F1

Question 1

5 elements of Present Value measurement

Answer 1

1. Estimate of future cash flow
2. Expectations about timing variations of future cash flows
3. Time value of money/ risk free rate of interest
4. Price for bearing uncertainty- credit risk
5. Other factors ex. Liquidity issues

Question 2

Objective of financial reporting

Answer 2

To provide financial information about the reporting entity that is useful to primary users in making decisions

Question 3

Characteristics of Relevance

Answer 3

Predictive Value - used to predict future outcomes
Confirming Value - provides feedback on past predictions
Materiality - An omission or misstatement could affect user decisions

Question 4

Characteristics of Faithful Representation

Answer 4

Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented without bias
Free from Error - No material errors or omissions

Question 5

Enhancing Qualitative Characteristics

Answer 5

Comparability - Allows users to compare items among similar entities
Verifiability - Independent observers would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is clear, concise, easy to understand

Question 6

Fudamental recognition criteria

Answer 6

Definition: Item meets the definition of its element
Measureability: Measurement is sufficient to be relied on
Relevance: Makes a difference to a financial statement user
Reliability: Faithful, verifiable, and neutral

Question 7

Measurement attributes for assets and liabilities

Answer 7

Historical cost- common for PP&E
Current cost- common for inventory
NRV- common for A/R
Current market value- common for stocks
PV of future cash flows- common for bonds and notes

Question 8

Periodicity Assumption

Answer 8

Economic activity can be divided into meaningful time periods

Question 9

Full Disclosure Principle

Answer 9

User should be given information that makes a difference in their decision process, but not too much to prevent them from knowing what is important

Question 10

Comprehensive Income

Answer 10

Any change in equity other than investments and distributions by owners

Question 11

Revenues and expenses use the ______ while gains and losses use the ______ of reporting

Answer 11

Gross concept,

Net concept

Question 12

Listed under Other revenues/expenses

Answer 12

Interest revenue/expense

Gain/loss on sale of assets

Question 13

Inventory costs

Answer 13

Purchase price

Freight In

Question 14

Selling expenses

Answer 14

Freight out
Salaries and Commission
Advertising
Sales department office rent

Question 15

General and administrative expenses

Answer 15

Officer’s salaries
Accounting and legal
Insurance

Question 16

5 criteria for revenue recognition

Answer 16

Commercial Substance
Rights to Goods/Services Identified
Approval & Commitment by Each Party
Payment Terms Identified
Collection is Probable

Question 17

Output method (Revenue recognition)

Answer 17

Based on the value to the customer.
Units produced
Time elapsed
Milestones achieved

Question 18

Input method (Revenue recognition)

Answer 18

Based on the entity’s efforts to satisfy obligations.
Costs incurred relative to total expected costs
Resources consumed
Labor hours expended
Time elapsed

Question 19

Bill and Hold Arrangement revenue recognition criteria

Answer 19

Customer must have requested the arrangement
Product has been seperately identified as customer’s
Product is ready to be transferred to customer
Entity cannot use product or resell

Question 20

Completed contract method criteria

Answer 20

Difficult to estimate
Many contracts
Short duration

Question 21

When is the earliest period that a component can be reported as a discontinued operation?

Answer 21

When the component meets held for sale criteria:
Management commits to plan to sell
Can be sold immediately
Active program to find a buyer
Sale is probable and expected within 1 year
Active marketing of the component
Unlikely that plans to sell will change

Question 22

Calculation of Income/Loss on Discontinued operations

Answer 22

Loss on Impairment - Impairment analysis of component must be conducted
Calculate result of operations of component for year
Calculate gain or loss on disposal of component

Question 23

Accounting estimate changes events

Answer 23

Depreciation method
Useful life of an asset
Write down obsolete inventory
Nonrecurring IRS adjustments
Litigation settlement
Fair value valuation technique
Changes in accounting principle inseperable from change in estimate

Question 24

3 balance sheet requirement

Answer 24

When applying a change in accounting principle retrospectively, an entity must present at least 3 balance sheets: end of current period and beginning and end of prior period.
Only required by IFRS, not GAAP

Question 25

Reporting change in estimate

Answer 25

Apply change to current income from continuing operations

Disclose in notes if material

Question 26

Reporting change in accounting principle

Answer 26

Restate all prior periods presented

Adjust beginning RE for cumulative effective of change in earliest period presented

Question 27

Types of Other Comprehensive Income

Answer 27

Pension Adjustments- until they are recognized
Unrealized G/L on AFS debt securities
Foreign currency translations G/L
Instrument Specific Credit Risk
Effective Portion of Cash Flow Hedges (until cash flows are realized, then go to I/S)
IFRS only- Revaluation surplus

Question 28

AOCI is reported in the ________

Answer 28

Balance sheet/ Statement of Financial Position

Question 29

Required disclosures of OCI

Answer 29

Tax effects of each component
Changes in accumulated balances of each OCI item
Total AOCI (presented in balance sheet)
Reclassification adjustments