FAR flashcards chs 1-3 (some of them) + some Ch 6 Updates
Forms 20-F and 40-F
-If accounting standards other than US GAAP or IFRS are followed, make reconciliations. -must be filed annually by foreign private issuers. -Form 40-F = filed by Canadian companies registered with SEC. -Form 20-F = filed by other non-US registrants. -similar to 10-k. -include financial disclosures; summary of financial data, MD+A, audited FSs. -can be prepared using comprehensive accounting standards.
monetary unit assumption
-fundamental assumption (SFAC No. 5) -assumption that money is an appropriate basis by which to measure economic activity -assumption that monetary unit doesn't change over time; thus, the effects of inflation aren't reflected in the FSs
entity assumption
-fundamental assumption (SFAC No. 5) -economic activity can be accounted for when considering an identifiable set of activities (i.e., separate corporation/division)
full disclosure principle
-fundamental principle (SFAC No. 5) -it is important that the user be given information that would make a difference in the decision process, but not an overwhelming amount that would impede choosing what's important.
accrual accounting
-fundamental principle (SFAC No. 5) -revenues are recognized when the performance obligation is satisfied and expenses are recognized in the same period as the related revenue, not always in the period when cash is received/expended. -includes revenue and expense recognition principles.
measurement principle
-fundamental principle (SFAC No. 5) -uses mixed attribute system allowing assets and liabilities to be measured at various bases, including historical cost, FV, NRV, PV of future cash flows. -financial info is usually based on cost, not current market value.
bill-and-hold arrangements
-generally, control is transferred when the product is shipped/delivered to the customer. -contracts in which the entity bills a customer for a product that it hasn't yet delivered to the customer. -revenue cannot be recognized til the customer gains control of the product...all must be met: 1. must be a substantive reason for the arrangement 2. product has been separately identified as belonging to the customer 3. product is currently ready for transfer to the customer 4. entity cannot use the product/direct it to another customer
1. direct 2. indirect
-(1) effects of a change in accounting principle are adjustments necessary to restate the FSs of prior periods. -(2) effects of a change in accounting principle = differences in non-discretionary items based on earnings that would've occurred if the new principle had been used in prior periods.
uncertain
-An __________ tax position is defined as some level of uncertainty of the sustainability of a particular tax position taken by a company. -U.S. GAAP requires a more-likely-than-not level of confidence before reflecting a tax benefit in an entity's financial statements.
refund liability
-An entity should recognize this if it receives/will receive consideration from a customer and anticipates having to refund a portion or all of that consideration. -Represents the amount that an entity doesn't expect to be entitled to receive.
True
T/F: The requirements to present comprehensive income do not apply to not-for-profit entities or to any company that s=doesn't have any item of OCI; comprehensive income shouldn't be reported on a per-share basis.
T
T/F: The tax deduction for business interest expense is limited to the sum of business interest income plus 30 percent of the adjusted taxable income.
True
T/F: US GAAP and IFRS both emphasize management's responsibility to evaluate going concern ability, and to provide relevant disclosure when necessary.
yes
are deferred tax liabilities related to temporary differences bw taxable and FS income?
current asset/liability
at interim balance sheet dates, the excess of either the construction in progress account or the progress billings account over the other is classified as...
True
T/F: Revenues should be recognized in the period in which they were earned and realized or realizable. Expenses recognized when entity's economic benefits are used up in delivering or producing goods, services, or other operations that are major/central.
T
T/F: Tax credit carryforwards should be "valued" at the amount of tax payable to be offset in the future.
True
T/F: The amount of income tax expense/benefit allocated to each component of OCI is disclosed either on the face of the statement in which those components are displayed, or in the notes to the FS.
T
T/F: The completed contract method is NOT allowed under IFRS.
T
T/F: The minimum operating cycle for a prepaid asset (like prepaid insurance) is 12 months, or 1 year.
T
T/F: The possible treatments for IRC taxable income of Research and development is to expense/capitalize/amortize
inventory turnover (activity)
COGS / average inventory
comprehensive income
NI + OCI includes any change in equity other than investments by owners and distributions to owners
restated
Financial statements of all prior periods presented should be this when there's a "change in entity" resulting from... 1. changing companies in consolidated FS 2. consolidated FS vs. previous individual FS.
-resource providers (lenders, suppliers, contributors, taxpayers) -constituents benefiting from the non-business org. -governing and oversight bodies -managers who must adhere to laws laid out by those bodies
Name four groups that are interested in the financial information reported by non-business organizations.
Dr Residual Asset (PV of FV @ given rate), Lease Receivable (filler); Cr Asset, Cash (given initial direct costs)
Give the JEs for the lessor's direct financing lease at lease inception.
Dr Cash; Cr Rental Income; Dr Depreciation Expense; Cr Accumulated Depreciation (The lessor will keep the asset on its balance sheet, which will include depreciating it and recognizing any impairment charges if applicable. -Lease income will be recognized on a straight-line basis, and initial direct costs will be deferred and amortized over the lease term.)
Give the JEs of an operating lease from the perspective of a lessor (2)
Dr Income tax expense-deferred (tax deduction on warranty costs); Cr Deferred Tax Asset (same as Dr amount)
Give the Journal entry to record reversal of a portion of the deferred tax asset for warranty costs paid and deducted in Year 2
Beginning inventory + purchases = goods available for sale - ending inventory = COGS
Give the equation for COGS
Total contract sales price - total cost of contract (actual costs incurred) = bingo (GP) under completed-contract method
Give the equation for GP under the completed contract method.
asset retirement obligation x accretion rate
Give the equation for accretion expense
Cost of goods sold - Decrease in inventory during period - Increase in accounts payable during period
Give the equation for cash payments for purchases.
sales - cost of goods sold
Give the equation for gross profit.
Book value of assets - fair market value of assets
Give the equation for impairment loss from a sale of equipment.
beginning noncontrolling interest + 20% of Squire's Net income - 20% of Squire's Dividends = ending noncontrolling interest
Give the equation for noncontrolling interest of a subsidiary.
-per partner: Old capital +interest -loss allocation (pre-interest profit - interest) =new capital -old capital =net change
Give the equation for profit and loss distribution of a partnership
Form 10-k Form 10-Q Form 11-K Forms 20-F and 40-F Form 6-k Form 8-k Forms 3, 4, 5
examples of SEC securities offering registration statements.
1. calculate estimated profit 2. % complete 3. calculate GP earned to date
State how to calculate estimated earnings under the % of completion method.
T
T/F: All not-for-profit organizations are required to produce a Statement of Financial Position, a Statement of Activities and a Statement of Cash Flows. Not-for-profit organizations do not produce a Statement of Functional Expenses.
True
T/F: All partnership losses must be charged to the partners' capital accounts in their income and loss ratios before any distribution is made.
T
T/F: An implicit rate in a lease is the rate multiplied by the annuity (annual payment) that gives you the INTEREST PORTION of this annuity. To find the PV of the total liability after the annuity is paid, you must subtract this interest portion from the annuity.
True
T/F: An operating segment deemed reportable right before but not reportable now can still be reported separately if mgmt judges the segment to have continuing significance. If a segment is now reportable wasn't earlier, segment data from the earlier periods should be restated to reflect the newly reportable segment as separate.
T
T/F: An underfunded pension plan is only reported as a current liability to the extent that benefits payable in the next 12 months exceed the fair value of the pension plan assets.
True
T/F: Any partnership partner may pay a capital deficiency in cash directly to the partnership; a partnership isn't completely liquidated or affairs wound up until all claims, including those of partners, are settled.
T
T/F: Changes in accounting *principle* are reported *net of tax*
True
T/F: Components of other comprehensive income can be reported either (i) net of tax, (ii) before related tax effects, with one amount shown for aggregate income ta expense/benefit related to the total of OCI items.
T
T/F: Comprehensive income includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners.
T
T/F: Comprehensive income includes all items included in "net income" plus "other comprehensive income" items.
T
T/F: The reconciliation of governmental fund financial statements to government-wide presentations would be found on either the face of the financial statements or in accompanying schedules with expanded disclosure in the notes to the financial statements, both of which are components of the Basic Financial Statements defined by GASB #34.
T
T/F: Management is required to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern for each annual and interim reporting period.
True
T/F: Net income includes income tax expense.
T
T/F: Operating losses are recognized in full in the period incurred.
True
T/F: Partnership accounts may be different from their respective profit and loss ratios. The reason for this is that distributions/withdrawals will be at different times and for different reasons.
True
T/F: Revenue recognition is not expected from contracts for leases, insurance, non-warranty guarantees, financial instruments.
Governmental fund balance + Capital assets (noncurrent) - accumulated depreciation - noncurrent liabilities + revenue + accrual of sales tax revenue (sales tax * % of tax revenue) + internal service fund net position
the *GCANS* mnemonic is used to calculate the *government-wide net position*. Give the equation for this.
beginning retained earnings - beginning retained earnings with application (retrospectively) of new accounting principle
the amount of cumulative effect to be reported on the retained earnings statement is the difference between...
1. less than 2. more than
the entity's accounting for a forward or call option is based on whether it must (forward) or can (call) repurchase the asset for either (1) the original selling price (it'll be a lease), or (2) the original price (it'll be a financing arrangement).
principle
the general rule is that changes in accounting should be recognized by adjusting beginning retained earnings in the earliest period presented for the cumulative effect of the change, and, if prior period (comparative) FSs are presented, they should be restated (retrospective application)
right of offset
the legal right of a bank to seize deposited funds to cover a loan that is in default.
lowest
the level in the fair value hierarchy of a fair value measurement is determined by the level of the (lowest or highest?) level of significant input.
relevance and faithful representation
what are the 2 fundamental qualitative characteristics of useful financial info?
1. a realization gain 2. a realization loss 3. a realization loss resulting in a capital deficiency
what are the three possible results of a liquidation of a partnership?
implicit interest rate * annual PMT
what is the equation for the total liability (PV) in an operating lease?
-entity assumption -going concern assumption -monetary unit assumption -periodicity assumption -measurement principle -accrual accounting: revenue recognition principle/expense recognition principle
list the fundamental assumptions and principles (SFAC No. 5)
variance power
the power to redirect the use of transferred assets to a different beneficiary. The donor of an asset grants variance power to the recipient by making a variance power statement in the documentation authorizing the asset donation.
entrance price
the price to acquire an asset/assume a liability.
exit price
the price to sell an asset/transfer a liability. fair value is measured at this price.
= book value = shareholders' equity
total assets - total liabilities
debt-to-assets ratio
total liabilities / total assets
debt/equity (long-term debt-paying ability)
total liabilities / total common stockholders' equity
weighted average
under the translation method, all income statement items are translated at the ___________________ exchange rate for the period.
liability
unearned revenue is this kind of account
income statement
unrealized gains and losses on trading securities go directly on which FS?
freight out, salaries expense, insurance expense, advertising expense, commissions expense, bad debt expense, depreciation expense.
selling, general, and admin expenses include what? (on income statement)
1. IFRS 2. GAAP
(1) requires the disclosure of segment liabilities if such a measure is regularly provided to the chief operating decision maker. (2) doesn't require the disclosure of segment liabilities.
going concern
-a fundamental assumption (SFAC No. 5) -for financial accounting, it is presumed (subject to rebuttal by evidence to the contrary) that the entity will continue to operate in the foreseeable future.
material
-information is this if an omission or misstatement of the information could affect the decisions made by users based on financial information. -part of relevance quality of FR.
income approach
-valuation approach to measure fair value of an asset/liability. -converts future amounts, including *CFs or earnings*, to a single discounted amount (can be applied to assets or liabilities).
75% "reporting sufficiency" test
-If *total external (consolidated) revenue reported by operating segments constitute less than 75% of external (consolidated) revenue*, additional operating segments must be identified as reportable segments, even if they don't meet the 10% "size" test, until *at least 75% of external revenue is included in reportable segments*. Practical limit is IO segments. -in other words, is a "catch all" requirement that may require identification of additional segments to attain the 75% level. -This test requires that reportable segments total at least 75% of revenue from external parties.
nonrecognized.
-This subsequent event should be disclosed if disclosure is necessary to keep the FSs fro mbeing misleading. -Disclosure should include the nature of the subsequent event and an estimate of the financial effect of the event or a statement that no estimate can be made. -pro forma FSs showing the effect of the subsequent event (if occurring on BS date) also can be presented.
-market approach -income approach -cost approach -or a combination of the above
-according to both FAAP and IFRS, entities can use which approaches to measure the fair value of an asset/liability? -the valuation technique should be appropriate to the circumstances and should maximize the use of observable inputs and minimize the use of unobservable inputs.
Form 6-K
-filed semiannually by foreign private issuers. -similar to the Form 10-Q -contains unaudited financial statements, interim period MD+A, and certain disclosures.
management approach method.
-how management uses info. -influences the definition of a segment. -i.e., reporting results by product lines or geographic lines.
faithful representation
-one fundamental qualitative characteristic of useful financial reporting. -to be this, financial information must faithfully represent the reported economic phenomena -requires the financial information to be complete, neutral, free from error. -perfecting this is hard to achieve, but it still should be maximized. -its characteristics include completeness, neutrality, freedom from error.
cost approach
-one valuation method to measure fair value for an asset/liability. -uses current replacement cost to measure FV of assets.
non-financial assets
-the fair value measurement of (1) takes into account the market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use it in its highest and best use. -current use of the (2) is presumed to be its highest and best use unless market/other factors suggest otherwise. -"highest and best use" may be stand-alone or combined use.
yes, and segment info presented must be reconciled to the related aggregate amounts in the FSs.
Do segment FSs use the same accounting principles as the main FSs?
Revenues less directly traceable costs less reasonably allocated costs equals operating profit (or loss)
Give the equation for segment profit/loss?
True
T/F: under US GAAP, an entity shouldn't recognize subsequent events that provide info about conditions that didn't exist @ BS date
adjustment to beginning RE.
cumulative effect of a change in accounting principle is shown as this.
Losses
decreases in equity from peripheral transactions and other events, except expenses and distributions to owners
distributions to owners
decreases in the equity of an entity from transfers of cash, property, services, or the incurrence of a liability to owners
market-based measure
fair value is this kind of measure
equity (net assets)
residual interest in the assets of the company that remains after deducting its liabilities
single-step income statement
revenues in this kind of income statement include: -sales revenue -service revenue -interest revenue -rental revenue -gain on sale of fixed assets (equipment) -other revenue -net sales revenue
net revenues
this equals gross revenues - sales returns + allowances - discounts
1. estimate 2. prospectively
a change in valuation technique or its application is accounted for as a change in accounting (1), which is accounted for (2)
Form 11-k
annual report of a company's employee benefit plan(s)
predictive value
information has this if it can be used by users to predict future outcomes. part of relevance quality of FR.
No.
is an entity required to report segment cash flow?
liabilities
probable future sacrifices of economic benefits arising from a present obligation of the company to transfer assets/provide services to other entities in the future as a result of past transactions/events
Form 10Q
-must be filed quarterly by US registered companies (issuers). -deadline is 40 days after the end of the fiscal quarter for large accelerated filers and accelerated filers, and 45 days after the end of the fiscal quarter for all other registrants. -contains unaudited FSs prepared using US GAAP, interim period MD+A, and certain disclosures.
issued
FSs are considered to be this when they have been widely-distributed to FS users in a form/format complying with GAAP.
True
T/F: the highest and best-use concept isn't relevant when measuring the FV of financial assets or the fair value of liabilities because such items don't have alternative uses and their FVs don't depend on their use within a group of other assets/liabilities.
expenses
outflows or uses of assets or incurrences of liabilities from delivering goods/services as part of normal operations
-qualitative information about significant unobservable inputs. -discussion of the sensitivity of level 3 measurements to changes in which observable inputs disclosed. -description of the entity's valuation process. -hierarchy for items not measured on BS but disclosed in notes. -transfers between levels 1 and 2 of the FV hierarchy. -information about nonfinancial assets and liabilities for which measurements differ from highest and best use.
what types of disclosures must an entity provide for FV measurements?
level 3 inputs
-involve fair market valuation, "hierarchy-of-inputs" -unobservable inputs for the asset/liability. -reflect the reporting entity's assumptions and should be based on the best available information. -should be used only when therea re no observable (level 1 or 2) inputs or when undue cost-to-effort is required to obtain observable inputs.
level 1 inputs
-most reliable FV measures and should be used when available. -highest priority in fair value's "hierarchy of inputs." -quoted prices in active markets for identical assets/liabilities that the reporting entity has access to on the measurement date. -quoted prices can be obtained from exchange markets like the NYSE, dealer markets, brokered markets, principal-to-principal markets.
Form 10-k
-must be filed annually by U.S. registered companies (issuers). -filing deadline: 60 days after end of fiscal year for large accelerated filers, 75 days for accelerated filers, 90 days for all other registrants. contains financial disclosures, including summary of financial data, managemtn's discussion and analysis (MD+A), and audited FSs prepared with GAAP.
relevance
-one of the two fundamental qualitative characteristics of useful financial information. -financial information is this if it is capable of making a difference in the decisions made by users -to be this, financial information must have predictive value and/or confirming value and must be material
10% "size" test
-one threshold for determining reportable segments. -revenue: 10%+ of the combined revenue of all operating segments. -reported profit/loss: 10%+ of the greater, in absolute amount, of: (1) combined reported profit of all non-loss reporting op. segment; (2) combined reported loss of all loss-reporting segments. -assets: identifiable assets are 10%+ of combined assets of all operating segments.
market approach
-one valuation technique for measuring FV. -uses prices and other relevant information from market transactions involving identical/comparable assets or liabilities to measure fair value.
hierarchy of inputs: 1. 1 2. maximized 3. minimized
-pertains to fair value. -second part of valuating an asset/liability. -priorities inputs that can be used in the valuation techniques. -level (1) inputs have the highest priority and level 3 inputs have the lowest. -hierarchy determined by significance to the fair value measurement. -observable inputs (levels 1 and 2) should be (2). -unobserable inputs (level 3) should be (3).
orderly transaction
-relates to FV measurements -a transaction in which the asset/liability is exposed to the market, for a period before the measurement date, long enough to allow for marketing activities that are usual/customary for transactions involving such assets or liabilities. -cannot be forced.
fair value
-this is measured for a single or group of assets/liabilities, or an entity's own equity instrument(i.e., equity interest as a consideration); doesn't include transaction (but may be transportation costs). -a market-based measure (not equity-based). -price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal (or most advantageous) market at the measurement date under current market conditions. -an exit (selling/transfer) price, not an entrance price. -should include all market assumptions, including risk. -assumes higher and best use if applied to a non-financial asset. -should include non-performance (nonfulfillment) risk. -should be measured by someone else in the market owning a similar asset. -assumes ownership transfer and maintenance at measurement date.
available-to-be-issued
FSs are this when they are in a form and format complying with GAAP and all approvals for issuance have been obtained.
-general corporate revenues -general corporate expenses -interest expense (except for financial institutions) -income taxes -equity in earnings and losses of an unconsolidated subsidiary (i.e., under equity method). -g/ls from discontinued operations. -minority interest.
Name some items normally excluded from segment profit/loss
True
T/F: Under GAAP and IFRS, an entity shall disclose information that helps FS users assess both: 1. for fair value assets and liabilities measured at fair value, the valuation techniques and inputs used to develop those measurements. 2. for FV measurements using level 3 (unobservable) inputs, the effect of the measurements on earnings (or changes in net assets) or OCI for the period.
True
T/F: When a company uses % of completion method of accounting for a five-year construction contract, income previously recognized would be used to calculate the income recognized in the second year (but not progress billings to date)
-it isn't practicable to measure fair value. -fair value can't be reasonably determined. -fair value can't be measure with sufficient reliability.
list some exceptions to fair value measurement.
-relevance (predictive value, confirmatory value, materiality) -faithful representation (complete, neutral, free from error)
list the 2 main and 6 specific fundamental qualitative characteristics of FR.
-share-based compensation. -measurements based on/using vendor-specific objective evidence of FV -FV measurements used for lease classification/measurement
list three areas where US GAAP and IFRS haven't really outlined required fair value disclosures.
revenue recognition principle
part of accrual accounting revenues generally recognized when an entity satisfies a performance obligation by transferring either a good or service to a customer
assets
probable future economic benefits to be received by the company as a result of past transactions/events valuation accounts may be used to show reductions to or increases in an asset that reflect adjustments beyond historical cost or carrying amount of the asset
exposure draft
proposed FASB amendments to the ASC are issued for public comment in the form of what? A majority vote of the Board members is required to approve an exposure draft for issuance.
Yes
Are the following included in taxable income (i.e., not deductible)?: -a tax-free investment -contributions (limited to 10% of adjusted taxable income)
vesting
Compensation *expense* is calculated at the grant date of the option and allocated over the ________________ period
T
T/F: Accretion expense is recorded as the asset retirement obligation increases over time
No
Are the following items included in taxable income: -state and municipal bond interest -life insurance proceeds (generally) -gain/loss on treasury stock
1. substantial doubt 2. mitigating factors
(1) exists when relevant conditions and events, when considered in the aggregate, indicate that it's probable ("likely to occur") that the entity won't be able to meet its obligations as they become due within one year from FS issuance date (in contrast to BS date) Mitigated by (2)
1. management. 2. 1 year.
(1) is required, under US GAAP, to evaluate whether there's substantial doubt about an entity's ability to continue as a (2) within one year after the date that the FSs are issued (FS issuance date as opposed to BS date). -eval should occur every reporting period, should be based on relevant conditions and events reasonably knowable at FS issuance date, should consider qualitative and quantitative factors like financial condition, liquidity sources, obligations due in next year, funds necessary for operations continuation, negative financial trends, and difficulties (external and internal).
1. IFRS 2. US GAAP
(1) requires an explicit statement of compliance with IFRS in the notes to the FSs. An entity dcan't describe FSs as complying with IFRSs unless they comply with all IFRS requirements. (2) doesn't have a similar requirement.
1. US GAAP 2. US GAAP 3. IFRS 4. US GAAP 5. IFRS
(1) requires liquidation basis of acting (2) requires certain disclosures when there's substantial doubt about going concern even in the presence of management's plan (3) requires disclosures when management is aware of material uncertainties giving rise to doubt over going concern (4) requires management to address going concern within one year from FS issuance date. (5) requires from one year after BS date
inventory turnover in days (activity)
(average inventory)/(COGS/365)
acid-test ratio (liquidity)
(cash + cash equivalents + marketable securities + AR (net receivables)) / current liabilities
cash ratio (liquidity)
(cash + cash equivalents + marketable securities) / current liabilities
return on common equity (profitability)
(net income - preferred dividends) / average common equity
T
T/F: Level I measurements are quoted prices in active markets for identical assets or liabilities only.
revenue bond
-A __________ is a municipal bond (a security issued by or on behalf of a local authority) supported by the revenue from a specific project, such as a toll bridge, highway or local stadium. -Typically, these can be issued by any government agency or fund that is managed in the manner of a business, such as entities having both operating revenues and expenses. -differ from general obligation bonds (GO bonds) that can be repaid through a variety of tax sources: While this bond is backed by a specific revenue stream, holders of GO bonds are relying on the full faith and credit of the issuing municipality. -Typically, since holders of these bonds can only rely on the specific project's income, it has a higher risk than GO bonds and pays a higher rate of interest.
tax position
-A ___________ is a filing position that an enterprise has taken or expects to take on its tax return, including: 1. A tax deduction (the most common type of tax position). 2. A decision to not file a tax return. 3. An allocation or shift of income between jurisdictions. 4. The characterization of income, or a decision to exclude reporting taxable income, in a tax return. 5. A decision to classify a transaction, entity, or other position in a tax return as tax exempt. -Tax Benefit Recognition under US GAAP: *Step 1*: The evaluation is based on the expected outcome in the court of last resort. *Step 2*: The evaluation is based on the expected outcome in a settlement with the taxing authority. (This amount represents the largest benefit that has a greater than 50 percent likelihood of being realized.) -> *LOOK AT CUMULATIVE PROBABILITY - IS IT OVER 50%?*
lessee
-A ____________ will have to disclose several qualitative pieces of information about the lease, including: 1.information about the nature of the leases, including any restrictions or covenants; 2. options to extend or terminate (existence, terms, conditions); 3. residual value guarantees (existence, terms, conditions); 4. information on leases that have not commenced but create significant obligations and/or rights for the lessee; 5. significant assumptions and judgments made in application (including determination of whether a contract contains a lease, allocation of consideration between lease and nonlease components, discount rate determination, etc.); 6. sale-leaseback terms and conditions; and 7. the entity's accounting policy related to short-term leases and practical expedients used to combine lease and nonlease components.
lessee
-A ____________ will have to disclose several quantitative pieces of information about the lease, including: 1. finance lease costs (separated between the amortization of ROU assets and interest on lease liabilities); 2. operating lease costs; 3. short-term lease costs; 4. the weighted average remaining lease term and discount rate; and 5. separate maturity analyses for operating and finance lease liabilities for five years.
permanent
-A _____________ difference is a transaction that affects only income per books or taxable income, *but not both*. -Income tax expense for a period is calculated only on taxable items. -For example, tax-exempt interest (municipal and state bonds) is included in financial income, but is excluded in computing income tax expense. -In effect, this type of difference creates a discrepancy between taxable income and financial accounting income that will never reverse. -Because they do not reverse themselves, no interperiod tax allocation is necessary for these differences. -The income tax provision for financial accounting purposes is computed on the basis of pretax book income adjusted for all permanent differences. -are either (a) nontaxable, (b) nondeductible, or (c) special tax allowances. -Examples are: a. Tax-exempt interest (municipal, state) b. Life insurance proceeds on officer's key man policy c. Life insurance premiums when corporation is beneficiary d. Certain penalties, fines, bribes, kickbacks, etc. e. Nondeductible portion of meal and entertainment expense f. Dividends-received deduction for corporations g. Excess percentage depletion over cost depletion ^(The tax deduction for business interest expense is limited to the sum of business interest income plus 30 percent of the adjusted taxable income.)
lessor
-A _______________ will have to disclose several qualitative pieces of information of a lease, including: 1. a description of the lease; 2. the existence and terms/conditions of options to extend or terminate the lease; 3. options for the lessee to purchase the leased asset; 4. significant assumptions and judgments (including whether a contract contains a lease and the allocation of consideration between lease and nonlease components; 5. related party leases (if applicable); and accounting policies on lessor accounting.
lessee
-A _______________ will have to disclose several quantitative pieces of information of a lease, including: 1. profit or loss recognized at commencement date; 2. interest income; 3. income related to operating lease payments received; 4. income from variable lease payments not included in the measurement of the lease receivable; 5. components of the net investment in sales-type and direct financing leases (includes lease receivable, unguaranteed residual asset, any deferred selling profit on direct financing leases, minimum lease payments, unguaranteed residual value, initial direct costs, and unearned income); information on assets that are subject to operating leases (including associated depreciation and impairment); 6. separate maturity analysis of lease receivables, showing the undiscounted cash flows to be received on an annual basis for a minimum of each of the first five years and a total of the amounts for the remaining years.
accounting principle
-A change in this is a change in accounting from 1 accounting principle to another acceptable accounting principle (GAAP to GAAP). -only if required by GAAP (i.e., newly issued codification update or if the alternative principle is preferable and more fairly presents the info. -accounted for prospectively; don't affect previous periods. -dn't have to be disclosed unless material. -if affecting future periods, disclose in notes to FSs. *don't apply to nonrecurring or pas transactions; include direct and indirect effects.
liability
-A deferred tax ___________ = more future income tax, = more future income to tax. -Future tax accounting income > future financial accounting income
asset
-A deferred tax ____________ = less future income tax, = less future income to tax -Future tax accounting income < future financial accounting income
No
-A partner, with the consent of all partners, may sell his interest to a new partner. PMT would go to the selling partner, and no change is made on the books except for the change of name on the capital account. -Do transactions of this type affect the assets, liabilities, or total capital of the partnership?
enactment
-Changes in tax laws or rates are recognized in the period of ______________ (change). -The amount of the adjustment is measured by the change in applicable laws/rates applied to the remaining cumulative temporary differences. -The adjustment enters into income tax expense for that period as a component of income from continuing operations.
assets
-Deferred tax _______________ arise when the amount of taxes paid in the current period exceeds the amount of income tax expense in the current period. -They are anticipated future benefits derived from situations in which future taxable income will be less than future financial accounting income due to temporary differences. -valuation allowance is realized if it's more than 50% probable (more likely than not) that part or all of the deferred tax (this) won't be realized
operating, investing
-For ______________ leases, lease payments (which include all variable lease payments) are classified as cash flow from operations. -Payments for short-term leases are also included in cash flow from operations. -Any payments needed to bring the asset to a condition and location in preparation for its intended use are considered ________________ activities.
finance
-For ______________ leases, the income statement will include the amortization of the ROU asset and the portion of the lease expense related to interest on the lease liability.
income from continuing operations
-For operating leases, lease expense will be included in ________________ on the lessee's income statement.
operating
-From the perspective of the lessor, any lease that does not qualify as a sales-type or direct financing lease will be an _______________ lease. -The lessor will keep the asset on its balance sheet, which will include depreciating it and recognizing any impairment charges if applicable. -Lease income will be recognized on a straight-line basis, and initial direct costs will be deferred and amortized over the lease term.
going concern (both alleviated and unalleviated going concern situations require this basis of accounting)
-If there is unalleviated substantial doubt over going concern ability, the FSs are prepared under this basis of accounting. -footnotes must state this substantial doubt within one year of the FS issuance date, and also: -primary conditions/events raising doubt -management's evaluation of significance of these related to entity's ability to continue as a going concern -management's plans to mitigate these conditions/effects
comparative financial statements
-If these FSs are presented, then the cumulative effect is equal to the difference between beginning RE in the first period presented, and what retained earnings would have been if the new principle had been applied to all prior periods. -cumulative effect of a change in accounting principle is presented net of tax as an adjustment to beginning retained earnings in the statement of shareholders' equity.
direct financing, discount rate
-In a _______________ lease (recognized by the lessor), any initial direct costs incurred as part of the lease will be deferred and amortized over the lease term. -Interest income will be recognized using the interest method over the lease term. -Each period, the lessor will recognize interest income equal to the _____________ applied to both the lease receivable and the residual asset -the lease payment received will reduce the lease receivable.
direct financing
-In a __________________ lease (recognized by the lessor,, the lessee does not gain control of the underlying asset. -As with a sales-type lease, the lessor will *derecognize the asset (on its FSs) and recognize a net investment in the lease*. -unlike with a sales-type lease, any gain will be deferred and amortized over the life of the lease, and any loss will be recognized *immediately* (conservation principle).
commencement
-In a sales-type lease (recognized by the lessor), for any initial direct costs incurred as part of the lease, if there is a profit or loss, expense the direct costs at the _________________ date. -If there is no profit or loss, defer and recognize the direct costs over the lease term.
lessor
-In a sales-type lease, the lessee gains control of the underlying asset. -The ___________ will derecognize the asset and recognize a net investment in the lease, as well as a profit or loss, assuming that the collectibility of any residual value guarantee and the lease payments themselves are probable on the date the lease commences. -If collectibility is not probable, the lease payments received will be treated as deposit liabilities.
higher, lower
-In the early years of a finance lease, expense recognition is front-loaded as interest expense, plus asset amortization expense will create a ___________ total expense than under an operating (capital) lease. -In later years, a finance lease will reflect a ____________ total expense than an operating lease. -*The overall expense total across the entire lease will be the same under both lease types.*
twelve
-Lessees can make an accounting policy election and choose to not recognize ROU assets and lease liabilities for leases with terms of __________ (spell out the number) months or less. If this election is made, it must be done by the class of the underlying asset and cannot include purchase options for the asset the lessee is reasonably certain to exercise.
tax rate
-Measurement of deferred taxes is based on the applicable ___________. -This requires using the *enacted tax rate* expected to apply to taxable items (temporary differences) in the periods the taxable item is expected to be paid (liability) or realized (asset). (use the *enacted tax rate* to measure the *temporary tax difference* that'll go into *deferred taxes payable*)
modified cash basis
-Most for-profit and not-for-profit orgs producing cash basis FSs use this basis of accounting. -a hybrid method that includes elements of both cash and accrual bases. -don't extensively modify these FSs or they'll become accrual basis. -FS under this basis include statement of assets and liabilities or statement of assets and liabilities arising from cash transactions, and a statement of revenues and expenses and retained earnings, or a statement of revenues collected and expenses paid.
current
-Net temporary adjustment for a deferred tax liability: The deferred tax account is adjusted for the change in deferred taxes (asset or liability), due to the _____________ year's events. -The income tax expense/benefit - deferred is the difference between the beginning balance in the deferred tax account and the properly computed ending balance in the account.
XBRL (extensible Business Reporting Language)
-SEC -royalty-free software that uses XML (extensible Markup Language( data tags to describe financial info for business and financial reporting). -next-gen language after HTML, telling computers how to display text -along with XML, tells computers how to interpret text's context.
Regulation S-X
-SEC sets forth the form and content of and requirements for interim and annual FSs to be filed with the SEC. -key provisions
catch-up approach
-SFAC No. 7 -changes in estimated CFs -adjust carrying amount of asset/liability to the PV determined using the original effective interest rate.
FV objective
-SFAC No. 7 -if the FV cannot be determined in the market, objective is to obtain as estimate of FV by using the PV of future CFs.
expected CF approach
-SFAC No. 7 -one approach to compute PV -considers a range of possible CFs and assigns a subjective probability to each in the range to determine the weighted average, or "expected," future CF. -with uncertainties, adjust expected CFs rather than interest rate. -for more complex cases.
5 elements of PV measurement
-SFAC No. 7 1. estimate of future CFs 2. expectations about timing variation of future CFs 3. TVM (risk-free rate of interest) 4. price for bearing uncertainty 5. other factors (i.e., liquidity)
nonrecognized
-Subsequent events that provide information about conditions that occurred after the balance sheet date and did not exist at the balance sheet date are ____________ subsequent events. -This type of subsequent event is not recognized in the financial statements; but, is disclosed in the notes to the financial statements.
True
-T/F: generally, the "poor" p-ship partners don't have any money to repay their shortage; generally, the "richest" partners are paid first. -If all "other" assets and all liabilities are liquidated, the answer will be the same: cash = partners' balances.
shorter
-The ROU asset will be amortized beginning on the commencement date using a straight-line basis (unless another methodology better reflects usage and consumption). -Criteria for determining amortization: a. Amortize over the *underlying asset's useful life* if ownership or written option criteria are met. b. Amortize over the *___________ of the lease term or the useful life of the asset* if net present value, economic life, or specialized asset criteria are met.
enacted
-The liability method requires that the deferred tax account balance (asset or liability) be adjusted when the tax rates change. -Thus if future tax rates have been ___________, not just proposed or estimated, the deferred tax liability and asset accounts will be calculated using the appropriate *enacted future effective tax rate*.
interperiod
-The objective of _________________ tax allocation is to recognize through the matching principle the amount of current and future tax related to events that have been recognized in financial accounting income. 1. *Current Year Taxes*: Payable (liability) or refundable (asset) Or: 2. *Future Year Taxes*: Deferred tax asset or deferred tax liability -Current income tax expense/benefit is equal to the income taxes payable or refundable for the current year, as determined on the corporate tax return (*Form 1120*) for the current year. -Deferred income tax expense/benefit is equal to the change in deferred tax liability or asset account on the balance sheet from the beginning of the current year to the end of the current year (called the "balance sheet approach"). -Thus, total income tax expense/benefit can be depicted as follows: *Current income tax payable or refundable as determined on the corporate tax return ± Change in the deferred income tax asset or liability from the beginning to the end of the reporting period = Total income tax expense or benefit*
1. separate component 2. face 3. notes
-The results of discontinued ops, net of tax, are reported as a (1) of net incmoe, below income from continuing ops. -a gain or loss recognized on the disposal shall be disclosed either on the (2) of the IS or in the (3) to the FS.
multiple-step
-This sort of IS reports operating expenses and revenues separately from non-operating ones and other G/Ls. -benefit: enhanced user info (provides readily available data to calculate various analytical ratios)
income statement
-Under *IFRS*, adjustments for changes in deferred tax balances due to changes in tax laws or rates are recognized on the _______________, *except when the deferred tax balance arises from a transaction or event that is recognized in other comprehensive income*. (In this case, adjustments should also be recorded in other comprehensive income.)
valuation allowance
-Under GAAP (but not IFRS), if it is more likely than not (a likelihood of more than 50 percent) that part or all of the deferred tax asset will not be realized, a _____________________ is recognized. -The net deferred tax asset should equal that portion of the deferred tax asset which, based on available evidence, is more likely than not to be realized.
financing
-Under IFRS, companies have the choice of presenting profit distribution (dividend payments) as either an operating cash outflow or a financing cash outflow. -Under U.S. GAAP, profit distribution can only be presented as a ____________ cash outflow.
10, deferred, minimum
-Under U.S. GAAP, gains on sales of property associated with leasebacks should be *recognized in total* if the present value of the lease payments is less than or equal to _________% of the market value of the leased asset. -The gain should be *___________ in total* if the present value of the lease payments is greater than or equal to 90% of the market value of the leased asset. -If the present value of the lease payments is between 10% and 90% of the market value of the leased asset, then the gain should be *recognized to the extent that it exceeds the _____________ leaseback payments* and *deferred to the extent of the minimum lease payments.*
composition
-Under US GAAP, a change in accounting entity occurs when the entity has changed this. -full disclosure of the cause and nature of the change. -IFRS doesn't have this--just GAAP
80
-Under present U.S. tax law, an operating loss of a period may be carried forward indefinitely to future tax years, limited to _______ (give the #) of taxable income (calculated without regard to the NOL deduction). -No carryback is allowed. Taxable income and financial accounting income will differ for the periods to which the loss is incurred and carried forward.
deferred tax assets
-Under present tax law, if an operating loss is carried forward, the tax effects are recognized to the extent that the tax benefit is more likely than not to be realized. -Tax carryforwards should be recognized as _________________ (because they represent future tax savings) in the period in which they occur.
more or less
-When the purchase price is this or that than the BV of the capital account purchased, bonuses are adjusted between old and new partners' capital accounts and don't affect partnership assets. Rules: problem-solving steps: 1. determine total capital and interest to the new partner. 2. if interest is less than amount contributed, bonus to old partner(s). 3. if interest is greater than amount contributed, bonus to new partner. *bonus = balance in total capital accounts controls the capital account allocation.
1. current asset 2. current liability
-With the % of completion method, if the sum of cumulative costs incurred and cumulative GP recognized exceeds cumulative billings, the excess is reported as (1). -If the cumulative billings exceeds the sum of cumulative costs incurred and cumulative GP recognized, the difference is reported as a (2).
temporary
-________________ differences are the differences between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively.
deferred
-_________________ tax liabilities are anticipated future tax liabilities derived from situations in which future taxable income will be greater than future financial accounting income due to temporary differences. -All deferred tax liabilities are recognized on the balance sheet.
AOCI
-a component of equity that includes the total of OCI for the current period and all previous periods. -OCI for the current period is "closed" to this account, which is reconciled each period similar to the manner in which retained earnings are reconciled.
repurchase agreement
-a contract by which an entity sells an asset and also either promises to or has the option to repurchase the asset. -3 main forms of repurchase agreements include: a. entity's obligation to repurchase the asset (a forward) b. entity's obligation to repurchase the asset at customer's request ( a put option) c. entity's right to repurchase the asset (call option)
escrow
-a legal concept in which a financial instrument or an asset is held by a third party on behalf of two other parties that are in the process of completing a transaction. -The funds or assets are held by the agent until it receives the appropriate instructions or until predetermined contractual obligations have been fulfilled. -Money, securities, funds and other assets can all be held in this -account liability is increased by amounts received from mortgages and is decreased by payments for taxes.
cost constraint
-a pervasive constraint on the info provided in financial reporting. -benefits of reporting must outweigh the costs of obtaining and presenting it. -FASB and IASB consider costs and benefits in relation to FR in general and not at the individual reporting entity level.
recognition; 1. definitions: item meets the definition of an element of the FSs 2. measurability: item has a relevant attribute measurable with sifficient reliability 3. relevance: information about it can make a difference 4. reliability: information is faithful, verifiable, and neutral
-according to SFAC No. 5, this is the process of formally recording/incorporating an item in the FSs of an entity and classifying it as asset, liability, equity, revenue, expense. -list the 4 recognition criteria.
1. balance sheets 2. income statements 3. statements of cash flows
-according to regulation SX, interim FSs should include: a. (1) as of the end of most recent fiscal quarter and as of end of preceding fiscal year. (1) for corresponding fiscal quarter for preceding fiscal year not required unless helpful. b. (2) for most recent fiscal quarter, for period between end of preceding FY and end of most recent fiscal quarter, and for the corresponding periods of preceding FY. May also include ISs for cumulative 12-month period ended during most recent fiscal quarter and for corresponding preceding period. c. (3) = for the period between end of preceding FY and end of most recent fiscal quarter, and for corresponding period for the preceding FY. FSs may also present statements of CFs for the cumulative 12-month period ended during most recent fiscal quarter and for corresponding preceding period.
Regulation S-X
-according to this, interim FSs filed with the SEC must be reviewed by an independent public accountant and the review report must be filed with the FSs. -the interim FSs should include BSs, income statements, statements of CFs.
current period in discontinued operations
-adjustments to amounts previously reported in discontinued ops that are directly related to the disposal of a component of an entity in a prior period are classified is this. -i.e.: resolution of contingencies related to terms of the disposal transaction, to operations of the component before disposal, and to settlement of employee benefit plan obligations.
OCBOA
-aka special-purpose frameworks -non-GAAP but have widespread understanding and support -include cash basis and modified cash accounting basis, tax basis, definite criteria applied to all material FS elements, like price-level adjusted FSs, regulatory basis of accounting.
single-statement approach
-allowed by both GAAP and IFRS, and a way to report comprehensive income. -displays OCI items individually and in total, below NI, and totals them for comprehensive income.
cost
-an amount measured in money that is expended for items like capital assets, services (i.e., payroll), and merchandise received. -the amount actually paid for something.
principal
-an entity controlling the goods/services before they're transferred to the customer. -when this is the case, the revenue recognized is equal to gross consideration an entity expects to receive.
held-for-sale
-an impairment analysis must be conducted a component of a business is this if, in the period, all of the following are met: 1. mgmt commits to a plan to sell the component. 2. component is available for immediate sale is its present condition 3. active program to locate a buyer has been initiated 4. sale of the component is probable and expected to be complete within one year (subject to exceptions). 5. sale of the component is being actively marketed. 6. actions required to complete the sale make it unlikely that significant changes will be made or plan will be withdrawn.
business
-an integrated set of activities and assets capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, other economic benefits directly to investors/other owners, members, participants.
nonprofit activity
-an integrated set of activities and assets conducted and managed to provide benefits other than goods/services at a profit, to fulfill an entity's purpose/mission.
entity-wide disclosures
-apply to entities regardless of the number of reportable segments. -required disclosures for public entities. -include: a. products and services = revenues from external customers for each product/service or groups of similar products/services must be disclosed unless it's impracticable (that must be disclosed). b. geographic areas = revenues and long-lived assets. c. long-lived assets = located in entity's domicile country, located in al lFCs in total in which entity holds asset. d. major customers = 10%+ sales to a single customer must disclose that total amount from customer, and the segments reporting the revenues.
2-statement approach
-approach of reporting comprehensive income that is condoned by both GAAP and IFRS. -displays comprehensive income as a separate statement immediately following the IS.
percentage-of-completion method
-balance sheet: 1. current asset accounts include Due on Accounts costs and estimates earnings of incomplete contracts excess of progress. 2. current liability account progress billings exceeding costs and estimated earnings. -appropriate when revenue is earned over times rather than at point-of-sale (i.e., in construction). -appropriate if the entity's accounting can: 1. reasonably estimate profitability. 2. provide a reliable measure of progress toward completion. -income is % of estimated total income either: 1. that incurred costs to date bear to total estimated costs based on most recent cost info. 2. that may be indicated by such other measure of progress toward completion appropriate to work performed.
cash basis
-basis of accounting where revenues are recognized when cash is received, expenses are recognized when cash is paid, and its FSs include: a. statement of cash and equity b. statement of cash receipts and disbursements
financing arrangement
-contract whereby an entity can or must repurchase an asset for equal to or more than the original selling price. -entity will recognize the asset, a financial liability for any consideration received from the customer, and recognize as interest expense the difference between the amount of consideration received from the customer and the amount of consideration to be paid by them.
incremental costs of obtaining a contract
-costs incurred that wouldn't have been incurred if the contract hadn't been obtained and are recognized as an asset if the entity expects it'll recover these costs. -an entity will recognize an expense if the costs would've been incurred regardless of whether the contract was obtained.
costs to fulfill a contract
-costs that are incurred to fulfill a contract that aren't within the scope of another contract -will be recognized as assets if they meet all of the following creteria: 1. relate directly to a contract (i.e., DL, materials, allocated costs, other costs explicitly chargeable to the customer per the contract). 2. generate/enhance entity's resources. 3. expected to be recovered.
elements of the FS
-covered in SFAC No. 6 -components of the FS that are measureable and meet the recognition requirements previously discussed. -include assets, liabilities, net assets (equity), owner inestments, owner distributions, comprehensive income, revenues, expenses, gains, losses.
SFAC No. 8 Ch. 3
-defines the qualitative characteristics of useful financial info as the characteristics likely to be most useful to existing and potential investors, lenders, other creditors in making decisions about the reporting entity based on financial info. -defines fundamental and enhancing qualitative characteristics.
agent
-entity arranges for the other party to provide good/service to the customer. -revenue recognized = fee/commission for performing the agent function. -indicators: a. another party is primarily responsible for fulfilling the contract b. entity lacks inventory risk c. entity doesn't have discretion is establishing prices for other party's goods/services.
1. compute gross profit of completed contract (GP = contract price - estimated TC) 2. compute % of completion (total cost to date divided by total estimate of cost of contract) 3. compute gross profit earned (profit to date) = (1) x (2) 4. compute GP earned for current year = end progress to date - beginning progress to date.
-estimated loss on the total contract is recognized immediately in the year discovered. -any previous GP/loss reported in prior years must be adjusted when calculating total estimated loss. -gross profit/loss is recognized in each period under percentage-of-completion method, by charging the construction in progress account and crediting realized GP. -what are the steps to recognizing GP/loss?
subsequent events
-event or transaction occurring after BS date but before FSs are issued/available for issuance -can be divided into 2 categories: a. recognized b. unrecognized
discount
-exists when the sum of the standalone prices for each obligation within a contract exceeds the total contract consideration -discount should be allocated proportionally to all obligations within the contract
Form 8-k
-filed to report major corporate events like corporate asset acquisitions or disposals, changes in securities and trading markets, changes to accountants or FSs, and changes in corporate governance/management. -NOT a periodic (i.e., annually, semiannually, quarterly) filing!
bonus method
-for the withdrawal of a p-ship partner, the difference between the balance of the withdrawing partner's capital account and the amount that person's paid is the amount of the "bonus," which is allocated among remaining partner's capital accounts in accordance with their remaining profit and loss ratios. -p-ship's identifiable assets may be revalued to their FV at withdrawal date, but any implied goodwill by excess pmt to retiree isn't recorded
cash paid for operating expenses + ending accrued liabilities - beginning accrued liabilities - ending prepaid expenses + beginning prepaid expenses = accrual basis operating expenses
-give the formula to convert from cash PMTs for purchases to accrual basis COGS. -can be used for wages/accrual-basis interest/income taxes payable
contract price - total costs
-gross profit or loss is given on the completed contract method as what equation?
put option
-if the entity has an obligation to repurchase the asset at the customer's request for less than the original selling price, the entity accounts for the contract as either: 1. a lease (if the customer has incentive) 2. a sale with right of return (no/little incentive) -repurchase price is greater than or equal to original selling price? Account for as either financing arrangement (if repurchase price is greater than market value of the asset) or sale with right of return (if customer doesn't have significant incentive to exercise the right).
discontinued operations
-include impairment losses, G/Ls from actual operations, G/Ls on disposal -reported separately from continuing operations in the IS, net of tax
confirmatory value
-info has this if it provides feedback about evaluations previously made by users -part of relevance quality of FR
comprehensive income
-items include revenues, expenses, gains, losses included in comprehensive income but excluded from net income under GAAP and/or IFRS. -the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. -includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. =NI + OCI -includes income from continuing ops and discontinued ops
income from continuing operations
-items of income/loss that are unusual or infrequent (or both) should be reported separately as part of this (GAAP treatment aligned with IFRS)
IFRs "risk and uncertainty" disclosure requirements.
-narrower and focus on sources of estimation uncertainty. -state that an entity should disclose information about the assumptions it makes about the future and other major sources of estimation uncertainty at end of reporting period, that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities in the next fiscal year.
completed contract method
-no current-year gross profit recorded until last year of the project. -last year's GP = contract price - total costs to date (incurred).
tax basis of accounting
-non-taxable revs and expenses must be recognized in tax basis FSs in period received/paid for cash-basis taxpayers and in period accruable for accrual-basis taxpayers. -non-taxable revs and expenses: separate line items, (+) or (-) to NI, note disclaim. -may be chosen by entities who don't have to use accrual basis. -well-suited for complex operations (unlike cash basis). -FS are prepared based on methods used for tax return, with special treatment for other items. -FSs include a statement of assets and liabilities and equity (income tax basis) or a BS (income tax basis), a statement of revenues and expenses and retained earnings or statement of income (both income tax basis).
partnerships liquidation schedule
-objective: to distribute cash to the partners as it becomes available -no partner should be over- or under-paid as a result of any cash distributed by the liquidation because that person could be personally liable for overpayments made to a partner that weren't repaid.
goodwill method
-p-ship partners may elect to record the implied goodwill in the p-ship based on the PMTs to the withdrawing partner. -amount of implied goodwill is allocated to all of the partners in accordance with their profit and loss ratios. -after the allocation of the implied goodwill of the partnership, the balance in the withdrawing partner's capital account should equal the amount that person is to receive in the final interest settlement.
use of estimates in FSs prep
-part of Disclosure of Risks and Uncertainties section of Notes to the FSs as part of US GAAP. -footnotes should include a statement--"preparation of FSs in conformity with GAAP requires mgmt to make estimates and assumptions affecting reported amounts of assets and liabilities, dosclosure of contingent assets and liabilities at FS date, and reported revenue/expense amounts during reporting period. -actual results could differ from those estimates.
current vulnerability due to certain concentrations
-part of Disclosure of Risks and uncertainties in Notes to FSs (US GAAP). -when an entity is exposed to risk of loss that could be mitigated through diversification. -disclose if all of these are met: 1. concentration exists at FS date. 2. concentration makes entity vulnerable to risk of a near-term severe impact (a significant financially disruptive effect of normal functioning of the entity. 3. at least reasonably possible that the events that could cause severe impact will occur in near term.
component
-part of an entity (lowest level) for which operations and CFs can be clearly distinguished, both operationally and for FR purposes, from the rest of the entity. -can refer to: an operating segment; a reportable segment; a reporting unit; a subsidiary; an asset group and the liabilities associated with them.
nature of obligations
-part of disclosure of risks and uncertainties (in Notes to FSs under US GAAP). -footnotes include a description of entity's major products/services and its principal markets, including their locations (markets'). -If entity operates multiple businesses, the disclosure should describe the relative importance of each business.
certain significant estimates
-part of disclosure of risks and uncertainties reported in Notes to the FSs as required by GAAP. -when a change in estimate is reasonably possible and it'll have a material effect, an estimate of the effect of the change should be disclosed. -i.e., relating to inventory subject to obsolescence, deferred tax valuations allowances, capitalized software costs, loan valuation allowances, litigation-related obligations, pension and post-retirement benefit obligations, long-term contracts.
free-from-error
-part of faithful representation -means there are no errors in the selection or application of the process used to produce reported financial info and that there are no errors/omissions in the descriptions of economic events -doesn't require perfect accuracy (i.e., of estimates)
neutral
-part of faithful representation -this depiction of financial info is free from bias in selection/presentation
remaining notes to the FSs
-part of notes to the FS -contain all other info relevant to decision makers (i.e., investors, creditors, etc.). -used to disclose facts not presented in either the body of the FSs or in the summary of significant accounting policies. -examples: -material info about PPE+ other asset/liability disclosures, changes in equity, required marketable securities disclosures, FV estimates, contingency losses, contractual obligations (including restrictions on assets and liabilities), pension plans, segments, subsequent events, changes in accounting principles)
summary of significant accounting principles
-part of notes to the FS -first or second note to the FS -don't duplicate notes provided in other FSs -includes: 1. measurement bases used in FSs 2. specific accounting principles and methods used during the period: a. basis of consolidation b. depreciation methods c. amortization of intangibles d. inventory pricing e. uses of estimates f. fiscal year definition g. fiscal year definition h. special revenue recognition issues.
disclosure of risks and uncertainties (US GAAP)
-part of notes to the FS under US GAAP. -US GAAP requires disclosure of risks and uncertainties existing at FSs' dates and pertaining to: 1. nature of operations 2. use of estimates in the preparations of FSs. 3. certain significant estimates. 4. current vulnerability due to certain concentrations.
horizontal analysis
-part of ratio analysis -measures the dollar and percentage change over time period -useful in evaluating trends and noting material changes between periods
vertical analysis
-pertains to ratio analysis -helpful in reducing statement items to a common size (all elements are expressed as a percentage of a common number -assists in period-period comparison -allows for comparability among other entities as the statement is in a common size format
projected benefit obligation (PBO)
-present value of an employee's pension -part of AOCV loss
liquidation
-process of winding up the affairs of a partnership after dissolution -involves realization of cash from the disposal of p-ship assets -creditors/partners may agree to accept specific p-ship assets in full or partial satisfaction of their claims against the p-ship
SFAC No. 7
-provides a framework for accountants to employ when using future cash flows as a measurement basis for assets and liabilities, especially when factors to consider are complex. -provides a set of principles governing the use of PV, especially in uncertain timing and CF amounts. -only applies when using future CFs.
income statement
-purpose is to provide info about the uses of funds in the income process (i.e., expenses), the uses of funds that will never be used to earn income (i.e., losses), sources of funds created by those expenses (i.e., revenues), and the sources of funds not associated with earnings process (i.e., gains). -useful in determining profitability, value for investment purposes, creditworthiness, predicting info on future CFs based on past performance.
revenues
-recognized at gross amount (less allowances for returns and discounts given) -inflows or enhancements of assets, or settlements of liabilities from delivering goods/services as a part of normal operations.
adjusting entries
-recorded to comply with accrual basis of accounting or to correct errors -never involve the cash account -must be recorded by the end of the fiscal year, before FS prep -all adjusting entries will hit one IS account and one BS account -cash receipts go in asset/liability accounts
SFAC No. 8 Ch. 1
-require the accrual basis -define primary users -piece of conceptual framework published by FASB -states: objective of general purpose financial reporting is the provide financial info about the reporting entity that is useful to the primary users of general purpose financial reports in making decisions about providing resources to the reporting entity.
SEC Interactive Data Rule
-requires US Public Comps and foreign private issuers that use US GAAP, and foreign private issuers using IFRS, to present FSs and any applicable FS schedules in an exhibit using XBRL -exhibit is requried with filers' SEC registration statements, quarterly and annual reports, and reports 6k and 8k containing revised/updated FSs
noncomparative
-retrospective application in changes in accounting principle -if this sort of FS are presented, then the cumulative effect of a change in accounting principle = difference between amount of beginning retained earnings in ther period of changes and what the retained earnings would have been if the accounting change had been retroactively applied to all prior periods. -includes direct effects and only those indirect effects entered in the accounting records.
input methods
-revenue is recognized over time (sometimes on a straight-line basis if used evenly), based on entity's efforts or inputs to the satisfaction of the performance obligation relative to the total expected inputs. -i.e., costs incurred relative to total expected costs, resources consumed, labor hours expended, time elapsed (just like output method) -disadv: these units aren't always directly related to transfer of control to the customer.
output method
-revenue is recognized over time based on the value to the customer of the goods/services transferred to the date relative to the remaining goods/services promised. -ex: units produced, time elapsed, milestones achieved, performance surveys, appraisals of results achieved. -should only be used when the output selected represents the entity's performance toward complete satisfaction of the performance obligation.
contract liability
-should be presented in the statement of fin. position when either party has performed in a contract. -must be booked when an entity has an obligation to transfer goods/services to a customer. -entity has either already received consideration from the customer or the customer owes consideration and it is unconditional (customer pays/owes PMT before entity performs).
contract asset
-should be presented in the statement of financial position when either party has performed in a contract. -reflects the entity's right to consideration in exchange for goods or services transferred. -entity has performed prior to PMT, or prior to the PMT due date. Not related to time. *note: if the PMT due date is conditioned only by passage of time, entity should present this separately as a receivable.
concentrations
-sometimes included in "Notes to FSs" (GAAP) -make an entity vulnerable--when the entity is exposed to risk of loss that could be mitigated through diversification. Example: -concentrations in business volume transacted with a customer, supplier, lender, grantor, or contributor.
statement of cash and equity
-statement under cash basis of accounting. -in pure cash basis FSs, cash is the only asset, no liabilities are recorded, and equity = cash.
transaction price
-the amount of consideration an entity can expect to be entitled to receive in exchange for transferring promised goods or services to a customer -determine considering the effects of variable consideration, constraining estimates, maybe significant financing, non-cash considerations, any considerations payable to the customer.
1. is not 2. is 3. is not
-the following factors should be considered when determining whether a warranty represents a service in addition to the assurance that a product complies with agreed-upon specifications: a. if required by law, the warranty (1) a performance obligation. b. The longer the coverage period, the higher the likelihood that it (2) a performance obligation. -If an entity must perform specific tasks to provide assurance about compliance with agreed-upon specifications, it (3) a performance obliation.
standalone selling price
-the price an entity would sell the promised good/service to a customer on a standalone basis. -once the price is determined for each obligation within the contract, the total transaction price should be allocated in proportion to the standalone selling prices.
statement of retained earnings
-the purpose of this is to reconcile the beginning balance of retained earnings with the ending balance. -usually presented following (immediately) the income statement or as a component of the statement of shareholders' equity
goodwill
-this is recognized based on the total value of the p-ship implied by the new partners' contribution -rules-problem-solving steps: 1. compute new "net assets before GW" after admitting new (or paying old) partner 2. memo: compute new "capitalized" net assets (=total net worth) and compare "capitalized Net Assets" with "Net assets before goodwill" 3. "difference" is "goodwill" to be allocated to old partners according to old p-ship profit ratios.
reclassification adjustments
-this move OCI items from AOCI to the income statement
SFAC No. 4
-this statement outlines the characteristics distinguishing non-business orgs from business orgs, describes users of the financial info provided by non-business orgs, and sets forth objectives of external FR by non-business orgs.
SFAC No. 5
-this statement sets forth the recognition criteria and guidance on what and when info should be incorporated in the FSs. -lists the full set of FSs, fundamental recognition criteria, measurement attributes for assets and liabilities, fundamental assumptions and principles.
single-step IS
-total expenses (including IS expense) are subtracted from total revenues. -benefit: simple, no suggestion of one item being more important than another (prevents FS bias).
recognized subsequent events
-type of subsequent event -includes: a. settlement of litigation: if the litigation that arose before the BS date is settled after the BS date but before the issuance or available-for-issuance date, the settlement amount should be considered when determining the liability reported on the BS. b. loss on uncollectible receivable: the effects of a customer's bankruptcy filing after the BS date but before issuance/available-for-issuance date should be considered when determining recognized loss on BS.
the contract is completed.
-under the completed contract method, estimated GP isn't recognized each period as part of construction in progress. -unless a loss is recognized on the contract, no GP is recognized until...
completed contract method
-unless a loss is recognized on the contract ,no GP is recognized until the contract is completed (losses recognized in full when discovered) -recognize revenue and GP when the contract is completed -construction costs are accumulated in the construction in progress account (inventory account) + billings on construction in the progress billings account (contra-inventory account) -current asset accounts: due on accounts (receivable) cost of incomplete contracts exceeding progress billings ("construction in progress") -current liabilities = progress billings on incomplete contracts exceeding cost.
consignment
-when the dealer/distributor hasn't gotten control of the product. -revenue is recognized when the dealer/distributor obtains control of the product -indicators: a. entity controls the product until a specified event occurs (i.e., time period expires) b. dealer lacks unconditional obligation to pay for entity/product c. entity can require return/transfer of product to another party
1. cash unearned revenue 2. unearned revenue revenue 3. prepaid expense (asset) cash 4. expense prepaid expense 5. AR revenue 6. expense accrued liability
1. JE to record unearned revenue 2. AJE to record unearned revenue that has been earned 3. JE to record prepaid expenses 4. AJE to reverse prepaid expense and record incurred expense 5. JE for accrued revenue 6. JE for accrued expenses
1. Dr. Asset adjustment Cr. all partner capital % 2. Dr. all capital % Cr. cash
1. What is the JE under the bonus method to revalue assets to reflect FV? 2. Under the bonus method of p-ships where a partner withdrawals?
Five-Step Approach to revenue recognition
1. identify contract with customer 2. identify separate performance obligations in the contract 3. determine transaction price 4. allocate the transaction prices to the separate performance obligations 5. recognize revenue when/as the entity satisfied each performance obligation
contract, separate performance obligations, transaction price, separate performance obligations, revenue
5-step approach to revenue recognition (CSTSR) 1. Identify the _____________ with the customer 2. Identify the _____________ in the contract 3. Determine the _______________ 4. Allocate the transaction price to the _______________ 5. Recognize ______________ when or as the entity satisfies each performance obligation
net AR (listed as part of current assets on BS)
= gross AR - allowance for doubtful accounts (or just AR)
net revenue
= gross revenues - sales returns & allowances
net gain/loss from discontinued operations
= impairment g/l + operating g/l + disposal g/l
estimate
A change in depreciation method is always considered a change in accounting ____________________, and is accounted for *prospectively* (reflected in current earnings instead of beginning retained earnings like the other 2 types of accounting changes)
income from continuing operations
A change in circumstances that causes a change in judgment about the ability to realize the related deferred tax asset in future years should be recognized in _______ in the period of the change.
prospectively, like a change in accounting estimate, because it's too difficult to calculate the cumulative effect of the change.
A change in accounting principle, such as from FIFO to LIFO, is accounted for how?
operating segment.
A component of an entity, having all of the following: 1. engages sin busienss activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity). 2. its operating results are regularly reviewed by entity's chief operating decision makes to make decisions about resources to be allocated to the segment and assess its performance. 3. its discrete financial info is available.
A (When services are all very similar in nature and can be provided to the buyer in a similar manner, this would indicate that the services can be combined into a single performance obligation. When the buyer can benefit from each service independently or in conjunction with her own available resources and when the promise to deliver each service is separately identifiable from the other services, then the performance obligation overall can be split apart into distinct components.)
A contract contains multiple service-related performance obligations. All of the following criteria below will lead to the treatment of each service as a distinct performance obligation except: A. The services are all similar in nature and provided in the same manner B. The buyer is able to benefit from each service independently C. The buyer can benefit from each service when combined with her other available resources D. The promise to deliver each service is separately-identifiable from the other services
increase
A decrease in prepaid rent expense is an increase or decrease in cash flows from operating expenses?
date of sale
A gain or loss not previously recognized that results from the sale of the component is recognized at this time and not before
investing additional capital
A new partner may be admitted into a partnership by the purchase of an existing partnership interest or by this into the partnership.
disclosure
A segment is significant, and this is required, if 1+ of the following thresholds are met: -10% size test -75% reporting sufficiency test -all other segments category
No.
Are these items included in the summary of significant accounting policies: -composition and detailed dollar amounts of account balances. -details relating to changes in accounting principles. -dates of maturity/amounts of long-term debt. -yearly computation of depreciation, depletion, amortization.
NI (Net Income)
Are unrealized losses on trading securities and revaluation losses reported on NI or OCI?
C
ABC Company owns stock in XYZ Company. The stock is traded on the NYSE and the London Stock Exchange. Stock price info from the 2 stock exchanges on Dec. 31 is as follows: Exchange: Quoted Stock Net: Costs: Transactions Price: NY $103 $102 $1 London $106 $101 $5 What is the fair value of the XYZ stock on Dec. 31 if there's no principal market for the stock? A. $101 B. $102 C. $103 D. $106
operating cycle (activity)
AR turnover in days + inventory turnover in days
Yes
Are unusual and infrequent gains part of net income (and thus, part of comprehensive income)?
1. 2 2. 3
According to REg S-X, the audited FSs must include BSs for (1) most recent fiscal years and statements of income, changes in owners' equity, and CFs for each of the (2) fiscal years preceding the date of the most recent audited BS.
-summary of significant accounting policies -details of accounts that have not changed significantly since end of most recent FY -detailed annual disclosures like dividends/share and total amounts/class of shares; principles of consolidation/combination; assets under lien, default of credit/securities agreemtns; preferred shares; restrictions on dividend PMT; changes in bonds; mortgages; etc.
According to Reg. SX, what are some things that can be omitted from interim FSs?
-divs./share and in total for each class -principles of consolidation/combination -derivates' accting policies -assets under lien -defaults of credit/securities, if still open -preferred shares disclosures -restrictions of div. PMT -changes in bonds, mortgages, debt. -summarized info of nonconsolidated, >= 50% owned entities/subsidiaries -income tax expense -warrants/rights outstanding -related party transactions -repurchases/reverse repurchases
According to Req. S-X, the following must be disclosed in FSs or notes:
T
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 (i.e., government) -Other basis with substantial support (e.g., price level basis, but NOT a basis used to comply with the financial reporting requirements of a lending institution)
1. statement of financial position (balance sheet) 2. statement of earnings (income statement) 3. statement of comprehensive income 4. statement of cash flows 5. statement of changes in owners' equity
According to SFAC No. 5, what are the complete FSs?
B
According to the FASB and IASB conceptual frameworks, completeness is an ingredient of... Relevance Faithful Representation A. Yes No B. No Yes C. Yes Yes D. No No
debit
Accounts receivable has this balance.
D (this is an example of a recognized subsequent event. Subsequent events occur are related to conditions existing at the BS date, aka FYE, and include litigation and losses `on uncollectible receivables,. Subsequent events must be accrued and disclosed on the FSs)
Ace Co. settled litigation on February 1, Yr 2, for an event that occurred during Yr 1. An estimated liability was determined as of Dec 31, Yr 1. This estimate was significantly-less than the final settlement. The transaction is considered to be material. The financial statements for year-end Yr 1 haven't been issued. How should the settlement be reported in Ace's year-end Yr 1 FSs? A. Disclosure only of the settlement B. Only an accrual of the settlement C. Neither a disclosure nor an accrual D. Both a disclosure and an accrual
-has been disposed of -is classified as held-for-sale
list the 2 types of entities or components that will be reported in discontinued operations
yes
Are state taxes paid or losses on abandonment/casualty or on a worthless subsidiary deductible from net income on the IRC tax return?
B (Using the translation method, any gain or loss is reflected in other comprehensive income. I is false since all income statement items are translated at the weighted-average exchange rate for the period under the translation method.)
Alpha Omega Inc. has a subsidiary located in Mexico, for which it uses the translation/current method in its consolidation process. Which of the following statements is (are) true? I. Sales in Mexican pesos would be translated into US dollars at the year-end exchange rate. II. Any translation gain or loss would be reported in OCI. A. Both I and II B. II only C. I only D. Neither statement is true.
1. the financial statements are issued. 2. the FSs are available to be issued.
An entity that files FSs with the SEC must evaluate subsequent events through the date that (1). All other entities must evaluate subsequent events through the date that (2).
partnership, C corporation
An entity's tax status may change from taxable to nontaxable (e.g., corporation to _____________) or from nontaxable to taxable (S corporation to _____________).
outflow
An increase in a prepaid expense is a cash ________ which would decrease CFO under the direct method
increase
An increase in the allowance for doubtful accounts is an increase or decrease in cash flows from operating activities?
asset
An item is capitalized when it is recorded as an ________ rather than an expense.
b (the difference between the selling price and fair value is recorded on the seller/lessee's books as a financing liability)
Anton owns equipment originally purchased four years ago for $325,000. On January 1, Year 5, Anton sells the equipment to Bridges for $208,000. The equipment has a remaining useful life of six years, a carrying value of $195,000, and a fair value of $202,000. Bridges has agreed to lease the equipment back to Anton for three years with annual payments of $48,375 at an implicit interest rate of 5.25 percent. The lease qualifies as a sale. When the transfer takes place, Anton will record a financing liability equal to: a. $0. b. $6,000. c. $7,000. d. $13,000.
reduction
Any consideration of a contract that's payable to a customer should be treated as a reduction in the transaction price and revenue recognized unless the entity is receiving goods or services transferred by the customer.
No
Are any of these deductible: -Life insurance expense (corporation) -entertainment -penalties -federal income tax -Lobbying/political expense -related shareholder -Net capital loss
Yes
Are bond sinking funds considered long-term debt?
No.
Are inter-company transactions eliminated for reporting?
No
Are operating leases recognized by lessees under IFRS?
yes
Are organizational expenses subject to a $5,000 maximum/15 year excess deductible from taxable income?
D (Choice "d" is correct, as a deferred tax liability of $52,500, or $250k*0.21, since tax depreciation exceeds book depreciation. The 21% tax rate for the period(s) the difference is expected to reverse should be used.)
As a result of differences between depreciation for financial reporting purposes and tax purposes, the financial reporting basis of Noor Co.'s sole depreciable asset, acquired in Year 1, exceeded its tax basis by $250,000 at December 31, Year 1. This difference will reverse in future years. The enacted tax rate is 30 percent for Year 1, and 21 percent for future years. Noor has no other temporary differences. In its December 31, Year 1, balance sheet, how should Noor report the deferred tax effect of this difference? a. As an asset of $75,000. b. As an asset of $52,500. c. As a liability of $75,000. d. As a liability of $52,500.
-should reflect adjustments necessary to fairly state results of interim period and include a statement in the FS ntoes. -"adjustments" = provisions for bonus and profit-sharing arrangements normally determined at year end...state if these are normal receiving adjustments, and if not, state nature and amount.
As part of interim FSs, what does regulation SX require regarding fair presentation?
D (nder IFRS, all deferred tax assets (DTA) and deferred tax liabilities (DTL) are netted, regardless of whether they're current or noncurrent and the net amount is reported as non-current on the balance sheet)
At Dec. 31, Bren Co. had the following deferred tax items: -A deferred tax asset of $90k related to a current asset -A deferred tax liability of $75k related to a noncurrent asset Which of the following will Bren report on its 12/31 balance sheet under IFRS? A. A noncurrent deferred tax liability of $75k and a current deferred tax asset of $90k B. A noncurrent deferred tax liability of $75k and a noncurrent deferred tax asset of $90k C. A $15k current deferred tax asset D. A $15k noncurrent deferred tax asset
B (A change in method of accounting for demo costs is a change in accounting principle inseparable from a change in estimate. When a change in accounting principle is considered inseparable from a change in estimate, the change is handled as a change in estimate - prospectively. No cumulative effect adjustment is made.)
At December 31, Yr 2, Off-Line Co. changed its method of accounting for demo costs from writing off the costs over 2 yrs to expensing them immediately. Off-Line made the change in recognition of an increasing number of demos placed with customers that didn't result in sales. Off-Line had deferred the demo costs of $500k at Dec. 31, Yr 1, $300k of which were to be written off in Yr 2 and the remainder in Yr 3. Off-Line's income tax rate is 30%. In its Yr 3 FSs, what amount should Off-Line report as cumulative effect of change in accounting principle? A. $350k B. $0 C. 500k D. $200k
nontaxable, taxable
At the date a ___________ entity becomes a ________________ entity, a *deferred tax liability or asset should be recognized for any temporary differences*.
taxable, nontaxable
At the date a ____________ entity becomes a _____________ entity, any existing deferred tax liability or asset should be eliminated (written off).
1. balance sheet 2. retained earnings 3. AOCI
At the end of each accounting period, all components of comprehensive income are closed to the (1). Net income is closed to (2), and OCI is closed to (3).
-NI should be closed to retained earnings (RE) -OCI should be closed to AOCI
At the end of the fiscal eyar, and as part of the FS closing process, where does the company close NI and OCI to?
AR turnover in days (activity)
Average net receivables / (net credit sales / 365)
impairment loss
BV - FV = ?
D (Emily Balfour's contribution represents a split interest agreement that is valued at $135,000, the fair value of the contribution ($200,000) net of the present value of the estimated annuity payments ($65,000).)
Balfour Charities, a not-for-profit organization, received a $200k cash donation from Emily Balfour under a charitable remainder annuity trust agreement designating Balfour Charities as both trustee and remainder beneficiary. The trust agreement specifies that Balfour Charities must invest both the $200k and pay $10k annually to Roscoe Balfour, Emily's cousin, until his death. Any funds remaining after Roscoe's death will be retained by Balfour Charities and used in a manner consistent with their vision. The present value of the annuity payable to Roscoe is $65k. As a result of this transaction, Balfour would recognize contributions of: A. $65k B.
B (In accordance with the rule of conservatism, gain contingencies, even if highly probable, are not accrued.)
Bluestein Brothers Inc. owns a patent on a certain manufacturing process. They discovered last year that a competitor was producing a product that they felt infringed their patent. Bluestein is no suing the infringer. Legal counsel has assured Bluestein that a favorable outcome is almost guaranteed, and should result in an award between $1-$2 million after legal and court costs. Bluestein should now: A. Accrue a $1.5m gain B. Make no accrual C. Accrue a $2m gain D. Accrue a $1m gain
C (Writing down a deferred tax asset increases (debits) income tax expense for the period and increases (credits) the Deferred Tax Valuation Allowance in the amount that is expected to go unrealized.)
Blunder Bus Corp. has an $85k balance in its Deferred Tax Asset account. Blunder has determined that it is more likely than not that $50k of its deferred tax asset will not be realized in the future. Under US GAAP, Blunder should: A. Decrease this period's income tax expense by $35k B. Credit their "Deferred Tax Valuation" account for $35k C. Increase this period's income tax by $50k D. Debit their "Deferred Tax Valuation Allowance" account for $50k
C
Blunder Bus Corp. has an $85k balance in its Deferred Tax Asset account. Blunder has determined that it is more than likely than not that $50k of its deferred tax asset won't be realized in the near future. Under US GAAP, Blunder should: A. Decrease this period's income tax by $35k B. Credit their "Deferred Income Valuation Allowance" account for $35k C. Increase this period's income tax expense by $50k D. Debit their "Deferred Tax Valuation Allowance" account for $50k
impairment loss
Book value of assets - Fair market value of assets = ?
D (The allocation of the investment purchase price is calculated as follows: Investment $ 300,000 Less: NBV ($600,000 × 35%) 210,000 Total excess $ 90,000 Allocation to identifiable net assets FMV $ 700,000 NBV (600,000) 100,000 × 35% $ 35,000 Excess to goodwill ($90,000 − $35,000) $ 55,000)
Burgess Co. purchases 35% of Egg Co.'s outstanding common stock on Dec 31 for $300k. On that date, Egg's SE was $600k, and the FV of its identifiable assets was $700k. On Dec 31, what amount of goodwill should Burgess attribute to this acquisition?
yes
Can depreciation expense be included in selling, general, and administrative expenses on an income statement?
inflow (It will be booked as a liability until it is earned.)
Cash received that is not earned is a CFO inflow or outflow?
D (Seaside Aquarium would not record their potential interest in distributions from Community Chest since Community Chest has variance power over its receipts as granted by its donors.)
Community Chest, Inc., is a community-wide fund-raiser for charitable organizations in its area. As part of its annual fundraising appeal, Community Chest invites donors to specify the organizations that it wishes to support but specifically warns its contributors that the allocations committee of Community Chest has the ultimate authority to redirect gifts to areas it deems most appropriate. During the year, Community Chest received a $200k donation that named Seaside Aquarium as the beneficiary. As a result of this transaction, Seaside would record: A. A conditional contribution receivable for $200k B. A temporarily-restricted contribution for $200k C. An unrestricted contribution for $200k D. $0
Net sales 3,566,000 (3.6m - 34k) - COGS -1,200,000 = Gross Profit 2,366,000 - S+A expenses - 500,000 = operating income 1,866,000 + other income (gain on sale) +8,000 = income from cont. ops 1,874,000 - income tax expense - 562,200 (1,879k x .3) = income from discont. ops 1,311,800 + gain from discont. segment (after tax) + 2,800 = NI 1,314,600
Compute net income: -tax rate = 30% -gross sales = 3.6m -COGS = 1.2m -S+A expenses = 500m -adjustments for amortization understatement = 59k -sales returns = 34k -gain on sale of available for sale securities = 8k -gain on disposal of discontinued segment = 4k -unrealized gain on available-for-sale debt securities = 2k
C (this is shown gross, before tax. It displays the difference between gross margin and operating expenses such as SG&A)
Concept Industries is preparing its income statement for the year ended Dec. 31. In preparing the statement, the line item displayed before considering income tax effects is: A. AOCI B. Income/loss from continuing operations C. Income/loss from operations D. Net income
fair value
Debt securities (bonds) classified as *held-to-maturity* are reported at amortized cost (that is, cost adjusted for amortization of premium or discount; approaches face value). Debt securities classified as *available-for-sale* are reported at ________________.
current period temporary differences x enacted future tax rate
Deferred income tax expense = ? (give equation)
capital projects
Debt proceeds for an approved bond to construct a civic center, net of discount, are recorded in which governmental fund?
indirect
Depreciation is an expense that does not require any outlay of cash. Depreciation expense for a given year is added to net income under the __________ method. Under the direct method, the amount itself (and the change from one year to the next) is not a component of cash flow from operating activities.
A
Dingo had cash accounts at 3 different banks. One account balance is segregated solely for a Nov. 15 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported in Dingo's Oct. 31 classified balance sheet? A. The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability. B. The segregated and current accounts should be reported as current accounts, and the overdraft should be reported as a current liability C. The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as current assets net of the overdraft D. The segregated account should be reported as a noncurrent asset, and the regular account should be reported as a current asset net of the overdraft
vulnerability
Disclosure of ___________ to concentration is required if all of the following criteria are met: -The concentration exists as of the financial statement date. -The concentration makes the entity vulnerable to the risk of a near-term severe impact. -It is at least reasonably possible that the events that could cause a severe impact from the vulnerability will occur in the near term.
estimate
Disclosure of the estimated effect of a change in an _______________ used in the preparation of financial statements must be disclosed if it is *reasonably possible that the estimate will change in the near term and if the change in the estimate would be material.*
balance sheet
Distinguishes current and non-current assets and liabilities, sometimes liquidity.
A (Dugger County would use BAE BAE accounting in its governmental funds by recording budget, activity and encumbrances separately and then reversing budget, activity and encumbrances separately. The County would reverse the full amount of the budgeted amount of the appropriations, originally recorded as a credit, as a debit of $45,000.)
Dugger County appropriated $45k in its General Fund for miscellaneous supplies for its fiscal year ended September 30, Yr 2. The county found that it had paid $15k for miscellaneous supplies in November, Yr 1 and issued a $30k purchase order to a sole source vendor for miscellaneous supplies in December, Yr 1. By August, Yr 2, the county had received $20k related to the order but didn't pay the vendor until October pending tax receipts. Appropriations don't lapse. What entry would Dugger County record at year-end to close its books on September 30, Yr 2? A. Debit appropriations control for $45k B. Credit appropriations control for $35k C. Debit appropriations control for $10k D. Debit appropriations control for $35k
C
During January Year 3, Doe Corp agreed to sell the assets and product line of its Hart division. The decision represents a major strategic shift for Doe and will have a significant effect on its operations and financial results. The sale was completed on January 15, Yr 4, and resulted in a gain on disposal of $900k. Hart's operating losses were $600k for Yr 3 and $50k for the period January 1 - January 15, Yr 4. Disregarding income taxes, what gain (loss) should be reported in Doe's comparative Year 4 and Year 3 income statements? Year 3 Year 4 A. $0 $250k B. $250k $0 C. $(600k) $850k D. $(650k) $900k
C (Under U.S. GAAP, the research and development costs should be expensed. The patent will be capitalized and amortized over 10 years (the lesser of legal life or economic life). Current year amortization equals $1,700 ($34,000/10 x 6/12). The patent balance at year-end is $32,300 ($34,000 - $1,700). )
During the current year, Jase Co. incurred research and development costs of $136k in its laboratories relating to a patent that was granted on July 1. Costs of registering the patent equaled $34k. The patent's legal life is 17 years, and its estimated economic life is 10 years. In its Dec 31 BS, what amount should Jase report as patent, net of accumulated amortization under US GAAP? A. $165k B. $161.5k C. $32,300 D. $33k
B
During the current year, Wythe County levied $2m in 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 Wythe County report as property-tax revenue in its government-wide statement of activities for the current year? A. $1.8m B. $1,980,000 C. $2m D. $1,985,000
times interest earned (long-term debt-paying ability)
EBIT / interest
B (The commission costs of $25,000 would not have been incurred if the contract had not been obtained and can be recognized as an asset. The design costs of $40,000 and printing costs of $10,000 should be expensed as cost of sales related to the contract.)
Eames Company enters into a contract with Leather Corporation to install a new general ledger system and provide IT services for the ledger system for 5 years. Eames Company incurs commission costs of $25k to obtain the contract. Design costs of $40k are incurred to modify the system according to Leather's specific requests. $10k is spent on printed materials, which includes $5k for the original printing of ledger handbooks and $5k for the reprint of ledger handbooks due to errors in the first printing. The incremental cost of obtaining the contract with Leather Corp that will be recognized as an asset is: A. $70k B. $25k C. $65k D. $75k
D
Emma Construction Company started building a new administrative headquarters on January 1, Year 1. Emma intends to occupy the building at the project completion date of January 1, Yr 3. At Dec. 31, Yr 1, Emma had incurred $2m of construction costs evenly spread during that first year. Projected remaining costs are $2,500,000. During Yr 1, Emma incurred interest cost on specific construction debt in the amount of $40,000 and interest on other unrelated loans of $30,000. All loans carry 5% interest. How much interest should Emma capitalize in Year 1? A. $70,000 B. $0 C. $40,000 D. $50,000
statement of cash receipts and disbursements
FS under cash basis of accounting -includes the following: a. revenues received b. debt and equity proceeds c. proceeds from asset sales d. expenses paid e. debt repayments f. dividend payments g. payments for asset purchases
A (The museum and the bank are not financially interrelated so the trust would be recognized as an asset with donor restrictions (a beneficial interest) and as a contribution with donor restrictions.)
First Commercial Bank received a cash contribution to establish an irrevocable charitable trust for the sole benefit of the Olde Towne Museum, a NFP. The terms of the trust name First Commercial as the trustee, require distribution of income earned on the trust each year for 3 years, and at the end of the 3 year period, require distribution of the principal to the museum. The museum would account for this transaction as follows: A. Museum would recognize a beneficial interest in the assets of the trust at fair value as a contribution w/ donor restrictions B. Museum would recognize an equity interest in the assets of the trust at fair value as a contribution with donor contributions. C. Museum would recognize the asset as a conditional net asset w/ donor restrictions subject to the terms of the trust D. Museum wouldn't recognize the asset in the year the trust was established, but would recognize distributed earnings each year as earnings w/o donor restrictions
D (Under GAAP, you always recognize revenue when the obligation is performed. This is the accrual basis)
For $50 a month, Rawl Co. visits its customers' premises and performs insect control services. If customers experience problems bw regularly-scheduled visits, Rawl makes service calls at no additional charge. Instead of paying monthly, customers may pay an annual fee of $540 in advance. For a customer paying the annual fee in advance, Rawl should recognize the related revenue under US GAAP: A. When the cash is collected B. At the end of the fiscal year C. At the end of the contract year after all the services have been performed D. Evenly over the contract year as the services are performed
65
For an investee's undistributed earnings, under US tax law, there is a dividend received deduction (exclusion) based on the percentage of ownership in the stock of the other corporation: Ownership 0-19%: 50% exclusion Ownership 20%-80%: _______% exclusion (give numeric form) Ownership over 80%: 100% exclusion
1. Dr. Goodwill XX Cr. A. capital XX B. capital XX C. capital XX 2. Dr. capital (100%) XX Cr. Cash XX
For goodwill method of a partner's withdrawal from a p-ship, give JEs to: 1. record goodwill to make withdrawing partner's capital account = payoff 2. to pay off withdrawing partner
-revenue for transferred products -refund liability -asset related to the subsequent recovery of products when the refund liability is settled
For products with a right of return (which may involve the customer receiving a refund, credit, or another product in exchange for the original product), what should an entity recognize?
D
For which of the following methods of determining fair value would an entity's discount rate be most important? A. Cost approach B. Market approach C. Highest & best-value approach D. Income approach
10-K
Form ____________ is the annual report of a U.S. registered company and would contain financial statements.
11-K
Form _____________ is the annual report of an entity's employee benefit plan and would include the financial statements of the benefit plan.
20-F
Form ______________ is the annual report of non-U.S. registrants and would contain financial statements.
underfunded
Funded status = Fair value of plan assets − APBO. If the APBO is negative, the postretirement benefit is ________________.
APBO
Funded status = fair value of plan assets - ?
income from continuing operations
Gains and losses resulting from foreign exchange transactions that are an "extension" of the parent's domestic operations are included as a component of "________________" in the period in which they occur.
received
Gains are recognized in exchanges lacking commercial substance only when cash is _____________
indirect
Gains are subtracted from net income under the ___________ method.
minimum
Gains on sale/leaseback transactions where the present value of the lease payments is between 10% and 90% of the market value of the leased back asset will only be deferred up to the present value of the _____________ lease payments.
(1) Dr Interest Expense, Lease Liability; Cr Cash/Lease payable; (2) Dr Amortization Expense; Cr Accumulated Amortization-ROU asset
Give the 2 subsequent JEs for financing leases by the lessee.
Dr Lease receivable, Loss; Cr Fixed Asset, Gain
Give the JE for a lessor in a sales-type lease
Dr Deferred Tax Benefit (amount of current NOL to be used in a future period as a tax benefit) Cr Tax Benefit (same amount as a credit: *This is a reduction of the book loss (not a contra-expense).) (The deferred tax asset (DR) will reduce tax payable in a future period. The tax benefit (CR) would reduce the net operating loss of the current period.)
Give the JE to record a deferred tax benefit
DR Deferred tax liability; CR Income tax benefit—deferred
Give the JE to record a reversal of a deferred tax liability.
Dr Deferred Tax Asset; Cr Deferred Tax Asset Valuation Allowance, Income Tax Benefit (Residual) (Net realizable deferred tax asset)
Give the JE to record income taxes with Net Operating Losses
percentage completion
Give the equation for the *current year-to-date GP* under the ________________ method: *Step 1*: Contract price -estimated total cost (= cost to date + estimated cost to complete) = expected gross profit *Step 2*: Total cost to date / estimated total cost *Step 3*: Multiply Step 1 * Step 2 = profit-to-date *Step 4*: Compute GP earned for current year*: Profit-to-date (PTD) @ current FYE - Beginning PTD (profit previously recognized) = current year-to-date gross profit ^*don't pay attention to "estimated costs of construction"*
Beginning Balance +Additions (Bad debt expense & A/R Recovered) + Subtractions - Ending Balance
Give the equation for the allowance for doubtful accounts
sales (yearly) x percentage of sales deemed uncollectible
Give the equation for the bad debt expense
parent's net income - equity in subsidiary's net income = parent's income only; sub's income x % parent's ownership = parent's share of sub's income + parent's income only - goodwill impairment = net income - beginning retained earnings = ending retained earnings
Give the equation for total consolidated net income of a parent company with majority ownership of a subsidiary.
Dr Deferred Tax Asset (temporary difference between current taxable income on the tax return, and pretax financial income), Income tax expense-current (taxable income); Cr Income tax payable (taxable income), income tax benefit-deferred (temporary difference between current taxable income on the tax return, and pretax financial income)
Give the initial JE to record a deferred tax asset.
DR Income tax expense—current, income tax expense—deferred; CR Deferred tax liability, Income tax payable
Give the initial JE to record a deferred tax liability.
pension adjustments, unrealized gains and losses (on available-for-sale debt securities), foreign currency items, effective portion of cash flow hedges (ineffective portions of CF hedges are reported in income statement), revaluation surplus (IFRS ONLY)
Give the mnemonic for OCI (remember, the "R" is for IFRS only)
Dr. Asset adjustment XX CR. A. capital XX B. capital XX C. capital XX
Give the p-ship goodwill method JEs to revalue the assets to reflect FV (when a partner withdraws from a p-ship)
Dr Cash (lease payment); Cr Interest Income, Lease Receivable
Give the periodic JE in the lessor's books to record a direct financing lease.
other financing sources
Governmental funds (GRaSPP) use modified accrual accounting and do not record long-term debt. Instead they present (credit) "______________" to account for the proceeds from long-term debt.
purchase order
Governmental funds use modified accrual accounting. Under modified accrual accounting, the issuing of a ________________ (commitment to purchase) is recorded for internal bookkeeping as: Debit (Dr) Credit (Cr) Encumbrance $ XX Budgetary Control $ XX
Dr Compensation Expense $15,000; Cr APIC - Stock Options $15,000
Hollywood Bakery granted stock options to its CEO on December 31, Year 1. These options, which have a vesting period of 2 years, will allow the CEO to purchase 5,000 shares of $20 par common stock for $45 per share. The options have a fair market value of $30,000, based on an acceptable option valuation model. The CEO exercised the options on January 1, Year 4. Prepare the journal entries necessary to account for the stock options. -Record the Year 3 Compensation Expense.
Dr Cash, Cr APIC - Stock Options, Dr Common Stock, Cr APIC - Common Stock
Hollywood Bakery granted stock options to its CEO on December 31, Year 1. These options, which have a vesting period of 2 years, will allow the CEO to purchase 5,000 shares of $20 par common stock for $45 per share. The options have a fair market value of $30,000, based on an acceptable option valuation model. The CEO exercised the options on January 1, Year 4. Prepare the journal entries necessary to account for the stock options. -Record the exercise of the options on January 1, Yr 4.
Dr Compensation Expense $15,000; Cr APIC - Stock Options $15,000
Hollywood Bakery granted stock options to its CEO on December 31, Year 1. These options, which have a vesting period of 2 years, will allow the CEO to purchase 5,000 shares of $20 par common stock for $45 per share. The options have a fair market value of $30,000, based on an acceptable option valuation model. The CEO exercised the options on January 1, Year 4. Prepare the journal entries necessary to account for the stock options. -Record the Year 2 Compensation Expense.
1. assets valued at fair value 2. liabilities assumed recorded at PV 3. Partner's capital account therefore equals the difference between fair value of the contributed assets - PV of liabilities assumed
How are contributions to the formation of a partnership recorded?
prospective treatment (previous FSs aren't restated)
How do the financial statements accommodate a change in accounting estimate?
By restating all prior periods presented and adjusting the beginning REs of the earliest periods presented.
How is an error correction, like a change from a non-GAAP to a GAAP basis, accounted for?
Under the Dr. account, "construction in progress," when recording revenue/cost during construction period.
How is calculated GP under the %-of-completion method and completed contract method incorporated into JEs?
As the difference between earnings at the beginning of the period of the change and what retained earnings would have been if the change was applied to all affected prior periods, assuming comparative FSs aren't presented. Beginning RE of the earliest year presented is adjusted for the cumulative effect of the change.
How is the cumulative effect of a change in accounting principle valued?
two (permanent differences & temporary differences)
How many differences are there between pretax GAAP financial income and taxable income? Spell out the number.
There are 7 members with 5-year terms. They can be reappointed once for five years.
How many members does the FASB have? How long are their terms? How many times can they be reappointed, and for how long?
D (cash flows from non-restricted contributions would be classified as operating activities)
How should a nongovernmental NFP org report donor-restricted cash contributions for long-term purposes in its SCFs? A. investing activity inflow B. as a noncash transaction C. operating activity inflow D. financing activity inflow
D
How should the effect of a change in accounting estimate be accounted for? A. By reporting pro forma amounts for prior periods B. As a prior-period adjustment to beginning RE C. By restating amounts reported in FSs of prior periods D. In the period of change and future periods if the change affects both
A (The purchase of treasury stock would decrease stockholders' equity and the number of outstanding shares. As such, the amount of earnings per share increases.)
How would the purchase of treasury stock affect each of the following? Total Stockholders' Equity EPS A. decrease increase B. decrease no effect C. no effect no effect D. increase decrease
short-term capital loss (STCL)
How you treat a Carryback/carryover (3 years back/5 years forward) in IRC taxable income?
15
IRC taxable income treatment of a franchise and goodwill includes amortizing over ___________ (number) years
percentage of sales
IRC taxable income treatment of percentage in excess of cost and Depletion: percentage vs. straight‑line (cost) is the _________________ method
True
If a capital deficiency in a partnership still exists, the remaining partners must absorb the deficiency according to their respective (remaining) P+L ratios
restated
If a change in accounting entity occurs in the current year, all previous FSs that are presented in comparative FSs along with the current year should be this to reflect the info for the new reporting entity.
treated as a change in accounting principle, prospectively.
If a change in accounting estimate cannot be distinguished from a change in accounting principle, the change is considered this and is accounted for in this way.
right of offset
If a partnership of a liquidating p-ship has a capital deficiency and a loan account (the p-ship has payable to the partner), the p-ship has a legal right to offset and may use the loan account to satisfy the capital deficiency.
retained earnings
If comparative financial statements are presented, the cumulative effect of a change in accounting principle is presented net of tax as an adjustment to beginning __________________ in the statement of stockholders' equity.
mitigating factors
If conditions/events arising raise substantial doubt about entity's going concern ability, management should consider whether the entity's plans intended to mitigate those conditions will alleviate the substantial doubt. -should be based on: a. whether it's probable that the plans will be effectively implemented b. if so, whether it's probable that the implemented plans are successful in mitigating substantial doubt.
yes (otherwise the gain would be the difference between the asset's price/fair value - its book/carrying value)
If you sell an asset at a price = to the gain you recognize in its sale, has it been fully-depreciated?
going concern
If, under US GAAP, substantial doubt about going concern is alleviated as a result of mgmt's plans, the FSs should be prepared under this basis of accounting, and should include these footnote disclosures: a. primary conditions/events initially raising substantial doubt about going concern b. mgmt's eval of the significance of these conditions/events in relation to entity's going concern c. mgmt's plans alleviating substantial doubt (mitigating factors)
The FASB's Accounting Standards Codification (ASC)
In 2009, what became the single source of authoritative nongovernmental GAAP?
B (The single-step income statement will include in total revenues all sales of goods, services, and rentals. Purchase discounts aren't included in revenues, but instead REDUCE COGS. The recovery of amounts written off doesn't hit the revenue account.
In Dart Co's Year 2 single-step income statement, as prepared by Dart's controller, the section titled "Revenues" consisted of the following: Sales: $250k Purchase Discounts: $3k Recovery of Amounts Written Off: $10k Total Revenues: $263k In its Yr 2 single-step income statement, what amount should Dart report as total revenues? A. $263k B. $250k C. 253k D. $250k
financing
In a nongovernmental, NFP, donor-restricted receipts to be used for long-lived assets are classified as ___________ activities.
"distinct"
In order for a good/service to be this, both criteria must be met: 1. promise to transfer the good/service is separately identifiable from other goods/services in the contract 2. customer can benefit either from the good or service independently, or when combined with the customer's available resources.
directly related
In order for a settlement to be considered as this to a component of an entity, it must... -have a demonstrated cause-and-effect relationship -occur no later than one year after the date of the disposal transaction (unless extenuating circumstances exist)
1. progress 2. input and output
In order to recognize revenue, an entity must be able to reasonably measure (1) toward completion, which can be measured using the (2) methods.
A (Integration of budgetary controls into the accounting records is accomplished with the following journal entry with the estimated revenues and approved expenditures posted on the opposite side of "T" accounts compared to actual amounts: Debit (Dr) Credit (Cr) Estimated revenue control $ xxx Budgetary control (if deficit) xxx Appropriations control $ xxx Budgetary control (if surplus) xxx)
In recording its budgetary accounts in its governmental funds at the beginning of the fiscal year, a municipal government would: A. Credit appropriations control B. Debit encumbrance control C. Debit appropriations control D. Credit encumbrance control
SEC yes
In the US, who has the legal authority to establish US GAAP? Do they allow the accounting profession to establish GAAP and self-regulate?
10
In the ___________% "size" test for determining significance of reportable segments, the assets of a segment are the assets included in the measure of the segment's assets reviewed by the chief operating decision maker.
premium
In the most simple terms, the insurance _____________ is defined as the amount of money the insurance company is going to charge you for the insurance policy you are purchasing.
interperiod
Income for federal tax purposes and financial accounting income frequently differ. Obviously, income for federal tax purposes is computed in accordance with the prevailing tax laws, whereas financial accounting income is determined in accordance with GAAP. Therefore, a company's income tax expense and income taxes payable may differ. The incongruity is caused by temporary differences in taxable and/or deductible amounts and requires ______________ tax allocation.
IRS tax code
Income tax return follows the ______________, while the financial statements follow FASB/GAAP
A
Income tax-basis financial statements differ from those prepared under GAAP in that income-tax basis FSs: A. Don't include nontaxable revenues and nondeductible expenses in determining income B. Include detailed info about current and deferred income tax liabilities C. Contain no disclosures about capital and operating lease transactions D. Recognize certain revenues and expenses in different reporting periods
"all other segments" category
Info. about business activities and operating segments that aren't reportable based on 10% size and 75% Reporting Sufficiency tests should be combined and disclosed here, but doesn't have to be if it'll overwhelm FS users.
intercompany gain (gain to the company purchasing the asset)
Intercompany selling price − Book Value = ? aka Intercompany selling price - (Cost - AD) = ?
business interest, 30
Interest expense: business loan deduction from taxable income is limited to: ______________ income + ________________% of ATI (give numeric amount)
outflow
Interest payments for debt outstanding represent a CFO inflow or outflow?
financing
Is a portion of outstanding debt issuance called at a price above par a cash flow from financing, investing, or operating activities?
Yes
Is an Estimated liability for contingency usually deducted from taxable income when paid?
yes (it's reported after income from continuing operations, which itself is calculated net of tax (after tax))
Is income/loss from discontinued operations reported net of tax (after tax) on the income statement?
debit (to decrease, debit insurance expense and credit prepaid insurance)
Is prepaid insurance a debit or credit balance account?
No (There is no depreciation on the maintenance agreement because it is not a fixed asset itself.)
Is there any depreciation of a maintenance agreement for a company's fixed assets?
yes (limited to 80% of Total Income - TI - and indefinite carryover)
Is there carryforward for a Net operating loss?
credit
Is unearned revenue a credit or debit balance?
1. expected GP = contract - (costs to date + estimated costs to complete) 2. % complete = costs to date divided by total costs 3. profit-to-date = (1) x (2) 4. next year's profit (end of year) = profit-to-date minus profit previously recognized
List the steps of the %-of-completion method to find final GP.
1. identify the economic event or transaction that can be useful to users. 2. identify the type of info about the event or transaction that would be most relevant. 3. determine whether the info is available and can be faithfully represented.
List the steps to apply the fundamental characteristics of useful financial info, according to SFAC No. 8 Ch. 3.
1. adding estimated costs to complete the recorded costs to date to arrive at total contract costs 2. adding to advances any additional revenue expected to arrive at total contract revenue 3. subtracting (2) - (1) = total estimated loss on contract.
Losses under the completed contract method is determined how?
A (The amount to be capitalized for a finance lease is the present value of the minimum lease payments. In this question, the minimum lease payments are $500,000 and the present value factor is 5.35. The present value of the minimum lease payments is thus $500,000 × 5.35, or $2,675,000.)
Koby Co. entered into a finance lease with a vendor for equipment on January 2 for 7 yrs. The equipment has no guaranteed residual value. The lease required Koby to pay $500k annually on January 2, beginning with the current year. The present value of an annuity due for 7 yrs was 5.35 at the inception of the lease. What amount should Koby capitalize as leased equipment? A. $2,675,000 B. $500k C. $825k D. $3.5m
C (Cash flows from operating activities: Net income $ 150,000 Adjustments to reconcile net income to net cash provided by operating activities: Change in current assets and liabilities: Increase in accounts receivable (net) (5,800) Decrease in prepaid rent expense 4,200 Increase in accounts payable 3,000 Total adjustments 1,400 Net cash provided by operating activities $ 151,400)
Lino Co's worksheet for the preparation of its current-year statement of cash flows included the following: December 31 January 1 -AR: $29k $23k -Allowance for $1k $800 Doubtful Accounts -Prepaid Rent $8.2k $12.4k Expense -AP $22.4k $19.4k Lino's net income is $150k. What amount should Lino include as net cash provided by operating activities in the statement of cash flows? A. $151k B. $148.6k C. $151.4k D. $145.4k
-existing and potential investors, lenders, and other creditors (not regulatory agencies)
List groups that make up "primary users" of the FSs, according to SFAC No. 8 Ch. 1.
-results of component's operations -g/l on disposal of the component -impairment loss (and subsequent increase in FV) of the component -initial and subsequent impairment losses (=write-down to FV - costs to sell) -subsequent increases in FV (= increase in FV-costs to sell, not in excess of previously recognized cumulative loss)
List some items included in Results of Discontinued Operations
-info useful in making resource allocation decisions -info useful in assessing services and the ability to provide services -info useful in assessing mgmt stewardship and performance -info about economic resources; obligations; net resources; org. performance; nature of relationship between inflows and outflows, service efforts, and accomplishments; liquidity
List some objectives of the FR of nonbusiness orgs.
-material contingencies -events subsequent to end of most recent FY that have a material impact on entity, including changes in accounting principles, practices, estimates, status of long-term contracts -significant new borrowings/modifications of financing arrangements, business dispositions.
List some required disclosures for interim financial info under Reg S-X
1. impracticable to estimate 2. change in depreciation method (both a change in accounting principal and estimate)
List the 2 exceptions to the general rule of handling changes in accounting principle.
1. comparability: info is more useful if it can be compared with similar info about other entities or from other time periods. Enables users to identify similarities and differences among items. Assisted by consistency (use of the same methods for the same items either across time or across entities). 2. verifiability: different knowledgeable and independent observers can reach a consensus that a particular depection is faithful. 3. timeliness: info is available to users in time to influence their decisions. 4. understandability: info is classified, characterized, presented clearly and concisely. Sometimes means using advisors to clarify info.
List the 4 enhancing qualitative characteristics of financial info and define them.
B
Management has plans to mitigate conditions causing substantial doubt about the entity's ability to continue as a going concern. Management believes that those plans will be effectively implemented and successful in mitigating the adverse conditions Which of the following is true? A. The FSs should be prepared under the going concern basis of accounting with no additional disclosures B. The financial statements should be prepared under the going concern basis of accounting with footnote disclosures explaining the conditions that originally raised doubt about the entity's status as a going concern C. The FSs should be prepared under the going concern basis of accounting with a supplemental schedule showing anticipated cash receipts and disbursements for the upcoming year, demonstrating that the company expects to remain solvent thru the end of the year D. The financial statements should be prepared under the going concern basis of accounting, with supplemental footnote info showing the BS prepared under the liquidation basis of accounting
A (Since Marr uses the percentage of accounts receivable method for estimating bad debts, the ending allowance is calculated by multiply 3% by $3,000,000, for a required allowance of $90,000. Note that the unadjusted balance in the allowance account right now is a debit balance of $50,000. The allowance should be a credit balance, or contra-asset. A debit balance in the allowance account means that last year was a particularly bad year for Marr and they wrote off so many bad accounts receivable that they didn't have enough in their allowance to account for it all. To adjust from a debit balance in the allowance account of $50,000 to a credit balance of $90,000, the following journal entry must be recorded: Uncollectible Accounts $ 140,000 Expense Allowance for Uncollectible $ 140,000 Accounts ^($50,000) + $140,000 = $90,000)
Marr Co. had the following sales & AR balances, prior to any adjustments at year end: Credit sales $10m AR $3m Allowance for $50k Doubtful Accts (debit balance) Marr uses 3% of AR to determine its allowance for uncollectible accounts at year-end. By what amount should Marr adjust its allowance for uncollectible accounts at year-end? A. $140k B. $0 C. $90k D. $40k
C (20X1 loss after carryback to 20X0 = ($700,000) - $300,000 = ($400,000). 20X2 income after carryforward of remainder of 20X1 loss = $1,200,000 - $400,000 = $800,000. 20X2 income tax expense = ($800,000 x 0.30) = $240,000.)
Mobe Co. reported the following operating income (loss) for its first three years of operations: 20X0 $ 300,000 20X1 (700,000) 20X2 1,200,000 For each year, there were no deferred income taxes, and Mobe's effective income tax rate was 30%. In its 20X1 income tax return, Mobe elected to carry back the maximum amount of loss possible. In 20X1, Mobe was unsure that it would earn any future taxable income, thus requiring a valuation allowance to write down the deferred tax asset to zero until it is used next year. In its 20X2 income statement, what amount should Mobe report as total income tax expense? A. $120,000 B. $150,000 C. $240,000 D. $360,000
1. substantial support 2. a. capitalizing and depreciating fixed assets b. accrual of income taxes c. recording liabilities for long-term and short-term borrowings and related investment expenses. d. capitalizing inventory. e. reporting investments at FV and recognizing unrealized G+Ls.
Modifications made to cash basis FSs should have (1), meaning that the modification is logical and equivalent to accrual basis accounting for that item. (2) Common modifications include these 5 things.
-data tagging details: tagged disclosures must include primary FSs, notes, schedules, broken into four levels: 1. each footnote/sched tagged as one text block 2. one block of fact tagged = significant accounting policies in that footnote 3. one block of text tagged = table within each footnote/schedule 4. within each footnote/schedule, each amount is tagged. -30-day grace period: each initial interactive date exhibit must be submitted within 30 days after the earner of due date or filing date of related report/registration statement. 30-day grace period for first filing. -posing to corporate website: info submitted by a filer to the SEC in interactive data format must also be posted to the filer's corporate website no later than the end of the calendar day on which the filer filed or was required to file the related registration or SEC report.
Name some parts of the SEC Interactive Data Rule.
-Committee on Accounting Procedure (CAP): 1939-1959 -Accounting Principles Board (APB): 1959-1973
Name the 2 precursors to the FASB in determining GAAP before 1973.
recognize tax benefit, measure tax benefit
Name the 2 step approach to recognizing tax position under GAAP
sales type, direct financing
Name the 2 types of financing lease recognized by the lessor.
Cash basis revenue + ending AR - beginning AR - ending unearned revenue + beginning unearned revenue = accrual basis revenue
Name the formula that converts from cash basis revenue => accrual basis revenue
1. GAAP rule 2. Tax rule
Name the rules: 1. When forming a partnership, use the Fair Value of contributed asset. 2. When forming a partnership, use the NBV of assets contributed.
enacted
Net operating loss (NOL) carryforwards should be "valued" using the ________________ (future) tax rate for the period(s) they are expected to be used.
1. corporate headquarters not an operating segment. 2. pension plan not an operating segment.
Not every component of an entity is necessarily an operating segment, or part of one. Give 2 examples of this.
D
On April 15, Year 3, Landon Co. signed a contract that entailed providing a specialized piece of scientific equipment for $215k to Jacobs, Inc., with delivery expected to occur on August 31, Yr 3. Per the terms of the contract, Jacobs will pay Landon for the full amount on July 31, Yr 3. Landon's cost to produce the equipment is $175k. Assuming delivery occurs as expected, the August 31 JE for Landon will involve which of the following debits/credits: A. Credit to cash of $215k B. Debit to inventory of $175k C. Credit to COGS of $175k D. Debit to unearned sales revenue of $215k
B (Since the fair value of Alpha's facilities was $300,000 less than its carrying value, there has been an impairment loss, and that loss should be recognized in Year 1. That $300,000 impairment loss plus the $1,400,000 Year 1 operating loss would be recognized in Year 1 net of tax. The total loss would be $1,700,000 x 70% (100% - 30%) or $1,190,000.)
On Dec. 31, Yr 1, the BOD of Maxy Manufacturing, Inc. committed to a plan to discontinue the operations of its Alpha division. The decision represents a major strategic shift and will have a significant effect on its operations and financial results. Maxy estimated that Alpha's Yr 2 operating loss would be $500k and that the fair value of Alpha's facilities was $300k less than their carrying amounts. Alpha's Yr 1 operating loss was $1.4m and the division was actually sold for $400k less than its carrying amount in Yr 2. Maxy's effective tax rate is 30%. In its Yr 1 income statement, what amount should Maxy report as loss from discontinued operations? A. $980k B. $1.190m C. $1.4m D. $1.7m
A
On Jan 1 Yr 1, an entity recorded an ARO of $162,120. The ARO is expected to be paid at the end of 10 years. The entity uses the straight-line depreciation method and an accretion rate of 8%. What is the total Year 1 expense related to the ARO? A. $29,182 B. $3,242 C. $12,970 D. $16,212
A
On January 1, Brecon Co. installed cabinets to display its merchandise in customers' stores. Brecon expects to use these cabinets for 5 years. Brecon's Yr 1 multi-step income statement would include: A. 1/5 of the cabinet costs in SG&A expenses B. All of the cabinet costs in SG&A expenses C. 1/5 of the cabinet costs in COGS D. All of the cabinet costs in COGS
C (In accordance with the matching principle, the $2,000 leasehold improvement should be amortized over the period of expected benefit. The amortization period would be two years. $2,000 / 2 = $1,000)
On January 1, Yr 1, Billy Co. signed a 3 yr lease for office space. The lease required monthly rent of $8k for the first year, $8.1k for the 2nd year, $8.2k for the 3rd yr. Billy has the option to renew the lease for a 4th yr for $8,300 per month. On January 1, Yr 2, Billy permanently installed new overhead lighting fixtures at a cost of $2k. How much amortization expense on this leasehold improvement should Billy record for Year 2? A. $2k B. $667 C. $1k D. $0
A (A change in the method of depreciation is now considered to be both a change in method and a change in estimate. These changes should be accounted for as changes in estimate and handled prospectively. The new depreciation method should be used as of the beginning of the year of change and should start with the current book value of the underlying asset. No retroactive or retrospective calculations should be made, and no adjustment should be made to retained earnings. And, certainly, the cumulative effect should not be reflected on the income statement any more.)
On January 1, Yr 1, Pell Corp. purchased a machine having an estimated useful life of 10 yrs and no salvage. The machine was depreciated by the double-declining balance method for both financial statement and income tax reporting. On January 1, Year 6, Pell changed to the straight-line method for FS reporting but not for income tax reporting. Accumulated depreciation at 12/31 Year 5 was $560k. If straight-line method had been used, the AD at 12/31 Yr 5 would have been $420k. Pell's enacted income tax rate for Year 6 and thereafter is 30%. The amount shown in the Year 6 income statement for the cumulative effect of changing to the straight-line method would be A. $0 B. $98k credit C. $98k debit D. $140k credit
A (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 January 1, the City of Potterville approved a 30-year bond issue 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 $1,200,000 in tourist development taxes during the year ended Dec 31, Yr 1. The bonds will be issued at 98 to yield 4 percent on July 1, Yr 1, and Potterville will make its first payment on the debt on January 2, Year 2. In its fund FSs dated Dec 31, Yr 1, Potterville will display the following in its debt service fund: Debt Principal Interest Tourist Proceeds Expenditures Expend. Development Expenditures A. $0 $0 $0 $0 B. $19.6m $360k $800k $0 C. $0 $0 $400k $0 D. $20m $0 $0 $1.2m
B (Subsequent events that provide information about conditions that occurred after the balance sheet date and did not exist at the balance sheet date are nonrecognized subsequent events. This type of subsequent event is not recognized in the financial statements; but, is disclosed in the notes to the financial statements.)
On March 1, Yr 2, a company with a calendar year end issued its Yr 1 FSs. On February 28, yr 2, the company's only manufacturing plant was severely damaged by a storm and had to be shut down. Total property losses were $10m and determined to be material. The amount of business disruption losses is unknown. How should the impact of the storm be reflected in the company's Yr 1 FSs? A. Accrue & disclose the property loss with no accrual or disclosure of the business disruption loss B. Do *not* accrue the property loss or the business disruption loss, but disclose them in the notes to the FSs. C. Provide *no* information related to the storm losses in the FSs until losses and expenses become fully known. D. Accrue & disclose the property loss and additional business disruption losses in the FSs.
A (Subsequent events that provide information about conditions that occurred after the balance sheet date and did not exist at the balance sheet date are nonrecognized subsequent events. This type of subsequent event is not recognized in the financial statements; but, is disclosed in the notes to the financial statements.)
On March 21, Yr 2, a company with a calendar year end issued its year 1 FSs. On February 28, year 2, the company's only manufacturing plant was severely damaged by a storm and had to be shut down. Total property losses were $10m and determined to be material. The amount of business disruption losses is unknown. How should the impact of the storm be reflected in the company's Yr 1 FSs? A. Do *not* accrue the property loss or the business disruption loss, but disclose them in the notes to the financial statements B. Provide *no* information related to the storm losses in the financial statements until losses and expenses become fully-known C. Accrue and disclose the property loss with *no* accrual or disclosure of the business disruption loss D. Accrue & disclose the property loss and additional business disruption losses in the FSs
A (This hedge is classified as a fair value hedge because it is being used to hedge the value of the inventory. Therefore, the gain on the fair value hedge must be recognized in earnings, along with the loss on the inventory, for a net decrease in net income of $300: Gain on derivative = $9,700 Loss on inventory = $315,000 FV − $325,000 BV = $(10,000) Net loss on fair value hedge = $(10,000) loss + $9,700 gain = $(300) loss)
On Nov. 1 of the current year, a US company entered into a futures contract to hedge the value of its inventory. The inventory was reported on the balance sheet at its cost of $325k on November 1. On Dec. 31, the market value of the inventory had decreased to $315k. The entity had a gain of $9.7k on the futures contract on Dec. 31. What is the proper accounting for this hedging transaction on the Dec 31 year-end financial statements, assuming that the hedge is considered to be highly effective? A. Net income will decrease by $300 B. Net income will decrease by $9.7k C. OCI will decrease by $300 D. OCI will increase by $9.7k
C (An entity should recognize a refund liability if it receives or expects to receive consideration from a customer and anticipates having to refund a portion or all of that consideration. The refund liability represents the amount an entity does not expect to be entitled to receive. In this case, Clothes Co. cannot book revenue at the time of sale because it cannot reasonably estimate returns. Because Link is given 12 months to return any clothing for a refund, once the 12-month period has passed, Clothes can then recognize revenue because any future returns will result in exchanges rather than refunds.)
On day 1, Clothes Co. sells clothing to Link Corp. for $40k. Clothes ships the clothing on Day 1 and Link is obligated to pay Clothes within six months. Link is given 12 months to return any of the clothing for a refund if it experiences low demand. Link is also given 18 months to exchange any clothing due to low demand. At the time of the sale, Clothes can't reasonably-estimate returns, but estimates $5k in exchanged goods. Clothes should recognize revenue for the aforementioned transaction: A. On the day of the sale B. 18 months after the day of the sale C. 12 months after the date of sale D. 6 months after the date of sale
lessors
On the commencement date of the lease, ____________ will classify a lease as a sales-type, direct financing, or operating lease.
C (distribution to owners not included)
One of the elements of a financial statement is comprehensive income. Comprehensive income excludes changes in equity resulting from which of the following? A. Loss from discontinued operations B. prior-period error correction C. Dividends paid to stockholders D. Unrealized loss on investments in noncurrent marketable equity securities
C (RULE: The Statement of Activities shall report gross amounts of revenues and expenses. The cost of premiums given to acknowledge donations is classified as a fund-raising expense.)
Potterville Charities is staging its annual fund raising appeal. The organization views this as a major ongoing activity that serves to fund the mission of the organization. In exchange for a $500 donation, contributors receive a hand-embossed flowerpot for $15. Potterville charities will recognize contributions for each such donation in the amount of: A. $0 B. $485 C. $500 D. $15
DR Deferred tax asset (temporary difference between current taxable income on the tax return, and pretax financial income), Income tax expense-current (taxable income), CR Deferred tax asset valuation allowance (difference between the Deferred tax asset and the Income tax benefit-deferred), Income tax benefit-deferred (taxable income realized later), CR Income tax payable (same entries and amounts as the initial JEs to record an initial deferred tax asset, except for the extra Cr: Deferred tax asset valuation allowance)
Prepare the journal entry to record the deferred tax asset and valuation allowance in Year 1.
II
Quoted prices in active markets for similar assets or liabilities are Level ______ inputs (give Roman numerals)
greater
RULE: A segment meets the size test if the absolute amount of its reported profit or loss is 10% or more of the ____________, in absolute amount, of: -The combined reported profit of all operating segments that did not report a loss, or -The combined reported loss of all operating segments that did report a loss. (*look at segment column*)
dr. construction-in-progress xx cr. cash xx
Record construction costs incurred with % of completion method (same under completed contract method)
Dr. Cash XX Cr. contracts receivable XX
Record pmts received under % completion method (same as completed contract method)
Dr. construction expense XX construction progress XX Cr. revenue XX
Record revenue/cost during construction period under % completion method (same as completed contract method).
B (Comprehensive income includes all items included in "net income" plus "other comprehensive income" items. Because the $50,000 unusual and infrequent gain is already included in net income, comprehensive income is: Net Income $400,000 "PUFE" adjustments (note the "R" is not included here bc that's only for IFRS, and we're following GAAP): Foreign currency translation adjustment 100,000 Unrealized gain on AFS debt securities 20,000 $520,000)
Rock Co.'s US GAAP FSs had the following balances at Dec. 31: -Gain that is unusual AND infrequent $50k -Foreign currency translation gain, $100k net of tax -Net income $400k -Unrealized gain on available-for-sale $20k securities A. $570k B. $520k C. $420k D. $400k
discretely
Rule: A special purpose government is a government that stands by itself: Separately Elected Legally separate Financially independent Component units that do not meet the criteria for blended reporting (governing boards of component and primary government are substantially the same or the component unit exclusively serves the primary government) are reported ___________.
EDGAR (electronic data gathering, analysis, and retrieval system)
SEC requires that 50+ forms be filed to comply with reporting requirements, through this.
A Subtract the $10k increase in AR since AR is recognized in income under cash basis but not accrual basis. Then subtract $6k since a decrease in AP over the year = cash outflow or expense.
Savor Co. had $100k in accrual-basis pre-tax income for the year. At year-end, AR had increased by $10k and AP had decreased by $6k from their prior year-end balances. Under the cash basis, what amount of pretax income should be reported? A. 84k B. 96k C. 104k D. 116k
A
Scott Corporation sold a fixed asset used for operations for greater than its carrying amount. Scott should report the transaction in the IS using the... A. Net concept, showing the total gain as part of continuing operations, NOT net of income taxes B. Net concept, showing the total amount as a component of OCI, net of income taxes C. Net concept, showing the total gain as part of discontinued operations, net of income taxes D. Gross concept, showing the proceeds as part of revenues and and the carrying amount as part of expenses in the continuing operations section.
claim
Something that one legal party maintains is owed to them by another party.
T
T/F: Income/loss from an operating segment of a company that is held for sale or sold during the current period must be reported, net of tax, in the period incurred.
C (Service cost $ 37,000 Interest cost 18,000 Return on plan assets (8,000) Pension expense $ 47,000)
Strum Corp. has maintained a defined benefit pension plan for its employees for a number of years. For Year 4, current service cost was $37k and interest on the PBO was $18k. Strum's return on plan assets, actual and estimated, was $8k. On Dec 31, Yr 4, Strum Corp. contributed $30k to its pension plan. Strum's Yr 4 pension expense was: A. $30k B. $55k C. $47k D. $63k
T
T/F: -It should be presumed that all undistributed earnings will ultimately be distributed to the investor/parent at some future time. -Financial statement income of the investee claimed by the investor/parent as earnings is greater than actual dividends received from the investee that are claimed on the tax return.
True
T/F: 1. entities not required to use the accrual accounting basis can choose cash or modified cash basis 2. cash basis FSs aren't well-suited for entities with complex operations
T
T/F: 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 because such a requirement, in itself, would not have substantial support.
T
T/F: A contingent liability is not accrued for reasonably possible loss contingencies. If the suit had been settled before the financial statements were issued, then a liability would have been recorded on the December 31, Year 1 balance sheet.
T
T/F: A gain on an asset sold should be reported using the net concept (i.e. proceeds - carrying amount)
True
T/F: A partnership has a claim against any partner with a capital deficiency.
True
T/F: According to regulation S-X, Interim FSs may be condensed FSs.
True
T/F: Accounting and FR practices not included in the codification aren't GAAP.
T
T/F: Accounting for income taxes involves both intraperiod and interperiod tax allocation.
T
T/F: Consideration should be given to an entity's plans to mitigate the conditions or events that raise substantial doubt about its ability to continue as a going concern only if: -It is probable that the plans will be effectively implemented, and -It is probable that the implemented plans will be successful in mitigating the adverse conditions or events. Other factors, including whether the condition(s) that gave rise to substantial doubt about the entity's ability to continue as a going concern is expected to continue, are not considered in determining whether the entity's plans to mitigate the adverse conditions or events do, in fact, mitigate the substantial doubt about the entity's ability to continue as a going concern.
T
T/F: Correction of errors of prior periods should be reported as an adjustment to beginning retained earnings, not as an item of net income.
T
T/F: Debts of others guaranteed must ALWAYS be disclosed in the notes, even if the possibility of defaulting on it (and suffering a business loss) is remote.
True
T/F: Error corrections are not accounting changes; include corrections and changes form non-GAAP to GAAP practices.
T
T/F: Extraordinary items are no longer recognized under U.S. GAAP. Only discontinued operations have separate earnings per share calculations and disclosures. Unrealized gains and losses on available-for-sale securities are part of other comprehensive income. Other comprehensive income items are direct charges to stockholders' equity and do not affect net income. They have no earnings per share calculations and disclosures.
T
T/F: Finance leases should be recorded as both an asset and a liability at the present value of the minimum lease payments. de
True
T/F: Fixed asset sales are cash receipts under the cash basis.
True
T/F: Fixed assets do not equal components of an entity. Only disposal of components of an entity can be reported as part of discontinued operations.
T
T/F: For leases, although GAAP requires measuring the ROU asset using the one methodology described above, IFRS allows for alternative measurement bases based on other standards, such as the Investment Property fair value model (from IAS 40) and the Property, Plant, and Equipment model (from IAS 16).
T
T/F: IFRS permits the use of enacted or substantively enacted tax rates.
T
T/F: IFRS treats sales-type and direct financing leases similarly. IFRS permits recognition of a selling profit on direct financing leases at the beginning of the lease.
True
T/F: If a warranty provides a service to a customer beyond the assurance that the product will comply with agreed-upon specifications, the promised service will represent a performance obligation that will require the transaction price be allocated to both the product itself and the service.
T
T/F: In a consolidation, the entire stockholders' equity section of the subsidiary is eliminated. This applies to wholly owned as well as partially owned subsidiaries
True
T/F: In a p-ship, income or loss is distributed among the partners in accordance with their agreement. In the absence of an agreement, all partners share equally, irrespective of their capital accounts or amount of time each partner spends on the p-ship. Unless the p-ship agreement provides otherwise, all PMTs for interest on capital, salaries, and bonuses are deducted prior to any distribution in the P+L ratio. Such PMTs are provided for in full, even in a loss situation.
True
T/F: In a partnership liquidation ,all possible losses must abe provided for in a liquidation before any distribution is made to the partners. Don't distribute any cash until max potential losses have been considered.
True
T/F: In a partnership liquidation, losses in liquidating a partnership are charged to the partners in accordance with the partnership agreement. In the absence of such an agreement, the losses are shared equally.
T
T/F: In accordance with the rule of conservatism, gain contingencies, even if highly probable, are not accrued.
True
T/F: In comparative FSs, a change in accounting principle (not estimate) will be reflected by adjusting beginning RE in the earliest year presented and in periods since.
T
T/F: In intraperiod tax allocation, discontinued operations is one example of an item shown net of related tax effects
T
T/F: In the government-wide financial statements, property taxes are recognized net of expected allowances for uncollectible taxes (*but NOT write-offs*), regardless of the basis of accounting.
True
T/F: In the single-step income statement, total revenues will include all sales of goods, services, and rentals. Purchase discounts aren't included in revenue--instead, they reduce COGS.
T
T/F: Income tax-basis financial statements recognize events when taxable income or deductible expenses are recognized on the entity's tax return. Non-taxable income and non-deductible expenses are shown on the financial statement and included in the determination of income (and become M-1 adjustments to arrive at taxable income).
True
T/F: Under IFRS, a company can choose to use the cost or revaluation model. Under revaluation, the excess of FV over carrying value is recorded as a revaluation surplus in OCI.
True
T/F: Under IFRS, the completed contract method cannot be used--only %-of-completion or cost recovery method (under which cash collected in excess of costs incurred = amount of revenue recognized).
True
T/F: Under Reg SX, annual FSs filed with SEC must be audited by independent public accountant, and report must be filed with FSs.
T
T/F: Under U.S. GAAP, the subsidiary's fair value must be allocated to subsidiary book value, balance sheet FV adjustments, identifiable intangible asset FV and goodwill
T
T/F: Under US GAAP, If a machine DOES have alternative uses under GAAP, only its depreciation should be included in R&D expense in the acquisition period.
T
T/F: Under US GAAP, if a machine has no future alternative uses, its full cost should be included in R&D expense in the acquisition period
True
T/F: Under the % of completion method, an estimated loss is recognized in the year it is discovered, even if the contract is only partially complete.
True
T/F: Under the accrual basis required by GAAP, you can recognize cash when collected, but revenue only when the service has been performed.
T
T/F: Under the completed contract method (not recognized under IFRS), losses are recognized in full the year they're discovered
T
T/F: Unrealized losses (or gains) resulting from changes in market value of available-for-sale debt investments should be reported as a component of other comprehensive income in shareholders' equity. Unrealized gains and losses on debt investments held for trading debt securities and equity investments would be included in net income.
T
T/F: 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.
True--part of income from continuing operations
T/F: When a fixed asset is sold, a gain/loss is recognized as part of income from continuing operations. The amount of the gain or loss is equal to the difference between the proceeds from the sale and the carrying amount of the fixed asset sold.
T
T/F: When a litigation loss is reasonably possible, disclosure is required, but no journal entry is recorded. The disclosure should include the nature of the loss contingency *and the range of the possible loss.*
True
T/F: When correcting an accounting error, the FSs must be restated; however, an offsetting adjustment to the cumulative effect of the error isn't made to comprehensive income to correct the error.
T
T/F: When dealing with a business loss, if the insurance carrier has indicated that the claim will likely be paid, the nature of the claim should be disclosed (in a note)
T
T/F: When measuring deferred taxes, use the tax rate in effect when the temporary difference reverses itself. Do not allow the CPA examiners to trick you into using the following tax rates: Anticipated Proposed Unsigned
T
T/F: When services are all very similar in nature and can be provided to the buyer in a similar manner, this would indicate that the services can be combined into a single performance obligation. When the buyer can benefit from each service independently or in conjunction with her own available resources and when the promise to deliver each service is separately identifiable from the other services, then the performance obligation overall can be split apart into distinct components.
T
T/F: conditional contributions are treated as refundable advances until the conditions are fully met, not as revenue.
True
T/F: debt proceeds are cash receipts under the cash basis
True
T/F: debt repayments are cash disbursements under the cash basis
True
T/F: operating losses are recognized in full in the year (period) incurred.
T
T/F: permanent tax differences only impact current tax computation, not the deferred tax computation
True
T/F: under US GAAP, no disclosures are required, relating to going concern, if the eval (over going concern made by mgmt) doesn't give rise to substantial doubt.
True
T/F: under US GAAP, preparation of FSs presumes that the reporting entity will continue as a going concern. Under this presumption, FSs are prepared under the going concern basis of accounting.
principal
The "______________" market is the market with the greatest volume of activity for the particular asset for which fair value is being determined.
The end result, expressed as a current asset or liability, or: construction-in-progress (sum of that year's GP + construction expense) - progress billings = net construction-in-progress (current asset) *both construction-in-progress and progress billings are cumulative
The BS at the end of the year for a % completion and completed contract method construction project shows what?
A (Regardless of Bygone Historical Society's policies, no asset or contribution revenue will be recognized since the contributed photos are subject to major uncertainties with regard to their value and have no alternative use.)
The Bygone Historical Society, a not-for-profit organization, received a donation of 15 Daguerre-type (metal) photos of Bygone's riverfront family estate. The photos weren't suitable for display but were accepted by the historical society for their potential value to researchers and historians. The photos have no alternative use. The Bygone Historical Society adopted a policy of capitalizing its contributed works of art and historical treasures. Under these circumstances, Bygone Historical Society would: A. Not recognize the contributed photos as assets and contribution revenue B. Disclose the receipt of historical treasures not eligible for display C. Recognize the photos as assets (historical treasures) and contribution revenue in the amount of their fair value D. Recognize the photos as assets (historical treasures) and contribution revenue in the amount in the value of the metal
A (The fund balances of governmental funds reconcile to the net position of the governmental activities column of the government-wide financial statement using the CANS mnemonic. Consideration of assets net of accumulated depreciation and non-current debt as shown below represent the measurement focus issues, while the accrual of December revenues represent basis of accounting issues. December revenues are received by the city 75 days after year-end and therefore would not be accrued for modified accrual accounting since earnings are not available. However, these revenues would be recognized under accrual accounting since the earnings process is complete. Government-wide net position is computed as follows: GRaSPP—Fund Balance $ 1,200,000 Capital assets (non-current) 4,000,000 Accumulated depreciation (2,750,000) Non-current liabilities (2,000,000) Revenue — December sales 5,000,000 Sales tax 4.0% Accrual of sales tax revenue 200,000 Internal Service fund net position — Government-wide net position $ 650,000)
The City of Point Sparrow is preparing its gov-wide FSs for the year ended Dec 31, and reports total fund balances in its gov funds of $1.2m. The city had fixed assets of $4m and AD of $2,750,000, along with long-term debt of $2m related to its governmental funds. In addition, the government had a sales tax levy of 4% that is routinely collected by the state by the 30th of the month following the month of reported sales revenue and remitted by the State to the benefitting institutions within 45 days of collection. Both the merchants and the State fully complied with the law in the months of October, November, and December when sales were $3m, $4m, and $5m, respectively. What would the City of Point Sparrow display as its governmental activities Net Position at Dec 31? A. $650k B. $250k C. $290k D. $450k
A (The City of Sharpton would record capital acquisitions in its General Fund as capital outlay expenditures. The amount of the capital outlay expenditure is equal to the amount spent or obligated, $180,000.)
The City of Sharpton budgeted $230k for capital equipment purchases in its police dept for the current budget year. The City issued a purchase order on Jan. 1 for the acquisition of 5 police cars. Each vehicle is priced at $40k. The City received 4 of the vehicles on June 30 for $180k. On its June 30 interim General Fund financial statements, the City would report: A. Capital outlay expenditures of $180k B. Property & equipment additions of $180k C. Budgetary control of $20k D. Available appropriations of $30k
This one is blank haha (I do the same thing sometimes).
The correction of an error in the FSs of a prior period should be reported, net of tax, in the current statement of retained earnings as an adjustment of the opening balance.
D (For interim reports, timeliness is emphasized over reliability. Therefore, the company will make more of an effort to get the reports out faster even if it sacrifices some of the reliability of the data presented.)
The Lester Corporation prepares its 2nd-quarter interim report under US GAAP. In preparing the reports, Lester will most likely... A. Book expenses based on when the company pays its vendors B. Book revenue based on when cash is received, with a reconciliation to accrual numbers at year end C. Have its auditors review and "sign off" on the report D. Prepare the interim report with less due diligence than it would use for the annual report in order to issue it faster
Selling price - Historical cost - Preliminary gain - Lease payback payments (find percentage of lease payback payments as a percentage of selling price) = Recognized gain
The deferred gain on a sale-leaseback transaction is computed as what?
intraperiod
The amount of income tax expense (or benefit) allocated to continuing operations in _______________ tax allocation is the tax effect of pretax income or loss from continuing operations plus or minus the tax effects of changes in: 1. Tax laws or rates. 2. Expected realization of a deferred tax asset. 3. Tax status of the entity.
minimum
The amount to be capitalized for a finance lease is the present value of the ______________ lease payments.
income from continuing operations
The effect of recognizing or eliminating a deferred tax liability or deferred tax asset should be included in ________________ in the period of the change.
one year (twelve months)
The minimum operating cycle for purposes of reporting a "prepaid" current asset is this.
A (The reconciliation of governmental fund financial statements to government-wide presentations would be found on either the face of the financial statements or in accompanying schedules with expanded disclosure in the notes to the financial statements, both of which are components of the Basic Financial Statements defined by GASB #34.)
The reconciliation of governmental fund financial statements to a gov-wide presentation would most likely be found in a city's A. Basic financial statements B. Notes to the financial statements C. MD&A D. RSI
A
The reporting of comprehensive income would include or display: A. Net income B. Proceeds from sale of stock C. Dividends D. Comprehensive income per share
temporary
There are four basic causes of ________________ taxable income differences, which reverse in future periods. 1. Revenues or gains that are included in taxable income, after they have been included in financial accounting income, which results in a *deferred tax liability*. 2. Revenues or gains that are included in taxable income, before they are included in financial accounting income, which results in a *deferred tax asset*. 3. Expenses or losses deducted from taxable income, after they have been deducted from financial accounting income, which results in a *deferred tax asset*. 4. Expenses or losses deducted for taxable income, before they are deducted from financial accounting purposes, which results in a *deferred tax liability*. 5. Additional causes of temporary differences are: ^Differences between the financial reporting and tax basis of assets and liabilities arising in a business combination accounted for as an acquisition. ^Differences in the tax basis of assets due to indexing, whenever the local currency is the functional currency.
cash basis
This basis of BS reports only cash and equity, while modified cash basis balance sheet may also include inventory, investments at fair value, fixed assets net of AD, short-term and long-term debt, and/or accrued income taxes. -to convert from cash/modified cash => accrual, all assets and liabilities at year end that aren't already in BS must be added to it, with equity = A - L
change
This in accounting estimate occurs when it's determined that the estimate previously used by the company is incorrect. -caused by: 1. change in lives of fixed assets 2. adjustments of year-end accrual of officers' salaries and/or bonuses. 3. write-downs of obsolete inventory 4. material, nonrecurring IRS adjustments, settlement of litigation, changes in accounting principle in separate from estimate, tensions of estimates of discontinued operations.
IFRS
This requires submission of at least 2 BSs, 2 statements of comprehensive (and net, if using the 2-statement approach) income, 2 statements of changes in equity, 2 statements of CFs, related notes.
(impairment loss of components assets) + (component's year 3 net losses) = (total losses on discontinued components) + tax savings (tax rate x total losses) = loss from discontinued operations
To compute income (loss) from discontinued ops using Sim 1 from FAR as an example, what are the steps?
B (Program services are the activities for which the organization is chartered. Support services include everything not classified as program services, including fund raising, administration and membership development. Expenses are classified as follows: Program Services Assistant golf professionals $ 180,000 Upscale linens and supplies 65,000 $ 245,000 Support Services Membership development staff $ 35,000 Promotional brochures 55,000 $ 90,000 The remaining costs for renovations and pro shop inventory would be capitalized consistent with commercial accounting.)
Top Notch Golf & Country Club is organized as a not-for-profit organization. The club has experienced rapidly-declining membership in recent years and its board-of-directors has made increased membership a major objective. The club incurred the following outlays at the end of the current fiscal year: -$250k in renovations to locker rooms -$180k for new assistant golf professionals -$220k for upgrades to pro-shop inventory -$65k for upscale linens and restaurant supplies -$35k for staff dedicated to membership development -$55k for promotional fundraising brochures The outlays listed below should appear in which expense classifications: Program services Support Services A. $715k $90k B. $245k $90k C. $245k $340k D. $465k $90k
IFRS
Uncertain tax positions are not specifically addressed by _______. Under this type of financial reporting, the tax consequences of events should be accounted for in a manner consistent with the expected resolution of the tax position with tax authorities as of the balance sheet date.
E. All of the above :)
Under GAAP and IFRS, which of the following would be included in income from continuing operations on the income statement: A. large loss from foreign currency transaction B. union strike that shuts down operations for three months C. A foreign government seizes the company's plant D. damage to a factory due to an unusual earthquake E. All of the above
book value
Under GAAP, equipment cost - AD = ?
balance sheet
Under GAAP, the components of a net deferred tax liability or asset should be disclosed, including the total of: -All deferred tax liabilities -All deferred tax assets -The valuation allowance for deferred tax assets Other balance sheet disclosures include: -The net change during the year in the total valuation allowance. -The tax effect of each type of temporary difference and carryforward that is significant to the deferred tax liability or asset.
dollar-value LIFO
Under GAAP, this equals: current year cost / current year price index = base; sum of current year layer (current year layer is the difference between this year's base and last year's base) x current year price index, and previous years' layers and their price indexes = yrly depr
noncurrent
Under IFRS, all deferred tax assets (DTA) and deferred tax liabilities (DTL) are netted and the net amount is reported as (current or noncurrent?) on the balance sheet:
recoverable amount
Under IFRS, the goodwill impairment test is a "one-step" (really two-step) test in which: 1. determine *recoverable amount* (the *greater of* the *CGU's fair value less costs to sell* and its *value in use* (PV of future cash flows expected from the CGU). 2. *compare the recoverable amount to the carrying value* of a cash-generating unit (CGU)
capital
Under U.S. GAAP, a lease is classified as a ___________ lease if it meets *at least one* of the *"OWNS"* criteria: 1. *O*wnership transfers to the lessee at the end of the lease 2. *W*ritten Bargain 3. *N*inety % of FMV of leased property < present value of lease payments 4. *S*eventy-five % of life is committed in the lease term
inflow
Under U.S. GAAP, interest received on an investment is a CFO inflow or outflow, regardless of the classification of the investment?
lesser
Under U.S. GAAP, the research and development costs of developing a patent should be expensed. The patent will be capitalized and amortized over the _____________ of legal life or economic life.
liquidation basis
Under US GAAP, if an entity's liquidation is imminent (and the entity is therefore no longer considered to be a going concern), FSs are prepared under this basis of accounting.
1. yes 2. no
Under US GAAP, is the cumulative effect of an inventory pricing change on prior-year earnings reported on the FSs for: 1. LIFO -> weighted average? 2. weighted average -> LIFO?
continuing operations
Under US GAAP, items that are both unusual and infrequent are reported as a separate component of income from what?
income statement
Under US GAAP, the amount of income tax expense (or benefit) allocated to continuing operations and the amount(s) separately allocated to other item(s) must be disclosed on which financial statement?
C
Under US GAAP, what method of accounting must be used in the preparation of financial statements for an entity that isn't considered a going concern? A. Realization basis B. Historical cost basis C. Liquidation basis D. Market basis
IFRS
Under __________, revaluation gains and losses are calculated as the difference between the fair value and carrying value (cost − accumulated depreciation) of the revalued assets on the revaluation date
GAAP
Under _____________, report percentage of investee's income using the equity method for an investment between 20 and 50 percent.
Only when progress billings exceed costs and estimated earnings. The excess of accumulated costs and estimated earnings over related billings will represent a current asset.
Under the % of completion method, when does a liability exist?
direct
Under the _________ method, *gains are not included in the calculation of operating cash flow.*
completed contract
Under the ______________________ method, revenue is recognized when the contract is complete, however expected losses are recognized immediately in their entirety.
1. more 2. less
Under the bonus method, the bnonus will be credited to the following partner: 1. existing partners: when the new partner pays this amount in relation to NBV. 2. new partner: when new partner pays this amount in relation to NBV.
contract price - total costs
Under the completed contract method, GP or loss is recognized as:
asset
Under the percentage completion construction method, if the sum of cumulative costs incurred plus cumulative gross profit recognized exceeds cumulative billings, the excess is reported as a current ____________. 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.
US GAAP and IFRS
Under this, comprehensive income may be presented in 2 ways: 1. single-statement of comprehensive income (single-statement approach) 2. income statement followed by a separate statement of comprehensive incmoe that begins with net income (2-statement approach).
IFRS
Under this, when an entity disclosing comparative info applies an accounting principle retroactively, or makes a retrospective restatement of items in the FSs, the entity must (at min.) present three balance sheets (end of current period, end of prior period, beginning of prior period).
IFRS
Under this, when the entity can't determine either the period-specific effect or the cumulative effect of an error, the entity is required to restate info prospectively from the earliest date that is practicable.
other comprehensive income (OCI)
Using the translation method, any gain or loss is reflected in ___________________.
accrued
Vacation pay should be ________________ if it either vests or accumulates.
A
Vadis Co. sells appliances that include a 3-year 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? A. When the machines are sold B. When payments are made to the mechanic C. When the service calls are performed D. Evenly over the life of the warranty
IFRS
Valuation allowances are not permitted under ____________. Instead, a deferred tax asset is recognized when it is probable (more likely than not) that sufficient taxable profit will be available against which the temporary difference can be utilized.
= OR greater than OR less than
When a partnership interest is created by the investment of additional capital into the partnership, the total capital of the partnership changes, and the purchase price can have what relation to BV?
an adjustment is required by GAAP or other regulatory requirements.
When an entity reissues its FSs, the entity shouldn't recognize events occurring between the issuance and available-to-be-issued date, unless what?
AR inventory prepaid assets investments at fair value fixed assets, net of AD AP accrued liabilities unearned revenue interest payable income taxes payable short-term and long-term debt
What are some common BS accounts to be recognized on the BS when converting from cash/modified cash basis => accrual basis?
1. all parties have approved the contract and have committed to perform their obligation 2. rights of each party regarding contracted goods/services are identified 3. PMT terms can be identified 4. contract has commercial substance (future CFs: amount, risk, and timing) are expected to change as a result of the contract 5. it is probable (based on customer's ability to pay and intent) that the entity will get all contract consideration when due.
What are the 5 criteria that must be met for revenue to be recognized (for contracts)?
1. COGS 2. insurance expense 3. depreciation expense 4. patents expense (amortization)
What are the expired costs (expenses) of these unexpired costs (assets): 1. inventory 2. unexpired (prepaid) cost of insurance 3. net BV of fixed assets 4. unexpired cost of patents
entries themselves are the same as %-completion method, but the values are $0, since under completed contract, revenues aren't recorded until the project (contract) is complete: Dr. construction expense $0 construction in progress $0 Cr. revenue $0
What are the journal entries to record revenue/cost during an intermediate (not final) year of construction under the completed contract method?
The Private Company Council (PCC)
What improves standard-setting for privately held companies in the US?
-when an entity has changed composition as a result of consolidation or a business combination. -restate prior-period FSs in consolidated FSs that include the acquired subsidiary (Retrospective Application).
What is a change in accounting entity, and how is it handled under the FSs under US GAAP?
Both a change in method and in ESTIMATE. These changes should be accounted as changes in estimate and handled prospectively. The new depreciation method should be used as the beginning of the year of change and should start with the current BV of the underlying asset. No retroactive or retrospective calculations should be made, or adjustments to retained earnings.
What is a change in depreciation classified as?
Freight out is a selling expense that should be accounted for as a period cost at time incurred.
What is freight-out? How should it be accounted for?
When they are included in the determination of segment profit/loss reported to the "Chief Operating decision maker"
When are income and expenses allocated to a segment?
more-likely-than-not
When discussing the uncertainty of tax positions, US GAAP requires a __________________ level of confidence before reflecting a tax benefit in an entity's financial statements.
50
What is the % deductible from taxable income for meals?
1 million
What is the IRC deductible $ limit on officers' compensation and Section 179 Depreciation?
no deduction until paid
What is the IRC treatment for Profit sharing and pension expense and Accrued expense (50% owner/family) to adjust taxable income
D (users can use this info to predict the future)
What is the primary reason discontinued operations are reported separately from continuing operations on the *income statement*? A. neutrality B. Faithful Representation C. Periodicity D. Predictive Value
-significant portion of their resources come from contributions and grants. -lack ownership interests that can be sold, transferred, or redeemed, or that allow a claim on resources upon liquidation (besides gov. bonds). -operating purposes are other than to provide goods/services for profit.
What separates business orgs from non-business orgs?
-FS titles should differentiate the OCBOA FSs from accrual basis FSs -required FSs are the equivalents of the accrual basis BS + IS -FSs should explain equity changes -statement of CFs not required -disclosures should be similar to GAAP disclosures and should include a summary of significant accounting policies, informative disclosures similar to those required by GAAP for everything similar to GAAP equivalents, disclosures related to items not on face of FSs, such as related party transactions, subsequent events, uncertainties.
Whate are some guidelines applying to all OCBOA FS presentations?
Dr: Cash Cr: partner 1 partner 2 partner 3 etc., including new and existing partners
Whats the JE to record a bonus to old p-ship partners under the bonus method? (conversely, debit old partners' contributions to new partner's bonus if they owe him)
C (Under the bonus method, any premium paid to the retiring partner is allocated to the remaining partners' accounts, based on the profit and loss ratios of the remaining partners.)
When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill's interest exceeded Mill's capital balance. Under the bonus method, the excess: A. Was recorded as an expense B. Had no effect on the capital balances of Yale and Lear C. Reduced the capital balances of Yale and Lear D. Was recorded as goodwill
-disclosures about new securities being offered for sale. -the relationship of the new securities to the company's other securities. -info similar to that filed in the annual filing. -audited FSs -a description of business risk factors
When a company issues new securities, it is required to submit a registration statement to the SEC that includes what?
completed contract
When a company uses this US GAAP method to account for a long-term construction contract, revenue is recognized when the job is completed, not when progress billings are collected or when they exceed recorded costs.
When the component is classified as "held for sale" (meets the following): 1. mgmt commits to a plan to sell the component 2. component is available for immediate sale in present condition 3. active buyer location program is started 4. sale is probable and expected to happen in less than one year 5. sale is marketed 6. unlikely that a change to the plan will be made or the plan will be withdrawn
When is the earliest that a component of an entity can be reported in discontinued operations?
C
When purchasing a bond, the PV of the bond's expected net future cash inflows discounted at the market rate of interest provides what info about the bond? A. Par B. Interest C. Price D. Yield
C (Debt securities (bonds) classified as held-to-maturity are reported at amortized cost (that is, cost adjusted for amortization of premium or discount; approaches face value). Debt securities classified as available-for-sale are reported at fair value.)
When the fair value of an investment in debt securities exceeds its amortized cost, how should each of these securities be reported at the end of the year? Debt Securities Classified As... Held-to-Maturity Available-for-Sale A. Fair value fair value B. Fair value amortized cost C. Amortized cost fair value D. amortized cost amortized cost
=
When the purchase price of a partnership has this relation to the BV of the capital account purchased, no goodwill or bonuses are recorded (problems with this on the exam don't reference goodwill or bonuses in the transaction). To determine this: 1. determine exact amount a new partner must pay to get his capital account in the exact proportional interest to partnership's new assets. 2. there's no goodwill or bonus. 3. old partners' capital account dollars stay the same 4. old partners' "percentage ownership" changes--but this change isn't required usually on CPA exam.
B
When the total consideration for a contract with multiple embedded obligations reflects a discount, the most appropriate way to assign that discount is to: A. Reduce the smallest obligation by the full amount of the discount B. Allocate it proportionally to all obligations within the contract C. Assign it to the obligation with the highest standalone price D. Assign it equally across all obligations
percentage-of-completion
When this method of recording revenue is used, engineering estimates of completion or "costs incurred to date" vs. "total estimate costs" is the basis for recognizing revenue, not progress billings.
1. creditors (including partners who are creditors) must be paid before noncreditor partners receive PMTs 2. Partners' capital: right of offset between a partner's loans to and from the p-ship and that person's capital balances generally exists in liquidation
Where a solvent p-ship is dissolved and its assets are reduced to cash, the cash must be used to pay the p-ship's liabilities in what order?
In the next period's income from continuing operations. This affects only current and subsequent periods (not prior periods or retained earnings).
Where are changes in estimate reported when errors are found in those of the previous period?
OCI (other comprehensive income)
Where are cumulative currency translation adjustments reported?
-effective portion = OCI -ineffective = IS
Where do you record the effective and ineffective portions of a cash flow hedge in the FSs?
B
Which of the following isn't a comprehensive basis of accounting other than GAAP? A. Basis of accounting used to file an income tax return B. Basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution C. cash receipts & disbursements basis of accounting D. Basis of accounting used by an entity to comply with the FR requirements of a governmental regulatory agency
C. planned and approved sale of segment
Which of the following qualifies as a discontinued operation? A. changes related to technological improvements B. phasing out a production line C. planned and approved sale of segment D. disposal of part of a line of business
comprehensive income
______________ is the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It *includes all changes in equity during a period except those resulting from investments by owners and distributions to owners*. = net income + other comprehensive income
A
Which of the following qualifies as a reportable segment? A. North American segment, whose assets are 12% of the company's assets of all segments, and reports to the chief operating officer B. Corporate HQ, which oversees $1b in sales for the whole company C. Eastern European segment, which reports its results directly to the manager of the European division, and has 20% of the company's assets, 12% of its revenues, and 11% of its profits D. 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
C
Which of the following should be disclosed in a summary of significant accounting policies? I. Management's intention to maintain or vary the dividend payout ratio II. Criteria for determining which investments as cash equivalents III. Composition of the sales order backlog by segment A. I and III B. II and III C. II only D. I only
C (Interest expense is a separate item on the IS)
Which of the following should be included in general & admin expenses? Interest Advertising A. No Yes B. Yes No C. No No D. Yes Yes
D (advertising is classified as a selling expense)
Which of the following should be included in general & administrative expenses? Interest Advertising A. Yes Yes B. Yes No C. No Yes D. No No
B (There is no retained earnings reported on a not-for-profit organization's financial statements. The correct term is net assets.)
Which of the following statements is NOT required for not-for-profit organizations? A. statement of cash flows B. statement of retained earnings C. statement of financial position D. statement of activities
finance
With a ______________ lease, the lessee should amortize the lease property over the *economic life of the asset* when there is a *written purchase option*, OR *when the lessee takes ownership of the asset at the end of the lease term.*
permanent
_____________ funds are used to report resources that are legally restricted to the extent that income, and not principal, may be used for purposes that support the reporting government's programs.
A (Form 3 is required to be filed by directors, officers, or beneficial owners of a class of equity securities of a registered company and would not contain financial statements. This form contains information regarding the filer's ownership of the entity's securities.)
Which of the following SEC filings would not include a set of financial statements? A. Form 3 B. Form 10-K C. Form 11-K D. Form 20-F
D (Form 8-K is filed to report major corporate events such as corporate asset acquisitions or disposals, changes in securities and trading markets, changes to accountants or financial statements, and changes in corporate governance or management. This form is filed when an event occurs rather than periodically.)
Which of the following SEC forms is not a periodic (quarterly, semiannual, annual) filing? A. Form 11-K B. Form 10-K C. Form 6-K D. Form 8-K
B (T/F: Extraordinary items are no longer recognized under U.S. GAAP. Only discontinued operations have separate earnings per share calculations and disclosures. Unrealized gains and losses on available-for-sale securities are part of other comprehensive income. Other comprehensive income items are direct charges to stockholders' equity and do not affect net income. They have no earnings per share calculations and disclosures.)
Which of the following WON'T have a separate earnings-per-share calculation and disclosure under GAAP? I. Extraordinary items of the period II. Discontinued operations III. Unrealized gains/losses on available-for-sale securities A. I and II B. All of the items will be shown with an earnings-per-share calculation and disclosure C. II and III D. I and III
D (The higher the interest coverage ratio (EBIT/interest expense), the better it is for the company paying interest on the debt. A more appropriate debt covenant would be for the interest coverage ratio to stay above (rather than below) a specific level.)
Which of the following choices is least-likely to represent an actual debt covenant? A. Working Capital levels can't fall below a specific amount B. Collateral can't fall below a specific amount C. The debt/equity ratio must stay below a specific level D. The interest coverage ratio must stay below a specific level
C
Which of the following info should be disclosed in the summary of significant accounting policies? A. Refinancing of debt subsequent to the balance sheet date B. Guarantees of indebtedness of others C. Criteria for determining which investments are treated as cash equivalents D. Adequacy of pension plan assets relative to vested benefits
A
Which of the following is not a cost associated with exit and disposal activities? A. Costs associated with the retirement of a fixed asset. B. Costs to relocate employees C. Costs to terminate contract that is not a capital lease D. Benefits related to involuntary employee termination
B
Which of the following is not a criterion in determining whether to disclose info in the footnotes to the FS about vulnerability to a concentration? A. The concentration exists as of the financial statement date B. The concentration pertains to a specific geographic region C. It is at least reasonably possible that the events that could cause a severe impact from the vulnerability will occur in the near-term D. The concentration makes the entity vulnerable to the risk of a near-term severe impact
C
Which of the following is not a disclosure requirement related to risks and uncertainties under US GAAP? A. A statement that actual results could differ from estimates included in the financial statements B. Disclosure of the relative importance of each business when an entity operates multiple businesses C. Disclosure of the vulnerability due to all the identified concentrations D. Estimates of the effects of the changes in significant estimates
D (Statement I is correct and statements II, III, and IV are incorrect. Statement II is incorrect because Level I measurements are quoted prices in active markets for identical assets or liabilities only. Quoted prices in active markets for similar assets or liabilities are Level II inputs. Statement III is incorrect because a fair value measurement based on management assumptions only is a Level III measurement and is acceptable when there are no Level I or Level II inputs or when undue cost or effort is required to obtain Level I or Level II inputs. Statement IV is incorrect because the level in the fair value hierarchy of a fair value measurement is determined by the level of the lowest level significant input.)
Which of the following statements is incorrect regarding the inputs that can be used to measure fair value? I. Level I inputs are the most reliable fair value measurements II. Level I measurements are quoted prices in active markets for identical or similar assets or liabilities III. A fair value measurement based on management assumptions only (no market data) would not be acceptable per GAAP IV. The level in the fair value hierarchy of a fair value measurement is determined by the level of the highest level of significant input A. I, II, IV B. I, II, III, IV C. I only D. II, III, IV
A (If a security deposit is refundable to the lessee, the lessor must book the deposit as a liability until it's returned to the lessee. Also, the lessor will keep the asset on his books and take depreciation over the life of the asset rather than the life of the lease. The LESSOR will also book any impairment charges.)
Which of the following statements regarding the lessor's accounting under an operating lease is most accurate? A. A refundable security deposit is booked as a liability until refunded to the lessee B. Depreciation is booked over the life of the lease C. Income earned over the life of the lease is part interest & part principal D. Any applicable impairment charges to the leased asset will be booked by the lessee.
measure tax benefit
Which step to recognizing tax position under GAAP do these tests comprise: -*Recorded Amount* a. Recognize the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the taxing authority. b. If the tax position is based on clear and unambiguous tax law, recognize the full benefit in the financial statements.
recognize tax benefit
Which step to recognizing tax position under GAAP do these tests comprise: -*Test "More-Likely-Than-Not"* a. The "more-likely-than-not" threshold must be met before a tax benefit can be recognized in the financial statements. b. The assessment is based on the expected outcome if the dispute with the taxing authority were taken to the court of last resort. -*Threshold Considerations* a. The threshold is based on the technical merits of the position. b. Presume that the relevant taxing authority will examine the tax position and has full knowledge of all relevant information. c. Each tax position should be evaluated separately. -*Test Failed* a. The tax benefit is not recognized in the financial statements if it fails to meet the "morelikely-than-not" test; and b. Financial statement tax expense is increased.
estates, trusts, civic ventures, political campaigns, committees
Who are some cash-basis users?
IFRS
Who requires disclsure of significant judgments made in preparing the FS, as part of the Summary of Significant Account Policies included in the Notes to the FSs? GAAP or IFRS?
No
Would non-monetary exchanges of common stock for productive assets be found in comprehensive income?
C (Long-term debt: net together depreciation of ($25k) with long-term loss of ($10k) to get $15k * .21 = $3,150)
Zeff Co. prepared the following reconciliation of its pretax financial statement income to taxable income for the year ended December 31, Year 1, its first year of operations: Pretax financial income $160,000 Nontaxable interest received on municipal securities (5,000) Long-term loss accrual in excess of deductible amount 10,000 Depreciation in excess of financial statement amount (25,000) Taxable income $140,000 Zeff's tax rate for Year 1 is 21 percent. In its December 31, Year 1, balance sheet, what should Zeff report as deferred income tax liability? a. $1,050 b. $2,100 c. $3,150 d. $4,200
B ($140k * .21)
Zeff Co. prepared the following reconciliation of its pretax financial statement income to taxable income for the year ended December 31, Year 1, its first year of operations: Pretax financial income $160,000 Nontaxable interest received on municipal securities (5,000) Long-term loss accrual in excess of deductible amount 10,000 Depreciation in excess of financial statement amount (25,000) Taxable income $140,000 Zeff's tax rate for Year 1 is 21 percent. In its Year 1 income statement, what amount should Zeff report as income tax expense— current portion? a. $27,300 b. $29,400 c. $32,550 d. $33,600
IFRS
_________ permits the use of enacted or substantively enacted tax rates.
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.
intraperiod
__________ tax allocation matches a portion of the provision for income tax to the applicable components of net income and retained earnings.
internal service
_____________ funds are set up to account for goods and services provided by designated departments on a fee basis to other departments and agencies within a single governmental unit or to other governmental units.
special revenue
_____________ funds are set up to account for revenues from specific taxes or other earmarked sources that are restricted or committed to finance particular activities for a government.
temporary
________________ differences in interperiod tax allocation are items of revenue and expense that may: —enter into pretax GAAP financial income in a period *before* they enter into taxable income. —enter into pretax GAAP financial income in a period *after* they enter into taxable income. -affect the deferred tax computation. -Items that are first recognized for tax purposes will eventually be recognized for GAAP purposes (or vice versa); therefore, the differences are temporary and will eventually "turn around." -These temporary differences affect future period(s) and require: —a liability (for future taxable amounts); or —an asset (for future deductible amounts). -These should be recognized in the financial statement until the difference turns around completely. -affect the deferred tax computation. -Items that are first recognized for tax purposes will eventually be recognized for GAAP purposes (or vice versa); therefore, the differences are temporary and will eventually "turn around." -These temporary differences affect future period(s) and require: —a liability (for future taxable amounts); or —an asset (for future deductible amounts). -These should be recognized in the financial statement until the difference turns around completely.
discontinued
________________ operations are a component of a company's core business or product lines that has been disposed of, and is reported *separately from continued operations* on the income statement.
permanent
___________________ interperiod tax differences are items of revenue and expense that either: —enter into pretax GAAP financial income, but never enter into taxable income (e.g., interest income on state or municipal obligations); or —enter into taxable income, but never enter into pretax GAAP financial income (e.g., dividends received deduction). -do not affect the deferred tax computation. They only affect the *current* tax computation. -These differences affect only the period in which they occur. -They do not affect future financial or taxable income.
stock option
a benefit in the form of an option given by a company to an employee to buy stock in the company at a discount or at a stated fixed price.
lower
a component classified as held-for-sale is measured at this of its carrying value amount or FV - costs to sell
capital deficiency
a debit balance in a partner's capital account indicating that the p-ship has a claim against the partner for the deficiency amount
III
a fair value measurement based on management assumptions only is a Level ___________ measurement and is acceptable when there are no Level I or Level II inputs or when undue cost or effort is required to obtain Level I or Level II inputs.
interest payment (given) - interest expense (explicit interest rate x old carrying value, aka total liability)
amortization of an operating lease PMT = ?
outflow
cash refunded to customers for returned goods will be an actual cash inflow or outflow?
net income + other comprehensive income
comprehensive income = ? (give equation)
-strategic shift having an important effect on operations and financials, i.e.: a. disposal of a major geographic area b. disposal of a major equity method investment c. disposal of a major line of business -a business or nonprofit meeting the requirements to be classified as held-for-sale, on acquisition
conditions required to be present for discontinued ops include...
unexpired costs
costs that will expire in future periods and be charged systematically against revenues from future periods
working capital (liquidity)
current assets - current liabilities
current ratio OR working capital ratio (liquidity)
current assets / current liabilities
1. tag = machine-readable vote giving a standard definition for each line item in FS and notes to FSs. Includes descriptive labels, definitions, GAAP references, other context info. 2. taxonomy = defines specific tags used for individual business/financial items; includes: a. WBRL US GAAP Financial Reporting Tax = maintained by FASB, FAF to reflect changes in US GAAP and SEC requirements and common practices b. XBRL IFRS taxonomy = maintained by IFRS, supported by XBRL Quality Review Team and Advisory Council c. Global Ledger Taxonomy = independent of other reporting standards/system types; permits flexible consolidation d. industry-specific taxonomies = commerce, industry, insurance, etc. e. company-specific tags = companies create tags they need. 3. instance document = XBRL-formatted doc containing tagged data.
define these key XBRL terms: 1. tag 2. taxonomy 3. instance document
-all noncash assets are converted into cash -all liabilities are paid -remainder, if any, is distributed to the partners.
describe the general procedure in a liquidation p-ship.
Forms 3, 4, 5
forms required to be filed by directors, officers, beneficial owners of more than 10% of a class of equity securities of a registered company
cash from interest + ending interest receivable - beginning interest receivable
give equation for interest revenue (BASE method)
(IDAPUFERRA) Income from continuing operations, Discontinued operations, Accounting principle change (retrospective), (Other comprehensive income:) Pension funded status change, Unrealized gain/loss on available for sale security, Foreign translation adjustment, Effective portion of cash flow hedge, Revaluation surplus (IFRS only), (Components of stockholders' equity:) Retained earnings for prior period adjustments and accounting principle changes (retrospective), Items of accumulated (other) comprehensive income (Any amount not allocated to continuing operations is allocated to other income statement items, other comprehensive income, or to shareholders' equity in proportion to their individual effects on income tax or benefit for the year. Such items (e.g., discontinued operations) are shown net of their related tax effects.)
give the components of intraperiod tax allocation.
net income + other comprehensive income
give the equation for comprehensive income.
cash payments for inventory - ending accounts payable + beginning accounts payable + beginning inventory - ending inventory
give the equation for cost of goods sold (BASE method)
net income - beginning retained earnings
give the equation for ending RE.
cash payments for insurance + beginning prepaid insurance - ending prepaid insurance
give the equation for insurance expense (BASE method)
cash payments for rent + beginning prepaid rent - ending prepaid rent
give the equation for rent expense (BASE method)
cash from renters - beginning rent receivable + ending rent receivable + beginning unearned revenue - ending unearned revenue
give the equation for rent revenue (BASE method)
cash from customers + ending accounts receivable - beginning accounts receivable
give the equation for sales revenue (BASE method)
Carryforward that will not be used * Tax rate (enacted)
give the equation for the Deferred tax asset valuation allowance (use * for the multiplication sign)
Investee div. income - exclusion
give the equation for the dividend received deduction for the income tax return in investee's undistributed earnings under GAAP
fair value of plan assets - projected benefit obligation (PBO)
give the equation for the funded status of a pension plan.
Deferred tax asset (NOL carryforward benefit) - Deferred tax asset valuation allowance
give the equation for the net realizable deferred tax asset
lease payment (yrly) - interest expense (Interest expense = remaining total lease liability x implicit interest rate on liability)
give the equation for the reduction of a lease liability (in yrly PMTs)
yearly depreciaiton expense + yearly accretion expense
give the equation for total ARO expense
cash payments for utilities + ending utilities payable - beginning utilities payable
give the equation for utilities expense (BASE method)
cash payments for wages + ending wages payable - beginning wages payable
give the equation for wages expense (BASE method)
cash paid for purchases + ending AP - beginning AP - ending inventory + beginning inventory = COGS
give the formula to convert from cash paid for purchases to accrual basis COGS
Dr Income tax expense-current, Income tax expense-deferred; Cr Income taxes currently payable, Deferred tax liability
give the journal entry to record the taxes on dividend income under GAAP
net income
gross sales - sales returns & allowances = net sales - COGS = gross profit - SG&A expenses = operating income +/- other income/loss (gain/loss on sale: PUFER) = income from continuing operations - income tax expense + gain from discontinued segment (*AFTER TAX*) = net income
gains
increases in equity from peripheral transactions and other events, except revenues and investments from owners.
investments by owners
increases in the equity of an entity resulting from transfers of cash, property, or services from owners.
costs to sell
incremental direct costs to transact a sale
yes
is Net capital gain recognized as part of FS income and taxable income?
1. traditional approach: interest rate selection is paramount; 1 discount rate used to take the PV of future CFs--assets and liabilities have fixed, contractual values. 2. expected cash flow approach: uses only risk-free rate of return as the discount rate; pays attention to expected future cash flows.
list the 2 approaches to determining PV under SFAC No. 7.
A
management's evaluation of the entity's ability to continue as a going concern should: A. Occur for each annual and interim reporting period B. Consider only quantitative factors, such as cash on hand and obligations due before the fiscal year-end date C. Consider only those obligations due or anticipated in the next year that are recognized in the financial statements D. Consider only relevant conditions that are known with certainty at the time the financial statements are issued
cash
many small businesses use this basis or modified cash basis of accounting for daily transactions, but may have to convert them to accrual basis
AR turnover (activity)
net credit sales / average net receivables
return on total assets (profitability)
net income / average total assets
net profit margin (profitability)
net income / net sales *net income = net profit
DuPont return on assets (alt. version) (profitability)
net profit margin x total asset turnover
total asset turnover (activity)
net sales / average total assets
FV at contract inception
non-cash consideration for a contract should be measured at this.
operating CF/total debt (long-term debt paying ability)
operating CF / total debt
performance obligation
promise to transfer a good or service to a customer (or bundle)
Dr. contracts receivable XX Cr. progress billings XX
record billings on contract under % completion method (same as completed contract method)
-entity's performance creates/enhances an asset that the customer controls. -customer receives and consumes the benefits of the entity's performance as the entity performs it (i.e., cleaning or payroll services. -entity's performance doesn't create an asset with alternative use to the entity(assessed at inception) and the entity has an enforceable right to receive PMT for performance completed to date.
revenue is recognized over time if 1+ of what criteria is used?
contracts for leases, insurance, non-warranty guarantees, financial instruments
revenue recognition not expected from what?
1. entity has a right to PMT and customer has an obligation to pay for the asset 2. customer has legal title to the asset 3. entity has transferred physical possession of the asset 4. customer has significant rewards and risks of ownership 5. customer has accepted the asset
revenue should be recognized at a point in time when the customer gains control or the asset control implies what 5 things?
working capital turnover (activity)
sales / average working capital
a. cash basis revenue => accrual basis revenue b. cash paid for purchases => accrual basis COGS c. cash paid for op. expenses => accrual basis op. expenses -also: recognizing non-cash expenses like depreciation, capitalizing fixed asset purchases, reducing fixed asset balance for assets sold during teh period and recognize G/L on sale, debt proceeds, debt re-payments.
the primary adjustments required to convert from cash basis/modified cash basis IS => accrual basis IS include: a. converting cash basis revenue => accrual basis revenue b. converting cash paid for purchases => accrual basis COGS c. converting cash paid for operating expenses to accrual-basis op. exp.
opposite
the process of converting from the cash-basis IS to the accrual basis IS is this of the process used to prepare the statement of CFs from the accrual basis FSs (operating section of FSs)
at contract inception
the standalone selling price and any applicable discount/variable consideration of each distinct good/service underlying each performance obligation should be determined when?
To provide information on the business activities and economic environment of a company to help users of the FS: 1. better understand the entity performance 2. better assess its prospects for future net cash flows 3. make more informed judgments about the entity as a whole.
what is the objective of segment reporting?
research and development
work directed toward the innovation, introduction, and improvement of products and processes.
1. events after the reporting period 2. adjusting events after the reporting period 3. non-adjusting events after the reporting period.
-Under IFRS, subsequent events are referred to as "1," and the subsequent event evaluation period extends from the reporting period, then the date the FSs are authorized for issuance. -recognized subsequent events = "2" -nonrecognized subsequent events = "3" -states that an entity can't prepare its FS on a going concern basis if management determines after year end that it intends to cease trading
large accelerated filer
-difined by the SEC as an issuer with a worldwide market value of outstanding common equity held by nonaffiliates of $700m and as of the last business day of the issuer's most recently completed second fiscal quarter. -defined as an issuer with a worldwide market value of outstanding common equity held by nonaffiliates of $75m +, but less than $700m.
revised FSs
-financial statements that have been revised to correct an error or to reflect the retrospective application of US GAAP. -are considered reissued FSs. -if the entity isn't as SEC filer, the entity should disclose in its revised FSs the dates through which subsequent events have been evaluated in both its issued/availble-to-be-issued FSs and its revised FSs (not reconciled for SEC filers).
complete
-part of faithful representation -this depiction of financial info includes all info necessary for the user to understand the reported economic event, including descriptions and explanations.
To public companies only. It doesn't apply to not-for-profit organizations, non-public companies, or separate FSs of members of a consolidated group if both the separate company statements and the consolidated/combined FSs are included in the same financial report.
To whom does segment reporting apply?
1. valuation techniques 2. hierarchy of the inputs that can be used in these valuation techniques.
US GAAP and IFRS have established a framework for measuring fair value that: 1. outlines the (1) that can be used to measure FV. 2. establishes a hierarchy of (2)
percentage-of-completion
Under this method, annual GP = [total cost incurred divided by total expected cost] x total expected GP - total GP previously recognized -in the final year of the contract, actual rather than expected amounts are used.
True
T/F: Fair value measurement assumes that a liability/entity's own equity instrument is transferred to a market participant at measurement date and assumes that the liability/equity interest would remain outstanding and wouldn't be settles=d, cancelled, or extinguished on the measurement date.
T
T/F: GAAP doesn't require intraperiod tax allocation to operating income. Only select items on the income statement are shown "net of tax" and operating income isn't one of them.
periodicity assumption
a fundamental assumption (SFAC No. 5) economic activity can be divided into meaningful time periods
expense recognition principle
accrual accounting part of Fundamental Assumptions and concerns (SFAC No. 5) expenses are necessarily incurred to generate revenue and are matured against revenue in that period, or are recognized when cash is spent or liabilities are incurred (i.e. SGA expenses) losses may result when it is evident that future economic benefits of an asset have been reduced or eliminated
reportable segments.
-operating segments of an entity that meet the criteria for separate reporting. -must have similar characteristics in: -nature of products/services. -nature of production processes. -type/class of customer for their products and services. -methods used to distribute their products/services. -if applicable , the nature of the regulating environment (i.e., banking, insurance, public utilities).
level 2 inputs
-pertain to fair value's "hierarchy of inputs." -inputs other than quoted market prices (level 1) that are directly or indirectly observable for the asset or liability. -inputs include: -inputs derived from corroborated by observable market date. -quoted prices for assets/liabilities markets. -quoted prices for similar liabilities when traded as assets. -inputs other than quoted prices that are observable for asset/liability.
non-recognized subsequent events
-type of subsequent event -entity shouldn't recognize subsequent events that didn't exist at BS date -include: sale of bond/capital stock business combination settlement of litigation, if the litigation arose after the BS date loss of plant/inventory due to fire/natural disaster changes in FV of assets, liabilities, foreign exchange rates entering into significant commitments/contingent liabilities loss on receivables resulting from conditions occurring after BS date
T
T/F: Gains on sale/leaseback transactions where the present value of the lease payments is more than 10% of the market value of the leased back asset will be deferred to some extent.
True
T/F: If an entity isn't an SEC filer, then the entity must disclose the date on which subsequent events have been evaluated, including whether that date is the date the FSs were issued or available to be issued. Not required for SEC filers.
True
T/F: To conform with US GAAP and IFRS, FSs for public business entities must report information about a company's: -operating segments (annual and interim) -products and services -geographic areas -major customers
most advantageous market.
-pertains to fair value measurement. -the market with the best price for the asset (maximizes selling price of the asset or liability--minimizes PMT to transfer liability) after considering transaction costs (transaction costs aren't, however, included in the final FV measurement) -price in this market will be the FV measurement only if there is no principal market.
principal market.
-pertains to fair value measurements -the market with the greatest volume or level of activity for the asset or liability -its price for the asset/liability will be the fair value measurement EVEN if there is a more advantageous price in a different market. -reporting entity must have access to the principal market at measurement date.
market participants.
-pertains to fair value measurement. -buyers and sellers who are independent (not related parties), knowledgeable about the asset/liability, able to transact for the asset/liability, and willing to transact for it. -these buyers and sellers are supposed to be acting in their economic best interest.
25
In noncash exchanges: 1. Ratio of boot : total consideration RECEIVED (FV) <- If this is less than 25%, multiply by realized gain to get recognized gain 2. Ratio of boot : total consideration GIVEN (FV) <- If this is ______% or more, recognize the whole realized gain