F1 Flashcards
(115 cards)
1
Q
Neutrality, completeness, & freedom from error
A
Faithful Representation
2
Q
Predictive Value
A
Helps users forecast future outcomes
3
Q
Essential Characteristic of Asset
A
An asset provides future benefits
4
Q
How are amendments incorporated into FASB Accounting Standards Codification?
A
By releasing an Accounting Standards Update
5
Q
Relevance
A
Predictive value, confirming value, & materiality
6
Q
FASB amends Accounting Standards Codification through issuance of?
A
Accounting Standards Updates
7
Q
Royalties agreement with company, royalties paid as expense are reported?
A
At date the royalty agreement began
8
Q
Process - reporting item in financial statements of an entity
A
Recognition
9
Q
Not SFAC #7 as 5 Elements of present value measurement used to establish value of assets/liabilities using cash flow
A
Risk Tolerance of Management
10
Q
FASB framework: useful info must exhibit fundamental qualitative characteristics of
A
Faithful representation and relevance
11
Q
Most authoritative sources of U.S. GAAP
A
FASB Statements of Financial Accounting Standards
12
Q
Changes - existing authoritative GAAP for nonissuer, nongovernmental entities communicated by financial accounting standards board through issuance
A
Accounting Standards Updates
13
Q
Primary objective of financial reporting
A
To provide economic information that is comprehensive to all users
14
Q
When are accounting standards updates issued
A
Only after majority vote of members of FASB
15
Q
Purpose of not-for-profit statement of activities provide relevant information to
A
Resource providers
16
Q
Interim financial statements described as emphasizing which enhancing qualitative characteristics
A
Timeliness
17
Q
True regarding comparison of managerial to financial accounting
A
Managerial accounting need not follow GAAP while financial accounting must follow them
18
Q
FASB is not responsible for
A
Prescribing standards related to a robust system of internal control
19
Q
Who can not use the entity’s resources
A
Shareholders have no responsibility or right
20
Q
Appropriate measurement basis for ended operations and dispose of assets within three months
A
Net Realizable value
21
Q
What influences or makes a difference to a decision maker
A
Both Materiality & Relevance
22
Q
Under FASB framework- what is a fundamental qualitative characteristic & component of it
A
Relevance & materiality
23
Q
Single source of U.S. GAAP. U.S. public companies are required to follow U.S. GAAP
A
FASB Accounting Standards Codification
24
Q
Characteristic that enhances relevance & faithful representation
A
Timeliness
25
An entity’s revenue may result from
A decrease in a liability from primary operations
26
Interim financial reporting should be viewed primarily in way
Reporting for an integral part of an annual period
27
When a cpa is applying the enhancing qualitative characteristics of useful financial information
An iterative process that does not follow a prescribed order
28
Amount of cash/equivalent assets paid to acquire currently
Replacement cost
29
Corporation sold fixed asset used for operations for greater than carrying amount, Corp should report transaction on income statement using the
Net concept, showing total gain as part of continuing operations, not bet of income taxes (fixed asset is not a component of an entity)
30
What are interest expense & advertising expenses considered?
Interest expense: separate line item
Advertising: selling expense
31
Under US GAAP, how should a material transaction that is “infrequent in occurrence” and/or “unusual in nature” should be presented?
Gain or Loss must be presented separately as a component of “income from continuing operations”
32
How would merchandise display be expensed as if used for five years in year 1 of multi-step income statement
One-fifth of cabinet cost (depreciation expense) in selling, general, and administrative expenses for Year 1
33
If company pays state equivalent of three months of sales taxes on projected retail sales and a amount is fully refundable after five years what would it be classified as?
A noncurrent asset (because refund is realized beyond normal operating cycle or one year)
34
When fixed asset is sold, gain or loss is recognized as past of income from
Continuing operations: amount of gain or loss is equal to difference between proceeds from sale & carrying amount of fixed asset sold
35
Under US GAAP, a gain that is both unusual & infrequent should be reported as
Income from continuing operations
36
Three bank accounts: 1 segregated for 9/17 payment into a bond sinking fund, 2 branch operations is overdrawn, 3 corporate operations with positive balance. How should they be reported?
1. Segregated account as noncurrent asset
2. Overdraft should be current liability
3. Regular account should be current asset
37
If a disaster has frequently happened over the years and a corporation does not pay for insurance regarding repairs/ selling damaged vans & replace them. How should the disaster damage be reported?
Actual year hail damage loss in continuing operations, with no separate disclosure (if disasters are frequent, it’s not unusual)
38
Premium on 4 year insurance policy expiring on Dec 31, Year 4 was paid in total on January 3 Year 1, if company has six month operating cycle, on Dec 31 Year 2, the prepaid insurance reported as current asset would be for?
Prepaid current assets is one year (or 12 months)
39
Could recovery of accounts written off be considered revenue in an income statement?
No recovery of accounts written off does not hit the revenue account
40
Items of income/loss that are unusual or infrequent (or both) should be reported separately as part of
Income from continuing operations
41
What are considered general & administration expenses?
Accounting & legal fees, officers salaries, & insurance
42
Freight-in is part of
Cost of goods sold
43
Freight-out, salaries and commissions, & advertising
Selling expense
44
Income from continuing operations happens
After tax
45
Interest expense is before or after tax
Before Income tax
46
Net Sales - Cost of Goods Sold =
Gross Profit
47
If a contribution comes from employees would that be charitable contribution
No
48
Which of the following are NOT included in Total Revenues:
Net sales revenue, interest revenue, gain on sale of equipment, loss from operations of component (dis continued), gain in disposal of component (discontinued operations)
Gain in disposal of component, loss from operations component. (Discontinued Operations)
49
Would a disposal of a business be considered continuing operations?
No disposal of a component of a business is a discontinued operation
50
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Which amounts are included in. Current assets in balance sheet:
Cash $65k ($14k included for a from bond sinking fund)
AR $32K
Allowance for doubtful accounts $14K
Deposits received from customers $3K
Merchandise Inventory $7K
Unearned rent $1K
Investment in trading securities $4
```
$80K
$51K cash + $32K AR - 14K AFDA + $7K inventory + $4K investment trading securities
51
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What is the total current liabilities amount?
$19k AP
$34k Bonds payable, due year 2
$4k. Deferred income tax payable
$2k discount on bonds payable
$5k dividends payable 2/15/year 2
$9 income tax payable
$6k Notes Payable
```
$65k
Accounts Payable + bonds pancake due year 2 - discount on bonds payable + dividends payable + income tax payable
52
Concept industries is preparing its income statements for the year emended December 31. In preparing the statement, the line item displayed before considering income tax effect is:
Income (loss) from operations
53
Would an adjustment for the prior year understatement Of amortization expense show up in net income
NO because it is a prior period adjustment and would be reflected on beginning retained earnings not to the income statement
54
When dealing with net income should gain from discontinued segment be taxed as well
Yes, one must consider the after tax amount when dealing with net income
55
A liability until the service has been performed
Deferred Revenue
56
When service contracts (12 to 36 months) are sold does deferred revenue and/or service revenue increase?
Only deferred revenue
57
Entered contract on 4/15 for $215k in regards webcams being produced for the amount of $175k. The buyer will pay for it on 7/31. Then it will be delivered by 8/31. What would the journal entry include on 8/31?
Credit to cost if goods sold if $175k
Debit to unearned sales revenue of $215k
Credit if cash of $215k
debit to inventory of $175k
Debit to unearned sales revenue of $215k
4/15 no entry
7/31:
Cash $215
Unearned rev $215
8/31:
Unearned rev. $215
Sales revenue $215
Cost of goods sold $ 175
Inventory. $175
58
Xyz equipment is sold with a two year contract and single payment of $20k. The fair value of the equipment was $18k. Xyz recorded the transaction if $20k to cash and credit sales revenue. Which of the following is correct?
Total assets will be overstated
The financial statements are correct
Net income will be overstated
Total liabilities will be overstated
Net income will be overstated
($18k is for the equipment and $2k is for the two year service contract meaning the $2k received should be credit for deferred revenue and not sales revenue)
Cash $20
Sales revenue $18
Deferred rev. $ 2
59
Customer begins to rent out apartment in August of year 1 for $1k per month. The customer paid $540 as a no refundable fee for allowing the customer to rent for only one year. The customer has also prepaid for January’s rent in Dec. How much would the apartment complex record a rent revenue?
$5,225
Sign up fee: ($540/12 months) x 5 months = 225
Monthly rent: $1k x 5 = $5,000
60
Radical Co began construction project schedule for completion in Year 3. At December 31, Year 1 an overall loss was anticipated at contract completion. What effect of the project on Year 1 operating income under US GAAP percentage to completion & completed -contract methods?
```
POC. COMPLETED Contract
No effect. No effect
Decrease. Decrease
Decrease. Decrease
No effect. Decrease
```
Decrease. Decrease
61
Company used the percentage of completion method of accounting for a four year construction contract. Which if the following items would be used to calculate the income recognized in the second year?
Inc. Prev Recon. Progress Bil to Date
Yes. Yes
No. Yes
Yes. No
No. No
Yes No
When using POC method of accounting for a four year construction contract, income previously recognized would be used to calculate the income recognized in the second year (but not progress Billings to date).
62
Calculation of income recognized in the third year of a five-year construction contract accounted for using the percentage of completion method includes the ratio of?
Total costs incurred to date to total estimated costs
63
What would result in a company booking a transaction as a financing arrangement?
When the repurchase price is equal to or greater than the original sale price & the expected market value
64
During a percentage of completion method construction project, when would one recognize an estimated loss?
An estimated loss is recognized immediately
65
When is the earliest period that a component of an entity can be reported in discontinued operations?
When the component meets the “held for sale criteria”
66
What is the “held for sale” criteria
1. Management commits to a plan to sell component
2. Component is available for immediate sale in present condition
3. Active program to locate buyer has initiated
4. Sale is probable & sale is expected to be completed within 1 year
5. Sale of component is being actively marketed
6. Unlikely significant change to plan to sell will be made/ plan withdrawn
67
Which of the transactions qualify as a discontinued operation?
Planned & approved sale of segment
Disposal of part of a line of business
Changes related to technological improvements
Phasing out of a production line
Planned and approved sale of a segment
68
Loss from discontinued operations before consideration of taxes for the year ended would include?
Loss throughout the year plus (book value - fair market value)
69
How to calculate tax for discontinued operations if there was a 30% tax rate?
70%
| 1-30%
70
How should the effect of a change in accounting estimate be accounted for?
In the period of change & future periods of the change affects both
71
When there is a change in the reporting entity, how should the change be reported in the financial statements?
Retrospectively, including note disclosures, and application to all prior period financial statements presented
72
Per U.S. GAAP, financial statements of all prior periods presented should be restated when there is a
Change in Entity
73
Change in entity results in?
1. Changing companies in consolidated financial statements
| 2. Consolidated financial statements versus previous individual financial statements
74
Under U.S. GAAP if company is not presenting comparative financial statements, the correction of an error in the financial statements of prior period should be reported, net of applicable income taxes, in the current
Retained earnings statements as an adjustment of the opening balance
75
A change from cash basis of accounting to the accrual basis of accounting during the current year. The cumulative effect of this change should be reported in Lore’s current year financial statements as a?
Prior period adjustment resulting from the correction of an error.
76
Is cash basis for financial reporting a generally accepted accounting basis of accounting (GAAP)
No: therefore it is an error
77
Under U.S. GAAP, is the cumulative effect of an inventory pricing change on prior years earnings reported on the financial statements for
LIFO to W. Av. W. Av. to LIFO
Yes. No
Yes. Yes
No. No
No. Yes
Yes. No.
(In a change to LIFO, the beginning inventory dollar amount becomes the first LIFO layer). No cumulative effect adjustment is made
78
Cumulative effect of a change in accounting principle is only used for changes in
Accounting principle
79
Pro forma effects of retroactive application of new depletion base is used for changes in
Accounting principle
80
A change from LIFO to FIFO for inventory valuation (costing) is a change in
Accounting principle
81
A change in depreciation method is now considered to be a
Change in both estimate and accounting principle so in other words an accounting estimate
82
If there is both an accounting estimate and accounting principle made, then it will be considered
An accounting estimate
83
How should the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate be reported?
As a component of income from continuing operations
84
In co company did not record a credit purchase of merchandise made in prior year but correctly included it in the year end physical inventory, what effect did the omission of reporting the purchase have to Co company’s balance sheet at year-end for Assets & Liabilities?
Assets no effect
Liabilities understated
85
A change in accounting estimate must be handled
Prospectively
86
To include an adjustment for inventory not recorded being added to retained earnings, one must
Less applicable tax before adding into retained earnings
87
Depreciation from prior year not reported must be treated as ….. in current year?
An increase in accumulated depreciation for the full “gross” amount
88
When it comes to year end inventory balances one must
Compare the difference
89
Change in accounting estimate is
Prospective (current and future)
90
Change in accounting principle
Retrospective (change in prior periods)
91
An error correction is accounted for by
Restating all prior periods
92
Could a company change the accounting principle to stimulate the company’s stock price
No it’s not acceptable unless the financials are better for the users of them
93
When it comes Change of accounting principle, change to LIFO it is impractical but the method of accounting used would be
Prospective
(Switching to LIFO makes it prospective
94
Why must reclassification adjustments must be shown in the financial statement that disclosed comprehensive income:
To avoid double counting in comprehensive income items, which are displayed in net income
95
Which of the following should be shown as a component of comprehensive income?
1. Deferred revenue
2. foreign-currency translation adjustment
3. Additional capital contribution
4. Dividend paid to a shareholder
2. Foreign-currency translation adjustment (included in other comprehensive income)
96
Foreign currency items, instrument specific credit risk, charges in funded status of a pension plan, unrealized gains & losses for available for sale debt securities
Other Comprehensive Income
97
Net income + Other comprehensive income =
Comprehensive Income
98
All changes in stockholders’ equity that comes from no owner sources
Comprehensive Income
99
Where would other comprehensive income be reported?
Stockholders equity section of balance sheet
100
Prior services cost not recognized in net periodic pension cost must be
Subtracted from the other comprehensive income amount
101
Low co paid $7,200 to renew insurance policy for three years on 3/1/5 the effective date of policy. At 3/31/5 Low’s unadjusted trial balance showed a balance of $300 for prepaid Insurance & $7,200 for insurance expense. What amounts should be reported for prepaid insurance & insurance expense in Low’s financial statements for the three months needed 3/31/5?
Prepaid: 7,000 (7200 x 35/36)
Insurance Expense: 500 (300 + 200)
102
Rice Co salaried employees are paid biweekly. Advances made to employees are paid back by payroll deductions. Information relating to salaries follows:
Year 1. Year2
Employees advances: 24,000. 36,000
Accr. Salaries Pay: 40,000. ?
Salaries Expense: 420,000
Salaries Paid (Gross) 390,000
What is the accrued salaries payable?
$70,000 (beg bal $40,000 + $420,000 - $390,000)
103
Year-end accrues: $500 advertising bill with $375 related to year 1, store lease, effective December 16, year 0, calls for fixed rent of $1,200 per month, payable one month from effective date and monthly thereafter. Also 5% of net sales over $300,000, net sales were $550,000.
What is the accrued liabilities balance at 12/31/1?
12,875
13,000
13,100
13,475
$13,475 (375 + 600 + 12,500)
1,200 x 1/2 = 600
550,000 - 300,000 = 250,000
250,000 x 5% = 12,500
104
Car Co reported accrued investment interest receivable of $38k and $46.5k at January 1 and December 31, respectively. During the year, cash collections from the investments included the following:
Capital gains distribution: $145,000
Interest: $152,000
What amount should Car report as interest revenue from investments?
$160,500
| Beg bal $38,000 + 160,500 - 152,000 = $46,500
105
$100k, 12% interest rate, borrowed 5 years ago: interest payable 3/31. & 9/30.
$75k, 10% interest rate, borrowed 2 years ago: interest payable 3/1, 7/1, 10/1, 1/1
$200k, no interest bearing note, borrowed 7/1 of current year.
What amount should be reported as interest payable in 12/31 balance?
$4,875
(100k x 12% x (3/12) = $3,000
($75k x 10% x (3/12) = $1,875
106
Income from Continuing operations 450,000
Loss from discontinued operations 76,000
Unrealized gain on trading securities 21,000
Unrealized loss on available for sale securities 28,000
Foreign currency translation gain 35,000
Comprehensive income based on the numbers above will be closest to:
1. 381,000
2. 443,000
3. 374,000
4. 457,000
1. 381,000
Comprehensive income is equal to net income (Which includes income from continuing operations and loss from discontinued operations) plus other comprehensive income (which includes unrealized loss unavailable for sale securities and foreign currency translation gain).
450,000 - 76,000 - 28,000 + 35,000 = 381,000
107
When it comes to discontinued operations remember that the difference between the carry-on value and the…… Evaluate must be considered when Recording loss and they discontinued operations
1. Carrying value
2. Present value
3. Fair value
4. Book value
3. Fair value
108
The abandonement of assess no longer being used is also a normal activity and is included in income from…… Operations
Continuing operations
109
PUFI =
Pension adjustments
Unrealized gains&losses on AFS & Cash flow hedge derivatives
Foreign currency translation Gains & losses
Instrument-specific credit risk
110
Kong purchased at three months US treasury bill. Counts policy is to treat as cash equivalents are highly liquid investment with an original immaturity of three months or less one purchased. How should this purchase be reported in Kongs statement of cash flows?
1. Not reported
2. As an inflow from investing activities
3. As an outflow from operating activities
4. As an outflow from financing activities
1. Not reported
(The US treasury bill is considered to be a cash equivalent item so purchasing the T-bill merrily changes the form of Cash Hill, it does not change the cash position of the entity. Dust, the purchase is not reported on the statement of cash flows. 
111
For statement of cash flows:
| Would depreciation be considered a source of cash flows?
No, it is merely an accounting adjustment
112
The inclusion of which of the following components differentiates from the form10K from the form 10 Q?
1. Management, discussion, analysis
2. Disclosures
3. Financial data
4. Audited financial statements
4. Audited financial statements
113
A financial analyst is calculating basic and diluted earnings per share. The average market price of his company stock price during the year is $15 per share. The company currently has 10,000 warrants outstanding with a strike price of $18 per share. These warrants will?
1. Not require an adjustment to diluted EPS because the warrants are out of the money
2. Require an adjustment to diluted EPS because the winds are out of the money
3. Not require an adjustment to the EPS because the warrants are in the money
4. Require an adjustment to download it EPS because the warrants are in the money
2. Not require an adjustment to diluted EPS because the warrants are out of the money
(Because the strike price is higher than the average market price it is out of the money and does not require a adjustment
114
Anytime a stock dividend or a stock split is issued, it is treated as if it happened at the………….. of year
Beginning of year
115
For external revenue to Pass the sufficiency test, all of the external revenue signals must equal…… Percent of external revenue for the company overall
1. 50%
2. 75%
3. 80%
4. 90%
2. 75%
