Cpa 15
Each of the following is a component of the changes in the net assets available for benefits of a defined benefit pension plan trust, except:
the net change in the actuarial present value of accumulated plan benefits. The statement of changes in net assets must include the following: The change in fair value of each significant type of investment Investment income Contributions from employers Contributions from participants Contributions from other identified sources Benefits paid to participants Payments to insurance entities to purchase contracts Administrative expenses Only the net change in the actuarial present value of accumulated plan benefits is not included in this list.
Fenn Museum, a nongovernmental not-for-profit entity, had the following balances in its expense categories for the statement of activities: Education $300,000 Fundraising 250,000 Management and general 200,000 Research 50,000 What amount should Fenn report as expenses for support services?
$450,000 The costs incurred by the not-for-profit entity in carrying out its primary mission are considered program expenses. As a museum, both education and research can be considered primary to the Fenn Museum's mission. Supporting services expenses are separated into two categories: Management and general Fundraising
On September 22, 20X1, Yumi Corp. purchased merchandise from an unaffiliated foreign company for 10,000 units of the foreign company's local currency. On that date, the spot rate was $.55. Yumi paid the bill in full on March 20, 20X2, when the spot rate was $.65. The spot rate was $.70 on December 31, 20X1. What amount should Yumi report as a foreign currency transaction loss in its income statement for the year ended December 31, 20X1?
A foreign currency transaction loss occurred because it cost more to purchase the units of foreign currency on December 31 ($.70) than it cost when the transaction originated on September 22 ($.55). The amount of loss would be computed as follows: Transaction loss = Number of units x Change in rate= 10,000 x ($.70 - $.55)= 10,000 x $.15= $1,500 $1,500
TGR Enterprises provided the following information from its statement of financial position for the year ended December 31: January 1 December 31 Cash $ 10,000 $ 50,000 Accounts receivable 120,000 100,000 Inventories 200,000 160,000 Prepaid expenses 20,000 10,000 Accounts payable 175,000 120,000 Accrued liabilities 25,000 30,000 TGR's sales and cost of sales for the year were $1,400,000 and $840,000, respectively. What is the accounts receivable turnover, in days?
Accounting receivable turnover = Net credit sales ÷ Average receivables: $1,400,000 ÷ (($120,000 + $100,000) ÷ 2) = 12.727 times in a year Turnover in days = 365 days ÷ Turnover in a year: 365 ÷ 12.727 = 28.7 (rounded)
Darrow Limited operates under a franchise agreement that has limited useful life. On Darrow's balance sheet, the intangible asset "Franchise" has a book value of $123,500. Because of declining economic conditions, Darrow determines that the undiscounted cash flows from the franchise are $107,000. Darrow recently received an offer of $95,000 to sell the franchise for its remaining useful life. Darrow should:
Because the franchise is a limited-life intangible asset, the two-step impairment process should be used. The recoverability test (comparison of book value to undiscounted cash flows) indicates that the book value will not be recoverable (undiscounted cash flows of $107,000 is less than the book value of $123,500) and therefore the second step needs to be carried out. Because the fair value ($95,000) of the franchise is less than the book value ($123,500), the difference between the two values ($123,500 - $95,000 = $28,500) is the amount of the impairment loss. recognize an impairment loss of $28,500.
XL Software Company is developing a new software product. During 20X1, monthly costs of the project were $100,000 per month. A detailed program design was completed on August 31. How much of the development costs would be capitalized?
Computer software costs to be sold, leased, or otherwise marketed are charged to expense as research and development until technological feasibility has been established for the product. Technological feasibility is established on completion of a detailed program design or completion of a working model. Since a technological feasibility was established on August 31, all of the costs up to that date (8 × $100,000) would be expensed as research and development expenses. $400,000 The costs after August 31 (4 × $100,000) would be capitalized.
Not-for-profit entities must disclose the types of donor restrictions. Which of the following is not an example of a type of restriction?
Donor restrictions are no longer listed as either temporary or permanent. Appropriate disclosures for restrictions on donations include support for a particular operating activity, investment for a specified term, use in a specified period, and/or acquisition of long-lived assets.
Financial statements prepared under which of the following methods include adjustments for both specific price changes and general price-level changes?
FASB ASC 255-10-20 describes current cost/constant dollar accounting as "a method of accounting based on measures of current cost or lower recoverable amounts in units of currency, each of which has the same general purchasing power." These statements include adjustments for both specific price changes and general price-level changes. Current cost/constant dollar
A company owns land and a building that houses its manufacturing operations. When the company purchased the manufacturing facility 10 years ago, the purchase price allocated to the land account was $120,000. The manufacturing facility is located in an area that was once the site of many factories. The owners of many of the neighboring factories have recently sold their facilities to residential real estate developers. The company's land is also suitable for residential development. The estimated current value of the land as part of the manufacturing facility is $150,000. The estimated current value of the land as an undeveloped investment is $130,000, and the current value of the land as part of a residential development would be $180,000. What is the fair value of the land?
FASB ASC 820 defines fair value as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." Fair value measurement assumes that the transaction occurs in the principal market for the asset or liability. If there is no principal market for that type of asset or liability, the entity should use the most advantageous market for that asset or liability; therefore, the fair value of the land should be determined using the residential market, which is $180,000.
On June 30, 20X1, after paying the semiannual interest due and recording amortization of bond discount, Hake redeemed its 15-year, 8% $1,000,000 par bonds at 102. Hake has a policy to redeem bonds when it is advantageous to do so. The bonds, which had a carrying amount of $940,000 on January 1, 20X1, had originally been issued to yield 10%. Hake used the effective interest method of amortization and paid interest and recorded amortization on June 30. Compute the amount of gain or loss on the redemption of the bonds.
Hake will record a loss of $73,000 on the redemption of the bonds. Hake suffered a loss of $73,000 on the redemption of the bonds. The journal entry for the extinguishment of the debt would appear as follows: June 30, 20X1 Dr. Cr.Loss 73,000 Bonds Payable 1,000,000 Cash 1,020,000 Bond Discount 53,000 To record the redemption of bonds payable at 102. The semiannual interest payment which was made by Hake for June 30, 20X1, was $40,000 ($1,000,000 × .08 ÷ 2). The interest expense was $47,000 ($940,000 × .10 ÷ 2) using the effective interest rate method. The amortization of bond discount was $7,000 ($47,000 - $40,000). The unamortized bond discount as of June 30, 20X1, was $53,000 given that the unamortized bond discount on January 1, 20X1, was $60,000 ($1,000,000 - $940,000). The carrying amount of the bonds as of January 1, 20X1, ($940,000) was given in the question.
A company has a long-lived asset with a carrying value of $120,000, expected future cash flows of $130,000, present value of expected future cash flows of $100,000, and a market value of $105,000. What amount of impairment loss should be reported?
If the sum of the estimated future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, the entity may have to recognize an impairment loss. The impairment loss, if any, to be recognized is any excess of the asset's carrying amount over its fair value. Notice, however, that no impairment loss is to be recognized unless the asset's estimated future cash flows (ECF) are less than its carrying amount, even if the asset's carrying amount (CA) exceeds its fair value (FV). Since the estimated future cash flows ($130,000) are not less than the carrying value ($120,000), no impairment loss must be recognized. $0
Which of the following qualifies as a reportable operating segment?
North American segment, whose assets are 12% of the company's assets of all segments, and management reports to the chief operating officer FASB ASC 280-10-50-1 defines an operating segment as follows: "A reportable operating segment is a component of an enterprise: "That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise), "Whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and "For which discrete financial information is available." FASB ASC 280-10-50-4 states, "Not every part of an enterprise is necessarily a reportable operating segment or part of an operating segment. For example, a corporate headquarters or certain functional departments may not earn revenues or may earn revenues that are only incidental to the activities of the enterprise and would not be operating segments." Further, FASB ASC 280-10-50-7 requires, "Generally, an operating segment has a segment manager who is directly accountable to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plans for the segment.
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 FASB ASC 230-10-45-1 states: "A statement of cash flows shall report the cash effect during a period of an entity's operations, its investing transactions, and its financing transactions." It is further noted that these are the "same amounts as similarly titled line-items or subtotals shown in the statements of financial position as of those dates." Since Mend's policy is to treat these investments as cash equivalents, the purchase would not be reported in the statement of cash flows.
The expenditure element "salaries and wages" is an example of which type of classification?
Object In governmental accounting, expenditures should be recorded in a multiple classification scheme—typically by (1) fund, (2) function or program, (3) organizational unit (e.g., department), (4) activity, (5) character, and (6) object ("object of expenditure"). Object refers to "the type[s] of items purchased or services obtained" (GASB 1800.137) which expenditures are for—that is, "what" is acquired. Governments pay salaries and wages in order to acquire "personal services."
During the current year ended December 31, Metal, Inc., incurred the following costs: Laboratory research aimed at discovery of new knowledge $ 75,000 Design of tools, jigs, molds, and dies involving new technology 22,000 Quality control during commercial production, including routine testing 35,000 Equipment acquired 2 years ago, having an estimated useful life of 5 years with no salvage value, used in various R/D projects 150,000 Research and development services performed by Stone Co.for Metal, Inc. 23,000 Research and development services performed by Metal, Inc.for Clay Co. 32,000 What amount of research and development expenses should Metal report in its current-year income statement?
Quality control during commercial production, including routine testing, is not included. Depreciation on equipment with alternative uses is included. Contract services for another entity are not included. Laboratory research aimed at discovery of new knowledge $ 75,000 Design of tools, jigs, molds, and dies involving newtechnology 22,000 Depreciation on equipment acquired 2 years ago, having anestimated useful life of 5 years with no salvage value,used in various R/D projects 30,000 Research and development services performed by Stone Co.for Metal, Inc. 23,000 Total $150,000
According to the FASB conceptual framework, which of the following is not an essential characteristic of a revenue?
Revenues can result from peripheral or incidental transactions. SFAC 6, Elements of Financial Statements, defines revenues as "inflows or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations." Because revenues result from the major ongoing or central operations of an entity, inflows from peripheral or incidental transactions are not revenues.
The Securities and Exchange Commission was created under which of the following acts?
The 1934 Securities Exchange Act Both the 1933 Securities Act and the 1934 Securities Exchange Act were designed to restore investor confidence after the 1929 stock market crash. The 1933 act contains accounting and disclosure requirements for the initial offering of stocks or bonds. In addition to requirements for secondary market offerings, the 1934 Securities Exchange Act created the Securities and Exchange Commission (SEC).
Although future-oriented information requires considerable judgment and tends to not be disclosed, the FASB recommends in Statement of Financial Accounting Concepts 8 (SFAC 8) disclosure for the following two future-oriented types of information:
The Securities and Exchange Commission (SEC) provides protection for issuers regarding SEC-required information; however, that protection does not extend beyond SEC filings, potentially resulting in negative impacts (e.g., litigation) for entities providing information based upon predictions, projections, and forecasts about uncertain or unknown future events. Therefore, the FASB does not require entities to disclose predictions of future outcomes that could result in negative consequences. However, two types of forward-looking information are useful and should be provided: (1) estimates and assumptions, and (2) management's existing plans and strategies for management-controlled matters. (1) Estimates and assumptions and (2) management's plans and strategies
In order to remain economically stable, Bradford County believes it needs to maintain the many trails in the county that attract tourists to come and visit. A Trail Preservation Coalition was created by the county and organized as a separate legal entity. The Coalition is governed by a three-person board appointed for 4-year staggered terms by the county commission. The Coalition uses the proceeds of its tax-exempt bonds to finance the maintenance or construction of new trails for the county only. The Coalition owns a building it leases to the county. The bonds are secured by the lease agreement with the county and will be retired through lease payments from the county. Which of the following statements is correct?
The Trail Preservation Coalition is a component unit and will be reported as blended with the county's funds. The Coalition is a component unit of the county. The Coalition's governing body is appointed by the county and the lease constitutes the imposition of a financial burden on the county. A component unit should be included in the reporting entity or primary government's financial statements using the blending method if the component unit's governing body is the same as the primary government; if the component unit provides services entirely or almost entirely to the primary government; or if the component unit's debt is expected to be repaid with resources provided by the primary government even if provided through a lease arrangement. The Coalition will be reported using the blending method because the Coalition provides services entirely to the county and its debt will be repaid with county resources over time. Only one of the three criteria needs to be met for the blending method to be used. In this case, two of the three criteria were met.
Lano Corp.'s forest land was condemned for use as a national park. Compensation for the condemnation exceeded the forest land's carrying amount. Lano purchased similar, but larger, replacement forest land for an amount greater than the condemnation award. As a result of the condemnation and replacement, what is the net effect on the carrying amount of forest land reported in Lano's balance sheet?
The amount is increased by the excess of the replacement forest land's cost over the condemned forest land's carrying amount. The receipt of a condemnation award is considered an involuntary conversion of a nonmonetary asset (the land) for monetary assets (cash). FASB Interpretation 30 requires that Lano Corp., as recipient of such an award, recognize a gain even though it reinvests the award in new land. The new land is then recorded at its acquisition cost. Thus, the net effect on the carrying amount of forest land reported in Lano's balance sheet is that the amount is increased by the excess of the replacement forest land's cost over the condemned forest land's carrying amount.
What is the minimum budgetary information required to be reported in the City of Newbury's budgetary comparison schedules?
The budgetary comparison schedule should present both (a) the original and (b) the final appropriated budgets for the reporting period as well as (c) actual inflows, outflows, and balances, stated on the government's budgetary basis. A separate column to report the variance between the final budget and actual amounts is encouraged, but not required. (GASB 2400.102) Note: SLGs (state and local governments) have the option of reporting the budgetary comparison schedule for the general fund and for each major special revenue fund that has a legally adopted budget as part of the basic financial statements instead of required supplementary information. A schedule showing the original budget, the final appropriations budget, and actual inflows, outflows, and balances on a budgetary basis
On January 2, 20X1, Pare Co. purchased 75% of Kidd Co.'s outstanding common stock. Selected balance sheet data on December 31, 20X1, is as follows: PARE KIDDTotal assets $420,000 $180,000 ======== ======== Liabilities $120,000 $ 60,000 Common stock 100,000 50,000 Retained earnings 200,000 70,000 ======== ======== $420,000 $180,00 During 20X1, Pare and Kidd paid cash dividends of $25,000 and $5,000, respectively, to their shareholders. There were no other intercompany transactions. The combination is accounted for as an acquisition. In Pare's December 31, 20X1, consolidated balance sheet, what amount should be reported as noncontrolling (minority) interest in net assets?
The noncontrolling (minority) interest is the interest of third parties in the acquired company (Kidd). Noncontrolling interest = Noncontrolling holding x Net assets of Kidd= (1.00 - 0.75) x ($50,000 + $70,000)= 0.25 x $120,000= $30,000 Net assets can be computed in either of two ways: (1) book values of stockholders' equity or (2) book value of assets less book value of liabilities. Here, the book values of stockholders' equity are $50,000 for common stock and $70,000 for retained earnings.
On December 31 of the previous and current year, Taft Corporation had 100,000 shares of common stock and 50,000 shares of noncumulative and nonconvertible preferred stock issued and outstanding. Additional information for the current year follows: Stockholders' equity at 12/31 $4,500,000 Net income year ended 12/31 1,200,000 Dividend on preferred stock year ended 12/31 300,000 Market price per share of common stock on 12/31 72 The price-earnings ratio on common stock at December 31 was:
The price-earnings ratio is P/E = Stock price ÷ EPS (earnings per share). The net earnings per common share is $9: ($1,200,000 - $300,000) ÷ 100,000 = $9 Price-earnings ratio: $72 ÷ $9 = $8
Which two conditions must be met for a contract modification to be accounted for as a new lease?
The right to use a new asset is obtained and the lease is priced at standalone market price. Both a lessee and a lessor should account for a lease modification as a new lease, separate from the original lease, when the lease grants the lessee an additional right of use not included in the original lease, and the additional right of use is priced commensurate with its standalone price (in the context of that particular contract).
A company reported the following financial information: Taxable income for current year $120,000 Deferred income tax liability, beginning of year 50,000 Deferred income tax liability, end of year 55,000 Deferred income tax asset, beginning of year 10,000 Deferred income tax asset, end of year 16,000 Current and future years' tax rate 35% The current year's income tax expense is what amount?
The term "liability method" employed by the FASB calculates the balance sheet elements (i.e., deferred tax liabilities and deferred tax assets) first and, from those figures, the amount of income tax expense is derived. Each year the adjustment required to bring deferred taxes to the desired balance is made, income tax payable or receivable is computed, and the amount of income tax expense or benefit is forced to balance the entry. All deferred tax liabilities and deferred tax assets are classified on the balance sheet as noncurrent. Deferred Tax Asset ($16,000 - $10,000) 6,000 Income Tax Expense (plug) 41,000 Deferred Tax Liability ($55,000 - $50,000) 5,000 Income Tax Payable ($120,000 × 35%) $41,000
How should unconditional promises to give received by a nongovernmental not-for-profit entity that will be collected over more than one year be reported?
Unconditional contributions receivable expected to be collected over more than one year should be valued using present discounted value techniques and appropriate assumptions. The contributions receivable are valued at present values, not future values. The contributions should be recognized as revenue in the period they are made and not deferred. Contributions receivable, valued at their present values
Zest Co. owns 100% of Cinn, Inc. On January 2, 20X1, Zest sold equipment with an original cost of $80,000 and a carrying amount of $48,000 to Cinn for $72,000. Zest had been depreciating the equipment over a 5-year period using straight-line depreciation with no residual value. Cinn is using straight-line depreciation over three years with no residual value. In Zest's December 31, 20X1, consolidating worksheet, by what amount should depreciation expense be decreased?
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 Cinn is located in the cost of the equipment on Cinn's books. Depreciation expense on a consolidated basis should be the depreciation that would have been expensed on Zest's books if the equipment had not been sold. Depreciation on Cinn's books (unrealized gain) (72,000 / 3) $24,000 Depreciation on Zest's books (original cost) (80,000 / 5) 16,000 Difference 8000
Regarding the existence of a significant financing component in the contract:
an entity should use the discount rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception. If a contract does include a significant financing component, an entity should use the discount rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception. That rate would reflect the credit characteristics of the party receiving financing in the contract, as well as any collateral or security provided by the customer or the entity, including assets transferred in the contract. After contract inception, an entity should not update the discount rate for changes in interest rates or other circumstances (such as a change in the assessment of the customer's credit risk). In determining the transaction price, an entity should adjust the promised amount of consideration for the effects of the time value of money if the timing of payments provides the customer or the entity with a significant benefit of financing. If the customer paid for the goods or services in advance, and the timing of the transfer of those goods or services is at the discretion of the customer, then there is not a significant financing component.
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:
reported as a reduction in income. 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.
