be reliable, information must be sufficiently faithful in its representation of the underlying resource, obligation, or effect of events and sufficiently free of error and bias to be useful to investors, creditors, and others in making decisions." Clearly, values assigned to property based on management's estimate of fair value are not representationally neutral and would not be considered reliable as defined by the SFAC 5. Late financial statements violate timeliness (relevance), not reliability. Note: The term "reliability" is still used in SFAC 5, even though it has changed to "faithful representation" in SFAC 8.3.

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

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

Due to a decline in market price in the second quarter, Petal Co. incurred an inventory loss. The market price is expected to return to previous levels by the end of the year. At the end of the year the decline had not reversed. When should the loss be reported in Petal's interim income statements? a. ratably over the second, third, and fourth quarters b. ratably over the 3rd and 4th quarters c. in the 2nd quarter only d. in the 4th quarter only

(d) Temporary market declines expected to reverse are not recognized in interim financial statements. The decline should not be recognized until year-end.

Factors an entity should assess in determining whether the lessee has a significant incentive to exercise an option to extend the lease include all of the following except: a. the amt of lease payments in any optional period b. the amt of contingent pmts c. costs relating to the termination of the lease d. the amt of the fixed lease pmts for the original lease period

(d) The amount of the fixed lease payments for the original lease period would not be a factor in assessing whether to extend a lease as they would be a sunk cost and not relevant.

Due to a decline in market price in the second quarter, Petal Co. incurred an inventory loss. The market price is expected to return to previous levels by the end of the year. At the end of the year the decline had not reversed. When should the loss be reported in Petal's interim income statements? a. Ratably over the second, third, and fourth quarters b. Ratably over the third and fourth quarters c. In the second quarter only d. In the fourth quarter only

(d) Temporary market declines expected to reverse are not recognized in interim financial statements. The decline should not be recognized until year-end.

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? A - Agency Fund. B - General Fund. C - Special Revenue Fund. D - Private-Purpose Trust Fund.

AGENCY FUND agency funds are used to account for the custodial activities of a government serving as an agent for other governments, private organizations or individuals.

On March 1, 20X0, Fine Co. borrowed $10,000 and signed a 2-year note bearing interest at 12% per annum compounded annually. Interest is payable in full at maturity on February 28, 20X2. What amount should Fine report as a liability for accrued interest on December 31, 20X1?

Accrued interest on December 31, 20X1: For 20X0: $10,000 x .12 x (10/12) = $1,000 For 20X1: ($10,000 + $1,000) x .12 = 1,320 ------ Total $2,320 ======

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

Capitalized and depreciated over its estimated useful life

Clark Co. had the following transactions with affiliated parties during 20X1: Sales of $60,000 to Dean, Inc., with $20,000 gross profit. Dean had $15,000 of this inventory on hand at year-end. Clark owns a 15% interest in Dean and does not exert significant influence. Purchases of raw materials totaling $240,000 from Kent Corp., a wholly owned subsidiary. Kent's gross profit on the sale was $48,000. Clark had $60,000 of this inventory remaining on December 31, 20X1. Before eliminating entries, Clark had consolidated current assets of $320,000. What amount should Clark report in its December 31, 20X1, consolidated balance sheet for current assets?

Consolidated current assets before eliminations $320,000 Less intercompany profit on remaining inventory purchased from Kent (Note 1) 12,000 Adjusted consolidated current assets $308,000 ======== Note 1: Computation of intercompany profit: Gross profit rate = $48,000 / $240,000 = 20% Gross profit in inventory = 20% x $60,000 = $12,000

Mend Co. purchased a 3-month U.S. Treasury bill. Mend's policy is to treat as cash equivalents all highly liquid investments with an original maturity of three months or less when purchased. How should this purchase be reported in Mend's statement of cash flows?

Not reported

Which of the following funds would be reported as a fiduciary fund in Pine City's financial statements?

Private-purpose trust

Which of the following statements most correctly describes the SEC's standard-setting authority?

The SEC has the authority to establish accounting standards, but it has generally deferred to the FASB to generate U.S. GAAP.

What is the purpose of SFAC 4 as stated in that concepts statements?

To provide a basis for establishing detailed accounting and reporting standards for non business entities.

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

Total contribution revenue is: Restricted $2,000 Unrestricted 500 Total revenue $2,500

According to the FASB conceptual framework, the quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called: a) feedback value b) predictive value c) representational faithfulness d) reliability

b) predictive value

Disclosure is required by publicly held companies if 10% or more of total revenues are derived from: a. Sales to external customers only b. sales to external and internal customers only c. sales to external customers and intersegmental sales or transfers d. intersegmental sales or trasnfers only

c

The enhancing qualitative characteristics of financial reporting are: a) relevance, reliability, and faithful representation b) cost-benefit and materiality c) comparability, verifiability, timeliness, and understanadability d) completeness, neutrality, and freedom from error

c) comparability, verifiability, timeliness, and understandability.

Which of the following local government funds uses the accrual basis of accounting? a. enterprise b. debt service c. capital projects d. special revenue

(a)

A major exception to the general rule of expenditure accrual for governmental units relates to unmatured: a) principal of general long-term debt and interest on general long-term debt b) principal of general long-term debt c) interest on general long-term debt d) neither principal nor interest on general long-term debt

(a) Governmental units use a modified accrual basis of accounting. Expenditures should be recorded as fund liabilities are incurred or assets are expended. However, the expenditure rules will not apply to the principal or to the interest on debt as specified by the GASB.

Which of the following funds would be reported as a fiduciary fund in PIne City's financial statements? a. Special revenue b. Permanent c. private purpose trust d. internal service

(c)

Duke Co. reported cost of goods sold of $270,000 for 20X1. Additional information is as follows: December 31 January 1 ----------- --------- Inventory $60,000 $45,000 Accounts payable 26,000 39,000 If Duke uses the direct method, what amount should Duke report as cash paid to suppliers in its 20X1 statement of cash flows?

Reported cost of goods sold for 20X1 $270,000 Add increase in inventory ($60,000 - $45,000) 15,000 Decrease in accounts payable ($39,000 - $26,000) 13,000 -------- Cash paid to suppliers in 20X1 $298,000 ========

Seafood Trading Co. commenced operations during the year as a large importer and exporter of seafood. The imports were all from one country overseas. The export sales were conducted as drop shipments and were merely transshipped at Seattle. Seafood Trading reported the following data: Purchases during the year $12.0 million Shipping costs from overseas 1.5 million Shipping costs to export customers 1.0 million Inventory at year-end 3.0 million What amount of shipping costs should be included in Seafood Trading's year-end inventory valuation?

Shipping costs from overseas (freight-in) should be included in the inventory costs. Shipping costs to export customers (freight-out) should not be included in the inventory costs. Ending inventory is 1/4th ($3,000,000 ÷ $12,000,000) of purchases. Thus, 1/4th of shipping costs from overseas ((0.25 × $1,500,000) = $375,000) should be included in ending inventory.

An entity purchased new machinery from a supplier before the entity's year-end. The entity paid freight charges for the purchased machinery. The entity took out a loan from a bank to finance the purchase. Under IFRS, what is the proper accounting treatment for the freight and interest costs related to the machinery purchase?

The Freight cost should be capitalized as part of PP&E, the interest cost should be immediately expensed.

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

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

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

2,500,000 + $182,000 + $100,000 − $147,000, or $2,635,000.

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? a) revenue for the entire proceeds b) revenue to the extent of related costs expended c) unearned revenue to the extent of related costs expended d) unearned revenue for the entire proceeds

(d)

Which of the following is correct regarding accounting changes that result in financial statements that are, in effect, the statements of a different reporting entity: a) cumulative-effect adjustments should be reported as separate items on the financial statements pertaining to the year of change b) no restaments or adjustments are required if the changes involve consolidated methods of accounting for subsidiaries c) no restatements or adj are required if the changes involve the cost or equity methods of accounting for investments d) The financial statements of all prior periods presented should be restated

(d)

In governmental accounting, a fund is: I. The basic accounting unit II. Used to assist in ensuring fiscal compliance

Both I & II

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

B

A firm has basic earnings per share of $1.29. If the tax rate is 30%, which of the following securities would be dilutive? a) Cumulative 8%, $50 par preferred stock b) 10% convertible bonds, issued at par, with each $1000 bond convertible into 20 shares of common stock c) 7% convertible bonds, issued at par, with each $1,000 bond convertible into 40 shares of common stock d) 6%, $100 par cumulative convertible preferred stock, issued at par, with each preferred share convertible into four shares of common stock

Only bonds would dilute EPS dependent upon tax rate. C Dilutive securities reduce earnings per share. To determine dilution, a conversion basis must be stated. Each 7% bond yields $70 ($1,000 × 7%) of interest; the net-of-tax interest is $49 ($70 × (1 − .30)). The conversion increases the number of shares by 40. The earning per share on the converted bonds is only $1.225 (49/40) thus diluting the basic earnings per share of $1.29. With Option B, EPS doesn't decrease ($3.5)

How is the Form 10-K filed with the SEC? A) A paper form is filed annually b) The form must be filed electronically on EDGAR unless this filing causes hardship on the filing company c) The form is prepared and stored internally with period audits by the SEC to insure compliance d) None of the answer choices are correct

B

Arpco, Inc., a for-profit provider of healthcare services, recently purchased two smaller companies and is researching accounting issues arising from the two business combinations. Which of the following accounting pronouncements are the most authoritative

FASB Accounting STandards codification

which of the following funds would be reported as a fiduciary fund in Pine City's financial statements? a) special revenue b) permanent c) private-purpose trust d) internal service

PRIVATE-PURPOSE TRUST

Which of the following statements is correct related to finance leases? a) Most leases consist of property B) interest expense related to the discount and amortization related to the ROU asset are combined into a single lease expense C) The ROU asset and the lease liability are initially measured at fair value D) the lessor is required to derecognize the underlying asset.

The lessor is required to derecognize the underlying asset

On January 1, year 3, a company changed its inventory costing method from LIFO to FIFO. The company's year 3 financial statements contain comparative information for year 2. How should the company present the year 1 effect of the change in accounting principle in its year 3 comparative financial statements?

An adjustment to the beginning year 2 inventory balance with an offsetting adjustment to beginning year 2 retained earnings.

Which of the following should be considered part of one of the three primary user groups of the external financial reports of a state government? A) Citizens of a neighboring state B) Advocate groups within the state C) Preparers of state government financial reports D) internal managers in the executive branch of the state government

B

Compared to the accrual basis of accounting, the cash basis of accounting understates income by the net decrease during the accounting period of: A) accounts receivable B) accrued expenses C) both AR & Accrued expenses D) Neither AR nor accrued expenses

B accrued expenses

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

B statement of activities

Dogwood City's water enterprise fund received interest of $10,000 on long-term investments. How should this amount be reported on the Statement of Cash Flows? a) operating activities b) noncapital financing activities c) capital and related financing activities d) investing activities

INVESTING ACTIVITIES

In Baer Food Co.'s 20X2 single-step income statement (statement of profit or loss), the section titled "Revenues" consisted of the following: Net sales revenue $187,000 Results from discontinued operations: Loss from operations of component (net of $1,200 tax effect) $(2,400) Gain on disposal of component (net of $7,200 tax effect) 14,400 12,000 Interest revenue 10,200 Gain on sale of equipment 4,700 Cumulative change in 20X0 and 20X1 income due to change in inventory method (net of $750 tax effect) 1,500 Total Revenues $215,400 ======== In the revenues section of the 20X2 income statement, Baer Food should have reported total revenues of:

Items to be included in the revenue section of the 20X2 income statement: Net sales revenue $187,000 Interest revenue 10,200 Gain on sale of equipment 4,700 Total revenues $201,900 ======== Note: Generally accepted accounting principles require that the other items listed appear in other sections of the income statement or in another financial statement.

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

The amounts and purposes of board designations of net assets with donor restrictions.

On December 1, 20X5, Honeyberry Corporation issued 200 of its 6%, $1,000 bonds at 102 plus accrued interest. The bonds are dated October 1, 20X5, and mature on October 1, 20X9. Interest is payable semiannually on April 1 and October 1. On December 1, 20X5, what amount should Honeyberry report as bonds payable?

The bonds sold with two months of accrued interest (October and November), or $2,000 (6% × $200,000 × 2/12). The journal entry to record issuance of bonds on December 1, 20X5, is as follows: Dr. Cr. Cash ($200,000 + $2,000 + $4,000) 206,000 Bonds Premium (200 × $1,000 (1.02 − 1.00)) 4,000 Bonds payable (200 × $1,000) 200,000 Interest payable [(2/12) × ($200,000 × .06)] 2,000 Following the bond issuance on December 1, 20X5, Honeyberry should report the following: Face amount of bonds $200,000 Plus: Bond premium 4,000 Bonds payable, including premium $204,000

The following information relates to a company's defined benefit pension plan at December 31: Accumulated benefit obligation $1,035,000 Projected benefit obligation 1,250,000 Prior service cost 113,000 Net gain on plan assets 167,000 Plan assets (fair value) 737,000 What amount should the company report as its pension liability at December 31?

The company should report $513,000 ($1,250,000 − $737,000) as its pension liability at December 31. In a defined benefit plan, benefits to be paid are the result of many estimates and assumptions about salary levels, retirement ages, employee turnover, etc. The FASB requires an entity to recognize on its balance sheet the full overfunded or underfunded status of its defined benefit pension plans. The overfunded (i.e., asset) or underfunded (i.e., liability) status is the difference between the fair value of the plan assets and the projected benefit obligation.

The city accountant for a newly established municipality is setting up the new fund structure for the city's accounting system. How many funds should the accountant establish for the city?

The minimum number of funds consistent with legal requirements and sound financial administration

Governmental financial reporting should provide information to assist users in which situations? i. Making social and political decisions ii. Assessing whether current-year citizens received services but shifted part of the payment burden to future-year citizens

Both i and ii

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

Cost-benefit

not-for-profit voluntary health and welfare entity should report a contribution for the construction of a new building as cash flows from which of the following in the statement of cash flows? A) operating activities B) financing activities C) capital financing activities D) investing activities

B) financing activities

A corporation issued debt to purchase 10 acres of land for development purposes. Expenditures related to this purchase are as follows: Description Amount Purchase price $1,000,000 Real estate taxes in arrears 15,000 Debt issuance costs 2,000 Attorney fee - title search on land 5,000 The company should record its acquisition of the land in its financial statements at a value of:

Debt issue costs are considered part of the cost of issuing the bonds and are therefore included in the cost of the bonds and amortized over the life of the debt. Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Amortization of debt issuance costs is reported as interest expense. The remaining items are considered part of the cost of the land, totaling $1,020,000 ($1,000,000 + $15,000 + $5,000).

During the current fiscal year, Foxx, a nongovernmental not-for-profit entity, received unrestricted promises to give of $300,000. Of the promised amount, $200,000 was designated by donors for use during the current year, and $100,000 was designated for next year. Five percent (5%) of the contributions receivable are expected to be uncollectible. What amount should Foxx report as restricted support (contributions) in the statement of activities for the current year?

Of the $300,000 of contributions, $200,000 designated for use during the current year would have been collected in full by the date of the financial statements issued as of the end of the year. This $200,000 would be reported in the statement of activities as unrestricted support. Of the remaining $100,000, 5% or $5,000 is estimated to be uncollectible. Therefore, the $95,000 anticipated to be collected in the subsequent year is reported in the statement of activities as restricted support.

On January 1, Year 1, Peabody Co. purchased an investment for $400,000 that represented 30% of Newman Corp.'s outstanding voting stock. For Year 1, Newman reported net income of $60,000 and paid dividends of $20,000. At year-end, the fair value of Peabody's investment in Newman was $410,000. Peabody elected the fair value option for this investment. What amount should Peabody recognize in net income for Year 1 attributable to the investment?

Peabody would recognize $16,000 in Year 1, calculated as follows: Cost $400,000 Income under equity method ($60,000 x 0.30) 18,000 $18,000 Dividends ($20,000 x 0.30) (6,000) Balance using equity method $412,000 Fair value adjustment* (2,000) (2,000) Net income from the investment $16,000 * Fair value adjustment is $412,000 − $410,000.

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

Quick ratio = Current assets (excluding Inventories and Prepaid assets) ÷ Current liabilities: (Cash + Net accounts receivable + Trading debt securities) ÷ Current liabilities ($60,000 + ($180,000 - $8,000) + $90,000) ÷ $400,000 = 0.81 (rounded) All of the assets listed are current. Inventory and prepaid rent are excluded from the quick ratio.

Tulip Co. owns 100% of Daisy Co.'s outstanding common stock. Tulip's cost of goods sold for the year totals $600,000 and Daisy's cost of goods sold totals $400,000. During the year, Tulip sold inventory costing $60,000 to Daisy for $100,000. By the end of the year, all transferred inventory was sold to third parties. What amount should be reported as cost of goods sold in the consolidated statement of income? A) $900K B) $940K c) $960K d) $1M

Under the acquisition method, a number of adjusting and eliminating entries are made during the consolidation process. Eliminations may be categorized as those related to the following: The investment account Current-year changes in the investment account Year-end reciprocal balance sheet accounts Reciprocal income statement accounts Intercompany profits and losses Since Daisy sold all of the inventory purchased from Tulip, Daisy would have recognized $100,000 in cost of goods sold (COGS). As Daisy is a 100%-owned subsidiary, 100% of the COGS from Tulip is eliminated (i.e., intercompany profits and losses). Total COGS on the consolidated statement of income is $900,000 ($600,000 + $400,000 − $100,000).

Vane Co.'s trial balance of income statement accounts for the current year ended December 31 included the following: Debit Credit Sales $575,000 Cost of sales $240,000 Administrative expenses 70,000 Loss on sale of equipment 10,000 Sales commissions 50,000 Interest revenue 25,000 Freight out 15,000 Loss on early retirement of LT debt 20,000 Uncollectible accounts expense 15,000 Totals $420,000 $600,000 ======== ======== Vane's income tax rate is 30%. In Vane's year-end multiple-step income statement, what amount should Vane report as income after income taxes from continuing operations?

Vane should report $126,000, calculated as follows: Net income before taxes ($600,000 - $420,000) $180,000 Income taxes ($180,000 x 0.30) 54,000 Net income from continuing operations $126,000

On December 31 of the previous year, Jason Company adopted the dollar-value LIFO retail inventory method. Inventory data are as follows: LIFO Cost Retail Inventory, 12/31 previous year $360,000 $500,000 Inventory, 12/31 current year -- 660,000 Increase in price level for current year 10% Cost to retail ratio for current year 70% Under the LIFO retail method, Jason's inventory at December 31 of the current year should be:

When applying the dollar-value LIFO retail method, you need to (as in dollar-value LIFO) restate ending-year retail to base-year prices: $660,000 ÷ 1.10 (1 + 10% increase) = $600,000 This is a $100,000 increase in the ending-year retail amount over the retail amount at the beginning of the year (in base-year prices). Now, determine the ending inventory using dollar-value LIFO retail directly, by adding to the beginning inventory of $360,000 the new layer of $100,000 multiplied by both the new layer's cost-to-retail percentage and the new layer price level of 1.1: $360,000 + ($100,000 × 0.7 × 1.1) = $437,000

During Year 1, Wistrand Corporation purchased 12,000 shares of the 800,000 outstanding shares of Cherry Corporation's common stock for $80500. At the end of Year 1, Wistrand received $3,160 of dividends from its investment in Cherry's stock. The fair value of Wistrand's investment on Dec 31, Year 1, is $93,560. What amount of income or loss is attributable to the Cherry stock invesmtents should be reflected in Wistrand's earnings for Year 1?

$16,220 Equity securities representing less than 20% of the investee's outstanding common stock are marked to fair value at each reporting period, with gains and losses reported in earnings. Dividends are treated as dividend income. Therefore, there is both an increase from the dividend and from the increase in fair value that must be recognized: Dividend of $3160 + Increase in fair value ($93560 − $80500) of $13060 = Increase in income of $16220

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

(a)

Which of the following estimation methods best describes the residual approach? a) Estimates a standalone selling price by reference to the total transaction price less the sum of the observable standalone selling prices of other goods or services promised in the contract b) Determines a standalone price based on vendor-specific objective evidence, third-party evidence, or a best estimate c) Uses competitors' prices for similar goods or services and adjusts to reflect the entity's cost and margins d) Forecasts expected costs of satisfying a performance obligation and adds an appropriate margin for those goods or services

(a)

A city government levies a tax on its citizens for improvements to roads. How should the city report the tax in its statement of activities: a. by type of tax in general revenues b. by type of tax in program revenues c. as a program-specific contribution in program revenues d. in special items reported separately from general revenue

(a) All taxes of the reporting government, even if restricted to a specific program, are general revenues. The format of the government-wide statement of activities should be viewed as having two distinct parts. The upper portion of the statement focuses on cost of services and reports both the total expenses and the net revenues or net expenses of the government by function. The lower portion of the statement intends to report how the net program expenses incurred during the year compare with general revenues. The statement is not intended to report net income, and no net income number is presented.

Karr, Inc., reported net income of $300,000 for 20X1. Changes occurred in several balance sheet accounts as follows: Equipment $25,000 increase Accumulated depreciation 40,000 increase Note payable 30,000 increase During 20X1, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000. In December 20X1, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000. Depreciation expense for the year was $52,000. In Karr's 20X1 statement of cash flows, used in investing activities should be: a. $2,000 b. $12,000 c. $22,000 d. $35,000

(a) Cash paid for purchase of equipment $20,000Less cash received from sale of equipment ($25,000 - $12,000 + $5,000 gain) 18,000 Net cash outflow from investing activities $ 2,000

Which of the following statements about program revenues is incorrect? a. program revenues can be derived directly from the program b. program revenues come solely from those who are the constituent of the reporting government c. program revenues reduce the cost of the function so not as much general revenue is required from the reporting government d. program revenues can be derived from parties outside the reporting government's constituency

(b) Programs are financed with program revenues and general revenues. Program revenues are derived directly from the program itself or from parties outside the reporting government's taxpayers or citizenry, as a whole; they reduce the net cost of the function to be financed from the government's general revenues. Financing from outside parties that is restricted to a specific program or programs is considered program revenue.

A company performing its long-lived asset impairment testing is reveiwing the fair value of equipment. Each of the following valuation techniques may be appropriate for measuring except: a) market approach b) income approach c) cost approach d) net realizable value approach

(d)

A summary reconciliation between fund financial statements and government-wide financial statements is required at the bottom of the fund statements or in an accompanying schedule. For the governmental activities portion of the government-wide statement of net position, the reconciliation should tie with the fund balance(s) of: a) the general fund b) all governmental funds c) all governmental and fiduciary funds that provide services to the governmental functions d) all governmental and internal service funds that provide services to the governmental functions

(d) The governmental activities portion of the government-wide statements reports the functions also reported in the general and other governmental funds. Internal service funds providing services for governmental functions are also included. Fiduciary fund information is not shown within the government-wide financial statements.

If determining the actual historical cost of general infrastructure assets is not practical because of inadequate records, public institutions that report as special-purpose governments either engaged only in governmental activities or engaged in both governmental and business-type activities should report major general infrastructure assets using: A) estimated historical cost B) current replacement value C) current replacement value less an allowance for estimated accumulated depreciation D) Fair market value

A estimated historical cost

For a company to obtain a retail business license in a particular state, the company is required to pay the state the equivalent of 3 months of sales taxes on its projected retail sales. This amount is fully refundable after 5 years, provided the company has filed all required sales tax returns and paid all sales taxes due. Initially the company should report the payment related to this licensing requirement as

A noncurrent asset.

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

A) revenues can result form peripheral or incidental transactions

When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. Management most likely would consider, as a mitigating factor, the entity's plans to: A) repurchase the entity's stock at a price below its book value B) issue stock options to key executives C) lease rather than purchase operating facilities D) accelerate the due date of an existing mortgage

C

Which of the followings statements is correct concerning financial reporting for a governmental entity: A) a combined statement of cash flows should be presented for proprietary and fiduciary funds. B) no statement of cash flows is required C) a statement of cash flows should be presented for proprietary funds only D) either the direct or indirect method of presenting cash flows from operating activities may be used.

C

The SEC's rulemaking procedures identified on their website include which of the following steps: A) issue identification B) commissions deliberation C) rule adoption D) none of the above

C) rule adoption

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

D FASB ASC 958-360-35-1 depreciation is recognized as an expense.

Not-for-profit entities must disclose the types of donor restrictions. which of the following is not an example of a type of restriction? a. Support for a particular operating activity b. Acquisition of long-lived assets c. Investment for a specified term d. Temporary or permanent

D.

Which format must an enterprise fund use to report cash flow operating activities in the statement of cash flows? a) Indirect method, beginning with operating income b) indirect method, beginning with change in net position c) direct method d) either direct or indirect method

DIRECT METHOD

On December 31, 20X1, Jet Co. received two $10,000 notes receivable from customers in exchange for services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and payable at maturity. The note from Hart Corp. made under customary trade terms, is due in nine months and the note from Maxx, Inc., is due in five years. The market interest rate for similar notes on December 31, 20X1, was 8%. The compound interest factors to convert future values into present values at 8% follow: Present value of $1 due in nine months: .9440 Present value of $1 due in five years: .6806 At what amounts should these two notes receivable be reported in Jet's December 31, 20X1, balance sheet?

FASB ASC 310 provides that notes receivable stating either no interest or an unreasonably low interest rate be reported at their present value computed using an appropriate interest rate if the original maturity date of the note exceeds one year. The Hart note would be reported at its face amount of $10,000 since it matures within the current 1-year accounting period. The correct value for reporting the Maxx note is: Present value of Maxx note = Maturity amount x Present value factor = ($10,000 + ($10,000 x 3% x 5 years)) x .6806 = ($10,000 + $1,500) x .6806 = $7,827

The following information pertains to Stone Corporation's sale of 45,000 foreign currency units under a forward contract dated April 1, 20X4, for delivery on July 31, 20X4: 4/01/X4 6/30/X4 Spot rates $1.13 $1.09 30-day future rates 1.15 1.13 120-day future rates 1.16 1.15 Stone has a fiscal year end of June 30. The reason Stone entered into the forward contract is to speculate and earn a return. In Stone's income statement for the year ended June 30, 20X4, what effect should be reported from this forward contract?

Forward rate available for remaining maturity of contract (30-day rate at 6/30/X4, for settlement on July 31, 20X4) $ 1.13 Less contracted forward rate (120-day future rate at 4/1/X4, for settlement on July 31, 20X4) 1.16 Difference $ (.03) Multiplied by foreign currency units × 45,000 Gain on forward contract to be reported in 20X4 $ 1,350 ======== If a derivative qualifies as a hedge, FASB ASC 815-25-35-1 permits companies to match the timing of the gains and losses of hedged items and their hedging derivatives. For a fair value hedge, the hedger can record the change in the fair value of the hedged item concurrently with the gain or loss on the hedging derivative. For a cash flow hedge, the effective portion of any changes in the hedging derivative's fair value is recorded in other comprehensive income until the change in the value of the hedged item is recognized in earnings. If a derivative does not qualify as a hedge, changes in its value must be reported in quarterly earnings.

A company's activities for Year 2 included the following: Gross sales $3,600,000 Cost of goods sold 1,200,000 Selling and administrative expense 500,000 Adjustment for a prior-year understatement of amortization expense 59,000 Sales returns 34,000 Gain on sale of investment in equity securities 8,000 Gain on disposal of a discontinued business segment 4,000 The company has a 30% effective income tax rate. What is the company's net income for Year 2?

Gross sales $3,600,000 Less: Sales returns 34,000 Net sales $3,566,000 Cost of goods sold 1,200,000 Gross profit $2,366,000 Selling and administrative expenses 500,000 Operating income $1,866,000 Other income: Gain on sale of investment in equity securities 8,000 Income before taxes $1,874,000 Provision for income taxes ($1,874,000 x .30) (562,200) Income from continuing operations $1,311,800 Discontinued operations: Gain from disposal of discontinued business segment, net of applicable tax savings of $1,200 ($4,000 x .30) 2,800 Net income $1,314,600 =========== Prior-period adjustments are made to beginning retained earnings, not net income.

Which event(s) should be included in a statement of cash flows for a governmental entity? I. Cash inflow from issuing bonds to finance city hall construction II. Cash outflow from a city utility representing payments in lieu of property taxes

II The basic government-wide financial statements include the statement of net position and the statement of activities, but not a cash flow statement. The fund financial statements include statements of cash flows for proprietary funds but not for governmental funds. The proprietary funds, except for the internal service funds, make up the business-type operations of a government. A city-owned utility is a prototypical example of a business-type activity that would be recorded in a proprietary fund. In contrast, construction of a city hall building is a general government operation that would be recorded in a governmental fund.

On January 1, 20X1, Owen Corp. purchased all of Sharp Corp.'s common stock for $1,200,000. On that date, the fair values of Sharp's assets and liabilities equaled their carrying amounts of $1,320,000 and $320,000, respectively. During 20X1, Sharp paid cash dividends of $20,000. Selected information from the separate balance sheets and income statements of Owen and Sharp as of December 31, 20X1, and for the year then ended follows: Owen Sharp BALANCE SHEET ACCOUNTS Investment in subsidiary $1,300,000 --- Retained earnings 1,240,000 560,000 Total stockholders' equity 2,620,000 1,120,000 INCOME STATEMENT ACCOUNTS Operating income 420,000 200,000 Equity in earnings of Sharp 120,000 --- Net income 400,000 140,000 In Owen's December 31, 20X1, consolidated balance sheet, what amount should be reported as total retained earnings?

In accounting for business combinations, the stockholders' equity of the acquired entity is eliminated against the investment account. As a result, consolidated retained earnings include only the retained earnings of the parent company. Thus, the Owen Corp. consolidated balance sheet on December 31, 20X1, would show a retained earnings amount of $1,240,000, an amount equal to Owen's separate retained earnings.

Mangrove Corp. amended its defined benefit pension plan, granting a total credit of $210,000 to five employees for services rendered prior to the plan's adoption. The employees, Preator, Burnett, Gentry, Williams, and Frisby, are expected to retire from the company as follows: Preator will retire after five years. Frisby will retire in six years. Burnett, Gentry, and Williams will retire after eight years. What is the amount of prior service cost amortization in the first year if Mangrove elects to amortize prior service costs through the assignment of equal amounts of costs to future years of service?

In this case, amortization of prior service cost would be calculated as follows: Future Service Year Employees Years 1 2 3 4 5 6 7 8 Preator 5 1 1 1 1 1 Frisby 6 1 1 1 1 1 1 Burnett, Gentry and Williams (8 × 3) 3 3 3 3 3 3 3 3 35 5 5 5 5 5 4 3 3 The total number of future service years is 35; the total number in the first year is 5. Year 1 amortized prior service cost is 5/35 × $210,000 = $30,000.

A partial list of a company's accounts is presented below: Revenues $80,000 Operating expenses. $50,000 Foreign currency translation adj gain, net of tax. $4,000 Income tax expense $10,000 What amount should the company report as net income?

Revenues. $80,000 Less: op expenses (50,000) less: Inc. tax expense (10,000) Net income. $20,000 * Foreign currency translation adj gain is an item of Other comprehensive income and is included in CI but not Net income. OCI is reported as a direct charge or credit to equity.

Bayberry Co. has an asset with a cost of $200,000 and accumulated depreciation of $120,000. Driftwood Co. has an asset with a cost of $250,000 and accumulated depreciation of $160,000. Both assets have a fair value of $100,000. Bayberry and Driftwood find it mutually advantageous to exchange assets, and the exchange results in improved future cash flows for both companies. What amount, if any, is Bayberry's gain on the exchange?

Provided the exchange has commercial substance, it should be accounted for based on fair value, which is the same basis as that used in monetary transactions. The asset received should be recorded at the fair value of the asset surrendered or the fair value of the asset received, whichever is more clearly evident. The difference between this fair value and the book value of the asset surrendered should be recognized as a gain or loss at the time of the exchange. The exchange has commercial substance as long as it is expected to significantly change the entity's future cash flows. The journal entry for Bayberry is as follows: New asset (fair value) 100,000 Accumulated depreciation 120,000 Old asset 200,000 Gain on exchange 20,000

On January 1, year 1, a company capitalized $100,000 of costs for software that is to be sold. The company amortizes the software costs on a straight-line basis over five years. The carrying value of the software costs on January 1, year 3, was $60,000. As of December 31, year 3, the estimated future gross revenue to be generated from the sale of the software is $23,000, and the estimated future cost of disposing of the software is $8,000. What amount should the company expense related to the software costs for the year ended December 31, year 3?

Software production costs are capitalized and reported at the lower of unamortized cost or net realizable value (NRV) once technological feasibility has been met. The unamortized cost is $60,000 and the NRV is $15,000 ($23,000 − $8,000); therefore, the software should be written down by $45,000 (i.e., expensed) to the NRV of $15,000.

Munn Corp.'s income statements for the years ended December 31, 20X2 and 20X1, included the following, before adjustments: 20X2 20X1Operating income $ 800,000 $600,000Gain on sale of division 450,000 -- 1,250,000 600,000Provision for income taxes 375,000 180,000Net income $ 875,000 $420,000========== ======== On January 1, 20X2, in a strategic shift, Munn agreed to sell the assets and product line of one its operating divisions for $1,600,000. The sale was consummated on December 31, 20X2, and resulted in a gain on disposition of $450,000. This division's pretax losses were $320,000 in 20X2 and $250,000 in 20X1. The income tax rate for both years was 30%. In preparing revised comparative income statements, assuming that the division qualified as a component, Munn should report which of the following amounts of gain (loss) from discontinued operations?

The gain or loss from the disposal should be reported separately net of income tax effects, as a component of income. Loss in 20X1: $250,000 - (.3 x $250,000) = $175,000Gain in 20X2Gain on disposal $450,000Loss on operations 320,000Gain before taxes $130,000Tax at 30% 39,000Gain from discontinued operations $ 91,000 FASB ASC 205-20-45-3 states: "In a period in which a component of an entity either has been disposed of or is classified as held for sale, the income statement of a business entity or statement of activities of a not-for-profit entity (NFP) for current and prior periods shall report the results of operations of the component, including any gain or loss recognized in accordance with paragraphs 360-10-35-40 and 360-10-40-5, in discontinued operations. The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period(s) in which they occur. The results of discontinued operations, less applicable income taxes (benefit), shall be reported as a separate component of income. For example, the results of discontinued operations may be reported in the income statement of a business entity as follows: Income from continuing operations before income taxes $XXXXIncome taxes XXXIncome from continuing operations $XXXXDiscontinued operations (Note X):Loss from operations of discontinued Component X (including loss on disposal of $XXX) $XXXXIncome tax benefit XXXXLoss on discontinued operations XXXX Net Income $XXXX===== "A gain or loss recognized on the disposal shall be disclosed either on the face of the income statement or in the notes to financial statements."

Robbins, Inc., leased a machine from Ready Leasing Co. The lease qualifies as a finance lease and requires 10 annual payments of $10,000 beginning immediately. The lease specifies an interest rate of 12% and a purchase option of $10,000 at the end of the 10th year, even though the machine's estimated value on that date is $20,000. Robbins' incremental borrowing rate is 14%. The present value of an annuity due of $1 at: The present value of $1 at:12% for 10 years is 6.328 12% for 10 years is 0.32214% for 10 years is 5.946 14% for 10 years is 0.270 What amount should Robbins record as lease liability at the beginning of the lease term?

This is a finance lease, and the lease liability for the lessee at the beginning of the lease is based on the present value of the lease payments, including the purchase at the end of the lease, discounted to their present value (at the beginning of the lease) based on the implicit interest rate specified in the lease itself. Thus, the lease liability here is based on the $10,000 rental payments each year, plus the $10,000 purchase at the end of the 10th year. The present value of both of these items at the beginning of the lease, based on a 12% interest rate would be the $10,000 rent × 6.328 (the present value of an annuity due for 10 periods at 12%) = $63,280. Add this amount to the $10,000 × 0.322 (the present value of $1 at 12%, for 10 periods) = $3,220, and the two amounts add to $66,500.

On January 1, Year 1, Dallas, Inc., purchased 80% of Style, Inc.'s, outstanding common stock for $120,000. On that date, the carrying amounts of Style's assets and liabilities approximated their fair values. During Year 1, Style paid $5,000 cash dividends to its stockholders. Summarized balance sheet information for the two companies follows: Dallas Style 12/31/X1 12/31/X1 01/01/X1 Investment in Style (equity method) $132,000 Other assets $138,000 $115,000 $100,000 Common stock 50,000 20,000 20,000 Additional paid-in capital 80,250 44,000 44,000 Retained earnings 139,750 51,000 36,000 What amount of total stockholders' equity should be reported in Dallas' December 31, Year 1, consolidated balance sheet?

Under the principle of consolidation, the parent and subsidiary are considered a single economic entity. Thus, the consolidated balance sheet reports the combined (parent plus subsidiary) asset and liability accounts. The single parent-sub entity owns all the net assets of both entities. Total stockholders' equity accounts on the consolidated balance sheet equals the total stockholders' equity of the parent plus the noncontrolling interest. Therefore, Dallas, Inc., reports total stockholders' equity account on December 31, 20X1, of $270,000 ($50,000 + $80,250 + $139,750) plus 20% of the total stockholders' equity of Style of $23,000 ($20,000 + $44,000 + $51,000), which is $293,000.

Bella Pool company sells prefabricated swimming pools to customers for a price of $180K. The cost of the pools is $100K. The sales price includes an installation fee, which is valued at $25K. The fair value of the pool alone is $160K. The installation is considered a separate performance obligation and is expected to take three months to complete. The transaction price allocated to the pool and the installation is: a. $160K & $25K b. $155,676 & $24,324 c. $18K & $25K d. $138,378 & $21,622

b. $155,676 & $24,324 Swimming pool: (160/(160/25)*180)= $155,676 Installation: 25/(160/25)*180= $24,324

A storm damaged the roof of a new building owned by K-9 shelters, a not-for-profit entity. A supporter of K-9, a professional roofer, repaired the roof at no charge. In K-9's statement of activities, the damage and repair of the roof should: a. be reported by note disclosure only b. be reported as an increase in both expenses and contributions c. be reported as an increase in both net assets and contributions d. not be reported

b. be reported as an increase in both expenses and contributions

Which of the following assumptions means that money is the common denominator of economic and provides an appropriate basis for accounting measurement and analysis: a) going concern b) periodicity c) monetary unit d) economic entity

c) monetary unit

Rowe Inc. owns 80% of Cowan Co.'s outstanding capital stock. On November 1, Rowe advanced $100,000 in cash to Cowan. What amount should be reported related to the advance in Rowe's consolidated balance sheet as of December 31? a. $20,000 b. $80,000 c. $0 d. $100,000

c. $0 All intercompany liabilities are eliminated in the consolidation process. The amounts are not included as assets or liabilities on the consolidated balance sheet.

Which of the following types of funds use the economic resources measurement focus and the accrual basis of accounting? a. Governmental funds b. Fiduciary and governmental funds c. Fiduciary and proprietary funds d. Fiduciary, governmental, and proprietary funds

c. Fiduciary and proprietary funds

Which of the following characteristics of accounting information primarily allows users of financial statements to generate predictions about an organization? a) reliability b) timeliness c) neutrality d) relevance

d) relevance

Which of the following fund types of a governmental unit have the income determination orientation? a. general funds b. fiduciary funds c. both general and fiduciary funds d. neither general nor fiduciary funds

d. neither general nor fiduciary funds