Personalized Review 1

After speaking to the company's sales manager, a customer placed a large order. The customer has no immediate need for the products, so the customer asked the company to wait 60 days before delivering the products. In this case, the company should recognize revenue for the sale when the order is: A) Placed by the customer B) Delivered to the customer C) Packed and ready for shipment D) Verified as in-stock by the company

Delivered to the customer Delivery to the customer ensures that control of the inventory is transferred to the customer, and as a result, the company has satisfied the performance obligation and can record revenue. Packing the items for shipment does not meet the requirements of revenue recognition. The company has not satisfied the performance obligation, as it has not transferred control to the buyer.

When a purchase order is released, a commitment is made by a gov'tal unit to buy a computer to be manufactured to specifications for use in property tax administration. This commitment should be recorded in the general fund as a (an): 1. appropriation 2. fixed asset 3. encumbrance 4. expenditure

3. encumbrance Gov'tal funds use modified accrual accounting. Under modified accrual accounting, the issuing of a purchase order (commitment to purchase) is recorded for internal bookkeeping as: Dr. Encumbrance Cr. Budgetary control

Special insurance costs, incurred but unpaid, were not recorded. If these insurance costs were related to WIP, what is the effect of the omission on accrued liabilities and retained earnings in the 12/31 balance sheet? Accrued liabilities: no effect/understated/overstated Retained earnings: no effect/understated/overstated

Accrued liabilities: understated Retained earnings: no effect Since the unrecorded liability affects WIP inventory (rather than cost of sales/retained earnings), there is no effect on retained earnings, but accrued liabilities (and inventory) are understated

What method of estimating uncollectible accounts that emphasize asset valuation rather than income measurment is the allowance method based on what?

Aging the receivables Estimating bad debts on the aging analysis of accounts receivable balances focuses on the balance sheet and emphasizes the valuation of assets. It results in a good matching of revenue and expense.

How should a company report bank account balances in the balance sheet at year end? There is a negative balance within 1 of 4 accounts for one bank and only a negative balance in another bank.

Although the balances in the various accounts within the same bank can be netted, balance totals for different banks must be accounted for separately on the balance sheet when one has a negative position. Here, because the bank with only one account is negative, it must be accounted for as a liability. All of the accounts for the other bank can be netted to produce a net position.

A statement of cash flows be issued for which of the following funds? Capital Projects Fund Enterprise Fund Either, Neither, One, or the other?

No, capital projects fund; Yes, enterprise fund A statement of cash flows should be issued for all proprietary funds (enterprise and internal service funds). No statement of cash flows should be issued for either governmental funds (GRaSPP fund) that include Capital Projects funds or fiduciary funds (CIPPOE)

Using the percentage of completion method of accounting, how do you compute if you have a net current asset or a net current liability?

If the sum of cumulative costs incurred plus cumulative gross profit recognized exceeds cumulative billings, the excess is reported as a current asset. If cumulative billings exceeds the sum of cumulative costs incurred plus cumulative gross profit recognized, the difference is reported as a current liability. If the two amounts are equal, no asset or liability is recognized.

The A&C Theater had unearned ticket revenues of $20k as of 12/31/y1 and unearned revenues of $40k at 12/31/y2. The theater's records included 500k and 340k in cash rec'pts during the years ended 12/31/y2 and Y1, respectively. What were ticket revenues for the year ended 12/31/y2 1. 480k 2. 500k 3. 390k 4. 450k

1. 480k Ticket revenues may be derived from the balances in the unearned revenue account in combination with the cash rec'pts as follows: B Beg unearned rev 12/31/y1 20k A add cash rec'pts 500k S sub revenues 480k E end unearned rev 12/31/y2 40k Cash rec'pts represent an increase to the liability while recognized revenues represent a decrease to the liability. The beginning and ending balances of the liability are known and the cash receipts are known. Place the known amounts in the BASE mnemonic and squeeze the solution.

On July Y1, Black & Assoc issued 2,000 of its 8%, $1k bonds for $1,752,000. The bonds were issued to yield 10%. The bonds are dated July 1, Y1 and mature on July 1, Y11. Interest is payable semiannually on January 1st and July 1st. Using the effective interest method, how much of the bond discount should be amortized for the six months ended 12/31/Y1 1. 7.6k 2. 12.4k 3. 15.2k 4. 9,920

1. 7.6k The computations are: Effective int = $1,752,000 x .10 = $175,200 - Cash int = 2,000,000 x .08 = 160,000 = 15,200 / 2 =Disc. amort for 6 mos 12/31/Y1 7.600

On 12/31/y4, Prone inc sold a piece of equipment to its 90% owned subsidiary, Supine co. Details are as follows: Orig punch date 1/1/y1 orig cost to Prone 65k orig estimate of salvage value 10k orig estimate of economic life 5 yrs Interco selling price 60k supines estimate of reining economic life 4 yrs supines estimate of salvage value 5k Both companies use str8 line depreciation. In preparing its consolidated financial statements for y4, how much intercompany gain will Prone have to eliminate? 1. 39k 2. 35,100 3. 49k 4. 31,590

1. 39k Calc is: Cost 65k - salvage value 10k depreciable Amt 55k / 5 = 11k x 4= 44k accum depreciation Cost 65k - accumulated deep. 44k = book value 21k interco selling price 60k - book value 21k = interco gain 39k. This entire gain must be eliminated

At 12/31 Bren co had the following deferred tax items: -a deferred tax asset of 90k related to current asset -a deferred tax liability of 75k related to a non current asset Which of the following will Bren report on its 12/31 balance sheet under IFRS? 1. a 15k non-current deferred tax asset 2. a 15k current deferred tax asset 3. a non current deferred tax liability of 75k and a non current deferred tax asset of 90k 4. a non current deferred tax liability of 75k and a current deferred tax asset of 90k

1. a 15k non-current deferred tax asset Under IFRS all deferred tax assets (DTA) and deferred tax liabilities (DTL) are netted and the net amount is reported as non current on the balance sheet: 75k DTL - 90k DTA= Net 15k DTA reported as non-current

Which of the following conditions must exist in order for an impairment loss to be recognized under US GAAP? 1. The carrying amount of the long-lived asset is less than its fair value 2. the carrying amount of the long-lived asset is not recoverable 1 only/2only/both 1 & 2/Neither 1 and 2

2 only A long lived asset is impaired if the carrying amount of the asset is greater than, not less than, its fair value and if that carrying amount is not recoverable (the fair value would be recoverable, but the difference would not be). An impairment loss would then be recognized for the amount of the difference between book value and fair value.

On 12/31, Day co leased a new machine from Parr with the following pertinent information: Lease term 6 yrs annual rental payable at beg of each yr 50k useful life of machines 8 yrs days incremental borrowing rate 15% implicit interest rate in lease (known by day) 12% Present value of an annuity of 1 in advance for 6 periods at: 12% 4.61 15% 4.35 Day co uses US GAAP for its financial reporting method. the lease is not renewable, and the machine reverts to Parr at the termination of the lease. The cost of the machine on Parr's accounting records is $375k. At the beginning of the lease term, Day should record a lease liability of: 1. 217,500 2. 375,000 3. 230,500 4. 0

3. 230,500 Under US GAAP, the lease is classified as a finance lease if it meets at least one of the "OWNES" criteria: O Ownership No W Written bargain purchasing option No N NPV equal to or exceeding fv unknown E Economic life of asset (major part) encompassed by lease Yes (6/8) S specialized asset (no alt use to lessor 50k x 4.61 = 230,500

A company owns a financial asset that is actively traded on two different exchanges (market A and market B). There is no principal market for the financial asset. The information on the two exchanges is as follows Quoted price of asset Transaction costs Market A $1,000 $ 75 Market B 1,050 150 What is the fair value of the financial asset?

35k because there is no principal market, and the asset is actively traded in all four markets, the fair value will come from the market with the most advantageous price. In this case, market B value of 35k is the most advantageous

Park Co. uses the equity method to account for its January 1, Year 1, purchase of Tun, Inc.'s common stock. On January 1, Year 1, the fair values of Jun's FlFO inventory and land exceeded their carrying amounts. How do these excesses of fair values over carrying amounts affect Park's reported equity in Tun's Year 1 earnings? Inventory Excess/Land Excess a. Decrease Decrease b. Decrease No effect c. Increase Increase d. Increase No effect

Inventory excess-Decrease Land excess-no effect Park would record the additional COGS associated with the undervalued beginning inventory by debiting investment income and crediting the investment in Tun's account. Because the difference between book value and fair market value on land is not amortized, the difference in the land value would have no effect on equity in earnings.

During the current year, Whythe County levied 2m property taxes, 1% of which is expected to be uncollectible. During the year, the county collected 1.8m and wrote off 15k as uncollectible. What amount should Whythe County report as property tax revenue in its gov't wide stmt of activities for the current year? 1. 1.98m 2. 1.985m 3. 2m 4. 1.8m

1. 1.98m Gov't wide financial statements are presented on the accrual basis of accounting similar to commercial enterprises. Property taxes are recognized net, regardless of the basis of accounting. Property tax revenues would be recorded (for purposes of the accrual based gov't wide financial stmts) when earned: Orig levy w/o Bal Prop. tax levy 2m (15k) 1.985m Allow. uncollect (20k) 15k (5k) Accrual based tax rev 1.98m 0 1.98 While the gov'tal financial stmt would consider availability, the gov't wide statement would not. Collection data provided in the fact pattern is not relevant

On 1/1/Y1, Boston Group issued 100k par value, 5% five year bonds when the market rate of interest was 8%. Interest is payable annually on 12/31. The following present value information is available: 5% 8% Present value of $1 (n=5) 0.78353 0.68058 Pv of an ordinary annuity (n=5) 4.2948 3.99271 What amount is the value of net bonds payable at the end of year 1? 1. 90,064 2. 88,022 3. 100,000 4. 110,638

1. 90,064 The bond issue price is $88,022 calculated by present valuing the face value of $100k and the interest payments of 5k at the market rate of interest (8%) (100k x 0.68058) + (5k x 3.99271)=88,022 Dr. Cash 88,022 Dr. Discount on BP 11,978 Cr. Bond payable At the end of Y1, the net book value is the face value of 100k less the unamortized discount. The original discount of 11,978 will be reduced by the amortization for Y1 which using the effective interest method of amortization, is calculated as the difference between interest expense and the cash payment interest expense (88,022 x 8%=7,042) less the cash payment of 5k (100k x 5%) is 2,042. Thus, the discount is reduced by 2,042. The face value of 100k less the unamortized discount (11,978-2,042=9,936) is the net book value of $90,064 Dr. Interest expense 7,042 Cr. Cash 5,000 Cr. Discount on bp 2,042

Klubby Klubhaus Inc offers its retired employees lifetime health benefits. At 12/31 of the current year, Klubby computed an accumulated post retirement benefit obligation of 300k, while the fair value of the post retirement plan assets was 50k. Klubby expect to pay postretirement benefits of 60k next year. Under US GAAP, in its 12/31 financial stmts, Klubby will display: 1. A current liability of 10k and a noncurrent liability of 240k 2. a concurrent liability of 250k 3. a current liability of 60k and a noncurrent liability of 190k 4. a footnote disclosure of the funded status of the postretirement benefit plan

1. A current liability of 10k and a concurrent liability of 240k Klubby has an underfund postretirement benefit plan: Funded status= fv of plan assets - APBO= 50k - 300k = (250k) This underfunded plan must be reported as a current liability to the extent that the benefits payable in the next 12 months exceeds the FV of the plan assets (60k benefits payable - 50k fv plan assets = 10k current liability). The balance of the 240k is reported as noncurrent liability

Which of the following revenues should generally be recorded in the accounting period in which they become susceptible to accrual (regardless of timing of collection) by a state or local gov't body? Prop tax rev public parking rev inc tx rev sales tax r 1. no no no no 2. yes no yes yes 3. yes no yes no 4. yes yes yes yes

1. No revenues Revenues are recognized when measurable and available. Revenues are accrued when earned. Revenues must not only be earned but also collected (generally) w/ 60 days of year end for recognition in gov'tal fund financial stmts

Pinellas Co owns 30% of the voting common stock of Sanibel Co. Pinellas will probably use the equity method of accounting to account for this investment b/c: 1. Pinellas is assumed to be able to exercise significant influence over the arrears of Sanibel Co. 2. Pinellas recieves 30% of dividends paid by Sanibel Co 3. No other shareholder holds more than 29% interest in Sanibel Co. 4. Pinellas will be able to appoint 30% of the directors of Sanibel Co

1. Pinellas is assumed to be able to exercise significant influence over the affairs of Sanibel Co. The equity method of accounting should be used when the investor is able to exercise significant influence over the invest. Significant influence is generally assumed if the investor owns 20% or more of the voting stock of the invest company

On 12/31/Y1, the end of its fiscal year, Smarti Co held a derivative instrument which it had acquired for speculative purposes during Nov Y1. Since its acquisition the fair value of the derivative had increased materiality. On 12/31, how should the increase in fair value of the derivative instrument be reported by Smart in its financial stmts? 1. Recognized in current net income for Y1 2. Recognized as component of other comprehensive income for y1 3. Disregarded until the instrument is settled 4. Recognized as a deferred credit until the instrument is settled

1. Recognized in current net income for Y1 Gains (and losses) resulting from the change in fair value of derivatives not held (or issued) for hedging purposes should be recognized in net income in the period during which the fair value changes. To accomplish that, the derivative would be adjusted to its new fair value and a gain or loss recognized in current net income.

Which of the following choices is LEAST likely to represent an actual debt covenant? 1. times interest earned must stay below a specific level 2. collateral cannot fall below a specific amount 3. the debt to equity ratio must stay below a specific level 4. working capital levels cannot fall below a specific amount

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

Under US GAAP, which of the following must be disclosed by a company that files financial statements with the SEC with respect to when its subsequent event evaluation period ended? -At end of its fiscal year; 12/31/y1 -When all approvals necessary for issuance are made 1/27/y2 -At the distribution of financial statements to all interested parties by 2/5/y2 -No disclosure is necessary

No disclosure is necessary As an entity that files its financial statements with the SEC, subsequent event evaluation period runs through the date that its financial statements are issued. The date that financial statements are issued is the date that its financial statements have been widely distributed to financial statement users in a form and format that comply with GAAP, which in this case was 2/5/y2. However, entities that file financial statements with the SEC are not required to disclose the date through which subsequent events have been evaluated.

How do you calculate issue price for a bond?

Rule: Bond issue price is the sum of the present value of the maturity value and the interest payment annuity Calculation components: PV of principle +PV of interest annuity =Total issue price for each bond

Under the percentage of completion method for long-term construction contracts how is gross profit or loss recognized?

Step 1: compute gross profit of completed contract: Contract price (estimated total cost) =Gross profit Step 2: compute percentage of completion Total cost to date / total estimate cost of contract Step 3: compute gross profit earned (profit to date): Step 1 x Step 2 = PTD Step 4: Compute gross profit earned for current year: PTD at current FYE (PTD at beginning of period) =Current year to date GP An estimated loss on the total contract is recognized immediately in the year discovered—reverse previous profit

How would cash contributions with donor restrictions with specific requirements relative to the acquisition of property be classified on the statement of cash flows? Operating? Investing? Financing?

The cash contributions with donor restrictions are reported as increases in financing activities because the restriction is the acquisition of property, not general operations.

How do you calculate the value of inventory using the moving-average method?

The moving-average method assumes the company has a perpetual records. A new weighted-average cost is computed after each purchase and issues are priced at the latest weighted average cost.. The weighted average is determined by dividing the total costs of inventory available by the total number of units of inventory available, remembering that the beginning inventory is included in both totals. This method is particularly suitable for homogeneous products and a periodic inventory system.

TGR Enterprises provided the following information from its statement of financial position for the year ended 12/31/y1: 1/1 12/31 Cash 10k 50k AR 120k 100k Inventories 200k 160k Ppd exp 20k 10k AP 175k 120k Accrd Liab 25k 30k TGR's sales and cost of sales for Y1 were $1.4m and 840k, respectively. What is TGR's days sales in AR? 1. 26.1 2. 28.7 3. 41.7 4. 31.3

1. 26.1 Days in AR is calculated as: Ending AR (net) $100k Sales (net)/365 1.4m/365 100k / (1.4m /365) = 26.1

Which of the following is not a valuation technique that can be used to measure the fair value of an asset or liability? 1. the income approach 2. the impairment approach 3. the cost approach 4. the market approach

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

Mid year, a company decided to change from moving average inventory system to the FIFO inventory system. They use IFRS, on a calender year basis, and complies with IFRS minimum comparative reporting requirements. The cumulative effect of the change is shown as an adjustment to beginning retained earnings on the balance sheet for: -1/1 of the current year -1/1 of the prior year -Mid year of the current year -12/31 of the current year

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

What are the quantitative thresholds for reportable segments?

A segment is considered significant and therefore disclosure is required if it meets one or more of the following quantitative thresholds. -10 percent "size" test /Revenue: the segment's revenues, including both sales to external customers and intersegment sales or transfers (but excluding interest income on advances and loans to other segments), is 10 percent or more of the combined revenue, internal and external, of all operating segments /Reported Profit or Loss: the absolute amount of the segment's reported profit or loss is 10 percent or more of the greater, in absolute amount of: 1-the combined reported profit of all operating segments that did not report a loss 2-the combined reported loss of all operating segments that did not report a loss -Assets: the segment's identifiable assets are 10 percent or more of the combined assets of all operating segments. The assets of a segment are those assets included in the measure of the segment's assets that are reviewed by the chief operating decision maker

What should be reported in a stockholders' equity contra account?

Cumulative foreign exchange translation loss should be reported as a component of accumulated other comprehensive income. A cumulative foreign exchange translation loss would be a debit to accumulated other comprehensive income; therefore, contra to shareholders' equity Rule: "Translation" adjustments are not included in determining net income for the period but are disclosed and accumulated as a component of other comprehensive income in consolidated equity until sale or until liquidation of the investment takes place.

How do you calculate a gain from a transaction where an investor goes from non-control to control of a subsidiary?

When an investor goes from non-control to control of a subsidiary through a step acquisition, the previously held equity investment must be adjusted to fair value. The fair value adjustment is recognized as a gain or loss by the investor in the period of the additional acquisition. To compute the adjustment made, the carrying amount of the investment on that date must first be calculated. Since a portion of the investment was previously owned, the investment would have been accounted for using the equity method: Investment +% of earnings (Share of dividends) =investment at ye YE 1 carrying amount +/- adjustment to get it to FV =new carrying amount The adjustment in Y2 to adjust the orginal investment is recorded as a gain

The stockholder's of Meadow's Corp approved a stock option plan that grants the company's top 3 executives options to purchase a maximum of 1,000 shares each of Meadows $2 par common stock for $19 per share. The options were granted on 1/1 when the fair value of the stock was $20 per share. Meadow determined that the fair value of the compensation is 300k and the vesting period is 3 yrs. What amount of the compensation expense from the options should Meadow record in the year the option were granted? 1. 100k 2. 20k 3. 300k 4. 60k

1. 100k Compensation expense is calculated at the grant date of the option and allocated over the vesting period: $300k/3 yrs = 100k per year

Jane Co. owns 90% if the common stock of Dun Corp. and 100% of the common stock of Beech Corp. On 12/30 Dun and Beech each declared a cash dividend of $100k for the current year. What is the total amount of dividends that should be reported in 12/31 consolidated financial statements of Jane and its subsidiaries, Dun and Beech? 1. 10k 2. 200k 3. 190k 4. 100k

1. 10k Since Jane owns 90% of Dun and 100% of Beech, when they declare and pay dividends, the only amounts that should appear in their year-end consolidated financial statements are the dividends paid to outsiders or external parties. Inter-company dividends should be eliminated upon consolidation. In this case, the only non-controlling interest that exists is the 10% of Dun that Jane does not own. So all 100% of Beech's 100k dividend would be eliminated, but only 90% of Dun's 100k would be eliminated. Therefore, just 10% of Dun's 100k dividend, or 10k will appear in Jane and subs' year end consolidated financial statements, specifically, the consolidated statement of cash flows and the consolidated statement of equity

Topper Co began operations during the current year and experienced the following events: i. Unrealized holding gains from trading debt securities of 12k ii. realized gains from selling available for sale debt securities 15k iii. unrealized holding gains from available for sale debt securities of 20k Toppers tax rate is 30%. In toppers 12/31 balance sheet, Accumulated other comp income would be: 1. 14k 2. 47k 3. 32.9k 4. 20k

1. 14k Only III is part of other comp income. It is reported net of income taxes unrealized gain on avail for sale debt securities 20k Less: 30% tax rate (20k x 30%) (6k) =Net reported amount 14k

On 1/1/y2 West co adopted the dollar value LIFO inventory method. Inventory data for Y2 and y3 are as follows Date inv current yr cost relevant price index 1/1/y2 250,000 1.0 12/31/y2 278,250 1.05 12/31/y3 364,000 1.12 West's dollar value LIFO inventory under US GAAP at 12/31/y3 is: 1. 332,950 2. 364,000 3. 328,750 4. 325,000

1. 332,950 C I B L I R CY / Index= Base-->Layer x Index = Result 250,000/1.0 =250k 250k x 1. = 250k 278,250 /1.05=265k 250 x 1 =250k 15 x 1.05=15,750 =265,750 364k / 1.12=325k 250 x 1 =250k 15 x 1.05=15,750 60 x 1.12= 67,200 =332,950

The following information pertains to the defined benefit pension plan of the Cabot Corp as of 12/31/Y11 and Y12 12/31/Y11 12/31/Y12 Projected benefit obligation 250,000 285,000 FV of plan assets 200,000 295,000 The pension plan had unrecognized prior service cost of $50k and unrecognized net gain of $30k at 12/31/Y11. Service cost for Y12 was $30k. The discount rate was 8% and the expected and actual return on plan assets was 10% for both Y11 and Y12. Cabot's employees have an average remaining service life of 10 yrs. For the last 3 yrs, Cabot had made benefit payments of 15k per year. The company expect to pay the same amount in Y13. Cabot's effective tax rate is 30%. Calculate Cabot's total net periodic pension cost for Y12: 1. 34,500 2. 27,800 3. 32,000 4. 35,500

1. 34,500 S service cost 30,000 I interest cost 20,000 (1) R return on assets (20,000) (2) A amort. of prior 5,000 (3) service cost G gain amortization (500) (4) E existing net 0 obligation amort Net periodic pension 34,500 cost (1) Interest cost = Beg. PBO x Discount rate = 250k x 8% = $20k (2) Return on plan assets = Beg. FV assets x Return on plan assets = $200k x 10%= 20k (3) Amortization of prior service cost = Prior service cost / avg. remaining service life = $50k / 10 yrs = $5k (4) Gain amortization = (Excess of unrecognized gain over the greater of 10% of beg. PBO or 10% of beg. FV plan assets ) / Avg. remaining service life = [30k - (10% x $250k)] / 10 yrs = $5k / 10 yrs = $500

Emma Construction Co started building a new admin HQ on 1/1/y1. Emma intends to occupy the bldg at the project completion date of 1/1/y3. At 12/31/ya, Emma had incurred 2m of construction costs, evenly spread during the first year. Projected remaining costs are 2.5m. During Y1, Emma incurred interest cost on specific construction debt in the amount of $40k and interest on other unrelated loans in the amount of 30k. All loans carry 5% interest. How much interest should Emma capitalized for Y1? 1. 50k 2. 0 3. 70k 4. 40k

1. 50k The computations are: Total expenditures Avg Accum Expen $2m / 2 = $1m x .05 =$50k avoidable inter Compare "avoidable interest" (the potential amount to be capitalized) to total actual interest cost incurred and capitalized the lower amount. $50k<70k, therefore, capitalize $50k AVERAGE accumulated expenditures must be used NOT TOTAL expenditures. $2m / 2 = $1m

The following data pertains to Tyne Co's investment in marketable debt securities: Classification Cost FV 12/31/y2 FV 12/31/y1 Trading 150k 155k 100k Avail for sale 150k 130k 120k If the present value of expected cash flows for the avail for sale security is equal to amortized cost, what amount should Tyne report as unrealized holding gain in its Y2 income statement? 1. 55k 2. 65k 3. 80k 4. 50k

1. 55k Rule: Unrealized gains and losses are reported as follows: -Trading debt securities are reported at fair value with unrealized gains and losses included in earnings (along with realized gains and losses, if any) -Available for sale debt securities are reported at fair value with unrealized gains and losses reported as a component of other comprehensive income 55k unrealized holding gain on trading securities reported in Y2 income stmt : Trading debt portfolio FV 12/31/y2 155k 12/31/y1 (100k) Unrealized gain, reflected 55k in income

On 12/31/y4, Prone inc sold a piece of equipment to its 90% owned subsidiary, Supine co. Details are as follows: Orig punch date 1/1/y1 orig cost to Prone 65k orig estimate of salvage value 10k orig estimate of economic life 5 yrs Interco selling price 60k Both companies use str8 line depreciation. Both companies think that, as of the end of Y4, the equipment's useful life will extend an add'l 4 yrs and the salvage value will become zero. In preparing its yr 5 consolidated financial stmts, consolidated depreciation expense will be reduced by: 1. 9.750 2. 7,020 3. 7,800 4. 8.775

1. 9,750 With accumulated depreciation through Y4 at 44k (11k per year in depreciation calc as the difference between 65k and the 10k salvage value, over 5 yrs), the carrying value of the equip on Prone's books at the end of Y4 would have been 21k With another 4 years of useful life and thus zero salvage value, depreciation expense would have been $5,250 per year. For Supine, the annual depreciation expense would be 15k (60k purchase price divided by 4 yrs). The difference between the two amount is $9.750, and this represents the overstatement of depreciation that must be corrected

A material overstatement in ending inventory was discovered after the year end financial stmts of a company were issued to the public. What effect did this error have on the year end financial stmts? Current assets Gross profit 1. overstated overstated 2. understated overstated 3. overstated understated 4. understated understated

1. both overstated Because inventory is a component of current assets, an overstatement of ending inventory will cause current assets to be overstated. The income statement effects of an inventory overstatement or understatement can be seen by analyzing the cogs formula: Beg Inventory + Purchases = COG avail for sale -ending inventory =COGS Based on this formula, an overstatement of ending inventory will cause an understatement of COGS, which will result in an overstatement of gross profit (sales - cogs= gross profit)

Fogg Co, a US company contracted to purchase foreign goods. Pmt is foreign currency was due one month after the goods were rec'd at Fogg's warehouse. Between the receipt of goods and the time of pmt, the exchange rates changed in Fogg's favor. The resulting gain should be included in Fogg's financial statements as a(an): 1. component of income from continuing operations 2. separate component of other comprehensive income 3. asset valuation allowance 4. deferred credit

1. component of income from continuing operations RULE: Gains and losses resulting from foreign exchange transaction that are an "extension" of the parents domestic operations are included as a component of "income from continuing operations" in the period in which they occur

General purpose external financial reporting of a corporation focuses primarily on the needs of which of the following users? 1. Investors and creditors and their advisors 2. the board of directors of the corporation 3. the management of the corporation 4. Regulatory and taxing authorities

1. investors and creditors and their advisors External financial reporting focuses on the needs of external users (those outside of the entity), the largest groups of those external users being investors and creditors. The needs of regulatory and taxing authorities, management and the board of directors are not the primary focus of external financial reporting

When purchasing a bond, the present value of the bond's expected net future cash inflows discounted at the market rate of interest provides what information about the bond? 1. price 2. interest 3. par 4. yield

1. price The issue price of a bond is a function of two different cash flows, one a lump sum and the other a regular stream of pmts. First, we need to present value the eventual return of principal using present value tables and factors at the market or effective rate of interest, also known as the yield. Second, we need to present value the regular interest payments, whether annual or semiannual, using present value of an annuity tables and factors at the same market or effective interest rate (yield). Remember that the face rate of interest only has one job, and this is to compute the regular interest payments. ITs the market rate of interest that will determine the bond's selling price. The par value of the bond is also known as the maturity value since this is the amount the must be paid back at maturity The yield is another term for market or effective interest rate. It is this rate that will be used when using the PV table and the PV annuity table to determine the issue price of the bond

On 1/1/Y1 the city of Potterville approved a 30 yr bond issued for 20m to construct a civic center to bring tourism to the city. The principal and interest payments on the bond are secured by a pledge of the city's tourist development tax revenues collected on sales volume from tourist related industries. Potterville anticipates collecting 1.2m in tourist development taxes during the year ending 12/31/y1. The bonds will be issued at 98 to yield 4 percent on 7/1/y1, and potterville will make its first pmts on the debt on 1/2/y2. In its fund financial stms dated 12/31/y1 Potterville will display the following in its debt service fund: Debt proceeds/Principal expdtrs/Int expdtrs/Tr dvl rev 1. 0 0 400k 0 2. 0 0 0 0 3. 20m 0 0 1.2m 4. 19.6m 360k 800k 0

2. 0000 The debt service fund would not display any activity under the named accounts. Debt proceeds, net of discount, are recorded in the capital projects fund. Principal and interest expenditures incurred are not accrued, an important difference between full accrual and modified accrual accounting, and the tourist development revenue is recorded in a special revenue fund since revenues are simply pledged to the debt repayment but were not specifically levied for that purpose.

On 1/1/Y1, David Corp. issued 1,000 of its $1,000 bonds at 94. David uses US GAAP. The bonds mature in 10 yrs but are callable at 102 any time after issuance. On 1/1/Y1, David incurred bond issue costs of $50k. On 7/1/Y8, David called all of the bonds and retired them. Assuming that bond discount and issue costs were amortized using the straight-line method, what amount of pretax loss would David report from this extinguishment of debt? 1. 85,000 2. 47,500 3. 58,500 4. 20,000

2. 47,500 Calculation: Bond Face 1,000,000 Issued at 94 940,000 Issue cost (50,000) Net carrying value (890,000) = 110,000 / 10 yrs Amortization per yr 11,000 Jan Y1 - July Y8 x 7.5 Total amortization 82,500 Original net carrying value 890,000 Current net carrying value 972,500 Call price @ 102 (1,020,000) Loss on call of bond (47,500)

The financial stmts of gov'ts have focused on two forms of accountability. Gov't wide financial stmts focus the reader on accountability in which way(s): Fiscal Accountability Operational Accountability 1. yes yes 2. no yes 3. yes no 4. no no

2. Operational accountability Gov't wide financial stmts focus on operational accountability, and funds focus on fiscal accountability

Under Regulation S-X, an entity's interim financial stmts filed with the SEC should include all of the following, except: 1. An income stmt for the cumulative 12 month period ending during the most recent fiscal qtr 2. a stmt of cash flows for the most recent fiscal qtr 3. an income stmt for the period between the end of the preceding fiscal year and the end of the most recent fiscal qtr 4. a balance sheet as of the end of the preceding fiscal year

2. a stmt of cash flows for the most recent fiscal qtr Interim financial stmts filed with the SEC would not include a stmt of cash flows for the most recent fiscal qtr, but should include stmt of cash flows for the period between the end of the preceding fiscal year and the end of the most recent fiscal qtr, and for the corresponding period for the preceding fiscal year. The financial stmts may also present stmt of cash flows for the cumulative 12 month period ended during the most recent fiscal qtr and for the corresponding preceding period.

Which of the following statements is NOT required of not-for-profit organizations? 1. stmt of financial position 2. stmt of retained earnings 3. stmt of activities 4. stmt of cash flows

2. stmt of retained earnings There is no retained earnings reported on a not for profit organization's financial stmts. the correct term is net assets A stmt of cash flows is req'd for non profit organizations

At YE, an entity tested its goodwill for impairment and determined the following for one of its cash generating units: CV 450k FV less costs to sell 420k The entity also determined that the present value of the future cash flows expected from cash generating unit is $435k. The cash generating unit reports goodwill of 40k. What is the goodwill impairment loss that will be reported on the 12/31 income stmt under IFRS? 1. 0 2. 40k 3. 15k 4. 25

3. 15k Under IFRS, the goodwill impairment test is a one step test in which the carrying value of the CGU is compared to the CGU's recoverable amount, which is the greater of the CGU's fair value less costs to sell and its fair value in use (PV of future cash flows expected from the CGU). For this CGU, the value in use of 435k is the recoverable amount because it exceeds the fair value less costs to sell of 420k. The impairment loss is: impairment loss= recoverable amount - carrying value Impairment loss= 435k - 450k = -15k Under IFRS, the CGU impairment loss is applied first to the goodwill of the CGU

On 12/31, Planet Co acquired 80% of the voting common stock of Star Co by issuing 100k shares of its own common stock (FV $8/share). In the acquisition, Planet paid legal fees in the amount of 15k and paid SEC registration fees of 10k. The book value of Star on 12/31 was 700k. Star's only balance sheet item with a FV different from book value was a bldg. The bldg had a book value of 100k and a FV of 150k. Goodwill to be shown on Planet's 12/31 consolidated balance sheet under IFRS partial goodwill method is: 1. 50k 2. 65k 3. 200k 4. 250k

3. 200k Under the IFRS partial goodwill method, goodwill is the difference between the purchase price and the fair value of the net assets acquired: Partial goodwill= Purch price - FV net assets acquired Partial goodwill (100k share x $8/share) - [80% x (700k +50k)] Partial goodwill = $800k - 600k = 200k

Wizard co purchased 2 machines for 250k each on 1/2 of the current year. The machines were put into use immediately. Machine 1 has a useful life of 5 yrs and can only be used in one research project. Machine B will be used for 2 years on a research and development project and then used by the production division for an add'l 8 yrs. Wizard uses the str8 line method of depreciation. What amount should Wiaard included in the current year research and development expenses under US GAAP? 1. 500k 2. 375k 3. 275k 4. 50k

3. 275k Computed as follows: Machine a (no alt use) 250k Machine b (alt use) (250/10) 25k Total 275k

Quinn co reported a net deferred tax asset of 9k in 12/31/y1 balance sheet. For Y2, Quinn reported pretax financial stmt income of 300k. Temporary differences of 100k resulted in taxable income of 200k for Y2. At 12/31/y2, quinn had cumulative taxable differences of 70k. Quinn's effective income tax rate is 30%. In its 12/31/y2 income stmt what should Quinn report as deferred income tax expense? 1. 12k 2. 60k 3. 30k 4. 21k

3. 30k Deferred tax expense is equal to the current period temporary differences times the enacted future tax rate: 100k x 30% = 30k analysis of deferred tax account: 12/31/y1 change 12/31/y2 temp diff $30 (100) (70) tax rate x 30% x 30% Def tax asset 9 (9) 0 Def tax liability0 (21) (21) Net def tax 9 (30) (21)

Which format must an enterprise fund use to report cash flow operating activities in the stmt of cash flows? 1. indirect method, beginning w/ operating income 2. either direct or indirect method 3. direct method 4. indirect method, beginning w/ change in net assets

3. direct method Proprietary funds (internal service and Enterprise funds) must use the direct method when preparing their stmt of cash flows

Bentley Co leased equipment from Babson Co for a 6 yr term beginning 7/1/Y1. The lease was appropriately accounted for an an operating lease. The rent for the first lease is $8k, and the rental charge for each of the remaining five yrs is $10,600. However, as an incentive to lease its equipment, Babson provided the first 6 most of the lease rent free. In its 12/31/y1 income stmt, what was Bentley's rental expense? 1. 4k 2. 9.5k 3. 4.75k 4. 8k

3. 4.75k Annual (yrs 2-6) 10,600 Term (yrs 2-6) x 5 yrs Expense (yrs 2-6) 53,000 Expense (1st yr) 8,000 Free rent (4,000) Total rent to be paid 57,000 Total yrs / 6 yrs Annual rental expense 9,500 Period (July-Dec) x 1/2 yr Period rental expense 4,750

Give the World a Puppy Foundation is organized as a NFP organization with the mission of ensuring that everyone on the planet owns a puppy. A local vet has volunteered her time to provide medical care to the puppies in the care of the foundation. The Foundation estimates that it would pay $40k per year for this service if it were not donated. The Foundation also enjoys the services of 20 volunteers who walk and otherwise attend to the animals. The Foundation estimates the value of the volunteers provided at $25k per yr that would be handled by current salaried staff without these donated hours. As a result of these donations Give the World a Puppy would record: 1. 25k revenue without donor restrictions 2. 65k in revenue without donor restrictions 3. 40k in revenue with donor restrictions 4. 25k in revenue without donor restrictions and 40k in revenue with donor restrictions

3. 40k in revenue w/o donor restrictions RULE: The value of services rendered are only recognized SOMe of the time. Service must meet three criteria. The must involve a: S specialized skill that is O otherwise needed that can be M measured e easily The foundation would record the services of the veterinarian since these services meet the recognition criteria of being a specialized skill that would have to be purchased and can be measured easily at the vet's usual and customary fee.

Conn Co. reported a retained earnings balance of 400k at 12/31/y1. In aug, y2, Conn determined that insurance premiums of 60k for the 3 yr period beginning 1/1/y1, had been paid and fully expensed in y1. Conn has 30% income tax rate. What amount should Conn report as adjusted beginning retained earnings in its Y2 statement of retained earnings? 1. 442k 2. 420k 3. 428k 4. 440k

3. 428k 428 net of tax BB - RE 12/31/y1 $400k Add: prior period adj net of tax: 60k 3 yr ins policy 1/1/y1-1/1y4 28k expensed in Y1, 2/3 ppd at 1/1/y2 (60k x 2/3=40k x 70% net of tax) Adj balance-RE 1/1/y2 = 428k

Wall Co. sells a product under a 2 yr warranty. The estimated cost of warranty repairs is 2% of net sales. During Wall's first two yrs in business, it made the following sales and incurred the following warrant repair costs: Y1 Total sales 250k Total repair costs incurred 4,500 Y2 Total sales 300k Total repair costs incurred 5,000 What amount should Wall report as warranty expense for Y2? 1. 5.9k 2. 5k 3. 6k 4. 1k

3. 6k Under accrual accounting, the entire warranty liability must be accrued in the year of the sale to match the warranty cost to the related revenue. The Y2 warranty expense is 6k calculated as follows: Y2 sales x 2% = 300k x 2% = 6k

On 1/1/y1 an entity that uses IFRS acquired equipment with a cost of 100k and an estimated life of 20 yrs. The cost of the equipment included the 15k cost of a component that must be replaced every 5 yrs and an initial inspection fee of 5k. The equipment must be reinspected every 10 yrs at and add'l cost of 5k per inspection. The entity uses str8 line depreciation. What is the depreciation expense for the year ended 12/31/y1? 1. 6k 2. 5k 3. 7.5k 4. 3.75k

3. 7.5 IFRS requires component depreciation. Under component depreciation, the equipment, component, and inspection cost are recognized and depreciated separately: Equip: (100k - 15k -5k)/ 20 yrs = 80k/20=4k Comp (15k / 5) = 3k Inspection cost (5k/10 yrs) = 500 Total annual str8 line depreciation: 4k + 500 + 3k = 7,500

The portion of special assessment debt maturing in 5 yrs, to be repaid from general resources of the gov't, should be reported in the: 1. Agency fund 2. general fund 3. gov't wide stmt of net position 4. Capital projects fund

3. Gov't wide stmt of net position When special assessment debt is to be repaid from general resources of the gov't, the debt should be recored as general long-term liabilities in the gov't activities column of the gov't wide stmt of net position as is any debt to be repaid from general resources

Liquid Industries defines cash and cash equivalents as cash and time certificates of deposit whose original maturity date is less than 90 days. When preparing their financial stmts, Liquid industries would most likely present this policy in the: 1. Notes the financial stmts other than the Summary of Significant Accounting Policies 2. Supplemental Schedule of Non-Cash investing and Financing Activities 3. Summary of Significant Accounting Policies 4. Face of the Statement of Cash Flows

3. Summary of Significant Accounting Policies Significant accounting policies should be disclosed in the first or second note to the financial statements and titled "Summary of Significant Accounting Policies". The definition of cash and cash equivalents represents the definition of criteria and policy contemplated for inclusion of this note.

Colt Inc. prepared an interest amortization table for a 5 yr lease payable w/ a written purchase option of $2k which the lessee is reasonably certain to exercise. At the end of the 5 yrs, the balance in the leases payable column of the spreadsheet was zero. Cott has asked Grant, CPA, to review the spreadsheet to determine the error. Only one error was made on the spreadsheet. Which of the following statements represents the best explanation for this error? 1. Cott subtracted the annual interest amount from the lease payable balance instead of adding it. 2. The present value of the written purchase option was subtracted from the present value of the annual payments 3. The beginning present value of the lease did NOT include the present value of the written purchase option 4. Cott discounted the annual payments as an ordinary annuity, when the payments actually occurred at the beginning of each period.

3. The beginning present value of the lease did NOT include the present value of the written purchase option Cott Inc made the error of not including the present value of the written purchase option in the beginning present value of the lease that is used on the schedule. A written purchase option payment is included as part of the minimum lease payments to be discounted to the date of inception of the lease because it is a future cash flow that is considered certain. When the spreadsheet showed zero at the bottom, Cott Inc, still was required to make the written purchase option payment of 2k, yet there was no liability left on the books to pay. The 2k should have been capitalized as part of the cost of the equipment (or whatever was purchased under the finance lease)

Lemonville Township issued 75k of bond anticipation notes at face amount in the current fiscal period. The proceeds were recorded in the capital projects fund. These notes are due within one year. Lemonville intends to repay the bond anticipation notes with a bond issue. Lemonville has take legal steps to refinance the notes on a long term basis. Under these circumstances, what account should be credited in the capital projects fund? 1. bond anticipation notes payable 2. tax anticipation notes payable 3. other financing sources 4. revenues control

3. other financing sources Lemonville township has the ability and intent to refinance its bond anticipation notes as a long term obligation. The township would not record the bond anticipation note as a current obligation but would treat it in a manner consistent with other noncurrent obligations. Governmental funds (GRaSPP) use modified accrual accounting and do not record long-term debt. Instead they present "other financing sources" to account for the proceeds from long-term debt.

Which of the following qualifies as a reportable segment? 1. corporate hq, which oversees 1b in sales for the entire company 2. south american segment, whose results of operations are reported directly to the chief operating officer, and has 5% of the company's assets, 9% of revenues, and 8% of the profits 3. north american segment, whose assets are 12% of the company's assets of all segments, and management reports to the chief operating officer 4. eastern europe segment, which reports its results directly to the manager of the european division, and has 20% of the company's assets, 12% of revenues, and 11% of profits

3.north american segment, whose assets are 12% of the company's assets of all segments, and management reports to the chief operating officer Assets of the North American segment exceed 10% combined assets of ALL operating segments

Nu Corp. agreed to give Rand Co. a machine in full settlement of a note payable to Rand. The machine's original cost was $140k. The note's face amount was $110k. On the date of the agreement: -The note's carrying amount was $105k and its present value was 96k -the machine's carrying amount was $109k, and its fair value was 96k What amount of net gains (losses) should Nu recognize in its income statement? 1. (13k) 2. (9k) 3. 0 4. (4k)

4. (4k) 9k ordinary gain on the troubled-debt restructuring, and (13k) ordinary loss on disposal of machine, netting to an ordinary loss of 4k Note Machine Carrying amount 105k 109k Present value 96k 96k Ordinary gain on exting 9k of l/t debt ordinary loss on disposal of mach 13k Net loss 4k

on 12/31/y1, an entity awaiting judgement on a lawsuit determined that a loss from the suit ranging between 1m and 2m was reasonably possible. On 3/15/y2 after the entity issued its financial stmt, the suit was settled. The settlement req'd the entity to pay damages of 1.4m. What amount of contingent liability should the entity have reported on its 12/31/y1 balance sheet? 1. 1.4m 2. 2m 3. 1m 4. 0

4. 0 A contingent liability is not accrued for reasonably possible loss contingencies. If the suit had been settled before the financial stmts were issued, than a liability would have been recorded on the 12/31/y1 balance sheet

The following information pertains to certain monies held by Blair County at 12/31/y1, that are legally limited to expenditures for specified purposes: Proceeds of short term notes to be used for advances to private purpose trust funds $8k Proceeds of long term debt to be used for a major capital project 90k What amount of these monies should Blair account for as restricted or committed in special revenue funds? 1. 98k 2. 90k 3. 8k 4. 0

4. 0 Special revenue funds account for the proceeds of specific revenue sources (other than debt service or for major capital projects) that are legally restricted or committed to expenditures for specific purposes. The 8k is to be used for advances to private purpose trust funds and would be accounted for in private purpose trust funds. The 90k is for a major capital project, which would be accounted for in a capital project fund

Selected amounts from Rufus Inc 12/31/y3 and 12/31/y4 trial balances are: 12/31/Y3 12/31/Y4 Sales 1,250,000 1,320,000 COGS 860,000 940,000 Inventory 280,000 271,000 AP 86,000 113,000 AR 124,000 109,000 Rufus Incs Y4 stmt of cash flows will report "cash receipts from customers" in the amount of: 1. 1,305,000 2. 1,320,000 3. 1,211,000 4. 1,335,000

4. 1,335,000 Sales 1,320,000 + Decrease in AR 15,000 during period Cash rec'pts from customers 1,335,000

In computing the weighted average number of shares o/s during the year, which of the following midyear events must be treated as if it had occurred at the beginning of the year? 1. Sale of add'l common stock 2. Sale of preferred convertible stock 3. Purchase of treasury stock 4. declaration and distribution of stock dividend

4. declaration and distribution of stock dividend In computing the weighted average number of shares outstanding for earnings per share (EPS) determination, a stock dividend (or a stock split) to the same class of shareholders must be retroactively recognized and treated as if it had at the beginning of the year. In addition, EPS for all prior periods presented must be adjusted as though the shares had been outstanding for all periods presented

On June 10, a company issued two thousand $1k 5 percent bonds payable in 10 years. Each bond contained a detachable warrant that provided a right to purchase five shares of $1 par common stock for $30. The value of the warrants at issuance was $50 each. On June 30, the market rate of interest was 9 percent. At the time of issuance, what amount was the increase in shareholder's equity? 1. 60k 2. 200k 3. 300k 4. 100k

4. 100k The issuance of bonds with a detachable warrant is an example of a convertible bond, but the bond is not surrendered upon conversion. Instead, in addition to the bond, the bondholder is purchasing the right to buy stock in the future at a certain price within a stated period. The original transaction results in a bond liability but also results in an increase in equity as two separable instruments are involved in the transaction. The two methods to allocated the journal entry are the proportional method and the incremental method. The scenario presented does not provide a value for the issuance of the bonds, nor does it provide the fair value of the bonds without the stock warrants. As a result, the incremental method is used to determine the credit to shareholders' equity. Because the fair value of the warrants is provided, this is the amount used to determine the credit to equity. Each bond is issued with one detachable warrant, so 2,000 warrants are issued. The fair value of the warrants is $50 resulting in a total credit to shareholders' equity of 100k (2,00 0 warrants x $50/warrant)

Baker Inc reported the following stockholders' equity balances: 8% cumulative preferred stock, par value $100/share; 10,000 shares issued and o/s (liquidation value $107) = $1m Common stock, par value $10/share, 50,000 shares issued and o/s = 500,000 Add'l paid in capital = 75,000 Retained earnings = 450,000 Dividends are in arrears on the preferred stock for three years including the current year. What is book value per share of common stock? 1. 20.5 2. 15.70 3. 19.10 4. 14.30

4. 14.30 8% cumulative pref stock 1,000,000 common stock 500,000 add'l paid in cap 75,000 Retained earnings 450,000 = 2,025,000 Less: Pref stock liquid value (10,000 x 107) 1,070,000 Dividends in arrears (10,000 x $8 x 3yrs) 240,000 = (1,310,000) Total value of common stock 715,000 Divided by CS o/s / 50,000 Book value per share of CS 14.30

On 11/15 Quazar Co declared a property dividend of marketable securities to be distributed on 12/15 to stockholders of record on 12/1. The market value of the securities was as follows: 11/15 $225k 12/1 220k 12/15 250k The marketable securities originally cost Quazar 200k. What is the net effect on Quasar's retained earnings as a result of declaring this property dividend? 1. 250k 2. 225 3. 195k 4. 200k

4. 200k Two factors will affect retained earnings as a result of this transaction. Quazar will recognize a gain on disposition of the marketable securities as well as a dividend: Gain on marketable securities 25k Property dividend (225k) Net effect on RE (200k) The property dividend is valued on the declaration date.

Atomized Enterprises Neutron Division qualified as a component held for sale during the year ended 12/31/y2. The net book value of the division is 1.8m while its fair market value is 1.5. The Division lost 240k during the year ended 12/31/y1. The division lost 150k in y2 prior to qualifying as being held for sale and 80k for the balance of that year. Ignoring income taxes, the results of Atomized Enterprises discontinued operations displayed in their Y2 comparative income stmts for the year ended 12/31/y1 would be equal to: 1. 540k 2. 390k 3. 0 4. 240k

4. 240k The results of discontinued operations of a component are reported in discontinued operations (for the current period and for all prior periods presented) in the period the component is either disposed of or is held for sale. The results of subsequent operations of a component classified as held for sale are reported in discontinued operations in the period in which they occur. Atomized Enterprises would report the amount of the net loss reported Y1 beneath the heading discontinued operations 240k

The following costs were incurred by Griff Co, a manufacturer, during the current year: Accounting and legal fees 25k Freight in 175k Freight out 160k Officers salaries 150k Insurance 85k Sales rep salaries 215k What amount of these costs should be reported as general and administrative expenses for the current year? 1. 635k 2. 810k 3. 550k 4. 260k

4. 260k Accounting and legal 25k officers salaries 150k insurance 85k total= 260k Freight in is part of sales, freight out is a selling expense, and sales salaries are selling expenses

In accounting for its merchandise inventory, Ingewald Int'l, a company that uses US GAAP, changed from LIFO to FIFO. Assuming the change in beginning inventory was 400k and that the change at the end of the year was 300k and that the tax rate was 30%, what was the amount of the cumulative effect of an accounting change that should have been displayed in Ingewald's retained earnings stmt? 1. 70k 2. 0 3. 210k 4. 280k

4. 280k A change from LIFO to another inventory cost flow assumption requires a cumulative catch up adjustment as of the beginning of the year of change. The beginning balance of retained earnings is adjusted, net of tax, 400k (1-.30) = 280k. A change from LIFO to another method is reported by restating prior period financial stmts in a manner to a prior period adjustment

On 12/31 an entity analyzed equipment with a net carrying value of $250k for impairment. The entity determined the following: FV $215k Undiscounted Future cash flows $240k What is the impairment loss that will be reported on 12/31 income statement under US GAAP? 1. 0 2. 25k 3. 10k 4. 35k

4. 35k Under US GAAP, impairment analysis begins with a test for recoverability in which the net carrying value of the asset is compared to the undiscounted cash flows expected from the asset. If the net carrying value exceeds the undiscounted cash flows, then an impairment loss is recorded equal to the difference between the carrying value and the fair value of the equipment. In this problem, the carrying value of $250k is greater than the undercounted future cash flows of $240k, so an impairment loss must be recorded. The impairment loss is calculated as follows: Impairment loss= Fair value - Carrying value $215k - 250k = (35k)

How should a nongovernmental not for profit organization report donor-restricted cash contributions for long term purposes in its stmt of cash flows? 1. investing activity inflow 2. as a non cash transaction 3. operating activity inflow 4. financing activity inflow

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

Lizzy Co. traded an old machine to Chang Co. for a similar new machine. The exchange is assumed to lack commercial substance. Lizzy also rec'd 10k in cash. The following information relates to the machines on the date of the exchange: CV FV Old machine 70k 100k New machine 45k 90k What amount of gain should Lizzy record from this exchange under US GAAP? 1. 30k 2. 10k 3. 0 4. 3k

4. 3k The question specifically states that the non monetary exchange lacks commercial substance. Under US GAAP, when there is no boot, no gain is recognized in non monetary exchanges that lack commercial substance. However, in this question, boot/cash is rec'd so a proportional part of the gain is recognized. If we looked into this question more closely, we would find that we could have also determined that the exchange lacked commercial substance, even it that information had not been provided in this question. First, the assets are similar productive assets (i.e., both assets are machines), which is often an indication that the risk, timing, or amount of the expected future cash flows from the assets received will not differ significantly from the risk, timing, or amount of expected future cash flows from the assets transferred, especially if the cash received in the same transaction is insignificant. In this question, the amount of cash that changes hands is insignificant (10% of the fair value of the asset relinquished and 10% of the total fair value of the assets received). Based on these facts, a conclusion that the exchange lacks commercial substance appears to be warranted. To determine the gain to be recognized, a gain of 30k (100k fair value - 70k carrying value) is realized on the exchange. The total consideration rec'd is 100k (90k + 10k). The cash rec'd is 10k, which is less than 25k of the total consideration rec'd. A gain of 3k (1/10th) is recognized. The JE is as follows: Dr: Cash 10k Dr. New machine 63k Cr. Gain on exchange 3k Cr. Old machine (net) 70k Note that the question did not ask for the initial carrying value (cost) of the new machine, but it certainly could have. The initial carrying value of the new machine could also be calculated as the fair value of the new machine less the realized gain not recognized (90k - 27k = 63k). It is not a bad idea to calculated the initial carrying value using both methods as a quick check. On these transactions, it is really easy to get the numbers mixed up

On 12/31, Planet Co acquired 80% of the voting common stock of Star Co by issuing 100k shares of its own common stock (FV $8/share). In the acquisition, Planet paid legal fees in the amount of 15k and paid SEC registration fees of 10k. The book value of Star on 12/31 was 700k. Star's only balance sheet item with a FV different from book value was a bldg. The bldg had a book value of 100k and a FV of 150k. In Planet's 12/31 consolidating work paper elimination entry, "Building" is debited for: 1. 250k 2. 215k 3. 65k 4. 50k

4. 50k Under the acquisition method, all balance sheet accounts must be adjusted to fair value on the acquisition date. Therefore, the book value of the building will be increased by 50k when the financial statements of Planet and Star are consolidated on 12/31

On 12/31/y1, Rice inc authorized Graf to operate as a franchisee for an initial franchise fee of $150k. Of this amount, 60k was req'd upon signing the agreement and the balance, represented by a note, is due in three annual payments of 30k each beginning 12/31/y2. The present value on 12/31/y1, of the three annual payments appropriately discounted is $72k. According to the agreement, the nonrefundable down payment represents a fair measure of the services already performed by Rice; however, substantial future services are required of Rice. Collectibility of the notes is reasonably certain. In Rice's 12/31/y1, balance sheet, unearned franchise fees from Graf's franchise should be reported as: 1. 100k 2. 90k 3. 132k 4. 72k

4. 72k 72k unearned franchise fee liability as of 12/31/y1 Franchise fees Earned Unearned nonrfd down pmt 60k represents a fair measure of the service already performed Present val of 3 annual pmts 72k require substantial future service Full JE would be: Dr. Cash 60k Dr. Note Receivable 90k Cr. Revenue 60k Cr. Discount on note receivable 18k Cr. Unearned franchise revenue 72k

Which of the following is not a disclosure requirement related to risks and uncertainties under US GAAP? 1. A statement that actual results could differ from the estimates included in the financial statements 2. Estimates of the effects of changes in significant estimates 3. Disclosure of the relative importance of each business when an entity operates multiple businesses 4. Disclosure of vulnerability due to all identified concentrations

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

The reconciliation of gov'tal fund financial stmts to a gov't wide presentation would most likely be found in a city's: 1. notes to the financial stmts 2. mangements discussion and analysis 3. req'd supplementary information 4. basic financial statements

4. basic financial statements The reconciliation of gov'tal fund financial stmts to gov't wide presentations would be found on either the face of the financial stmts or in accompanying schedules with expanded disclosure in the notes to the financial stms, both of which are components of the Basic Financial stmts defined by GASB #34

Which of the following is NOT a comprehensive basis of accounting other than generally accepted accounting principles? 1. cash rec'pts and disbursements basis of accounting 2. basis of accounting used by an entity to files its income tax return 3. basis of accounting used by an entity to comply with the financial requirements of a government regulatory agency 4. basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution

4. basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution A basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution is not a comprehensive basis of accounting b/c such a req't, in itself, would not have been substantial support. According to SAS 62, a comprehensive basis of accounting other than GAAP would include: -cash basis and modified cash basis -tax basis -prescribed regulatory basis -other basis with substantial support (e.g. price level basis)

Harland County rec'd a 2m 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 recrord the receipt of cash? 1. private purpose trust fund 2. special revenue fund 3. general fund 4. custodial fund

4. custodial fund The fact pattern describes a transaction in which Harland County is collecting and holding cash temporarily on behalf of the cities within its borders. Transactions of this type are handled in custodial funds. The private purpose fund would account for trust arrangements that are not better met by other fiduciary fund types. Although grants are frequently accounted for in special revenue funds, the use of a special revenue fund anticipates the County would have responsibility for grant compliance. This cash conduit arrangement is best suited for a custodial fund since the money is purely a passthrough arrangement. The general fund accounts for most of the general gov'tal activities of a governmental unit and is the default classification for transactions not otherwise appropriately handled in some other fund.

Under the allowance method of recognizing uncollectible accounts, the entry to write-off an uncollectible account: 1. increases the allowance for uncollectible accounts 2. has no effect on the allowance for uncollectible accounts 3. decreases net income 4. has no effect on net income

4. has no effect on net income The entry to write off an uncollectible account under the allowance method has no effect on net income E.g. journal entry: Dr: Allowance for uncollectible accts Cr. AR

Which of the following items would NOT be found in comprehensive income? 1. income from continuing operations 2. recognition of prior service cost due to pension plan amendment 3. unrealized losses from changes in the value of available for sale securities 4. non monetary exchanges of common stock for productive assets

4. non monetary exchanges of common stock for productive assets Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The exchange of common stock for productive assets represent a transaction with owners specifically excluded from comprehensive income. Income from continuing operations is included in comprehensive income. Generally comprehensive income is the sum of income from operations and other comprehensive income.

On 12/31, Planet co acquired 80% of the voting common stock of Star Co by issuing 100,000 shares of its own common stock (fv $8/share). In the acquisition, Planet paid legal fees in the amount of 15k and paid sec registration fees of 10k. The book value of Star on 12/31 was 700k. Stars only balance sheet item with a fv different from book value was a building. The bldg had a book value of 100k and a fv of 150k. In planet's 12/31 consolidating work paper elimination entry, what part of Star's stockholders' equity is eliminated 1. 80% of star's stockholders' equity is eliminated 2. only star's retained earnings is eliminated 3. only star's common stock and paid in capital are eliminated 4. the entire equity section of star is eliminated

4. the entire equity section of star is eliminated In a consolidation, the entire stockholder's equity section of a subsidiary is eliminated. This applies to wholly owned as well as partially owned subsidiaries.

Vadis Co sells appliances that include a three yr warranty. Service calls under the warranty are performed by an independent mechanic under a contract with Vadis. Based on experience, warranty costs are estimated at $30 for each machine sold. When should Vadis recognize these warranty costs? 1. evenly over the life of the warranty 2. when the service calls are performed 3. When payments are made to the mechanic 4. When the machines are sold

4. when the machines are sold Warranty costs should be recognized when the machines are sold. The concept is that of matching revenues and the related expenses in the period of benefit

Ding Dog Food is a component of Conglomeration, Inc, and has been losing $50k per month. On April 1, Y1, Conglomeration's management committed to a plan for the immediate sale of Dingo and fully expected to find a buyer for the component by March of Y2. The book value of the component's assets is $800k, while the fair market value of the assets is $650k. Conglomeration sold Dingo on 2/28/Y2 for $550k. Conglomeration's loss from discontinued operations before consideration of taxes for the year end 12/31/Y1 would be: a) 600k b) 750k c) 850k d) 950k

750k Conglomeration would compute the loss from discontinued operations based upon the operating losses for the entire Y1, and the loss on disposal as of the end of Y2 as follows: Y1: Loss from operations 50k Months of operation x 12 Annual loss from operations. $600k Book value of assets. 800k FMV of assets. 650k Impairment loss. 150k Total 750k Y2: Loss from operations 50k Months of operation x 2 Annual loss from operations. $100k Book value of assets. 650k FMV of assets. 550k Impairment loss. 0 Loss on disposal. 100k Total 200k

Which event(s) is(are) supportive of interperiod equity as a financial reporting objective of a governmental unit? 1. A balanced budget is adopted 2. Residual equity transfers out equals residual equity transfers in

A balanced budget demonstrates interperiod equity. Interperiod equity is a significant part of accountability on behalf of a governmental entity. It helps users assess whether current year revenues are sufficient to pay for the services provided that year and whether future taxpayers will be required to assume burdens for services previously provided. Residual equity transfers is an obsolete term included as a distracter.

Two companies exchanged similar items with fair values in excess of carrying amounts in an exchange that lacks commercial substance under US GAAP. In addition cash was paid to compensate for the difference in values. As a consequence of the exchange, what should the company recognize (that received the cash)?

A gain determined by the proportion of cash recieved to the total consideration. This transaction is a nonmonetary exchange that lacks commercial substance under US GAAP. As such, the transaction is an exception to the general rule of basing the measurement value of the exchange on fair value. In this question, as in many such question on the exam, cash (boot) is received. Since the cash appears to be a minor part of the total consideration (there is no way to be sure since that information was not provided), a proportional amount of the gain is recognized.

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? a) Capitalized and depreciated over the term of the research and development project b) Expensed in the year in which the research and development project started c) Capitalized and depreciated over its estimated useful life d) Either capitalized or expensed, but NOT both, depending on the term of the research and development project

Capitalized and depreciated over its useful life Equipment used in research and development activities that has alternative future uses is capitalized and depreciated over its useful life

Which of the following is a common modification used to prepare modified cash basis financial statements? -Capitalizing inventory -Recognizing revenues when earned -Matching expenses to related revenues -Recognizing expenses based on the methods and principles used to prepare the tax return

Capitalizing inventory is a common modification made to cash basis financial statements If revenues are recognized when earned, rather than when received, or expenses are matched to related revenues, then the financial statements are accrual basis financial statements. Recognizing expenses based on the methods and principles used to prepare the tax return is done when preparing tax basis financial statements, not modified cash basis financial statements

Which of the following is true regarding the comparison of managerial to financial accounting? a) Mangerial accounting is generally more precise b) Managerial accounting has a past focus and financial accounting has a future focus c) The emphasis on managerial accounting is relevance and the emphasis on financial accounting is timeliness d) Managerial accounting need NOT follow generally accepted accounting principles (GAAP) while financial accounting must follow them

d) Managerial accounting need NOT follow generally accepted accounting principles (GAAP) while financial accounting must follow them Public companies must follow GAAP for (external) financial reporting purposes. GAAP need not be followed for (internal) managerial accounting purposes