CPA excel 2 Flashcards
According to the IASB Framework, the process of reporting an item in the financial statements of an entity is: A. Recognition. B. Statement of Financial Position. C. Disclosure. D. Presentation.
B
Incorrect…
The Statement of Financial Position is the name currently given to the “Balance Sheet” financial statement, according to IAS 1. It does not address the process of reporting an item in the financial statements.
A
Correct!
According to the IASB’s Framework, recognition is “the process of incorporating in the Balance Sheet or Income Statement an item that meets the definition of an element and satisfies the criteria for recognition.” The element must be both probable that any future economic benefit will flow to or from the entity and have a cost or value that can be measured with reliability. IASB Framework, para. 82-83.
When should an item that meets the definition of an element be recognized?
A. The item has a cost or value that can be measured reliably.
B. It is highly unlikely that any future economic benefit associated with the item will flow to the entity.
C. Both A and B.
D. Neither A nor B.
Correct!
Recognition is the process of incorporating an item in the financial statements when it meets the definition of the element and satisfies the criteria for recognition. That criteria states that there is the probability of future economic benefit associated with the item that will flow to or from the entity and that the item has a cost or value that can be measured with reliability. IASB Framework, para. 82-83.
A
Correct!
Recognition is the process of incorporating an item in the financial statements when it meets the definition of the element and satisfies the criteria for recognition. That criteria states that there is the probability of future economic benefit associated with the item that will flow to or from the entity and that the item has a cost or value that can be measured with reliability. IASB Framework, para. 82-83.
C
Incorrect…
In order to be recognized, an item must have both the probability of future economic benefit associated with the item that will flow to or from the entity and a cost or value that can be measured with reliability.
The purpose of IASB’s Framework for the preparation and presentation of financial statements includes all of the following except:
A. Assist users of financial statements in interpreting the information contained in financial statements that are prepared in conformity with IFRSs.
B. Assist national standard-setting bodies in developing national standards.
C. Assist the IASB in the development of future IFRSs and in its review of existing IFRSs.
D. Assist the IASB in enforcing regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative treatments permitted by IFRSs.
A
Incorrect…
The purpose of IASB’s Framework includes assisting users of financial statements in interpreting the information contained in financial statements prepared in conformity with IFRSs. Remember that the IASB has no enforcement authority.
The purpose of IASB’s Framework for the preparation and presentation of financial statements includes all of the following except:
A. Assist users of financial statements in interpreting the information contained in financial statements that are prepared in conformity with IFRSs.
B. Assist national standard-setting bodies in developing national standards.
C. Assist the IASB in the development of future IFRSs and in its review of existing IFRSs.
D. Assist the IASB in enforcing regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative treatments permitted by IFRSs.
D
Correct!
Remember that the IASB has no enforcement authority. The enforcement is carried out by regulators, such as the SEC in the U.S., Central Banks, and governmental authorities. As such, the purpose of the IASB’s Framework is not to assist in enforcing regulations, accounting standards, and procedures but, rather, to assist in promoting the harmonization of regulations, accounting standards, and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative treatments permitted by IFRSs. IASB Framework, para. 1.
The SEC is comprised of five commissioners, appointed by the President of the United States, and four divisions. Which of the following divisions is responsible for overseeing compliance with the securities acts? A. Division of Corporate Finance. B. Division of Enforcement. C. Division of Trading and Markets. D. Division of investment management.
A
Correct!
The Division of Corporate Finance oversees the compliance with the securities acts and examines all filings made by publicly held companies.
B
Incorrect…
The Division of Enforcement completes the investigation and takes appropriate actions when there is a violation of a securities law (except the Public Utility Holding Company Act). This division makes recommendations to the Justice Department concerning any punishments or potential criminal prosecution.
SEC Reporting Requirements
A company is an accelerated filer that is required to file Form 10-K with the United States Securities and Exchange Commission (SEC). What is the maximum number of days after the company's fiscal year end that the company has to file Form 10-K with the SEC? A. 60 days. B. 75 days. C. 90 days. D. 120 days.
B
Correct!
An accelerated filer has an aggregate worldwide market value of the voting and nonvoting common stock held by nonaffiliates of $75 million or more, but less than $700 million on the last business day of the issuer’s most recently completed second fiscal quarter. A large accelerated filer has market capitalization (as described) of $700 million or more. Beginning in 2006 the SEC changed the 10-K filing deadline for large accelerated filers to be 60 days from the fiscal year end. Accelerated filers still have 75 days to file their 10-K.
A
Incorrect…
Careful reading of the questions always pay off. Here is another example of the “A” response appearing to be the correct answer but is it not! The CPAs and psychometricians who write exam questions will provide a response to “A” that sounds like the correct answer is not, because they are testing the care and thoroughness of your reading. The person who is hurrying through the questions (not you) will select “A” because 60 days is the correct answer for large accelerated filers; however, the question does not ask about large accelerated filers, just accelerated filers. Here is where careful reading will pay off and is why you have to read through EVERY response before you choose your answer.
SEC Reporting Requirements Which of the following is not a required component of the 10-K filing? A. Product market share. B. Description of the business. C. Market price of common stock. D. Executive compensation.
A Correct! The market share of the company's product is not a required disclosure. The company may chose to voluntarily present this information, but it is not a required disclosure. B Incorrect... The description of the business is a required disclosure in Part I, 1 C Incorrect...
The market price of the common stock is a required disclosure in Part I, 5.
D
Incorrect…
The executive compensation is a required disclosure in Part III, 11.
Balance Sheet 1
Could a firm with an operating cycle of three years in duration report as current a liability due two years from the balance sheet date?
Yes
No
YES
Current Asset (CA) –
a. An asset expected to be realized in cash or to be consumed or sold during the normal operating cycle, or within one year of the balance sheet date, whichever is longer.
b. The operating cycle is the period of time from purchasing inventory to paying for the payable incurred on inventory purchase to the sale of goods to the collection of receivable and then to purchasing inventory all over again.
c. For most firms the operating cycle is less than one year, but some firms, such as construction and engineering companies, have operating cycles exceeding one year. Construction in process, an inventory account found in construction firms’ balance sheets, is a current asset even though the constructed asset may require several years to complete.
All contra accounts are also valuation accounts.
True False
False
Valuation Accounts –
a. A valuation account is one used to increase or decrease the book value of an item to a measure of current value.
b. Not all contra or adjunct accounts are valuation accounts, but all valuation accounts are contras or adjuncts.
In analyzing an entity's annual financial report, which financial statement would an analyst primarily use to assess the entity's liquidity? A. Statement of Cash Flows. B. Balance Sheet. C. Statement of Profit or Loss. D. Statement of Changes in Equity.
Incorrect…
An entity’s liquidity is usually assessed from another financial statement. However, the Statement of Cash Flows does help an investor assess the entity’s needs for cash for operating activities by looking at past cash needs. However, it does not consider the current amount of outstanding debt.
A
Incorrect…
An entity’s liquidity is usually assessed from another financial statement. However, the Statement of Cash Flows does help an investor assess the entity’s needs for cash for operating activities by looking at past cash needs. However, it does not consider the current amount of outstanding debt.
B
Correct!
An entity’s liquidity is usually assessed from the Balance Sheet, by calculating the liquidity ratios, such as Current Ratio [(current assets) / (current liabilities)]; Quick Ratio [(cash + accounts receivable + short-term or marketable securities) / (current liabilities)]; and Cash Ratio [(cash + short-term or marketable securities) / (current liabilities)].
C
Incorrect…
An entity’s liquidity is usually assessed from another financial statement. However, the Statement of Profit or Loss does help an investor assess the entity’s revenue and expenses on an accrual basis, not on a cash basis. However, it does not consider the current amount of outstanding debt.
D
Incorrect…
An entity’s liquidity is usually assessed from another financial statement. The Statement of Changes in Equity does not help an investor assess the entity’s liquidity.
Balance Sheet 1 Reporting accounts receivable at net realizable value is a departure from the accounting principle of: A. Conservatism. B. Fair value. C. Market value. D. Historical cost.
A
Incorrect…
Reporting accounts receivable at net realizable value is not a departure from the principle of conservatism. In fact, it is just that principle that requires reporting accounts receivable at net realizable value.
D
Correct!
Reporting accounts receivable at net realizable value is a departure from the principle of historical cost. Accounts receivable is usually aged by some method and reported at net realizable value.
Balance Sheet 1 The following trial balance of JB Company at December 31, year five, has been adjusted except for income taxes. The income tax rate is 30%. DR CR Accounts receivable, net 725,000 Accounts payable 250,000 Accumulated depreciation 125,000 Cash 185,000 Contributed capital 650,000 Expenses 3,750,000 Goodwill 140,000 Prepaid taxes 225,000 Property, plant and equipment 850,000 Retained earnings, 1/1/Yr. 5 350,000 Revenues 4,500,000 5,875,000 5,875,000 During year five, estimated tax payments of $225,000 were paid and debited to prepaid taxes. There were no differences between financial statement and taxable income for year five.
Included in accounts receivable is $400,000 due from a loyal customer. Special terms were granted to this customer to make payments of $100,000 semi-annually every March 1 and September 1.
In JB Company’s December 31, year five Balance Sheet, what amount should be reported as total retained earnings?
A. 225,000 B. 525,000 C. 750,000 D. Some other amount.
D
Correct!
Retained earnings are calculated as follows:
Revenue [4,500,000] - Expenses [3,750,000] 750,000
Income taxes = 0.30 * 750,000 (225,000)
Net income 525,000
Retained earnings, 1/1/Yr. 5 350,000
Retained earnings, 12/31/Yr. 5 875,000
Balance Sheet I The following trial balance of JB Company at December 31, year five, has been adjusted except for income taxes. The income tax rate is 30%. DR CR Accounts receivable, net $725,000 Accounts payable 250,000 Accumulated depreciation 125,000 Cash 185,000 Contributed capital 650,000 Expenses 3,750,000 Goodwill 140,000 Prepaid taxes 225,000 Property, plant, and equipment 850,000 Retained earnings, 1/1/Year five 350,000 Revenues \_\_\_\_\_\_\_\_\_\_ 4,500,000 5,875,000 5,875,000 During Year five, estimated tax payments of $225,000 were paid and debited to prepaid taxes. There were no differences between financial statement and taxable income for year five.
Included in accounts receivable is $400,000 due from a loyal customer. Special terms were granted to this customer to make payments of $100,000 semi-annually every March 1 and September 1.
In JB Company’s December 31, Year five Balance Sheet, what amount should be reported as total assets?
A. 1,575,000 B. 1,775,000 C. 2,000,000 D. 5,875,000
B
Correct!
Total assets are calculated as follows: Cash 185,000 Accounts receivable, net 725,000 Property, plant, and equipment 850,000 Accumulated depreciation (125,000) Goodwill 140,000 Total assets 1,775,000
Balance Sheet 1 The following trial balance of JB Company at December 31, Year five, has been adjusted except for income taxes. The income tax rate is 30%. DR CR Accounts receivable, net $725,000 Accounts payable 250,000 Accumulated depreciation 125,000 Cash 185,000 Contributed capital 650,000 Expenses 3,750,000 Goodwill 140,000 Prepaid taxes 225,000 Property, plant, and equipment 850,000 Retained earnings, 1/1/year five 350,000 Revenues \_\_\_\_\_\_\_\_\_\_ 4,500,000 5,875,000 5,875,000 During year five, estimated tax payments of $225,000 were paid and debited to prepaid taxes. There were no differences between financial statement and taxable income for year five.
Included in accounts receivable is $400,000 due from a loyal customer. Special terms were granted to this customer to make payments of $100,000 semi-annually every March 1 and September 1.
In JB Company’s December 31, year five Balance Sheet, what amount should be reported as current assets?
A. 710,000 B. 910,000 C. 935,000 D. 1,135,000
A
Correct!
Current assets are calculated as follows:
Cash 185,000
Accounts receivable, net 725,000
Reclassification of o/s receivable (200,000)
Total current assets 710,000
B
Incorrect…
The 400,000 receivable should be divided between current assets and noncurrent assets (200,000 each), which reduces current assets by 200,000.
What are the steps of the accounting cycle?
(1) Analyze source documents, (2) Post to ledger, (3) Make adjusting entries, (4) Prepare trial balance, (5) Prepare income statement, balance sheet, and cash flow statements, (6) Close temporary accounts.
