Deck3

Question 1

What is the accounting treatment for a change in accounting principle?

Answer 1

Retrospective unless impracticable (FIFO to LIFO)

Question 2

What is the accounting treatment for a change in accounting estimate?

Answer 2

Prospective

Question 3

What is the accounting treatment for a change in reporting entity?

Answer 3

Retrospective

Question 4

What is the accounting treatment for errors?

Answer 4

Prior period adjustment

Question 5

What is the formula for book value per share of common stock?

Answer 5

(Total Stockholders Equity - Liquidating Value Pref. Stock)/ total CS outstanding

Question 6

What is formula for book value per share of preferred stock?

Answer 6

Liquidating value of PS + Dividend in Arrears = Book value of PS

Question 7

What are the 2 steps in dealing with a change in accounting principle

Answer 7

1. Use the new accounting principle in the current period
2. Calculate the cumulative effective (change from old to new from beginning of business until beginning of first period presented) adjust assets and liabilities of the first period presented.

Question 8

What are the 2 steps in dealing with changes in accounting estimates

Answer 8

1. Use new estimate in current period

2. Do not adjust prior period financial statements

Question 9

What are the 2 steps in dealing with changes in reporting entity

Answer 9

1. Use the new reporting entity in the current accounting period
2. Apply the new reporting entity retrospectively to the financial statements

Question 10

When would a company record a liability for a loss contingency

Answer 10

When the future event is probable and can be estimated

Question 11

When would a company make a footnote disclosure for a loss contingency

Answer 11

When the future event is

1. probable but cant be estimated
2. Reasonably possible less than 50% (If an event is remote no disclosure is needed this event would be very small %’age chance of happening)

Question 12

Would a company recognize a gain contingency on its books

Answer 12

No, only footnote disclosure. Only recognize when realization occurs.

Question 13

When would a company a company capitalize R&D expenses

Answer 13

When the expenses has an alternative future use or benefit.

Question 14

Name major IFRS differences to GAAP

Answer 14

No Completed Contract
No LIFO
Comparative Financial Statements required
Statement of Comprehensive Income required
Statement of Changes in Equity required
Comparative Financial Statements required
Income instead of Revenue
Profit instead of Net Income

Question 15

Define a partnership

Answer 15

A partnerships is two or persons/parties sharing both profits and management of a business. Also, the partnership is considered a separate accounting entity but not a separate legal entity.