areaIII D. accounting for income taxes Flashcards
FAR2G10034
Which of the following best describes the process of reconciling accrued liabilities?
A) Matching the total accrued liabilities in the subledger with the cash payments made.
B) Ensuring that the accrued liabilities in the general ledger match the subledger total.
C) Reconciling the accrued liabilities with the related revenue accounts.
D) Comparing accrued liabilities with the corresponding asset accounts.
B) Ensuring that the accrued liabilities in the general ledger match the subledger total.
Reconciling accrued liabilities involves ensuring that the total amount recorded in the subledger matches the amount reported in the general ledger. This confirms the accuracy of recorded accruals.
FAR2E10006
An investment in a bond is required to be reported at fair value in which of the following situations?
A) The bond is a government bond held until maturity.
B) The bond is actively traded on a public market.
C) The bond is a private placement with restricted sale conditions.
D) The bond is part of a sinking fund.
B) The bond is actively traded on a public market.
Bonds that are actively traded on a public market are generally required to be reported at fair value because their market value can be reliably determined.
A) Government bonds held to maturity are reported at amortized cost. C) Private placements with restricted sale conditions are often reported at amortized cost due to difficulties in determining fair value. D) Bonds in a sinking fund are typically reported at amortized cost.
FAR2B10027
During a rollforward analysis, an adjustment for a write-off of uncollectible accounts under the allowance method would primarily involve:
A) An increase in trade receivables
B) A deduction from the allowance for doubtful accounts
C) A deduction from trade receivables
D) No adjustment to trade receivables
D) No adjustment to trade receivables
Under the allowance method, write-offs are accounted for within the allowance for doubtful accounts and do not affect the trade receivables balance directly in a rollforward analysis
FAR3D10014
How should changes in a valuation allowance for a deferred tax asset be reflected in the financial statements?
A. As an adjustment to retained earnings.
B. In the statement of comprehensive income.
C. In the income statement as part of tax expense or benefit.
D. Directly in the equity section.
C. In the income statement as part of tax expense or benefit.
Changes in a valuation allowance for a deferred tax asset should be reflected in the income statement as part of the tax expense or benefit. This reflects the impact of changes in the assessment of the company’s ability to realize the deferred tax asset in future periods.
FAR2F10014
How is the carrying amount of a finite-lived intangible asset calculated?
A. Original cost minus accumulated amortization and impairment losses.
B. Original cost plus accumulated amortization and impairment losses.
C. Fair value at each reporting date.
D. Original cost only.
A. Original cost minus accumulated amortization and impairment losses.
The carrying amount of a finite-lived intangible asset is calculated as the original cost of the asset minus any accumulated amortization and any impairment losses that have been recognized.
FAR2B009n
ABC corp transferred financial assets to DEF corp. The transfer meets all the conditions to be considered a sale. Which of the following is true?
A. Both ABC and DEF should measure the assets received and liabilities incurred at fair value.
B. ABC should measure any assets received at cost.
C. DEF should measure any assets received at cost.
D. Both ABC and DEF should measure the assets received and liabilities incurred at historical cost.
A. Both ABC and DEF should measure the assets received and liabilities incurred at fair value.
Both ABC and DEF should measure the assets received and liabilities incurred at fair value.
FAR4C001aicpa
In preparing Chase City’s reconciliation of the statement of revenues, expenditures, and changes in fund balances to the government-wide statement of activities, which of the following items should be subtracted from changes in fund balances?
A. Capital assets purchases.
B. Payment of long-term debt principal.
C. Internal service fund increase in net assets.
D. Book value of capital assets sold during the year.
D. Book value of capital assets sold during the year.
Under government fund accounting, the full proceeds from the sale of a capital asset is available for the fund to use, so they record all of it. When fund balances are transferred over to the government-wide statements, only the gain or loss on the sale would be recorded, so you would subtract the book value of the capital assets sold during the year.
FAR1F10027
To calculate the number of days it takes for a company to collect its accounts receivable, which formula should be used?
A. 365 / Accounts Receivable Turnover
B. Accounts Receivable Turnover / 365
C. 365 / Inventory Turnover
D. Inventory Turnover / 365
A. 365 / Accounts Receivable Turnover
The formula 365 / Accounts Receivable Turnover gives the average number of days it takes for a company to collect its receivables.
FAR3D001aicpa
Neron Co. has two derivatives related to two different financial instruments, instrument A and instrument B, both of which are debt instruments. The derivative related to instrument A is a fair value hedge, and the derivative related to instrument B is a cash flow hedge. Neron experienced gains in the value of instruments A and B due to a change in interest rates. Which of the gains should be reported by Neron in its income statement?
A. Gain in A: Yes. Gain in B: Yes.
B. Gain in A: Yes. Gain in B: No.
C. Gain in A: No. Gain in B: Yes.
D. Gain in A: No. Gain in B: No.
B. Gain in A: Yes. Gain in B: No.
On a fair value hedge, gains or losses are recognized in current income.
On a cash flow hedge, gains or losses are recognized in other comprehensive income.
FAR1A40033
When a discrepancy is found in dividend payments recorded in the statement of changes in equity, what supporting document should be primarily checked?
A) The income statement.
B) Bank statements confirming dividend payments.
C) The balance sheet.
D) The cash flow statement.
B) Bank statements confirming dividend payments.
For discrepancies in dividend payments, bank statements confirming the actual payments made are the most relevant supporting documents.
The income statement (Option A) records revenues and expenses, not dividend payments. The balance sheet (Option C) and cash flow statement (Option D) provide broader financial information but are not as directly relevant to verifying dividend payment amounts as bank statements
FAR3G10019
If a company’s key supplier goes out of business after the balance sheet date, how should this be reported in the financial statements?
A) Adjust the cost of goods sold to reflect potential future increases in costs.
B) Create a provision for potential losses due to the supplier’s closure.
C) Disclose the event in the notes to the financial statements.
D) No action required as the event does not directly impact the financial statements.
C) Disclose the event in the notes to the financial statements.
The closure of a key supplier after the balance sheet date is a Type II subsequent event. It is a significant event that occurred after the balance sheet date and does not provide additional evidence about conditions existing at that date. The appropriate action is to disclose the event in the notes to the financial statements, as it may have implications for the company’s future operations.
FAR2B10008
A company’s beginning balance in Allowance for Doubtful Accounts is a $2,000 credit. During the year, it writes off $1,500 in bad debts and recovers $500 previously written off. What is the ending balance in the Allowance for Doubtful Accounts?
A) $1,000 credit
B) $2,000 credit
C) $1,000 debit
D) $3,000 credit
A) $1,000 credit
The ending balance is calculated as Beginning Balance – Write-offs + Recoveries. Here, $2,000 – $1,500 + $500 = $1,000 credit.
FAR3D10020
What is the impact on deferred tax assets if future taxable income is projected to be lower than previously estimated?
A. There is no impact on deferred tax assets.
B. The deferred tax assets are increased.
C. A valuation allowance may be increased.
D. The deferred tax assets are reclassified as current.
C. A valuation allowance may be increased.
If future taxable income is projected to be lower than previously estimated, there may be an increased need for a valuation allowance against the deferred tax assets. This reflects the decreased likelihood of realizing the full benefit of those assets.
FAR1A50040
When a company amortizes intangible assets, how is this reflected in the statement of cash flows?
A. Increases cash flows from operating activities.
B. Decreases cash flows from operating activities.
C. No immediate impact on the statement of cash flows.
D. Increases cash flows from investing activities.
C. No immediate impact on the statement of cash flows.
Amortization of intangible assets is a non-cash transaction and does not affect the cash flow statement directly.
When it comes to uncertainty in income taxes, there are concepts and steps for the accounting treatment:
Key Concepts
● Uncertain Tax Positions: These are positions taken in a tax return that may not be sustained upon examination by tax
authorities due to uncertainties in tax law.
● Recognition Threshold: A tax benefit from an uncertain tax position can be recognized in the financial statements only if it’s “more likely than not” (a likelihood of more than 50%) that the position will be sustained based on its technical merits.
● Measurement: If the recognition threshold is met, the tax benefit should be measured as the largest amount that is
more than 50% likely to be realized upon settlement.
● Subsequent Measurement and Changes: Changes in judgment related to the expected outcome of a tax position
must be recognized in the period in which the change occurs.
● Disclosure: Entities must disclose information about the nature of their uncertain tax positions, including a tabular
reconciliation of the total amounts unrecognized in the financial statements