F2 M7 Special Purpose Frameworks

Question 1

What financial statements should be included in OCBOA financial statements?

Answer 1

OCBOA financial statements should include equivalents to the accrual basis balance sheet and income statement. A statement of cash flows is not required.

Question 2

What disclosures should be included in OCBOA financial statements?

Answer 2

OCBOA financial statement disclosures should be similar to GAAP financial statement disclosures.

Question 3

What differentiates OCBOA financial statements from accrual basis financial statements?

Answer 3

The financial statement titles

Question 4

What are the three most common special purpose frameworks?

Answer 4

Cash basis, modified cash basis, and income tax basis

Question 5

How is revenue recognized in the modified cash basis of accounting?

Answer 5

As cash is collected (same as cash basis)

Question 6

Name three common accruals used in the modified cash basis of accounting.

Answer 6

1. long-term liabilities
2. income tax
3. capitalization of inventory

Question 7

Does the modified cash basis of accounting adhere to the matching principle?

Answer 7

No

Matching revenues and expenses requires recognizing revenues and expenses on an accrual basis.

Question 8

When do income tax-basis financial statements recognize events that generate taxable income or incur deductible expenses?

Answer 8

When taxable income or deductible expenses are recognized on the entity’s tax return.

Question 9

Do income tax-basis financial statements include non-taxable revenues and non-deductible expenses?

Answer 9

Yes

Non-taxable income and non-deductible expenses are shown on the financial statement and included in the determination of income (and become M-1 adjustments to arrive at taxable income).

Question 10

In income-tax-basis financial statements, where should non-deductible expenses be reported?

Answer 10

In the expense category in the determination of income

They become M-1 adjustments to arrive at taxable income.

Question 11

What are the steps for converting cash-basis revenue to accrual-basis revenue?

Answer 11

<ol>
<li>Cash-basis revenue</li>
<li>+ Ending accounts receivable</li>
<li>- Beginning accounts receivable</li>
<li>- Ending deferred revenue</li>
<li>+ Beginning deferred revenue</li>
</ol>