COGS / Avg. Inventory - Ratio of COGS to average inventory. COGS = Beg Inv + Purchases - End Inv.

4 - Accrual Accounting Flashcards by Enrique Davila

General Rule to convert from Cash Net Income to Accrual Net Income?

Add: decreases in liabilities/increases in assets
Subtract: increases in liabilities/decreases in assets

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T-account (equation) to analyze Accounts Payable?

Beginning AP + Accrual purchases - cash payments = Ending AP

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According to IASB Framework for Preparation/Presentation of Financial Statements, the qualitative characteristic for faithful representation includes:

Neutrality
Completeness
Free from error

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What characteristic allows users of financial statements to generate predictions about an organization?

Relevance (relevance and predictive value)

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What are the 2 components of relevance?

Predictive and confirmatory value

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Accounts Receivable T-account equation

Beg. Balance + Sales - Collections (usually what question needs) - write-offs = Ending Balance

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What are gains

Gains are increases in equity (net assets) from incidental or peripheral transactions affecting an entity.

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what is realization?

when revenues and gains are realized when products (goods and services), are exchanged for cash or claims to cash.

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What is comparability?

also includes consistency, is enhancing quality that interacts with relevance and faithful representation to contribute to the usefulness of information

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What is Comprehensive Income? And what does it include? And how is it disclosed?

All changes in net assets of an entity during a period except those resulting from investments by owners and distribution from owners.
It includes NI plus or minus unrealized gains/losses on debt securities available for sale (rev, expenses, gains, losses, gross margin, contribution margin, IFCO, operating income).

Represented:

1) At the bottom of the IS, continue from NI and add other comprehensive income; OR
2) In a separate statement, start with NI and add other comprehensive income

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What is current market?

The amount of cash, or its equivalent, that could be obtained by selling an asset in orderly liquidation.

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What are earnings?

a performance measure concerned primarily with cash-to-cash cycles.

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What is the appropriate valuation method for LT receivables or Bonds payable due in 10 years?

Present value of future cash flows

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What is the appropriate valuation method for warranty obligations and accounts receivable?

Net realizable value or settlement rate

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What is the appropriate valuation method for equipment or ST payables?

Historical cost

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What is replacement cost?

The amount of cash, or its equivalent, that would have been paid if the same of an equivalent asset were acquired currently.

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AcidTest (quick) ratio?

(Cash + Net Receivables + Marketable Securities) / Current Liabilities

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Inventory Turnover

COGS / Avg. Inventory

Ratio of COGS to average inventory.

**COGS = Beg Inv + Purchases - End Inv. **

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Avg number of days to collect AR

365/AR Turnover

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Inventory equation

Beg inv + puchaese = Ending Inv + COGS

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Accounts Receivable Turnover?

Credit Sales / Avg. AR

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Codification citation that provides a guidance classification for cash inflows associated with investing activities?

230.10.45.12

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Controller of SFB, Inc asked whether or not to include cash flow per share in the company’s financial statements. Which section provides guidance to address the presentation of cash flow per share on FS?

230.10.45.3

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Codification to explain the disclosure requirements for the indirect method to provide guidance on the difference in the Statement of Cash Flows using the direct vs indirect method?

230.10.50.2

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Company knows that there is reasonable probability of financial impact in future so controller wants to begin accruing a general contingency reserve now for potential declines. What is the guidance codification used?

450.20.25.8

Company intends to refinance a short-term note with a long-term note due in 5 years. What codification will give the criteria to reclassify the short-term debt as long-term deb?

470.10.45.14

Working Capital

CA - CL

Operating cycle in days?

(365/AR Turnover) + (365/inventory turnover)

Times interest earned ratio?

(NI + interest expense + income tax expense) / interest expense

Return on total assets?

(net income + after-tax interest expense) / avg total assets

Return on equity?

NI / Avg Owners Equity

Profit Margin on sales?

NI / Sales

Dividend payout ratio?

Common dividends / NI

Earnings per share? Where is it represented?

(Net Income - Preferred Dividends) / Weighted Shares Outstanding - EPS is calculated on income before discontinued operations, or net income

Capital Balance?

Beg Capital + Investments + Income - Drawings = End Capital

Book value per share?

Total OE / Shares outstanding

What are examples of items classified under operating cash flow?

- Payments to suppliers - Interest Payments - Trading Securities held for short period - Dividends received from investments - Payments to fund pension plan

What are examples of items classified under Investing cash flow?

- Down payment of equipment purchase | - Proceeds from sale of equity securities available for sale

What are examples of items classified under Financing cash flow?

- Payment to retire bonds outstanding - Obtain loan to purchase land to be held as investment - Purchase treasury stock

What are examples of items classified under Operating AND Financing cash flow?

- Monthly mortgage payment | - Annual lease payment on capital lease

2 components when calculating discontinued operations? Example and if it is recognized?

1) the operating income or loss for the period in which the decision is made to dispose 2) the disposal loss Ex: carrying value is 850 and estimated selling price is 500 so estimated disposal loss is 350. AND operating loss was (195). So the recognized total loss for discontinued operations in that year is 545 (195+350). HOWEVER, estimated disposal gains are NOT recognized. If estimated disposal is a gain 40 (book 200 fair 250 and operating loss of 10) then disposal gain is NOT recognized until it is actually sold, only estimated losses are recognized.

Provide the relevant codification citation on what amounts to include in the cost of inventory?

330.10.30.1

What kinds of expenditures are capitalized?

- to increase useful life (assuming normal maintenance) - to increase utility (productivity and usefulness) - Sewer lines, title search fees, land, removal of old building

Should a patent be amortized?

Yes, it should be amortized over its useful life, not to exceed its legal life of 17 years. If remaining legal life of patent is 15 years then it should be amortized over 15. whichever is shorter but max 17 years.

Examples of items under Income from continuous operations (IFCO)?

- Gain on disposal of plant asset - Unrealized loss on investment in trading debt - Realized gain on investment in debt - Dividends received from Investment in debt - Effect of change in estimates of useful life (plant asset) - Income Tax Expense - Restructuring charge or loss on effect of new regulation

Example of items under income other than IFCO?

- Estimated disposal loss on discontinued component

Examples of items under Owner's equity?

- Cumulative effect of change from LIFO to FIFO, vise-versa - Stock dividend distributed - Accumulated other comprehensive income

Examples of items under Other comprehensive Income

- increase in unrealized pension cost | - unrealized loss on investment in debt securities available-for-sale

How is Goodwill recognized in a business combination? | How should company report it? And example?

Determined by excess investment value over fair value of subsidiary's net assets. Investment value is sum of parent's investment + fair value of non-controlling interest. - Perform qualitative assessment to determine Ex: Company A purchases 80% of B for 975mn. B carrying value is 1,000mn but plant assets are 100mn above carrying. Last, fair value is of 20% non-controlling is 200mn. Goodwill is 75mn {1,175mn (975+200mn) - 1,100mn net assets (1,000+100mn)}.

Company was awarded damages of $75mn for patent infringement suit brought on by competitor. Accrual & disclosure, disclosure, or neither?

Both Accrual and disclosure

Former employee has brought on a wrongful-dismissal suit against previous employer. Company's lawyers believe the suit to be without merit. Accrual & disclosure, disclosure, or neither?

Neither Accrual nor disclosure

Company has outstanding purchase orders in ordinary course of business for purchase of raw materials for manufacturing process. Market price is currently higher than the purchase price and is not anticipated to change within a year. Accrual & disclosure, disclosure, or neither?

Neither Accrual nor disclosure

Government contract completed during year 2 is subject to renegotiation. Although the company estimates that it is reasonably possible that a refund of 200-300mn may be required by the gov, but it does not wish to publicize the possibility. Accrual & disclosure, disclosure, or neither?

Disclosure only

Company has been notified by a governmental agency that is will be held responsible for cleanup of toxic materials at a site company formerly conducted operations. Company estimates that its probable that its share of remedial action will be $500mn. Accrual & disclosure, disclosure, or neither?

Both Accrual and disclosure

Company redeemed its outstanding bonds and issued new bonds with lower rate of interest. The reacquisition price was in excess of the carrying value amount of the bonds. Accrual & disclosure, disclosure, or neither?

Disclosure only

Allowance for Doubtful Accounts equation? And how does it work?

Ending Balance for Allowance Doubtful Accounts = Beg Balance + Recoveries of bad debt written off in prior years + Current year's bad debt expense - write-offs of uncollectible. Bad Debts Expense is the loss from extending credit to customers and is usually an estimated amount based on a company's credit sales.

What happens when parent company uses the cost method vs equity method on its books to carry its investment of its subsidiary? How are dividends on those investments recognized? Is Goodwill amortized?

1) Under the cost method: - Investment - the parent recognizes only its share of the subsidiary's dividends declared. - Dividends - recorded as dividend revenue 2) Under equity method: - Investment - investor recognizes its share of investee earnings (used when company has 30% or above ownership) ie ownership x earnings - Dividends - common stock dividends treated as return on capital. Only preferred dividends recognized as dividend revenue. - Only income increases the investment account 3) Goodwill is never amortized but only assessed at least annually for impairment. * **Dividends never increases investment account under either method***

Accrual basis service revenue equation?

Accrual basis service revenue = Cash fees collected + End AR - Beg AR + Beg unearned fees - End unearned fees

How to know if equipment is deemed impaired? And how do you calculate it if undiscounted expected net future cash inflows of equipment is 450, carry 500, fair value 375?

- Whether carrying value (BV) is less than its recoverable cost (sum of its estimated net cash inflows projected for remaining life). - If undiscounted expected net future cash inflows (450) is less than carrying value of equipment (500) it is impaired. To calculate, subtract fair value from carrying value 125 (500 - 375).

How does IFRS require inventory to be reported? And how do you calculate it?

At lower of cost of net realizable value. **NOT replacement cost** NRV = estimated selling price - (estimated costs of completion and selling)

Explain how revaluation model for assets works under IFRS? And example of asset: Acquire 100mn, Y1 fair value 90mn, Y2 fair value 105mn.

- Under IFRS, increase in assets fair value above original cost are recorded in surplus account and decreases are recorded as losses to income statement. - Y1, 10mn decrease recorded as loss in IS. Y2, 15mn increase is recorded as 10mn gain in IS and 5mn gain in revaluation surplus (OCI).

What is the carrying value of Company A's investment in Company B if A's investment at the beg. of Y1 is 200mn (25% ownership) and B's NI is 600mn and dividends 400mn?

As stated dividends never increase investment income under either method. Beg. Investment 200mn + Subsidiary NI 150mn (600mn x 25%) - Dividends 100mn (400mn x 25%) = Carrying Amount of Investment 250mn

What is the difference between available-for-sale (AFS) and Trading Securities?

Available-for-Sale: 1) Valued at Fair Value - any unrealized gains/losses are recorded in OCI (in owners equity section of Balance Sheet). 3) Only realized gains (from sale) are recognized in Income. 4) BUT, if decline in FV is "other-than-temporary", the unrealized loss is reclassified to earnings. Trading Securities: 1) Unrealized gains/loss is recognized in earnings as these securities are held for short-term price appreciation. 2) Short-term marketable debt securities carried at fair value in trading portfolio .

How do you report stock option/rights in the balance sheet? Already own $80,000 (1,000 shares at $80) worth of stock, after receive stock rights of 1,000 with value of $5 each, MV of stock at the time is $95?

Total MV of stock investment is now $95,000 (95 x 1000) and rights are $5,000 ($5 x 1000). Original cost of stock is $80,000. [(5,000) / (5,000 + 95,000)] x 80,000 = $4,000.

How to report investments in debt securities made under an entity's business model to make and hold investment solely to receive cash from Interest and Principle? What if the entity usually does not invest in debt? Original Cost 108, Par 100, current premium 3.5, and Fair Value 105.

If debt investment is the business model: Amortized cost 100 + unamortized premium 3.5 = 103.5 **report at amortized cost** If not: fair value = 105 *report at fair value*

Under IFRS No. 9, investments in debt securities may be transferred in what 2 ways?

1) Transferred from amortized cost to fair value | 2) Transferred from fair value to amortized cost

Under IFRS, how are gains/losses on changes in fair value of investments in equity are reported?

1) In profit/loss - If equity investment is held-for-trading (intent on selling in 1 year ST) purposes then changes in fair value are reported in profit/loss 2) Other Comprehensive Income - if equity investment is not held-for-trading purposes, changes in fair value reported in OCI

How should legal fees, registration costs, and research and development costs be captured?

- Research and Development are expensed as incurred (ASC 730) - Only legal fees/registration costs are capitalized to the patent account

If Company A purchased all the voting stock of Company B on 12/16 and purchased 40% of outstanding stock of Company C in 1/17 and the financial statements were issued on 2/17 what should the balance sheet say?

- Company B should be consolidated | - Company C should be in the footnotes only as it has not technically occurred on balance sheet yet.

How are shipping costs included in year-end inventory?

- Only transportation-in is treated as product cost and included in inventory. - Shipping cost TO customers is a selling expense. Only cost to bring inventory to company.

Firm A purchased Firm B for 4,000 when OE is 2,000. Assessed that goodwill impairment is likely as B had an asset worth $500 more than BV. One year after the purchase, B's total MV dropped to 3,200 and the MV of net identifiable assets was 2,000. What amount of goodwill impairment loss is recorded?

- Impaired is when fair value < current recorded value - Goodwill is re-estimated same way as when it was purchased, MV - MV of identifiable assets New Goodwill = $ 1,200 (3,200 - 2,000) Goodwill at purchase = 1,500 (4,000 - 2,000 - 500) Goodwill Impairment loss = 300 (1,500 - 1,200)

Under the cash basis of accounting, what would Company A report in Y2 sales if they reported Y2 sales revenue of $2,300,000, uncollectible (write-off) accounts were 10,000, and Y1/Y2 AR were 500,000 and 650,000?

Use AR T Account but solve for Collections as we're solving for the cash basis. 500,000 + 2,300,000 - Collections - 10,000 = 650,000

What should be reported in the cost of land and cost of building?

Land (any cost involved in preparing land for its ultimate use) - Purchase price - legal fees - demolition of old building - Sale of scrap Cost of Building - Architects' fees - Construction cost

What should R and D expense included and excluded in a given year?

Included in R&D Expenses: - Salaries of laboratory employees researching how to build new car (research) - Design, testing, and construction of a prototype Codification specifically excludes: - Legal fees - Patent application - Engineering follow up during early stages

In Q3, Company A reported $111,000 in NI for the quarter. In addition, 60,000 gain from discontinued operations realized on 4/30 which is allocated to Q2, Q3, and Q4. And they paid 48,000 for property taxes, of which, 12,000 was allocated in Q3. What should company report for NI in Q3?

$111,000 - $60,000/3 = $91,000

How would the amortization of discount on bonds payable affect the 1) carrying value of the bond and 2) Net Income?

Carrying Value of Bond - Increase Net Income - Decrease A discount on bonds payable usually carries a debit balance that reduces the carrying value of the bonds. The credit to discount account increases the carrying value of the bond, and the debit to interest expense will decrease net income.

If Company A owns 80% of Company B and B sold equipment to A at a price in excess of B's carrying amount but less than original cost. On the consolidated BS, the carrying amount would be reported at:

A's original cost less than B's recorded gain.

On 10/1/2014, Company A purchased 200, $1,000 FV, 10% bonds from Company B for $220,000, included accrued interest of $5,000. Bond matures 1/1/2021 and pays interest semi-annually 1/1 & 7/1. Company uses straight-line method for amortization and recorded bonds as held-to-maturity. On December 31, 2015, what should the bonds be reported at?

Held-to-maturity investments are reported at amortized cost. The discount/premium at purchase is amortized during the term of the bond so that carrying value is FV at maturity. Subtract accrued interest as its not included in carrying value. Bond was purchased at 15,000 premium (bc FV is $1,000) and term of the bond is 6 years and 3 months (75 months). $220,000 - 5,000 = 215,000 215,000 - (15,000 x 15/75 = $3,000)

What is the qualitative characteristic of accounting information?

Relevance

How to identify the FV of net assets in order to determine goodwill from business combination if A purchased B for 620,000 and B's recorded assets are: ``` Cash 60,000 Inventory 180,000 Property/Equipment 320,000 Goodwill 100,000 Liabilities (120,000) Net Assets 540,000 ``` But at purchase, inventory was 150,000 and P-E had fair value of 380,000. What is goodwill from business combination?

``` FV of identifiable net assets are: Cash 60,000 Inventory 150,000 PE 380,000 Liabilities (120,000) = Net Assets 470,000 ``` Then subtract net assets from purchase price in order to get Goodwill. 620,000 - 470,000 = 150,000 Goodwill.

How to calculate unamortized cost for software? | Sales were 10% of expected total sales and new software has an economic life of 4 years.

Annual amortization of capitalized software costs are the greater of: 1) Ratio of software's current sales to its expected total sales (10%) OR 2) straight-line method over the economic life of the product (100% - 25% = 75%)

Two single-step income statement below, as prepared by controller - what amount should be reported as total revenues? Sales 250,000 Purchased discounts 3,000 Recovery of account write-off 10,000 = Total Revenues 263,000

Revenues are inflows from economic sources. Discounts would be netted against purchases, not sales. Recovery is not revenue, its adjustment to uncollectable accounts. Revenue = 250,000

Compared to historical cost income from continuing operations, what increases current cost income from continuing operations?

- Current cost of goods sold is less than historical cost

Appropriate for debtor to recognize a gain when the carrying amount of debt:

EXCEEDS total future cash payments specified by new terms.

Face amount $800,000 Term 10 Years Stated Interest Rate 6% Yield 9% 6% 9% PV of 1 for 10 periods 0.558 0.422 FV of 1 for 10 periods 1.791 2.367 PV of ordinary annuity 7.360 6.418 What should be the issue price of each $1,000 bond?

Issue Price = $1,000(.422) + .06(1,000)(6.418) = $807

11/1/15, A paid $3,600 to renew its insurance policy for 3 years. On 12/31/15, unadjusted trail balance showed $90 for prepaid insurance and $4,410 for insurance expense. What should be reported in prepaid insurance and insurance expense?

Prepaid Expense $3,400 (3,600 x 34/36) Insurance Expense Adjusting journal entry $3,310 ($3,400 - $90). $4,410 - $3,310 = $ 1,100

1) Would retained earnings be affected by the declaration of Stock dividends or stock split?

Stock Split - No effect Stock Dividend - decrease (JE below) RE xxxx CS dividend distributable xxx Paid-in capital in excess of par xxx

Net cash in operating $351mn Investing $420mn, and Financing activities of $250mn. Cash balance is $27mn. During year, sale of land resulted $25mn gain and proceeds of $40 received from sale. What is the cash balance?

Combine effects of changes in operating, investing, and financing activities and add beg. cash balance. $351 - 420 + 250 + 27 = 208mn

In 2014, A acquired 6,000 shares of its own $1 par value stock for $36 per share. During 2015, Seda issued 3,000 of these shares at $50 per share and used the cost method to account for its treasury stock transactions. What accounts/amounts should they credit?

Under cost method, when treasury stock is reissued at a price in excess of cost, additional paid-in capital is credited for difference. Cash 150,000 Treasury Stock 108,000 Additional paid-in capital (treasury) 42,000

What is the appropriate COST approach for determining fair value measurements?

Using current replacement cost of asset

GE had 150mn in cash-basis pretax income for the year. At current year-end, AR decreased by 20mn and AP increased by 16mn from previous year-end. Compared to accrual-basis method of accounting, cash-basis pretax income is.......

Higher by 36mn. b/c AR decreased by $20mn, cash received was $20 more than accrual basis. Since AP increased by 16, expenses were 16 more than cash payments. Therefore, accrual-basis NI is equal to $114 (150 - 20 -16) so cash-basis pretax income is 36mn higher than accrual-basis income.

How would Retained Earnings and Additional Paid-in Capital be affected by 1) a 100% stock dividend and 2) exercising rights for additional shares greater than par value but less than both market/book?

1) Retained Earnings - decrease 1) Additional paid-in capital - no change 2) Retained Earnings - Not affected Additional Paid-in capital - increases

5/18/2014, Sol Corp board of directors declared a 10% stock dividend. The market price of Sol's 3,000 outstanding $2 par value CS was $9 per share. Stock was distributed on 7/21/2014, when stock was $10. What should Sol credit to additional paid-in capital for this stock dividend?

Question is difficult as sources disagree. Use the market value on declaration date. Retained Earnings $2,700 [(.10)(3,000)(9)] Common Stock 600 (.10(3,000)(2) Additional PIC 2100

In October Y1, firm purchased inventory for $26mn. The contract is irrevocable and is delivered in March Y2. At the end of Y1, inventory under contact is worth $23mn. How do you report for the year?

- A liability of $3,000 in BS. - Firm cannot postpone the loss and liability recognition b/c reduction of firm's earnings and net assets already occurred.

1) In a periodic inventory system that uses the weighted-average cost flow method, the beginning inventory is the: 2) What is a disadvantage to the periodic inventory?

1) = (Total goods available for sale) - (net purchases) ``` Beg Inventory + Net Purchases Cost of goods available for sale - Ending Inventory = COGS ``` 2) That COGS amount used for financial reporting purposes includes both the cost of inventory sold and inventory shortages.

Firm A purchased a $20,000, 7% 5-year note that required five equal annual year-end payments of $5,009. Note was discounted to yield 9% rate at present value of $19,485. What's the total interest revenue over the life of note?

$5,560 = 5(5,009) - 19,485

If inventory and AP increased from Y1 to Y2 - should be be added or deducted from cash payments in Y2 COGS?

Increase Inventory - Deducted from Increase AP - Added to ``` T- Account Cash payments to suppliers + Increase in AP - Increase in Inventory = COGS ```

On 1/2/04, Firm issued 2,000,000 of 10-year, 8% bonds at par. The bonds, dated 1/1/04, pays interest semiannually on 1/1 and 7/1. Bonds issue costs were 250,000. What amount of bond issue costs are unamortized at June 30, Y5 assuming straight-line?

Bond term is 10 years. At 6/30/05, 8.5 years remain on bond term. $212,500 ( 250,000(8.5) / 10 )

Gross sales 3,600 COGS 1,200 S/G expense 500 Adj. prior year amortization 59 Sales Returns 34 Gain on AFS securities 8 Gain on disposal business unit 4 Unrealized gain AFS securities 2 What is the company's net income before tax?

Gross sales 3,600 COGS (1,200) S/G expense (500) Sales Returns (34) Gain on AFS securities 8 Gain on disposal business unit 4 Net Income 1,878 After tax (30%) 1,314,600

Trade AR 93,000 Uncollectible Accounts (2,000) Claim for Lost in transit 3,000 Consignment unsold goods 26,000 Security deposit on lease 30,000 Total 150,000 What is the current total of net receivables?

Trade AR 93,000 Uncollectible Accounts (2,000) Claim for Lost in transit 3,000 Total 94,000 The goods on consignment should be included in Mann's inventory cost, not in accounts receivable.

1/2/01, Firm A bought net assets of Firm B $350mn. The assets had a carry of 375mn and MV of 360mn. Firm A reported revenues in excess of expenses of 60mn and drawings were 20mn. What is their capital account balance?

Beg + Investments + Income - Drawings = Ending 350 + 60 - 20 = 390 Ignore previously recorded value (375) and estimated market value (360) are irrelevant and do not affect capital account.

Firm has assets with carrying value of 120mn, expected future cash flows of $130mn, present value of expected future $100mn, and MV of $105mn. What is the impairment loss under GAAP and IFRS?

GAAP - Recoverable costs (expected future cash flow) EXCEEDS BV (carrying value) - 130mn exceeds 120 book value (carry) so asset is not impaired. IFRS - Recoverable amount is greater of fair value less cost to sell (MV) or value in use (PV) EXCEEDS carrying cost. - 105mn (or 100mn) is LESS than BV (120) - Impaired by 15mn.

Asset with 5-year estimated useful life is sold Y2. How would straight-line depreciation rather than double-declining affect the gains and losses in the sale of fixed assets? (Gain/Loss - Increase/Decrease)

Gains - Decrease | Loss - Increase

A debt security is transferred from the held-for-trading portfolio to the available-for-sale portfolio. At the transfer date, the security's cost exceeds its FV. What amount is used to record the security in the available-for-sale portfolio at the transfer date?

Fair Value, regardless of whether the decline in fair value is below cost and it is considered permanent or temporary. ***Reclassifications between the two investment categories are always recorded at FV.***

Firm A contacted another firm for services to be provided over a period of time in return for 2,000 shares of Firm A's $5 par CS when complete. At the time, Firm A's stock was selling for $10/share. When the service was complete, A's stock was $12/share. Therefore, Firm A.....

Increases contributed capital in excess of par $10,000 Total OE at signing is $20,000 (2,000 x $10). Of that, CS account will receive $10,000 (2,000 x $5). Therefore, remaining ($10,000) is allocated to contributed capital in excess of par.

What is the appropriate INCOME approach for developing fair value measurements?

Using present value techniques of discount cash flows

In a nonmonetary exchange, what happens when there is not a significant difference in cash flows? What happens when the nonmonetary exchange also includes a monetary exchange?

1) With no significant difference in cash flow then BV is used to record transaction 2) With included monetary exchange, the receiver has to realize a partial gain on the exchange.

On March 1, Firm A issued bonds at a discount and incorrectly used straight-line instead of effect interest method to amortize the discount. How is the bonds carry amount and retained earnings affected by the error? (over/under)

Bond Carrying - Overstated Retained Earnings - Understated

Ion had cash inflows of $25mn from the purchases, sales, maturities of held-to-maturity debt securities and $40mn inflows from purchases, sales, and maturities of available-for-sale debt securities. What amount of net cash from investing activities should Ion report on its cash flow statement?

$65mn - Cash flows from available-for-sale and held-to-maturity investments are both included in investing activities.

A company has outstanding accounts payable of $30mn and short-term construction loan in the amount of $100mn at year end. The loan was refinanced through issuance of long-term bonds after year-end but before issuance of financial statements. How should these liabilities be recorded in the balance sheet?

Current Liabilities of $30mn, LT liabilities of $100mn

Purl recognized income from construction-type contracts under percentage-of-completion method for financial reporting starting Y1. However, on its income tax returns, it appropriately reports revenues under completed-contract method. Tax rate (30%) - for Y3 Purl should record increase (decrease) in deferred tax liability account of... Year POC Completed Y1 450mn 0 Y2 675mn 425mn Y3 825mn 925mn

$(30 mn) - For Financial Reporting, income is recognized using the percentage-of-completion method. For tax purposes, income is recognized using the completed-contract method. - In Y1 and Y2, financial income exceeded taxable income resulting in deferred tax liability. In Y3, part of this temporary difference reversed; taxable income (925mn) exceeded financial income (825mn) by $100mn. Deferred tax liability must decrease by tax effect of the reversal by 30mn (100mn x 30%).

When a specific customer's account receivable is written off as uncollectible, what will be the effect on NI under Allowance and Direct Write-Off when recognizing bad debt expense?

Allowance - NONE | Direct Write-Off - DECREASED

In 2015, Elm bought 10,000 shares of Oil Corp. at a cost of $20,000. On 1/15/`16, Elm declared a property dividend of the oil stock to shareholders of record on 2/1/16 payable 2/15/16. During 2016, the oil stock had MV of the below. What is the net effect of the foregoing transactions on RE during 2016 should a reduction of? 1/15 - $25,000 2/1 - $26,000 2/15 - $24,000

$20,000 - The property dividend is recorded at MV with a debit of $25,000 to RE at declaration. A gain of $5,000 is recognized as a gain on disposal (as if it were sold). Net effect is a decrease in RE of $20,000.

Bifurcation?

The process of separating an embedded derivative from its host contract.

Call Option?

An American call option provides the holder the right to acquire an underlying at an exercise or strike price anytime during the option term.

Embedded derivative?

A feature on a financial instrument or other contract, which if the feature stood alone, would meet the definition of a derivative.

Forward Contact?

An agreement between the two parties to buy and sell a specific quantity of a commodity, foreign currency, or financial instrument at an agreed-upon price, with delivery and/or settlement at a designated future date.

Futures Contact?

A forward-based contract to make or take delivery of a designated financial instrument, foreign currency, or commodity during a designated period, at a specified price or yield.

Notional Amount?

Referenced associated asset or liability commonly a number of units.

Swap?

A forward-based contract or agreement generally between two counterparties to exchange streams of cash flows over a specified period in the future.

Underlying?

A SPECIFIC price or rate such as a stock price, interest rate, or commodity price. Say option contract to buy a stock at $50 when stock is $40.

In general, the accounting for stock option plans and other share-based payment plans must reflect the rights provided to the recipient of the shares. Is there a difference between contract that conveys to an employee in return of note receivable with recourses to the shares and a grand of equity shares of employees? What's the codification?

718.10.25.3

Calculate sum-of-the-years digits method of depreciation used when a machine's estimated useful life is 5-years. What would be the fraction applied to the cost in the second year?

4/15

Solve for Working Capital in Y2 - when Y1 WC was 1,700mn, WC provided by operations 900mn, purchases on plant assets for cash is 600mn, ST borrowing 950mn, Payments on ST borrowing 500mn, and cash dividend paid on CS 250mn?

1,750mn - ST borrowing (and their payments) have no effect on working capital because both a current asset and current liability.

Journal Entry when a county commissioners office passes a property tax levy totaling $5,100,000. But based on prior year collection rates, it is estimated that $100,000 in property taxes will be uncollectable.

Property Taxes Receivable $5,100 (D) Revenues $5,000 (C) Uncollectible $100 (C)

Journal Entry when a general fund of Blake County collected $405,000 in licenses and permits.

``` Cash 405 (D) Revenues 405 (C) ```

Under IFRS, what happens when a company discovered it had overstated sales in the prior year?

Restate the prior year FS for comparative purposes

What can retained earnings appropriation be used for?

To restrict earnings available for dividends

What is a quasi-endowment fund?

Established by a governing board of an organization using net assets WITHOUT donor restrictions

Lee Corporation's checkbook balance is $4,000 on 12/31/Y1. Following items occur 1) $1,000 Check payable to lee, dated 1/2/Y2, not included in 12/31 2) $200 Check payable to Lee, deposited 12/20, and included in 12/31 but returned stamped with "NSF" then redeposited 1/2/Y2. 3) $500 Check drawn on Lee's account, payable to vendor, dated and recorded 12/31.

$4,300

When accounting for income taxes, a temporary difference occurs when....

An item is included in the calculation of net income in one year and in taxable income in a different year

Total Revenues $80mn Sales to external customers $30mn External revenues reported by reportable operating segments must be at least....

$22.5mn Must be enough segments reported so that at least 75% of unaffiliated revenues is shown by reportable segments (75% test). Sales to external customers total #30mn so external revenues reported by reportable operating segments must be at least $22.5mn (30mn x 75%)

Excel City's Water Utility Enterprise Fund issues $10mn in 20-year serial revenue bonds to finance a major expansion of one of its water treatment plants. $500k is bonds mature each year. As a result of this transaction, the year-end long-term liability in the governmental activities section of the government-wide FS accounts will reflect:

$0 The Water Utility Enterprise Fund uses full accrual accounting and will account for and report on the bonds in the Enterprise Fund. Therefore, this liability appears in the business-type activity section of the government-wide financial statements and not in the governmental activity section.

On January 1, a company issued a $50,000, 8% five-year bond for $46,139 that will yield 10%. Interest is payable on June 30 and December 31. What is the bond carrying amount on December 31 of the current year?

$46,768. - June 30th = Dr. Interest expense $2,307 (43,139 x 5%); Cr Cash $2,000 (50k x 4%) Cr. $307 Discount. - December 31 = Dr Interest expense $2,322 ($46,139 + $307) Cr. Cash 2,000 Cr. $322 Discount Carrying value is now $46,768 (46,139 + $307 + $322).

in Y1, Holden Company sold a building in exchange for a $400,000 loan in 3 years. The building costs $380,000 and accumulated depreciation was $160,000 at the date of sale. Interest for the loan is 12% and present value is 0.71. How much gain or loss should Holden report on the sale in Y1?

$64,000 gain Loan $400k x .71 = $284,000 BV $380k - 160k = $220,000

Park Co. signed a 10-year operating lease for office space at $96,000 per year. Lease included provision of 5% additional rent of annual company sales in excess of $500k. Park's sales were $600k in Y1. Also, upon execution of the lease, Park paid $24,000 as a bonus for the lease. What is Park's rent expense for Y1?

$96,000 per year + 5,000 (5% x 100k (600-500)) Y1 Sales + 2,400 (24,000/10) = $103,400

Does either the straight line or double declining method equal the original cost at the end of asset's useful life?

Both NO

Can 1) expected return on plan assets or 2) Actual return on plan assets determine the discount rate fo calculate the projected benefit obligation for a defined benefit pension plan?

Both NO

Which fund should be reported as part of a local government's governmental activity column in its government-side statements? Agency Debt service Private-purpose trust Pension Trust

Debt service

End of Y1, Lane held debt securities as trading that cost $86mn and FV of $92mn. In Y2, all securities were sold for $104.5mn. End of Y2, Lane had acquired additional trading securities that cost $73mn with FV of $71mn. What is the impact on Lane's Y2 Income Statement?

Gain $10.5mn Since unrealized gains and losses are recognized on trading securities on IS. Y1 (without selling) recognized a $6mn gain. Y2 $12.5mn gain (104.5mn - 92mn) - $2mn loss (73mn - 71mn) = $10.5 mn Gain

What is COGS? ``` Decrease raw materials 15mn Increase finished goods 35mn Raw materials purchased 430mn Direct labor payroll 200mn Factor overheard 300mn Freight-out 45mn ```

$910mn ``` + 430 + 15 + 200 + 300 - (35) = COGS $910mn ``` Raw materials (15) is added because a decrease means it is used in production. Increased in finished goods (35) is subtracted because it was not sold.

Y1 Bice Company reported NI of $2mn. Then in Y2, changed from an accounting principle that is not generally accepted to one that is generally accepted. If generally accepted used in Y1 NI would have been decreased $1mn. Y2 Bice discovered mathematical error relating to its Y1 financial statements. If error was found in Y1 then NI would have increase $500k. What amount should be included in NI for Y2?

Kenn City obtained a municipal landfill where the costs of operating is recovered with charges to customers. Which fund should Kenn City report the activities under?

Enterprise.

Grimm Company adopted new accounting method for estimating allowance for doubtful accounts. What is the bad debt expense at the end of the year? Allowance for doubtful 1/1/Y1 $24,000 Provisions for doubtful Y1 $20,000 Bad debts written off 11/30/Y1 $19,500 Est. uncollectible $21,000

$16,500 $24,000 - ($19,500) = $4,500 $21,000 - ($4,500) = $16,500

What is true about IFRS accounting? - Development costs must be expensed - Development costs are always deferred and expensed against future revenues - Development costs may be capitalized as an intangible asset in very restrictive situations - Development costs are recorded in OCI

- Development costs may be capitalized as an intangible asset in very restrictive situations

in 2015, Mollat signed a 7-year lease for equipment having 10-year economic life. The PV of the monthly lease payments is 80%of the equipment's FV. The lease agreement provides neither a transfer of title nor a bargain purchase option. What should they report on the Income Statement?

Rent expense equal to the 2015 lease payments.

What is the PV of all future retirement payments attributed by the pension benefit formula to employee services? - Service Cost - Interest Cost - Projected benefit obligation - Accumulated benefit obligation

- Accumulated benefit obligation "PENSION COST FORMULA"

On 10/1/2014, Park Co. purchased 200 of the $1,000 FV 10% bonds from Otto, Inc for $220,000. Including accrued interest of $5,000. Bonds mature 1/1/2021, pay interest on 1/1 and 7/1. Park used straight-line method of amortization and appropriately recorded the bonds as held-to-maturity. On Park's December 31, 2015 Balance Sheet, the bonds should be reported at...

$212,000 - Real purchase price is $215,000 (subtract 5k interest included as interest in not included in investment carry) - So premium is $15,000. - Term holding the bond is 10/1/2014 to 1/1/2021. A period of 6 years and 3 months (75 months = 12*6 + 3). Period from purchase is 10/1/2014 to 12/31/2015 so 15 months. - Investment carry of bond is $215,000 - $3,000($15,000 x (15/75)).

Fern Co's Net Income, before taxes, of $200,000, including $20,000 interest revenue from municipal bonds and $10,000 paid for officer's life insurance premiums. Current tax rate is 30%. What is Fern's effective tax rate?

Taxable Income $190,000 $200,000 - $20,000 +$10,000 Income tax liability (tax expense) is $57,000 (.30 x $190,000). The effective tax rate is .285 ($57,000/$200,000)

An auditor is performing test work for a not-for-profit hospital. Below is statement of operations - what is total revenues, gains, and other support? Revenue from charity 100mn Bad debt provisions 70mn Net assets released from restriction 50mn Other revenue 80mn Net patient service revenue (includes charity care) 500mn

460mn - 500 - 100 - 70 + 50 + 80 = 460 - Includes hospital revenue less charity care and bad debt provisions, plus net asset released from restrictions and other revenue.

Alfisol, Inc offers sales discounts of 2% on all credit sales paid within 15 days. For year 1, gross credit sales totaled 150k and 75% of customers took advantage of the discount. Under the net method.... - Each sale should not be recorded until payment is received and it is known whether the discount is taken - Allowance for sales discounts must be credit fro 2,250 - For cash receipts within the discount period, sales discounts must be debited for 2,250 - For cash receipts after the discount period, discounts not taken must be credit for 750

For cash receipts after the discount period, discounts not taken must be credit for 750 ** under net method, sales are initially recorded net of discounts.** Cash 37,500 (150k x 25%) AR 36,750 Discount NOT taken 750 (37,500 x 2%)

In which of the following funds would it be appropriate to record depreciation of fixed assets? - Capital Projects - General - Internal Service - Special Revenue

- Internal Service **Internal service funds provide services on a cost basis to other governments funds (central data processing, motor pools etc). Thus, to recoup the costs - depreciation must be taken and computed in services charges of other funds similar to that of business enterprise to determine adequate fees.**

A 6-year capital lease entered into on 12/31/15 specified equal minimum annual lease payments due on 12/31 each year. The first minimum lease payment paid on 12/31/15 consist of which of the following (T/F)? - Interest Expense and/or lease liability

Interest expense - NO Lease liability - YES *** at inception - the 1st payment is a principal payment because no time has taken place during the lease term to accrue any interest so NO***

Reed Co. Y2 statement of cash flows reported cash provided from operating activities of $400mn. For Y2, depreciation of equipment was $190mn amortization of patent was $5mn and dividends paid on common stock were $100mn. In the statement of cash flows, what amount was reported as net income?

$205mn = (400mn - 190mn - 5mn) **Dividend paid on CS NOT included in net income. Only considered cash outflow from financing activities.**

Young and Jamison's modified cash-basis FS indicated cash paid for operating expenses of 150mn, end of year prepaid expenses of 15mn, and accrued liabilities of 25mn. At beginning of year, YJ had prepaid expenses of 10mn while accrued liabilities were 5mn. If cash paid for operating expenses is converted to accrual-basis operating expenses, what would be the amount of operating expenses?

165mn = 150 - 5 + 20 * *subtract yearly change in prepaid expenses because amount is not included in accrual expenses** * *And add accrued liabilities increase as it was incurred and not yet paid**

Hines leased a new machine from Ashwood on 12/31/Y1. The machine reverts to Ashwood at lease expiration and has FV of 280,000 at inception. Hines uses straight-line method of depreciation. For the year ended 12/31/Y2, how much depreciation (amortization) should Hines recorded for the capitalized leased machine? Lease Term - 8 Years Annual rental payable - 50,000 Useful Life - 10 Years PV of the 8 Lease Payments 12/31/Y1 258,000

*** Lessee records the asset as lower of 1) PV of minimum lease payments or 2) FMV of the leased asset.*** - PV $258,000 is less than FMV $280,000 so we capitalize it and since lessee is giving the asset back then they should depreciate it over 8 years. 258,000 / 8 years = $32,250

Bake's current trail balance: AP $80k Bonds Payable, due Y2 $300k Discount on BP $15k Deferred Income Tax Liability $25k The deferred income tax liability is not related to asset for financial accounting purposes and is expected to reverse in Y2. What should be included in current liability section?

$365,000 = 300 + 80 - 15

Huff mining purchase a mineral mine for $3.6mn with removable ore estimated at 2.16mn tons. Property's estimated value is $360 after ore extraction. Huff incurred $1.08mn of development costs preparing the property for extraction. In Y1, 270,000 tons were removed and 240,000 tons were sold. Huff should include what amount of depletion in it cost of goods sold?

Cost of mine 3,600,000 Development costs 1,080,000 Residual value (360,000) Net Cost 4,320,000 - Depletion per ton $2.00 (4,320,000 / 2.16 mn tons) - COGS $480,000 (240,000 x 2)

The Present Value of the minimum lease payments should be used by the lessee in the determination of Capital Lease Liability and/or Operating Lease Liability(T/F) ?

Capital Lease Liability - YES Operating Lease Liability - NO - PV of the minimum lease payments should be used to determine the liability under a capital lease - Under operating lease, a liability arises when rent expense is recorded but has not been paid.

When a temporary difference will result in taxable amounts in 5 years... - A deferred tax asset is recognized in current year - A deferred tax asset may be recognized in the current year if certain conditions are met - A deferred tax liability is recognized in current year - A deferred tax liability may be recognized in the current year if certain conditions are met

- A deferred tax liability is recognized in current year ...because a past event has resulted in a present obligation which will require a probable future sacrifice

In current year, Onal Co. purchased 10,000 shares of its own stock at $7. Originally issued at $6 then sold 5,000 treasury shares for $10. The firm uses the cost method to account for treasury stock. What should ONal report in the income statement?

$0 - No gain or loss is recognized on IS for treasury stock transactions.

Ajax Corp has effective tax rate of 30%. On January 1, Y2 Ajax purchased equipment for $100,000. The equipment has useful life of 10 years. What amount of current tax benefit will Ajax realize during Y2 using 150% declining balance method of depreciation instead of straight-line method?

$1,500 (5,000 x 30%) - (100,000 / 10 years) x 1.5 = 15,000 - (100,000 / 10 years) = 10,000

Taxes collected and held by Eldorado County for a school district would be accounted for in which of the following funds? (Trust, Agency, Special Revenue, and Internal Service)

Agency - They're used to account for assets held by a governmental unit as a agent for individuals, private organizations, other governmental units, and other funds. Since Eldorado County would hold taxes for a school district in an Agency Fund.

Kemp provides a defined benefit postretirement plan for its employees on Y1. At the end of Y1, Kemp makes a benefit payment of $10,000 to employees. What should BS record accrued postretirement benefit cost on December 31, Y1? Service Cost - 28,000 Interest on accumulated postretirement obligation - 5,000 Amortization of the unrecognized transition - 8,000

31,000 Postretirement Benefit Cost 41,000 Cash 10,0000 Accrued PR benefit Cost 31,000

An issuer of bonds uses a sinking fund for the retirement of bonds. Cash was transferred to the sinking fund and subsequently used to purchase investments. The sinking fund: I. Increases by revenue earned on the investments II. Is not affected by revenue earned on the investments III. Decreases when the investments are purchased.

Increases by revenue earned on the investments. Only I.

Using the indirect method, which cash flow statement does the amortization of a bond discount show up on?

Operating

A company issued rights to its existing shareholders to purchase for par unissued shares of common stock with a par value of $10 per share. When the market value of the common stock was $12 per share, the rights were exercised. Common stock should be credited at $10 per share and ...... - Appropriation for stock retirement credited at $2 per share. - No credit made to additional paid-in capital or retained earnings - Additional paid-in capital credit at $2 per share - Retained earnings credited at $2 per share

Cash 10 Common Stock 10 **No credit made to additional paid-in capital or retained earnings***

Lease Y contains a bargain purchase option and the lease term is equal to 75% of the estimated economic life of the leased property. Lease Z contains a bargain purchase and lease term is equal to less than 75% of the estimated economic life of the leased property. How should the lessee classify these leases?

Both as Capital Lease! If 1 of the criteria are met then it is a Capital Lease: 1) Lease transfers ownership to the lessee during lease term 2) Lease contains a bargain purchase option 3) Lease Term is 75% or more of the economic useful life 4) PV of the minimum lease payment equals 90% or more of FV

Seco was forced into bankruptcy and is liquidating assets and paying claims at 40 cents on the dollar. Hale holds a $30,000 non-interesting bearing note from Seco, collateralized by an asset with BV of 35,000 and liquidation value of $5,000. What's the amount to be realized by Hale on this note?

$15,000 30,000 - 5,000 = 25,000 25,000 x 40% = 10,000 Liquidation value is guaranteed (5,000) so add it to the 10,000

The term chief operating decision maker... - Refers to a manager with a specific title - Refers to a function - Must be disclosed by title in the financial reporting for segments - Must be described in the disclosures for the financial reporting for segments

Refers to a function

What is factoring? Company A factors $200,000 without recourse on July 1, Y1 to Rich. Rich assessed a fee of 3% and retains a holdback equal to 5% of the AR. In addition, Rich charges 15% interest computed on a weighted average time to maturity of the receivables of 41 days. 1) What is the Company A's cost of factoring? 2) What will A receive and record a cash of? Lastly, how does A account for factoring?

Cost incurred: 200,000 x 3% = 6.000 200,000 x 15% x 41/365 = 3,370 1) (Cost of Factoring) 9,370 = 6,000 + 3,370 Holdback = 10,000 (200k x 5%) 2) Receive = $200,000 - $9,370 - $10,000 = $180,630 **Note: when items are factored - A should removed all of the receivables from the books by crediting AR by $200,000**

Whitestone, a nongovernmental not-for-profit organization, received a contribution in December Y1. The donor restricted use of the contribution until March Y2. How should they record it? - Footnote the contribution in Y1 and record as income when it becomes available in Y2 - Report as Net Income in Y1 - Report as deferred income in Y1

Report as Net Income in Y1

Total Asset Turnover?

Sales / Avg Total Assets

Factoring. 4/1, Aloe factored $80k of its AR without recourse. The factor retained 10% as allowance for sales returns and charged 5% commission on gross amount. What amount of cash did Aloe receive from the factored receivables?

80,000 x (100% - 10% - 5%) = 68,000

3 different kinds of depreciation and example. Straight line, double declining, and sum-of-the-years? Assuming Y2 for sum-of-the-years. Useful life - 5 years Salvage Value - $5,000 Cost - 100,000

Straight line (100 - 5) / 5 Double Declining 2x Straight line Expense Sum of the years (100 - 5) / (4 / 15)

3 different kinds of depreciation and example. Straight line, double declining, and sum-of-the-years? Assuming Y2 for sum-of-the-years. Useful life - 5 years Salvage Value - $5,000 Cost - 100,000

Straight line (100 - 5) / 5 Double Declining 2x Straight line Expense (salvage value doesn't matter) Sum of the years (100 - 5) / (4 / 15)

1/1/Y2, Carpet lent $100mn to supplier payable in 5 years. Interest 5% payable annually with 1st payment 12/31/Y3. Going rate for this type of loan is 10%. Assume PV (at going rate) of $100mn note is $81mn on 1/1/Y2. What amount of interest income should be included in Y2 income statement?

$81mn (carrying value) x 10% (implied) = $8,100

Ande estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of .... - Consistency - Going Concern - Matching - Substance over form

- Matching

Which of the following is true of start-up costs? - Costs of start-up activities, including organizations costs, should be expensed as incurred. - Cost of start-up activities, including org costs, should be capitalized and expensed only if an impairment exists - Costs of start-up activities, including organizations costs, should be capitalized and amortized on a straight-line basis over the lesser of the estimated economic life of the company or 60 months.

- Costs of start-up activities, including organizations costs, should be expensed as incurred.

What is the Y2 net cash for financing activities? Payment for early retirement of LT bonds - 750mn Distribution of Y2 cash dividend declared in Y1 to preferred shareholders - 62mn Carrying Value of convertible preferred stock, converted into CS - 120mn Proceeds from sale of Treasury stock (Carrying value 85mn) - 95mn

Cash paid to retire bonds (750mn) + Payment of cash dividend (62mn) + Sale of treasury stock 95mn = ($717mn)

12/31/Y1, company reduced inventory cost from $100 to its NRV of $80. 12/31/Y2, inventory was still on hand, and its NRV increased to $150. Under IFRS, what journal entry should be the company record for Y2 to properly record inventory value? - Debit inventory 20 and credit expense 20 - Debit inventory 70 and credit expense 70 - Debit inventory 70, credit RE 50 and expense 20 - Debit inventory 20 and expense 30, credit RE 50

- Debit inventory 20 and credit expense 20 | - IFRS, inventory is carried at lower of cost of NRV.

Which of the following are reported as interest expense? - Pension cost interest - Postretirement healthcare benefits interest - Imputed interest on noninterest-bearing note - Interest incurred to finance construction of machinery for own use

- Imputed interest on noninterest-bearing note

Which of the following funds should be reported as part of the local government's governmental activities column in its government-wide statements? - Debt service - Agency - Private-purpose trust - Pension trust

- Debt service

Which of the following would be reported as an investing activity in a company's statement of cash flows? - Collection of proceeds from a note payable - Collection of a note receivable from a related party - Collection of an overdue AR from a customer - Collection of tax refund from the government

- Collection of a note receivable from a related party

Which of the following statements correctly describes the proper accounting of nonmonetary exchanges that are deemed to have commercial substance? - It defers any gains and losses - It defers losses to the extent of any gains - It recognizes gains and losses immediately - It defers gains and recognizes losses immediately

- It recognizes gains and losses immediately ***Gains and losses from nonmonetary exchanges that have commercial substance are recognized immediately***

Which of the following should be disclosed in a summary of significant accounting polices? - Basis of profit recognition on long-term construction contracts. - Future minimum lease payments in the aggregate and for each of the five succeeding fiscal years. - Depreciation expense - Composition of sales by segment

- Basis of profit recognition on long-term construction contracts. ***Summary of significant accounting policies footnotes present info that helps users understand the recognition, measurement, and disclosure decision made by the firm***

Office supplies were ordered by Dwyer from Orcutt on December 15, Y1. Terms of sale were FOB destination. Orcutt shipped the office supplies on December 28, Y1, and Dwyer received them on January 3, Y2. When should Dwyer record the accounts payable? - December 15 - December 28 - January 3

- January 3. *** Reason is that when items are shipped FOB Destination, title does not pass to the buyer until it is delivered. ***

Jonn City entered into a capital lease for equipment during the year. How should the asset obtained through the lease be reported in Jonn City's government-wide Statement of Net Position? - General Capital Asset - Other Financing Use - Expenditure - Not reported

- General Capital Asset

If options or rights are exercised, how does that affect Retained Earnings/Net Income and Additional paid-in Capital?

Retained Earnings/Net Income - Not affected Additional paid-in Capital - Increased

Which of the following information about threatened litigation should NOT be considered to determine whether an accrual is appropriate prior to an issuance of a company's financial statements? - The period in which the underlying cause of the threatened litigation occurred - The degree of probability of an unfavorable outcome - The ability to make a reasonable estimate of the amount of loss - The period in which the threatened litigation became known to management

- The period in which the threatened litigation became known to management **everything else is a MUST**

Tott City's serial bonds are serviced through a Debt Service Fund with cash provided by the General Fund. In a Debt Service Fund's statements, how are cash receipts and cash payments reported? (Revenues, Expenditures, or Operating Transfers)

Cash Receipts: - Operating Transfers Cash Payments - Expenditures

On 12/31/14, Largo had a $750mn note payable outstanding due 7/31/15. They had excess cash in prepaid $250mn of the note in 1/12/15. In 2.15, Large completed $1,500mn bond offering which proceeds use to repay the note payable and construction costs. On 3/3/15, Largo issued its 2014 FS. What amount of note payable should be included in current liabilities?

$250mn ***reason is that even though proceeds from issue replenished these funds. the

$250mn ***reason is that even though proceeds from issue replenished these funds, the $250mn will reduce current assets. SO the remainder of note (500) is classified as noncurrent because firm intends to refinance (which they have ability as they issued 1500mn).

Regarding transfer of investments between categories under IFRS No. 9 - which are correct? - Only investments in debt securities may be transferred between categories - When investments are transferred between categories, financial statements of prior periods presented for comparative purposes must not be restated

- Only investments in debt securities may be transferred between categories Other is incorrect

Pine Corp's books showed pretax income of $800mn. What is their current income tax liability 12/31/Y3 on BS? Gain on involuntary conversion - $350mn Depreciation deducted for tax purposes - $50mn Federal est. tax payment, Y3 - $70mn Federal tax rate, Y3 - 30%

``` Accounting Income 800mn - Nontaxable gain (350mn ) - excess tax depreciation (50mn) = Taxable Income $400mn x Federal Tax Rate 30% = Est. Tax Payments $120mn - Already made tax payments ($70mn) = Income Tax Liability $50mn ```

According to the IASB Framework, the two criteria required for incorporating items into the income statement or statement of financial position are that... - It meets the definition of relevance and reliability - It satisfies the criteria of capital maintenance - It meets the definition of an element and can be measured reliably - It meets the requirements of comparability and consistency

- It meets the definition of an element and can be measured reliably

Which is a concern in preparing consolidated FS at the end of operating period following a business combination that would NOT be a concern in preparing financial statements immediately following the combination? - Whether or not there are intercompany accounts receivable/accounts payable - Whether or not goodwill resulted from the business combination - Whether the parent carries its investment in the subsidiary using the cost method or equity method - Whether or not there is a controlling interest in the subsidiary

- Whether the parent carries its investment in the subsidiary using the cost method or equity method **It is not a concern at the beginning of operating period but is a concern at the end.** Reason it is NOT intercompany is because that is an issue at BOTH beginning and ending.

A lease contains a bargain purchase option. In determining the lessee's capitalizable cost at the beginning of the lease term, the payment called for by the bargain purchase option would: - Not be capitalized - Be subtracted at its present value - Be added at its exercise price - Be added at its present value

Be added at its present value **Minimum lease payments include the rental payments plus amount of bargain purchase. Amount capitalized is Present value of minimum lease payments**

Encumbrances would NOT appear in which fund? - Capital Projects - Special Revenue - General - Enterprise

Enterprise.

In October Y1, US company sold merchandise to British Company for 2,000 pounds (exchange $1.43). In December 31, exchange rate is $1.45. On collection in January, exchange rate is $1.50. What is the gain (loss) from foreign currency translation when the receivable is collected?

$100. The reason it that in the Y1 statement, there is a gain of $40. And then in Y2 (what were asked) it is the other $100. So there is a $140 gain but it is split based on timing.

An estimated loss from a loss contingency that is probable and for which the amount of the loss can be reasonably estimated should: - Not be accrued but should be disclosed in the notes to the financial statements - Be accrued by debiting an appropriated retained earnings account and crediting a liability account or an asset account - Be accrued by debiting an expense account and crediting appropriated retained earnings account - Be accrued by debiting an expense account and crediting a liability account or an asset account.

- Be accrued by debiting an expense account and crediting a liability account or an asset account.

Which of the following is a recognized liability for both international accounting standards and US Standards: - Regular warranty liability, 60% probability of occurring - Obligation to provide rebates to customers, 90% probability of occurring - Possible loss due to lawsuit, 60% probability - Possible loss due to lawsuit, 40% probability

- Obligation to provide rebates to customers, 90% probability of occurring

Under IFRS, a provision is: - An event which is not recognized because it is not probable or cannot be measured reliably. - An event which is probable and measurable - An event which is probable, but not measurable - An event which is probable, possible, or remote and measurable

- An event which is probable and measurable

Band Co uses the equity method to account for its investment in Guard, Inc common stock. How should Band record a 2% stock dividend received from Guard? - As dividend revenue at Guard's carrying value of the stock - As dividend revenue at the market value of the stock - As a reduction in the total cost of Guard stock owned - As a memorandum entry, reducing the unit cost of all Guard stock owned.

- As a memorandum entry, reducing the unit cost of all Guard stock owned.

Eagle Inc, is a US manufactures/distributer of consumer products and owns a subsidiary, El Rio, which sells Eagles products in Mexico. El Rio receives all its products from Eagle and sells those products. El Rio also maintains its books and FS in the Peso. Which methods will Eagle most likely use to convert El Rio's financial statements to dollar-based statement? - Translation - Remeasurement - Translation and then remeasurement - Remeasurement and then translation

- Remeasurement

Funded ratio of a pension plan compares: - Actual employer contributions to the unfunded actuarial pension liability - The fair value of plan assets to the actuarial value of plan assets - Actual employer contributions to the accumulated required employer contributions - The plan's fiduciary net position as a percentage of the actuarially determined total pension liability

- The plan's fiduciary net position as a percentage of the actuarially determined total pension liability **governmental employer must report as required supplemental information***

Garson Co. recorded goods in transit purchased FOB shipped point at year-end as purchases. The goods were excluded from ending inventory. What effect does the omission have on Garson's assets and retained earnings at year-end? (under/overstated)

Assets - Understated Retained Earnings - Understated **Goods shipped FOB shipping point should be included ending inventory. SO, if ending inventory is understated then COGS is understated then NI is understated. **

Marmol corporation uses the allowance method for bad debts. During Y1, Marmol charged $30,000 to bad debt expense, and wrote off $25,200 of uncollectible accounts receivable. These transactions resulted in a decrease in working capital of.... - $0 - $4,800 - $25,200 - $30,000

- $30,000

Changes in the FV of contingent transferred in a business combination resulting from occurrences after the acquisition date should be recognized as a gain or loss in the current income when the contingent consideration is classified as... (Asset or Liability/An Equity Item = Yes/No)

Asset/Liability - Yes | An Equity Item - No

Which of the following is correct accounting measurement and treatment under IFRS for assets classified as "Loans and Receivables"? - Amortized cost, with interest and amortization recognized in current income - Amortized cost, with interest and amortization recognized in other comprehensive income - Fair value, with changes in fair value recognized in current income - Fair value, with changes in fair value recognized in other comprehensive income.

- Amortized cost, with interest and amortization recognized in current income **this treatment is the same under US GAAP for investment held to maturity**

Which of the following statements concerning the fair value hierarchy used in ascertaining fair value is/are correct? I. Quoted market prices should be adjusted for a "blockage factor" when a firm holds a sizable portion of the asset being valued II. Quoted market prices in markets that are not active because there are few relevant transactions cannot be used

Neither

Pane Co. had the following borrowing on its books at the end of the current year: - $100k, 12% interest payable 3/31 and 9/30 - $75k, 10% paid 4/1, 7/1, 10/1, and 1/1. - $200k noninterest bearing not, proceeds $178k What is interest payable on 12/31 balance sheet?

(100k x 12% x (3/12)) = $3,000 (75k x 10% x (3/12)) = $1,875 Total interest payable = $4,875

Finished goods inventory 1/1 - $120mn Finished goods inventory 12/31 - $110mn Cost of Goods manufactured - $520mn Loss of sale of plant equipment - $50mn The cost of goods sold for this year is?

$530mn = $520 + $10 $120 - $110 = $10mn

Lobo Corp. reported for financial-statement purposes the following revenue/expenses were not included in taxable income: - Premiums on offices life insurance $5k - Interest revenue on muni bonds $10k - Est. future warranty costs in Y2/Y3 $6k Lobo's tax rate is 30% and has paid income taxes of $170k for the 3 year period. What is deferred tax benefit applied against current income tax expense?

- $18,000 = $60,000 x 30%

Carlson Hospital, a nonprofit affiliated with Carlson College had these cash receipts: - Collection of Health care receivables - $850mn - Contribution from donor for endowment - $150mn - Tuition from nursing school - $50mn - Dividend received from investments - $75mn Dividends are restricted by donor hospital building improvements. What amount would be reported as net cash provided by operating activities?

- 900mn = 850mn + 50mn

Forward contracts entered into for speculative purposes, which of the following exchange rates would be used to measure the contracts prior to maturity? (Spot rate and/or Forward rate)

Spot rate - No | Forward rate - Yes

Which one of the following hedges using a forward contract will require the recognition of a new asset or liability if a gain or loss occurs on the hedging instrument? - Forecasted transaction - Firm commitment hedge - Recognized asset or liability hedge - Net investment in foreign operations hedge

- Firm commitment hedge

Mend purchased a three-month U.S. treasury bill and its policy is to treat all highly liquid investments with an original maturity of 3 months or less as a cash equivalent. What should this purchase be reported in the statement of cash flows? - Outflow from operating activities - Outflow from investing activities - Outflow from financing activities - Not reported

Not Reported. *** the reason is that it has no effect on total cash and cash equivalents because such purchases increase cash equivalents and decrease cash by the same amount***

Dee's inventory and accounts payable balances at 12/31/Y2, increased over their December 31, Y1 balances. Should these increases be added to or deducted from cash payments to suppliers to arrive at Y2 Cost of goods sold? (Increase in inventory/Increase in accounts payable = added to or deducted from)

Increase in Inventory - Deducted from Increase in AP - Added to Cash payments to suppliers + increase in AP - increase in inventory = COGS

Young purchased equipment by making a down payment of $4k and issuing a note payable for $18k. A payment of $6k is to be made at the end of each year for 3 years. The applicable rate of interest is 8%. the PV of an ordinary annuity factor for 3 year 8% is 2.58, and PV for future amounts of a single sum of one dollar for 3 years at 8% is .735. Shipping charges for the equipment were $2k and installation charges were $3.5k. What is the capitalized cost of the equipment?

FV of equipment is $4,000 + 15,480 (2.58 x $6k) = $19,480 $19,480 + $2k + $3.5k = $24,980 **shipping and installation charges are included in a capitalized**

Which of the following accounts of a governmental unit is credited to close it out at the end of the fiscal year? - Appropriations - Revenues - Fund Balanced-assigned - Encumbrances

- Encumbrances

Under IFRS for SMEs, which of the following cost flow assumptions can be used for inventory valuation purposes? (FIFO, LIFO, Weighted Average Cost = Yes/no)

FIFO - Yes LIFO - NO Weighted Avg Cost - Yes

On 1/1/Y2 Ritt Corp acquired 50,000 shares of Shaw Corp which represents 80% of Shaw's $10 par CS for $19.50. On the date of acquisition, the fair value of the 12,500 shares representing the noncontrolling interest in Shaw was $18 per share. On this date, the carrying value of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying values. For the year ended 12/13/Y2, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the December 31,Y2, consolidated balance sheet, noncontrolling interest should be reported at: - $200,000 - $225,000 - $233,000 - $238,000

$238,000 225,000 Y2 Net Income (20% x 190k) 38,000 Y2 Dividends (20% x 125k) (25,000) Noncontrolling interest = $238,000 ** subtract dividends because they decrease investment account under the equity method**

Bay has an asset with a cost of $200mn and acc. depreciation of $120mn. Driftwood has an asset of $250mn and acc. depreciation of $160mn. Both have fair values of $100mn and find it mutually advantageous to exchange assets, and the exchange results in improved future cash flows for both companies. What amount, if any, is Bay's gain on the exchange?

$20mn. **The gain on the exchange would be the difference between the carrying value of the asset exchanged and the fair value of that asset. Bayberry's carrying value is $80,000 and the fair value is $100,000; therefore, the gain to Bayberry is $20,000."

Adam Co. reported sales revenue of $2,300,000 in its income statement December 31, Y2. Using the info below, uncollectible accounts totaling $10,000 were written off in Y2. Under the cash basis of the accounting, Adam would have reported Y2 sales of... - $2,140,000 - $2,150,000 - $2,175,000 - $2,450,000

- $2,140,000 ``` **AR T account** 12/31/Y1 500k Sales 2,300k 10k write off ? collections 12/31/Y2 650k ``` Beg, AR + Credit Sales - Collections - Write offs = Ending AR

Yellow Co. spent $12,000,000 during the current year developing its new software package. Of this amount, $4,000,000 was spent before it was at the application development stage and the package was only to be used internally. The package was completed during the year and is expected to have a four-year useful life. Yellow has a policy of taking a full-year’s amortization in the first year. After the development stage, $50,000 was spent on training employees to use the program. What amount should Yellow report as an expense for the current year?

Software costs of $4,000,000 are at the preliminary project stage and should be expensed as incurred in the current year. The remaining $8,000,000 is capitalized and amortized over its four-year life ($8,000,000/4 years = $2,000,000 per year). And 50,000 spent on training employees is expensed during the current year. 4mn + 2mn + 50k =6,050,000

On January 1, 20X5, Blaugh Co. signed a long-term lease for an office building. The terms of the lease required Blaugh to pay $10,000 annually, beginning December 30, 20X5 and continuing each year for 30 years. The lease qualifies as a capital lease. On January 1, 20X5, the present value of the lease payments is $112,500 at the 8% interest rate implicit in the lease. In Blaugh's December 31, 20X5 balance sheet, the capital lease liability should be: - $102,500 - $111,500 - $112,500 - $290,000

- $111,500 Entry on Dec 31, 2015: Interest expense (112,500 x .08) Lease liability 1,000 Cash 10,000 SO lease liability is $112,500 - $1,000 = $111,500

Ott acquired rights to a patent from Grey under a licensing agreement that required an advance royalty payment. Ott remits royalties earned and due under the agreement on Oct 31 each year. Additionally, on same day, Ott pays in advance the estimated royalties for the next year. 1/1/Y1 Prepaid Royalties - 65,000 13/31/Y1 Royalty Payment - 110,000 12/31/Y2 Year-end Credit Adjustment Royalty Expense - 25,000 On December 31, Y2 Balance Sheet - Ott should report prepaid royalties of: - $25,000 - $40,000 - $85,000 - $90,000

- $90,000 (65,000 + 25,000)

Black Corp.’s accounts payable at December 31, year 1, totaled $900,000 before any necessary year-end adjustments relating to the following transactions: - On December 27, year 1, Black wrote and recorded checks to creditors totaling $400,000 causing an overdraft of $100,000 in Black’s bank account at December 31, year 1. The checks were mailed out on January 10, year 2. - On December 28, year 1, Black purchased and received goods for $153,061, terms 2/10, n/30. Black records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, year 2. - Goods shipped FOB destination on December 20, year 1, from a vendor to Black were received January 2, year 2. The invoice cost was $65,000. At December 31, year 1, what amount should Black report as total accounts payable? - $1,515,000 - $1,450,000 - $1,153,061 - $1,153,061

- $1,450,000 **THe reason $65,000 isnt added is because it is shipped FOB destination SO it it not included until it arrives which is January**

On January Y1, Ball Inc purchased a $1,000,000 ordinary life insurance policy on its president. Ball, Inc. is the beneficiary under the life insurance policy. Using the information below, how much should Ball report as life insurance expense for year 3? Cash surrender value, 1/1/Y3 - $43,500 Cash surrender value, 12/31/Y3 - $54,000 Annual advance premium paid 1/1/Y3 - $20,000 Dividend received 7/1/Y3 - $3,000 2) What if the question said that the dividends were applied to increase the cash surrender value?

$6,500 (9,500 - 3,000) ** cash surrender value increased by $10,500 (54,000 - 43,500). Cash Surrender value $10,500 Insurance expense $9,500 Cash $20,000 Since dividend received from policy (3,000) is not a dividend earned from a separate account investment. Since the company owns the insurance policy it is offset against the insurance expense. (9,500 - 3,000) 2) if so, then you would NOT subtract the dividends (3k) from the insurance expense as it was applied to surrender value

- $2,140,000 ``` **AR T account** 12/31/Y1 500k Sales 2,300k 10k write off ? collections 12/31/Y2 650k ``` Beg, AR + Credit Sales - Collections - Write offs = Ending AR

Seafood Trading Co, commenced operations during the year as a large importer and exporter of seafood. Imports were all from one country overseas. Export sales were merely transshipped at Seattle. The Seafood Trading reported the following data: Purchased during year - $12mn Shipping costs from overseas - $1.5mn Shipping costs to export customers - $1mn Inventory year-end - $3mn What amount of shipping costs are included in year-end inventory valuation?

- 375,000 **shipping costs to export to customers are selling expense (1mn) and not included in inventory. Shipping costs or freight-in necessary to get the inventory in place to sell should be recorded in inventory. Seafood should include proportion amount of the shipping costs of $1.5mn in ending inventory. (3mn / 12mn) x $1.5 mn = $375,000

Cash dividends on the $10 par value CS are as follows: Q1 - 800k Q2 - 900k Q3 - 1,000k Q4 - 1,100k Cash dividend was declared on December 20th, Y1 to stockholders on record on December 31, Y1. Payment of Q4 dividend was made January 9, Y2. In addition, they declared a 5% stock dividend on December 1, Y1, when there were 300,000 shares issued and outstanding and the market value of the common stock was $20 per share. Shares were issued on December 21, Y1. What was the effect on Stock holders' equity accounts as a result of above?

Common stock - $150,000 credit APIC - $150,000 credit RE - $4,100,000 debit ``` RE 3,800,000 Cash 2,700,000 Dividends 1,100,000 RE 300,000 CS 150,000 APIC 150,000 ```

Cash overdraft 10mn AR, net 35mn Inventory 58mn Prepaid exp. 12mn Land held for resale 100mn PPE, net 95mn AP * Accrued Exp. 32mn Common Stock 25mn APIC 150mn RE 83mn Total 300mn 300mn Additional Information: 1) Checks of $30mn written to vendors resulting in cash overdraft of $10mn. Checks mailed on July 9. 2) Land held for resale sold for cash on July 15 3) Gold issued its FS on July 31 What should they report as current assets on June 30 Balance Sheet?

** Current assets are expected to be consumed or realized in cash within one year of balance sheet date. No overdraft because checks were not sent by balance sheet date. Balance sheet should disclose $20mn ($30 - $10). And land held for resale is a current asset because its expected to be sold in the next year. ``` Cash $20mn + Net AR 35mn + Inventory 58mn + prepaid exp 12mn +Land held for resale 100mn = 225mn Total current assets. ```

- $90,000

When only a few assets (not a reporting unit) acquired in a business combination accounted for using the acquisition method are being tested fro recoverability, all goodwill that arose from that transaction should: - Be allocated to all asset groupings using the relative fair values of long-lived tangible and intangible assets - Be allocated to all groupings equally - Be allocated equally to only those assets being tested - Not be allocated to only part of a reporting unit

- Not be allocated to only part of a reporting unit. **if some but not all of the assets acquired in a business combination accounted for using the acquisition method being tested for recoverability, the goodwill that arose from that transaction will not be allocated to the assets unless the asset group includes a reporting unit.**

Acme Co's accounts payable balance at December 31 was $850,000 before necessary year-end adjustments, if any, related to the following information: - 12/31, Acme has a $50,000 debit balance in its accounts payable resulting from a payment to a supplier for goods to be manufactured - Goods shipped FOB destination on 12/20 were received and recorded by Acme on January 2; the invoice cost was $45,000 On 12/31 Balance Sheet, what amount should Acme report as accounts payable? - $850,000 - $895,000 - $900,000 - $945,000

- $900,000 **reason $50,000 is added is because debit represents a deposit (asset) for goods that had not yet been received. The goods shipped FOB destination were in recorded when accurately.**

Which of the following has the highest level of authority for setting GAAP for nongovernmental non-for-profit organizations? - GASB - FASB - FASAB - AICPA

- FASB

Under which of the following methods of carrying a subsidiary on its books, if any, will the carrying value of the investment normally change following a combination? (cost method and equity method = yes/no)

Cost Method - No Equity Method - Yes **if the parent uses the equity method to carry on its books the investment in a subsidiary, the carrying value will change as the equity of the subsidiary changes. However, if the parent uses the cost method, the carrying value on its books normally will not change**

According to ASC Topic 250, the cumulative effect of changing to a new accounting principle should be included in net income of: ``` Future periods The period of change No No Yes No Yes Yes No Yes ```

Future periods - No The period of change - No **A change in accounting principle is accounted for through retrospective application to all prior periods, unless it is impracticable to do so.**

According to the IASB Framework, the financial statement element that is defined as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants , is - Revenue - Income - Profits - Gains

- Income

Erdman Corp signs a lease to rent equipment for ten years. The lease payments of $20k per year are due Jan 2 each year. At the end of the lease term, Erdman may purchase the equipment for $500. The equipment is estimated to have a useful life of 10 years. Erdman prepares its financial statements in accordance with IFRS. Erdman should classify this lease as a: - Operating lease - Capital lease - Sales-Type lease - Finance lease

- Finance lease **The reason IFRS requires a lease to be classified as a finance lease if substantially all risks or benefits of ownership have been transferred to the lessee such as bargain purchase option and lease is for entire life of asset, all risks and benefits have transferred.**

In October 2012, a large US Aircraft manufacturer signed a significant contract with the government of France to build 50 jumbo jets, with delivery date of 2015. In February 2013, the firm signed a second contract with the government of Germany to build 35 jumbo jets. The 2012 financial statements were issued in early March 2013. The firm did not begin work on either contract before the issuance of the 2012 statements. What contracts should be recongzied in the accounts for the 2012 Financial Statements? (French and/or German = Yes/No)

French - No German - No **No transaction have taken place for either contract even though the French contract was signed before the balance sheet date as there is nothing to recognize. Footnotes will describe both contracts.**

At the beginning of the current year, Hayworth Co sold equipment with a two-year service contract for a single payment of $20,000. The fair value of the equipment was $18,000. Hayworth recorded this transaction with a debit of $20,000 to cash and a credit of $20,000 to sales revenue. Which of the following statements is correct regarding Hayworth's current year financial statements? - The financial statements are correct - Net Income will be overstated - Total assets will be overstated - Total liabilities will be overstated

- Net Income will be overstated ** two criteria for revenue recognition are normally met : 1) the revenue is realized or realizable and 2) it is earned. Hayworth has not earned all the income because it is a 2 year contract so it should not recognize the full amount.**

A new separate contract is created when: I) the additional products included in the contract modification are distinct from the products in the original contract II) The blended price of the original and additional products is appropriately reflected in the recognition of revenue after the modification III) the consideration for the additional products reflects an appropriate standalone selling price. Which are true?

I and III

After being held for 40 days, a 120-day, 12% interest-bearing note receivable was discrounted at a bank at 15%. the proceeds received from the bank equal: - Maturity value less the discount at 12% - Maturity value less the discount at 15% - Face value less the discount at 12% - Face value less the discount at 15%

- Maturity value less the discount at 15%

Able sold its HQs building at a gain and simultaneously leased back the building. The lease was reported as a capital lease. At the time of sale the gain should be reported as: - Operating Income - A gain, net of income tax - A separate component of stock holder's equity - An asset valuation allowance

- An asset valuation allowance ** when the asset is sold and then leased back, the lessee defers the gain. The deferred gain is recorded as a contra account to the leased asset in a capital lease.**

Under IFRS, which of the following items is considered investment property? - land held for use in the production or supply of goods or services - A building held for use for administrative purpose - Land held for sale in the ordinary course of business - Part of a building held to earn rentals

- Part of a building held to earn rentals **Under IFRS, investment property is defined as property held to earn rentals, for capital appreciation, or both.**

Last year, Katt Co. reduced the carrying amount of its long0lived assets used in operations from $120,000 to $100,000 in connection with its annual impairment review. During the current year, Katt determined that the fair value of the same assets had increased to $130,000. what amount should Katt record as restoration of previously recognized impairment loss in the current year's financial statements? - 0 - 10,000 - 20,000 - 30,000

- 0 **Under US GAAP, previously recognized impairments of fixed assets may not be recovered or reversed.**

Which of the following statements, if any, concerning IFRS for SME is/are correct? I) IFRS for SMEs is based on accrual basis accounting II) Generally, IFRS for SMEs may be used as an alternative to using OCBOA.

Both correct.

Reserves for contingencies for general or unspecified business risks should: - Be accrued in the financial statements and disclosed in the notes thereto. - Not be accrued in the financial statements but should be disclosed in the notes thereto - Not be accrued in the financial statements and need not be disclosed in the notes thereto - Be accrued in the financial statements but need not be disclosed in the notes thereto.

- Not be accrued in the financial statements and need not be disclosed in the notes thereto **an estimated loss for a loss contingency shall be accrued only if the loss is probable and the amount of the loss is reasonably estimated.**

The vested benefits of an employee in a pension plan represent: - Benefits to be paid to the retired employee in the current year - Benefits to be paid to the retired employee in the subsequent year - Benefits accumulated in the hands of an independent trustee - Benefits that are not contingent on the employee's continuing in the service of the employer

- Benefits that are not contingent on the employee's continuing in the service of the employer

Which of the following should be disclosed in a company's financial statements related to deferred taxes? I) The types and amounts of existing temporary differences II) the types and amounts of existing permanent differences III) The nature and amount of each type of operating loss and tax credit carry-forward

I and III

The owners equity section of a firm includes 1) $10,000 of 8%, $100 par cumulative preferred stock, and 2) $40,000 of $5 par common stock. There is additional paid-in capital on both issues. The referred participates up to an additional 4% and there are two years of dividends in arrears as of the beginning of the current year. If the firm pays $7,100 in dividends, what amount is allocated to common? - $4,400 - $3,200 - $4,700 - $6,000

- $4,400 Arrear - (.08)(2)(10,000) = 1,600 Current Year - (.08)(10,000) = 800 Total = .08(40,000) = 3,200 7,100 - 1,600 - 800 - 3200 = 1,500 dividends remaining 1,500 (4/5) = 1,200 $1,200 + $3,200 = $4,400 **reason (4/5) is because preferred is 10,000 and common stock is 40.000 so 50,000 in total**

According to GASB's conceptual framework, the legally adopted annual budget has significant financial reporting implications. Which of the following is not one of the significant financial reporting implications? - Expression of public policy - To demonstrate that the budget is prepared on the GAAP basis - Expression of financial intent - Is a form of control

- To demonstrate that the budget is prepared on the GAAP basis

Which of the following is not a derivative instrument? - Interest rate and foreign currency swaps - Outstanding loan commitments written - Option contract - Trade accounts receivable

- Trade accounts receivable

Derivatives used for hedging purposes that require disclosure of reclassifications of accumulated other comprehensive income are most likely related to which of the following, if any? I) Fair value hedges II) Cash flow hedges

II) Cash flow hedges

The retail inventory method includes which of the following in the calculation of both cost and retail amounts of goods available for sale? - Purchase returns - Sales returns - Net markups - Freight in

- Purchase returns **purchases returns reduce net purchases at both cost and retail because returns represent amounts included in gross purchases that are not available for sale.**

Wolf co grant of 30,000 stock appreciation rights enables key employees to receive cash equal to the difference between $20 and the market price of the stock on the date each right is exercised. The service period is year 1 through year 3, and the rights are exercisable in year 4 and 5. The market price of the stock was $25 and $28 at December 31, Y1 and Y2 respectively. What amount should Wolf report as the liability under the stock appreciation rights plan in its December 31, Y2 balance sheet? - $0 - $130,000 - $160,000 - $240,000

- $160,000 (2/3 x 240,000). **estimated compensation expense is $240,000 (30,000 x ($28-$20)). Since service period is 3 years, at the end of the second year, (2/3) of the total estimated compensation expense should be accrued, resulting in SAR liability 160,000 (2/3 x 240,000).**

During year 1, Jase Co. incurred research and development costs of $136,000 in its laboratories related to a patent that was granted on July 1, Y1. Costs of registering the patent equaled $34,000. The patent's legal life is 17 years and its economic life is 10 years. In its December 31, Y1 balance sheet, what amount should Jase report as patent, net of accumulated amortization? - $32,300 - $33,000 - $161,500 - $165,000

- $32,300 **research and development must be expensed in period incurred. amortization would only be for 6 months - (7/1 - 12/31). Direct cost of acquiring the patent is $34,000 so we amortize that which is $1,700 (34,000 x (1/10) x (6/12)). So net book value is $34,000 - $1,700 = 32,300

``` Lelak Company was formed on 1/1/Y2. its machinery is being depreciated using the MACRS for income tax reporting and the straight-line method for financial reporting. Information concerning depreciation amounts under each method is as follows: MACRS Straight Line Y2 600k 400k Y3 800k 500k Assuming that the enacted income tax rate is 30% for all affected years, the amount of deferred taxes charged to expense in Lelak's Y3 Income statement is: -$30,000 -$90,000 -$150,000 -$210,000 ```

-$90,000 ** in year 3, taxable income is $300k less than accounting income because tax depreciation is $300 more than accounting depreciation (800k-500k). Causing an increase in deferred tax liability of $90,000 (40% x 300,000) Income tax expense 90k Deferred tax liability 90k

When a new entity is formed to effect a business combination, which of the following statements, if any, are correct? I) A legal consolidation has occurred II) The new entity is always the acquirer in the business combination

I) A legal consolidation has occurred

# Choose the correct statement regarding the accounting treatment of troubled debt restructures (TDRs) under international accounting standards (IAS).. - Settlements are treated the same way as under US Standards - Modification of terms TDRs are treated the same way as under US standards - A significant modification of terms for IAS is treated as a modification of terms type II under US Standards - A non-significant modification of terms for IAS is treated as a modification of terms type I under US standards

- Settlements are treated the same way as under US Standards

Claytor Company offers buyers a right to return on all sales of its devices. Claytor sells 200 devices to a buyer and expects that 15 of the devices will be returned. Each device is sold to the buyer for $40. If the buyer returns 8 devices before the end of the year, what amount should Claytor reflect in its Allowance for Sales Returns and Allowances account? - $320 debit - $320 credit - $280 debit - $280 credit

- $280 credit **Claytor expects to receive additional returns $280 (7 devices x $40) in the future. It records a credit of $280 in its Allowance for Sales Returns and Allowances account to reflect the expected future returns. It is a contra asset account to Accounts Receivables and contra assets are naturally credited.**

Encumbrances outstanding at year's end in a state's general fund may be reported as a: - Liability in the general fund - Fund balance assigned in the general fund - Liability in the general long-term debt account group - Fund balance designation in the general fund

- Fund balance assigned in the general fund **If the government intends to use the resources the specific purposes but is not a constraint imposed by external parties or enabling legislation (restricted) or by formal action of the government's highest decision making authority (committed) then a portion of the fund balance needs to be assigned for the outstanding encumbrances to indicate that a portion of the fund balance is not available for future appropriations. **

A machine with a 4-year estimated useful life and an estimated 15% salvage value was acquired on January 1, Y1. On December 31, Y3, the accumulated depreciation using the sum-of-the-years' digits method would be: - (Original cost less salvage value) multiplied by 9/10 - Original cost multiplied by 9/10 - Original cost multiplied by 9/10 less total salvage value - (Original cost less salvage value) multiplied by 1/10

- (Original cost less salvage value) multiplied by 9/10 Number of years of remaining life / (n (n+1) / 2)

Jill Corp. had investments in marketable debt securities purchased on 1/1/Y1 for $650K that were classified as trading securities. on 6/30/Y2, Jill decided to hold the investments to maturity and accordingly reclassified them to the held-to-maturity category on that date. The investments' FV was $575k at 12/31/Y1, $530k at 6/30/Y2 and $490k at 12/31/Y2. Jill elects the Fair value option for reporting these held-to-maturity securities. What amount of loss from investments should Jill report in its Y2 income statement? - $40,000 - $85,000 - $160,000 - $0

- $85,000 $45,000 (575 - 530) $40,000 (530 - 490) On 6/30,Y2, the trading securities were reclassified to the held-to-maturity category, and an election was made to report them at FV. On 6/30/Y2, the held-to-maturity securities were valued at $530k and Jill would recognize a loss of $45k (575-530). At 12/31/Y2, the securities declined in value an additional $40,000. Therefore tortal

At 12/31/2004, Date Co awaits judgment on a lawsuit for a competitor's infringement of Date's patent. Legal counsel believes it is probable that Date will win the suit and indicated the most likely award together with a range of possible awards. How should the lawsuit be reported in Date's 2004 Financial Statements? - In note disclosure only - By accrual for the most likely award - by accrual for the lowest amount of the range of possible awards - Neither in note disclosed nor by accrual

- In note disclosure only **A gain on contingency. Gain contingencies are footnoted at most, not accrued. To recognize gain contingencies in the accounts would violate the conservatism constraint.**

Smith College, a private, non-for-profit college, received the following cash inflow. Cash contributions of $200k to be permanently invested and cash dividends and interest of $10k restricted for long-term purposes. How would these cash inflows be disclosed on the Smith College cash flow statement? - $10,000 from operations and $200,000 from financing activities - $210,000 from operating activities - $210,000 from investing activities - $210,000 from financing activities

- $210,000 from financing activities ** $200k cash contribution is a financing activity because it has been donor restricted for LT. Related interest and dividends that are donor restricted for LT purposes are alos shown as cash receipts from financing activities.**

On 10/1/08, Buyco entered into a contract to acquire raw material inventory in 180 days for $20k. To hedge the FV of raw materials, they entered into 180 day forward contract. At 12/31/08, value of raw materials had decreased by $500 and the fair value of the future contract had increased by $480. On 3/29/08, raw materials are delivered to Buyco, they had a fair value of $19.3k and forward contract fair value was $700. Which of the following is the amount of net gain or loss that would be recognized on the raw materials and related forward contract on its 2008 net income? - $500 - $480 - $20 - $0

- $20 (500 - 480) ** the decrease in the value of the raw materials (500) was offset by the increase in the value of the forward contract of $480 so the net loss recognized in 2008 $20**

On 1/1/Y1, JCK Co, signed a contract for an 8-year lease of its equipment with a 10-year life. The present value of the 16 equal semi-annual payments in advance equaled 85% of the equipment's fair value. The contract had no provision for JCK, the lessor, to give up legal ownership of the equipment. Should JCK recognize rent or interest revenue in Y3 and should the revenue recognized be the same as or smaller than the revenue recognized in Y2?

Y3 Revenues recognized - Interest Y3 amount recognized compared to Y2 - Smaller **Since 8 years is more than 75% of the useful life this is a Capital lease to the lessor. So the lessor should recognize interest revenue rather than rent revenue (which is recognized under operating). And it is lower in Y3 because interest revenue as a percentage of lease payments decline over time. **

- In note disclosure only **A gain on contingency. Gain contingencies are footnoted at most, not accrued. To recognize gain contingencies in the accounts would violate the conservatism constraint.**

- $210,000 from financing activities

# Choose the correct statement about international accounting standards as they relate to contingent liabilities and similar items: - A provision that has a reasonably possible chance of requiring the outflow of benefits is treated as a contingent liability - Provisions are recognized only when there is greater than a 90% probability of an outflow of benefits occurring - A recognized provision is a contingent liability - A provisions for which it is probable that an outflow of benefits will be required is recognized, even if it is not of estimable amount

- A provision that has a reasonably possible chance of requiring the outflow of benefits is treated as a contingent liability

Average accumulated expenditures for year 5 on a construction project amounted to $70,000. Total cash invested in the project by the end of year 5, was $160,000. During year 6, the firm spent another $240,000 on the project, uniformly throughout the year. Compute average accumulated expenditures for Year 6? - $240,000 - $400,000 - $190,000 - $280,000

160,000 (12/12) + 240,000/2 = $280,000 Average accumulated expenditure is debt for annual period that could have been avoided. in this case, the firm has $160,000 in debt, that could have been avoided for Y6 if the firm wasn't involved in the construction project.

Which of the following statements concerning the use of a forward contract to hedge a foreign currency investment held available-for-sale is/are correct? I) The investment security must not be traded in the investor's functional currency II) The forward contract used as the hedging instrument must be highly effective in hedging the investment

Both.

Remeasurement, based on the temporal method of conversion, converts foreign currency amounts to reporting currency amounts using different exchange rates for different accounts based on which of the following distinctions? - Current and non-current - Monetary and non-monetary - Asset and Liability - Income statement and balance sheet

- Monetary and non-monetary

On 12/31/03, Ames leased equipment under a capital lease for 10 years. It contracted to pay $40,000 annual rent on 12/31/03 and on 12/31 for each of the next 9 years. The capital lease liability is $270,000 before first payment. and equipment's useful life is 12 years and the interest rate implicit is 10%. What should Ames reduce the capital lease liability by on 12/31/04? - $27,000 - $23,000 - $22,500 - $17,000

- $17,000 Lease Liability $17,000 Interest expense $23,000 Cash $40,000 All we need to do is get the interest expense of $23,000 which is (270 - 40) 230,000 x 10% = 23,000. Then subtract the annual payment of $40,000 and $23,000.

On January 2, Y1 Beal Inc acquired a $70,000 whole-life insurance policy on its president. the annual premium is $2,000. The company is the owner and beneficiary. beal charged officer's life insurance expense as follows: ``` Y1 $2,000 Y2 $1,800 Y3 $1,500 Y4 $1,100 Total $6,400 ``` On 12/31/Y4, the investment in cash surrender value should be: - $0 - $1,600 - $6,400 - $8,000

- $1,600 The cash surrender value of a life insurance policy is considered an asset to the policy owner. Generally, part of each year's insurance payment increases the CSV of the policy so when payment is made the asset account is debited for the amount of the increase, while the rest of the payment is recorded as insurance expense. Insurance expense 6,400 CSV 1,600 Cash $4,000 (2,000 x 4)

Beal Inc intends to lease a machine from Paul Corp. Beal's incremental borrowing rate is 14%. The prime rate of interest is 8%. Paul's implicit rate in the lease is 10%. Beal computes the present value of the minimum leas payments using... - 8% - 10% - 12% - 14%

- 10% Because the lessee should compute the PV of minimum lease payments using the lesser of the lessee's incremental borrowing rate (14%) or the implicit rate (10%).

Which of the following is a method to generate cash from accounts receivables? (Assignment and/or Factoring)

Assignment - Yes Factoring - Yes - An Assignment occurs when the owner of the receivables (assignor) obtains a loan from the lender (assignee) by pledging the AR as collateral. - Factoring is the sale of receivables to intermediaries that buy receivables from companies (for a fee) and then collect payments directly from customers.

The following information is available about a signed agreement between tow entities: 1) The entities have agreed to specific performance obligations. 2) The entities have agreed on a price related tot he performance obligations 3) No work has begun on the performance obligations, and the contract is cancelable without payment of penalty or other consideration 4) It is probable that the company completing the work will collect the agreed-upon consideration Does a contract exist between the entities to which the revenue recognition criteria may be applied? - A contract to which the revenue recognition criteria applies exists because it identifies specific performance obligations and collectability of the consideration is probable - A contract to which the revenue recognition criteria applies exists because the contract includes important terms, such as the agreed-upon price and specific performance obligations. - A contract to which the revenue recognition criteria applies does not exist because the transaction price has not yet been allocated to the specific performance obligations - A contract to which the revenue recognition criteria applies does not exist because it is cancelable without penalty and no work on the performance obligations has begun

- A contract to which the revenue recognition criteria applies does not exist because it is cancelable without penalty and no work on the performance obligations has begun

A statement of financial position, which reports net assets with donor restriction and net assets without donor restriction, is required for which on of the following: 1) A public university 2) A private, for-profit hospital

Neither

Which of the following legal forms of business combination will result in the need to prepare consolidated financial statements? (Merger, Acquisition, and Consolidation)

Merger - No Acquisition - Yes Consolidation - No **Only an acquisition form of business combination will require the preparation of consolidated financial statements. In the merger and consolidation forms of business combination, only one firm will remain after the combination. Therefore, there will not be two (or more) sets of financial statements to consolidate.**

Grey Company purchased a machine on January 1, year 1, for $500,000. The machine has an estimated useful life of 5 years and a salvage value of $50,000. Depreciation was computed by the 150% declining balance method. The accumulated depreciation balance at December 31, year 2, should be : - $180,000 - $229,500 - $245,000 - $255,000

- $255,000 * *Ignore salvage value with DDB. So 150% DDB means 150% of straight line depreciation.** - Straight-line is 20% (100% / 5) - DDB is 30% (20% x 150%) Y1 depreciation is $150,000 (500 x 30%) Y2 depreciation is $105,000 (350 x 30%) Total accumulated depreciation is $225,000 (150 + 105)

Tang City received land from a donor who stipulated that the land must remain intact, but any income generated from the property may be used for general government services. In which fund should Tang City record the donated land? - Special Revenue - Permanent - Private-purpose trust - Agency

- Permanent **Permanent funds are used to report resources that are legally restricted to the extent that only earnings, and not principal, may be used to support governmental programs.**

Finch Co. reported a total asset retirement obligation of $257,000 in last year’s financial statements. This year, Finch acquired assets subject to unconditional retirement obligations measured at undiscounted cash flow estimates of $110,000 and discounted cash flow estimates of $68,000. Finch paid $87,000 toward the settlement of previously recorded asset retirement obligations and recorded an accretion expense of $26,000. What amount should Finch report for the asset retirement obligation in this year’s balance sheet? - $238,000 - $264,000 - $280,000 - $306,000

- $264,000 Asset retirement obligation (ARO) is recorded at FV in the period in which it is incurred and adjusted for revisions in estimates and the passage of time. ``` 275,000 is beginning + 68,000 - 87,000 + 26,000 = 264,000 ```

Beal Co. estimated its allowance for uncollectible accounts using the year-end aging of accounts receivable: - Allowance uncollectible accounts 1/1/05 - $42,000 - Provision for uncollectible accounts - $40,000 - Uncollectable accounts written off - 46,000 - Estimated uncollectible accounts 12/31 - 52,000 After year-end adjustment, the uncollectible accounts expense for 2005 should be: - $ 46,000 - $48,000 - $52,000 - $56,000

- $56,000 1) 42,000 - 46,000 = - $4,000 Desired ending balance is 52,000 so uncollectible accounts expense is 56,000.

When equipment held under an operating lease is subleased by the original lessee, the original lessee would account for the sublease as a(n) - Operating Lease - Sales-type Lease - Direct financing lease - Capital lease

- Operating Lease when equipment held under an operating lease is subleased by the original lessee, the sublease is still considered to be an operating lease by the original lessee. because nothing has changed in the contract.

- Operating Lease when equipment held under an operating lease is subleased by the original lessee, the sublease is still considered to be an operating lease by the original lessee.

The Excel City School District has a separate elected governing body that administers the public school system. The district's budget must be approved by the city council of Excel City. The school district's financial activity should be reported in the City's financial statements by: - Discrete presentation - Blending - Footnote - Not at all

- Not at all

On March 2, Year 1, Finch City issued 10-year general obligation bonds at face amount, with interest payable March 1 and September 1. The proceeds were to be used to finance the construction of a civic center over the period April 1, Year 1, to March 31, Year 2. During the fiscal year ended June 30,Year 1, no resources had been provided to the Debt Service Fund for the payment of principal and interest. The liability for the general obligation bonds should be recorded in the: - General Fund - Capital Projects Fund - Government-wide financial statements - Debt Service Fund

- Government-wide financial statements ** government-wide financial statements are used to account for all unmatured long-term indebtedness of the government** LIABILITY = Government

How would the amortization of premium on bonds payable affect the carrying value and net income of a bond? (decrease/increase)

Carrying value - Decreases | Net Income - Increases

Oro County's Expenditures control account at December 31, 2005 had a balance of $9,000,000. When the Oro's books were closed this $9,000,000 Expenditures control balance should have: - Been debited - Been credited - Remained Open - Appeared as a contra account

- Been credited

In determining the fair value of a nonfinancial asset, assessing the highest and best use of the asset must take into account all but which one of the following? - What is physically possible - What is financially possible - How the reporting entity would use the asset - What is legally permissible

- How the reporting entity would use the asset

The fair value option election applies to all of the following items except for: - Pensions - Long-term notes payable - Warranties that can be settled by paying a third party - held-to-maturity

- Pensions

Unrealized gains on investments that are permanently restricted as to use by donors are reported by a private, nonprofit hospital on the: - Statement of operations - Statement of cash flows - Statement of changes in net assets - Statements of operations and statement of cash flows

- Statement of changes in net assets

The present value of pension benefits accrued to date using assumptions as to future compensation levels is the: - Prior service cost - Accumulated benefit obligation - Projected benefit obligation - Accrued pension cost

- Projected benefit obligation "FUTURE COMPENSATION LEVELS"

- Projected benefit obligation FUTURE COMPENSATION LEVELS

Which of the following is an application of the principle of systematic and rational allocation? - Amortization of intangible assets - Sales commissions - Research and development costs - Officer's salaries

- Amortization of intangible assets

When collectibility is reasonably assured, the excess of the subscription price over the stated value of the no par common stock subscribed should be recorded as - Additional paid-in capital when the subscription is received - Additional paid-in capital when the subscription is collected - Additional paid-in capital when the subscription is issued - part of common stock, no par.

- Additional paid-in capital when the subscription is received

Madden Company owns a tract of land it purchased in year 1 for $100,000. The land is held as a future plant site and has a fair market value of $140,000 on July 1, year 4. Hall Company also owns a tract of land held as a future plant site. Hall paid $180,000 for the land in year 3 and the land has a fair market value of $200,000 on July 1, year 4. On this date Madden exchanged its land and paid $50,000 cash for the land owned by Hall. It is expected that the cash flows from the two tracts of land will not be significantly different. At what amount should Madden record the land acquired in the exchange? - $150,000 - $160,000 - $190,000 - $200,000

- $150,000 since cash flows of the two assets are not significantly different and the transaction lacks commercial substance and is recorded at book value. Book value plus the $50,000 total cash paid for a total of $150,000.

Which one of the following is not one of the financial statements required for a not-for-profit hospital? - Statement of changes in fund balance - Statement of activities - Statement of cash flows - Statement of financial position

- Statement of changes in fund balance * Hospitals are required to issue:* - Statement of financial position - Statement of activities - Statement of cash flows

Gar Co. factored its receivables with recourse with Ross Bank. Assume Gar surrenders control of the receivables. Gar received cash as a result of this transaction, which is best described as a: - Loan from Ross collateralized by Gar's accounts receivable - Loan from Ross to be repaid by the proceeds from Gar's accounts receivables - Sale of Gar's accounts receivables to Ross, with the risk of uncollectible accounts retained by Gar - Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross.

- Sale of Gar's accounts receivables to Ross, with the risk of uncollectible accounts retained by Gar **Qualifies as a sale because transferor surrenders control of the receivables. Since Ross, has accepted the receivables subject to recourse, Gar has continuing involvement with the receivables and has, in effect, guaranteed the receivables**

At the closing date of a business combination, goodwill was recognized. During the subsequent measurement period, additional identifiable assets were properly recognized as part of the business combination. If no other changes occurred during the measurement period, which one of the following would be the effect, if any, of the additional assets recognized on the amount of goodwill recognized in the combination? - No change in the amount of goodwill recognized - An increase in the amount of goodwill recognized - A decrease in the amount of goodwill recognized - An increase or decrease in the amount of goodwill recognized, depending on the underlying reason for the goodwill

- A decrease in the amount of goodwill recognized "It is Decrease because there is "additional identifiable assets" recognized. "

If a parent uses the equity method on its books to carry its investment in a subsidiary, which one of the following current year entries (made by the parent) must be reversed on the consolidating worksheet? (Income from Subsidiary/Dividends from Subsidiary = Yes/No)

Income from Subsidiary - Yes Dividends from Subsidiary - Yes *Since income and dividends in a subsidiary, under the equity method, affects the investment account. therefore, in the consolidation process must be reversed so that the elements that make up those entries (rev, exp) can be individually recognized on the consolidating worksheet and consolidated financial statements.*

Falton Co has the following first-year amounts related to its $9mn construction contract. 1) Actual costs incurred and paid $2mn 2) Est. costs to complete $6mn 3) Progress billings $1.8mn 4) Cash collected $1.5mn What amount should Falton recognize as a current liability at year end, using the percentage-of-completion method? - $0 - $200,000 - $250,000 - $300,000

- $0 2mn / (2mn + 6mn) = 25% 25% ($9mn - $2mn - $6mn) = $250,000 Gross Profit Add 250k to $2mn = $2.25mn asset balance is greater than billing ($1.8mn) then NO current liability is reported because asset balance is greater than billing

Brandon County's General Fund had these transactions: 1) Transfer to a Debt Service Fund - $100,000 2) Payment to a Pension Trust Fund - $500,000 3) Purchase of equipment - $300,000 What amount should Brandon County report for the General Fund as other financing uses in its Governmental Funds Statements of Revenues, Expenditures, and Changes in Fund Balances? - $100,000 - $400,000 - $800,000 - $900,000

- $100,000

Initial direct costs are: - Expensed currently for sales-type leases - Capitalized and amortized to expense over the lease term of all lease - Capitalized only if the related lease qualifies as a capital lease - Presented on the balance sheet as a contra account to capitalized leased assets

- Expensed currently for sales-type leases

Under IFRS, the method used when preferred shares are converted into ordinary shares is - Market value method - Book value method - Fair value method - Cost plus differential method

- Book value method

On the government-wide Statement of Net Position, prepared in accordance with GASB 34, Basic Financial Statements - and Management's Discussions and Analysis - for State and Local Governments, net position is reported in which of the following categories? I) Net investment in capital assets, net of current liabilities II) Restricted II) Unrestricted

II and III

A subsidiary, acquired for cash in a business combination, owned equipment with a market value in excess of book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would treat this excess as: - Goodwill - Plant and Equipment - Retained Earnings - Deferred Credits

- Plant and Equipment It is not goodwill because goodwill is investment OVER identifiable assets.

For which of the following circumstances is the guidance for determining fair value as provided in the fair value framework presented in ASC 820, "Fair Value Measurement", lease likely to apply? - Determination of the fair value to be assigned to land acquired in a business combination - Determination of the fair value of a bond liability for applying the fair value option - Determination of the fair value of legal services received in exchange for an entity's common stock - Determination of the fair value of a production facility when assessing whether or not an important loss has occurred

- Determination of the fair value of legal services received in exchange for an entity's common stock

In a troubled debt restructuring, when the fair value option is not elected, if a noncash asset is exchanged to settle the debt: - The noncash asset is revalued to fair value, with no gain or loss recognized on the asset - The noncash asset is not revalued to fair value - The noncash asset is revalued to fair value, with a gain or loss recognized on the asset - Noncash asset cannot be exchanged to settle debt

- The noncash asset is revalued to fair value, with a gain or loss recognized on the asset

Zenk Co. wrote off obsolete inventory of $100,000 during year 1. What was the effect of this write-off on Zenk's ratio analysis? - Decrease in current ratio but not in quick ratio - Decrease in quick ratio and not in current ratio - Increase in current ratio but not in quick ratio - Increase in quick ratio but not in current ratio

- Decrease in current ratio but not in quick ratio **REASON is because quick ratio does NOT include inventory.**

On December 31, Y1, Elm Village paid a contractor $4,500,000 for the total cost of a new Village Hall built Y1. Financing for the capital project was provided by a $3,000,000 general obligation bond issue sold at face value on December 31, Y1, with the remaining $1,500,00 transferred from the General Fund. What account and amount should be reported in Elm's 2005 financial statements for the General Fund? - Other Financing Sources control $4,500,000 - Expenditures control - $4,500,000 - Other Financing Sources control $3,000,000 - Other financing uses control $1,500,000

- Other financing uses control $1,500,000

When computing diluted earnings per share, potentially dilutive securities are: - Recognized only if they are dilutive - Recognized if they are antidilutive - Recognized whether they are dilutive or antidilutive - Ignored

- Recognized only if they are dilutive

Which of the following statements is true regarding the fair value option for valuing financial assets and liabilities? - The fair value option must be applied to all instruments in that classification - The fair value option must be applied to all interests in the same entity - The fair value optino cannot be revoked until the next balance sheet date - The fair value option can be applied to a portion of a financial instrument

- The fair value option must be applied to all interests in the same entity

``` Accounts Payable $19mn Bonds Payable, Y2 $34mn Deferred income tax liability $4mn Discount on bonds payable $2mn Dividends payable, Y2 $5mn Income tax payable $9mn Notes payable, Y3 - $6mn ``` What is current liabilities on Y1?

``` 19 + 34 - 2 + 5 + 9 = $65mn ```

One feature of state and local government accounting and financial reporting is that fixed assets used for general government activities: - Often are not expected to contribute to the generation of revenues - Do not depreciate as a result of such use. - Are acquired only when direct contribution to revenues is expected - Should not be maintained at the same level as those of businesses so that current financial resources can be used for other government services

- Often are not expected to contribute to the generation of revenues * General fixed assets are items on which financial resources have been expended and accountability must be maintained; however, their main purpose is NOT the generation of revenues.

For financial accounting purposes, which one of the follow is NOT a type of hedge carried out using derivatives? - Fair value - Cash flow - Speculative - Foreign currency

- Speculative

Which of the following characteristics does not relate to prior period adjustments? - They can be specifically identified with business activity of a prior period. - They have a material effect on income from continuing operations of the current year. - They could not have been reasonably estimated in a prior period. - They are attributable to economic events occurring subsequent to prior period financial statements.

- They are attributable to economic events occurring subsequent to prior period financial statements. **There are three criteria for a prior period adjustment. These criteria are as follows: (1) the effect of the adjustment is material to income from continuing operations, (2) the adjustment can be identified with a prior period, and (3) the amount of the adjustment could not be estimated in prior periods.**

A 70%-owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and noncontrolling interest balances in the parent company’s consolidated balance sheet? - No effect on either retained earnings or minority interest. - No effect on retained earnings and a decrease in minority interest. - Decrease in both retained earnings and minority interest. - A decrease in retained earnings and no effect on minority interest.

- No effect on retained earnings and a decrease in minority interest. **Retained earnings reported on the consolidated balance sheet would equal the acquirer’s retained earnings balance at year-end. Thus, even though declaration and payment of a dividend by the acquiree would decrease the acquiree’s retained earnings, there would be no effect on consolidated retained earnings. **

Which of the following is not normally an example of an exit activity? - Sale or termination of a line of business. - Changes in management structure. - Relocation of business activities from one location to another. - Outsourcing a customer service.

- Outsourcing a customer service.

In year 1, a company reported in other comprehensive income an unrealized holding loss on a debt investment classified as available-for-sale. During Year 2, these securities were sold at a loss equal to the unrealized loss previously recognized. The reclassification adjustment should include which of the following? - The unrealized loss should be credited to the investment account. - The unrealized loss should be credited to the other comprehensive income account. - The unrealized loss should be debited to the other comprehensive income account. - The unrealized loss should be credited to beginning retained earnings.

- The unrealized loss should be credited to the other comprehensive income account.

In Year 20x1 a local government levied $5,000,000 in special assessments. The assessments are due and payable in five equal installments at the beginning of each of the next five fiscal years, starting in Year 20x2. Assume that all installments are collected four months (120 days) into the year that they are due. At the end of Year 20x2, the Special Assessment Debt Service Fund would report the $4,000,000 remaining levy as: - Revenues - Liabilties - Deferred inflows of resources - Deferred outflow of resources

- Deferred inflows of resources

On March 1, year 1, Playa Corporation issued bonds with a fair value of $1,000,000. Playa prepares its financial statements in accordance with IFRS. What methods may Playa use to report the bonds on its December 31, year 1 statement of financial position? I. Amortized cost. II. Fair value method. III. Fair value through profit or loss

I and III

Zinc Company does not elect to use the fair value option for reporting financial assets. An unrealized gain, net of tax, on Zinc's held-to-maturity portfolio of marketable debt securities should be reflected in the current financial statements as: - An extraordinary item shown as a direct increase to retained earnings. - A current gain resulting from holding marketable debt securities. - A footnote or parenthetical disclosure only. - A valuation allowance and included in the equity section of the statement of financial position.

- A footnote or parenthetical disclosure only.

A bond issued on June 1, Year 1, has interest payment dates of April 1 and October 1. The bond interest expense for the year ended December 31, year 1 is for a period of: - 3 months - 4 months - 6 months - 7 months

-7 months

Which of the following is a deferred cost that should be amortized over the periods estimated to be benefited? - Prepayment of 3-year insurance premiums on machinery - Security deposit representing 2-months rent on leased office space - Advance from customer to be returned when sale completed - Property tax for this year payable next year.

- Prepayment of 3-year insurance premiums on machinery

Which one of the following is a characteristic of a forecasted transaction? - Is evidenced by a contractual right or obligation - Can be hedged item in a cash flow hedge - is the same as a firm commitment - Is evidenced by a recorded asset of liability

- Can be hedged item in a cash flow hedge

In a arm's length transaction, Company A and B exchanged nonmonetary assets with NO monetary consideration involved. The exchanged was deemed to have commercial substance for both A and B and the fair values of the nonmonetary assets were both clearly evident. The accounting for the exchanged should be based on the: - Fair value of the asset surrendered - Fair value of the asset received - Recorded amount of the asset surrendered - Recorded amount of the asset received

- Fair value of the asset surrendered

A company changes from an accounting principle that is not generally accepted to one that is generally accepted. The effect of the change should be reported, net of applicable income taxes, in the current: - Income statement after income from continuing operations and before extraordinary items - Income statement after extraordinary items - Retained earnings statement as an adjustment of the opening balance - Retained earnings statement after net income but before dividends

- retained earnings statement as an adjustment of the opening balance **this is treated as a correction of an error which should be reported as a prior period adjustment and prior statements are retroactively restated.**

Which of the following describes an "accounting mismatch" as that expression is used in IFRS? - Debts don't equal credits - Liabilities exceed assets - Related assets and liabilities are valued using different measures - The value of a hedging instrument does not equal the value of the hedged item

- Related assets and liabilities are valued using different measures

``` Cost $12.00 Estimated selling price $13.60 Estimated disposal cost $0.20 Normal gross profit $2.20 Replacement cost $10.90 ``` Under the lower-of-cost-or-market rule, this inventory item should be valued at... - $10.70 - $10.90 - $11.20 - $12.00

- $11.20 Market NPR - 13.40 (13.60 - 0.20) Floor is NPR - normal profit $11.20 = 13.40 - 2.20 Cost is $12.000

When there is a change in reporting entity, how should the change be reported in the financial statement? - Prospectively, including note disclosures - Retrospectively, including note disclosures, and application to all prior period financial statements presented - Currently, including note disclosures - Note disclosures only

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

How should a nongovernmental not-for-profit organization classify gains and losses on investments purchased with net assets with donor restrictions? - Gain may not be netted against losses in the statement of activities - Gains and losses can only be reported net of expenses in the statement of activities - Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in net assets without donor restrictions. - Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in permanently restricted net assets.

- Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in net assets without donor restrictions.

Which of the following accounts of a governmental unit is (are) closed out at the end of the fiscal year? (Estimated Revenues and Fund Balance - Yes/No)

Estimated Revenue - Yes | Fund Balance - No

Excel City had the following cash balances: 1) Under the Asset Forfeiture Act - cash confiscated from illegal activities, which can only be used for law enforcement activities - $500,000 2) Property taxes collected by Excel to be distributed to other local governmental entities - $700,000 What amount of cash should Excel report in its permanent funds? - $0 - $500,000 - $700,000 - $1,200,000

- $0 The property taxes collected for other governments should be accounted for in an Agency Fund. And Asset Forfeiture Act should be accounted for by a Special Revenue Fund.

Hudson Corp operates factories that manufacture medical equipment. The factories have a historical cost of $200 mn. Near the end of the company's fiscal year, a change in business climate related to a competitor's innovative products indicated to Hudson's management that the $170mn carrying amount of the assets of one of Hudson's factories may not be recoverable. Management identified cash flows from this factory and estimated that the undiscounted future cash flows over the remaining useful life of the factory would be $150mn. The FV of the factories asset is reliably estimated to be $135mn. The change in business climate requires investigation of possible impairment. Which of the following amounts is the impairment loss? - $15mn - $20mn - $35mn - $65mn

- $35mn ** easy. If undiscounted cash flow is below the CV then it is impaired. TO CALCULATE, CV - FV (170 - 135)

The calculation of the income recognized in the third year of a five-year construction contract accounted for using the percentage-of-completion method includes the ratio of: - Costs incurred in year 3 to total billings - Costs incurred in year 3 to total estimated costs - Total costs incurred to date to total billings - Total costs incurred to date to total estimated costs

- Total costs incurred to date to total estimated costs.

Under IFRS, financial instruments should be classified as (Tradable and/or Fair value through profit and loss - yes/no)

Tradable - No | Fair value through profit and loss - Yes

``` Dannon Co. reported its expenses of $35,200 on the cash basis. Corporate records revealed the following: Beg. prepaid expense - 1,300 Beg accrued expense - 1,650 End prepaid expense - 1,800 End accrued expense - 1,200 ``` What amount of expense should the Dannon report on its books under the accrual basis? - $34,250 - $35,150 - $35,300 - $36,150

- $34,250 = 35,200 - 500 - 450

The specific method to be used to convert financial statements of a subsidiary expressed in a foreign currency into the domestic currency of a parent depends primarily on: - The reporting currency of the subsidiary - The reporting currency of the parent - The functional currency of the subsidiary - The functional currency of the parent

- The functional currency of the subsidiary

Mont Co's books showed income before income tax expense of $600,000: Income from exempt muni bonds - $60,000 Depreciation deducted fro tax purposes in excess of depreciation - $120,000 Proceeds received from life insurance on death of officer - $100,000 Enacted tax rate - 30% Ignoring ATM tax provisions, what amount should Mont report a its current federal income tax liability? - $96,000 - $114,000 - $150,000 - $162,000

- $96,000 = (600 - 60 - 120 - 100) x 30%

East Corp, a calendar-year company, had sufficient retained earnings in 2003 as a basis for dividends, but was temporarily short of cash. East declared a dividend of $100,000 and issued promissory notes to its stockholders in lieu of cash. The notes, which were dated 4/1/13 had a maturity date of 3/31/14 and interest rate of 10%. How should East account for the scrip dividend and related interest? - Debit retained earnings for $110,000 on 4/1/13 - Debit retained earnings for $100,000 on 3/31/14 - Debit retained earnings for $100,000 on 4/1/13, and debit interest expense of $100,000 on 3/31/14 - Debit retained earnings for $10,000 on 4/1/13 and debit interest expense for $7,500 on 12/31/2013

- Debit retained earnings for $10,000 on 4/1/13 and debit interest expense for $7,500 on 12/31/2013 ** RE is reduced on by the amount of the dividend otherwise payable in cash - this case $100,000. Interest on the notes is recognized as interest expense not as part of the dividend.

Bard Co. calendar-year corporation, reported income before income tax expense of $10,000 and income tax expense of $1,500 in its interim income statement for the Q1 of the year. Bard had income before income tax expense of $20,000 for the Q2 and an estimated effective annual rate of 25%. What amount should Bard report as income tax expense in its interim income statement for Q2? - $3,500 - $5,000 - $6,000 - $7,500

- $6,000 = (30,000 x 25%) - $1,500

On 4/1, North Company issued bonds in the market. Upon issue, South Company acquired 10% of North Company's issue. On November 30, South sold the North Company bonds in the market; the bonds were acquired by East Company. On 12/31, which, if any, of the following company is an investee? North, South, and/or East - Yes/No)

North - Yes South - No East - No ** north is investee because it issued the bonds. **

Which of the following general types of information about a business combination must be disclosed? I) The primary reason for a business combination II) How the acquirer gained control of the business III) The acquisition date fair value of consideration transferred and each major class of asset acquired and liability assumed

I, II, and III (all)

Lano Corp's forestland was condemned for use as a national park. Compensation for the condemnation exceeded the forestland's carrying amount. Lano purchased similar, but larger, replacement forestland for an amount greater than the condemnation award. As a result of the condemnation and replacement, what is the net effect on the carrying amount of the forestland reported in Lano's balance sheet? - The amount is increased by the excess of the replacement forestland's cost over the condemned forestland's carrying amount - The amount is increased by the excess of the replacement forestland's cost over the condemnation award. - The amount is increased by the excess of the condemnation award over the condemned forestland's carrying amount - No effect, because the condemned forestland's carrying amount is used as the replacement forestland's carrying amount

- The amount is increased by the excess of the replacement forestland's cost over the condemned forestland's carrying amount

On July 1, 2005, Ran County issued realty tax assessments for its fiscal year ended June 30, 2006. On September 1, 2005, Day Co. purchased a warehouse in Ran County. The purchased price was reduced by a credit for accrued realty taxes. Day did not record the entire year's real estate tax obligation , but instead records tax expenses at the end of each month by adjusting prepaid real estate taxes or real estate taxes payable, as appropriate. On November 1, 2005, Day paid the first of two equal installment of $12,000 for realty taxes. What amount of this payment should day record as a debit to real estate taxes payable? - $4,000 - $8,000 - $10,000 - $12,000

- $8,000

Service Cost - $165,000 Funding Payment - $185,000 Interest on Projected Benefit - $15,000 Actual return on plan assets - $18,000 Rice adopted a defined benefit pension plan on January 1, Y1. The plan does not provide any retroactive benefits for existing employees. The pension funding payment is made to the trustee on December 31 each year. What should Rice report as pension asset/liability? - $20,000 - $25,000 - $40,000 - $43,000

- $43,000 $165,000 + $15,000 - $18,000 = Pension Expense $162,000 This increases Y2 funding (185,000) by $23,000, increases pension asset/liability to $43,000 (20,000 + 23,000).

In a statement of cash flows (operating activities shown using indirect approach), a decrease in prepaid expenses should be - Reported as an inflow and outflow of cash - Reported as an outflow of cash - Deducted from net income - Added to net income

- Added to net income

Which of the following is not one of the five information classification sections that must be include that must be included in the Statistical Section of the CAFR? - Operating information - Demographics information - Revenue Capacity Information - Fund Balance Information

- Fund Balance Information

An employer's obligation for postretirement health benefits that are expected to be fully provided to or for an employee must be fully accrued by the date the: - Benefits are paid - Benefits are utilized - Employee retires - Employee is fully eligible for benefits

- Employee is fully eligible for benefits

A company issued rights to its existing shareholders to purchase for $15 per share, 5,000 unissued shares of common stock with a par value of $10 per share. Common stock will be credited at: - $15 per share when the rights are exercised - $15 per share when the rights are issued - $10 per share when the rights are exercised - $10 per share when the rights are issued

- $10 per share when the rights are exercised Cash (Proceeds) Common Stock (par value) APIC (plug)

Duke reported cost of goods sold of $270,000 for Y2. Using info below - if Duke uses the direct method, what amount should Duke report as cash paid to suppliers in its Y2 statement of cash flows? 12/31/Y2 1/1/Y2 Inventory $60,000 $45,000 AP $26,000 $39,000 - $242,000 - $268,000 - $272,000 - $298,000

- $298,000 COGS + (End Inv - Beg Inv) + (Beg AP - End AP) = Cash paid to suppliers 270,000 + (60,000 - 45,000) + (39,000 - 26,000) = $298,000

West retailers purchased merchandise with a list price of $20,000, subject to trade discounts of 20% and 10%, with no cash discounts allowable. West should record the cost of this merchandise as: - $14,000 - $14,400 - $15,600 - $20,000

- $14,400 = $20,000 (1 - 20%) (1 - 10%)

Solen and Nolse exchanged trucks with fair values in excess of carrying amounts. In addition, Solen paid Nolse to compensate for the difference in truck values. The exchange lacks commercial substance. As a consequence of the exchange, Solen recognizes: - A gain equal to the difference between the fair value and carrying amount of the truck given up - A gain determined by the proportion of cash to the total consideration - A loss determined by the proportion of cash paid to the total consideration - Neither a gain nor a loss

- Neither a gain nor a loss **Solen has an implied given that the FV of its asset exceeds its BV. But when there is no commercial substance, such gains are recognized only when cash is received. Solen paid cash on the exchange. **

Payment of Interest on bonds payable - $500, 000 Payment of dividends to stock holders - $300,000 Payment to acquire 1,000 shares of Marks Co common stock - $100,000 What should Abbott report as total cash outflows for financing activities in its Statement of Cash Flows? - $0 - $300,000 - $800,000 - $900,000

- $300,000

What is the appropriate treatment for goods held on consignment? - The goods should be included in the ending inventory of the consignor - The goods should be included in ending inventory of the consignee - The goods should be included in cost of goods sold of the consignee only when sold - The goods should be included in cost of goods sold of the consignor when transferred to the consignee

- The goods should be included in the ending inventory of the consignor

Ward estimated its uncollectible accounts expense is 2% of credit sales. Ward's credit sales for Y1 were $1mn. During Y1, Ward wrote off $18,000 of uncollectible accounts. Ward's allowance for uncollectible accounts had a $15,000 balance on 1/1/Y1. In its December 31, Y1 income statement, what amount should Ward report as uncollectible accounts expense? - $23,000 - $20,000 - $18,000 - $17,000

- $20,000

Visor Co. maintains a defined benefit pension plan for its employees. The service cost component of Visor’s net periodic pension cost is measured using the - Unfunded accumulated benefit obligation. - Unfunded vested benefit obligation. - Projected benefit obligation. - Expected return on plan assets.

- Projected benefit obligation.

Under IFRS, which one of the following instruments is most likely to be treated in its entirety as a financial liability? - Convertible debt - Convertible preferred stock - Redeemable preferred stock - Common stock with a preemptive right

- Redeemable preferred stock

Special Insurance costs, incurred but unpaid, were no recorded. If these insurance costs were related to work-in-process, what is the effect of the omission on accrued liabilities and retained earnings in 12/31/15 balance sheet? (Accrued liabilities/Retained Earnings = No Effect, Overstated, Understated)

Accrued Liabilities - Understated Retained Earnings - No effect **Retained earnings is unaffected because no expense has been incurred.**

Which is correct about carrying amount of long-lived asset after an impairment loss has been recognized? I)The reduced carrying amount of the asset may be increased in subsequent years if the impairment loss has been recovered? II) The reduced carrying amount of the asset represents the amount that should be depreciated over the asset's remaining useful life.

II only

In an exchange of plant assets, Transit received equipment with a fair value equal to the carrying amount of equipment given up. Transit also contributed cash. The exchange lacks commercial substance. As a result, Transit recognizes: - A loss equal to the cash given up - A loss determined by the proportion of cash paid to the total transaction value - A gain determined by the proportion of cash paid to the total transaction value - Neither gain nor loss

- A loss equal to the cash given up **the FV of new asset equals the old asset's BV. BUT, because cash was paid, the FV of old asset is less than new asset resulting in a LOSS.**

Fowler purchases new appliances for several new restaurants that are under construction. Godwin sells the appliances to Fowler and agrees to retain physical possession of the appliances until Fowler's restaurants are ready to take delivery. Total contract price is $45,000. Godwin has separated the appliances from its other appliance inventory and clearly marked them as belonging to Fowler. Godwin has already prepped the appliances for immediate delivery, and the product will not be directed to another customer. How much revenue should Godwin recognize in the current period form this contract? - $0 - $45,000 - $22,500 - $15,000

- $45,000 **This contract qualifies as bill-and-hold sale since inventory has been identified as Fowler's and they're ready for immediate transfer. **

Gibbs uses the allowance method for recognizing uncollectible accounts. Ignoring deferred taxes, the entry to record the write-off of a specific uncollectible account - Affects neither net income nor working capital - Affects neither net income nor accounts receivable - Decreases both net income and accounts receivable - Decreases both net income and working capital

- Affects neither net income nor working capital **The reason is that allowance is a contra to AR and thus does not affect net AR. This entry doesn't effect current assets, working capital and income.**

On 9/1/13, Brak borrowed on a $1,350,000 note payable from the Federal Bank. The note beras interest at 12% and is payable in three equal annual principal payments of $450,000. On this date, the bank's prime rate was 11%. The first annual payment for interest and principal was made on 9/1/14. At 12/31/14, what amount should Brak report as accrued interest payable? - $54,000 - $49,500 - $36,000 - $33,000

- $36,000 1,350,000 - 450,000 = 900,000 900k x 12% x (4/12) = $36,000

Based on 2000 sales of compact discs recorded by an artist under a contract with Bain, the artist earned $100,000 after an adjustment of $8,000 for returns. In addition, Bain paid the artist $75,000 in 2000 as a reasonable estimate of the amount recoverable from future royalties to be earned by the artist. What amount should bain report in its 2000 Income Statement for royalty expense? - $100,000 - $108,000 - $175,000 - $183,000

- $100,000 ** net amount earned by the artist is also the royalty expense to the firm.**

On March 31, Y2, Vale had unadjusted credit balance of $1,000 in its uncollectible accounts. An ananlysis of Vale's trade accounts receivable at the date revealed: Age Amount Est. Uncollectible. 0-30 days $60,000 5% 31-60 days $4,000 10% Over 60 $2,000 $1,400 What amount should Vale report as allowance for uncollectible accounts in March 31, Y2 balance sheet? - $4,800 - $4,000 - $3,800 - $3,000

- $4,800 just multiply first 2 amounts and add $1,400.

Mill Construction uses the percentage-of-completion method of accounting. During 2015, Mill contracts to build an apartment complex for Drew for $20mn. Mill estimates that total costs would amount to $16mn over the period of construction. In connection with this contact, Mill incurs $2mn of construction costs during 2015. Mill bills and collects $3mn from Drew in 2015. What amount should Mill recognize as gross profit for 2015? - $250,000 - $375,000 - $500,000 - $600,000

- $500,000 $2mn / $16mn = 12.5% 12.5% x $4mn (20mn - 16mn) = 500,000

On March 2, Year 1, Finch City issued 10-year general obligation bonds at face amount, with interest payable March 1 and September 1. The proceeds were to be used to finance the construction of a civic center over the period April 1, Year 1, to March 31, Year 2. During the fiscal year ended June 30,Year 1, no resources had been provided to the Debt Service Fund for the payment of principal and interest. Proceeds from the general obligation bonds should be recorded in the: - General Fund - Capital Projects Fund - General Long-term debt account group - Debt Service Fund

- Capital Projects Fund **Capital projects is used to account for financial resources to be used for the construction of acquisition of capital assets, except for those to be financed by Proprietary Funds** PROCEEDS = Capital

Arena Corp leased equipment from Bolton Corp and correctly classified the lease as a capital lease. The present value of the minimum lease payments at lease inception was $1,000,000. The executory costs to be paid by Bolton were $50,000, and the fair value of the equipment at lease inception was $900,000. What amount should Arena report as the capital lease obligation at the lease's inception? - $900,000 - $950,000 - $1,000,000 - $1,050,000

- $900,000 ** the lessee capitalizes the lease at the lesser of the 1)present value of the minimum lease payments or 2) the fair value of the leased asset at the inception of the lease.**

On 12/28/05, Kerr purchased goods costing $50,000. The terms were FOB destination. Some of the cost incurred in connect with the sale and delivery of the goods are: 1) packaging for shipment - $1,000 2) shipping - $1,500 3) special handling charges - $2,000 The goods were received on 12/31/05. In Kerr's 12/31/05 balance sheet, what amount of cost for these goods are included in inventory? - $54,500 - $53,500 - $52,000 - $50,000

- $50,000 **none of the other costs are incurred by Kerr. RATHER, the seller will incur those costs.

At the end of its first year of operations, 12/31/Y1 Wonder Company had a net realizable value of accounts receivable of $500,000. During Y1, Wonder recorded charges to bad debt expense of $80,000 and wrote off as uncollectible accounts receivable of $20,000. What should Wonder report on its balance sheet at 12/31/Y1 as accounts receivable before the allowance for doubtful accounts? - $500,000 - $520,000 - $560,000 - $600,000

- $560,000

Assume that in acquiring a subsidiary, the parent determined that several depreciable assets had a fair value greater than book value. If the parent accounts for its investment in the subsidiary using the equity method, what effect will the amortization of the excess fair value over the book value of the subsidiary's asset have on the following parent's accounts? (Investment in Subsidiary / Equity Revenue from Subsidiary - Increase/Decrease)

Investment in Subsidiary - Decrease | Equity Revenue from Subsidiary - Decrease

Union Corp uses the first-in, first-out method of inventory valuation. The following information is available: Cost Retail Beg inventory 12,000 30,000 Purchases 60,000 110,000 Net add mark up 10,000 Net Markdowns 20,000 Sales Rev. 90,000 If the lower of cost or market rule is disregarded, what would be estimated cost of the ending inventory? - $24,000 - $20,800 - $20,000 - $19,200

- $24,000 FIFO (60k / (110k + 10k - 20k) = 60% End Inventory retail = 30k + 100k + 10k - 20k - 90k = 40k Ending inventory cost = 60% (40,000) = 24,000

Watson Company acquired available-for-sale debt securities at a cost of $150,000 in year 1. At December 31, Year 1, the securities had a market value of $172,000. In Year 2, Watson sold all of its available-for-sale debt securities for $185,000. Watson does not elect the fair value option for reporting its available-for-sale debt securities. As a result of the information presented, what amount of gain should be reported in Watson’s net income for Year 1 and Year 2?

Income statement 1 - $0 Income statement 2 - $35,000 **reason is that unrealized gains and losses for AFS are recorded in Other Comprehensive Income in Y1 and are not reported on the income statement**

Able Company reports its income from investments under the equity method and recognized income of $15,000 from its investment in Tech Company during the current year even though no dividends were declared or paid by Tech Company during the year. On Able Company’s statement of cash flows in which the operating activities section is prepared under the indirect method, the $15,000 must: - Not be shown - Be shown as inflow under financing activities - Be shown as inflow under investing activities - Be shown as a deduction from net income under operating activities

- Be shown as a deduction from net income under operating activities **$15,000 of undistributed earnings from Tech Co. is included in net income but did not generate cash for the Able Co. Thus, the $15,000 must be deducted from net income to determine net cash flows from operations.**

On June 30, year 2, a fire in Ruffing Company’s plant caused a total loss to a production machine. The machine had a book value of $80,000 at December 31, year 1, and was being depreciated at an annual rate of $10,000. The machine had a fair value of $110,000 at the date of the fire, and Ruffing received insurance proceeds of $100,000 in October year 2. The same month Ruffing purchased a replacement machine for $130,000. Ignoring income taxes, what amount should Ruffing report on its year 2 income statement as involuntary conversion gain or loss? - $0 - $10,000 loss - $20,000 gain - $25,000 gain

Proceeds $100,000 Book Value $75,000 ($80 - $5) Gain $25,000

During year 2, Colt Co. experienced financial difficulties and was likely to default on a $1,000,000, 15%, three-year note dated January 1, year 1, payable to Cain National Bank. On December 31, year 2, the bank agreed to settle the note and unpaid year 2 interest of $150,000 for $820,000 cash payable on January 31, year 3. What is the amount of gain, before income taxes, from the debt restructuring? - $0 - $150,000 - $180,000 - $330,000

- $330,000 Gain = book value of note plus interest − cash paid Gain = $1,000,000 + $150,000 − $820,000 = $330,000.

Which of the following should be accrued as revenues by the General Fund of a local government, when using modified accrual accounting? - Sales taxes held by the state which will soon be remitted to the local government - Park meter revenues - Sales taxes collected by merchants - Income taxes accrued but not paid by citizens

- Sales taxes held by the state which will soon be remitted to the local government

Which of the following research and development related costs should be capitalized and amortized over current and future periods? - Research of development general laboratory building - Inventory used for a specific research project - Administrative salaries allocated to research and development - Research findings purchased from another company to aid a particular research project currently in process.

- Research of development general laboratory building

Key Corp. issued 1,000 shares of its nonvoting preferred stock for all of Lev Corp.’s outstanding common stock. At the date of the transaction, Key’s nonvoting preferred stock had a market value of $100 per share, and Lev’s tangible net assets had a book value of $60,000. In addition, Key issued 100 shares of its nonvoting preferred stock to an individual as a finder’s fee for arranging the transaction. As a result of this capital transaction, Key’s total net assets would increase by: - $0 - $60,000 - $100,000 - $110,000

- $100,000

A U.S. parent company has a wholly owned subsidiary in Mexico. The subsidiary's operations are an extension of and dependent on its US parent. The subsidiary maintains tits records and prepares its financial statements in Pesos. Determine the functional currency (recording or reporting) and the conversion (translation, remeasurement, or both)?

Reporting currency - USD because this Mexican operation is just an extension of and dependent on the US parent. Remeasurement - conversion is done by this because it requires prescribed set of exchange rates that is different from the rates used in translation

A U.S. parent company has an 80% owned subsidiary in Germany. The subsidiary's operations are relatively self-contained and integrated within Germany. The subsidiary maintains its records and prepares its financial statements in Euros. Determine the functional currency (recording or reporting) and the conversion (translation, remeasurement, or both)?

Recording Currency - Since the Germany subsidiary seems to NOT be dependent on the parent. Translation

A U.S. parent company has a wholly owned subsidiary in Israel. The subsidiary's operations are relatively self contained and integrated within Israel. The subsidiary maintains its records and prepares its financial statements in Shekels, Israel's currency. Israel's economy is highly inflationary.

Reporting - because even though it is self contained and integrated (independent) the economy is highly inflationary the Shekels cannot be the functional currency. Remeasurement

Determine which date of exchange rate should be used for translation. (Year-end 12/31, Year Average, Quarter, Company begins 12/31/Y1, or no translation rate used) - Cash - Inventory that has been purchased evenly throughout the year - AP for equipment purchased on 4/1/Y3 - Cost of goods sold - Sales - Dividends declared on 10/1/Y3 - Dividends declared in (6) were paid 1/2/Y4 - Retained Earnings - Common stock

1) Cash - Year-end 12/31 2) Inventory that has been purchased evenly throughout the year- Year-end 12/31 3) AP for equipment purchased on 4/1/Y3 - Year-end 12/31 4) Cost of goods sold - Year Average 5) Sales - Year Average 6) Dividends declared on 10/1/Y3 - Quarter 7) Dividends declared in (6) were paid 1/2/Y4 - Year-end 12/31 8) Retained Earnings - No Translation rate used 9) Common stock - Company begins 12/31/Y1

Sales-type lease

Sales revenue (the PV of the minimum lease payments) les the carrying amount of the leased asset is reported on the lessor's income statement at the inception of the lease.

Direct Financing lease

Interest revenue is the only item reported on the income statement over the lease term

Operating lease - lessee

Rental payments are recognized on a straight-line basis, even though the lease calls for payments that increase over the term of the lease

Operating lease - lessor

Initial direct costs should be treated as an asset leased and the total payments to be received over the lease term

Unearned interest revenue

The difference between the fair value of the asset lease and the total payments to be received over the lease term

Residual value

Included nit he lessor's gross investment, whether guaranteed or unguaranteed

Capital lease

Depreciation expense related tot he leased asset is reported on the lessee's income statement over the lease term

Implicit rate

Produces a desired rate of return which causes the aggregate PV of the minimum lease payments to be equal to the fair value of the leased property

Interest method

Produces a constant periodic rate of return on the net investment

PV of minimum lease payments

Should be recorded as both an asset and a liability by the lessee when the lease contains a bargain purchased option

Bargain purchase option

Lessee's right to purchase leased property for an amount substantially lower than the expected FV at exercise date

Sale-leaseback

The substance of this transaction is that it consists of two separate and distinct transactions

Annuity due

A lease agreement which requires the annual payments to be made at the beginning of each period

Initial direct costs

Costs, such as appraisal fees, incurred by the lessor in setting up the lease agreement

Current lease obligation

The principal portion of the lease liability which must be paid within the next operating cycle

Lino Co's worksheet for the preparation of its 2015 Statement of Cash Flows included the following: Dec-31 Jan-1 Accounts Receivable 29,000 23,000 All. for Uncollectible Acc 1,000 800 Prepaid Rent Expense 8,200 12,400 Accounts Payable 22,400 19,400 Lino's 2015 net income is $150,000. What amount should Lino include as net cash provided by operating activities in the Statement of Cash Flows? - $151,400 - $151,000 - $148,600 - $145,400

- $151,400 ``` 150,000 - (5,800) + 4,200 + 3,000 = 151,400 Equals net cash from operations ```

If a firm used a derivative to hedge the risk of exchange rate changes between the time a liability is recorded and the time it is settled n a foreign currency, which one of the following is being hedged? - Unrecognized firm commitment - Forecasted transaction - Recognized Liability - Net investment in foreign entity

- Recognized Liability

Arkin Corp is a nongovernmental not-for-profit organization involved in research. Arkin's Statement of Functional Expenses should classify which of the following as support services? - Salaries of staff researchers involved in research - Salaries of Fund-raisers for funds used in research - Cost of equipment involved in research - Cost of laboratory supplies used in research

- Salaries of Fund-raisers for funds used in research

Russell Hospital, nonprofit hospital affiliated with a private university, provided $250,000 of charity care for patients during the year ended December 31,Y1. The hospital should report this charity care: - As net patient service of $250,000 on the statements of operations - As net patient service revenue of $250,000 and as an operating expense of $250,000 on the statement of operations - As accounts receivable of $250,000 on the balance sheet at December 31, Y1 - Only in the notes to the financial statements for Year 1.

- Only in the notes to the financial statements for Year 1.

On January 1, 2011, Sip signed a five-year contract enabling it to use a patented manufacturing process beginning in 2011. A royalty is payable for each product produced, subject to a minimum annual fee. Any royalties in excess of the minimum will be apid annually. On the contract date, Sip prepaid a sum equal to two years' minimum annual fees. In 2011, only the minimum fees were incurred. The royalty prepayment should be reported in Sip's December 31, 2011 Financial Statements as: - An expense only - A current asset and an expense - A current asset and noncurrent asset - A noncurrent asset

- A current asset and an expense

Mortgage note payable, $16,000 due within 12 months - $355,000 Short-term debt that the company is refinancing with long-term debt - $175,000 Deferred tax liability arising from depreciation - $25,000 What amount should the company include in the current liabilities section of the balance sheet? - $0 - $16,000 - $41,000 - $191,000

- $16,000 **Only the principal portion of the mortgage note is current. The short-term debt has been refinanced and reclassified as noncurrent. The deferred tax liability relating to depreciation is noncurrent.**

Jordan had the following gains: Gain on disposal of business segment - $500,000 Foreign currency translation gain - $100,000 What amount of unusual or infrequently occurring items should be presented on Jordan's income statement of the current period? - $0 - $100,000 - $500,000 - $600,000

- $0 netiher of these items are considered unusual or infrequent. Gain is on IS and translation gain is on Other comprehensive income.

On October 1, 2014, Shaw purchased a machine for $126,000 that was placed in service on November 30, 2014. Shaw incurred additional costs for the machine as follows: 1) Shipping $3,000 2) Installation $4,000 3) Testing $5,000 In Shaw's December 31, 2014 Balance Sheet, the machine's cost should be reported as: - $126,000 - $129,000 - $133,000 - $138,000

- $138,000

When a property dividend is declared and the book value of the property exceeds its market value, the dividend is recorded at the: - Market value of the property at the date of distribution - Market value of the property at the date of declaration - Book value of the property at the date of declaration - Book value of the property at the date of distribution if it still exceeds the market value of the property at the date of declaration

- Market value of the property at the date of declaration

Welnet was sued in October of 2018 for breach of contract. Based on the advice of counsel, Welnet recognized a $2mn estimated lawsuit loss and liability at December, 31 2018. The lawsuit was settled in February 2019 in the amount of $2.2mn, before Welnet's 2018 financial statements were available to be issued. What is the appropriate accounting procedure for the 2018 statements? - Welnet recognizes $0.2mn of lawsuit loss in its 2019 statements - Welnet recognizes the entire $2.2mn loss in the 2018 statements - Welnet reports the $0.2 mn amount as a retrospective adjustment to its 2018 statements - Welnet recognizes the entire $2.2mn loss in its 2019 statements

- Welnet recognizes the entire $2.2mn loss in the 2018 statements

A debtor and a creditor have negotiated new terms on a note. How can you determine whether the restructuring is a troubled debt restructure? - If the interest rate as stated in the restructuring agreement has been reduced relative to the original loan agreement - If the present value of the restructured flows using the original interest rate is less than the book value of the debt at the date of the restructure - If the interest rate that equates 1) the book value of the debt at the date of the restructure and 2) the present value of restructured cash flows, exceeds the original interest rate - If the present value of the restructured flows using the original interest rate is less than the market value of the original debt at the date of the restructure

- If the present value of the restructured flows using the original interest rate is less than the book value of the debt at the date of the restructure

When a company elects not to bifurcate a hybrid instrument and accounts for the hybrid instrument at fair value, which disclosure method is permissible? I) As a separate line item for fair value and non-fair value instruments on the balance sheet II) As a aggregate amount of all hybrid instruments on the balance sheet III) As an aggregate amount of all hybrid instruments with the amount of the hybrid instruments at fair value shown in parentheses on the balance sheet IV) As a footnote disclosure with elected amounts

I and III

Peel received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if its accounts for the investment as held-for-trading or uses the equity method of accounting? (Yes/No for each)

Held-for-Trading - No Equity method - No **a dividend never increases the investment account under any accounting method**

Rig Co sold its factory at a gain and simultaneously leased it back for 10 years. The factory's remaining economic life is 20 years. The elase was reported as an operating lease. At the time of sale, Rig should report the gain as: - Part of income from continuing operations - An asset valuation allowance - A separate component of stock holders' equity - Deferred credit

- Deferred credit **Gain or loss on a sale-leaseback is deferred and amortized over the term of the lease for both operating and capital leases. **

On June 31, Y2, Needle purchased for cash at $10 per share all 100,000 shares of the outstanding common stock of Thread company. The total appraised value of identifiable assets less liabilities of Thread was $1,400,000 at June 30, Y2, including the appraised value of Thead's property, plant, and equipment (its only noncurrent asset) of $250,000. The consolidated income statement of Needle corporation and its wholly owned subsidiary for the year ended June 30, year 2 should reflect: - A gain from bargain purchase of $400,000 - Goodwill of $150,000 - A deferred credit (negative goodwill) of $400,000 - Goodwill of $400,000

- A gain from bargain purchase of $400,000

In determining the fair value of an asset or liability, would the fair value of the asset or the fair value of the liability be determined using an entry price or an exit price? (Asset Fair Value/Liability Fair Value - Entry price/Exit price

Asset Fair Value - Exit price | Liability Fair Value - Exit price

Conn reports a retained-earnings balance of $400,000 at December 31,2004. In August 2005, determined that insurance premiums of $60,000 for the 3-year period beginning January 1, 2004 has been paid and fully expensed in 2004. Conn has a 30% income tax rate. What amount should Conn report as adjusted beginning retained earnings in its 2005 statement of retained earnings? - $420,000 - $428,000 - $440,000 - $442,000

- $428,000

1) Legal costs to file a patent $10,000. Production of the finished product would not have been undertaken without the patent. 2) Special equipment to be used solely for development of Product Y, $60,000. The equipment has no other use and has an estimated useful life of 4 years 3) Labor and material costs incurred in producing a prototype model $200,000 4) Cost of testing the prototype $80,000 What is the total R and D cost that will be expensed when incurred? - $280,000 - $295,000 - $340,000 - $350,000

- $340,000

Loft reviewed its LIFO inventory values for proper pricing at year-end. The following summarizes two inventory items examined for the lower of cost or market: Item 1 Item 2 Original Cost $210,000 $400,000 Replacement $150,000 $370,000 NRV $240,000 $410,000 NRV less profit $208,000 $405,000 What amount should Loft include in inventory at year-end, if it uses the total of the inventory to apply the lower of cost or market? - $520,000 - $610,000 - $613,000 - $650,000

- $610,000 (210,000 + 400,000)

On December 1, 2015 Boyd purchased a $400,000 tract of land for a factory site. Boyd razed an old building on the property and sold the materials it salved from the demolition. Boyd incurred additional costs and realized salvage proceeds during December 20015 as follows: 1) Demolition of old building - $50,000 2) legal fees for purchases contract and recording ownership - $10,000 3) Title guarantee insurance - $12,000 4) Proceeds from sale of salvaged materials - $8,000 In December 31, 2015, Balance Sheet, Boyd should report a balance in the land account of: - $464,000 - $460,000 - $442,000 - $422,000

- $464,000

Which of the following transactions is included in the operating activities section of a cash flow statement prepared using the indirect method? - Gain on sale of plant asset - Sale of property, plant and equipment - Payment of cash dividend to the shareholders - Issuance of common stock to the shareholders

- Gain on sale of plant asset

Kelly Corp. barters with Ace Corporation for goods that are similar in nature and value. The value of the goods was $1,000. The cost of the goods was $400. If Kelly uses IFRS to prepare financial statements, what amount should Kelly recognize as income? - $1,000 - $0 - $400 - $600

- $0

A December 15, 20X8, purchase of goods was denominated in a currency other than the entity's functional currency. The transaction resulted in a payable that was fixed in terms of the amount of foreign currency and was paid on the settlement date, January 20, 20X9. The exchange rate of the currency in which the transaction was denominated changed at December 31, 20X8, resulting in a loss that should: - Not be reported until January 20, 20X9, the settlement date. - Be included as a component of comprehensive income for 20X8. - Be included as a deferred charge at December 31, 20X8. - Be included as a component of income from continuing operations for 20X8.

- Be included as a component of income from continuing operations for 20X8.

In which of the following pension instances would the pension asset/liability adjustment (net of tax), be reported on the balance sheet for a particular year? - Only when there is an amendment to a defined benefit pension plan. - Only when the projected benefit obligation exceeds plan assets. - When the unrecognized prior service cost exceeds the additional pension liability required to be recognized. - When the additional pension liability required to be recognized exceeds the unrecognized prior service cost.

- Only when the projected benefit obligation exceeds plan assets.

A company reported $6 million of goodwill in last year's statement of financial position. How should the company account for the reported goodwill in the current year? - Determine the current year's amortizable amount and report the current-year's amortization expense. - Determine whether the fair value of the reporting unit is greater than the carrying amount and report a gain on goodwill in the income statement. - Perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value. - Determine whether the fair value of the reporting unit is greater than the carrying amount and report the recovery of any previous impairment in the income statement.

- Perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value.

Baker sells consumer products that are packaged in boxes. Baker offered an unbreakable glass in exchange for two box tops and $1 as a promotion during the current year. The cost of the glass was $2.00. Baker estimated at the end of the year that it would be probable that 50% of the box tops will be redeemed. Baker sold 100,000 boxes of the product during the current year and 40,000 box tops were redeemed during the year for the glasses. What amount should Baker accrue as an estimated liability at the end of the current year, related to the redemption of box tops? - $0 - $5,000 - $20,000 - $25,000

- $5,000 100,000 x 50% (est. redeemed) = 50,000 boxes Since 40,000 boxes were redeemed, leaves 10,000 boxes TO BE redeemed. Takes 2 box tops to receive 1 unbreakable glass. Therefore, 5,000 = 10,000 / 2

Under IFRS for SMEs, which of the following, if any, must be disclosed in financial statements? (EPS/Information by Segment - Yes/No)

EPS - No | Information by Segment - No

Which of the following financial statements, if any, prepared by a parent following an operating period that occurred after a business combination , is likely to be different from financial statements it prepares immediately before the business combination? (Balance Sheet/Income Statement - Yes/No)

Balance Sheet - Yes | Income Statement - Yes

On October 31, Dingo, had cash accounts at 3 different banks. One account balance is segregated solely for a November 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 October 31 classified balance sheet? - 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. - The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability. - 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 - The segregated and regular accounts should be reported as current assets net of the overdraft

- 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.

Which one of the following is not a purpose of the fair value framework as set forth in ASC 820, "Fair Value Measurement"? - Provide a uniform definition of "fair value" for GAAP purposes - Provide a framework for determining fair value for GAAP purposes - Establish new measurement requirements for financial instruments - Establish expanded disclosures about fair value when it is used

- Establish new measurement requirements for financial instruments

On Jan 1, 2005 Hooks Oil sold equipment with a carrying amount of $100,000 and a remaining useful life of 10 years to Maco Drilling for $150,000. Hooks immediately leased the equipment back under a 10-year capital lease with a present value of $150,000 and will depreciate the equipment using the straight-line method. Hooks made the first annual lease payment of $24,412 in December 2005. In Hooks December 31, 2005 balance sheet, the unearned gain on equipment sale should be: - $50,000 - $45,000 - $25,588 - $0

- $45,000

When an inventory overstatement in year one counterbalances in year two, this means: - There are no reporting errors, even if the overstatement is never discovered - A prior period adjustment is recorded if the error is discovered in year three - The year one Balance Sheet does not need to be restated if the error is discovered in year three. - A prior period adjustment is recorded if the error is discovered in year two

- A prior period adjustment is recorded if the error is discovered in year two

Douglas Co leased machinery with an economic useful life of 6 years. For tax purposes, the depreciable life is 7 years. The lease is for 5 years, and Douglas can purchase the machinery at fair value at the end of the lease. What is the depreciable life of the leased machinery for financial reporting?

- 5 years

If both an asset group and goodwill in one of a company's reporting units have to be tested for impairment, which of the following statements is correct regarding impairment testing and impairment losses? - The other asset group should be tested for an impairment loss before goodwill is tested - Impairment testing may be conducted concurrently for the other asset group and goodwill - If the other asset group is impaired, the loss should not be recognized prior to goodwill being tested for impairment - If goodwill is impaired, the loss should be recognized prior to testing the other assets for impairment

- The other asset group should be tested for an impairment loss before goodwill is tested

For external reporting purposes, it is appropriate to use estimated gross profit rates to determine the cost of goods sold for? (Interim/Year-end Financial Reporting - Yes/No)

Interim Financial Reporting - Yes | Year-end Financial Reporting - No

On Jan 1, Y1 Mill exchanged equipment for a $200,000 noninterest-bearing note due on January 1, Y4. The prevailing rate of interest for a note of this type at Jan 1, Y1 was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in Mill's year 2 income statement? - $0 - $15,000 - $16,500 - $20,000

- $16,500 ``` 200,000 x .75 = 150,000 x 10% = 15,000 Interest Revenue ``` 10% x 165,000 (150,000 + 15,000) = 16,500

Accumulated benefit obligation - $1,035,000 Projected benefit obligation - $1,250,000 Prior service cost - $113,000 Net gain on plan assets - $167,000 Plan assets (FV) - $737,000 What amount should the company report as its pension liability? - $567,000 - $513,000 - $400,000 - $352,000

- $513,000 = 1,250,000 - 737,000

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, what amount is included in investing activities for the above transaction? - Cash payment - Acquisition price - Zero - Mortgage amount

- Cash payment

Barrett Co maintains a defined benefit pension plan for its employees. At each balance sheet date, Barrett should report pension liability equal to the - Accumulated benefit obligation - Projected benefit obligation - Unfunded accumulated benefit obligation - Unfunded projected benefit obligation

- Unfunded projected benefit obligation

Which of the following fund types used by a government would most likely have a Nonspendable Fund Balance for its inventory of supply? - General - Internal Service - Nonexpendable Trust - Capital Projects

- General

Which of the following funds of a governmental unit recognizes revenues in the accounting period in which they become available and measureable? (General Fund/Enterprise Fund - Yes/No)

General Fund - Yes | Enterprise - No

1) Printing and binding equipment used for servicing all the Lely's departments and agencies, on a cost-reimbursement basis - $100,000 2) Equipment used for supplying water to Lely's residents - $900,000 3) Receivables for completed sidewalks to be paid for in installments by affected property owners - $950,000 4) Cash received from federal government, dedicated to highway maintenance, which must be accounted for in a separate fund - $995,000 Which amounts would be for an Internal Service Fund, Enterprise Fund, Debt/Agency Fund, and Special Revenue Fund?

Internal Service Fund - $100,000 Enterprise Fund - $900,000 Debt Service/Agency Fund - $950,000 Special Revenue Fund - $995,000

On December 30, 2005, Vida Co. had cash of $200,000, a current ratio of 1.5:1 and a quick ratio of .5:1. On December 31, 2005, all cash was used to reduce accounts payable. How did these cash payments affect the ratios? (Current Ratio/Quick Ratio - Increase/Decrease/No effect)

Current Ratio - Increase | Quick Ratio - Decrease

If ending inventory for 20x5 is understated because certain items were missed in the count, then: - Net income for 20x5 will be overstated. - CGS for 20x5 will be understated. - Net income for 20x5 will be understated, but net income for 20x6 will be unaffected. - Net income for 20x5 will be understated and CGS for 20x6 will be understated.

- Net income for 20x5 will be understated and CGS for 20x6 will be understated.

- No effect on retained earnings and a decrease in minority interest. **reason no effect on RE is because on a consolidated balance sheet would equal the acquirer's retained earnings balance at year-end. Thus, even though declaration and payment of a dividend by the acquire would decrease the acquiree's RE, there would be NO EFFECT on consolidated retained earnings.**

The primary authoritative body for determining the measurement focus and basis of accounting standards for governmental fund operating statements is the - Governmental Accounting Standards Board (GASB). - National Council on Governmental Accounting (NCGA). - Government Accounting and Auditing Committee of the AICPA (GAAC). - Financial Accounting Standards Board (FASB).

- Governmental Accounting Standards Board (GASB). "GOVERNMENTAL FUND OPERATING STATMENTS" **easy to get confused with other question but the answer is FASB**

Oz, a nongovernmental not-for-profit organization, received $50,000 from Ame Company sponsor a play given by Oz at the local theater Oz gave Ame 25 tickets, which generally cost $100 each. Ame received no other benefits. What amount of ticket sales revenue should Oz record? - $0 - $2,500 - $47,500 - $50,000

- $2,500 Cash 50,000 Ticket Sales Rev. 2,500 Contribution Rev. 47,500

``` Purchases $102,800 Purchase discounts 10,280 Freight-in 15,420 Freight-out 5,140 Beginning inventory 30,840 Ending inventory 20,560 ``` What amount should Azur report as cost of goods sold?

BI + Purchases - EI = COGS 30,840 + 102,800 - 20,560 = 113,080 113,080 - (10,280) Discounts + 15,420 Freight-In = 118,220

A loss contingency for which the amount of loss can be reasonably estimated should be accrued when the occurrence of the loss is: (Reasonably possible/Remote - Yes/No)

Reasonably possible - No Remote - No ** Loss contingency is accrued ONLY if 1) future losses are probable and 2) the loss amount can be reasonably estimated. **

A private not-for-profit college should prepare a statement of financial position and which of the following financial statements? I) Statement of Activities II) Statement of changes in fund balances III) Statement of Cash Flows

I and III

The correction of an error in the financial statements of a prior period should be reflected, net of applicable income taxes, in the current; - Income statement after income from continuing operations and before discontinued operations. - Income statement after income from continuing operations and after discontinued operations. - Retained earnings statement as an adjustment of the opening balance. - Retained earnings statement after net income but before dividends.

- Retained earnings statement as an adjustment of the opening balance.

1) Billing by the internal service fund to a department financed by the general fund, for services rendered in the amount of $5,000. 2) Transfer of $200,000 from the general fund to establish a new enterprise fund. 3) Routine transfer of $50,000 from the general fund to the debt service fund. What was the total reciprocal interfund activity fro Curtain? - $5,000 - $55,000 - $200,000 - $255,000

- $5,000

Which of the following statements is true regarding the fair value option for valuing financial assets and liabilities? - The fair value option can be applied to a portion of a financial instrument. - Unrealized gains and losses from reporting items using the fair value option are reported in other comprehensive income for the period. - The fair value option can be elected on an instrument-by-instrument basis. - The fair value option cannot be applied to insurance contracts.

- The fair value option can be elected on an instrument-by-instrument basis.

Toigo Co. purchased merchandise from a vendor in England on November 20 for 500,000 British pounds. Payment was due in British pounds on January 20. The spot rates to purchase one pound were as follows: November 20 - $1.25 December 31 - $1.20 January 20 - $1.17 How should the foreign currency transaction gain be reported on Toigo's financial statements at December 31? - A gain of $40,000 as a separate component of stockholders' equity. - A gain of $40,000 in the income statement. - A gain of $25,000 as a separate component of stockholders' equity. - A gain of $25,000 in the income statement.

- A gain of $25,000 in the income statement. **Gains and losses on foreign currency transactions should be reported in current income**

In general, an enterprise preparing interim financial statements should: - Defer recognition of seasonal revenue. - Disregard permanent decreases in the market value of its inventory. - Allocate revenues and expenses evenly over the quarters, regardless of when they actually occurred. - Use the same accounting principles followed in preparing its latest annual financial statements.

- Use the same accounting principles followed in preparing its latest annual financial statements.

Which of the following is not disclosed on the Statement of Cash Flows, either on the face of the statement or in a separate schedule, when prepared under the direct method? - The major classes of gross cash receipts and gross cash payments - The amount of income taxes paid - A reconciliation of net income to net cash flow from operations - A reconciliation of ending retained earnings to net cash flow from operations

- A reconciliation of ending retained earnings to net cash flow from operations

Which of the following statements is correct as it relates to changes in accounting estimates? - Most changes in accounting estimates are accounted for retrospectively. - Whenever it is impossible to determine whether a change in an estimate or a change in accounting principle occurred, the change should be considered a change in principle. - Whenever it is impossible to determine whether a change in accounting estimate or a change in accounting principle has occurred, the change should be considered a change in estimate. - It is easier to differentiate between a change in accounting estimate and a change in accounting principle than it is to differentiate between a change in accounting estimate and a correction of an error.

- Whenever it is impossible to determine whether a change in accounting estimate or a change in accounting principle has occurred, the change should be considered a change in estimate.

A method of estimating bad debts that focuses on the income statement rather than the balance sheet is the allowance method based on - Direct write-off. - Aging the trade receivable accounts. - Credit sales. - The balance in the trade receivable accounts.

- Credit sales.

Bank statement balance $10,000 Checkbook balance 14,000 Deposit in transit 5,000 Outstanding checks 1,000 In Park's December 31 balance sheet, cash should be reported as: - $9,000. - $10,000. - $14,000. - $15,000.

- $14,000. 10 + 5 - 1 = $14

All but one of the following are required before a transfer of receivables can be recorded as a sale. - The transferred receivables are beyond the reach of the transferor and its creditors. - The transferor has not kept effective control over the transferred receivables through a repurchase agreement. - The transferor maintains continuing involvement. - The transferee can pledge or sell the transferred receivables.

- The transferor maintains continuing involvement.

Which of the following transactions of a private voluntary health and welfare organization would increase net assets with donor restriction in the statement of activities for the current year? I) Received a contribution of $20,000 from a donor in the current year who stipulated that the money not be spent until the following year. II) Spent $25,000 for fund raising during the current year from a donation from the previous year.

I only

On January 1, year 1, Fox Corp. issued 1,000 of its 10%, $1,000 bonds for $1,040,000. These bonds were to mature on January 1, year 11 but were callable at 101 any time after December 31, year 4. Interest was payable semiannually on July 1 and January 1. On July 1, year 6, Fox called all of the bonds and retired them. The bond premium was amortized on a straight-line basis. Before income taxes, Fox's gain or loss in year 6 on this early extinguishment of debt was: - $30,000 gain. - $12,000 gain. - $10,000 loss. - $8,000 gain

- $8,000 gain Unamortized Bond Premium (4.5 / 10) $40,000 = $18,000 $1,018,000 - 1,010,000 (1.01 x 1,000,000) **4.5 is the remaining years left on the bond since its in the middle of year 6 (5.5 years has gone by)**

If the equipment is used in Enterprise Fund operations and the lease payments are to be financed with Enterprise Fund revenues, what account should be debited for $150,000 in the Enterprise Fund at inception of the lease? - Expenses control. - Expenditures Control. - Other Financing Sources Control. - Equipment.

- Equipment.

Which of the following items would result in an increase in the reconciliation of governmental funds changes in fund balance to governmental activities changes in net position in the government-wide statement? - Depreciation - Capital outlay expenditures - Bond proceeds - Book value of capital assets sold

- Capital outlay expenditures

Slate Co. and Talse Co. exchanged similar plots of land with fair values in excess of carrying amounts. In addition, Slate received cash from Talse to compensate for the difference in land values. The cash flows of the plots of land are not expected to be significantly different. As a result of the exchange, Slate should recognize: - A gain equal to the difference between the fair value and the carrying amount of the land given up. - A gain in an amount determined by the ratio of cash received to total consideration. - A loss in an amount determined by the ratio of cash received to total consideration. - Neither a gain nor a loss.

- A gain in an amount determined by the ratio of cash received to total consideration. * An exchange of nonmonetary assets lacks commercial substance and includes a cash payment (boot), the entity which received cash has realized a partial gain on the exchange* SLATE RECEIVED CASH

1) Carrying amount of old boiler $ 8,000 2) Fair value of old boiler 2,000 3) Purchase and installation price of new boiler 100,000 The old boiler was sold for $2,000. What amount should Dix capitalize as the cost of the new boiler? - $92,000 - $94,000 - $98,000 - $100,000

- $100,000 The loss of the old boiler has no effect on capitalized cost of the new boiler.

Taxes levied in the Debt Service Fund and due in the Year 20x1 include $200,000 that is not expected to be collected within the first 60 days of the Year 20x2. As of the end of Year 20x1, the $200,000 would be reported as - Revenue. - A liability. - A deferred inflow of resources. - Another financing source.

- A deferred inflow of resources. * Since the Debt Service Fund uses the modified accrual basis of accounting, revenues are recognized when measurable and available. The $200,000 is not expected to be available and hence should be reported as a deferred inflow of resources in Year 20x1.*

In single period statements, which of the following should be reflected as an adjustment to the opening balance of retained earnings? - Effect of a failure to provide for uncollectible accounts in the previous period. - Effect of a decrease in the estimated useful life of depreciable equipment. - Results from the disposal of a discontinued segment. - Cumulative effect of a change from an accelerated method to straight-line depreciation

- Effect of a failure to provide for uncollectible accounts in the previous period

A company has a 22% investment in another company that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements? - The names and ownership percentages of the other stockholders in the investee company - The reason for the company's decision to invest in the investee company - The company's accounting policy for the investment - Whether the investee company is involved in any litigation

- The company's accounting policy for the investment

All but one of the following are required before a transfer of receivables can be recorded as a sale. - The transferred receivables are beyond the reach of the transferor and its creditors - The transferor has not kept effective control over the transferred receivables through a repurchase agreement. - The transferor maintains continuing involvement. - The transferee can pledge or sell the transferred receivables.

- The transferor maintains continuing involvement.

Which of the following errors could result in an overstatement of both current assets and stockholders' equity? - An understatement of accrued sales expenses. - Noncurrent note receivable principal is misclassified as a current asset. - Annual depreciation on manufacturing machinery is understated. - Holiday pay expense for administrative employees is misclassified as manufacturing overhead.

- Holiday pay expense for administrative employees is misclassified as manufacturing overhead.

When a company changes the expected service life of an asset because additional information has been obtained, which of the following should be reported? (Cumulative effect of accounting principle change/Deferred income tax adjustment - Yes/No)

Cumulative effect of accounting principle change - No | Deferred income tax adjustment - No

An entity's current balance sheet is dated December 31, 20x7 and the 20x7 statements are issued Feb. 6, 20x8. Which of the following is a recognized subsequent event for 20x7? - Issuance, in January 20x8, of debentures, which double the entity's total liabilities. - Issuance, in March 20x8, of common stock, which doubles the entity's contributed capital. - $4 million payment on February 2 in settlement of a lawsuit brought by a competitor for patent infringement occurring early January 20x8. - Write-off of a customer receivable due to customer bankruptcy caused by conditions beginning in 20x7.

- Write-off of a customer receivable due to customer bankruptcy caused by conditions beginning in 20x7.

8AICPA.090862FAR On December 1 of the current year, Bann Co. entered into an option contract to purchase 2,000 shares of Norta Co. stock for $40 per share (the same as the current market price) by the end of the next two months. The time value of the option contract is $600. At the end of December, Norta's stock was selling for $43, and the time value of the option was now $400. If Bann does not exercise its option until January of the subsequent year, which of the following changes would reflect the proper accounting treatment for this transaction on Bann's December 31, year-end financial statements? - The option value will be disclosed in footnotes only. - Other comprehensive income will increase by $6,000. - Net income will increase by $5,800. - Current assets will decrease by $200.

- Net income will increase by $5,800. * An option is a financial derivative and must be reported as either an asset or liability at fair value, with any change in fair value recognized in income of the period that the fair value changes (unless the option is used as a hedge).*

In financial reporting for segments of a business enterprise, segment data may be aggregated - Before performing the 10% tests if a majority of the aggregation criteria are met. - If the segments do not meet the 10% tests but meet some of the aggregation criteria. - Before performing the 10% tests if all of the aggregation criteria are met. - If any one of the aggregation criteria is met.

- Before performing the 10% tests if all of the aggregation criteria are met.

What is the appropriate characterization of the net assets of a nongovernmental not-for-profit organization? - Residual interest. - Ownership interest. - Donor's interest. - Equity interest.

- Residual interest.

At which of the following amounts should a nongovernmental not-for-profit organization report investments in debt securities? - Potential proceeds from liquidation sale - Discounted expected future cash flows - Quoted market prices - Historical cost

- Quoted market prices

Sun Co. is a wholly owned subsidiary of Star Co. Both companies have separate general ledgers and prepare separate financial statements. Sun requires stand-alone financial statements. Which of the following statements is correct? - Consolidated financial statements should be prepared for both Star and Sun. - Consolidated financial statements should only be prepared by Star and not by Sun. - After consolidation, the accounts of both Star and Sun should be changed to reflect the consolidated totals for future ease in reporting. - After consolidation, the accounts of both Star and Sun should be combined together into one general ledger accounting system for future ease in reporting.

- Consolidated financial statements should only be prepared by Star and not by Sun.

Martin Pharmaceutical Co. is currently involved in two lawsuits. One is a class-action suit in which consumers claim that one of Martin's best selling drugs caused severe health problems. It is reasonably possible that Martin will lose the suit and have to pay $20 million in damages. Martin is suing another company for false advertising and false claims against Martin. It is probable that Martin will win the suit and be awarded $5 million in damages. What amount should Martin report on its financial statements as a result of these two lawsuits? - $0 - $5 million income - $15 million expense. - $20 million expense.

- $0 | * Reasonably possible = 50/50 so you do not record that. Only record potential losses if the are "probable"*

Abbot Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Abbot's lawyer states that it is probable that Abbot will lose the suit and be found liable for a judgment costing Abbot anywhere from $500,000 to $2,500,000. However, the lawyer states that the most probable cost is $1,000,000. As a result of the above facts, Abbot should accrue - A loss contingency of $500,000 and disclose an additional contingency of up to $2,000,000. - A loss contingency of $1,000,000 and disclose an additional contingency of up to $1,500,000. - A loss contingency of $1,000,000 but not disclose any additional contingency. - No loss contingency but disclose a contingency of $500,000 to $2,500,000.

- A loss contingency of $1,000,000 and disclose an additional contingency of up to $1,500,000. * reason it is the loss should be recorded at the best estimate within the range. If there is no best estimate, one should use the minimum. The excess of the recorded amount within the range should be disclosed.*

A company that is a large accelerated filer must file its Form 10-Q with the United States Securities and Exchange Commission within how many days after the end of the period? - 30 days. - 40 days. - 45 days. - 60 days.

- 40 days.

Which one of the following would not be translated using either the spot exchange rate as of the balance sheet date or the weighted average exchange rate for the period? - Cash. - Accounts payable. - Common stock. - Investments held-for trading.

- Common stock. * When converting financial statements from a foreign currency to a reporting currency using translation, paid-in capital accounts are translated using the historic exchange rate in effect when the account amount arose (or when the investment was made, if later).*

Which of the following is not a distinguishing characteristic of a derivative instrument? - Terms that require or permit net settlement - Must be "highly effective" throughout its life - No initial net investment - One or more underlyings and notional amounts

- Must be "highly effective" throughout its life

Which of the following is an accepted valuation technique for fair value estimates? - The conservative approach - The residual value approach - The cost approach - The consistent approach

- The cost approach

When debt is issued at a discount, interest expense over the term of debt equals the cash interest paid - Minus discount. - Minus discount minus par value. - Plus discount. - Plus discount plus par value.

- Plus discount.

When a firm elects not to bifurcate a hybrid financial instrument, how should changes in fair value be recognized? - As other comprehensive income. - On a prospective basis in the current year earnings and future year’s earnings. - As a prior period adjustment with restatement of previous years’ financial statements. - As a cumulative effect adjustment to the beginning balance of retained earnings for the period.

- On a prospective basis in the current year earnings and future year’s earnings.

In April Year 1, Delta Hospital purchased medicines from Field Pharmaceutical Co. at a cost of $5,000. However, Field notified Delta that the invoice was being canceled and that the medicines were being donated to Delta. Delta should record this donation of medicines as - A memorandum entry only. - A $5,000 credit to nonoperating expenses. - A $5,000 credit to operating expenses. - Other operating revenue of $5,000.

- Other operating revenue of $5,000.

A depreciable asset has an estimated 15% salvage value. Under which of the following methods, properly applied, would the accumulated depreciation equal the original cost at the end of the asset’s estimated useful life? (Straight Line/Double-declining balance - Yes/No)

Straight Line - No Double-declining balance - No *Although double-declining balance does not use salvage value in its formula, the asset is depreciated only to the point at which the book value equals the salvage value*

On January 17, 2005, an explosion occurred at a Sims Co. plant, causing extensive property damage to area buildings. Although no claims had yet been asserted against Sims by March 10, 2005, Sims' management and counsel concluded that it is likely that claims will be asserted and that it is reasonably possible Sims will be responsible for damages. Sims' management believed that $1,250,000 would be a reasonable estimate of its liability. Sims' $5,000,000 comprehensive public liability policy has a $250,000 deductible clause. In Sims' December 31, 2004, financial statements, which were issued on March 25, 2005, how should this item be reported? - As an accrued liability of $250,000. - As a footnote disclosure indicating the possible loss of $250,000. - As a footnote disclosure indicating the possible loss of $1,250,000. - No footnote disclosure or accrual is necessary.

- As a footnote disclosure indicating the possible loss of $250,000.

Yellow received a large worker's compensation claim of $90,000 in the third quarter for an injury occurring in the third quarter. How should Yellow account for the transaction in its interim financial report? - Recognize $30,000 for each of the first three quarters - Recognize $90,000 in the third quarter - Recognize $22,500 ratably over the four quarter of the year - Disclose the $90,000 in the third quarter and recognize it at year end

- Recognize $90,000 in the third quarter

Southgate paid the in-transit insurance premium for consignment goods shipped to Hendon, the consignee. In addition, Southgate advanced part of the commissions that will be due when Hendon sells the goods. Should Southgate include the in-transit insurance premium and the advanced commissions in inventory costs? (Insurance premium/Advanced Commissions - Yes/No)

Insurance premium - Yes | Advanced Commissions - No

Grayson incurred significant costs in defending its patent rights. Which of the following is the appropriate treatment of the related litigation costs? - Litigation costs would be capitalized regardless of the outcome of the litigation - Litigation costs would be expensed regardless of the outcome of the litigation - Litigation costs would be capitalized if the patent right is successfully defended - Litigation costs would be capitalized only if the patent was purchased rather than internally developed

- Litigation costs would be capitalized if the patent right is successfully defended

Delar completed its year-end physical count of inventory. The inventory was valued at first-in, first-out (FIFO) csots and totaled $500,000. Delar subsequently noted the following two items: 1) 1,000 units of inventory with a FIFO cost of $10 each were shipped and billed to a customer, FOB destination. These items were included in the physical count. 2) 6,000 units at a FIFO cost of $5 each were held on consignment for one of its suppliers but were excluded from the physical count What amount should Delar report as inventory at year end? - $530,000 - $520,000 - $500,000 - $490,000

- $500,000

Which of the following types of healthcare organizations follow FASB authoritative literature? (Investor-owned healthcare enterprises/Not-for-profit organizations/Governmental health organizations - Yes/No)

Investor-owned healthcare enterprises - Yes Not-for-profit organizations - Yes Governmental health organizations - No

Park City uses encumbrance accounting and formally integrates its budget into the general fund's accounting records. For the year ending July 31, Y1, the following budget was adopted: 1) Estimated revenues - $30,000,000 2) Appropriations - $27,000,000 3) Estimated transfer to debt service fund - $900,000 When Park's budget is adopted and recorded, Park's budgetary fund balance would be: - Credited for $3,000,000 - Debited for $3,000,000 - Credited for $2,100,000 - Debited for $2,100,000

- Credited for $2,100,000 Estimated Revenue - 3,000,000 Estimated Other Financing Uses - 900,000 Appropriations - 27,000,000 Budgetary Fund Balance - 2,100,000

On January 1, Y1, Justo purchased 30,000 shares of the 100,000 outstanding shares of stock in Bonita Corp for $5 per share. During the year, Bonita Corporation has $20,000 of net income and pays $4,000 in dividends. On December 31, y1 the value of a share of Bonita Corporation stock is $6 per share. Assuming Justo elects the fair value option to account for its investment in Bonita, what is the amount recorded as investment in Bonita on the December 31, Y1 balance sheet? - $150,000 - $156,000 - $154,800 - $180,000

- $180,000 Because they elect the fair value option for reporting this security. The security will be valued at $180,000 in the Y1 balance sheet., and the resulting $30,000 unrealized gain will be reported in earnings.

Which of the following accounts of a governmental unit is (are) closed out at the end of the year? (Estimated Revenues/Fund Balance - Yes/No)

Estimated Revenue - Yes | Fund Balance - No

An expenditures account appears in: - The Government-wide statements - The Proprietary fund statements - The Governmental fund statements - The Fiduciary fund statements

- The Governmental fund statements

The following proceeds received by Grove City in Y1 are legally restricted to expenditure for specific purposes: 1) Donatino by a benefactor mandated to a permanent fund to provide funds, the income of which is to provide meals for the needy (a government program) - 300,000 2) Sales taxes to finance the maintenance of tourist facilities in the shopping district - 900,000 What amount should be accounted for in Grove's special revenue funds? - $0 - $300,000 - $900,000 - $1,200,000

- $900,000

For the following events, which accounts are debited? (Inventory software, Research and development expense, Amortization of Capitalized software development costs, Capitalized software development costs, operating expense, COGS) 1) Coding and testing before technological feasibility 2) Coding and testing after technological feasibility 3) Duplication of discs, manuals 4) Customer Service 5) Sale of software 6) Gradual reduction of capitalized software development costs book value over time

1) Coding and testing before technological feasibility - R and D expense 2) Coding and testing after technological feasibility - Capitalized software development costs 3) Duplication of discs, manuals - Inventory of software 4) Customer Service - Operating expense 5) Sale of software - COGS 6) Gradual reduction of capitalized software development costs book value over time - Amortization of capitalized software development costs

For a capital lease, the amount recorded initially by the lessee as a liability should - Exceed the present value at the beginning of the lease term of minimum lease payments during the lease term. - Exceed the total of the minimum lease payments during the lease term. - Not exceed the fair value of the leased property at the inception of the lease. - Equal the total of the minimum lease payments during the lease term.

- Not exceed the fair value of the leased property at the inception of the lease.

During the year, Public College received the following: 1) An unrestricted $50,000 pledge to be paid the following year 2) $25,000 cash gift restricted for scholarships 3) notice from a recent graduate that the college is named as a beneficiary of $10,000 in that graduate's will What amount of contribution revenue should Public College report in its Statement of Activities? $25,000 $35,000 $75,000 $85,000

$75,000 10,000 is not included because it is not yet distributable

Which one of the following is not a characteristic of a foreign currency hedge? - Hedges the risk due to change in foreign currency exchange rates. - Can hedge net investments in a foreign entity. - Are all treated as fair value hedges. - Can be used to hedge forecasted intercompany transactions.

- Are all treated as fair value hedges.

White Airlines sold a used jet aircraft to Brown Company for $800,000, accepting a 5-year 6% note for the entire amount. Brown’s incremental borrowing rate was 14%. The annual payment of principal and interest on the note was to be $189,930. The aircraft could have been sold at an established cash price of $651,460. The present value of an ordinary annuity of $1 at 8% for five periods is 3.99. The aircraft should be capitalized on Brown’s books at - $651,460 - $757,820 - $800,000 - $949,650

Brown’s 14% incremental borrowing rate is significantly higher than the stated rate of 6%. Therefore, the stated rate is unreasonable and the acquisition should not be recorded at the face value ($800,000) of the note. The cost of the aircraft is the present value of the note and stated interest payments discounted at 14% or the fair market value of the aircraft, whichever is more clearly evident. Since the aircraft has an established cash price of $651,460, this amount is an appropriate basis for recording the transaction.

Which of the following would a nongovernmental not-for-profit educational institution report as program services? Publicity costs Teacher salaries Management salaries Fundraising expenses

Teacher salaries

``` Accounting and legal fees $120,000 Advertising 150,000 Freight-out 80,000 Interest 70,000 Loss on the sale of long-term investments 30,000 Officers' salaries 225,000 Rent for office space 220,000 Sales salaries and commissions 140,000 ``` what is the selling expenses?

480,000 Freight-out is included as a selling/delivery expense

I. $500,000 from students for tuition II. $300,000 from a donor who stipulated that the money be invested indefinitely III. $100,000 from a donor who stipulated that the money be spent in accordance with the wishes of Albert’s governing board Albert University, a private not-for-profit university's statement of cash flows for the year ended June 30, Year 1, what amount of these cash flows should be reported as operating activities?

-$ 600,000 Cash flows related to revenues and expenses that are unrestricted should be reported in the operating activities section. The cash inflows from both tuition ($500,000) and the unrestricted contribution ($100,000) are both unrestricted and should be reported as operating activities. Restricted contributions for long-term purposes, like the $300,000 endowment, are reported as financing activities on the statement of cash flows.

The Johnson Hospital, a private, not-for-profit hospital, received the following revenues in the current year: 1) Proceeds from the sales of the hospital's flower shop $60,000 2) Dividends and interest revenue not restricted $20,000 3) Cash contributions for the renovation of the children's ward in the hospital $200,000 Which of these amounts should be reported as other revenues and gains (other revenue) on the statement of operations? $280,000 $60,000 $80,000 $260,000

280,000 Correct! All three items are peripheral in nature and should be included in nonoperating revenues and gains.

A company exchanged land with an appraised value of $50,000 and an original cost of $20,000 for machinery with a fair value of $55,000. Assuming that the transaction has commercial substance, what is the gain on the exchange? $0 $5,000 $30,000 $35,000

$30,000 The gain on an exchange of nonmonetary assets is based on the fair value and book value of the asset exchanged. The land with a fair value of $50,000 is given for machinery. The company is using the land as legal tender. The gain will be the difference between the book value and the fair value of the asset given or $50,000 − $20,000 = $30,000.

ClipClop Company sells horseshoes to customers at a discount of 4% if the customer orders more than 10,000 horseshoes in a year. The price per shoe is $2. In April, Oats Company orders 4,000 horseshoes from ClipClop. Based on past experience with Oats Company, ClipClop expects Oats to meet the volume threshold of 10,000 horseshoes by the end of the year. What amount of revenue should ClipClop record in connection with the April sale? $0 because ClipClop does not know if Oats will meet the volume discount threshold $7,680 $8,000 $20,000

$7,680

Marshall Company prepared an aging of its accounts receivable at December 31, year 2, and determined that the net realizable value of the receivables at that date is $50,000. Additional information is available as follows: 1) Accounts receivable at December 31, year 1 $48,000 2) Accounts receivable at December 31, year 2 54,000 3) Allowance for doubtful accounts at December 31, year 1—credit balance 6,000 4) Accounts written off as uncollectible during year 2 5,000 Marshall’s bad debt expense for the year ended December 31, year 2, was $3,000 $4,000 $5,000 $7,000

$3,000

The premium on a 3-year insurance policy expiring on December 31, year 3, was paid in total on January 1, year 1. Assuming that the original payment was initially debited to an expense account, and that appropriate adjusting entries have been recorded on December 31, year 1 and year 2, the balance in the prepaid asset account on December 31, year 2, would be Zero. Lower than the balance on December 31, year 3. The same as the original payment. The same as it would have been if the original payment had been initially debited to a prepaid asset account.

The same as it would have been if the original payment had been initially debited to a prepaid asset account.

Roth, Inc. received from a customer a one-year, $500,000 note bearing annual interest of 8%. After holding the note for six months, Roth discounted the note at Regional Bank at an effective interest rate of 10%. What amount of cash did Roth receive from the bank? $540,000 $523,810 $513,000 $495,238

Maturity value of the note: $500,000(1.08) $540,000 Less discount to the bank: $540,000(.10)(6/12) (27,000) Equals proceeds to Roth $513,000

On the government-wide Statement of Net Position, prepared in accordance with GASB 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, internal service fund activities are normally reported in - Business-type activities. - Governmental activities. - Either business-type or governmental activities. - Neither business-type nor governmental activities.

Governmental activities.

During year 4, Olsen Company discovered that the ending inventories reported on its financial statements were understated as follows: Year Understatement Year 1 $50,000 Year 2 $60,000 Year 3 $0 Olsen ascertains year-end quantities on a periodic inventory system. These quantities are converted to dollar amounts using the FIFO cost flow method. Assuming no other accounting errors, Olsen’s retained earnings at December 31, Year 3, will be Correct. $ 60,000 understated. $ 60,000 overstated. $110,000 understated.

Correct.

GASB 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, requires a Statement of Net Position and a Statement of Activities, both of which are government-wide financial statements. Which of the following activities are reported on these financial statements? (Governmental activities/Fiduciary activities - Yes/No)

Governmental - Yes | Fiduciary - No

Which of the following should be accrued as revenues by the General Fund of a local government, when using modified accrual accounting? Sales taxes held by the state which will soon be remitted to the local government. Parking meter revenues. Sales taxes collected by merchants. Income taxes accrued but not paid by citizens.

Sales taxes held by the state which will soon be remitted to the local government.

How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock? (Common Stock/Additional-Paid-In Capital - Increase/Decrease/No Effectt

Increase Both

The FASB amends the Accounting Standards Codification through the issuance of Accounting Standards Updates. Statements of Financial Accounting Standards. Technical Bulletins. Staff Accounting Bulletins.

Accoutning Standard updates

Papa Company acquired land with an office building on it from its subsidiary, Sonny Company, for $110,000. Prior to the sale, Sonny's carrying value of the land was $60,000 and its net carrying value of the building was $50,000. At the time of the transaction, Papa appropriately determined that the land had a fair value of $75,000 and the building had a fair value of $35,000. At what amount should the land and building be reported on Papa's consolidated statements prepared immediately after the transaction?

Land - $60,000 Building - 50,000

Which one of the following sets shows the correct reporting of an adjustment (gain or loss) that results from translation and one that results from remeasurement of financial statements from a foreign currency to a reporting currency? (Translation Adjustment/Remeasurement Adjustment - Income/Other Comprehensive Income)

Translation - Other Comprehensive Income Remeasurement - Net Income

The governing board of Smithson Hospital, a nonprofit hospital affiliated with a religious organization, acquired 100 BMI Company bonds for $103,000 on June 30, Year 1. The bonds pay interest on June 30 and December 30. On December 31, Year 1, interest of $3,000 was received from BMI, and the fair value of the BMI bonds was $105,000. The governing board acquired the BMI bonds with cash which was unrestricted, and it classified the bonds as trading securities at December 31, Year 1, since it intends to sell all of the bonds in January Year 2. As a result of the investment in BMI bonds, what amount should be included in revenue, gains, and other support on the statement of operations for the year ended December 31, Year 1? $0 $3,000 $2,000 $5,000

$5,000

For a good or service to be considered distinct and identified as a separate performance obligation, it must be - Sold separately in other contracts. - Able to be used by the customer on its own or with resources readily available to the customer and able to be separately identified from other promises in the contract. - Identified in the contract specifically as a performance obligation, and the transaction price attributable to the good or service must be distinctly identified. Must be used by the customer with other performance obligations in the contract and must be dependent on other performance obligations in the contract to support including each obligation in a single contract.

- Able to be used by the customer on its own or with resources readily available to the customer and able to be separately identified from other promises in the contract.

How should state appropriations to a state university choosing to report as engaged only in business-type activities be reported in its Statement of Revenues, Expenses, and Changes in Net Position? Operating Revenues Nonoperating Revenues Capital Contributions Other Financing Sources

Nonoperating Revenues

A firm began the construction of its new manufacturing facility in January of 20x2. The following expenditures were made on construction in that year: Jan. 1 $40,000 Mar. 1 120,000 Oct. 31 96,000 Debt outstanding the entire year: 6%, $60,000 construction loan 4%, $90,000 note payable not related to construction 6%, $90,000 note payable not related to construction Compute interest to be capitalized using the weighted average method. $6,720 $12,600 $8,400 $8,190

$8,190Average accumulated expenditures is $156,000 = $40,000 + $120,000(10/12) + $96,000(2/12). This method uses the average interest rate on all interest bearing debt, weighted by principal. That rate is the quotient of the interest on all the debt divided by the principal on all the debt. The rate = ($3,600 + $3,600 + $5,400)/$240,000 = .0525. Interest capitalized = (.0525)$156,000 = $8,190.which of the fo

Which of the following exchange rates may be used in accounting for a forward contract hedging instrument? (Spot Rate/Forward Rate - Yes/No)

Yes both

Which of the following fund balance classifications is used for budgetary accounting but not for GAAP financial statement reporting? Nonspendable Fund Balance. Unreserved Fund Balance. Committed Fund Balance. Unassigned Fund Balance.

Unreserved Fund Balance.

How should a company report its decision to change from a cash-basis to an accrual-basis of accounting? - As a change in accounting principle, requiring the cumulative effect of the change (net of tax) to be reported in the income statement. - Prospectively, with no amounts restated and no cumulative adjustment. - As an extraordinary item (net of tax). - As a Prior period adjustment (net of tax), by adjusting the beginning balance of retained earnings.

- As a Prior period adjustment (net of tax), by adjusting the beginning balance of retained earnings.

500 shares of 6%, $100 par callable preferred stock are called at $101. The shares were issued at $103 per share. The journal entry to record the retirement includes which of the following? - Cr. paid in capital from retirement of preferred stock, $1,000. - Dr. paid in capital from retirement of preferred stock $1,500. - Cr. retained earnings $1,000 - Dr. preferred stock $51,500

- Cr. paid in capital from retirement of preferred stock, $1,000. DR: Preferred stock 500($100) 50,000 DR: PIC-preferred 500($103 − $100) 1,500 CR: PIC-retirement of preferred 1,000 CR: Cash 500($101) 50,500 ``` Service cost $19,000 Interest cost 38,000 Actual return on plan assets (22,000) Amort. of unrecognized PSC 52,000 Pension expense $ 87,000 ```

he following information pertains to Kane Co.’s defined benefit pension plan: 1) Pension asset (liability), January 1, year 5 $ 2,000 2) Service cost 19,000 3) Interest cost 38,000 4) Actual return on plan assets 22,000 5) Amortization of unrecognized prior service cost 52,000 6) Employer contributions 40,000 The fair value of plan assets exceeds the projected benefit obligation. In its December 31, year 5 income statement, what amount should Kane report as pension cost? $45,000 $49,000 $67,000 $87,000

$87,000

Which of the following facts concerning 1) plant assets 2) Inventory should be disclosed in the summary of significant accounting policies? (Composition/Depreciation Amount/Depreciation Method - Yes/No) (Composition/Pricing - Yes/No)

``` 1) Composition - No Depreciation Amount - No Depreciation Method - Yes 2) Composition - No Pricing - Yes ``` Reason is that disclosure of accounting policies should identify and describe the accounting principles and the methods of applying them. Information and details presented elsewhere as a part of the financial statements should not be repeated.

Which of the following is false? - The components of other comprehensive income may be displayed before tax-related effects with the aggregate income tax effects shown as one amount. - Reclassification adjustments shall be made in order to avoid double counting of items included in other comprehensive income and also in net income. - Components of other comprehensive income may not be shown net of tax-related effects. - Other comprehensive income includes revenues, expenses, gains, and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income.

- Components of other comprehensive income may not be shown net of tax-related effects.

Two years ago, Aggre Inc. recognized the tax benefit of an uncertain tax position. income tax expense in that year was reduced by $20,000 as a result. In addition, Aggre recorded a $5,000 tax liability for unrecognized benefits for the same tax position. During the current year, the uncertainty is resolved and a benefit of $22,000 is upheld. By what amount is current-year income tax expense affected by the resolution of the prior uncertainty? - $2,000 decrease. - $22,000 decrease. - $5,000 decrease. - There is no effect.

- $2,000 decrease.

In single period statements, which of the following should be reflected as an adjustment to the opening balance of retained earnings? - Effect of a failure to provide for uncollectible accounts in the previous period. - Effect of a decrease in the estimated useful life of depreciable equipment. - Adoption of a new accounting method for transactions that in the past had an immaterial effect on the financial statements. - Cumulative effect of a change from an accelerated method to straight-line depreciation.

- Effect of a failure to provide for uncollectible accounts in the previous period.

Lind Corp. declared a cash dividend of $50,000 on March 10, year 2, to stockholders of record March 25, year 2, payable on April 5, year 2. As a result of this cash dividend, working capital - Decreased on March 10 by $50,000. - Decreased on March 25 by $50,000. - Decreased on April 5 by $50,000. - Did not change.

- Decreased on March 10 by $50,000.

Which of the following rates may be used to translate the cash flow statement? I. Historical exchange rates. II. Current exchange rates. III. Weighted-average rates.

I and III

Which of the following statements includes the most useful guidance for practicing accountants concerning the FASB Accounting Standards Codification. - The Codification includes only FASB Statements. - The Codification is the sole source of U.S. GAAP, for nongovernmental entities. - The Codification significantly modified the content of GAAP when it became effective. - An accountant can be sure that all SEC rules are included in the Codification.

- The Codification is the sole source of U.S. GAAP, for nongovernmental entities.

Hill Corp. began production of a new product. During the first calendar year, 1,000 units of the product were sold for $1,200 per unit. Each unit had a two-year warranty. Based on warranty costs for similar products, Hill estimates that warranty costs will average $100 per unit. Hill incurred $12,000 in warranty costs during the first year and $22,000 in warranty costs during the second year. The company uses the expense warranty accrual method. What should be the balance in the estimated liability under warranties account at the end of the first calendar year? - $66,000 - $88,000 - $100,000 - $112,000

- $88,000

Brockton City’s water utility, which is an Enterprise Fund, submits a bill for $9,000 to the General Fund for water service supplied to city departments and agencies. Submission of this bill would result in - Creation of balances which will be eliminated on the city’s government-wide Statement of Net Position. - Recognition of revenue by the water-utility fund and of an expenditure by the General Fund. - Recognition of an encumbrance by both the water-utility fund and the General Fund. - Recognition of an Other Financing Source by the enterprise fund and an Other Financing Use by the General Fund.

- Recognition of revenue by the water-utility fund and of an expenditure by the General Fund.

Assume a private firm elects to early adopt ASU 2014-08: Business Combinations: Accounting for Intangible Assets in a Business Combination. Noncompetition agreements: - Must be separately measured as an intangible asset apart from goodwill. - May be excluded from both intangible asset and goodwill accounting. - Must be measured and included within goodwill. - May be measured and included within goodwill.

- May be measured and included within goodwill.

Which of the following financial statements of a private, nonprofit hospital reports the changes in net assets with donor restriction and net assets without donor restriction for a time period? Balance sheet/Statement of operations - Yes/No

Netiher The statement of changes in net assets reports the changes in the hospital’s net assets with donor restriction and net assets without donor restriction for a time period. The statement of operations discloses only the changes in net assets without donor restriction for a time period, while the balance sheet discloses the amounts of net assets with donor restriction and net assets without donor restriction as of a specific date

1) Capital contributed by subdividers $ 900,000 2) Cash received from customer households 2,700,000 3) Proceeds from the sale of revenue bonds 4,500,000 In the Electric Utility Enterprise Fund's Statement of Cash Flows for the year ended December 31, 20X5, what amount should be reported as cash flows from capital and related financing activities? - $4,500,000 - $5,400,000 - $7,200,000 - $8,100,000

- $5,400,000 = $,500,000 + 900,000

An increase in the cash-surrender value of a life insurance policy owned by a company would be recorded by: - Decreasing annual insurance expense. - Increasing investment income. - Recording a memorandum entry only. - Decreasing a deferred charge.

- Decreasing annual insurance expense.

Gold County received goods that had been approved for purchase but for which payment had not yet been made. Should the accounts listed below be increased? Encumbrances/Expenditures - Yes/No

Encumbrances - No | Expenditures - Yes

Farm Co. leased equipment to Union Co. on July 1, 20X5 and properly recorded the sales-type lease at $135,000, the present value of the lease payments discounted at 10%. The first of eight annual lease payments of $20,000 due at the beginning of each year was received and recorded on July 3, 20X5. Farm had purchased the equipment for $110,000. What amount of interest revenue from the lease should Farm report in its 20X5 income statement? - $0 - $5,500 - $5,750 - $6,750

$5,750 Interest for the first 6 months of the lease term is (1/2).10($135,000 − $20,000) = $5,750.

1) Accounts receivable $ 900,000 2) Allowance for doubtful accounts before any provision for Year 1 doubtful accounts expense) 16,000 Credit sales for Year 1 1,750,000 Wren is considering the following method of estimating doubtful accounts expense for year 1: * Based on credit sales at 2% * Based on accounts receivable at 5% What amount should Wren charge to doubtful accounts expense under each method?

$35,000 $29,000

1) Debt principal matured $2,000,000 2) Unmatured (accrued) interest on outstanding debt at 1/1/year 1 50,000 3) Interest on matured debt 900,000 4) Unmatured (accrued) interest on outstanding debt at 12/31/year 1 100,000 5) Interest revenue from investments 600,000 6) Cash transferred from General Fund for retirement of debt principal 1,000,000 7) Cash transferred from General Fund for payment of matured interest 900,000 All principal and interest due in year 1 were paid on time. How much revenue should Albury’s Debt Service Funds record for the year ended December 31, year 1, using modified accrual accounting?

600,000

Which one of the following correctly describes the maximum length of the measurement period for a business combination? - The acquisition date of the business combination - The end of the annual fiscal period in which the combination occurs - One year from the acquisition date of the combination- - Indefinite, until all information about accounts and amounts is known

One year from the acquisition date of the combination

Orr Co. prepared an aging of its accounts receivable at December 31, 2005 and determined that the net realizable value of the receivables was $250,000. Additional information is available as follows: 1) Allowance for uncollectible accounts at 1/1/05 - credit balance $ 28,000 2) Accounts written off as uncollectible during 2005 23,000 3) Accounts receivable at 12/31/05 270,000 4) Uncollectible accounts recovery during 2005 5,000 For the year ended December 31, 2005, Orr's uncollectible accounts expense would be - $23,000 - $20,000 - $15,000 - $10,000

10,000 Beginning allowance balance + uncollectible accounts expense - write-offs + recoveries = ending allowance balance $28,000 + uncollectible accounts expense − $23,000 + $5,000 = ($270,000 − $250,000) Uncollectible accounts expense = $10,000

Mill, which began operations on January 1, 20X3, recognizes income from long-term construction contracts under the percentage-of-completion method in its financial statements and under the completed-contract method for income tax reporting. Income under each method follows: Year Completed-contract Percentage-of-completion 20X3 $ - $300,000 20X4 $400,000 $600,000 20X5 $700,000 $850,000 The income tax rate was 30% for 20X3 through 20X5. For years after 20X5, the enacted tax rate is 25%. There are no other temporary differences. Mill should report in its December 31, 20X5 balance sheet, a deferred income tax liability of - $87,500 - $105,000 - $162,500 - $195,000

$162,500 Completed contract (for tax purposes) will recognize $650,000 more income than percentage of completion (for book purposes) after 20X5. Therefore, the difference is taxable and gives rise to a deferred tax liability of $162,500 ($650,000 × .25). The future enacted tax rate is applied, because that is the rate at which the deferred tax liability will be paid.for a c

For a capital lease, the amount recorded initially by the lessee as a liability should NORMALLY - Exceed the total of the minimum lease payments. - Exceed the present value of the minimum lease payments at the beginning of the lease. - Equal the total of the minimum lease payments. - Equal the present value of the minimum lease payments at the beginning of the lease.

Equal the present value of the minimum lease payments at the beginning of the lease.

Opto Co. is a publicly traded, consolidated enterprise reporting segment information. Which of the following items is a required enterprise-wide disclosure regarding external customers? - The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues - The identity of any external customer providing 10% or more of a particular operating segment's revenue - The identity of any external customer considered to be "major" by management - Information on major customers is not required in segment reporting.

- The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues

At December 31, year 2, Spud Corp. owned 80% of Jenkins Corp.’s common stock and 90% of Thompson Corp.’s common stock. Jenkins’ year 2 net income was $100,000 and Thompson’s year 2 net income was $200,000. Thompson and Jenkins had no intercompany ownership or transactions during year 2. Combined year 2 financial statements are being prepared for Thompson and Jenkins in contemplation of their sale to an outside party. In the combined income statement, combined net income should be reported at - $210,000 - $260,000 - $280,000 - $300,000

- $300,000 Combined financial statements are financial statements prepared for companies that are owned by the same parent company or other owner.

Under Statement of Financial Accounting Concepts 6, the term “recognized” is synonymous with the term - Recorded. - Realized. - Matched. - Allocated.

- Recorded.

Under the IFRS revaluation model for accounting for plant, property, and equipment - Assets must be revaluated quarterly. - Assets must be revaluated annually. - Assets are never revaluated. - There are no rules regarding the frequency of revaluation.

- There are no rules regarding the frequency of revaluation.

A sale of goods was denominated in a currency other than the entity's functional currency. The sale resulted in a receivable that was fixed in terms of the amount of foreign currency that would be received. Exchange rates between the functional currency and the currency in which the transaction was denominated changed so that a loss was incurred. The loss should be included as a: - Translation loss reported as a component of income from continuing operations. - Translation loss reported as a component of comprehensive income. - Transaction loss reported as a component of income from continuing operations. - Transaction loss reported as a component of comprehensive income.

- Transaction loss reported as a component of income from continuing operations.

Which one of the following would not be remeasured using a historic exchange rate? - Cash. - Inventories carried at cost. - Property, plant, and equipment. - Common stock.

Cash

1) Unrestricted state grant $1,000,000 2) Interest on bank accounts held for employees' pension plan 200,000 What amount of these cash receipts should be accounted for in Cal's General Fund? - $1,200,000 - $1,000,000 - $200,000 - $0

- $1,000,000

The Expenditures account of a governmental unit is increased when (A purchase order is approved/The budget is recorded - Yes/No)

No Both

In a lease that is recorded as a sales-type lease by the lessor, interest revenue - Does not arise. - Should be recognized over the period of the lease using the interest method. - Should be recognized over the period of the lease using the straight-line method. - Should be recognized in full as revenue at the lease’s inception.

Should be recognized over the period of the lease using the interest method.

Materiality and relevance are both defined by - What influences or makes a difference to a decision marker. - Quantitative criteria set by the Financial Accounting Standards Board. - The consistency in the application of methods over time. - The perceived benefits to be denied that exceed the perceived costs associated with it.

- What influences or makes a difference to a decision marker.900,000

Donation by a benefactor mandated to a permanent fund to provide funds, the income of which is to provide meals for the needy (a government program) $300,000 Sales taxes to finance the maintenance of tourist facilities in the shopping district 900,000 What amount should be accounted for in Grove’s special revenue funds? - $0 - $ 300,000 - $ 900,000 - $1,200,000

- $ 900,000

Which one of the following best describes the currency in which the final consolidated financial statements are presented? - The local currency. - The reporting currency. - The functional currency. - The temporal currency.

- The reporting currency.

Which statement is true with respect to noncontrolling interest? - US GAAP records noncontrolling interest at the proportionate share of the value of identifiable net assets of the acquiree. - IFRS only records noncontrolling interest at the proportionate share of the value of identifiable net assets of the acquiree. - Both US GAAP and IFRS record noncontrolling interest at the proportionate share of the value of identifiable net assets of the acquiree. - IFRS permits recording noncontrolling interests at either fair value or the proportionate share of the value of identifiable net assets of the acquiree.

- IFRS permits recording noncontrolling interests at either fair value or the proportionate share of the value of identifiable net assets of the acquiree.

ASC Topic 825 for the fair value option election applies to all of the following items except for - Firm commitments that involve financial instruments. - Warranties that can be settled by paying a third party. - Held-to-maturity investments. - Leases.

- Leases.

A firm is applying international accounting standards to its defined-benefit pension plan. At the end of the current year, the actuary informs the firm that the plan has experienced an actuarial gain of $2mn. The average remaining service period of plan participants is ten years. Therefore, - Defined-benefit obligation does not reflect the decrease of $2mn immediately. - Pension expense will be reduced by $200,000 the following year. - Other comprehensive income is immediately increased. - The unrecognized net gain or loss account is immediately debited.

- Other comprehensive income is immediately increased. OCI is increased through the increase in pension gains/losses—OCI.

Under IFRS, which statement about borrowing costs is true? I. Borrowing costs must always be capitalized. II. Borrowing costs can never be capitalized. III. Borrowing costs must be capitalized if they meet certain criteria. IV. Borrowing costs must be expensed if they do not meet certain criteria.

III and IV

Conn Company purchased a new machine for $480,000 on January 1, year 1, and leased it to East the same day. The machine has an estimated 12-year life, and will be depreciated $40,000 per year. The lease is for a 3-year period expiring January 1, year 4, at an annual rental of $85,000. Additionally, East paid $30,000 to Conn as a lease bonus to obtain the 3-year lease. For year 1 Conn incurred insurance expense of $8,000 for the leased machine. What is Conn’s year 1 operating profit on this leased asset? - $67,000 - $55,000 - $47,000 - $37,000

- $47,000 85,000 + 10,000 (30,000/3) - $40,000 - $8,000

Which of the following accounts of a governmental unit is credited to close it out at the end of the fiscal year? - Appropriations. - Revenues. - Fund Balance-Assigned. - Encumbrances.

- Encumbrances.

Under IFRS, a change in accounting estimate is accounted for - Retrospectively. - Prospectively in the period of change and future periods. - Currently in the financial statements. - As a cumulative effect of an accounting change in the income statement.

- Prospectively in the period of change and future periods

What type(s) of revenue will a contract with a significant financing component generate? - Sales Revenue - Sales Revenue and Interest Revenue - Unearned Revenue and Sales Revenue - Contract Asset Revenue and Sales Revenue

Sales Revenue and Interest Revenue

Cash on hand and in banks $975,000 Cash legally restricted for additions to plant (expected to be disbursed in Year 3) 600,000 Bank certificates of deposit (due February 1, Year 2, purchased September 1, Year 1) 250,000 In the current assets section of Tallent’s December 31, Year 1, balance sheet, what total amount should be reported under the caption "cash and cash equivalents"? - $1,225,000 - $ 975,000 - $1,575,000 - $1,825,000

- $ 975,000 Cash on hand and in banks in included in "cash and cash equivalents" because it is both unrestricted and readily available. Cash legally restricted for plant additions should be shown in the long-term assets section as an investment. Bank certificates of deposit ($250,000 due on February 1, Year 2) are excluded since the original maturity date was greater than three months.

4 - Accrual Accounting Flashcards

(577 cards)