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F1 Flashcards

1
Q

Neutrality, completeness, & freedom from error

A

Faithful Representation

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2
Q

Predictive Value

A

Helps users forecast future outcomes

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3
Q

Essential Characteristic of Asset

A

An asset provides future benefits

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4
Q

How are amendments incorporated into FASB Accounting Standards Codification?

A

By releasing an Accounting Standards Update

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5
Q

Relevance

A

Predictive value, confirming value, & materiality

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6
Q

FASB amends Accounting Standards Codification through issuance of?

A

Accounting Standards Updates

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7
Q

Royalties agreement with company, royalties paid as expense are reported?

A

At date the royalty agreement began

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8
Q

Process - reporting item in financial statements of an entity

A

Recognition

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9
Q

Not SFAC #7 as 5 Elements of present value measurement used to establish value of assets/liabilities using cash flow

A

Risk Tolerance of Management

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10
Q

FASB framework: useful info must exhibit fundamental qualitative characteristics of

A

Faithful representation and relevance

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11
Q

Most authoritative sources of U.S. GAAP

A

FASB Statements of Financial Accounting Standards

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12
Q

Changes - existing authoritative GAAP for nonissuer, nongovernmental entities communicated by financial accounting standards board through issuance

A

Accounting Standards Updates

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13
Q

Primary objective of financial reporting

A

To provide economic information that is comprehensive to all users

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14
Q

When are accounting standards updates issued

A

Only after majority vote of members of FASB

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15
Q

Purpose of not-for-profit statement of activities provide relevant information to

A

Resource providers

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16
Q

Interim financial statements described as emphasizing which enhancing qualitative characteristics

A

Timeliness

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17
Q

True regarding comparison of managerial to financial accounting

A

Managerial accounting need not follow GAAP while financial accounting must follow them

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18
Q

FASB is not responsible for

A

Prescribing standards related to a robust system of internal control

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19
Q

Who can not use the entity’s resources

A

Shareholders have no responsibility or right

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20
Q

Appropriate measurement basis for ended operations and dispose of assets within three months

A

Net Realizable value

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21
Q

What influences or makes a difference to a decision maker

A

Both Materiality & Relevance

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22
Q

Under FASB framework- what is a fundamental qualitative characteristic & component of it

A

Relevance & materiality

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23
Q

Single source of U.S. GAAP. U.S. public companies are required to follow U.S. GAAP

A

FASB Accounting Standards Codification

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24
Q

Characteristic that enhances relevance & faithful representation

A

Timeliness

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25
Q

An entity’s revenue may result from

A

A decrease in a liability from primary operations

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26
Q

Interim financial reporting should be viewed primarily in way

A

Reporting for an integral part of an annual period

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27
Q

When a cpa is applying the enhancing qualitative characteristics of useful financial information

A

An iterative process that does not follow a prescribed order

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28
Q

Amount of cash/equivalent assets paid to acquire currently

A

Replacement cost

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29
Q

Corporation sold fixed asset used for operations for greater than carrying amount, Corp should report transaction on income statement using the

A

Net concept, showing total gain as part of continuing operations, not bet of income taxes (fixed asset is not a component of an entity)

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30
Q

What are interest expense & advertising expenses considered?

A

Interest expense: separate line item

Advertising: selling expense

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31
Q

Under US GAAP, how should a material transaction that is “infrequent in occurrence” and/or “unusual in nature” should be presented?

A

Gain or Loss must be presented separately as a component of “income from continuing operations”

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32
Q

How would merchandise display be expensed as if used for five years in year 1 of multi-step income statement

A

One-fifth of cabinet cost (depreciation expense) in selling, general, and administrative expenses for Year 1

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33
Q

If company pays state equivalent of three months of sales taxes on projected retail sales and a amount is fully refundable after five years what would it be classified as?

A

A noncurrent asset (because refund is realized beyond normal operating cycle or one year)

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34
Q

When fixed asset is sold, gain or loss is recognized as past of income from

A

Continuing operations: amount of gain or loss is equal to difference between proceeds from sale & carrying amount of fixed asset sold

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35
Q

Under US GAAP, a gain that is both unusual & infrequent should be reported as

A

Income from continuing operations

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36
Q

Three bank accounts: 1 segregated for 9/17 payment into a bond sinking fund, 2 branch operations is overdrawn, 3 corporate operations with positive balance. How should they be reported?

A
  1. Segregated account as noncurrent asset
  2. Overdraft should be current liability
  3. Regular account should be current asset
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37
Q

If a disaster has frequently happened over the years and a corporation does not pay for insurance regarding repairs/ selling damaged vans & replace them. How should the disaster damage be reported?

A

Actual year hail damage loss in continuing operations, with no separate disclosure (if disasters are frequent, it’s not unusual)

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38
Q

Premium on 4 year insurance policy expiring on Dec 31, Year 4 was paid in total on January 3 Year 1, if company has six month operating cycle, on Dec 31 Year 2, the prepaid insurance reported as current asset would be for?

A

Prepaid current assets is one year (or 12 months)

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39
Q

Could recovery of accounts written off be considered revenue in an income statement?

A

No recovery of accounts written off does not hit the revenue account

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40
Q

Items of income/loss that are unusual or infrequent (or both) should be reported separately as part of

A

Income from continuing operations

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41
Q

What are considered general & administration expenses?

A

Accounting & legal fees, officers salaries, & insurance

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42
Q

Freight-in is part of

A

Cost of goods sold

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43
Q

Freight-out, salaries and commissions, & advertising

A

Selling expense

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44
Q

Income from continuing operations happens

A

After tax

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45
Q

Interest expense is before or after tax

A

Before Income tax

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46
Q

Net Sales - Cost of Goods Sold =

A

Gross Profit

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47
Q

If a contribution comes from employees would that be charitable contribution

A

No

48
Q

Which of the following are NOT included in Total Revenues:
Net sales revenue, interest revenue, gain on sale of equipment, loss from operations of component (dis continued), gain in disposal of component (discontinued operations)

A

Gain in disposal of component, loss from operations component. (Discontinued Operations)

49
Q

Would a disposal of a business be considered continuing operations?

A

No disposal of a component of a business is a discontinued operation

50
Q 
Which amounts are included in. Current assets in balance sheet:
Cash $65k ($14k included for a from bond sinking fund)
AR $32K
Allowance for doubtful accounts $14K
Deposits received from customers $3K
Merchandise Inventory $7K
Unearned rent $1K
Investment in trading securities $4
A

$80K

$51K cash + $32K AR - 14K AFDA + $7K inventory + $4K investment trading securities

51
Q 
What is the total current liabilities amount?
$19k AP
$34k Bonds payable, due year 2
$4k.  Deferred income tax payable
$2k discount on bonds payable
$5k dividends payable 2/15/year 2
$9  income tax payable
$6k Notes Payable
A

$65k

Accounts Payable + bonds pancake due year 2 - discount on bonds payable + dividends payable + income tax payable

52
Q

Concept industries is preparing its income statements for the year emended December 31. In preparing the statement, the line item displayed before considering income tax effect is:

A

Income (loss) from operations

53
Q

Would an adjustment for the prior year understatement Of amortization expense show up in net income

A

NO because it is a prior period adjustment and would be reflected on beginning retained earnings not to the income statement

54
Q

When dealing with net income should gain from discontinued segment be taxed as well

A

Yes, one must consider the after tax amount when dealing with net income

55
Q

A liability until the service has been performed

A

Deferred Revenue

56
Q

When service contracts (12 to 36 months) are sold does deferred revenue and/or service revenue increase?

A

Only deferred revenue

57
Q

Entered contract on 4/15 for $215k in regards webcams being produced for the amount of $175k. The buyer will pay for it on 7/31. Then it will be delivered by 8/31. What would the journal entry include on 8/31?

Credit to cost if goods sold if $175k
Debit to unearned sales revenue of $215k
Credit if cash of $215k
debit to inventory of $175k

A

Debit to unearned sales revenue of $215k

4/15 no entry
7/31:
Cash $215
Unearned rev $215

8/31:
Unearned rev. $215
Sales revenue $215
Cost of goods sold $ 175
Inventory. $175

58
Q

Xyz equipment is sold with a two year contract and single payment of $20k. The fair value of the equipment was $18k. Xyz recorded the transaction if $20k to cash and credit sales revenue. Which of the following is correct?

Total assets will be overstated
The financial statements are correct
Net income will be overstated
Total liabilities will be overstated

A

Net income will be overstated

($18k is for the equipment and $2k is for the two year service contract meaning the $2k received should be credit for deferred revenue and not sales revenue)
Cash $20
Sales revenue $18
Deferred rev. $ 2

59
Q

Customer begins to rent out apartment in August of year 1 for $1k per month. The customer paid $540 as a no refundable fee for allowing the customer to rent for only one year. The customer has also prepaid for January’s rent in Dec. How much would the apartment complex record a rent revenue?

A

$5,225

Sign up fee: ($540/12 months) x 5 months = 225

Monthly rent: $1k x 5 = $5,000

60
Q

Radical Co began construction project schedule for completion in Year 3. At December 31, Year 1 an overall loss was anticipated at contract completion. What effect of the project on Year 1 operating income under US GAAP percentage to completion & completed -contract methods?

POC.            COMPLETED Contract
No effect.         No effect
Decrease.         Decrease
Decrease.         Decrease
No effect.          Decrease
A

Decrease. Decrease

61
Q

Company used the percentage of completion method of accounting for a four year construction contract. Which if the following items would be used to calculate the income recognized in the second year?

Inc. Prev Recon. Progress Bil to Date
Yes. Yes
No. Yes
Yes. No
No. No

A

Yes No

When using POC method of accounting for a four year construction contract, income previously recognized would be used to calculate the income recognized in the second year (but not progress Billings to date).

62
Q

Calculation of income recognized in the third year of a five-year construction contract accounted for using the percentage of completion method includes the ratio of?

A

Total costs incurred to date to total estimated costs

63
Q

What would result in a company booking a transaction as a financing arrangement?

A

When the repurchase price is equal to or greater than the original sale price & the expected market value

64
Q

During a percentage of completion method construction project, when would one recognize an estimated loss?

A

An estimated loss is recognized immediately

65
Q

When is the earliest period that a component of an entity can be reported in discontinued operations?

A

When the component meets the “held for sale criteria”

66
Q

What is the “held for sale” criteria

A
  1. Management commits to a plan to sell component
  2. Component is available for immediate sale in present condition
  3. Active program to locate buyer has initiated
  4. Sale is probable & sale is expected to be completed within 1 year
  5. Sale of component is being actively marketed
  6. Unlikely significant change to plan to sell will be made/ plan withdrawn
67
Q

Which of the transactions qualify as a discontinued operation?

Planned & approved sale of segment
Disposal of part of a line of business
Changes related to technological improvements
Phasing out of a production line

A

Planned and approved sale of a segment

68
Q

Loss from discontinued operations before consideration of taxes for the year ended would include?

A

Loss throughout the year plus (book value - fair market value)

69
Q

How to calculate tax for discontinued operations if there was a 30% tax rate?

A

70%

1-30%

70
Q

How should the effect of a change in accounting estimate be accounted for?

A

In the period of change & future periods of the change affects both

71
Q

When there is a change in the reporting entity, how should the change be reported in the financial statements?

A

Retrospectively, including note disclosures, and application to all prior period financial statements presented

72
Q

Per U.S. GAAP, financial statements of all prior periods presented should be restated when there is a

A

Change in Entity

73
Q

Change in entity results in?

A
  1. Changing companies in consolidated financial statements

2. Consolidated financial statements versus previous individual financial statements

74
Q

Under U.S. GAAP if company is not presenting comparative financial statements, the correction of an error in the financial statements of prior period should be reported, net of applicable income taxes, in the current

A

Retained earnings statements as an adjustment of the opening balance

75
Q

A change from cash basis of accounting to the accrual basis of accounting during the current year. The cumulative effect of this change should be reported in Lore’s current year financial statements as a?

A

Prior period adjustment resulting from the correction of an error.

76
Q

Is cash basis for financial reporting a generally accepted accounting basis of accounting (GAAP)

A

No: therefore it is an error

77
Q

Under U.S. GAAP, is the cumulative effect of an inventory pricing change on prior years earnings reported on the financial statements for

LIFO to W. Av. W. Av. to LIFO
Yes. No
Yes. Yes
No. No
No. Yes

A

Yes. No.

(In a change to LIFO, the beginning inventory dollar amount becomes the first LIFO layer). No cumulative effect adjustment is made

78
Q

Cumulative effect of a change in accounting principle is only used for changes in

A

Accounting principle

79
Q

Pro forma effects of retroactive application of new depletion base is used for changes in

A

Accounting principle

80
Q

A change from LIFO to FIFO for inventory valuation (costing) is a change in

A

Accounting principle

81
Q

A change in depreciation method is now considered to be a

A

Change in both estimate and accounting principle so in other words an accounting estimate

82
Q

If there is both an accounting estimate and accounting principle made, then it will be considered

A

An accounting estimate

83
Q

How should the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate be reported?

A

As a component of income from continuing operations

84
Q

In co company did not record a credit purchase of merchandise made in prior year but correctly included it in the year end physical inventory, what effect did the omission of reporting the purchase have to Co company’s balance sheet at year-end for Assets & Liabilities?

A

Assets no effect

Liabilities understated

85
Q

A change in accounting estimate must be handled

A

Prospectively

86
Q

To include an adjustment for inventory not recorded being added to retained earnings, one must

A

Less applicable tax before adding into retained earnings

87
Q

Depreciation from prior year not reported must be treated as ….. in current year?

A

An increase in accumulated depreciation for the full “gross” amount

88
Q

When it comes to year end inventory balances one must

A

Compare the difference

89
Q

Change in accounting estimate is

A

Prospective (current and future)

90
Q

Change in accounting principle

A

Retrospective (change in prior periods)

91
Q

An error correction is accounted for by

A

Restating all prior periods

92
Q

Could a company change the accounting principle to stimulate the company’s stock price

A

No it’s not acceptable unless the financials are better for the users of them

93
Q

When it comes Change of accounting principle, change to LIFO it is impractical but the method of accounting used would be

A

Prospective

(Switching to LIFO makes it prospective

94
Q

Why must reclassification adjustments must be shown in the financial statement that disclosed comprehensive income:

A

To avoid double counting in comprehensive income items, which are displayed in net income

95
Q

Which of the following should be shown as a component of comprehensive income?

  1. Deferred revenue
  2. foreign-currency translation adjustment
  3. Additional capital contribution
  4. Dividend paid to a shareholder
A
  1. Foreign-currency translation adjustment (included in other comprehensive income)
96
Q

Foreign currency items, instrument specific credit risk, charges in funded status of a pension plan, unrealized gains & losses for available for sale debt securities

A

Other Comprehensive Income

97
Q

Net income + Other comprehensive income =

A

Comprehensive Income

98
Q

All changes in stockholders’ equity that comes from no owner sources

A

Comprehensive Income

99
Q

Where would other comprehensive income be reported?

A

Stockholders equity section of balance sheet

100
Q

Prior services cost not recognized in net periodic pension cost must be

A

Subtracted from the other comprehensive income amount

101
Q

Low co paid $7,200 to renew insurance policy for three years on 3/1/5 the effective date of policy. At 3/31/5 Low’s unadjusted trial balance showed a balance of $300 for prepaid Insurance & $7,200 for insurance expense. What amounts should be reported for prepaid insurance & insurance expense in Low’s financial statements for the three months needed 3/31/5?

A

Prepaid: 7,000 (7200 x 35/36)

Insurance Expense: 500 (300 + 200)

102
Q

Rice Co salaried employees are paid biweekly. Advances made to employees are paid back by payroll deductions. Information relating to salaries follows:
Year 1. Year2
Employees advances: 24,000. 36,000
Accr. Salaries Pay: 40,000. ?
Salaries Expense: 420,000
Salaries Paid (Gross) 390,000
What is the accrued salaries payable?

A

$70,000 (beg bal $40,000 + $420,000 - $390,000)

103
Q

Year-end accrues: $500 advertising bill with $375 related to year 1, store lease, effective December 16, year 0, calls for fixed rent of $1,200 per month, payable one month from effective date and monthly thereafter. Also 5% of net sales over $300,000, net sales were $550,000.
What is the accrued liabilities balance at 12/31/1?

12,875
13,000
13,100
13,475

A

$13,475 (375 + 600 + 12,500)

1,200 x 1/2 = 600

550,000 - 300,000 = 250,000

250,000 x 5% = 12,500

104
Q

Car Co reported accrued investment interest receivable of $38k and $46.5k at January 1 and December 31, respectively. During the year, cash collections from the investments included the following:

Capital gains distribution: $145,000
Interest: $152,000

What amount should Car report as interest revenue from investments?

A

$160,500

Beg bal $38,000 + 160,500 - 152,000 = $46,500

105
Q

$100k, 12% interest rate, borrowed 5 years ago: interest payable 3/31. & 9/30.
$75k, 10% interest rate, borrowed 2 years ago: interest payable 3/1, 7/1, 10/1, 1/1
$200k, no interest bearing note, borrowed 7/1 of current year.

What amount should be reported as interest payable in 12/31 balance?

A

$4,875

(100k x 12% x (3/12) = $3,000

($75k x 10% x (3/12) = $1,875

106
Q

Income from Continuing operations 450,000
Loss from discontinued operations 76,000
Unrealized gain on trading securities 21,000
Unrealized loss on available for sale securities 28,000
Foreign currency translation gain 35,000

Comprehensive income based on the numbers above will be closest to:

  1. 381,000
  2. 443,000
  3. 374,000
  4. 457,000
A
  1. 381,000

Comprehensive income is equal to net income (Which includes income from continuing operations and loss from discontinued operations) plus other comprehensive income (which includes unrealized loss unavailable for sale securities and foreign currency translation gain).
450,000 - 76,000 - 28,000 + 35,000 = 381,000

107
Q

When it comes to discontinued operations remember that the difference between the carry-on value and the…… Evaluate must be considered when Recording loss and they discontinued operations

  1. Carrying value
  2. Present value
  3. Fair value
  4. Book value
A
  1. Fair value
108
Q

The abandonement of assess no longer being used is also a normal activity and is included in income from…… Operations

A

Continuing operations

109
Q

PUFI =

A

Pension adjustments
Unrealized gains&losses on AFS & Cash flow hedge derivatives
Foreign currency translation Gains & losses
Instrument-specific credit risk

110
Q

Kong purchased at three months US treasury bill. Counts policy is to treat as cash equivalents are highly liquid investment with an original immaturity of three months or less one purchased. How should this purchase be reported in Kongs statement of cash flows?

  1. Not reported
  2. As an inflow from investing activities
  3. As an outflow from operating activities
  4. As an outflow from financing activities
A
  1. Not reported

(The US treasury bill is considered to be a cash equivalent item so purchasing the T-bill merrily changes the form of Cash Hill, it does not change the cash position of the entity. Dust, the purchase is not reported on the statement of cash flows. 

111
Q

For statement of cash flows:

Would depreciation be considered a source of cash flows?

A

No, it is merely an accounting adjustment

112
Q

The inclusion of which of the following components differentiates from the form10K from the form 10 Q?

  1. Management, discussion, analysis
  2. Disclosures
  3. Financial data
  4. Audited financial statements
A
  1. Audited financial statements
113
Q

A financial analyst is calculating basic and diluted earnings per share. The average market price of his company stock price during the year is $15 per share. The company currently has 10,000 warrants outstanding with a strike price of $18 per share. These warrants will?

  1. Not require an adjustment to diluted EPS because the warrants are out of the money
    2. Require an adjustment to diluted EPS because the winds are out of the money
  2. Not require an adjustment to the EPS because the warrants are in the money
  3. Require an adjustment to download it EPS because the warrants are in the money
A
  1. Not require an adjustment to diluted EPS because the warrants are out of the money

(Because the strike price is higher than the average market price it is out of the money and does not require a adjustment

114
Q

Anytime a stock dividend or a stock split is issued, it is treated as if it happened at the………….. of year

A

Beginning of year

115
Q

For external revenue to Pass the sufficiency test, all of the external revenue signals must equal…… Percent of external revenue for the company overall

  1. 50%
  2. 75%
  3. 80%
  4. 90%
A
  1. 75%

FAR (7 decks)

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