Deck #1 (F1)

Question 1

What are the elements of faithful representation?

Answer 1

completeness, neutrality, freedom from error

Question 2

What is the amount that would be paid to acquire or replace an asset?

Answer 2

replacement cost

Question 3

What are the elements of relevance?

Answer 3

predictive value, confirming value, materiality

Question 4

What are the four enhancing characteristics?

Answer 4

comparability, verifiability, timeliness, understandability

Question 5

Under GAAP, how should a transaction that is “infrequent and unusual” be presented?

Answer 5

separately as a component of income from continuing operations when resulting in a gain or a loss

Question 6

How is net income calculated?

Answer 6

Net Sales
- COGS
= Gross Profit
-SGA
= Operating Income
- Other income (Gain/Loss)
=Income from Cont. Ops.
-Income Tax
=Income b4 Distcont. Ops.
=Gain/Loss from Discount. Ops.
=NET INCOME

Question 7

How are normal gains and losses recorded?

Answer 7

• income statement
• net of tax
• continuing operations

Question 8

How are the following expenses classified?

Freight In
Freight Out

Answer 8

Freight Out - Selling Exp

Freight In - COGS

Question 9

Where does tax fall when considering net income?

Answer 9

Directly before. Net income is the BOTTOM LINE

Question 10

When a fixed asset is sold, where is the gain or loss recognized?

Answer 10

Part of income from continuing operations. The amount of gain or loss is equal to the proceeds from sale less carrying amount of FA sold.

Question 11

What is the minimum operating cycle for reporting a prepaid current asset?

Answer 11

12 months

Question 12

Is interest expense a selling expense, a G&A expense, or a COGS?

Answer 12

None. It is a separate item on the Income Statement.

Question 13

If Company A had deferred revenue related to Company B, what would Company A recognize this as? Company B?

Answer 13

A - a liability until service is performed

B - Prepaid Expense (NOT Accrued Expense)

Question 14

If Company A leases an apartment for 3 years to John, and John pays a nonrefundable fee, how should the fee be recorded by Company A?

Answer 14

Recorded evenly as Rent Revenue over the course of the lease.

(Full amount / months in the lease) x (months in the applicable year)

Question 15

What is unearned revenue?

Answer 15

a current liability. cash received in advanced of earning the cash.

Question 16

What is an example of an “output” method as it relates to recognizing revenue.

Answer 16

A company that produces computers records revenue based on milestones achieved (the output), rather than costs incurred, resources consumed, or labor hours (all inputs).

Question 17

How do you treat a discount with multiple embedded obligations?

Answer 17

allocate proportionally to each obligation in the contract

Question 18

Would design costs or printing costs be considered “cost of obtaining a contract?”

Answer 18

No, it would be COGS

Question 19

What are 3 characteristics of a non business org?

Answer 19

1. resources come from grants
2. operates for purpose other than profit
3. lack ownership interests that can be sold

Question 20

Users of financials of a non business org?

Answer 20

lenders, suppliers, constituents, governing bodies, managers