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Question 1

If an investment in 30% of another company is accounted for using the fair value method, what is recognized as net income from the investment?

Answer 1

Cash dividends received and increases in the fair value of the investment are recognized in net income from the investment. The portion of the company’s net income is NOT recognized in net income from the investment.

Question 2

A contest prize expense is the present value of the?

Answer 2

Total cost incurred. If the prize is an annual $50,000 payment for 20 years and the company takes out an annuity of $418,250 after making the initial $50,000 payment, the contest prize expense in the current year is $468,250.

Question 3

The ending balance of the asset retirement obligation should be the:

Answer 3

Beginning balance + the DISCOUNTED cash flow estimate of the new asset + accretion expense - the amount paid during the year.

Question 4

The debt service fund records cash transfers from the general fund as what, and cash payments as what?

Answer 4

Operating transfers and Expenditures.

Question 5

During a period of inflation, would a perpetual inventory system result in the same dollar amount of ending inventory as a periodic inventory system under FIFO and LIFO?

Answer 5

Yes with FIFO, No with LIFO. The perpetual system would be calculating COGS based on the latest goods acquired prior to each sale versus all the latest goods acquired during the period under a periodic system.

Question 6

Does a NOL carryforward directly reduce taxes or taxable income?

Answer 6

Taxable income. If the NOL is 40,000 and taxable income is 60,000, then it reduces taxable income down to 20,000, which is then multiplied by the tax rate.

Question 7

During a business combination, can the acquisition date be before, on, or after the closing date?

Answer 7

It can be any of the 3.

Question 8

For state or local governments, encumbrances outstanding at year end should be reported as:

Answer 8

Assigned or committed fund balance.

Question 9

What does income and dividends from a sub do to the investment account under the equity method?

Answer 9

Income increases the investment, and dividends reduce the investment account.

Question 10

What is the focus of proprietary funds?

Answer 10

Income determination. Proprietary funds use accrual accounting and they are similar in reporting to private businesses.

Question 11

What is the entry in the General Fund to record equipment purchased with a capital lease?

Answer 11

DR: Expenditures
CR: Other financing sources
The general fund doesn’t record fixed assets. The general fund fixed asset account group would record the acquired equipment.

Question 12

What are funds classified as that can only be used for a specific purpose because of restraints imposed by formal action of the government’s highest level of decision making authority?

Answer 12

According to GASB Statement No. 54, amounts that can only be used for a specific purpose, because of constraints imposed by formal action of the government’s highest level of decision-making authority, should be reported as Committed Fund Balance. The Restricted Fund Balance classification should be used when constraints are placed on the use of resources are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation.

Question 13

What is the process for recording collection of accounts that had been written off?

Answer 13

First you debit accounts receivable and credit allowance for doubtful accounts to restore the amounts that had been written off. Then you debit cash for the amount collected, and you credit accounts receivable to take them off the books since they’ve been collected.

Question 14

In the general fund, what 3 accounts are affected when property taxes are levied?

Answer 14

Revenue control is credited, property taxes receivable is credited, and allowance for uncollectible taxes is credited. Bad Debt Expense is ONLY an accrual accounting concept, and IS NOT used in modified accrual accounting.

Question 15

When the direct method for LCM is used, what is the journal entry to write down inventory?

Answer 15

DR: Cost of goods sold
CR: Inventory

Question 16

When using the allowance method under LCM, what is the JE to write down inventory?

Answer 16

DR: Holding loss
CR: Allowance for LCM

Question 17

Under the fair value option, what is recognized as income from the investment company?

Answer 17

Cash dividends and the increase in fair value of the investment are both recognized in net income of the investor.

Question 18

How does the installment sale method work?

Answer 18

Each payment consists of return of cost and gross profit. You calculate the gross profit percentage by taking the sales price and subtracting the carrying value, and then dividing that number by the sales price. Then you multiply the principal portion of the payment by the gross profit percentage, and then add in the interest payment amount, and that is the amount of revenue to recognize. The return of cost portion of the payment is NOT recognized as revenue.

Question 19

Gains or losses on retirement of debt used to automatically be classified as extraordinary gains or losses, but now they are:

Answer 19

immediately recognized in full in income from continuing operations.

Question 20

What rate is used to calculate the amount of dividends from a foreign currency?

Answer 20

The spot rate on the date of declaration is used regardless of translation or remeasurement.

Question 21

How is the refinancing of a liability due within a year treated under GAAP and IFRS?

Answer 21

Under GAAP, if the refinancing happens before the ISSUANCE date of the financial statements, then it can be considered long term again. Under IFRS, the refinancing has to happen before the BALANCE SHEET DATE for it to be considered a long term liability again.

Question 22

How is interest expense and dividends paid classified as far as cash flow under IFRS?

Answer 22

Interest expense and dividends paid can be classified as EITHER operating or financing activities.

Question 23

How is interest revenue and dividend revenue classified under IFRS for cash flows?

Answer 23

They can both be either cash flows from operating OR investing activities.

Question 24

If the percentage of completion method cannot be applied, how are profits recognized on long-term contracts under GAAP and IFRS?

Answer 24

Under GAAP the profits will be recognized once the job is completed- which is the completed contract method. Under IFRS, all profits will be recognized when all the costs have been recovered- the cost recovery method.

Question 25

If an IFRS company decides to revalue its equipment each year, what effect would a drop of $2000 in value above regular depreciation be?

Answer 25

It would be a 2000 expense for that year, recognized in income. BUT.... an increase in the value would go under other comprehensive income.

Question 26

What is the main capital lease criteria under IFRS?

Answer 26

That the lease life is a "major portion" of the equipment life. Thus, a lease of 60% of the equipment's life would qualify as a capital lease.

Question 27

If both parties consider a lease to be a capital lease, what interest rate do they both use under IFRS?

Answer 27

They both use the implicit rate built into the contract.

Question 28

Under IFRS, a contingent loss must be recognized if it is...

Answer 28

More likely than not. Even just 51% vs 49% meets this criteria.

Question 29

How is a prior service cost due to a change in the projected benefit obligation due to a contractual adjustment treated under IFRS and GAAP?

Answer 29

Under IFRS it is expensed immediately to the extent that benefits have vested. Under GAAP it is recorded to accumulated other comprehensive income and then amortized to expense over the years the employees are expected to work.

Question 30

A bond with face value of 100k is sold at 110k due to a convert option into common stock. How is this recorded under GAAP and IFRS?

Answer 30

Under IFRS 100k would be the liability and the 10k is recorded as equity. Under GAAP the full 110k is debt until it is actually converted.

Question 31

How is an impairment loss on equipment determined under IFRS?

Answer 31

A loss must be recognized if the book value exceeds the higher of the PRESENT VALUE of the future cash flows and the fair value less necessary costs to sell the equipment.

Question 32

GAAP vs IFRS research and development costs?

Answer 32

Under GAAP all research and development costs are expensed as incurred. Under IFRS, research costs are expensed, but development costs are capitalized if the company believes that future economic benefits are probable and that the product being developed is commercially and technically feasible.

Question 33

How are legal costs to successfully defend a patent treated under GAAP and IFRS?

Answer 33

Under GAAP the costs are added to the cost of the patent. Under IFRS the costs are expensed UNLESS the cost increase the future benefits to be derived from the asset.

Question 34

How are biological assets valued under IFRS?

Answer 34

At fair value less costs to sell.

Question 35

How is the reversal of an impairment loss recorded under IFRS?

Answer 35

The recovery of an impairment in value must be recognized if the circumstances that caused the impairment are reversed.

Question 36

A company has two checking accounts: one with 100k and one with negative 10k. How are they reported under GAAP and IFRS?

Answer 36

Under GAAP the negative is reported as a liability, so the cash line will show 100k. Under IFRS they are netted so the cash line would show 90k.