FAR Flashcards
(1449 cards)
1
Q
If there is commercial substance to an exchange, the exchange is measured at:
A
Fair Value. The gain is equal to the old asset’s fair value and it’s book value. If the fair value was 30 and its book value is 25, the gain is 5.
2
Q
How does retail inventory method establish lower of cost or market valuation for ending inventory?
A
By excluding net markdowns from the cost to retail ratio.
3
Q
Can consolidated financial statements be prepared from a business combination that was accounted for using the acquisition method OR the pooling of interests method?
A
Yes to both. The pooling of interest method CANNOT be used anymore for business combinations, combinations that happened before that still need to be consolidated.
4
Q
Does a foreign sub using the local currency as its functional currency has their financials translated or remeasured?
A
Translated.
5
Q
Does a foreign sub using US dollars as its functional currency has their financials translated or remeasured?
A
Remeasured.
6
Q
Under translation, common stock is translated at the what exchange rate?
A
The historic exchange rate.
7
Q
500 shares of 6%, $100 par callable preferred stock are called at $101. The shares were issued at $103 per share. What is the journal entry to record the retirement?
A
DR preferred stock for 50,000DR PIC-preferred for 1,500CR PIC retirement of preferred for 1,000CR Cash for 50,500
8
Q
Working capital:
A
current assets - current liabilities
9
Q
Acid test:
A
(cash + net receivables)/current liabilities
10
Q
Acc Rec turnover:
A
Sales/ avg net receivables
11
Q
Inventory turnover:
A
COGS/ avg inventory
12
Q
Times interest earned:
A
EBIT/ interest expense
13
Q
Return on total assets:
A
(net income + after-tax interest expense)/ avg total assets
14
Q
Return on equity:
A
Net income / avg owners equity
15
Q
Dividend payout ratio
A
Common dividends / net income
16
Q
What are the 2 primary qualitative characteristics?
A
Relevance and Faithful representation
17
Q
2 components of relevance:
A
Predictive value and confirmatory value
18
Q
3 components of Faithful Representation
A
Completeness, neutrality, and free from material error
19
Q
What are the 4 enhancing characteristics?
A
Comparability, verifiability, timeliness, and understandability
20
Q
Times interest earned is:
A
income before interest and income tax over interest expense
21
Q
What is a central characteristic of a joint venture?
A
Shared control. None of the participating parties are likely to have unilateral control of the joint venture.
22
Q
What is the defensive-interval ratio?
A
The ratio of quick assets to daily operating expenditures. The ratio is showing the length of time in days that the firm can operate with its present liquid resources- so it’s a liquidity measure.
23
Q
Inventory turnover ratio:
A
COGS/ avg inventory for the period
24
Q
Where are G/L on remeasurment and translation booked?
A
Remeasurement is on the income statement, translation go in an equity account. Remeasurement is when the foreign sub’s currency is the US dollar. It’s translation if the sub’s currency is the local foreign currency.
25
Receivables turnover ratio:
Net sales / avg net accounts receivable
26
What statements are usually included in personal financial statements?
A statement of financial condition and a statement of changes in net worth.
27
If a donation is conditional, how should it be accounted for?
As a refundable advance.
28
For donation of specialized services to a nonprofit, at what value should they be recognized?
Fair value.
29
For a NP, are contributions spread over a few years restricted or non restricted?
The contribution in the current year is non restricted(unless it comes with an actual restriction), and the contributions for future years are recognized at present value and are RESTRICTED.
30
When are the payments for an "Annuity Due" made?
At the beginning of each period.
31
How is a lease payment calculated when the lease payments are due at the beginning of the period?
You divide the FAIR VALUE of the leased equipment by the ANNUITY DUE rate.
32
What is the journal entry at the inception of a capital lease and the payments are due at the beginning of each period?
DR: Leased asset for its fair value amountCR: Lease Liability for plug amountCR: Cash for the payment amount
33
How do you calculate the interest expense at the end of the year on a capital lease with payments at the beginning of the period? What is the journal entry?
You multiply the remaining lease liability amount by the interest capitilization rate.DR: Interest expenseCR: Lease liability
34
How does the LESSOR in a capital lease determine the amount of Lease Receivable?
Multiply the payment by the number of payments.
35
What is the journal entry by the LESSOR for a capital lease with payments at the beginning of each period?
DR: Lease receivableDR: Cash for the payment amountDR: COGS for the book value amountCR: Unearned interest for the lease rec amount MINUS the BVCR: Equipment for BV amountCR: Sales for the FV amount
36
Working capital formula
current assets - current liabilities
37
Acid test formula
(cash + net receivables) / current liabilities
38
Acc Rec turnover formula
Sales / avg net receivables
39
Inventory turnover
COGS / avg inventory
40
Avg collection period for acc receivable?
Net credit sales / avg net acc receivable.... then you divide 365 by that number
41
What financial statements are required for the Governmental funds?
1)Balance sheet and 2) Statement of revenues, expenditures, and changes in fund balance
42
What statements are required for the Proprietary funds?
1)Statement of Net Postition2)Statement of revenues, expenditures, and changes in net position3)Statement of cash flows
43
What statements are required for the fiduciary funds?
1)Statement of net position2)Statement of changes in fiduciary net positiion
44
Which fund type does the government-wide financials EXCLUDE that are included on the CAFR?
Fiduciary funds.
45
What are the 3 sections of the CAFR?
1) Introductory2) Financial3) Statistical
46
If an investment in 30% of another company is accounted for using the fair value method, what is recognized as net income from the investment?
Cash dividends received and increases in the fair value of the investment are recognized in net income from the investment. The portion of the company's net income is NOT recognized in net income from the investment.
47
A contest prize expense is the present value of the?
Total cost incurred. If the prize is an annual $50,000 payment for 20 years and the company takes out an annuity of $418,250 after making the initial $50,000 payment, the contest prize expense in the current year is $468,250.
48
The ending balance of the asset retirement obligation should be the:
Beginning balance + the DISCOUNTED cash flow estimate of the new asset + accretion expense - the amount paid during the year.
49
The debt service fund records cash transfers from the general fund as what, and cash payments as what?
Operating transfers and Expenditures.
50
During a period of inflation, would a perpetual inventory system result in the same dollar amount of ending inventory as a periodic inventory system under FIFO and LIFO?
Yes with FIFO, No with LIFO. The perpetual system would be calculating COGS based on the latest goods acquired prior to each sale versus all the latest goods acquired during the period under a periodic system.
51
Does a NOL carryforward directly reduce taxes or taxable income?
Taxable income. If the NOL is 40,000 and taxable income is 60,000, then it reduces taxable income down to 20,000, which is then multiplied by the tax rate.
52
During a business combination, can the acquisition date be before, on, or after the closing date?
It can be any of the 3.
53
For state or local governments, encumbrances outstanding at year end should be reported as:
Assigned or committed fund balance.
54
What does income and dividends from a sub do to the investment account under the equity method?
Income increases the investment, and dividends reduce the investment account.
55
What is the focus of proprietary funds?
Income determination. Proprietary funds use accrual accounting and they are similar in reporting to private businesses.
56
What is the entry in the General Fund to record equipment purchased with a capital lease?
DR: ExpendituresCR: Other financing sourcesThe general fund doesn't record fixed assets. The general fund fixed asset account group would record the acquired equipment.
57
What are funds classified as that can only be used for a specific purpose because of restraints imposed by formal action of the government's highest level of decision making authority?
According to GASB Statement No. 54, amounts that can only be used for a specific purpose, because of constraints imposed by formal action of the government's highest level of decision-making authority, should be reported as Committed Fund Balance. The Restricted Fund Balance classification should be used when constraints are placed on the use of resources are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation.
58
What is the process for recording collection of accounts that had been written off?
First you debit accounts receivable and credit allowance for doubtful accounts to restore the amounts that had been written off. Then you debit cash for the amount collected, and you credit accounts receivable to take them off the books since they've been collected.
59
In the general fund, what 3 accounts are affected when property taxes are levied?
Revenue control is credited, property taxes receivable is credited, and allowance for uncollectible taxes is credited. Bad Debt Expense is ONLY an accrual accounting concept, and IS NOT used in modified accrual accounting.
60
When the direct method for LCM is used, what is the journal entry to write down inventory?
DR: Cost of goods soldCR: Inventory
61
When using the allowance method under LCM, what is the JE to write down inventory?
DR: Holding lossCR: Allowance for LCM
62
Under the fair value option, what is recognized as income from the investment company?
Cash dividends and the increase in fair value of the investment are both recognized in net income of the investor.
63
How does the installment sale method work?
Each payment consists of return of cost and gross profit. You calculate the gross profit percentage by taking the sales price and subtracting the carrying value, and then dividing that number by the sales price. Then you multiply the principal portion of the payment by the gross profit percentage, and then add in the interest payment amount, and that is the amount of revenue to recognize. The return of cost portion of the payment is NOT recognized as revenue.
64
Gains or losses on retirement of debt used to automatically be classified as extraordinary gains or losses, but now they are:
immediately recognized in full in income from continuing operations.
65
What rate is used to calculate the amount of dividends from a foreign currency?
The spot rate on the date of declaration is used regardless of translation or remeasurement.
66
How is the refinancing of a liability due within a year treated under GAAP and IFRS?
Under GAAP, if the refinancing happens before the ISSUANCE date of the financial statements, then it can be considered long term again. Under IFRS, the refinancing has to happen before the BALANCE SHEET DATE for it to be considered a long term liability again.
67
How is interest expense and dividends paid classified as far as cash flow under IFRS?
Interest expense and dividends paid can be classified as EITHER operating or financing activities.
68
How is interest revenue and dividend revenue classified under IFRS for cash flows?
They can both be either cash flows from operating OR investing activities.
69
If the percentage of completion method cannot be applied, how are profits recognized on long-term contracts under GAAP and IFRS?
Under GAAP the profits will be recognized once the job is completed- which is the completed contract method. Under IFRS, all profits will be recognized when all the costs have been recovered- the cost recovery method.
70
If an IFRS company decides to revalue its equipment each year, what effect would a drop of $2000 in value above regular depreciation be?
It would be a 2000 expense for that year, recognized in income. BUT.... an increase in the value would go under other comprehensive income.
71
What is the main capital lease criteria under IFRS?
That the lease life is a "major portion" of the equipment life. Thus, a lease of 60% of the equipment's life would qualify as a capital lease.
72
If both parties consider a lease to be a capital lease, what interest rate do they both use under IFRS?
They both use the implicit rate built into the contract.
73
Under IFRS, a contingent loss must be recognized if it is...
More likely than not. Even just 51% vs 49% meets this criteria.
74
How is a prior service cost due to a change in the projected benefit obligation due to a contractual adjustment treated under IFRS and GAAP?
Under IFRS it is expensed immediately to the extent that benefits have vested. Under GAAP it is recorded to accumulated other comprehensive income and then amortized to expense over the years the employees are expected to work.
75
A bond with face value of 100k is sold at 110k due to a convert option into common stock. How is this recorded under GAAP and IFRS?
Under IFRS 100k would be the liability and the 10k is recorded as equity. Under GAAP the full 110k is debt until it is actually converted.
76
How is an impairment loss on equipment determined under IFRS?
A loss must be recognized if the book value exceeds the higher of the PRESENT VALUE of the future cash flows and the fair value less necessary costs to sell the equipment.
77
GAAP vs IFRS research and development costs?
Under GAAP all research and development costs are expensed as incurred. Under IFRS, research costs are expensed, but development costs are capitalized if the company believes that future economic benefits are probable and that the product being developed is commercially and technically feasible.
78
How are legal costs to successfully defend a patent treated under GAAP and IFRS?
Under GAAP the costs are added to the cost of the patent. Under IFRS the costs are expensed UNLESS the cost increase the future benefits to be derived from the asset.
79
How are biological assets valued under IFRS?
At fair value less costs to sell.
80
How is the reversal of an impairment loss recorded under IFRS?
The recovery of an impairment in value must be recognized if the circumstances that caused the impairment are reversed.
81
A company has two checking accounts: one with 100k and one with negative 10k. How are they reported under GAAP and IFRS?
Under GAAP the negative is reported as a liability, so the cash line will show 100k. Under IFRS they are netted so the cash line would show 90k.
82
In a period of rising prices, a company that wants to maximize profits will use what inventory method?
FIFO. In rising prices using FIFO, the earliest goods will be sold first which makes COGS lower and NI higher.
83
Formula for ending DV LIFO balance:
Beginning DV LIFO + (increase at base-year dollars)(price index)300,000 + (400,000 - 300,000)(1.1) = 410,000
84
What is the ceiling and floor of LCM?
Ceiling is Net Realizable Value and Floor is NRV less a normal profit margin.
85
Explain LCM
If replacement cost is within the range of the ceiling and floor, then market is replacement cost.If the RC is greater than the ceiling, then market is the ceiling amount.If RC is less than the floor, then market is limited to the floor amount.
86
How are trademarks classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, amortization depends on whether they are definite or indefinite life, as does impairment.
87
How are customer lists classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, they are amortized, impairment is decided by the recoverable cost test.
88
How is an initial franchise fee classified, capitalized, amortized, and impaired?
Can be definite or indefinite life, only capitalize expenses to external parties, amortization depends on definite or indefinite, as does impairment.
89
When a liability has a carrying value less than fair value, does an unrealized gain or loss exist?
An unrealized loss exists. It would be a debit to Impairment loss, and a credit to the liability to increase it to its fair value.
90
In financial statements prepared on the income-tax basis, how should nondeductible expenses such as meals be reported?
Included in the expense category in determination of income. These are still business expenses and need to be included to calculate income on the financial statements.
91
For grants, what is a prime factor in determining eligibility for accrual?
The expenditure of resources (spending the money)
92
What would an entity most likely do to hedge an investment in a foreign operation?
Borrow from another foreign entity with the same foreign currency as the operation being hedged. Since borrowing is a liability, any changes in the foreign currency would offset the investment.
93
If intercompany fixed asset balances are NOT eliminated, will consolidated income or loss be overstated.
Both can be overstated.
94
When there is NOT commercial substance to an exchange, gains are recognized:
In proportion to the amount of cash received.
95
Under the cost method, is the Sub's income or dividends recognized by the parent?
Dividends are recognized as income to the parent.
96
When transferring a receivable, the loss is the difference between the carrying value of the portion of the asset transferred and the cash received for the:
Transferred portion. Usually the total carrying value will be allocated between the portion of the asset surrendered and portion retained, based on relative fair values.
97
For estimating income taxes for personal financial statements, assets and liabilities measured at their tax bases should be compared to assets and liabilities measured at their:
Estimated current value and estimated current amount.
98
Before assets are distributed as a property dividend, the unrecognized holding gain or loss is:
Recognized. If a firm pays a property dividend of a stock it bought for 20,000 when its market value is 25,000, there is a debit to retained earnings for 25,000 and a gain on disposal of 5,000 is recognized.
99
Bond prices and interest rates are inversely related. When interest rates increase,
the market value of bonds decrease, because there are now better opportunities on the market.
100
Are fund-based statements or government wide statements included on a CAFR?
They both are. The gov-wide statements focus on the financial results and health of the gov while the fund based statements report how various revenues are derived and spent.
101
What are the 3 columns on the gov-wide statements?
Gov activities, business type activities, and total gov activities
102
Which funds are not included in the gov-wide financial statements?
Fiduciary funds.
103
How is an internal service fund reported on the gov wide statements if another gov agency is its main beneficiary?
As a gov fund instead of a business type fund.
104
What accounting basis is used to report the gov wide financial statements?
Full accrual accounting.
105
What statements are required for the gov wide statements?
The statement of net position and the statement of activities
106
How would 5 year bonds appear in the fund based statements and the gov wide statements?
They wont show up in the fund based statements because they aren't a claim against current assets. They will show up as a long term liability in the gov wide statements.
107
Does a firm selling put options on its own stock affect liabilities or equity?
It increases liability by the fair value of the options.The liability will be extinguished when the option is exercised or when it expires.
108
When computing avg shares outstanding during the year, how are stock dividends treated?
Stock dividends are treated as outstanding for the entire year. It is when new stock is issued that it is multiplied by the portion of the year remaining.
109
Is additional compensation to former shareholders after a business combination considered additional costs of the business combination?
No.
110
Can a forecasted transaction be hedged?
Yes- in a cash flow hedge since it is forecasted and therefore subject to changes in related cash flow.
111
Is a finder's fee for a lease expensed or allocated over the lease term?
The finder's fee benefits the entire lease term and is therefore expensed evenly over the lease term.
112
What exchange rate is used to TRANSLATE a foreign sub's income statement?
The average exchange rate.
113
If a company changes from FIFO to weighted avg inventory during 2005, how is the cumulative effect of the change measured?
The change is measured as of the beginning of the year of change.
114
Are the direct costs or the general expenses in a business combination deducted from the corp's net income from the combination?
Both are expensed in the period incurred.
115
Does the recording of an asset retirement obligation for a natural resources development site increase the liability or the depletion base?
Both. It is a credit to a liability, and a debit to the natural resources account, which is the depletion base.
116
Under international accounting, the vested portion of prior service cost is immediately recognized in:
Pension expense. The unvested portion is gradually recognized under delayed recognition in pension expense.
117
If financial statements prepared on another basis besides GAAP are not appropriately titled, the auditor must:
Disclose any reservations in an explanatory paragraph and qualify the opinion for the inappropriate title of the statements.
118
Under IFRS for SMEs, which inventory valuation method is NOT allowed?
LIFO.
119
Personal financial statements should report assets and liabilities at:
Estimated current values(fair values) at the date of the financial statements.
120
What financial statements are included in a set of personal financial statements?
A statement of financial condition (balance sheet) is always included, and a statement of changes in net worth may be included, but is NOT required.
121
In a personal statement of financial condition, a life insurance policy should be reported at cash surrender value less any:
Loans outstanding against the policy.
122
In a cash flow hedge, the item being hedged is measured using:
The present value of expected cash inflows or outflows. The item being hedged could be associated with an asset, a liability, or a forecasted transaction.
123
What is the purpose of reporting comprehensive income?
To summarize all changes in equity from nonowner sources.
124
What are the "other comprehensive income" items? (4)
Unrealized G/L on AFS securities, unrealized G/L on pension costs, foreign currency translation adjustments, and unrealized G/L on certain derivative transactions.
125
Who pays the shipping with FOB shipping point?
The title passes to buyer at the shipping point, so the buyer is responsible for paying the shipping charges.
126
Who pays the shipping with FOB destination?
The seller pays shipping charges to get the goods to the buyer. The title passes to the buyer once they reach their destination.
127
Under IFRS, how should a company report their investments in bonds when it is a part of their business model to hold such investments solely to receive the cash and interest from principal repayment?
At amortized cost.
128
Can impairment losses on intangibles be reversed?
No. Losses on plant assets held for disposal can be reversed to the extent of previous losses but intangible impairment losses cannot be reversed.
129
Which governmental fund type can report a positive amount in the Unassigned fund balance?
The general fund. Other governmental funds cannot have a positive balance in their unassigned fund.
130
In a sale-leaseback, how is the gain on sale recognized?
It is amortized over the lease term. A 50,000 unearned gain on a sale-leaseback over 10 years will result in 5,000 being recognized in each of the 10 years.
131
If a city imposes a 2% tax on hotel charges which will be used to promote tourism in the city, what type of nonexchange transaction is this?
It is a Derived Tax Revenue.
132
How are the different governmental funds reported on the fund-based balance sheet?
The general fund has its own column, then the major funds each have their own column, and then the rest of the individual funds that are not considered major are grouped into a single column.
133
A fund balance is the amount of assets greater than liabilities. What are the different classes of the fund balance?
Unrestricted- which means it's none of the below and is available for future use.Nonspendable and restricted. This means the money is restricted as to use by an outside party.Committed means the money is committed to a specific use by the highest level of decision making.Assigned means the money has been assigned by officials that are NOT the highest level of authority.
134
If a city plans on collecting $10k a month from property taxes for the next 18 months, how much revenue should be reported in year one?
$140,000. 10k for each month of the year plus Jan and Feb of the following year.
135
How is $10k of bonds reported on the gov wide and fund-based statements?
They are a regular liability on the gov wide statements and "other financing source" on the fund based statements.
136
How is a bond due in 3 months reported on the gov wide & fund-based statements?
It is 'bonds payable' on both.
137
If a city takes on a project but accepts no liability for the work being done, what type of fund is used.
An agency fund.
138
How does a transfer from the gen fund to capital projects get reported?
The general fund shows a "other financing use", the capital projects fund shows a "other financing source", and both balances will show up in the total gov funds column. This are no eliminations of "intercompany transactions".
139
What is the difference between the purchases method and consumption method for the government fund accounting?
Under purchases, the whole purchase is immediately recognized as an expenditure. Under the consumption method, the supplies are moved to expenditures as they are used.
140
Is a computer or office supplies reported as an asset on the fund-based governmental statements?
Office supplies are an asset- capitalized assets such as a computer are not.
141
how is a capital lease recorded in the gov fund-based statements?
The PV of the payments is recorded as an expenditure, and an increase in 'other financing sources'.
142
Do infrastructure assets get depreciated?
They do unless the modified approach is adopted. Then you have to set a minimum level of acceptable condition and maintain documentation to show that the asset is kept at that level.
143
For general purpose gov statements, is MD&A required?
Yes, it must be included but it is separate from both the gov wide & fund-based statements.
144
What are the 3 requirements to be a special purpose gov?
1) separately elected governing body. 2) It is legally independent so that it can sue, be sued, and buy and sell property in its own name. 3) Be fiscally independent of all other governments.
145
On the statement of activities, what is included in program revenues?
Any revenue generated by the activity, as well as any grants related specifically to that activity. This is then netted against the expense.
146
In troubled debt restructuring, what does the creditor do, and how do they recognize interest on the restructured loan?
They reduce the amount owed to the present value of future cash flows on the ORIGINAL interest rate. Then, they recognize interest by using the original interest rate times the BV of the new receivable. The debtor recognizes a loss as the difference between the current BV of its receivable and the present value of the future cash flows.
147
In troubled debt restructuring, what does the debtor do?
They compute the total cash flows now owed. So you take the future interest payments and add them to the new principal amount.
148
If you have an investment that isn't enough to be equity method, then you invest more later that does take it to equity method, how is that treated?
The equity method is retroactively applied to the first amount. So if you owned 10% the whole year then bought another 20% at year end, you would recognize 10% of the company's earnings under the equity method.
149
How is a capitalized interest problem done? (average accumulated expenditures)
First calculate the average accumulated expenditures. That is taking the amounts spent through the year each multiplied by the portion of the year remaining.Next you calculate avoidable interest. Avoidable interest is the interest on the construction specific loan(s), and then the amount of other debt above the amount of the construction loans.Then calculate actual interest. The lesser of the avoidable interest and the actual interest is the amount that can be capitalized.
150
When converting financial statements using translation, paid in capital accounts are translated using the ______ rate?
Historic rate in effect when the account arose or the investment was made.
151
If a firm buys land to build a warehouse on, is the interest from the land loan and the warehouse construction capitalized?
Only interest on the warehouse construction can be capitalized.
152
If a firm is going to discontinue a segment early next year, but there is a loss in that segment ending this year, how is that loss reported?
As an operating loss of the discontinued segment. This section is below income from continuing ops but above extraordinary items.
153
What is an accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Aggregate worldwide market value of voting and nonvoting stock of $75 million or more, but less than 700 million. They have 75 days to file 10-K.
154
What is a large accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Market cap of 700 million or more. They have 60 days to file their 10-K.
155
A foreign currency transaction is settled in ______ but measured and recorded on the US entity's books in ________.
Non dollarsDollars.
156
Where are foreign currency exchange gains or losses on acc rec reported?
In current income as an item of income from continuing operations.
157
What disclosure is required relating to sinking funds and long term debt?
FAS 47 requires the disclosure of the aggregate amount of maturities and sinking fund requirements for all long-term debt for each of the five years following the balance sheet date. The detail of each year for both is shown.
158
When does a liquidating dividend occur?
When the investee pays more income than was earned during the period the investor owned the shares of the investee.
159
Describe the cost method:
The cost method is for an investment that DOES NOT give the investor significant influence. The dividends are recognized in income of the investor. The investment remains on the balance sheet at cost unless there is a permanent decline in value, or there is a liquidating dividend.
160
Under IFRS, are gains and losses on the changes in fair value of equity investments reported in the income statement or in other comprehensive income?
It can be either. If the investment is held for trading purposes, then the changes in fair value are reported in profit/loss.If it's NOT held for trading, the investor may elect to report changes in fair value through other comp. income.
161
What type of investments can be transferred between categories under IFRS?
Only debt. Equity securities are not allowed to be transferred between categories under IFRS. When investments are transferred, prior period statements must be restated for comparative purposes.
162
Under IFRS, if debt securities are held NOT as part of the business plan, what are they measured at?
Fair value.
163
Under IFRS, if debt securities are held as part of the business plan, what are they measured at?
Amortized cost.
164
Under the equity method for GAAP, what effect does the sub's income and dividends have on the investor's investment account?
The investor's share of income increases the investment account, and dividends decrease the investment account. The investor's share of income from the investee is also recognized as income for the investor.
165
Which form of business combination results in a NEW legal entity?
Consolidation. In consolidation, 2 or more existing entities are combined into one new legal entity.In a merger, one pre-existing entity is combined into another pre-existing entity. In an acquisition, one entity acquires a controlling interest and both continue to exist as separate legal entities.
166
Accretion expense is essentially growth in the:
Asset retirement obligation.
167
Purchases of treasury stock do not affect retained earnings under the:
Cost method.
168
Return on equity is considered what kind of ratio?
A profitability ratio
169
What is the defensive-interval ratio and what type of ratio is it?
It is the ratio of quick assets to daily operating expenditures. It is a liquidity ratio.
170
Does the cost method or the fair value method require a reconciliation of the changes in carrying amounts between the beginning and end of a period?
They both require said reconciliation.
171
If a decline in inventory value is not considered temporary, the decline is recognized in the quarter in which the decline occurs. Later recoveries are:
Recognized as gains to the extent of the previous losses only.
172
A discount on a bond is essentially:
Extra interest expense.
173
Which regulation governs the form and content of financial statement disclosures?
Regulation S-X.
174
The notional amount in a derivative refers to:
The specified unit of measure. If you have an option to buy 100 shares, the notional amount is the 100 shares.
175
Where does a first time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?
In retained earnings.
176
What are the 4 components of the IASB monitoring board? (1 on top, 3 on bottom)
The IFRS foundation is on top, and below it is the IFRS advisory council, the IASB, and the IFRS interpretation committee.
177
What does the IFRS foundation do and how long is their term?
They appoint members of the IASB, the IFRS Advisory Council, and the IFRS interpretations committee. The trustees serve 3 year terms
178
What are the objectives of the IFRS foundation? (4)
To develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards. To promote us and rigorous application of IFRS. To consider the needs of a range of size and type of entities. To promote and facilitate adoption of IFRS through convergence.
179
What does the IASB do?
They establish IFRS reporting standards, but they do NOT have enforcement power. Enforcement is the responsibility of the securities regulators in the national jurisdictions.
180
What is the IFRS advisory council and who appoints them?
They advise the IASB on priorities and the views of interested organizations. Members are appointed by the IFRS foundation
181
What does the IFRS interpretations committee do and who appoints the members?
They are similar to the FASB's emerging issues task force: they identify issues in the context of IFRS, their interpretations are reviewed by the IASB. The members are appointed by the IFRS foundation.
182
What is an SME?
Small and medium-sized entities. IFRS has one single standard for companies that are not publicly traded. Revisions to SME standards only happen once every 3 years.
183
What are the 2 assumptions in the IASB framework?
That the accrual method is used, and that the entity is a going concern
184
What statements are required for a first-time adopter of IFRS?
Upon adoption, the first set of statements must have 3 statements of financial position, 2 statements of comprehensive income, two separate income statements, two statements of cash flows, and two statements of changes in equity. Basically they need 3 balance sheets and 2 of everything else.
185
What is the TRANSITION date of a company to IFRS?
The opening date of the balance sheet for the earliest comparative financial statements. If the first IFRS reporting date is as of Dec 31 Year 2, then the transition date will be Jan 1 year 1.
186
Upon first time adoption of IFRS, an entity can elect to use fair value as deemed cost for:
Any individual item of property, plant, and equipment.
187
What is the first reporting date when switching to IFRS?
The year end date for the period which IFRS is first applied.
188
What are the major characteristics of IFRS for SMEs?
Disclosures are simplified. LIFO is prohibited. Goodwill and indefinite life intangible assets are amortized over a period NOT exceeding 10 years. Depreciation is based on a component approach. Simplified temporary difference approach to income tax accounting. Reversal of impairment charges is allowed in some circumstances. No disclosures for earnings per share and segment disclosures.
189
Can revenue and AR from a sales commitment be recognized?
Yes. IFRS defines revenue from a balance sheet point of view and is based on the inflow of economic resources.
190
What is the difference in transfer of receivables under GAAP and IFRS?
GAAP focuses on whether control has shifted from the transferor to the transferee. IFRS focuses on whether the transferor has transferred the rights to receive cash flows from the receivable and whether or not substantially all the risk and rewards of ownership were transferred.
191
What is the general rule of IFRS when it comes to the value of assets?
That assets aren't carried at more than their recoverable amount. If the asset's carrying value is greater than the amount that could have been recovered through the asset's use or by selling the asset, then it is impaired.
192
What is the definition of RECOVERABLE AMOUNT under IFRS?
The higher of the fair value less cost to sell or the value in use. Fair value less cost to sell is the amount obtainable from the sale in an arms-length transaction. The value in use is the discounted present value of the future cash flows expected from the asset.
193
What is a CGU under IFRS?
A cash generating unit is the smallest group of assets that can be identified that generates cash flows independently of the cash flows from other assets.
194
Does IFRS permit recovery of an impairment loss?
Yes.
195
Whats the difference in GAAP and IFRS of the reversal of an inventory write-down?
Under IFRS a reversal is allowed. Under GAAP it is NOT allowed.
196
How often is useful life and depreciation method reviewed under IFRS?
Annually. Under GAAP it's only when events or circumstances change.
197
Component depreciation GAAP vs. IFRS
Under IFRS, when an item of PPE comprises of individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately.
198
PPE revaluation GAAP vs IFRS
PPE can be remeasured to fair value if fair value can be reliably measured.
199
Where does an increase in PPE's fair value ABOVE its original cost go under IFRS?
It goes into a revaluation surplus account which is in OCI. If a truck had gone down in value 10k then back up 15k in the next year, the first 10k would be in the profit and loss statements. The extra 5k would go into the revaluation surplus account in OCI.
200
What investment classifications exist under IFRS?
Held to maturity which is debt measured at amortized cost, and Fair value, all equity is at fair value.
201
Difference of HTM classification in GAAP vs IFRS:
Under GAAP the test is whether the firm has the positive ability and intent to hold to maturity. Under IFRS it's the business model test, which evaluates if holding the debt for the cash flow is part of the business model.
202
Transfer from HTM differences GAAP vs IFRS
In GAAP you transfer from HTM when you no longer have the positive ability and intent to hold to maturity. Under IFRS you transfer from HTM only when the business model objective changes
203
OCI for investments differences in GAAP vs IFRS:
In GAAP gains/losses are recorded in OCI ONLY for AFS securities. In IFRS the entity may ELECT to records gains/losses to OCI at the initial measurement, but the election cannot be undone.
204
IFRS investment property
ljwoj
205
What is a small stock dividend?
Below 20 to 25 % of the previously outstanding shares.
206
What effect do stock dividends have on retained earnings?
If it is a SMALL dividend they reduce RE by the amount of shares issued X current stock price.If they are a LARGE dividend (bigger than 25%), they are recorded at par value.
207
JE for treasury stock purchase under cost method?
DR: Treasury stockCR: CashContributed capital is NOT affected. If treasury shares are resold at less than cost, then retained earnings is reduced by the difference in cost and reissue price.
208
If there is commercial substance to an exchange, the exchange is measured at:
Fair Value. The gain is equal to the old asset's fair value and it's book value. If the fair value was 30 and its book value is 25, the gain is 5.
209
How does retail inventory method establish lower of cost or market valuation for ending inventory?
By excluding net markdowns from the cost to retail ratio.
210
Can consolidated financial statements be prepared from a business combination that was accounted for using the acquisition method OR the pooling of interests method?
Yes to both. The pooling of interest method CANNOT be used anymore for business combinations, combinations that happened before that still need to be consolidated.
211
Does a foreign sub using the local currency as its functional currency has their financials translated or remeasured?
Translated.
212
Does a foreign sub using US dollars as its functional currency has their financials translated or remeasured?
Remeasured.
213
Under translation, common stock is translated at the what exchange rate?
The historic exchange rate.
214
500 shares of 6%, $100 par callable preferred stock are called at $101. The shares were issued at $103 per share. What is the journal entry to record the retirement?
DR preferred stock for 50,000DR PIC-preferred for 1,500CR PIC retirement of preferred for 1,000CR Cash for 50,500
215
Working capital:
current assets - current liabilities
216
Acid test:
(cash + net receivables)/current liabilities
217
Acc Rec turnover:
Sales/ avg net receivables
218
Inventory turnover:
COGS/ avg inventory
219
Times interest earned:
EBIT/ interest expense
220
Return on total assets:
(net income + after-tax interest expense)/ avg total assets
221
Return on equity:
Net income / avg owners equity
222
Dividend payout ratio
Common dividends / net income
223
What are the 2 primary qualitative characteristics?
Relevance and Faithful representation
224
2 components of relevance:
Predictive value and confirmatory value
225
3 components of Faithful Representation
Completeness, neutrality, and free from material error
226
What are the 4 enhancing characteristics?
Comparability, verifiability, timeliness, and understandability
227
Times interest earned is:
income before interest and income tax over interest expense
228
What is a central characteristic of a joint venture?
Shared control. None of the participating parties are likely to have unilateral control of the joint venture.
229
What is the defensive-interval ratio?
The ratio of quick assets to daily operating expenditures. The ratio is showing the length of time in days that the firm can operate with its present liquid resources- so it's a liquidity measure.
230
Inventory turnover ratio:
COGS/ avg inventory for the period
231
Where are G/L on remeasurment and translation booked?
Remeasurement is on the income statement, translation go in an equity account. Remeasurement is when the foreign sub's currency is the US dollar. It's translation if the sub's currency is the local foreign currency.
232
Receivables turnover ratio:
Net sales / avg net accounts receivable
233
What statements are usually included in personal financial statements?
A statement of financial condition and a statement of changes in net worth.
234
If a donation is conditional, how should it be accounted for?
As a refundable advance.
235
For donation of specialized services to a nonprofit, at what value should they be recognized?
Fair value.
236
For a NP, are contributions spread over a few years restricted or non restricted?
The contribution in the current year is non restricted(unless it comes with an actual restriction), and the contributions for future years are recognized at present value and are RESTRICTED.
237
When are the payments for an "Annuity Due" made?
At the beginning of each period.
238
How is a lease payment calculated when the lease payments are due at the beginning of the period?
You divide the FAIR VALUE of the leased equipment by the ANNUITY DUE rate.
239
What is the journal entry at the inception of a capital lease and the payments are due at the beginning of each period?
DR: Leased asset for its fair value amountCR: Lease Liability for plug amountCR: Cash for the payment amount
240
How do you calculate the interest expense at the end of the year on a capital lease with payments at the beginning of the period? What is the journal entry?
You multiply the remaining lease liability amount by the interest capitilization rate.DR: Interest expenseCR: Lease liability
241
How does the LESSOR in a capital lease determine the amount of Lease Receivable?
Multiply the payment by the number of payments.
242
What is the journal entry by the LESSOR for a capital lease with payments at the beginning of each period?
DR: Lease receivableDR: Cash for the payment amountDR: COGS for the book value amountCR: Unearned interest for the lease rec amount MINUS the BVCR: Equipment for BV amountCR: Sales for the FV amount
243
Working capital formula
current assets - current liabilities
244
Acid test formula
(cash + net receivables) / current liabilities
245
Acc Rec turnover formula
Sales / avg net receivables
246
Inventory turnover
COGS / avg inventory
247
Avg collection period for acc receivable?
Net credit sales / avg net acc receivable.... then you divide 365 by that number
248
What financial statements are required for the Governmental funds?
1)Balance sheet and 2) Statement of revenues, expenditures, and changes in fund balance
249
What statements are required for the Proprietary funds?
1)Statement of Net Postition2)Statement of revenues, expenditures, and changes in net position3)Statement of cash flows
250
What statements are required for the fiduciary funds?
1)Statement of net position2)Statement of changes in fiduciary net positiion
251
Which fund type does the government-wide financials EXCLUDE that are included on the CAFR?
Fiduciary funds.
252
What are the 3 sections of the CAFR?
1) Introductory2) Financial3) Statistical
253
If an investment in 30% of another company is accounted for using the fair value method, what is recognized as net income from the investment?
Cash dividends received and increases in the fair value of the investment are recognized in net income from the investment. The portion of the company's net income is NOT recognized in net income from the investment.
254
A contest prize expense is the present value of the?
Total cost incurred. If the prize is an annual $50,000 payment for 20 years and the company takes out an annuity of $418,250 after making the initial $50,000 payment, the contest prize expense in the current year is $468,250.
255
The ending balance of the asset retirement obligation should be the:
Beginning balance + the DISCOUNTED cash flow estimate of the new asset + accretion expense - the amount paid during the year.
256
The debt service fund records cash transfers from the general fund as what, and cash payments as what?
Operating transfers and Expenditures.
257
During a period of inflation, would a perpetual inventory system result in the same dollar amount of ending inventory as a periodic inventory system under FIFO and LIFO?
Yes with FIFO, No with LIFO. The perpetual system would be calculating COGS based on the latest goods acquired prior to each sale versus all the latest goods acquired during the period under a periodic system.
258
Does a NOL carryforward directly reduce taxes or taxable income?
Taxable income. If the NOL is 40,000 and taxable income is 60,000, then it reduces taxable income down to 20,000, which is then multiplied by the tax rate.
259
During a business combination, can the acquisition date be before, on, or after the closing date?
It can be any of the 3.
260
For state or local governments, encumbrances outstanding at year end should be reported as:
Assigned or committed fund balance.
261
What does income and dividends from a sub do to the investment account under the equity method?
Income increases the investment, and dividends reduce the investment account.
262
What is the focus of proprietary funds?
Income determination. Proprietary funds use accrual accounting and they are similar in reporting to private businesses.
263
What is the entry in the General Fund to record equipment purchased with a capital lease?
DR: ExpendituresCR: Other financing sourcesThe general fund doesn't record fixed assets. The general fund fixed asset account group would record the acquired equipment.
264
What are funds classified as that can only be used for a specific purpose because of restraints imposed by formal action of the government's highest level of decision making authority?
According to GASB Statement No. 54, amounts that can only be used for a specific purpose, because of constraints imposed by formal action of the government's highest level of decision-making authority, should be reported as Committed Fund Balance. The Restricted Fund Balance classification should be used when constraints are placed on the use of resources are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation.
265
What is the process for recording collection of accounts that had been written off?
First you debit accounts receivable and credit allowance for doubtful accounts to restore the amounts that had been written off. Then you debit cash for the amount collected, and you credit accounts receivable to take them off the books since they've been collected.
266
In the general fund, what 3 accounts are affected when property taxes are levied?
Revenue control is credited, property taxes receivable is credited, and allowance for uncollectible taxes is credited. Bad Debt Expense is ONLY an accrual accounting concept, and IS NOT used in modified accrual accounting.
267
When the direct method for LCM is used, what is the journal entry to write down inventory?
DR: Cost of goods soldCR: Inventory
268
When using the allowance method under LCM, what is the JE to write down inventory?
DR: Holding lossCR: Allowance for LCM
269
Under the fair value option, what is recognized as income from the investment company?
Cash dividends and the increase in fair value of the investment are both recognized in net income of the investor.
270
How does the installment sale method work?
Each payment consists of return of cost and gross profit. You calculate the gross profit percentage by taking the sales price and subtracting the carrying value, and then dividing that number by the sales price. Then you multiply the principal portion of the payment by the gross profit percentage, and then add in the interest payment amount, and that is the amount of revenue to recognize. The return of cost portion of the payment is NOT recognized as revenue.
271
Gains or losses on retirement of debt used to automatically be classified as extraordinary gains or losses, but now they are:
immediately recognized in full in income from continuing operations.
272
What rate is used to calculate the amount of dividends from a foreign currency?
The spot rate on the date of declaration is used regardless of translation or remeasurement.
273
How is the refinancing of a liability due within a year treated under GAAP and IFRS?
Under GAAP, if the refinancing happens before the ISSUANCE date of the financial statements, then it can be considered long term again. Under IFRS, the refinancing has to happen before the BALANCE SHEET DATE for it to be considered a long term liability again.
274
How is interest expense and dividends paid classified as far as cash flow under IFRS?
Interest expense and dividends paid can be classified as EITHER operating or financing activities.
275
How is interest revenue and dividend revenue classified under IFRS for cash flows?
They can both be either cash flows from operating OR investing activities.
276
If the percentage of completion method cannot be applied, how are profits recognized on long-term contracts under GAAP and IFRS?
Under GAAP the profits will be recognized once the job is completed- which is the completed contract method. Under IFRS, all profits will be recognized when all the costs have been recovered- the cost recovery method.
277
If an IFRS company decides to revalue its equipment each year, what effect would a drop of $2000 in value above regular depreciation be?
It would be a 2000 expense for that year, recognized in income. BUT.... an increase in the value would go under other comprehensive income.
278
What is the main capital lease criteria under IFRS?
That the lease life is a "major portion" of the equipment life. Thus, a lease of 60% of the equipment's life would qualify as a capital lease.
279
If both parties consider a lease to be a capital lease, what interest rate do they both use under IFRS?
They both use the implicit rate built into the contract.
280
Under IFRS, a contingent loss must be recognized if it is...
More likely than not. Even just 51% vs 49% meets this criteria.
281
How is a prior service cost due to a change in the projected benefit obligation due to a contractual adjustment treated under IFRS and GAAP?
Under IFRS it is expensed immediately to the extent that benefits have vested. Under GAAP it is recorded to accumulated other comprehensive income and then amortized to expense over the years the employees are expected to work.
282
A bond with face value of 100k is sold at 110k due to a convert option into common stock. How is this recorded under GAAP and IFRS?
Under IFRS 100k would be the liability and the 10k is recorded as equity. Under GAAP the full 110k is debt until it is actually converted.
283
How is an impairment loss on equipment determined under IFRS?
A loss must be recognized if the book value exceeds the higher of the PRESENT VALUE of the future cash flows and the fair value less necessary costs to sell the equipment.
284
GAAP vs IFRS research and development costs?
Under GAAP all research and development costs are expensed as incurred. Under IFRS, research costs are expensed, but development costs are capitalized if the company believes that future economic benefits are probable and that the product being developed is commercially and technically feasible.
285
How are legal costs to successfully defend a patent treated under GAAP and IFRS?
Under GAAP the costs are added to the cost of the patent. Under IFRS the costs are expensed UNLESS the cost increase the future benefits to be derived from the asset.
286
How are biological assets valued under IFRS?
At fair value less costs to sell.
287
How is the reversal of an impairment loss recorded under IFRS?
The recovery of an impairment in value must be recognized if the circumstances that caused the impairment are reversed.
288
A company has two checking accounts: one with 100k and one with negative 10k. How are they reported under GAAP and IFRS?
Under GAAP the negative is reported as a liability, so the cash line will show 100k. Under IFRS they are netted so the cash line would show 90k.
289
In a period of rising prices, a company that wants to maximize profits will use what inventory method?
FIFO. In rising prices using FIFO, the earliest goods will be sold first which makes COGS lower and NI higher.
290
Formula for ending DV LIFO balance:
Beginning DV LIFO + (increase at base-year dollars)(price index)300,000 + (400,000 - 300,000)(1.1) = 410,000
291
What is the ceiling and floor of LCM?
Ceiling is Net Realizable Value and Floor is NRV less a normal profit margin.
292
Explain LCM
If replacement cost is within the range of the ceiling and floor, then market is replacement cost.If the RC is greater than the ceiling, then market is the ceiling amount.If RC is less than the floor, then market is limited to the floor amount.
293
How are trademarks classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, amortization depends on whether they are definite or indefinite life, as does impairment.
294
How are customer lists classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, they are amortized, impairment is decided by the recoverable cost test.
295
How is an initial franchise fee classified, capitalized, amortized, and impaired?
Can be definite or indefinite life, only capitalize expenses to external parties, amortization depends on definite or indefinite, as does impairment.
296
When a liability has a carrying value less than fair value, does an unrealized gain or loss exist?
An unrealized loss exists. It would be a debit to Impairment loss, and a credit to the liability to increase it to its fair value.
297
In financial statements prepared on the income-tax basis, how should nondeductible expenses such as meals be reported?
Included in the expense category in determination of income. These are still business expenses and need to be included to calculate income on the financial statements.
298
For grants, what is a prime factor in determining eligibility for accrual?
The expenditure of resources (spending the money)
299
What would an entity most likely do to hedge an investment in a foreign operation?
Borrow from another foreign entity with the same foreign currency as the operation being hedged. Since borrowing is a liability, any changes in the foreign currency would offset the investment.
300
If intercompany fixed asset balances are NOT eliminated, will consolidated income or loss be overstated.
Both can be overstated.
301
When there is NOT commercial substance to an exchange, gains are recognized:
In proportion to the amount of cash received.
302
Under the cost method, is the Sub's income or dividends recognized by the parent?
Dividends are recognized as income to the parent.
303
When transferring a receivable, the loss is the difference between the carrying value of the portion of the asset transferred and the cash received for the:
Transferred portion. Usually the total carrying value will be allocated between the portion of the asset surrendered and portion retained, based on relative fair values.
304
For estimating income taxes for personal financial statements, assets and liabilities measured at their tax bases should be compared to assets and liabilities measured at their:
Estimated current value and estimated current amount.
305
Before assets are distributed as a property dividend, the unrecognized holding gain or loss is:
Recognized. If a firm pays a property dividend of a stock it bought for 20,000 when its market value is 25,000, there is a debit to retained earnings for 25,000 and a gain on disposal of 5,000 is recognized.
306
Bond prices and interest rates are inversely related. When interest rates increase,
the market value of bonds decrease, because there are now better opportunities on the market.
307
Are fund-based statements or government wide statements included on a CAFR?
They both are. The gov-wide statements focus on the financial results and health of the gov while the fund based statements report how various revenues are derived and spent.
308
What are the 3 columns on the gov-wide statements?
Gov activities, business type activities, and total gov activities
309
Which funds are not included in the gov-wide financial statements?
Fiduciary funds.
310
How is an internal service fund reported on the gov wide statements if another gov agency is its main beneficiary?
As a gov fund instead of a business type fund.
311
What accounting basis is used to report the gov wide financial statements?
Full accrual accounting.
312
What statements are required for the gov wide statements?
The statement of net position and the statement of activities
313
How would 5 year bonds appear in the fund based statements and the gov wide statements?
They wont show up in the fund based statements because they aren't a claim against current assets. They will show up as a long term liability in the gov wide statements.
314
Does a firm selling put options on its own stock affect liabilities or equity?
It increases liability by the fair value of the options.The liability will be extinguished when the option is exercised or when it expires.
315
When computing avg shares outstanding during the year, how are stock dividends treated?
Stock dividends are treated as outstanding for the entire year. It is when new stock is issued that it is multiplied by the portion of the year remaining.
316
Is additional compensation to former shareholders after a business combination considered additional costs of the business combination?
No.
317
Can a forecasted transaction be hedged?
Yes- in a cash flow hedge since it is forecasted and therefore subject to changes in related cash flow.
318
Is a finder's fee for a lease expensed or allocated over the lease term?
The finder's fee benefits the entire lease term and is therefore expensed evenly over the lease term.
319
What exchange rate is used to TRANSLATE a foreign sub's income statement?
The average exchange rate.
320
If a company changes from FIFO to weighted avg inventory during 2005, how is the cumulative effect of the change measured?
The change is measured as of the beginning of the year of change.
321
Are the direct costs or the general expenses in a business combination deducted from the corp's net income from the combination?
Both are expensed in the period incurred.
322
Does the recording of an asset retirement obligation for a natural resources development site increase the liability or the depletion base?
Both. It is a credit to a liability, and a debit to the natural resources account, which is the depletion base.
323
Under international accounting, the vested portion of prior service cost is immediately recognized in:
Pension expense. The unvested portion is gradually recognized under delayed recognition in pension expense.
324
If financial statements prepared on another basis besides GAAP are not appropriately titled, the auditor must:
Disclose any reservations in an explanatory paragraph and qualify the opinion for the inappropriate title of the statements.
325
Under IFRS for SMEs, which inventory valuation method is NOT allowed?
LIFO.
326
Personal financial statements should report assets and liabilities at:
Estimated current values(fair values) at the date of the financial statements.
327
What financial statements are included in a set of personal financial statements?
A statement of financial condition (balance sheet) is always included, and a statement of changes in net worth may be included, but is NOT required.
328
In a personal statement of financial condition, a life insurance policy should be reported at cash surrender value less any:
Loans outstanding against the policy.
329
In a cash flow hedge, the item being hedged is measured using:
The present value of expected cash inflows or outflows. The item being hedged could be associated with an asset, a liability, or a forecasted transaction.
330
What is the purpose of reporting comprehensive income?
To summarize all changes in equity from nonowner sources.
331
What are the "other comprehensive income" items? (4)
Unrealized G/L on AFS securities, unrealized G/L on pension costs, foreign currency translation adjustments, and unrealized G/L on certain derivative transactions.
332
Who pays the shipping with FOB shipping point?
The title passes to buyer at the shipping point, so the buyer is responsible for paying the shipping charges.
333
Who pays the shipping with FOB destination?
The seller pays shipping charges to get the goods to the buyer. The title passes to the buyer once they reach their destination.
334
Under IFRS, how should a company report their investments in bonds when it is a part of their business model to hold such investments solely to receive the cash and interest from principal repayment?
At amortized cost.
335
Can impairment losses on intangibles be reversed?
No. Losses on plant assets held for disposal can be reversed to the extent of previous losses but intangible impairment losses cannot be reversed.
336
Which governmental fund type can report a positive amount in the Unassigned fund balance?
The general fund. Other governmental funds cannot have a positive balance in their unassigned fund.
337
In a sale-leaseback, how is the gain on sale recognized?
It is amortized over the lease term. A 50,000 unearned gain on a sale-leaseback over 10 years will result in 5,000 being recognized in each of the 10 years.
338
If a city imposes a 2% tax on hotel charges which will be used to promote tourism in the city, what type of nonexchange transaction is this?
It is a Derived Tax Revenue.
339
How are the different governmental funds reported on the fund-based balance sheet?
The general fund has its own column, then the major funds each have their own column, and then the rest of the individual funds that are not considered major are grouped into a single column.
340
A fund balance is the amount of assets greater than liabilities. What are the different classes of the fund balance?
Unrestricted- which means it's none of the below and is available for future use.Nonspendable and restricted. This means the money is restricted as to use by an outside party.Committed means the money is committed to a specific use by the highest level of decision making.Assigned means the money has been assigned by officials that are NOT the highest level of authority.
341
If a city plans on collecting $10k a month from property taxes for the next 18 months, how much revenue should be reported in year one?
$140,000. 10k for each month of the year plus Jan and Feb of the following year.
342
How is $10k of bonds reported on the gov wide and fund-based statements?
They are a regular liability on the gov wide statements and "other financing source" on the fund based statements.
343
How is a bond due in 3 months reported on the gov wide & fund-based statements?
It is 'bonds payable' on both.
344
If a city takes on a project but accepts no liability for the work being done, what type of fund is used.
An agency fund.
345
How does a transfer from the gen fund to capital projects get reported?
The general fund shows a "other financing use", the capital projects fund shows a "other financing source", and both balances will show up in the total gov funds column. This are no eliminations of "intercompany transactions".
346
What is the difference between the purchases method and consumption method for the government fund accounting?
Under purchases, the whole purchase is immediately recognized as an expenditure. Under the consumption method, the supplies are moved to expenditures as they are used.
347
Is a computer or office supplies reported as an asset on the fund-based governmental statements?
Office supplies are an asset- capitalized assets such as a computer are not.
348
how is a capital lease recorded in the gov fund-based statements?
The PV of the payments is recorded as an expenditure, and an increase in 'other financing sources'.
349
Do infrastructure assets get depreciated?
They do unless the modified approach is adopted. Then you have to set a minimum level of acceptable condition and maintain documentation to show that the asset is kept at that level.
350
For general purpose gov statements, is MD&A required?
Yes, it must be included but it is separate from both the gov wide & fund-based statements.
351
What are the 3 requirements to be a special purpose gov?
1) separately elected governing body. 2) It is legally independent so that it can sue, be sued, and buy and sell property in its own name. 3) Be fiscally independent of all other governments.
352
On the statement of activities, what is included in program revenues?
Any revenue generated by the activity, as well as any grants related specifically to that activity. This is then netted against the expense.
353
In troubled debt restructuring, what does the creditor do, and how do they recognize interest on the restructured loan?
They reduce the amount owed to the present value of future cash flows on the ORIGINAL interest rate. Then, they recognize interest by using the original interest rate times the BV of the new receivable. The debtor recognizes a loss as the difference between the current BV of its receivable and the present value of the future cash flows.
354
In troubled debt restructuring, what does the debtor do?
They compute the total cash flows now owed. So you take the future interest payments and add them to the new principal amount.
355
If you have an investment that isn't enough to be equity method, then you invest more later that does take it to equity method, how is that treated?
The equity method is retroactively applied to the first amount. So if you owned 10% the whole year then bought another 20% at year end, you would recognize 10% of the company's earnings under the equity method.
356
How is a capitalized interest problem done? (average accumulated expenditures)
First calculate the average accumulated expenditures. That is taking the amounts spent through the year each multiplied by the portion of the year remaining.Next you calculate avoidable interest. Avoidable interest is the interest on the construction specific loan(s), and then the amount of other debt above the amount of the construction loans.Then calculate actual interest. The lesser of the avoidable interest and the actual interest is the amount that can be capitalized.
357
When converting financial statements using translation, paid in capital accounts are translated using the ______ rate?
Historic rate in effect when the account arose or the investment was made.
358
If a firm buys land to build a warehouse on, is the interest from the land loan and the warehouse construction capitalized?
Only interest on the warehouse construction can be capitalized.
359
If a firm is going to discontinue a segment early next year, but there is a loss in that segment ending this year, how is that loss reported?
As an operating loss of the discontinued segment. This section is below income from continuing ops but above extraordinary items.
360
What is an accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Aggregate worldwide market value of voting and nonvoting stock of $75 million or more, but less than 700 million. They have 75 days to file 10-K.
361
What is a large accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Market cap of 700 million or more. They have 60 days to file their 10-K.
362
A foreign currency transaction is settled in ______ but measured and recorded on the US entity's books in ________.
Non dollarsDollars.
363
Where are foreign currency exchange gains or losses on acc rec reported?
In current income as an item of income from continuing operations.
364
What disclosure is required relating to sinking funds and long term debt?
FAS 47 requires the disclosure of the aggregate amount of maturities and sinking fund requirements for all long-term debt for each of the five years following the balance sheet date. The detail of each year for both is shown.
365
When does a liquidating dividend occur?
When the investee pays more income than was earned during the period the investor owned the shares of the investee.
366
Describe the cost method:
The cost method is for an investment that DOES NOT give the investor significant influence. The dividends are recognized in income of the investor. The investment remains on the balance sheet at cost unless there is a permanent decline in value, or there is a liquidating dividend.
367
Under IFRS, are gains and losses on the changes in fair value of equity investments reported in the income statement or in other comprehensive income?
It can be either. If the investment is held for trading purposes, then the changes in fair value are reported in profit/loss.If it's NOT held for trading, the investor may elect to report changes in fair value through other comp. income.
368
What type of investments can be transferred between categories under IFRS?
Only debt. Equity securities are not allowed to be transferred between categories under IFRS. When investments are transferred, prior period statements must be restated for comparative purposes.
369
Under IFRS, if debt securities are held NOT as part of the business plan, what are they measured at?
Fair value.
370
Under IFRS, if debt securities are held as part of the business plan, what are they measured at?
Amortized cost.
371
Under the equity method for GAAP, what effect does the sub's income and dividends have on the investor's investment account?
The investor's share of income increases the investment account, and dividends decrease the investment account. The investor's share of income from the investee is also recognized as income for the investor.
372
Which form of business combination results in a NEW legal entity?
Consolidation. In consolidation, 2 or more existing entities are combined into one new legal entity.In a merger, one pre-existing entity is combined into another pre-existing entity. In an acquisition, one entity acquires a controlling interest and both continue to exist as separate legal entities.
373
Accretion expense is essentially growth in the:
Asset retirement obligation.
374
Purchases of treasury stock do not affect retained earnings under the:
Cost method.
375
Return on equity is considered what kind of ratio?
A profitability ratio
376
What is the defensive-interval ratio and what type of ratio is it?
It is the ratio of quick assets to daily operating expenditures. It is a liquidity ratio.
377
Does the cost method or the fair value method require a reconciliation of the changes in carrying amounts between the beginning and end of a period?
They both require said reconciliation.
378
If a decline in inventory value is not considered temporary, the decline is recognized in the quarter in which the decline occurs. Later recoveries are:
Recognized as gains to the extent of the previous losses only.
379
A discount on a bond is essentially:
Extra interest expense.
380
Which regulation governs the form and content of financial statement disclosures?
Regulation S-X.
381
The notional amount in a derivative refers to:
The specified unit of measure. If you have an option to buy 100 shares, the notional amount is the 100 shares.
382
Where does a first time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?
In retained earnings.
383
What are the 4 components of the IASB monitoring board? (1 on top, 3 on bottom)
The IFRS foundation is on top, and below it is the IFRS advisory council, the IASB, and the IFRS interpretation committee.
384
What does the IFRS foundation do and how long is their term?
They appoint members of the IASB, the IFRS Advisory Council, and the IFRS interpretations committee. The trustees serve 3 year terms
385
What are the objectives of the IFRS foundation? (4)
To develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards. To promote us and rigorous application of IFRS. To consider the needs of a range of size and type of entities. To promote and facilitate adoption of IFRS through convergence.
386
What does the IASB do?
They establish IFRS reporting standards, but they do NOT have enforcement power. Enforcement is the responsibility of the securities regulators in the national jurisdictions.
387
What is the IFRS advisory council and who appoints them?
They advise the IASB on priorities and the views of interested organizations. Members are appointed by the IFRS foundation
388
What does the IFRS interpretations committee do and who appoints the members?
They are similar to the FASB's emerging issues task force: they identify issues in the context of IFRS, their interpretations are reviewed by the IASB. The members are appointed by the IFRS foundation.
389
What is an SME?
Small and medium-sized entities. IFRS has one single standard for companies that are not publicly traded. Revisions to SME standards only happen once every 3 years.
390
What are the 2 assumptions in the IASB framework?
That the accrual method is used, and that the entity is a going concern
391
What statements are required for a first-time adopter of IFRS?
Upon adoption, the first set of statements must have 3 statements of financial position, 2 statements of comprehensive income, two separate income statements, two statements of cash flows, and two statements of changes in equity. Basically they need 3 balance sheets and 2 of everything else.
392
What is the TRANSITION date of a company to IFRS?
The opening date of the balance sheet for the earliest comparative financial statements. If the first IFRS reporting date is as of Dec 31 Year 2, then the transition date will be Jan 1 year 1.
393
Upon first time adoption of IFRS, an entity can elect to use fair value as deemed cost for:
Any individual item of property, plant, and equipment.
394
What is the first reporting date when switching to IFRS?
The year end date for the period which IFRS is first applied.
395
What are the major characteristics of IFRS for SMEs?
Disclosures are simplified. LIFO is prohibited. Goodwill and indefinite life intangible assets are amortized over a period NOT exceeding 10 years. Depreciation is based on a component approach. Simplified temporary difference approach to income tax accounting. Reversal of impairment charges is allowed in some circumstances. No disclosures for earnings per share and segment disclosures.
396
Can revenue and AR from a sales commitment be recognized?
Yes. IFRS defines revenue from a balance sheet point of view and is based on the inflow of economic resources.
397
What is the difference in transfer of receivables under GAAP and IFRS?
GAAP focuses on whether control has shifted from the transferor to the transferee. IFRS focuses on whether the transferor has transferred the rights to receive cash flows from the receivable and whether or not substantially all the risk and rewards of ownership were transferred.
398
What is the general rule of IFRS when it comes to the value of assets?
That assets aren't carried at more than their recoverable amount. If the asset's carrying value is greater than the amount that could have been recovered through the asset's use or by selling the asset, then it is impaired.
399
What is the definition of RECOVERABLE AMOUNT under IFRS?
The higher of the fair value less cost to sell or the value in use. Fair value less cost to sell is the amount obtainable from the sale in an arms-length transaction. The value in use is the discounted present value of the future cash flows expected from the asset.
400
What is a CGU under IFRS?
A cash generating unit is the smallest group of assets that can be identified that generates cash flows independently of the cash flows from other assets.
401
Does IFRS permit recovery of an impairment loss?
Yes.
402
Whats the difference in GAAP and IFRS of the reversal of an inventory write-down?
Under IFRS a reversal is allowed. Under GAAP it is NOT allowed.
403
How often is useful life and depreciation method reviewed under IFRS?
Annually. Under GAAP it's only when events or circumstances change.
404
Component depreciation GAAP vs. IFRS
Under IFRS, when an item of PPE comprises of individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately.
405
PPE revaluation GAAP vs IFRS
PPE can be remeasured to fair value if fair value can be reliably measured.
406
Where does an increase in PPE's fair value ABOVE its original cost go under IFRS?
It goes into a revaluation surplus account which is in OCI. If a truck had gone down in value 10k then back up 15k in the next year, the first 10k would be in the profit and loss statements. The extra 5k would go into the revaluation surplus account in OCI.
407
What investment classifications exist under IFRS?
Held to maturity which is debt measured at amortized cost, and Fair value, all equity is at fair value.
408
Difference of HTM classification in GAAP vs IFRS:
Under GAAP the test is whether the firm has the positive ability and intent to hold to maturity. Under IFRS it's the business model test, which evaluates if holding the debt for the cash flow is part of the business model.
409
Transfer from HTM differences GAAP vs IFRS
In GAAP you transfer from HTM when you no longer have the positive ability and intent to hold to maturity. Under IFRS you transfer from HTM only when the business model objective changes
410
OCI for investments differences in GAAP vs IFRS:
In GAAP gains/losses are recorded in OCI ONLY for AFS securities. In IFRS the entity may ELECT to records gains/losses to OCI at the initial measurement, but the election cannot be undone.
411
IFRS investment property
ljwoj
412
What is a small stock dividend?
Below 20 to 25 % of the previously outstanding shares.
413
What effect do stock dividends have on retained earnings?
If it is a SMALL dividend they reduce RE by the amount of shares issued X current stock price.If they are a LARGE dividend (bigger than 25%), they are recorded at par value.
414
JE for treasury stock purchase under cost method?
DR: Treasury stockCR: CashContributed capital is NOT affected. If treasury shares are resold at less than cost, then retained earnings is reduced by the difference in cost and reissue price.
415
If there is commercial substance to an exchange, the exchange is measured at:
Fair Value. The gain is equal to the old asset's fair value and it's book value. If the fair value was 30 and its book value is 25, the gain is 5.
416
How does retail inventory method establish lower of cost or market valuation for ending inventory?
By excluding net markdowns from the cost to retail ratio.
417
Can consolidated financial statements be prepared from a business combination that was accounted for using the acquisition method OR the pooling of interests method?
Yes to both. The pooling of interest method CANNOT be used anymore for business combinations, combinations that happened before that still need to be consolidated.
418
Does a foreign sub using the local currency as its functional currency has their financials translated or remeasured?
Translated.
419
Does a foreign sub using US dollars as its functional currency has their financials translated or remeasured?
Remeasured.
420
Under translation, common stock is translated at the what exchange rate?
The historic exchange rate.
421
500 shares of 6%, $100 par callable preferred stock are called at $101. The shares were issued at $103 per share. What is the journal entry to record the retirement?
DR preferred stock for 50,000DR PIC-preferred for 1,500CR PIC retirement of preferred for 1,000CR Cash for 50,500
422
Working capital:
current assets - current liabilities
423
Acid test:
(cash + net receivables)/current liabilities
424
Acc Rec turnover:
Sales/ avg net receivables
425
Inventory turnover:
COGS/ avg inventory
426
Times interest earned:
EBIT/ interest expense
427
Return on total assets:
(net income + after-tax interest expense)/ avg total assets
428
Return on equity:
Net income / avg owners equity
429
Dividend payout ratio
Common dividends / net income
430
What are the 2 primary qualitative characteristics?
Relevance and Faithful representation
431
2 components of relevance:
Predictive value and confirmatory value
432
3 components of Faithful Representation
Completeness, neutrality, and free from material error
433
What are the 4 enhancing characteristics?
Comparability, verifiability, timeliness, and understandability
434
Times interest earned is:
income before interest and income tax over interest expense
435
What is a central characteristic of a joint venture?
Shared control. None of the participating parties are likely to have unilateral control of the joint venture.
436
What is the defensive-interval ratio?
The ratio of quick assets to daily operating expenditures. The ratio is showing the length of time in days that the firm can operate with its present liquid resources- so it's a liquidity measure.
437
Inventory turnover ratio:
COGS/ avg inventory for the period
438
Where are G/L on remeasurment and translation booked?
Remeasurement is on the income statement, translation go in an equity account. Remeasurement is when the foreign sub's currency is the US dollar. It's translation if the sub's currency is the local foreign currency.
439
Receivables turnover ratio:
Net sales / avg net accounts receivable
440
What statements are usually included in personal financial statements?
A statement of financial condition and a statement of changes in net worth.
441
If a donation is conditional, how should it be accounted for?
As a refundable advance.
442
For donation of specialized services to a nonprofit, at what value should they be recognized?
Fair value.
443
For a NP, are contributions spread over a few years restricted or non restricted?
The contribution in the current year is non restricted(unless it comes with an actual restriction), and the contributions for future years are recognized at present value and are RESTRICTED.
444
When are the payments for an "Annuity Due" made?
At the beginning of each period.
445
How is a lease payment calculated when the lease payments are due at the beginning of the period?
You divide the FAIR VALUE of the leased equipment by the ANNUITY DUE rate.
446
What is the journal entry at the inception of a capital lease and the payments are due at the beginning of each period?
DR: Leased asset for its fair value amountCR: Lease Liability for plug amountCR: Cash for the payment amount
447
How do you calculate the interest expense at the end of the year on a capital lease with payments at the beginning of the period? What is the journal entry?
You multiply the remaining lease liability amount by the interest capitilization rate.DR: Interest expenseCR: Lease liability
448
How does the LESSOR in a capital lease determine the amount of Lease Receivable?
Multiply the payment by the number of payments.
449
What is the journal entry by the LESSOR for a capital lease with payments at the beginning of each period?
DR: Lease receivableDR: Cash for the payment amountDR: COGS for the book value amountCR: Unearned interest for the lease rec amount MINUS the BVCR: Equipment for BV amountCR: Sales for the FV amount
450
Working capital formula
current assets - current liabilities
451
Acid test formula
(cash + net receivables) / current liabilities
452
Acc Rec turnover formula
Sales / avg net receivables
453
Inventory turnover
COGS / avg inventory
454
Avg collection period for acc receivable?
Net credit sales / avg net acc receivable.... then you divide 365 by that number
455
What financial statements are required for the Governmental funds?
1)Balance sheet and 2) Statement of revenues, expenditures, and changes in fund balance
456
What statements are required for the Proprietary funds?
1)Statement of Net Postition2)Statement of revenues, expenditures, and changes in net position3)Statement of cash flows
457
What statements are required for the fiduciary funds?
1)Statement of net position2)Statement of changes in fiduciary net positiion
458
Which fund type does the government-wide financials EXCLUDE that are included on the CAFR?
Fiduciary funds.
459
What are the 3 sections of the CAFR?
1) Introductory2) Financial3) Statistical
460
If an investment in 30% of another company is accounted for using the fair value method, what is recognized as net income from the investment?
Cash dividends received and increases in the fair value of the investment are recognized in net income from the investment. The portion of the company's net income is NOT recognized in net income from the investment.
461
A contest prize expense is the present value of the?
Total cost incurred. If the prize is an annual $50,000 payment for 20 years and the company takes out an annuity of $418,250 after making the initial $50,000 payment, the contest prize expense in the current year is $468,250.
462
The ending balance of the asset retirement obligation should be the:
Beginning balance + the DISCOUNTED cash flow estimate of the new asset + accretion expense - the amount paid during the year.
463
The debt service fund records cash transfers from the general fund as what, and cash payments as what?
Operating transfers and Expenditures.
464
During a period of inflation, would a perpetual inventory system result in the same dollar amount of ending inventory as a periodic inventory system under FIFO and LIFO?
Yes with FIFO, No with LIFO. The perpetual system would be calculating COGS based on the latest goods acquired prior to each sale versus all the latest goods acquired during the period under a periodic system.
465
Does a NOL carryforward directly reduce taxes or taxable income?
Taxable income. If the NOL is 40,000 and taxable income is 60,000, then it reduces taxable income down to 20,000, which is then multiplied by the tax rate.
466
During a business combination, can the acquisition date be before, on, or after the closing date?
It can be any of the 3.
467
For state or local governments, encumbrances outstanding at year end should be reported as:
Assigned or committed fund balance.
468
What does income and dividends from a sub do to the investment account under the equity method?
Income increases the investment, and dividends reduce the investment account.
469
What is the focus of proprietary funds?
Income determination. Proprietary funds use accrual accounting and they are similar in reporting to private businesses.
470
What is the entry in the General Fund to record equipment purchased with a capital lease?
DR: ExpendituresCR: Other financing sourcesThe general fund doesn't record fixed assets. The general fund fixed asset account group would record the acquired equipment.
471
What are funds classified as that can only be used for a specific purpose because of restraints imposed by formal action of the government's highest level of decision making authority?
According to GASB Statement No. 54, amounts that can only be used for a specific purpose, because of constraints imposed by formal action of the government's highest level of decision-making authority, should be reported as Committed Fund Balance. The Restricted Fund Balance classification should be used when constraints are placed on the use of resources are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation.
472
What is the process for recording collection of accounts that had been written off?
First you debit accounts receivable and credit allowance for doubtful accounts to restore the amounts that had been written off. Then you debit cash for the amount collected, and you credit accounts receivable to take them off the books since they've been collected.
473
In the general fund, what 3 accounts are affected when property taxes are levied?
Revenue control is credited, property taxes receivable is credited, and allowance for uncollectible taxes is credited. Bad Debt Expense is ONLY an accrual accounting concept, and IS NOT used in modified accrual accounting.
474
When the direct method for LCM is used, what is the journal entry to write down inventory?
DR: Cost of goods soldCR: Inventory
475
When using the allowance method under LCM, what is the JE to write down inventory?
DR: Holding lossCR: Allowance for LCM
476
Under the fair value option, what is recognized as income from the investment company?
Cash dividends and the increase in fair value of the investment are both recognized in net income of the investor.
477
How does the installment sale method work?
Each payment consists of return of cost and gross profit. You calculate the gross profit percentage by taking the sales price and subtracting the carrying value, and then dividing that number by the sales price. Then you multiply the principal portion of the payment by the gross profit percentage, and then add in the interest payment amount, and that is the amount of revenue to recognize. The return of cost portion of the payment is NOT recognized as revenue.
478
Gains or losses on retirement of debt used to automatically be classified as extraordinary gains or losses, but now they are:
immediately recognized in full in income from continuing operations.
479
What rate is used to calculate the amount of dividends from a foreign currency?
The spot rate on the date of declaration is used regardless of translation or remeasurement.
480
How is the refinancing of a liability due within a year treated under GAAP and IFRS?
Under GAAP, if the refinancing happens before the ISSUANCE date of the financial statements, then it can be considered long term again. Under IFRS, the refinancing has to happen before the BALANCE SHEET DATE for it to be considered a long term liability again.
481
How is interest expense and dividends paid classified as far as cash flow under IFRS?
Interest expense and dividends paid can be classified as EITHER operating or financing activities.
482
How is interest revenue and dividend revenue classified under IFRS for cash flows?
They can both be either cash flows from operating OR investing activities.
483
If the percentage of completion method cannot be applied, how are profits recognized on long-term contracts under GAAP and IFRS?
Under GAAP the profits will be recognized once the job is completed- which is the completed contract method. Under IFRS, all profits will be recognized when all the costs have been recovered- the cost recovery method.
484
If an IFRS company decides to revalue its equipment each year, what effect would a drop of $2000 in value above regular depreciation be?
It would be a 2000 expense for that year, recognized in income. BUT.... an increase in the value would go under other comprehensive income.
485
What is the main capital lease criteria under IFRS?
That the lease life is a "major portion" of the equipment life. Thus, a lease of 60% of the equipment's life would qualify as a capital lease.
486
If both parties consider a lease to be a capital lease, what interest rate do they both use under IFRS?
They both use the implicit rate built into the contract.
487
Under IFRS, a contingent loss must be recognized if it is...
More likely than not. Even just 51% vs 49% meets this criteria.
488
How is a prior service cost due to a change in the projected benefit obligation due to a contractual adjustment treated under IFRS and GAAP?
Under IFRS it is expensed immediately to the extent that benefits have vested. Under GAAP it is recorded to accumulated other comprehensive income and then amortized to expense over the years the employees are expected to work.
489
A bond with face value of 100k is sold at 110k due to a convert option into common stock. How is this recorded under GAAP and IFRS?
Under IFRS 100k would be the liability and the 10k is recorded as equity. Under GAAP the full 110k is debt until it is actually converted.
490
How is an impairment loss on equipment determined under IFRS?
A loss must be recognized if the book value exceeds the higher of the PRESENT VALUE of the future cash flows and the fair value less necessary costs to sell the equipment.
491
GAAP vs IFRS research and development costs?
Under GAAP all research and development costs are expensed as incurred. Under IFRS, research costs are expensed, but development costs are capitalized if the company believes that future economic benefits are probable and that the product being developed is commercially and technically feasible.
492
How are legal costs to successfully defend a patent treated under GAAP and IFRS?
Under GAAP the costs are added to the cost of the patent. Under IFRS the costs are expensed UNLESS the cost increase the future benefits to be derived from the asset.
493
How are biological assets valued under IFRS?
At fair value less costs to sell.
494
How is the reversal of an impairment loss recorded under IFRS?
The recovery of an impairment in value must be recognized if the circumstances that caused the impairment are reversed.
495
A company has two checking accounts: one with 100k and one with negative 10k. How are they reported under GAAP and IFRS?
Under GAAP the negative is reported as a liability, so the cash line will show 100k. Under IFRS they are netted so the cash line would show 90k.
496
In a period of rising prices, a company that wants to maximize profits will use what inventory method?
FIFO. In rising prices using FIFO, the earliest goods will be sold first which makes COGS lower and NI higher.
497
Formula for ending DV LIFO balance:
Beginning DV LIFO + (increase at base-year dollars)(price index)300,000 + (400,000 - 300,000)(1.1) = 410,000
498
What is the ceiling and floor of LCM?
Ceiling is Net Realizable Value and Floor is NRV less a normal profit margin.
499
Explain LCM
If replacement cost is within the range of the ceiling and floor, then market is replacement cost.If the RC is greater than the ceiling, then market is the ceiling amount.If RC is less than the floor, then market is limited to the floor amount.
500
How are trademarks classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, amortization depends on whether they are definite or indefinite life, as does impairment.
501
How are customer lists classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, they are amortized, impairment is decided by the recoverable cost test.
502
How is an initial franchise fee classified, capitalized, amortized, and impaired?
Can be definite or indefinite life, only capitalize expenses to external parties, amortization depends on definite or indefinite, as does impairment.
503
When a liability has a carrying value less than fair value, does an unrealized gain or loss exist?
An unrealized loss exists. It would be a debit to Impairment loss, and a credit to the liability to increase it to its fair value.
504
In financial statements prepared on the income-tax basis, how should nondeductible expenses such as meals be reported?
Included in the expense category in determination of income. These are still business expenses and need to be included to calculate income on the financial statements.
505
For grants, what is a prime factor in determining eligibility for accrual?
The expenditure of resources (spending the money)
506
What would an entity most likely do to hedge an investment in a foreign operation?
Borrow from another foreign entity with the same foreign currency as the operation being hedged. Since borrowing is a liability, any changes in the foreign currency would offset the investment.
507
If intercompany fixed asset balances are NOT eliminated, will consolidated income or loss be overstated.
Both can be overstated.
508
When there is NOT commercial substance to an exchange, gains are recognized:
In proportion to the amount of cash received.
509
Under the cost method, is the Sub's income or dividends recognized by the parent?
Dividends are recognized as income to the parent.
510
When transferring a receivable, the loss is the difference between the carrying value of the portion of the asset transferred and the cash received for the:
Transferred portion. Usually the total carrying value will be allocated between the portion of the asset surrendered and portion retained, based on relative fair values.
511
For estimating income taxes for personal financial statements, assets and liabilities measured at their tax bases should be compared to assets and liabilities measured at their:
Estimated current value and estimated current amount.
512
Before assets are distributed as a property dividend, the unrecognized holding gain or loss is:
Recognized. If a firm pays a property dividend of a stock it bought for 20,000 when its market value is 25,000, there is a debit to retained earnings for 25,000 and a gain on disposal of 5,000 is recognized.
513
Bond prices and interest rates are inversely related. When interest rates increase,
the market value of bonds decrease, because there are now better opportunities on the market.
514
Are fund-based statements or government wide statements included on a CAFR?
They both are. The gov-wide statements focus on the financial results and health of the gov while the fund based statements report how various revenues are derived and spent.
515
What are the 3 columns on the gov-wide statements?
Gov activities, business type activities, and total gov activities
516
Which funds are not included in the gov-wide financial statements?
Fiduciary funds.
517
How is an internal service fund reported on the gov wide statements if another gov agency is its main beneficiary?
As a gov fund instead of a business type fund.
518
What accounting basis is used to report the gov wide financial statements?
Full accrual accounting.
519
What statements are required for the gov wide statements?
The statement of net position and the statement of activities
520
How would 5 year bonds appear in the fund based statements and the gov wide statements?
They wont show up in the fund based statements because they aren't a claim against current assets. They will show up as a long term liability in the gov wide statements.
521
Does a firm selling put options on its own stock affect liabilities or equity?
It increases liability by the fair value of the options.The liability will be extinguished when the option is exercised or when it expires.
522
When computing avg shares outstanding during the year, how are stock dividends treated?
Stock dividends are treated as outstanding for the entire year. It is when new stock is issued that it is multiplied by the portion of the year remaining.
523
Is additional compensation to former shareholders after a business combination considered additional costs of the business combination?
No.
524
Can a forecasted transaction be hedged?
Yes- in a cash flow hedge since it is forecasted and therefore subject to changes in related cash flow.
525
Is a finder's fee for a lease expensed or allocated over the lease term?
The finder's fee benefits the entire lease term and is therefore expensed evenly over the lease term.
526
What exchange rate is used to TRANSLATE a foreign sub's income statement?
The average exchange rate.
527
If a company changes from FIFO to weighted avg inventory during 2005, how is the cumulative effect of the change measured?
The change is measured as of the beginning of the year of change.
528
Are the direct costs or the general expenses in a business combination deducted from the corp's net income from the combination?
Both are expensed in the period incurred.
529
Does the recording of an asset retirement obligation for a natural resources development site increase the liability or the depletion base?
Both. It is a credit to a liability, and a debit to the natural resources account, which is the depletion base.
530
Under international accounting, the vested portion of prior service cost is immediately recognized in:
Pension expense. The unvested portion is gradually recognized under delayed recognition in pension expense.
531
If financial statements prepared on another basis besides GAAP are not appropriately titled, the auditor must:
Disclose any reservations in an explanatory paragraph and qualify the opinion for the inappropriate title of the statements.
532
Under IFRS for SMEs, which inventory valuation method is NOT allowed?
LIFO.
533
Personal financial statements should report assets and liabilities at:
Estimated current values(fair values) at the date of the financial statements.
534
What financial statements are included in a set of personal financial statements?
A statement of financial condition (balance sheet) is always included, and a statement of changes in net worth may be included, but is NOT required.
535
In a personal statement of financial condition, a life insurance policy should be reported at cash surrender value less any:
Loans outstanding against the policy.
536
In a cash flow hedge, the item being hedged is measured using:
The present value of expected cash inflows or outflows. The item being hedged could be associated with an asset, a liability, or a forecasted transaction.
537
What is the purpose of reporting comprehensive income?
To summarize all changes in equity from nonowner sources.
538
What are the "other comprehensive income" items? (4)
Unrealized G/L on AFS securities, unrealized G/L on pension costs, foreign currency translation adjustments, and unrealized G/L on certain derivative transactions.
539
Who pays the shipping with FOB shipping point?
The title passes to buyer at the shipping point, so the buyer is responsible for paying the shipping charges.
540
Who pays the shipping with FOB destination?
The seller pays shipping charges to get the goods to the buyer. The title passes to the buyer once they reach their destination.
541
Under IFRS, how should a company report their investments in bonds when it is a part of their business model to hold such investments solely to receive the cash and interest from principal repayment?
At amortized cost.
542
Can impairment losses on intangibles be reversed?
No. Losses on plant assets held for disposal can be reversed to the extent of previous losses but intangible impairment losses cannot be reversed.
543
Which governmental fund type can report a positive amount in the Unassigned fund balance?
The general fund. Other governmental funds cannot have a positive balance in their unassigned fund.
544
In a sale-leaseback, how is the gain on sale recognized?
It is amortized over the lease term. A 50,000 unearned gain on a sale-leaseback over 10 years will result in 5,000 being recognized in each of the 10 years.
545
If a city imposes a 2% tax on hotel charges which will be used to promote tourism in the city, what type of nonexchange transaction is this?
It is a Derived Tax Revenue.
546
How are the different governmental funds reported on the fund-based balance sheet?
The general fund has its own column, then the major funds each have their own column, and then the rest of the individual funds that are not considered major are grouped into a single column.
547
A fund balance is the amount of assets greater than liabilities. What are the different classes of the fund balance?
Unrestricted- which means it's none of the below and is available for future use.Nonspendable and restricted. This means the money is restricted as to use by an outside party.Committed means the money is committed to a specific use by the highest level of decision making.Assigned means the money has been assigned by officials that are NOT the highest level of authority.
548
If a city plans on collecting $10k a month from property taxes for the next 18 months, how much revenue should be reported in year one?
$140,000. 10k for each month of the year plus Jan and Feb of the following year.
549
How is $10k of bonds reported on the gov wide and fund-based statements?
They are a regular liability on the gov wide statements and "other financing source" on the fund based statements.
550
How is a bond due in 3 months reported on the gov wide & fund-based statements?
It is 'bonds payable' on both.
551
If a city takes on a project but accepts no liability for the work being done, what type of fund is used.
An agency fund.
552
How does a transfer from the gen fund to capital projects get reported?
The general fund shows a "other financing use", the capital projects fund shows a "other financing source", and both balances will show up in the total gov funds column. This are no eliminations of "intercompany transactions".
553
What is the difference between the purchases method and consumption method for the government fund accounting?
Under purchases, the whole purchase is immediately recognized as an expenditure. Under the consumption method, the supplies are moved to expenditures as they are used.
554
Is a computer or office supplies reported as an asset on the fund-based governmental statements?
Office supplies are an asset- capitalized assets such as a computer are not.
555
how is a capital lease recorded in the gov fund-based statements?
The PV of the payments is recorded as an expenditure, and an increase in 'other financing sources'.
556
Do infrastructure assets get depreciated?
They do unless the modified approach is adopted. Then you have to set a minimum level of acceptable condition and maintain documentation to show that the asset is kept at that level.
557
For general purpose gov statements, is MD&A required?
Yes, it must be included but it is separate from both the gov wide & fund-based statements.
558
What are the 3 requirements to be a special purpose gov?
1) separately elected governing body. 2) It is legally independent so that it can sue, be sued, and buy and sell property in its own name. 3) Be fiscally independent of all other governments.
559
On the statement of activities, what is included in program revenues?
Any revenue generated by the activity, as well as any grants related specifically to that activity. This is then netted against the expense.
560
In troubled debt restructuring, what does the creditor do, and how do they recognize interest on the restructured loan?
They reduce the amount owed to the present value of future cash flows on the ORIGINAL interest rate. Then, they recognize interest by using the original interest rate times the BV of the new receivable. The debtor recognizes a loss as the difference between the current BV of its receivable and the present value of the future cash flows.
561
In troubled debt restructuring, what does the debtor do?
They compute the total cash flows now owed. So you take the future interest payments and add them to the new principal amount.
562
If you have an investment that isn't enough to be equity method, then you invest more later that does take it to equity method, how is that treated?
The equity method is retroactively applied to the first amount. So if you owned 10% the whole year then bought another 20% at year end, you would recognize 10% of the company's earnings under the equity method.
563
How is a capitalized interest problem done? (average accumulated expenditures)
First calculate the average accumulated expenditures. That is taking the amounts spent through the year each multiplied by the portion of the year remaining.Next you calculate avoidable interest. Avoidable interest is the interest on the construction specific loan(s), and then the amount of other debt above the amount of the construction loans.Then calculate actual interest. The lesser of the avoidable interest and the actual interest is the amount that can be capitalized.
564
When converting financial statements using translation, paid in capital accounts are translated using the ______ rate?
Historic rate in effect when the account arose or the investment was made.
565
If a firm buys land to build a warehouse on, is the interest from the land loan and the warehouse construction capitalized?
Only interest on the warehouse construction can be capitalized.
566
If a firm is going to discontinue a segment early next year, but there is a loss in that segment ending this year, how is that loss reported?
As an operating loss of the discontinued segment. This section is below income from continuing ops but above extraordinary items.
567
What is an accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Aggregate worldwide market value of voting and nonvoting stock of $75 million or more, but less than 700 million. They have 75 days to file 10-K.
568
What is a large accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Market cap of 700 million or more. They have 60 days to file their 10-K.
569
A foreign currency transaction is settled in ______ but measured and recorded on the US entity's books in ________.
Non dollarsDollars.
570
Where are foreign currency exchange gains or losses on acc rec reported?
In current income as an item of income from continuing operations.
571
What disclosure is required relating to sinking funds and long term debt?
FAS 47 requires the disclosure of the aggregate amount of maturities and sinking fund requirements for all long-term debt for each of the five years following the balance sheet date. The detail of each year for both is shown.
572
When does a liquidating dividend occur?
When the investee pays more income than was earned during the period the investor owned the shares of the investee.
573
Describe the cost method:
The cost method is for an investment that DOES NOT give the investor significant influence. The dividends are recognized in income of the investor. The investment remains on the balance sheet at cost unless there is a permanent decline in value, or there is a liquidating dividend.
574
Under IFRS, are gains and losses on the changes in fair value of equity investments reported in the income statement or in other comprehensive income?
It can be either. If the investment is held for trading purposes, then the changes in fair value are reported in profit/loss.If it's NOT held for trading, the investor may elect to report changes in fair value through other comp. income.
575
What type of investments can be transferred between categories under IFRS?
Only debt. Equity securities are not allowed to be transferred between categories under IFRS. When investments are transferred, prior period statements must be restated for comparative purposes.
576
Under IFRS, if debt securities are held NOT as part of the business plan, what are they measured at?
Fair value.
577
Under IFRS, if debt securities are held as part of the business plan, what are they measured at?
Amortized cost.
578
Under the equity method for GAAP, what effect does the sub's income and dividends have on the investor's investment account?
The investor's share of income increases the investment account, and dividends decrease the investment account. The investor's share of income from the investee is also recognized as income for the investor.
579
Which form of business combination results in a NEW legal entity?
Consolidation. In consolidation, 2 or more existing entities are combined into one new legal entity.In a merger, one pre-existing entity is combined into another pre-existing entity. In an acquisition, one entity acquires a controlling interest and both continue to exist as separate legal entities.
580
Accretion expense is essentially growth in the:
Asset retirement obligation.
581
Purchases of treasury stock do not affect retained earnings under the:
Cost method.
582
Return on equity is considered what kind of ratio?
A profitability ratio
583
What is the defensive-interval ratio and what type of ratio is it?
It is the ratio of quick assets to daily operating expenditures. It is a liquidity ratio.
584
Does the cost method or the fair value method require a reconciliation of the changes in carrying amounts between the beginning and end of a period?
They both require said reconciliation.
585
If a decline in inventory value is not considered temporary, the decline is recognized in the quarter in which the decline occurs. Later recoveries are:
Recognized as gains to the extent of the previous losses only.
586
A discount on a bond is essentially:
Extra interest expense.
587
Which regulation governs the form and content of financial statement disclosures?
Regulation S-X.
588
The notional amount in a derivative refers to:
The specified unit of measure. If you have an option to buy 100 shares, the notional amount is the 100 shares.
589
Where does a first time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?
In retained earnings.
590
What are the 4 components of the IASB monitoring board? (1 on top, 3 on bottom)
The IFRS foundation is on top, and below it is the IFRS advisory council, the IASB, and the IFRS interpretation committee.
591
What does the IFRS foundation do and how long is their term?
They appoint members of the IASB, the IFRS Advisory Council, and the IFRS interpretations committee. The trustees serve 3 year terms
592
What are the objectives of the IFRS foundation? (4)
To develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards. To promote us and rigorous application of IFRS. To consider the needs of a range of size and type of entities. To promote and facilitate adoption of IFRS through convergence.
593
What does the IASB do?
They establish IFRS reporting standards, but they do NOT have enforcement power. Enforcement is the responsibility of the securities regulators in the national jurisdictions.
594
What is the IFRS advisory council and who appoints them?
They advise the IASB on priorities and the views of interested organizations. Members are appointed by the IFRS foundation
595
What does the IFRS interpretations committee do and who appoints the members?
They are similar to the FASB's emerging issues task force: they identify issues in the context of IFRS, their interpretations are reviewed by the IASB. The members are appointed by the IFRS foundation.
596
What is an SME?
Small and medium-sized entities. IFRS has one single standard for companies that are not publicly traded. Revisions to SME standards only happen once every 3 years.
597
What are the 2 assumptions in the IASB framework?
That the accrual method is used, and that the entity is a going concern
598
What statements are required for a first-time adopter of IFRS?
Upon adoption, the first set of statements must have 3 statements of financial position, 2 statements of comprehensive income, two separate income statements, two statements of cash flows, and two statements of changes in equity. Basically they need 3 balance sheets and 2 of everything else.
599
What is the TRANSITION date of a company to IFRS?
The opening date of the balance sheet for the earliest comparative financial statements. If the first IFRS reporting date is as of Dec 31 Year 2, then the transition date will be Jan 1 year 1.
600
Upon first time adoption of IFRS, an entity can elect to use fair value as deemed cost for:
Any individual item of property, plant, and equipment.
601
What is the first reporting date when switching to IFRS?
The year end date for the period which IFRS is first applied.
602
What are the major characteristics of IFRS for SMEs?
Disclosures are simplified. LIFO is prohibited. Goodwill and indefinite life intangible assets are amortized over a period NOT exceeding 10 years. Depreciation is based on a component approach. Simplified temporary difference approach to income tax accounting. Reversal of impairment charges is allowed in some circumstances. No disclosures for earnings per share and segment disclosures.
603
Can revenue and AR from a sales commitment be recognized?
Yes. IFRS defines revenue from a balance sheet point of view and is based on the inflow of economic resources.
604
What is the difference in transfer of receivables under GAAP and IFRS?
GAAP focuses on whether control has shifted from the transferor to the transferee. IFRS focuses on whether the transferor has transferred the rights to receive cash flows from the receivable and whether or not substantially all the risk and rewards of ownership were transferred.
605
What is the general rule of IFRS when it comes to the value of assets?
That assets aren't carried at more than their recoverable amount. If the asset's carrying value is greater than the amount that could have been recovered through the asset's use or by selling the asset, then it is impaired.
606
What is the definition of RECOVERABLE AMOUNT under IFRS?
The higher of the fair value less cost to sell or the value in use. Fair value less cost to sell is the amount obtainable from the sale in an arms-length transaction. The value in use is the discounted present value of the future cash flows expected from the asset.
607
What is a CGU under IFRS?
A cash generating unit is the smallest group of assets that can be identified that generates cash flows independently of the cash flows from other assets.
608
Does IFRS permit recovery of an impairment loss?
Yes.
609
Whats the difference in GAAP and IFRS of the reversal of an inventory write-down?
Under IFRS a reversal is allowed. Under GAAP it is NOT allowed.
610
How often is useful life and depreciation method reviewed under IFRS?
Annually. Under GAAP it's only when events or circumstances change.
611
Component depreciation GAAP vs. IFRS
Under IFRS, when an item of PPE comprises of individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately.
612
PPE revaluation GAAP vs IFRS
PPE can be remeasured to fair value if fair value can be reliably measured.
613
Where does an increase in PPE's fair value ABOVE its original cost go under IFRS?
It goes into a revaluation surplus account which is in OCI. If a truck had gone down in value 10k then back up 15k in the next year, the first 10k would be in the profit and loss statements. The extra 5k would go into the revaluation surplus account in OCI.
614
What investment classifications exist under IFRS?
Held to maturity which is debt measured at amortized cost, and Fair value, all equity is at fair value.
615
Difference of HTM classification in GAAP vs IFRS:
Under GAAP the test is whether the firm has the positive ability and intent to hold to maturity. Under IFRS it's the business model test, which evaluates if holding the debt for the cash flow is part of the business model.
616
Transfer from HTM differences GAAP vs IFRS
In GAAP you transfer from HTM when you no longer have the positive ability and intent to hold to maturity. Under IFRS you transfer from HTM only when the business model objective changes
617
OCI for investments differences in GAAP vs IFRS:
In GAAP gains/losses are recorded in OCI ONLY for AFS securities. In IFRS the entity may ELECT to records gains/losses to OCI at the initial measurement, but the election cannot be undone.
618
IFRS investment property
ljwoj
619
What is a small stock dividend?
Below 20 to 25 % of the previously outstanding shares.
620
What effect do stock dividends have on retained earnings?
If it is a SMALL dividend they reduce RE by the amount of shares issued X current stock price.If they are a LARGE dividend (bigger than 25%), they are recorded at par value.
621
JE for treasury stock purchase under cost method?
DR: Treasury stockCR: CashContributed capital is NOT affected. If treasury shares are resold at less than cost, then retained earnings is reduced by the difference in cost and reissue price.
622
If there is commercial substance to an exchange, the exchange is measured at:
Fair Value. The gain is equal to the old asset's fair value and it's book value. If the fair value was 30 and its book value is 25, the gain is 5.
623
How does retail inventory method establish lower of cost or market valuation for ending inventory?
By excluding net markdowns from the cost to retail ratio.
624
Can consolidated financial statements be prepared from a business combination that was accounted for using the acquisition method OR the pooling of interests method?
Yes to both. The pooling of interest method CANNOT be used anymore for business combinations, combinations that happened before that still need to be consolidated.
625
Does a foreign sub using the local currency as its functional currency has their financials translated or remeasured?
Translated.
626
Does a foreign sub using US dollars as its functional currency has their financials translated or remeasured?
Remeasured.
627
Under translation, common stock is translated at the what exchange rate?
The historic exchange rate.
628
500 shares of 6%, $100 par callable preferred stock are called at $101. The shares were issued at $103 per share. What is the journal entry to record the retirement?
DR preferred stock for 50,000DR PIC-preferred for 1,500CR PIC retirement of preferred for 1,000CR Cash for 50,500
629
Working capital:
current assets - current liabilities
630
Acid test:
(cash + net receivables)/current liabilities
631
Acc Rec turnover:
Sales/ avg net receivables
632
Inventory turnover:
COGS/ avg inventory
633
Times interest earned:
EBIT/ interest expense
634
Return on total assets:
(net income + after-tax interest expense)/ avg total assets
635
Return on equity:
Net income / avg owners equity
636
Dividend payout ratio
Common dividends / net income
637
What are the 2 primary qualitative characteristics?
Relevance and Faithful representation
638
2 components of relevance:
Predictive value and confirmatory value
639
3 components of Faithful Representation
Completeness, neutrality, and free from material error
640
What are the 4 enhancing characteristics?
Comparability, verifiability, timeliness, and understandability
641
Times interest earned is:
income before interest and income tax over interest expense
642
What is a central characteristic of a joint venture?
Shared control. None of the participating parties are likely to have unilateral control of the joint venture.
643
What is the defensive-interval ratio?
The ratio of quick assets to daily operating expenditures. The ratio is showing the length of time in days that the firm can operate with its present liquid resources- so it's a liquidity measure.
644
Inventory turnover ratio:
COGS/ avg inventory for the period
645
Where are G/L on remeasurment and translation booked?
Remeasurement is on the income statement, translation go in an equity account. Remeasurement is when the foreign sub's currency is the US dollar. It's translation if the sub's currency is the local foreign currency.
646
Receivables turnover ratio:
Net sales / avg net accounts receivable
647
What statements are usually included in personal financial statements?
A statement of financial condition and a statement of changes in net worth.
648
If a donation is conditional, how should it be accounted for?
As a refundable advance.
649
For donation of specialized services to a nonprofit, at what value should they be recognized?
Fair value.
650
For a NP, are contributions spread over a few years restricted or non restricted?
The contribution in the current year is non restricted(unless it comes with an actual restriction), and the contributions for future years are recognized at present value and are RESTRICTED.
651
When are the payments for an "Annuity Due" made?
At the beginning of each period.
652
How is a lease payment calculated when the lease payments are due at the beginning of the period?
You divide the FAIR VALUE of the leased equipment by the ANNUITY DUE rate.
653
What is the journal entry at the inception of a capital lease and the payments are due at the beginning of each period?
DR: Leased asset for its fair value amountCR: Lease Liability for plug amountCR: Cash for the payment amount
654
How do you calculate the interest expense at the end of the year on a capital lease with payments at the beginning of the period? What is the journal entry?
You multiply the remaining lease liability amount by the interest capitilization rate.DR: Interest expenseCR: Lease liability
655
How does the LESSOR in a capital lease determine the amount of Lease Receivable?
Multiply the payment by the number of payments.
656
What is the journal entry by the LESSOR for a capital lease with payments at the beginning of each period?
DR: Lease receivableDR: Cash for the payment amountDR: COGS for the book value amountCR: Unearned interest for the lease rec amount MINUS the BVCR: Equipment for BV amountCR: Sales for the FV amount
657
Working capital formula
current assets - current liabilities
658
Acid test formula
(cash + net receivables) / current liabilities
659
Acc Rec turnover formula
Sales / avg net receivables
660
Inventory turnover
COGS / avg inventory
661
Avg collection period for acc receivable?
Net credit sales / avg net acc receivable.... then you divide 365 by that number
662
What financial statements are required for the Governmental funds?
1)Balance sheet and 2) Statement of revenues, expenditures, and changes in fund balance
663
What statements are required for the Proprietary funds?
1)Statement of Net Postition2)Statement of revenues, expenditures, and changes in net position3)Statement of cash flows
664
What statements are required for the fiduciary funds?
1)Statement of net position2)Statement of changes in fiduciary net positiion
665
Which fund type does the government-wide financials EXCLUDE that are included on the CAFR?
Fiduciary funds.
666
What are the 3 sections of the CAFR?
1) Introductory2) Financial3) Statistical
667
If an investment in 30% of another company is accounted for using the fair value method, what is recognized as net income from the investment?
Cash dividends received and increases in the fair value of the investment are recognized in net income from the investment. The portion of the company's net income is NOT recognized in net income from the investment.
668
A contest prize expense is the present value of the?
Total cost incurred. If the prize is an annual $50,000 payment for 20 years and the company takes out an annuity of $418,250 after making the initial $50,000 payment, the contest prize expense in the current year is $468,250.
669
The ending balance of the asset retirement obligation should be the:
Beginning balance + the DISCOUNTED cash flow estimate of the new asset + accretion expense - the amount paid during the year.
670
The debt service fund records cash transfers from the general fund as what, and cash payments as what?
Operating transfers and Expenditures.
671
During a period of inflation, would a perpetual inventory system result in the same dollar amount of ending inventory as a periodic inventory system under FIFO and LIFO?
Yes with FIFO, No with LIFO. The perpetual system would be calculating COGS based on the latest goods acquired prior to each sale versus all the latest goods acquired during the period under a periodic system.
672
Does a NOL carryforward directly reduce taxes or taxable income?
Taxable income. If the NOL is 40,000 and taxable income is 60,000, then it reduces taxable income down to 20,000, which is then multiplied by the tax rate.
673
During a business combination, can the acquisition date be before, on, or after the closing date?
It can be any of the 3.
674
For state or local governments, encumbrances outstanding at year end should be reported as:
Assigned or committed fund balance.
675
What does income and dividends from a sub do to the investment account under the equity method?
Income increases the investment, and dividends reduce the investment account.
676
What is the focus of proprietary funds?
Income determination. Proprietary funds use accrual accounting and they are similar in reporting to private businesses.
677
What is the entry in the General Fund to record equipment purchased with a capital lease?
DR: ExpendituresCR: Other financing sourcesThe general fund doesn't record fixed assets. The general fund fixed asset account group would record the acquired equipment.
678
What are funds classified as that can only be used for a specific purpose because of restraints imposed by formal action of the government's highest level of decision making authority?
According to GASB Statement No. 54, amounts that can only be used for a specific purpose, because of constraints imposed by formal action of the government's highest level of decision-making authority, should be reported as Committed Fund Balance. The Restricted Fund Balance classification should be used when constraints are placed on the use of resources are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation.
679
What is the process for recording collection of accounts that had been written off?
First you debit accounts receivable and credit allowance for doubtful accounts to restore the amounts that had been written off. Then you debit cash for the amount collected, and you credit accounts receivable to take them off the books since they've been collected.
680
In the general fund, what 3 accounts are affected when property taxes are levied?
Revenue control is credited, property taxes receivable is credited, and allowance for uncollectible taxes is credited. Bad Debt Expense is ONLY an accrual accounting concept, and IS NOT used in modified accrual accounting.
681
When the direct method for LCM is used, what is the journal entry to write down inventory?
DR: Cost of goods soldCR: Inventory
682
When using the allowance method under LCM, what is the JE to write down inventory?
DR: Holding lossCR: Allowance for LCM
683
Under the fair value option, what is recognized as income from the investment company?
Cash dividends and the increase in fair value of the investment are both recognized in net income of the investor.
684
How does the installment sale method work?
Each payment consists of return of cost and gross profit. You calculate the gross profit percentage by taking the sales price and subtracting the carrying value, and then dividing that number by the sales price. Then you multiply the principal portion of the payment by the gross profit percentage, and then add in the interest payment amount, and that is the amount of revenue to recognize. The return of cost portion of the payment is NOT recognized as revenue.
685
Gains or losses on retirement of debt used to automatically be classified as extraordinary gains or losses, but now they are:
immediately recognized in full in income from continuing operations.
686
What rate is used to calculate the amount of dividends from a foreign currency?
The spot rate on the date of declaration is used regardless of translation or remeasurement.
687
How is the refinancing of a liability due within a year treated under GAAP and IFRS?
Under GAAP, if the refinancing happens before the ISSUANCE date of the financial statements, then it can be considered long term again. Under IFRS, the refinancing has to happen before the BALANCE SHEET DATE for it to be considered a long term liability again.
688
How is interest expense and dividends paid classified as far as cash flow under IFRS?
Interest expense and dividends paid can be classified as EITHER operating or financing activities.
689
How is interest revenue and dividend revenue classified under IFRS for cash flows?
They can both be either cash flows from operating OR investing activities.
690
If the percentage of completion method cannot be applied, how are profits recognized on long-term contracts under GAAP and IFRS?
Under GAAP the profits will be recognized once the job is completed- which is the completed contract method. Under IFRS, all profits will be recognized when all the costs have been recovered- the cost recovery method.
691
If an IFRS company decides to revalue its equipment each year, what effect would a drop of $2000 in value above regular depreciation be?
It would be a 2000 expense for that year, recognized in income. BUT.... an increase in the value would go under other comprehensive income.
692
What is the main capital lease criteria under IFRS?
That the lease life is a "major portion" of the equipment life. Thus, a lease of 60% of the equipment's life would qualify as a capital lease.
693
If both parties consider a lease to be a capital lease, what interest rate do they both use under IFRS?
They both use the implicit rate built into the contract.
694
Under IFRS, a contingent loss must be recognized if it is...
More likely than not. Even just 51% vs 49% meets this criteria.
695
How is a prior service cost due to a change in the projected benefit obligation due to a contractual adjustment treated under IFRS and GAAP?
Under IFRS it is expensed immediately to the extent that benefits have vested. Under GAAP it is recorded to accumulated other comprehensive income and then amortized to expense over the years the employees are expected to work.
696
A bond with face value of 100k is sold at 110k due to a convert option into common stock. How is this recorded under GAAP and IFRS?
Under IFRS 100k would be the liability and the 10k is recorded as equity. Under GAAP the full 110k is debt until it is actually converted.
697
How is an impairment loss on equipment determined under IFRS?
A loss must be recognized if the book value exceeds the higher of the PRESENT VALUE of the future cash flows and the fair value less necessary costs to sell the equipment.
698
GAAP vs IFRS research and development costs?
Under GAAP all research and development costs are expensed as incurred. Under IFRS, research costs are expensed, but development costs are capitalized if the company believes that future economic benefits are probable and that the product being developed is commercially and technically feasible.
699
How are legal costs to successfully defend a patent treated under GAAP and IFRS?
Under GAAP the costs are added to the cost of the patent. Under IFRS the costs are expensed UNLESS the cost increase the future benefits to be derived from the asset.
700
How are biological assets valued under IFRS?
At fair value less costs to sell.
701
How is the reversal of an impairment loss recorded under IFRS?
The recovery of an impairment in value must be recognized if the circumstances that caused the impairment are reversed.
702
A company has two checking accounts: one with 100k and one with negative 10k. How are they reported under GAAP and IFRS?
Under GAAP the negative is reported as a liability, so the cash line will show 100k. Under IFRS they are netted so the cash line would show 90k.
703
In a period of rising prices, a company that wants to maximize profits will use what inventory method?
FIFO. In rising prices using FIFO, the earliest goods will be sold first which makes COGS lower and NI higher.
704
Formula for ending DV LIFO balance:
Beginning DV LIFO + (increase at base-year dollars)(price index)300,000 + (400,000 - 300,000)(1.1) = 410,000
705
What is the ceiling and floor of LCM?
Ceiling is Net Realizable Value and Floor is NRV less a normal profit margin.
706
Explain LCM
If replacement cost is within the range of the ceiling and floor, then market is replacement cost.If the RC is greater than the ceiling, then market is the ceiling amount.If RC is less than the floor, then market is limited to the floor amount.
707
How are trademarks classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, amortization depends on whether they are definite or indefinite life, as does impairment.
708
How are customer lists classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, they are amortized, impairment is decided by the recoverable cost test.
709
How is an initial franchise fee classified, capitalized, amortized, and impaired?
Can be definite or indefinite life, only capitalize expenses to external parties, amortization depends on definite or indefinite, as does impairment.
710
When a liability has a carrying value less than fair value, does an unrealized gain or loss exist?
An unrealized loss exists. It would be a debit to Impairment loss, and a credit to the liability to increase it to its fair value.
711
In financial statements prepared on the income-tax basis, how should nondeductible expenses such as meals be reported?
Included in the expense category in determination of income. These are still business expenses and need to be included to calculate income on the financial statements.
712
For grants, what is a prime factor in determining eligibility for accrual?
The expenditure of resources (spending the money)
713
What would an entity most likely do to hedge an investment in a foreign operation?
Borrow from another foreign entity with the same foreign currency as the operation being hedged. Since borrowing is a liability, any changes in the foreign currency would offset the investment.
714
If intercompany fixed asset balances are NOT eliminated, will consolidated income or loss be overstated.
Both can be overstated.
715
When there is NOT commercial substance to an exchange, gains are recognized:
In proportion to the amount of cash received.
716
Under the cost method, is the Sub's income or dividends recognized by the parent?
Dividends are recognized as income to the parent.
717
When transferring a receivable, the loss is the difference between the carrying value of the portion of the asset transferred and the cash received for the:
Transferred portion. Usually the total carrying value will be allocated between the portion of the asset surrendered and portion retained, based on relative fair values.
718
For estimating income taxes for personal financial statements, assets and liabilities measured at their tax bases should be compared to assets and liabilities measured at their:
Estimated current value and estimated current amount.
719
Before assets are distributed as a property dividend, the unrecognized holding gain or loss is:
Recognized. If a firm pays a property dividend of a stock it bought for 20,000 when its market value is 25,000, there is a debit to retained earnings for 25,000 and a gain on disposal of 5,000 is recognized.
720
Bond prices and interest rates are inversely related. When interest rates increase,
the market value of bonds decrease, because there are now better opportunities on the market.
721
Are fund-based statements or government wide statements included on a CAFR?
They both are. The gov-wide statements focus on the financial results and health of the gov while the fund based statements report how various revenues are derived and spent.
722
What are the 3 columns on the gov-wide statements?
Gov activities, business type activities, and total gov activities
723
Which funds are not included in the gov-wide financial statements?
Fiduciary funds.
724
How is an internal service fund reported on the gov wide statements if another gov agency is its main beneficiary?
As a gov fund instead of a business type fund.
725
What accounting basis is used to report the gov wide financial statements?
Full accrual accounting.
726
What statements are required for the gov wide statements?
The statement of net position and the statement of activities
727
How would 5 year bonds appear in the fund based statements and the gov wide statements?
They wont show up in the fund based statements because they aren't a claim against current assets. They will show up as a long term liability in the gov wide statements.
728
Does a firm selling put options on its own stock affect liabilities or equity?
It increases liability by the fair value of the options.The liability will be extinguished when the option is exercised or when it expires.
729
When computing avg shares outstanding during the year, how are stock dividends treated?
Stock dividends are treated as outstanding for the entire year. It is when new stock is issued that it is multiplied by the portion of the year remaining.
730
Is additional compensation to former shareholders after a business combination considered additional costs of the business combination?
No.
731
Can a forecasted transaction be hedged?
Yes- in a cash flow hedge since it is forecasted and therefore subject to changes in related cash flow.
732
Is a finder's fee for a lease expensed or allocated over the lease term?
The finder's fee benefits the entire lease term and is therefore expensed evenly over the lease term.
733
What exchange rate is used to TRANSLATE a foreign sub's income statement?
The average exchange rate.
734
If a company changes from FIFO to weighted avg inventory during 2005, how is the cumulative effect of the change measured?
The change is measured as of the beginning of the year of change.
735
Are the direct costs or the general expenses in a business combination deducted from the corp's net income from the combination?
Both are expensed in the period incurred.
736
Does the recording of an asset retirement obligation for a natural resources development site increase the liability or the depletion base?
Both. It is a credit to a liability, and a debit to the natural resources account, which is the depletion base.
737
Under international accounting, the vested portion of prior service cost is immediately recognized in:
Pension expense. The unvested portion is gradually recognized under delayed recognition in pension expense.
738
If financial statements prepared on another basis besides GAAP are not appropriately titled, the auditor must:
Disclose any reservations in an explanatory paragraph and qualify the opinion for the inappropriate title of the statements.
739
Under IFRS for SMEs, which inventory valuation method is NOT allowed?
LIFO.
740
Personal financial statements should report assets and liabilities at:
Estimated current values(fair values) at the date of the financial statements.
741
What financial statements are included in a set of personal financial statements?
A statement of financial condition (balance sheet) is always included, and a statement of changes in net worth may be included, but is NOT required.
742
In a personal statement of financial condition, a life insurance policy should be reported at cash surrender value less any:
Loans outstanding against the policy.
743
In a cash flow hedge, the item being hedged is measured using:
The present value of expected cash inflows or outflows. The item being hedged could be associated with an asset, a liability, or a forecasted transaction.
744
What is the purpose of reporting comprehensive income?
To summarize all changes in equity from nonowner sources.
745
What are the "other comprehensive income" items? (4)
Unrealized G/L on AFS securities, unrealized G/L on pension costs, foreign currency translation adjustments, and unrealized G/L on certain derivative transactions.
746
Who pays the shipping with FOB shipping point?
The title passes to buyer at the shipping point, so the buyer is responsible for paying the shipping charges.
747
Who pays the shipping with FOB destination?
The seller pays shipping charges to get the goods to the buyer. The title passes to the buyer once they reach their destination.
748
Under IFRS, how should a company report their investments in bonds when it is a part of their business model to hold such investments solely to receive the cash and interest from principal repayment?
At amortized cost.
749
Can impairment losses on intangibles be reversed?
No. Losses on plant assets held for disposal can be reversed to the extent of previous losses but intangible impairment losses cannot be reversed.
750
Which governmental fund type can report a positive amount in the Unassigned fund balance?
The general fund. Other governmental funds cannot have a positive balance in their unassigned fund.
751
In a sale-leaseback, how is the gain on sale recognized?
It is amortized over the lease term. A 50,000 unearned gain on a sale-leaseback over 10 years will result in 5,000 being recognized in each of the 10 years.
752
If a city imposes a 2% tax on hotel charges which will be used to promote tourism in the city, what type of nonexchange transaction is this?
It is a Derived Tax Revenue.
753
How are the different governmental funds reported on the fund-based balance sheet?
The general fund has its own column, then the major funds each have their own column, and then the rest of the individual funds that are not considered major are grouped into a single column.
754
A fund balance is the amount of assets greater than liabilities. What are the different classes of the fund balance?
Unrestricted- which means it's none of the below and is available for future use.Nonspendable and restricted. This means the money is restricted as to use by an outside party.Committed means the money is committed to a specific use by the highest level of decision making.Assigned means the money has been assigned by officials that are NOT the highest level of authority.
755
If a city plans on collecting $10k a month from property taxes for the next 18 months, how much revenue should be reported in year one?
$140,000. 10k for each month of the year plus Jan and Feb of the following year.
756
How is $10k of bonds reported on the gov wide and fund-based statements?
They are a regular liability on the gov wide statements and "other financing source" on the fund based statements.
757
How is a bond due in 3 months reported on the gov wide & fund-based statements?
It is 'bonds payable' on both.
758
If a city takes on a project but accepts no liability for the work being done, what type of fund is used.
An agency fund.
759
How does a transfer from the gen fund to capital projects get reported?
The general fund shows a "other financing use", the capital projects fund shows a "other financing source", and both balances will show up in the total gov funds column. This are no eliminations of "intercompany transactions".
760
What is the difference between the purchases method and consumption method for the government fund accounting?
Under purchases, the whole purchase is immediately recognized as an expenditure. Under the consumption method, the supplies are moved to expenditures as they are used.
761
Is a computer or office supplies reported as an asset on the fund-based governmental statements?
Office supplies are an asset- capitalized assets such as a computer are not.
762
how is a capital lease recorded in the gov fund-based statements?
The PV of the payments is recorded as an expenditure, and an increase in 'other financing sources'.
763
Do infrastructure assets get depreciated?
They do unless the modified approach is adopted. Then you have to set a minimum level of acceptable condition and maintain documentation to show that the asset is kept at that level.
764
For general purpose gov statements, is MD&A required?
Yes, it must be included but it is separate from both the gov wide & fund-based statements.
765
What are the 3 requirements to be a special purpose gov?
1) separately elected governing body. 2) It is legally independent so that it can sue, be sued, and buy and sell property in its own name. 3) Be fiscally independent of all other governments.
766
On the statement of activities, what is included in program revenues?
Any revenue generated by the activity, as well as any grants related specifically to that activity. This is then netted against the expense.
767
In troubled debt restructuring, what does the creditor do, and how do they recognize interest on the restructured loan?
They reduce the amount owed to the present value of future cash flows on the ORIGINAL interest rate. Then, they recognize interest by using the original interest rate times the BV of the new receivable. The debtor recognizes a loss as the difference between the current BV of its receivable and the present value of the future cash flows.
768
In troubled debt restructuring, what does the debtor do?
They compute the total cash flows now owed. So you take the future interest payments and add them to the new principal amount.
769
If you have an investment that isn't enough to be equity method, then you invest more later that does take it to equity method, how is that treated?
The equity method is retroactively applied to the first amount. So if you owned 10% the whole year then bought another 20% at year end, you would recognize 10% of the company's earnings under the equity method.
770
How is a capitalized interest problem done? (average accumulated expenditures)
First calculate the average accumulated expenditures. That is taking the amounts spent through the year each multiplied by the portion of the year remaining.Next you calculate avoidable interest. Avoidable interest is the interest on the construction specific loan(s), and then the amount of other debt above the amount of the construction loans.Then calculate actual interest. The lesser of the avoidable interest and the actual interest is the amount that can be capitalized.
771
When converting financial statements using translation, paid in capital accounts are translated using the ______ rate?
Historic rate in effect when the account arose or the investment was made.
772
If a firm buys land to build a warehouse on, is the interest from the land loan and the warehouse construction capitalized?
Only interest on the warehouse construction can be capitalized.
773
If a firm is going to discontinue a segment early next year, but there is a loss in that segment ending this year, how is that loss reported?
As an operating loss of the discontinued segment. This section is below income from continuing ops but above extraordinary items.
774
What is an accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Aggregate worldwide market value of voting and nonvoting stock of $75 million or more, but less than 700 million. They have 75 days to file 10-K.
775
What is a large accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Market cap of 700 million or more. They have 60 days to file their 10-K.
776
A foreign currency transaction is settled in ______ but measured and recorded on the US entity's books in ________.
Non dollarsDollars.
777
Where are foreign currency exchange gains or losses on acc rec reported?
In current income as an item of income from continuing operations.
778
What disclosure is required relating to sinking funds and long term debt?
FAS 47 requires the disclosure of the aggregate amount of maturities and sinking fund requirements for all long-term debt for each of the five years following the balance sheet date. The detail of each year for both is shown.
779
When does a liquidating dividend occur?
When the investee pays more income than was earned during the period the investor owned the shares of the investee.
780
Describe the cost method:
The cost method is for an investment that DOES NOT give the investor significant influence. The dividends are recognized in income of the investor. The investment remains on the balance sheet at cost unless there is a permanent decline in value, or there is a liquidating dividend.
781
Under IFRS, are gains and losses on the changes in fair value of equity investments reported in the income statement or in other comprehensive income?
It can be either. If the investment is held for trading purposes, then the changes in fair value are reported in profit/loss.If it's NOT held for trading, the investor may elect to report changes in fair value through other comp. income.
782
What type of investments can be transferred between categories under IFRS?
Only debt. Equity securities are not allowed to be transferred between categories under IFRS. When investments are transferred, prior period statements must be restated for comparative purposes.
783
Under IFRS, if debt securities are held NOT as part of the business plan, what are they measured at?
Fair value.
784
Under IFRS, if debt securities are held as part of the business plan, what are they measured at?
Amortized cost.
785
Under the equity method for GAAP, what effect does the sub's income and dividends have on the investor's investment account?
The investor's share of income increases the investment account, and dividends decrease the investment account. The investor's share of income from the investee is also recognized as income for the investor.
786
Which form of business combination results in a NEW legal entity?
Consolidation. In consolidation, 2 or more existing entities are combined into one new legal entity.In a merger, one pre-existing entity is combined into another pre-existing entity. In an acquisition, one entity acquires a controlling interest and both continue to exist as separate legal entities.
787
Accretion expense is essentially growth in the:
Asset retirement obligation.
788
Purchases of treasury stock do not affect retained earnings under the:
Cost method.
789
Return on equity is considered what kind of ratio?
A profitability ratio
790
What is the defensive-interval ratio and what type of ratio is it?
It is the ratio of quick assets to daily operating expenditures. It is a liquidity ratio.
791
Does the cost method or the fair value method require a reconciliation of the changes in carrying amounts between the beginning and end of a period?
They both require said reconciliation.
792
If a decline in inventory value is not considered temporary, the decline is recognized in the quarter in which the decline occurs. Later recoveries are:
Recognized as gains to the extent of the previous losses only.
793
A discount on a bond is essentially:
Extra interest expense.
794
Which regulation governs the form and content of financial statement disclosures?
Regulation S-X.
795
The notional amount in a derivative refers to:
The specified unit of measure. If you have an option to buy 100 shares, the notional amount is the 100 shares.
796
Where does a first time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?
In retained earnings.
797
What are the 4 components of the IASB monitoring board? (1 on top, 3 on bottom)
The IFRS foundation is on top, and below it is the IFRS advisory council, the IASB, and the IFRS interpretation committee.
798
What does the IFRS foundation do and how long is their term?
They appoint members of the IASB, the IFRS Advisory Council, and the IFRS interpretations committee. The trustees serve 3 year terms
799
What are the objectives of the IFRS foundation? (4)
To develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards. To promote us and rigorous application of IFRS. To consider the needs of a range of size and type of entities. To promote and facilitate adoption of IFRS through convergence.
800
What does the IASB do?
They establish IFRS reporting standards, but they do NOT have enforcement power. Enforcement is the responsibility of the securities regulators in the national jurisdictions.
801
What is the IFRS advisory council and who appoints them?
They advise the IASB on priorities and the views of interested organizations. Members are appointed by the IFRS foundation
802
What does the IFRS interpretations committee do and who appoints the members?
They are similar to the FASB's emerging issues task force: they identify issues in the context of IFRS, their interpretations are reviewed by the IASB. The members are appointed by the IFRS foundation.
803
What is an SME?
Small and medium-sized entities. IFRS has one single standard for companies that are not publicly traded. Revisions to SME standards only happen once every 3 years.
804
What are the 2 assumptions in the IASB framework?
That the accrual method is used, and that the entity is a going concern
805
What statements are required for a first-time adopter of IFRS?
Upon adoption, the first set of statements must have 3 statements of financial position, 2 statements of comprehensive income, two separate income statements, two statements of cash flows, and two statements of changes in equity. Basically they need 3 balance sheets and 2 of everything else.
806
What is the TRANSITION date of a company to IFRS?
The opening date of the balance sheet for the earliest comparative financial statements. If the first IFRS reporting date is as of Dec 31 Year 2, then the transition date will be Jan 1 year 1.
807
Upon first time adoption of IFRS, an entity can elect to use fair value as deemed cost for:
Any individual item of property, plant, and equipment.
808
What is the first reporting date when switching to IFRS?
The year end date for the period which IFRS is first applied.
809
What are the major characteristics of IFRS for SMEs?
Disclosures are simplified. LIFO is prohibited. Goodwill and indefinite life intangible assets are amortized over a period NOT exceeding 10 years. Depreciation is based on a component approach. Simplified temporary difference approach to income tax accounting. Reversal of impairment charges is allowed in some circumstances. No disclosures for earnings per share and segment disclosures.
810
Can revenue and AR from a sales commitment be recognized?
Yes. IFRS defines revenue from a balance sheet point of view and is based on the inflow of economic resources.
811
What is the difference in transfer of receivables under GAAP and IFRS?
GAAP focuses on whether control has shifted from the transferor to the transferee. IFRS focuses on whether the transferor has transferred the rights to receive cash flows from the receivable and whether or not substantially all the risk and rewards of ownership were transferred.
812
What is the general rule of IFRS when it comes to the value of assets?
That assets aren't carried at more than their recoverable amount. If the asset's carrying value is greater than the amount that could have been recovered through the asset's use or by selling the asset, then it is impaired.
813
What is the definition of RECOVERABLE AMOUNT under IFRS?
The higher of the fair value less cost to sell or the value in use. Fair value less cost to sell is the amount obtainable from the sale in an arms-length transaction. The value in use is the discounted present value of the future cash flows expected from the asset.
814
What is a CGU under IFRS?
A cash generating unit is the smallest group of assets that can be identified that generates cash flows independently of the cash flows from other assets.
815
Does IFRS permit recovery of an impairment loss?
Yes.
816
Whats the difference in GAAP and IFRS of the reversal of an inventory write-down?
Under IFRS a reversal is allowed. Under GAAP it is NOT allowed.
817
How often is useful life and depreciation method reviewed under IFRS?
Annually. Under GAAP it's only when events or circumstances change.
818
Component depreciation GAAP vs. IFRS
Under IFRS, when an item of PPE comprises of individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately.
819
PPE revaluation GAAP vs IFRS
PPE can be remeasured to fair value if fair value can be reliably measured.
820
Where does an increase in PPE's fair value ABOVE its original cost go under IFRS?
It goes into a revaluation surplus account which is in OCI. If a truck had gone down in value 10k then back up 15k in the next year, the first 10k would be in the profit and loss statements. The extra 5k would go into the revaluation surplus account in OCI.
821
What investment classifications exist under IFRS?
Held to maturity which is debt measured at amortized cost, and Fair value, all equity is at fair value.
822
Difference of HTM classification in GAAP vs IFRS:
Under GAAP the test is whether the firm has the positive ability and intent to hold to maturity. Under IFRS it's the business model test, which evaluates if holding the debt for the cash flow is part of the business model.
823
Transfer from HTM differences GAAP vs IFRS
In GAAP you transfer from HTM when you no longer have the positive ability and intent to hold to maturity. Under IFRS you transfer from HTM only when the business model objective changes
824
OCI for investments differences in GAAP vs IFRS:
In GAAP gains/losses are recorded in OCI ONLY for AFS securities. In IFRS the entity may ELECT to records gains/losses to OCI at the initial measurement, but the election cannot be undone.
825
IFRS investment property
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826
What is a small stock dividend?
Below 20 to 25 % of the previously outstanding shares.
827
What effect do stock dividends have on retained earnings?
If it is a SMALL dividend they reduce RE by the amount of shares issued X current stock price.If they are a LARGE dividend (bigger than 25%), they are recorded at par value.
828
JE for treasury stock purchase under cost method?
DR: Treasury stockCR: CashContributed capital is NOT affected. If treasury shares are resold at less than cost, then retained earnings is reduced by the difference in cost and reissue price.
829
If there is commercial substance to an exchange, the exchange is measured at:
Fair Value. The gain is equal to the old asset's fair value and it's book value. If the fair value was 30 and its book value is 25, the gain is 5.
830
How does retail inventory method establish lower of cost or market valuation for ending inventory?
By excluding net markdowns from the cost to retail ratio.
831
Can consolidated financial statements be prepared from a business combination that was accounted for using the acquisition method OR the pooling of interests method?
Yes to both. The pooling of interest method CANNOT be used anymore for business combinations, combinations that happened before that still need to be consolidated.
832
Does a foreign sub using the local currency as its functional currency has their financials translated or remeasured?
Translated.
833
Does a foreign sub using US dollars as its functional currency has their financials translated or remeasured?
Remeasured.
834
Under translation, common stock is translated at the what exchange rate?
The historic exchange rate.
835
500 shares of 6%, $100 par callable preferred stock are called at $101. The shares were issued at $103 per share. What is the journal entry to record the retirement?
DR preferred stock for 50,000DR PIC-preferred for 1,500CR PIC retirement of preferred for 1,000CR Cash for 50,500
836
Working capital:
current assets - current liabilities
837
Acid test:
(cash + net receivables)/current liabilities
838
Acc Rec turnover:
Sales/ avg net receivables
839
Inventory turnover:
COGS/ avg inventory
840
Times interest earned:
EBIT/ interest expense
841
Return on total assets:
(net income + after-tax interest expense)/ avg total assets
842
Return on equity:
Net income / avg owners equity
843
Dividend payout ratio
Common dividends / net income
844
What are the 2 primary qualitative characteristics?
Relevance and Faithful representation
845
2 components of relevance:
Predictive value and confirmatory value
846
3 components of Faithful Representation
Completeness, neutrality, and free from material error
847
What are the 4 enhancing characteristics?
Comparability, verifiability, timeliness, and understandability
848
Times interest earned is:
income before interest and income tax over interest expense
849
What is a central characteristic of a joint venture?
Shared control. None of the participating parties are likely to have unilateral control of the joint venture.
850
What is the defensive-interval ratio?
The ratio of quick assets to daily operating expenditures. The ratio is showing the length of time in days that the firm can operate with its present liquid resources- so it's a liquidity measure.
851
Inventory turnover ratio:
COGS/ avg inventory for the period
852
Where are G/L on remeasurment and translation booked?
Remeasurement is on the income statement, translation go in an equity account. Remeasurement is when the foreign sub's currency is the US dollar. It's translation if the sub's currency is the local foreign currency.
853
Receivables turnover ratio:
Net sales / avg net accounts receivable
854
What statements are usually included in personal financial statements?
A statement of financial condition and a statement of changes in net worth.
855
If a donation is conditional, how should it be accounted for?
As a refundable advance.
856
For donation of specialized services to a nonprofit, at what value should they be recognized?
Fair value.
857
For a NP, are contributions spread over a few years restricted or non restricted?
The contribution in the current year is non restricted(unless it comes with an actual restriction), and the contributions for future years are recognized at present value and are RESTRICTED.
858
When are the payments for an "Annuity Due" made?
At the beginning of each period.
859
How is a lease payment calculated when the lease payments are due at the beginning of the period?
You divide the FAIR VALUE of the leased equipment by the ANNUITY DUE rate.
860
What is the journal entry at the inception of a capital lease and the payments are due at the beginning of each period?
DR: Leased asset for its fair value amountCR: Lease Liability for plug amountCR: Cash for the payment amount
861
How do you calculate the interest expense at the end of the year on a capital lease with payments at the beginning of the period? What is the journal entry?
You multiply the remaining lease liability amount by the interest capitilization rate.DR: Interest expenseCR: Lease liability
862
How does the LESSOR in a capital lease determine the amount of Lease Receivable?
Multiply the payment by the number of payments.
863
What is the journal entry by the LESSOR for a capital lease with payments at the beginning of each period?
DR: Lease receivableDR: Cash for the payment amountDR: COGS for the book value amountCR: Unearned interest for the lease rec amount MINUS the BVCR: Equipment for BV amountCR: Sales for the FV amount
864
Working capital formula
current assets - current liabilities
865
Acid test formula
(cash + net receivables) / current liabilities
866
Acc Rec turnover formula
Sales / avg net receivables
867
Inventory turnover
COGS / avg inventory
868
Avg collection period for acc receivable?
Net credit sales / avg net acc receivable.... then you divide 365 by that number
869
What financial statements are required for the Governmental funds?
1)Balance sheet and 2) Statement of revenues, expenditures, and changes in fund balance
870
What statements are required for the Proprietary funds?
1)Statement of Net Postition2)Statement of revenues, expenditures, and changes in net position3)Statement of cash flows
871
What statements are required for the fiduciary funds?
1)Statement of net position2)Statement of changes in fiduciary net positiion
872
Which fund type does the government-wide financials EXCLUDE that are included on the CAFR?
Fiduciary funds.
873
What are the 3 sections of the CAFR?
1) Introductory2) Financial3) Statistical
874
If an investment in 30% of another company is accounted for using the fair value method, what is recognized as net income from the investment?
Cash dividends received and increases in the fair value of the investment are recognized in net income from the investment. The portion of the company's net income is NOT recognized in net income from the investment.
875
A contest prize expense is the present value of the?
Total cost incurred. If the prize is an annual $50,000 payment for 20 years and the company takes out an annuity of $418,250 after making the initial $50,000 payment, the contest prize expense in the current year is $468,250.
876
The ending balance of the asset retirement obligation should be the:
Beginning balance + the DISCOUNTED cash flow estimate of the new asset + accretion expense - the amount paid during the year.
877
The debt service fund records cash transfers from the general fund as what, and cash payments as what?
Operating transfers and Expenditures.
878
During a period of inflation, would a perpetual inventory system result in the same dollar amount of ending inventory as a periodic inventory system under FIFO and LIFO?
Yes with FIFO, No with LIFO. The perpetual system would be calculating COGS based on the latest goods acquired prior to each sale versus all the latest goods acquired during the period under a periodic system.
879
Does a NOL carryforward directly reduce taxes or taxable income?
Taxable income. If the NOL is 40,000 and taxable income is 60,000, then it reduces taxable income down to 20,000, which is then multiplied by the tax rate.
880
During a business combination, can the acquisition date be before, on, or after the closing date?
It can be any of the 3.
881
For state or local governments, encumbrances outstanding at year end should be reported as:
Assigned or committed fund balance.
882
What does income and dividends from a sub do to the investment account under the equity method?
Income increases the investment, and dividends reduce the investment account.
883
What is the focus of proprietary funds?
Income determination. Proprietary funds use accrual accounting and they are similar in reporting to private businesses.
884
What is the entry in the General Fund to record equipment purchased with a capital lease?
DR: ExpendituresCR: Other financing sourcesThe general fund doesn't record fixed assets. The general fund fixed asset account group would record the acquired equipment.
885
What are funds classified as that can only be used for a specific purpose because of restraints imposed by formal action of the government's highest level of decision making authority?
According to GASB Statement No. 54, amounts that can only be used for a specific purpose, because of constraints imposed by formal action of the government's highest level of decision-making authority, should be reported as Committed Fund Balance. The Restricted Fund Balance classification should be used when constraints are placed on the use of resources are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation.
886
What is the process for recording collection of accounts that had been written off?
First you debit accounts receivable and credit allowance for doubtful accounts to restore the amounts that had been written off. Then you debit cash for the amount collected, and you credit accounts receivable to take them off the books since they've been collected.
887
In the general fund, what 3 accounts are affected when property taxes are levied?
Revenue control is credited, property taxes receivable is credited, and allowance for uncollectible taxes is credited. Bad Debt Expense is ONLY an accrual accounting concept, and IS NOT used in modified accrual accounting.
888
When the direct method for LCM is used, what is the journal entry to write down inventory?
DR: Cost of goods soldCR: Inventory
889
When using the allowance method under LCM, what is the JE to write down inventory?
DR: Holding lossCR: Allowance for LCM
890
Under the fair value option, what is recognized as income from the investment company?
Cash dividends and the increase in fair value of the investment are both recognized in net income of the investor.
891
How does the installment sale method work?
Each payment consists of return of cost and gross profit. You calculate the gross profit percentage by taking the sales price and subtracting the carrying value, and then dividing that number by the sales price. Then you multiply the principal portion of the payment by the gross profit percentage, and then add in the interest payment amount, and that is the amount of revenue to recognize. The return of cost portion of the payment is NOT recognized as revenue.
892
Gains or losses on retirement of debt used to automatically be classified as extraordinary gains or losses, but now they are:
immediately recognized in full in income from continuing operations.
893
What rate is used to calculate the amount of dividends from a foreign currency?
The spot rate on the date of declaration is used regardless of translation or remeasurement.
894
How is the refinancing of a liability due within a year treated under GAAP and IFRS?
Under GAAP, if the refinancing happens before the ISSUANCE date of the financial statements, then it can be considered long term again. Under IFRS, the refinancing has to happen before the BALANCE SHEET DATE for it to be considered a long term liability again.
895
How is interest expense and dividends paid classified as far as cash flow under IFRS?
Interest expense and dividends paid can be classified as EITHER operating or financing activities.
896
How is interest revenue and dividend revenue classified under IFRS for cash flows?
They can both be either cash flows from operating OR investing activities.
897
If the percentage of completion method cannot be applied, how are profits recognized on long-term contracts under GAAP and IFRS?
Under GAAP the profits will be recognized once the job is completed- which is the completed contract method. Under IFRS, all profits will be recognized when all the costs have been recovered- the cost recovery method.
898
If an IFRS company decides to revalue its equipment each year, what effect would a drop of $2000 in value above regular depreciation be?
It would be a 2000 expense for that year, recognized in income. BUT.... an increase in the value would go under other comprehensive income.
899
What is the main capital lease criteria under IFRS?
That the lease life is a "major portion" of the equipment life. Thus, a lease of 60% of the equipment's life would qualify as a capital lease.
900
If both parties consider a lease to be a capital lease, what interest rate do they both use under IFRS?
They both use the implicit rate built into the contract.
901
Under IFRS, a contingent loss must be recognized if it is...
More likely than not. Even just 51% vs 49% meets this criteria.
902
How is a prior service cost due to a change in the projected benefit obligation due to a contractual adjustment treated under IFRS and GAAP?
Under IFRS it is expensed immediately to the extent that benefits have vested. Under GAAP it is recorded to accumulated other comprehensive income and then amortized to expense over the years the employees are expected to work.
903
A bond with face value of 100k is sold at 110k due to a convert option into common stock. How is this recorded under GAAP and IFRS?
Under IFRS 100k would be the liability and the 10k is recorded as equity. Under GAAP the full 110k is debt until it is actually converted.
904
How is an impairment loss on equipment determined under IFRS?
A loss must be recognized if the book value exceeds the higher of the PRESENT VALUE of the future cash flows and the fair value less necessary costs to sell the equipment.
905
GAAP vs IFRS research and development costs?
Under GAAP all research and development costs are expensed as incurred. Under IFRS, research costs are expensed, but development costs are capitalized if the company believes that future economic benefits are probable and that the product being developed is commercially and technically feasible.
906
How are legal costs to successfully defend a patent treated under GAAP and IFRS?
Under GAAP the costs are added to the cost of the patent. Under IFRS the costs are expensed UNLESS the cost increase the future benefits to be derived from the asset.
907
How are biological assets valued under IFRS?
At fair value less costs to sell.
908
How is the reversal of an impairment loss recorded under IFRS?
The recovery of an impairment in value must be recognized if the circumstances that caused the impairment are reversed.
909
A company has two checking accounts: one with 100k and one with negative 10k. How are they reported under GAAP and IFRS?
Under GAAP the negative is reported as a liability, so the cash line will show 100k. Under IFRS they are netted so the cash line would show 90k.
910
In a period of rising prices, a company that wants to maximize profits will use what inventory method?
FIFO. In rising prices using FIFO, the earliest goods will be sold first which makes COGS lower and NI higher.
911
Formula for ending DV LIFO balance:
Beginning DV LIFO + (increase at base-year dollars)(price index)300,000 + (400,000 - 300,000)(1.1) = 410,000
912
What is the ceiling and floor of LCM?
Ceiling is Net Realizable Value and Floor is NRV less a normal profit margin.
913
Explain LCM
If replacement cost is within the range of the ceiling and floor, then market is replacement cost.If the RC is greater than the ceiling, then market is the ceiling amount.If RC is less than the floor, then market is limited to the floor amount.
914
How are trademarks classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, amortization depends on whether they are definite or indefinite life, as does impairment.
915
How are customer lists classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, they are amortized, impairment is decided by the recoverable cost test.
916
How is an initial franchise fee classified, capitalized, amortized, and impaired?
Can be definite or indefinite life, only capitalize expenses to external parties, amortization depends on definite or indefinite, as does impairment.
917
When a liability has a carrying value less than fair value, does an unrealized gain or loss exist?
An unrealized loss exists. It would be a debit to Impairment loss, and a credit to the liability to increase it to its fair value.
918
In financial statements prepared on the income-tax basis, how should nondeductible expenses such as meals be reported?
Included in the expense category in determination of income. These are still business expenses and need to be included to calculate income on the financial statements.
919
For grants, what is a prime factor in determining eligibility for accrual?
The expenditure of resources (spending the money)
920
What would an entity most likely do to hedge an investment in a foreign operation?
Borrow from another foreign entity with the same foreign currency as the operation being hedged. Since borrowing is a liability, any changes in the foreign currency would offset the investment.
921
If intercompany fixed asset balances are NOT eliminated, will consolidated income or loss be overstated.
Both can be overstated.
922
When there is NOT commercial substance to an exchange, gains are recognized:
In proportion to the amount of cash received.
923
Under the cost method, is the Sub's income or dividends recognized by the parent?
Dividends are recognized as income to the parent.
924
When transferring a receivable, the loss is the difference between the carrying value of the portion of the asset transferred and the cash received for the:
Transferred portion. Usually the total carrying value will be allocated between the portion of the asset surrendered and portion retained, based on relative fair values.
925
For estimating income taxes for personal financial statements, assets and liabilities measured at their tax bases should be compared to assets and liabilities measured at their:
Estimated current value and estimated current amount.
926
Before assets are distributed as a property dividend, the unrecognized holding gain or loss is:
Recognized. If a firm pays a property dividend of a stock it bought for 20,000 when its market value is 25,000, there is a debit to retained earnings for 25,000 and a gain on disposal of 5,000 is recognized.
927
Bond prices and interest rates are inversely related. When interest rates increase,
the market value of bonds decrease, because there are now better opportunities on the market.
928
Are fund-based statements or government wide statements included on a CAFR?
They both are. The gov-wide statements focus on the financial results and health of the gov while the fund based statements report how various revenues are derived and spent.
929
What are the 3 columns on the gov-wide statements?
Gov activities, business type activities, and total gov activities
930
Which funds are not included in the gov-wide financial statements?
Fiduciary funds.
931
How is an internal service fund reported on the gov wide statements if another gov agency is its main beneficiary?
As a gov fund instead of a business type fund.
932
What accounting basis is used to report the gov wide financial statements?
Full accrual accounting.
933
What statements are required for the gov wide statements?
The statement of net position and the statement of activities
934
How would 5 year bonds appear in the fund based statements and the gov wide statements?
They wont show up in the fund based statements because they aren't a claim against current assets. They will show up as a long term liability in the gov wide statements.
935
Does a firm selling put options on its own stock affect liabilities or equity?
It increases liability by the fair value of the options.The liability will be extinguished when the option is exercised or when it expires.
936
When computing avg shares outstanding during the year, how are stock dividends treated?
Stock dividends are treated as outstanding for the entire year. It is when new stock is issued that it is multiplied by the portion of the year remaining.
937
Is additional compensation to former shareholders after a business combination considered additional costs of the business combination?
No.
938
Can a forecasted transaction be hedged?
Yes- in a cash flow hedge since it is forecasted and therefore subject to changes in related cash flow.
939
Is a finder's fee for a lease expensed or allocated over the lease term?
The finder's fee benefits the entire lease term and is therefore expensed evenly over the lease term.
940
What exchange rate is used to TRANSLATE a foreign sub's income statement?
The average exchange rate.
941
If a company changes from FIFO to weighted avg inventory during 2005, how is the cumulative effect of the change measured?
The change is measured as of the beginning of the year of change.
942
Are the direct costs or the general expenses in a business combination deducted from the corp's net income from the combination?
Both are expensed in the period incurred.
943
Does the recording of an asset retirement obligation for a natural resources development site increase the liability or the depletion base?
Both. It is a credit to a liability, and a debit to the natural resources account, which is the depletion base.
944
Under international accounting, the vested portion of prior service cost is immediately recognized in:
Pension expense. The unvested portion is gradually recognized under delayed recognition in pension expense.
945
If financial statements prepared on another basis besides GAAP are not appropriately titled, the auditor must:
Disclose any reservations in an explanatory paragraph and qualify the opinion for the inappropriate title of the statements.
946
Under IFRS for SMEs, which inventory valuation method is NOT allowed?
LIFO.
947
Personal financial statements should report assets and liabilities at:
Estimated current values(fair values) at the date of the financial statements.
948
What financial statements are included in a set of personal financial statements?
A statement of financial condition (balance sheet) is always included, and a statement of changes in net worth may be included, but is NOT required.
949
In a personal statement of financial condition, a life insurance policy should be reported at cash surrender value less any:
Loans outstanding against the policy.
950
In a cash flow hedge, the item being hedged is measured using:
The present value of expected cash inflows or outflows. The item being hedged could be associated with an asset, a liability, or a forecasted transaction.
951
What is the purpose of reporting comprehensive income?
To summarize all changes in equity from nonowner sources.
952
What are the "other comprehensive income" items? (4)
Unrealized G/L on AFS securities, unrealized G/L on pension costs, foreign currency translation adjustments, and unrealized G/L on certain derivative transactions.
953
Who pays the shipping with FOB shipping point?
The title passes to buyer at the shipping point, so the buyer is responsible for paying the shipping charges.
954
Who pays the shipping with FOB destination?
The seller pays shipping charges to get the goods to the buyer. The title passes to the buyer once they reach their destination.
955
Under IFRS, how should a company report their investments in bonds when it is a part of their business model to hold such investments solely to receive the cash and interest from principal repayment?
At amortized cost.
956
Can impairment losses on intangibles be reversed?
No. Losses on plant assets held for disposal can be reversed to the extent of previous losses but intangible impairment losses cannot be reversed.
957
Which governmental fund type can report a positive amount in the Unassigned fund balance?
The general fund. Other governmental funds cannot have a positive balance in their unassigned fund.
958
In a sale-leaseback, how is the gain on sale recognized?
It is amortized over the lease term. A 50,000 unearned gain on a sale-leaseback over 10 years will result in 5,000 being recognized in each of the 10 years.
959
If a city imposes a 2% tax on hotel charges which will be used to promote tourism in the city, what type of nonexchange transaction is this?
It is a Derived Tax Revenue.
960
How are the different governmental funds reported on the fund-based balance sheet?
The general fund has its own column, then the major funds each have their own column, and then the rest of the individual funds that are not considered major are grouped into a single column.
961
A fund balance is the amount of assets greater than liabilities. What are the different classes of the fund balance?
Unrestricted- which means it's none of the below and is available for future use.Nonspendable and restricted. This means the money is restricted as to use by an outside party.Committed means the money is committed to a specific use by the highest level of decision making.Assigned means the money has been assigned by officials that are NOT the highest level of authority.
962
If a city plans on collecting $10k a month from property taxes for the next 18 months, how much revenue should be reported in year one?
$140,000. 10k for each month of the year plus Jan and Feb of the following year.
963
How is $10k of bonds reported on the gov wide and fund-based statements?
They are a regular liability on the gov wide statements and "other financing source" on the fund based statements.
964
How is a bond due in 3 months reported on the gov wide & fund-based statements?
It is 'bonds payable' on both.
965
If a city takes on a project but accepts no liability for the work being done, what type of fund is used.
An agency fund.
966
How does a transfer from the gen fund to capital projects get reported?
The general fund shows a "other financing use", the capital projects fund shows a "other financing source", and both balances will show up in the total gov funds column. This are no eliminations of "intercompany transactions".
967
What is the difference between the purchases method and consumption method for the government fund accounting?
Under purchases, the whole purchase is immediately recognized as an expenditure. Under the consumption method, the supplies are moved to expenditures as they are used.
968
Is a computer or office supplies reported as an asset on the fund-based governmental statements?
Office supplies are an asset- capitalized assets such as a computer are not.
969
how is a capital lease recorded in the gov fund-based statements?
The PV of the payments is recorded as an expenditure, and an increase in 'other financing sources'.
970
Do infrastructure assets get depreciated?
They do unless the modified approach is adopted. Then you have to set a minimum level of acceptable condition and maintain documentation to show that the asset is kept at that level.
971
For general purpose gov statements, is MD&A required?
Yes, it must be included but it is separate from both the gov wide & fund-based statements.
972
What are the 3 requirements to be a special purpose gov?
1) separately elected governing body. 2) It is legally independent so that it can sue, be sued, and buy and sell property in its own name. 3) Be fiscally independent of all other governments.
973
On the statement of activities, what is included in program revenues?
Any revenue generated by the activity, as well as any grants related specifically to that activity. This is then netted against the expense.
974
In troubled debt restructuring, what does the creditor do, and how do they recognize interest on the restructured loan?
They reduce the amount owed to the present value of future cash flows on the ORIGINAL interest rate. Then, they recognize interest by using the original interest rate times the BV of the new receivable. The debtor recognizes a loss as the difference between the current BV of its receivable and the present value of the future cash flows.
975
In troubled debt restructuring, what does the debtor do?
They compute the total cash flows now owed. So you take the future interest payments and add them to the new principal amount.
976
If you have an investment that isn't enough to be equity method, then you invest more later that does take it to equity method, how is that treated?
The equity method is retroactively applied to the first amount. So if you owned 10% the whole year then bought another 20% at year end, you would recognize 10% of the company's earnings under the equity method.
977
How is a capitalized interest problem done? (average accumulated expenditures)
First calculate the average accumulated expenditures. That is taking the amounts spent through the year each multiplied by the portion of the year remaining.Next you calculate avoidable interest. Avoidable interest is the interest on the construction specific loan(s), and then the amount of other debt above the amount of the construction loans.Then calculate actual interest. The lesser of the avoidable interest and the actual interest is the amount that can be capitalized.
978
When converting financial statements using translation, paid in capital accounts are translated using the ______ rate?
Historic rate in effect when the account arose or the investment was made.
979
If a firm buys land to build a warehouse on, is the interest from the land loan and the warehouse construction capitalized?
Only interest on the warehouse construction can be capitalized.
980
If a firm is going to discontinue a segment early next year, but there is a loss in that segment ending this year, how is that loss reported?
As an operating loss of the discontinued segment. This section is below income from continuing ops but above extraordinary items.
981
What is an accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Aggregate worldwide market value of voting and nonvoting stock of $75 million or more, but less than 700 million. They have 75 days to file 10-K.
982
What is a large accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Market cap of 700 million or more. They have 60 days to file their 10-K.
983
A foreign currency transaction is settled in ______ but measured and recorded on the US entity's books in ________.
Non dollarsDollars.
984
Where are foreign currency exchange gains or losses on acc rec reported?
In current income as an item of income from continuing operations.
985
What disclosure is required relating to sinking funds and long term debt?
FAS 47 requires the disclosure of the aggregate amount of maturities and sinking fund requirements for all long-term debt for each of the five years following the balance sheet date. The detail of each year for both is shown.
986
When does a liquidating dividend occur?
When the investee pays more income than was earned during the period the investor owned the shares of the investee.
987
Describe the cost method:
The cost method is for an investment that DOES NOT give the investor significant influence. The dividends are recognized in income of the investor. The investment remains on the balance sheet at cost unless there is a permanent decline in value, or there is a liquidating dividend.
988
Under IFRS, are gains and losses on the changes in fair value of equity investments reported in the income statement or in other comprehensive income?
It can be either. If the investment is held for trading purposes, then the changes in fair value are reported in profit/loss.If it's NOT held for trading, the investor may elect to report changes in fair value through other comp. income.
989
What type of investments can be transferred between categories under IFRS?
Only debt. Equity securities are not allowed to be transferred between categories under IFRS. When investments are transferred, prior period statements must be restated for comparative purposes.
990
Under IFRS, if debt securities are held NOT as part of the business plan, what are they measured at?
Fair value.
991
Under IFRS, if debt securities are held as part of the business plan, what are they measured at?
Amortized cost.
992
Under the equity method for GAAP, what effect does the sub's income and dividends have on the investor's investment account?
The investor's share of income increases the investment account, and dividends decrease the investment account. The investor's share of income from the investee is also recognized as income for the investor.
993
Which form of business combination results in a NEW legal entity?
Consolidation. In consolidation, 2 or more existing entities are combined into one new legal entity.In a merger, one pre-existing entity is combined into another pre-existing entity. In an acquisition, one entity acquires a controlling interest and both continue to exist as separate legal entities.
994
Accretion expense is essentially growth in the:
Asset retirement obligation.
995
Purchases of treasury stock do not affect retained earnings under the:
Cost method.
996
Return on equity is considered what kind of ratio?
A profitability ratio
997
What is the defensive-interval ratio and what type of ratio is it?
It is the ratio of quick assets to daily operating expenditures. It is a liquidity ratio.
998
Does the cost method or the fair value method require a reconciliation of the changes in carrying amounts between the beginning and end of a period?
They both require said reconciliation.
999
If a decline in inventory value is not considered temporary, the decline is recognized in the quarter in which the decline occurs. Later recoveries are:
Recognized as gains to the extent of the previous losses only.
1000
A discount on a bond is essentially:
Extra interest expense.
1001
Which regulation governs the form and content of financial statement disclosures?
Regulation S-X.
1002
The notional amount in a derivative refers to:
The specified unit of measure. If you have an option to buy 100 shares, the notional amount is the 100 shares.
1003
Where does a first time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?
In retained earnings.
1004
What are the 4 components of the IASB monitoring board? (1 on top, 3 on bottom)
The IFRS foundation is on top, and below it is the IFRS advisory council, the IASB, and the IFRS interpretation committee.
1005
What does the IFRS foundation do and how long is their term?
They appoint members of the IASB, the IFRS Advisory Council, and the IFRS interpretations committee. The trustees serve 3 year terms
1006
What are the objectives of the IFRS foundation? (4)
To develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards. To promote us and rigorous application of IFRS. To consider the needs of a range of size and type of entities. To promote and facilitate adoption of IFRS through convergence.
1007
What does the IASB do?
They establish IFRS reporting standards, but they do NOT have enforcement power. Enforcement is the responsibility of the securities regulators in the national jurisdictions.
1008
What is the IFRS advisory council and who appoints them?
They advise the IASB on priorities and the views of interested organizations. Members are appointed by the IFRS foundation
1009
What does the IFRS interpretations committee do and who appoints the members?
They are similar to the FASB's emerging issues task force: they identify issues in the context of IFRS, their interpretations are reviewed by the IASB. The members are appointed by the IFRS foundation.
1010
What is an SME?
Small and medium-sized entities. IFRS has one single standard for companies that are not publicly traded. Revisions to SME standards only happen once every 3 years.
1011
What are the 2 assumptions in the IASB framework?
That the accrual method is used, and that the entity is a going concern
1012
What statements are required for a first-time adopter of IFRS?
Upon adoption, the first set of statements must have 3 statements of financial position, 2 statements of comprehensive income, two separate income statements, two statements of cash flows, and two statements of changes in equity. Basically they need 3 balance sheets and 2 of everything else.
1013
What is the TRANSITION date of a company to IFRS?
The opening date of the balance sheet for the earliest comparative financial statements. If the first IFRS reporting date is as of Dec 31 Year 2, then the transition date will be Jan 1 year 1.
1014
Upon first time adoption of IFRS, an entity can elect to use fair value as deemed cost for:
Any individual item of property, plant, and equipment.
1015
What is the first reporting date when switching to IFRS?
The year end date for the period which IFRS is first applied.
1016
What are the major characteristics of IFRS for SMEs?
Disclosures are simplified. LIFO is prohibited. Goodwill and indefinite life intangible assets are amortized over a period NOT exceeding 10 years. Depreciation is based on a component approach. Simplified temporary difference approach to income tax accounting. Reversal of impairment charges is allowed in some circumstances. No disclosures for earnings per share and segment disclosures.
1017
Can revenue and AR from a sales commitment be recognized?
Yes. IFRS defines revenue from a balance sheet point of view and is based on the inflow of economic resources.
1018
What is the difference in transfer of receivables under GAAP and IFRS?
GAAP focuses on whether control has shifted from the transferor to the transferee. IFRS focuses on whether the transferor has transferred the rights to receive cash flows from the receivable and whether or not substantially all the risk and rewards of ownership were transferred.
1019
What is the general rule of IFRS when it comes to the value of assets?
That assets aren't carried at more than their recoverable amount. If the asset's carrying value is greater than the amount that could have been recovered through the asset's use or by selling the asset, then it is impaired.
1020
What is the definition of RECOVERABLE AMOUNT under IFRS?
The higher of the fair value less cost to sell or the value in use. Fair value less cost to sell is the amount obtainable from the sale in an arms-length transaction. The value in use is the discounted present value of the future cash flows expected from the asset.
1021
What is a CGU under IFRS?
A cash generating unit is the smallest group of assets that can be identified that generates cash flows independently of the cash flows from other assets.
1022
Does IFRS permit recovery of an impairment loss?
Yes.
1023
Whats the difference in GAAP and IFRS of the reversal of an inventory write-down?
Under IFRS a reversal is allowed. Under GAAP it is NOT allowed.
1024
How often is useful life and depreciation method reviewed under IFRS?
Annually. Under GAAP it's only when events or circumstances change.
1025
Component depreciation GAAP vs. IFRS
Under IFRS, when an item of PPE comprises of individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately.
1026
PPE revaluation GAAP vs IFRS
PPE can be remeasured to fair value if fair value can be reliably measured.
1027
Where does an increase in PPE's fair value ABOVE its original cost go under IFRS?
It goes into a revaluation surplus account which is in OCI. If a truck had gone down in value 10k then back up 15k in the next year, the first 10k would be in the profit and loss statements. The extra 5k would go into the revaluation surplus account in OCI.
1028
What investment classifications exist under IFRS?
Held to maturity which is debt measured at amortized cost, and Fair value, all equity is at fair value.
1029
Difference of HTM classification in GAAP vs IFRS:
Under GAAP the test is whether the firm has the positive ability and intent to hold to maturity. Under IFRS it's the business model test, which evaluates if holding the debt for the cash flow is part of the business model.
1030
Transfer from HTM differences GAAP vs IFRS
In GAAP you transfer from HTM when you no longer have the positive ability and intent to hold to maturity. Under IFRS you transfer from HTM only when the business model objective changes
1031
OCI for investments differences in GAAP vs IFRS:
In GAAP gains/losses are recorded in OCI ONLY for AFS securities. In IFRS the entity may ELECT to records gains/losses to OCI at the initial measurement, but the election cannot be undone.
1032
IFRS investment property
ljwoj
1033
What is a small stock dividend?
Below 20 to 25 % of the previously outstanding shares.
1034
What effect do stock dividends have on retained earnings?
If it is a SMALL dividend they reduce RE by the amount of shares issued X current stock price.If they are a LARGE dividend (bigger than 25%), they are recorded at par value.
1035
JE for treasury stock purchase under cost method?
DR: Treasury stockCR: CashContributed capital is NOT affected. If treasury shares are resold at less than cost, then retained earnings is reduced by the difference in cost and reissue price.
1036
If there is commercial substance to an exchange, the exchange is measured at:
Fair Value. The gain is equal to the old asset's fair value and it's book value. If the fair value was 30 and its book value is 25, the gain is 5.
1037
How does retail inventory method establish lower of cost or market valuation for ending inventory?
By excluding net markdowns from the cost to retail ratio.
1038
Can consolidated financial statements be prepared from a business combination that was accounted for using the acquisition method OR the pooling of interests method?
Yes to both. The pooling of interest method CANNOT be used anymore for business combinations, combinations that happened before that still need to be consolidated.
1039
Does a foreign sub using the local currency as its functional currency has their financials translated or remeasured?
Translated.
1040
Does a foreign sub using US dollars as its functional currency has their financials translated or remeasured?
Remeasured.
1041
Under translation, common stock is translated at the what exchange rate?
The historic exchange rate.
1042
500 shares of 6%, $100 par callable preferred stock are called at $101. The shares were issued at $103 per share. What is the journal entry to record the retirement?
DR preferred stock for 50,000DR PIC-preferred for 1,500CR PIC retirement of preferred for 1,000CR Cash for 50,500
1043
Working capital:
current assets - current liabilities
1044
Acid test:
(cash + net receivables)/current liabilities
1045
Acc Rec turnover:
Sales/ avg net receivables
1046
Inventory turnover:
COGS/ avg inventory
1047
Times interest earned:
EBIT/ interest expense
1048
Return on total assets:
(net income + after-tax interest expense)/ avg total assets
1049
Return on equity:
Net income / avg owners equity
1050
Dividend payout ratio
Common dividends / net income
1051
What are the 2 primary qualitative characteristics?
Relevance and Faithful representation
1052
2 components of relevance:
Predictive value and confirmatory value
1053
3 components of Faithful Representation
Completeness, neutrality, and free from material error
1054
What are the 4 enhancing characteristics?
Comparability, verifiability, timeliness, and understandability
1055
Times interest earned is:
income before interest and income tax over interest expense
1056
What is a central characteristic of a joint venture?
Shared control. None of the participating parties are likely to have unilateral control of the joint venture.
1057
What is the defensive-interval ratio?
The ratio of quick assets to daily operating expenditures. The ratio is showing the length of time in days that the firm can operate with its present liquid resources- so it's a liquidity measure.
1058
Inventory turnover ratio:
COGS/ avg inventory for the period
1059
Where are G/L on remeasurment and translation booked?
Remeasurement is on the income statement, translation go in an equity account. Remeasurement is when the foreign sub's currency is the US dollar. It's translation if the sub's currency is the local foreign currency.
1060
Receivables turnover ratio:
Net sales / avg net accounts receivable
1061
What statements are usually included in personal financial statements?
A statement of financial condition and a statement of changes in net worth.
1062
If a donation is conditional, how should it be accounted for?
As a refundable advance.
1063
For donation of specialized services to a nonprofit, at what value should they be recognized?
Fair value.
1064
For a NP, are contributions spread over a few years restricted or non restricted?
The contribution in the current year is non restricted(unless it comes with an actual restriction), and the contributions for future years are recognized at present value and are RESTRICTED.
1065
When are the payments for an "Annuity Due" made?
At the beginning of each period.
1066
How is a lease payment calculated when the lease payments are due at the beginning of the period?
You divide the FAIR VALUE of the leased equipment by the ANNUITY DUE rate.
1067
What is the journal entry at the inception of a capital lease and the payments are due at the beginning of each period?
DR: Leased asset for its fair value amountCR: Lease Liability for plug amountCR: Cash for the payment amount
1068
How do you calculate the interest expense at the end of the year on a capital lease with payments at the beginning of the period? What is the journal entry?
You multiply the remaining lease liability amount by the interest capitilization rate.DR: Interest expenseCR: Lease liability
1069
How does the LESSOR in a capital lease determine the amount of Lease Receivable?
Multiply the payment by the number of payments.
1070
What is the journal entry by the LESSOR for a capital lease with payments at the beginning of each period?
DR: Lease receivableDR: Cash for the payment amountDR: COGS for the book value amountCR: Unearned interest for the lease rec amount MINUS the BVCR: Equipment for BV amountCR: Sales for the FV amount
1071
Working capital formula
current assets - current liabilities
1072
Acid test formula
(cash + net receivables) / current liabilities
1073
Acc Rec turnover formula
Sales / avg net receivables
1074
Inventory turnover
COGS / avg inventory
1075
Avg collection period for acc receivable?
Net credit sales / avg net acc receivable.... then you divide 365 by that number
1076
What financial statements are required for the Governmental funds?
1)Balance sheet and 2) Statement of revenues, expenditures, and changes in fund balance
1077
What statements are required for the Proprietary funds?
1)Statement of Net Postition2)Statement of revenues, expenditures, and changes in net position3)Statement of cash flows
1078
What statements are required for the fiduciary funds?
1)Statement of net position2)Statement of changes in fiduciary net positiion
1079
Which fund type does the government-wide financials EXCLUDE that are included on the CAFR?
Fiduciary funds.
1080
What are the 3 sections of the CAFR?
1) Introductory2) Financial3) Statistical
1081
If an investment in 30% of another company is accounted for using the fair value method, what is recognized as net income from the investment?
Cash dividends received and increases in the fair value of the investment are recognized in net income from the investment. The portion of the company's net income is NOT recognized in net income from the investment.
1082
A contest prize expense is the present value of the?
Total cost incurred. If the prize is an annual $50,000 payment for 20 years and the company takes out an annuity of $418,250 after making the initial $50,000 payment, the contest prize expense in the current year is $468,250.
1083
The ending balance of the asset retirement obligation should be the:
Beginning balance + the DISCOUNTED cash flow estimate of the new asset + accretion expense - the amount paid during the year.
1084
The debt service fund records cash transfers from the general fund as what, and cash payments as what?
Operating transfers and Expenditures.
1085
During a period of inflation, would a perpetual inventory system result in the same dollar amount of ending inventory as a periodic inventory system under FIFO and LIFO?
Yes with FIFO, No with LIFO. The perpetual system would be calculating COGS based on the latest goods acquired prior to each sale versus all the latest goods acquired during the period under a periodic system.
1086
Does a NOL carryforward directly reduce taxes or taxable income?
Taxable income. If the NOL is 40,000 and taxable income is 60,000, then it reduces taxable income down to 20,000, which is then multiplied by the tax rate.
1087
During a business combination, can the acquisition date be before, on, or after the closing date?
It can be any of the 3.
1088
For state or local governments, encumbrances outstanding at year end should be reported as:
Assigned or committed fund balance.
1089
What does income and dividends from a sub do to the investment account under the equity method?
Income increases the investment, and dividends reduce the investment account.
1090
What is the focus of proprietary funds?
Income determination. Proprietary funds use accrual accounting and they are similar in reporting to private businesses.
1091
What is the entry in the General Fund to record equipment purchased with a capital lease?
DR: ExpendituresCR: Other financing sourcesThe general fund doesn't record fixed assets. The general fund fixed asset account group would record the acquired equipment.
1092
What are funds classified as that can only be used for a specific purpose because of restraints imposed by formal action of the government's highest level of decision making authority?
According to GASB Statement No. 54, amounts that can only be used for a specific purpose, because of constraints imposed by formal action of the government's highest level of decision-making authority, should be reported as Committed Fund Balance. The Restricted Fund Balance classification should be used when constraints are placed on the use of resources are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation.
1093
What is the process for recording collection of accounts that had been written off?
First you debit accounts receivable and credit allowance for doubtful accounts to restore the amounts that had been written off. Then you debit cash for the amount collected, and you credit accounts receivable to take them off the books since they've been collected.
1094
In the general fund, what 3 accounts are affected when property taxes are levied?
Revenue control is credited, property taxes receivable is credited, and allowance for uncollectible taxes is credited. Bad Debt Expense is ONLY an accrual accounting concept, and IS NOT used in modified accrual accounting.
1095
When the direct method for LCM is used, what is the journal entry to write down inventory?
DR: Cost of goods soldCR: Inventory
1096
When using the allowance method under LCM, what is the JE to write down inventory?
DR: Holding lossCR: Allowance for LCM
1097
Under the fair value option, what is recognized as income from the investment company?
Cash dividends and the increase in fair value of the investment are both recognized in net income of the investor.
1098
How does the installment sale method work?
Each payment consists of return of cost and gross profit. You calculate the gross profit percentage by taking the sales price and subtracting the carrying value, and then dividing that number by the sales price. Then you multiply the principal portion of the payment by the gross profit percentage, and then add in the interest payment amount, and that is the amount of revenue to recognize. The return of cost portion of the payment is NOT recognized as revenue.
1099
Gains or losses on retirement of debt used to automatically be classified as extraordinary gains or losses, but now they are:
immediately recognized in full in income from continuing operations.
1100
What rate is used to calculate the amount of dividends from a foreign currency?
The spot rate on the date of declaration is used regardless of translation or remeasurement.
1101
How is the refinancing of a liability due within a year treated under GAAP and IFRS?
Under GAAP, if the refinancing happens before the ISSUANCE date of the financial statements, then it can be considered long term again. Under IFRS, the refinancing has to happen before the BALANCE SHEET DATE for it to be considered a long term liability again.
1102
How is interest expense and dividends paid classified as far as cash flow under IFRS?
Interest expense and dividends paid can be classified as EITHER operating or financing activities.
1103
How is interest revenue and dividend revenue classified under IFRS for cash flows?
They can both be either cash flows from operating OR investing activities.
1104
If the percentage of completion method cannot be applied, how are profits recognized on long-term contracts under GAAP and IFRS?
Under GAAP the profits will be recognized once the job is completed- which is the completed contract method. Under IFRS, all profits will be recognized when all the costs have been recovered- the cost recovery method.
1105
If an IFRS company decides to revalue its equipment each year, what effect would a drop of $2000 in value above regular depreciation be?
It would be a 2000 expense for that year, recognized in income. BUT.... an increase in the value would go under other comprehensive income.
1106
What is the main capital lease criteria under IFRS?
That the lease life is a "major portion" of the equipment life. Thus, a lease of 60% of the equipment's life would qualify as a capital lease.
1107
If both parties consider a lease to be a capital lease, what interest rate do they both use under IFRS?
They both use the implicit rate built into the contract.
1108
Under IFRS, a contingent loss must be recognized if it is...
More likely than not. Even just 51% vs 49% meets this criteria.
1109
How is a prior service cost due to a change in the projected benefit obligation due to a contractual adjustment treated under IFRS and GAAP?
Under IFRS it is expensed immediately to the extent that benefits have vested. Under GAAP it is recorded to accumulated other comprehensive income and then amortized to expense over the years the employees are expected to work.
1110
A bond with face value of 100k is sold at 110k due to a convert option into common stock. How is this recorded under GAAP and IFRS?
Under IFRS 100k would be the liability and the 10k is recorded as equity. Under GAAP the full 110k is debt until it is actually converted.
1111
How is an impairment loss on equipment determined under IFRS?
A loss must be recognized if the book value exceeds the higher of the PRESENT VALUE of the future cash flows and the fair value less necessary costs to sell the equipment.
1112
GAAP vs IFRS research and development costs?
Under GAAP all research and development costs are expensed as incurred. Under IFRS, research costs are expensed, but development costs are capitalized if the company believes that future economic benefits are probable and that the product being developed is commercially and technically feasible.
1113
How are legal costs to successfully defend a patent treated under GAAP and IFRS?
Under GAAP the costs are added to the cost of the patent. Under IFRS the costs are expensed UNLESS the cost increase the future benefits to be derived from the asset.
1114
How are biological assets valued under IFRS?
At fair value less costs to sell.
1115
How is the reversal of an impairment loss recorded under IFRS?
The recovery of an impairment in value must be recognized if the circumstances that caused the impairment are reversed.
1116
A company has two checking accounts: one with 100k and one with negative 10k. How are they reported under GAAP and IFRS?
Under GAAP the negative is reported as a liability, so the cash line will show 100k. Under IFRS they are netted so the cash line would show 90k.
1117
In a period of rising prices, a company that wants to maximize profits will use what inventory method?
FIFO. In rising prices using FIFO, the earliest goods will be sold first which makes COGS lower and NI higher.
1118
Formula for ending DV LIFO balance:
Beginning DV LIFO + (increase at base-year dollars)(price index)300,000 + (400,000 - 300,000)(1.1) = 410,000
1119
What is the ceiling and floor of LCM?
Ceiling is Net Realizable Value and Floor is NRV less a normal profit margin.
1120
Explain LCM
If replacement cost is within the range of the ceiling and floor, then market is replacement cost.If the RC is greater than the ceiling, then market is the ceiling amount.If RC is less than the floor, then market is limited to the floor amount.
1121
How are trademarks classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, amortization depends on whether they are definite or indefinite life, as does impairment.
1122
How are customer lists classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, they are amortized, impairment is decided by the recoverable cost test.
1123
How is an initial franchise fee classified, capitalized, amortized, and impaired?
Can be definite or indefinite life, only capitalize expenses to external parties, amortization depends on definite or indefinite, as does impairment.
1124
When a liability has a carrying value less than fair value, does an unrealized gain or loss exist?
An unrealized loss exists. It would be a debit to Impairment loss, and a credit to the liability to increase it to its fair value.
1125
In financial statements prepared on the income-tax basis, how should nondeductible expenses such as meals be reported?
Included in the expense category in determination of income. These are still business expenses and need to be included to calculate income on the financial statements.
1126
For grants, what is a prime factor in determining eligibility for accrual?
The expenditure of resources (spending the money)
1127
What would an entity most likely do to hedge an investment in a foreign operation?
Borrow from another foreign entity with the same foreign currency as the operation being hedged. Since borrowing is a liability, any changes in the foreign currency would offset the investment.
1128
If intercompany fixed asset balances are NOT eliminated, will consolidated income or loss be overstated.
Both can be overstated.
1129
When there is NOT commercial substance to an exchange, gains are recognized:
In proportion to the amount of cash received.
1130
Under the cost method, is the Sub's income or dividends recognized by the parent?
Dividends are recognized as income to the parent.
1131
When transferring a receivable, the loss is the difference between the carrying value of the portion of the asset transferred and the cash received for the:
Transferred portion. Usually the total carrying value will be allocated between the portion of the asset surrendered and portion retained, based on relative fair values.
1132
For estimating income taxes for personal financial statements, assets and liabilities measured at their tax bases should be compared to assets and liabilities measured at their:
Estimated current value and estimated current amount.
1133
Before assets are distributed as a property dividend, the unrecognized holding gain or loss is:
Recognized. If a firm pays a property dividend of a stock it bought for 20,000 when its market value is 25,000, there is a debit to retained earnings for 25,000 and a gain on disposal of 5,000 is recognized.
1134
Bond prices and interest rates are inversely related. When interest rates increase,
the market value of bonds decrease, because there are now better opportunities on the market.
1135
Are fund-based statements or government wide statements included on a CAFR?
They both are. The gov-wide statements focus on the financial results and health of the gov while the fund based statements report how various revenues are derived and spent.
1136
What are the 3 columns on the gov-wide statements?
Gov activities, business type activities, and total gov activities
1137
Which funds are not included in the gov-wide financial statements?
Fiduciary funds.
1138
How is an internal service fund reported on the gov wide statements if another gov agency is its main beneficiary?
As a gov fund instead of a business type fund.
1139
What accounting basis is used to report the gov wide financial statements?
Full accrual accounting.
1140
What statements are required for the gov wide statements?
The statement of net position and the statement of activities
1141
How would 5 year bonds appear in the fund based statements and the gov wide statements?
They wont show up in the fund based statements because they aren't a claim against current assets. They will show up as a long term liability in the gov wide statements.
1142
Does a firm selling put options on its own stock affect liabilities or equity?
It increases liability by the fair value of the options.The liability will be extinguished when the option is exercised or when it expires.
1143
When computing avg shares outstanding during the year, how are stock dividends treated?
Stock dividends are treated as outstanding for the entire year. It is when new stock is issued that it is multiplied by the portion of the year remaining.
1144
Is additional compensation to former shareholders after a business combination considered additional costs of the business combination?
No.
1145
Can a forecasted transaction be hedged?
Yes- in a cash flow hedge since it is forecasted and therefore subject to changes in related cash flow.
1146
Is a finder's fee for a lease expensed or allocated over the lease term?
The finder's fee benefits the entire lease term and is therefore expensed evenly over the lease term.
1147
What exchange rate is used to TRANSLATE a foreign sub's income statement?
The average exchange rate.
1148
If a company changes from FIFO to weighted avg inventory during 2005, how is the cumulative effect of the change measured?
The change is measured as of the beginning of the year of change.
1149
Are the direct costs or the general expenses in a business combination deducted from the corp's net income from the combination?
Both are expensed in the period incurred.
1150
Does the recording of an asset retirement obligation for a natural resources development site increase the liability or the depletion base?
Both. It is a credit to a liability, and a debit to the natural resources account, which is the depletion base.
1151
Under international accounting, the vested portion of prior service cost is immediately recognized in:
Pension expense. The unvested portion is gradually recognized under delayed recognition in pension expense.
1152
If financial statements prepared on another basis besides GAAP are not appropriately titled, the auditor must:
Disclose any reservations in an explanatory paragraph and qualify the opinion for the inappropriate title of the statements.
1153
Under IFRS for SMEs, which inventory valuation method is NOT allowed?
LIFO.
1154
Personal financial statements should report assets and liabilities at:
Estimated current values(fair values) at the date of the financial statements.
1155
What financial statements are included in a set of personal financial statements?
A statement of financial condition (balance sheet) is always included, and a statement of changes in net worth may be included, but is NOT required.
1156
In a personal statement of financial condition, a life insurance policy should be reported at cash surrender value less any:
Loans outstanding against the policy.
1157
In a cash flow hedge, the item being hedged is measured using:
The present value of expected cash inflows or outflows. The item being hedged could be associated with an asset, a liability, or a forecasted transaction.
1158
What is the purpose of reporting comprehensive income?
To summarize all changes in equity from nonowner sources.
1159
What are the "other comprehensive income" items? (4)
Unrealized G/L on AFS securities, unrealized G/L on pension costs, foreign currency translation adjustments, and unrealized G/L on certain derivative transactions.
1160
Who pays the shipping with FOB shipping point?
The title passes to buyer at the shipping point, so the buyer is responsible for paying the shipping charges.
1161
Who pays the shipping with FOB destination?
The seller pays shipping charges to get the goods to the buyer. The title passes to the buyer once they reach their destination.
1162
Under IFRS, how should a company report their investments in bonds when it is a part of their business model to hold such investments solely to receive the cash and interest from principal repayment?
At amortized cost.
1163
Can impairment losses on intangibles be reversed?
No. Losses on plant assets held for disposal can be reversed to the extent of previous losses but intangible impairment losses cannot be reversed.
1164
Which governmental fund type can report a positive amount in the Unassigned fund balance?
The general fund. Other governmental funds cannot have a positive balance in their unassigned fund.
1165
In a sale-leaseback, how is the gain on sale recognized?
It is amortized over the lease term. A 50,000 unearned gain on a sale-leaseback over 10 years will result in 5,000 being recognized in each of the 10 years.
1166
If a city imposes a 2% tax on hotel charges which will be used to promote tourism in the city, what type of nonexchange transaction is this?
It is a Derived Tax Revenue.
1167
How are the different governmental funds reported on the fund-based balance sheet?
The general fund has its own column, then the major funds each have their own column, and then the rest of the individual funds that are not considered major are grouped into a single column.
1168
A fund balance is the amount of assets greater than liabilities. What are the different classes of the fund balance?
Unrestricted- which means it's none of the below and is available for future use.Nonspendable and restricted. This means the money is restricted as to use by an outside party.Committed means the money is committed to a specific use by the highest level of decision making.Assigned means the money has been assigned by officials that are NOT the highest level of authority.
1169
If a city plans on collecting $10k a month from property taxes for the next 18 months, how much revenue should be reported in year one?
$140,000. 10k for each month of the year plus Jan and Feb of the following year.
1170
How is $10k of bonds reported on the gov wide and fund-based statements?
They are a regular liability on the gov wide statements and "other financing source" on the fund based statements.
1171
How is a bond due in 3 months reported on the gov wide & fund-based statements?
It is 'bonds payable' on both.
1172
If a city takes on a project but accepts no liability for the work being done, what type of fund is used.
An agency fund.
1173
How does a transfer from the gen fund to capital projects get reported?
The general fund shows a "other financing use", the capital projects fund shows a "other financing source", and both balances will show up in the total gov funds column. This are no eliminations of "intercompany transactions".
1174
What is the difference between the purchases method and consumption method for the government fund accounting?
Under purchases, the whole purchase is immediately recognized as an expenditure. Under the consumption method, the supplies are moved to expenditures as they are used.
1175
Is a computer or office supplies reported as an asset on the fund-based governmental statements?
Office supplies are an asset- capitalized assets such as a computer are not.
1176
how is a capital lease recorded in the gov fund-based statements?
The PV of the payments is recorded as an expenditure, and an increase in 'other financing sources'.
1177
Do infrastructure assets get depreciated?
They do unless the modified approach is adopted. Then you have to set a minimum level of acceptable condition and maintain documentation to show that the asset is kept at that level.
1178
For general purpose gov statements, is MD&A required?
Yes, it must be included but it is separate from both the gov wide & fund-based statements.
1179
What are the 3 requirements to be a special purpose gov?
1) separately elected governing body. 2) It is legally independent so that it can sue, be sued, and buy and sell property in its own name. 3) Be fiscally independent of all other governments.
1180
On the statement of activities, what is included in program revenues?
Any revenue generated by the activity, as well as any grants related specifically to that activity. This is then netted against the expense.
1181
In troubled debt restructuring, what does the creditor do, and how do they recognize interest on the restructured loan?
They reduce the amount owed to the present value of future cash flows on the ORIGINAL interest rate. Then, they recognize interest by using the original interest rate times the BV of the new receivable. The debtor recognizes a loss as the difference between the current BV of its receivable and the present value of the future cash flows.
1182
In troubled debt restructuring, what does the debtor do?
They compute the total cash flows now owed. So you take the future interest payments and add them to the new principal amount.
1183
If you have an investment that isn't enough to be equity method, then you invest more later that does take it to equity method, how is that treated?
The equity method is retroactively applied to the first amount. So if you owned 10% the whole year then bought another 20% at year end, you would recognize 10% of the company's earnings under the equity method.
1184
How is a capitalized interest problem done? (average accumulated expenditures)
First calculate the average accumulated expenditures. That is taking the amounts spent through the year each multiplied by the portion of the year remaining.Next you calculate avoidable interest. Avoidable interest is the interest on the construction specific loan(s), and then the amount of other debt above the amount of the construction loans.Then calculate actual interest. The lesser of the avoidable interest and the actual interest is the amount that can be capitalized.
1185
When converting financial statements using translation, paid in capital accounts are translated using the ______ rate?
Historic rate in effect when the account arose or the investment was made.
1186
If a firm buys land to build a warehouse on, is the interest from the land loan and the warehouse construction capitalized?
Only interest on the warehouse construction can be capitalized.
1187
If a firm is going to discontinue a segment early next year, but there is a loss in that segment ending this year, how is that loss reported?
As an operating loss of the discontinued segment. This section is below income from continuing ops but above extraordinary items.
1188
What is an accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Aggregate worldwide market value of voting and nonvoting stock of $75 million or more, but less than 700 million. They have 75 days to file 10-K.
1189
What is a large accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Market cap of 700 million or more. They have 60 days to file their 10-K.
1190
A foreign currency transaction is settled in ______ but measured and recorded on the US entity's books in ________.
Non dollarsDollars.
1191
Where are foreign currency exchange gains or losses on acc rec reported?
In current income as an item of income from continuing operations.
1192
What disclosure is required relating to sinking funds and long term debt?
FAS 47 requires the disclosure of the aggregate amount of maturities and sinking fund requirements for all long-term debt for each of the five years following the balance sheet date. The detail of each year for both is shown.
1193
When does a liquidating dividend occur?
When the investee pays more income than was earned during the period the investor owned the shares of the investee.
1194
Describe the cost method:
The cost method is for an investment that DOES NOT give the investor significant influence. The dividends are recognized in income of the investor. The investment remains on the balance sheet at cost unless there is a permanent decline in value, or there is a liquidating dividend.
1195
Under IFRS, are gains and losses on the changes in fair value of equity investments reported in the income statement or in other comprehensive income?
It can be either. If the investment is held for trading purposes, then the changes in fair value are reported in profit/loss.If it's NOT held for trading, the investor may elect to report changes in fair value through other comp. income.
1196
What type of investments can be transferred between categories under IFRS?
Only debt. Equity securities are not allowed to be transferred between categories under IFRS. When investments are transferred, prior period statements must be restated for comparative purposes.
1197
Under IFRS, if debt securities are held NOT as part of the business plan, what are they measured at?
Fair value.
1198
Under IFRS, if debt securities are held as part of the business plan, what are they measured at?
Amortized cost.
1199
Under the equity method for GAAP, what effect does the sub's income and dividends have on the investor's investment account?
The investor's share of income increases the investment account, and dividends decrease the investment account. The investor's share of income from the investee is also recognized as income for the investor.
1200
Which form of business combination results in a NEW legal entity?
Consolidation. In consolidation, 2 or more existing entities are combined into one new legal entity.In a merger, one pre-existing entity is combined into another pre-existing entity. In an acquisition, one entity acquires a controlling interest and both continue to exist as separate legal entities.
1201
Accretion expense is essentially growth in the:
Asset retirement obligation.
1202
Purchases of treasury stock do not affect retained earnings under the:
Cost method.
1203
Return on equity is considered what kind of ratio?
A profitability ratio
1204
What is the defensive-interval ratio and what type of ratio is it?
It is the ratio of quick assets to daily operating expenditures. It is a liquidity ratio.
1205
Does the cost method or the fair value method require a reconciliation of the changes in carrying amounts between the beginning and end of a period?
They both require said reconciliation.
1206
If a decline in inventory value is not considered temporary, the decline is recognized in the quarter in which the decline occurs. Later recoveries are:
Recognized as gains to the extent of the previous losses only.
1207
A discount on a bond is essentially:
Extra interest expense.
1208
Which regulation governs the form and content of financial statement disclosures?
Regulation S-X.
1209
The notional amount in a derivative refers to:
The specified unit of measure. If you have an option to buy 100 shares, the notional amount is the 100 shares.
1210
Where does a first time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?
In retained earnings.
1211
What are the 4 components of the IASB monitoring board? (1 on top, 3 on bottom)
The IFRS foundation is on top, and below it is the IFRS advisory council, the IASB, and the IFRS interpretation committee.
1212
What does the IFRS foundation do and how long is their term?
They appoint members of the IASB, the IFRS Advisory Council, and the IFRS interpretations committee. The trustees serve 3 year terms
1213
What are the objectives of the IFRS foundation? (4)
To develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards. To promote us and rigorous application of IFRS. To consider the needs of a range of size and type of entities. To promote and facilitate adoption of IFRS through convergence.
1214
What does the IASB do?
They establish IFRS reporting standards, but they do NOT have enforcement power. Enforcement is the responsibility of the securities regulators in the national jurisdictions.
1215
What is the IFRS advisory council and who appoints them?
They advise the IASB on priorities and the views of interested organizations. Members are appointed by the IFRS foundation
1216
What does the IFRS interpretations committee do and who appoints the members?
They are similar to the FASB's emerging issues task force: they identify issues in the context of IFRS, their interpretations are reviewed by the IASB. The members are appointed by the IFRS foundation.
1217
What is an SME?
Small and medium-sized entities. IFRS has one single standard for companies that are not publicly traded. Revisions to SME standards only happen once every 3 years.
1218
What are the 2 assumptions in the IASB framework?
That the accrual method is used, and that the entity is a going concern
1219
What statements are required for a first-time adopter of IFRS?
Upon adoption, the first set of statements must have 3 statements of financial position, 2 statements of comprehensive income, two separate income statements, two statements of cash flows, and two statements of changes in equity. Basically they need 3 balance sheets and 2 of everything else.
1220
What is the TRANSITION date of a company to IFRS?
The opening date of the balance sheet for the earliest comparative financial statements. If the first IFRS reporting date is as of Dec 31 Year 2, then the transition date will be Jan 1 year 1.
1221
Upon first time adoption of IFRS, an entity can elect to use fair value as deemed cost for:
Any individual item of property, plant, and equipment.
1222
What is the first reporting date when switching to IFRS?
The year end date for the period which IFRS is first applied.
1223
What are the major characteristics of IFRS for SMEs?
Disclosures are simplified. LIFO is prohibited. Goodwill and indefinite life intangible assets are amortized over a period NOT exceeding 10 years. Depreciation is based on a component approach. Simplified temporary difference approach to income tax accounting. Reversal of impairment charges is allowed in some circumstances. No disclosures for earnings per share and segment disclosures.
1224
Can revenue and AR from a sales commitment be recognized?
Yes. IFRS defines revenue from a balance sheet point of view and is based on the inflow of economic resources.
1225
What is the difference in transfer of receivables under GAAP and IFRS?
GAAP focuses on whether control has shifted from the transferor to the transferee. IFRS focuses on whether the transferor has transferred the rights to receive cash flows from the receivable and whether or not substantially all the risk and rewards of ownership were transferred.
1226
What is the general rule of IFRS when it comes to the value of assets?
That assets aren't carried at more than their recoverable amount. If the asset's carrying value is greater than the amount that could have been recovered through the asset's use or by selling the asset, then it is impaired.
1227
What is the definition of RECOVERABLE AMOUNT under IFRS?
The higher of the fair value less cost to sell or the value in use. Fair value less cost to sell is the amount obtainable from the sale in an arms-length transaction. The value in use is the discounted present value of the future cash flows expected from the asset.
1228
What is a CGU under IFRS?
A cash generating unit is the smallest group of assets that can be identified that generates cash flows independently of the cash flows from other assets.
1229
Does IFRS permit recovery of an impairment loss?
Yes.
1230
Whats the difference in GAAP and IFRS of the reversal of an inventory write-down?
Under IFRS a reversal is allowed. Under GAAP it is NOT allowed.
1231
How often is useful life and depreciation method reviewed under IFRS?
Annually. Under GAAP it's only when events or circumstances change.
1232
Component depreciation GAAP vs. IFRS
Under IFRS, when an item of PPE comprises of individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately.
1233
PPE revaluation GAAP vs IFRS
PPE can be remeasured to fair value if fair value can be reliably measured.
1234
Where does an increase in PPE's fair value ABOVE its original cost go under IFRS?
It goes into a revaluation surplus account which is in OCI. If a truck had gone down in value 10k then back up 15k in the next year, the first 10k would be in the profit and loss statements. The extra 5k would go into the revaluation surplus account in OCI.
1235
What investment classifications exist under IFRS?
Held to maturity which is debt measured at amortized cost, and Fair value, all equity is at fair value.
1236
Difference of HTM classification in GAAP vs IFRS:
Under GAAP the test is whether the firm has the positive ability and intent to hold to maturity. Under IFRS it's the business model test, which evaluates if holding the debt for the cash flow is part of the business model.
1237
Transfer from HTM differences GAAP vs IFRS
In GAAP you transfer from HTM when you no longer have the positive ability and intent to hold to maturity. Under IFRS you transfer from HTM only when the business model objective changes
1238
OCI for investments differences in GAAP vs IFRS:
In GAAP gains/losses are recorded in OCI ONLY for AFS securities. In IFRS the entity may ELECT to records gains/losses to OCI at the initial measurement, but the election cannot be undone.
1239
IFRS investment property
ljwoj
1240
What is a small stock dividend?
Below 20 to 25 % of the previously outstanding shares.
1241
What effect do stock dividends have on retained earnings?
If it is a SMALL dividend they reduce RE by the amount of shares issued X current stock price.If they are a LARGE dividend (bigger than 25%), they are recorded at par value.
1242
JE for treasury stock purchase under cost method?
DR: Treasury stockCR: CashContributed capital is NOT affected. If treasury shares are resold at less than cost, then retained earnings is reduced by the difference in cost and reissue price.
1243
If there is commercial substance to an exchange, the exchange is measured at:
Fair Value. The gain is equal to the old asset's fair value and it's book value. If the fair value was 30 and its book value is 25, the gain is 5.
1244
How does retail inventory method establish lower of cost or market valuation for ending inventory?
By excluding net markdowns from the cost to retail ratio.
1245
Can consolidated financial statements be prepared from a business combination that was accounted for using the acquisition method OR the pooling of interests method?
Yes to both. The pooling of interest method CANNOT be used anymore for business combinations, combinations that happened before that still need to be consolidated.
1246
Does a foreign sub using the local currency as its functional currency has their financials translated or remeasured?
Translated.
1247
Does a foreign sub using US dollars as its functional currency has their financials translated or remeasured?
Remeasured.
1248
Under translation, common stock is translated at the what exchange rate?
The historic exchange rate.
1249
500 shares of 6%, $100 par callable preferred stock are called at $101. The shares were issued at $103 per share. What is the journal entry to record the retirement?
DR preferred stock for 50,000DR PIC-preferred for 1,500CR PIC retirement of preferred for 1,000CR Cash for 50,500
1250
Working capital:
current assets - current liabilities
1251
Acid test:
(cash + net receivables)/current liabilities
1252
Acc Rec turnover:
Sales/ avg net receivables
1253
Inventory turnover:
COGS/ avg inventory
1254
Times interest earned:
EBIT/ interest expense
1255
Return on total assets:
(net income + after-tax interest expense)/ avg total assets
1256
Return on equity:
Net income / avg owners equity
1257
Dividend payout ratio
Common dividends / net income
1258
What are the 2 primary qualitative characteristics?
Relevance and Faithful representation
1259
2 components of relevance:
Predictive value and confirmatory value
1260
3 components of Faithful Representation
Completeness, neutrality, and free from material error
1261
What are the 4 enhancing characteristics?
Comparability, verifiability, timeliness, and understandability
1262
Times interest earned is:
income before interest and income tax over interest expense
1263
What is a central characteristic of a joint venture?
Shared control. None of the participating parties are likely to have unilateral control of the joint venture.
1264
What is the defensive-interval ratio?
The ratio of quick assets to daily operating expenditures. The ratio is showing the length of time in days that the firm can operate with its present liquid resources- so it's a liquidity measure.
1265
Inventory turnover ratio:
COGS/ avg inventory for the period
1266
Where are G/L on remeasurment and translation booked?
Remeasurement is on the income statement, translation go in an equity account. Remeasurement is when the foreign sub's currency is the US dollar. It's translation if the sub's currency is the local foreign currency.
1267
Receivables turnover ratio:
Net sales / avg net accounts receivable
1268
What statements are usually included in personal financial statements?
A statement of financial condition and a statement of changes in net worth.
1269
If a donation is conditional, how should it be accounted for?
As a refundable advance.
1270
For donation of specialized services to a nonprofit, at what value should they be recognized?
Fair value.
1271
For a NP, are contributions spread over a few years restricted or non restricted?
The contribution in the current year is non restricted(unless it comes with an actual restriction), and the contributions for future years are recognized at present value and are RESTRICTED.
1272
When are the payments for an "Annuity Due" made?
At the beginning of each period.
1273
How is a lease payment calculated when the lease payments are due at the beginning of the period?
You divide the FAIR VALUE of the leased equipment by the ANNUITY DUE rate.
1274
What is the journal entry at the inception of a capital lease and the payments are due at the beginning of each period?
DR: Leased asset for its fair value amountCR: Lease Liability for plug amountCR: Cash for the payment amount
1275
How do you calculate the interest expense at the end of the year on a capital lease with payments at the beginning of the period? What is the journal entry?
You multiply the remaining lease liability amount by the interest capitilization rate.DR: Interest expenseCR: Lease liability
1276
How does the LESSOR in a capital lease determine the amount of Lease Receivable?
Multiply the payment by the number of payments.
1277
What is the journal entry by the LESSOR for a capital lease with payments at the beginning of each period?
DR: Lease receivableDR: Cash for the payment amountDR: COGS for the book value amountCR: Unearned interest for the lease rec amount MINUS the BVCR: Equipment for BV amountCR: Sales for the FV amount
1278
Working capital formula
current assets - current liabilities
1279
Acid test formula
(cash + net receivables) / current liabilities
1280
Acc Rec turnover formula
Sales / avg net receivables
1281
Inventory turnover
COGS / avg inventory
1282
Avg collection period for acc receivable?
Net credit sales / avg net acc receivable.... then you divide 365 by that number
1283
What financial statements are required for the Governmental funds?
1)Balance sheet and 2) Statement of revenues, expenditures, and changes in fund balance
1284
What statements are required for the Proprietary funds?
1)Statement of Net Postition2)Statement of revenues, expenditures, and changes in net position3)Statement of cash flows
1285
What statements are required for the fiduciary funds?
1)Statement of net position2)Statement of changes in fiduciary net positiion
1286
Which fund type does the government-wide financials EXCLUDE that are included on the CAFR?
Fiduciary funds.
1287
What are the 3 sections of the CAFR?
1) Introductory2) Financial3) Statistical
1288
If an investment in 30% of another company is accounted for using the fair value method, what is recognized as net income from the investment?
Cash dividends received and increases in the fair value of the investment are recognized in net income from the investment. The portion of the company's net income is NOT recognized in net income from the investment.
1289
A contest prize expense is the present value of the?
Total cost incurred. If the prize is an annual $50,000 payment for 20 years and the company takes out an annuity of $418,250 after making the initial $50,000 payment, the contest prize expense in the current year is $468,250.
1290
The ending balance of the asset retirement obligation should be the:
Beginning balance + the DISCOUNTED cash flow estimate of the new asset + accretion expense - the amount paid during the year.
1291
The debt service fund records cash transfers from the general fund as what, and cash payments as what?
Operating transfers and Expenditures.
1292
During a period of inflation, would a perpetual inventory system result in the same dollar amount of ending inventory as a periodic inventory system under FIFO and LIFO?
Yes with FIFO, No with LIFO. The perpetual system would be calculating COGS based on the latest goods acquired prior to each sale versus all the latest goods acquired during the period under a periodic system.
1293
Does a NOL carryforward directly reduce taxes or taxable income?
Taxable income. If the NOL is 40,000 and taxable income is 60,000, then it reduces taxable income down to 20,000, which is then multiplied by the tax rate.
1294
During a business combination, can the acquisition date be before, on, or after the closing date?
It can be any of the 3.
1295
For state or local governments, encumbrances outstanding at year end should be reported as:
Assigned or committed fund balance.
1296
What does income and dividends from a sub do to the investment account under the equity method?
Income increases the investment, and dividends reduce the investment account.
1297
What is the focus of proprietary funds?
Income determination. Proprietary funds use accrual accounting and they are similar in reporting to private businesses.
1298
What is the entry in the General Fund to record equipment purchased with a capital lease?
DR: ExpendituresCR: Other financing sourcesThe general fund doesn't record fixed assets. The general fund fixed asset account group would record the acquired equipment.
1299
What are funds classified as that can only be used for a specific purpose because of restraints imposed by formal action of the government's highest level of decision making authority?
According to GASB Statement No. 54, amounts that can only be used for a specific purpose, because of constraints imposed by formal action of the government's highest level of decision-making authority, should be reported as Committed Fund Balance. The Restricted Fund Balance classification should be used when constraints are placed on the use of resources are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation.
1300
What is the process for recording collection of accounts that had been written off?
First you debit accounts receivable and credit allowance for doubtful accounts to restore the amounts that had been written off. Then you debit cash for the amount collected, and you credit accounts receivable to take them off the books since they've been collected.
1301
In the general fund, what 3 accounts are affected when property taxes are levied?
Revenue control is credited, property taxes receivable is credited, and allowance for uncollectible taxes is credited. Bad Debt Expense is ONLY an accrual accounting concept, and IS NOT used in modified accrual accounting.
1302
When the direct method for LCM is used, what is the journal entry to write down inventory?
DR: Cost of goods soldCR: Inventory
1303
When using the allowance method under LCM, what is the JE to write down inventory?
DR: Holding lossCR: Allowance for LCM
1304
Under the fair value option, what is recognized as income from the investment company?
Cash dividends and the increase in fair value of the investment are both recognized in net income of the investor.
1305
How does the installment sale method work?
Each payment consists of return of cost and gross profit. You calculate the gross profit percentage by taking the sales price and subtracting the carrying value, and then dividing that number by the sales price. Then you multiply the principal portion of the payment by the gross profit percentage, and then add in the interest payment amount, and that is the amount of revenue to recognize. The return of cost portion of the payment is NOT recognized as revenue.
1306
Gains or losses on retirement of debt used to automatically be classified as extraordinary gains or losses, but now they are:
immediately recognized in full in income from continuing operations.
1307
What rate is used to calculate the amount of dividends from a foreign currency?
The spot rate on the date of declaration is used regardless of translation or remeasurement.
1308
How is the refinancing of a liability due within a year treated under GAAP and IFRS?
Under GAAP, if the refinancing happens before the ISSUANCE date of the financial statements, then it can be considered long term again. Under IFRS, the refinancing has to happen before the BALANCE SHEET DATE for it to be considered a long term liability again.
1309
How is interest expense and dividends paid classified as far as cash flow under IFRS?
Interest expense and dividends paid can be classified as EITHER operating or financing activities.
1310
How is interest revenue and dividend revenue classified under IFRS for cash flows?
They can both be either cash flows from operating OR investing activities.
1311
If the percentage of completion method cannot be applied, how are profits recognized on long-term contracts under GAAP and IFRS?
Under GAAP the profits will be recognized once the job is completed- which is the completed contract method. Under IFRS, all profits will be recognized when all the costs have been recovered- the cost recovery method.
1312
If an IFRS company decides to revalue its equipment each year, what effect would a drop of $2000 in value above regular depreciation be?
It would be a 2000 expense for that year, recognized in income. BUT.... an increase in the value would go under other comprehensive income.
1313
What is the main capital lease criteria under IFRS?
That the lease life is a "major portion" of the equipment life. Thus, a lease of 60% of the equipment's life would qualify as a capital lease.
1314
If both parties consider a lease to be a capital lease, what interest rate do they both use under IFRS?
They both use the implicit rate built into the contract.
1315
Under IFRS, a contingent loss must be recognized if it is...
More likely than not. Even just 51% vs 49% meets this criteria.
1316
How is a prior service cost due to a change in the projected benefit obligation due to a contractual adjustment treated under IFRS and GAAP?
Under IFRS it is expensed immediately to the extent that benefits have vested. Under GAAP it is recorded to accumulated other comprehensive income and then amortized to expense over the years the employees are expected to work.
1317
A bond with face value of 100k is sold at 110k due to a convert option into common stock. How is this recorded under GAAP and IFRS?
Under IFRS 100k would be the liability and the 10k is recorded as equity. Under GAAP the full 110k is debt until it is actually converted.
1318
How is an impairment loss on equipment determined under IFRS?
A loss must be recognized if the book value exceeds the higher of the PRESENT VALUE of the future cash flows and the fair value less necessary costs to sell the equipment.
1319
GAAP vs IFRS research and development costs?
Under GAAP all research and development costs are expensed as incurred. Under IFRS, research costs are expensed, but development costs are capitalized if the company believes that future economic benefits are probable and that the product being developed is commercially and technically feasible.
1320
How are legal costs to successfully defend a patent treated under GAAP and IFRS?
Under GAAP the costs are added to the cost of the patent. Under IFRS the costs are expensed UNLESS the cost increase the future benefits to be derived from the asset.
1321
How are biological assets valued under IFRS?
At fair value less costs to sell.
1322
How is the reversal of an impairment loss recorded under IFRS?
The recovery of an impairment in value must be recognized if the circumstances that caused the impairment are reversed.
1323
A company has two checking accounts: one with 100k and one with negative 10k. How are they reported under GAAP and IFRS?
Under GAAP the negative is reported as a liability, so the cash line will show 100k. Under IFRS they are netted so the cash line would show 90k.
1324
In a period of rising prices, a company that wants to maximize profits will use what inventory method?
FIFO. In rising prices using FIFO, the earliest goods will be sold first which makes COGS lower and NI higher.
1325
Formula for ending DV LIFO balance:
Beginning DV LIFO + (increase at base-year dollars)(price index)300,000 + (400,000 - 300,000)(1.1) = 410,000
1326
What is the ceiling and floor of LCM?
Ceiling is Net Realizable Value and Floor is NRV less a normal profit margin.
1327
Explain LCM
If replacement cost is within the range of the ceiling and floor, then market is replacement cost.If the RC is greater than the ceiling, then market is the ceiling amount.If RC is less than the floor, then market is limited to the floor amount.
1328
How are trademarks classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, amortization depends on whether they are definite or indefinite life, as does impairment.
1329
How are customer lists classified, capitalized, amortized, and impaired?
They can be either definite or indefinite life, only expenditures made to external parties are capitalized, they are amortized, impairment is decided by the recoverable cost test.
1330
How is an initial franchise fee classified, capitalized, amortized, and impaired?
Can be definite or indefinite life, only capitalize expenses to external parties, amortization depends on definite or indefinite, as does impairment.
1331
When a liability has a carrying value less than fair value, does an unrealized gain or loss exist?
An unrealized loss exists. It would be a debit to Impairment loss, and a credit to the liability to increase it to its fair value.
1332
In financial statements prepared on the income-tax basis, how should nondeductible expenses such as meals be reported?
Included in the expense category in determination of income. These are still business expenses and need to be included to calculate income on the financial statements.
1333
For grants, what is a prime factor in determining eligibility for accrual?
The expenditure of resources (spending the money)
1334
What would an entity most likely do to hedge an investment in a foreign operation?
Borrow from another foreign entity with the same foreign currency as the operation being hedged. Since borrowing is a liability, any changes in the foreign currency would offset the investment.
1335
If intercompany fixed asset balances are NOT eliminated, will consolidated income or loss be overstated.
Both can be overstated.
1336
When there is NOT commercial substance to an exchange, gains are recognized:
In proportion to the amount of cash received.
1337
Under the cost method, is the Sub's income or dividends recognized by the parent?
Dividends are recognized as income to the parent.
1338
When transferring a receivable, the loss is the difference between the carrying value of the portion of the asset transferred and the cash received for the:
Transferred portion. Usually the total carrying value will be allocated between the portion of the asset surrendered and portion retained, based on relative fair values.
1339
For estimating income taxes for personal financial statements, assets and liabilities measured at their tax bases should be compared to assets and liabilities measured at their:
Estimated current value and estimated current amount.
1340
Before assets are distributed as a property dividend, the unrecognized holding gain or loss is:
Recognized. If a firm pays a property dividend of a stock it bought for 20,000 when its market value is 25,000, there is a debit to retained earnings for 25,000 and a gain on disposal of 5,000 is recognized.
1341
Bond prices and interest rates are inversely related. When interest rates increase,
the market value of bonds decrease, because there are now better opportunities on the market.
1342
Are fund-based statements or government wide statements included on a CAFR?
They both are. The gov-wide statements focus on the financial results and health of the gov while the fund based statements report how various revenues are derived and spent.
1343
What are the 3 columns on the gov-wide statements?
Gov activities, business type activities, and total gov activities
1344
Which funds are not included in the gov-wide financial statements?
Fiduciary funds.
1345
How is an internal service fund reported on the gov wide statements if another gov agency is its main beneficiary?
As a gov fund instead of a business type fund.
1346
What accounting basis is used to report the gov wide financial statements?
Full accrual accounting.
1347
What statements are required for the gov wide statements?
The statement of net position and the statement of activities
1348
How would 5 year bonds appear in the fund based statements and the gov wide statements?
They wont show up in the fund based statements because they aren't a claim against current assets. They will show up as a long term liability in the gov wide statements.
1349
Does a firm selling put options on its own stock affect liabilities or equity?
It increases liability by the fair value of the options.The liability will be extinguished when the option is exercised or when it expires.
1350
When computing avg shares outstanding during the year, how are stock dividends treated?
Stock dividends are treated as outstanding for the entire year. It is when new stock is issued that it is multiplied by the portion of the year remaining.
1351
Is additional compensation to former shareholders after a business combination considered additional costs of the business combination?
No.
1352
Can a forecasted transaction be hedged?
Yes- in a cash flow hedge since it is forecasted and therefore subject to changes in related cash flow.
1353
Is a finder's fee for a lease expensed or allocated over the lease term?
The finder's fee benefits the entire lease term and is therefore expensed evenly over the lease term.
1354
What exchange rate is used to TRANSLATE a foreign sub's income statement?
The average exchange rate.
1355
If a company changes from FIFO to weighted avg inventory during 2005, how is the cumulative effect of the change measured?
The change is measured as of the beginning of the year of change.
1356
Are the direct costs or the general expenses in a business combination deducted from the corp's net income from the combination?
Both are expensed in the period incurred.
1357
Does the recording of an asset retirement obligation for a natural resources development site increase the liability or the depletion base?
Both. It is a credit to a liability, and a debit to the natural resources account, which is the depletion base.
1358
Under international accounting, the vested portion of prior service cost is immediately recognized in:
Pension expense. The unvested portion is gradually recognized under delayed recognition in pension expense.
1359
If financial statements prepared on another basis besides GAAP are not appropriately titled, the auditor must:
Disclose any reservations in an explanatory paragraph and qualify the opinion for the inappropriate title of the statements.
1360
Under IFRS for SMEs, which inventory valuation method is NOT allowed?
LIFO.
1361
Personal financial statements should report assets and liabilities at:
Estimated current values(fair values) at the date of the financial statements.
1362
What financial statements are included in a set of personal financial statements?
A statement of financial condition (balance sheet) is always included, and a statement of changes in net worth may be included, but is NOT required.
1363
In a personal statement of financial condition, a life insurance policy should be reported at cash surrender value less any:
Loans outstanding against the policy.
1364
In a cash flow hedge, the item being hedged is measured using:
The present value of expected cash inflows or outflows. The item being hedged could be associated with an asset, a liability, or a forecasted transaction.
1365
What is the purpose of reporting comprehensive income?
To summarize all changes in equity from nonowner sources.
1366
What are the "other comprehensive income" items? (4)
Unrealized G/L on AFS securities, unrealized G/L on pension costs, foreign currency translation adjustments, and unrealized G/L on certain derivative transactions.
1367
Who pays the shipping with FOB shipping point?
The title passes to buyer at the shipping point, so the buyer is responsible for paying the shipping charges.
1368
Who pays the shipping with FOB destination?
The seller pays shipping charges to get the goods to the buyer. The title passes to the buyer once they reach their destination.
1369
Under IFRS, how should a company report their investments in bonds when it is a part of their business model to hold such investments solely to receive the cash and interest from principal repayment?
At amortized cost.
1370
Can impairment losses on intangibles be reversed?
No. Losses on plant assets held for disposal can be reversed to the extent of previous losses but intangible impairment losses cannot be reversed.
1371
Which governmental fund type can report a positive amount in the Unassigned fund balance?
The general fund. Other governmental funds cannot have a positive balance in their unassigned fund.
1372
In a sale-leaseback, how is the gain on sale recognized?
It is amortized over the lease term. A 50,000 unearned gain on a sale-leaseback over 10 years will result in 5,000 being recognized in each of the 10 years.
1373
If a city imposes a 2% tax on hotel charges which will be used to promote tourism in the city, what type of nonexchange transaction is this?
It is a Derived Tax Revenue.
1374
How are the different governmental funds reported on the fund-based balance sheet?
The general fund has its own column, then the major funds each have their own column, and then the rest of the individual funds that are not considered major are grouped into a single column.
1375
A fund balance is the amount of assets greater than liabilities. What are the different classes of the fund balance?
Unrestricted- which means it's none of the below and is available for future use.Nonspendable and restricted. This means the money is restricted as to use by an outside party.Committed means the money is committed to a specific use by the highest level of decision making.Assigned means the money has been assigned by officials that are NOT the highest level of authority.
1376
If a city plans on collecting $10k a month from property taxes for the next 18 months, how much revenue should be reported in year one?
$140,000. 10k for each month of the year plus Jan and Feb of the following year.
1377
How is $10k of bonds reported on the gov wide and fund-based statements?
They are a regular liability on the gov wide statements and "other financing source" on the fund based statements.
1378
How is a bond due in 3 months reported on the gov wide & fund-based statements?
It is 'bonds payable' on both.
1379
If a city takes on a project but accepts no liability for the work being done, what type of fund is used.
An agency fund.
1380
How does a transfer from the gen fund to capital projects get reported?
The general fund shows a "other financing use", the capital projects fund shows a "other financing source", and both balances will show up in the total gov funds column. This are no eliminations of "intercompany transactions".
1381
What is the difference between the purchases method and consumption method for the government fund accounting?
Under purchases, the whole purchase is immediately recognized as an expenditure. Under the consumption method, the supplies are moved to expenditures as they are used.
1382
Is a computer or office supplies reported as an asset on the fund-based governmental statements?
Office supplies are an asset- capitalized assets such as a computer are not.
1383
how is a capital lease recorded in the gov fund-based statements?
The PV of the payments is recorded as an expenditure, and an increase in 'other financing sources'.
1384
Do infrastructure assets get depreciated?
They do unless the modified approach is adopted. Then you have to set a minimum level of acceptable condition and maintain documentation to show that the asset is kept at that level.
1385
For general purpose gov statements, is MD&A required?
Yes, it must be included but it is separate from both the gov wide & fund-based statements.
1386
What are the 3 requirements to be a special purpose gov?
1) separately elected governing body. 2) It is legally independent so that it can sue, be sued, and buy and sell property in its own name. 3) Be fiscally independent of all other governments.
1387
On the statement of activities, what is included in program revenues?
Any revenue generated by the activity, as well as any grants related specifically to that activity. This is then netted against the expense.
1388
In troubled debt restructuring, what does the creditor do, and how do they recognize interest on the restructured loan?
They reduce the amount owed to the present value of future cash flows on the ORIGINAL interest rate. Then, they recognize interest by using the original interest rate times the BV of the new receivable. The debtor recognizes a loss as the difference between the current BV of its receivable and the present value of the future cash flows.
1389
In troubled debt restructuring, what does the debtor do?
They compute the total cash flows now owed. So you take the future interest payments and add them to the new principal amount.
1390
If you have an investment that isn't enough to be equity method, then you invest more later that does take it to equity method, how is that treated?
The equity method is retroactively applied to the first amount. So if you owned 10% the whole year then bought another 20% at year end, you would recognize 10% of the company's earnings under the equity method.
1391
How is a capitalized interest problem done? (average accumulated expenditures)
First calculate the average accumulated expenditures. That is taking the amounts spent through the year each multiplied by the portion of the year remaining.Next you calculate avoidable interest. Avoidable interest is the interest on the construction specific loan(s), and then the amount of other debt above the amount of the construction loans.Then calculate actual interest. The lesser of the avoidable interest and the actual interest is the amount that can be capitalized.
1392
When converting financial statements using translation, paid in capital accounts are translated using the ______ rate?
Historic rate in effect when the account arose or the investment was made.
1393
If a firm buys land to build a warehouse on, is the interest from the land loan and the warehouse construction capitalized?
Only interest on the warehouse construction can be capitalized.
1394
If a firm is going to discontinue a segment early next year, but there is a loss in that segment ending this year, how is that loss reported?
As an operating loss of the discontinued segment. This section is below income from continuing ops but above extraordinary items.
1395
What is an accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Aggregate worldwide market value of voting and nonvoting stock of $75 million or more, but less than 700 million. They have 75 days to file 10-K.
1396
What is a large accelerated filer and how long do they have after their fiscal year end to file their 10-K?
Market cap of 700 million or more. They have 60 days to file their 10-K.
1397
A foreign currency transaction is settled in ______ but measured and recorded on the US entity's books in ________.
Non dollarsDollars.
1398
Where are foreign currency exchange gains or losses on acc rec reported?
In current income as an item of income from continuing operations.
1399
What disclosure is required relating to sinking funds and long term debt?
FAS 47 requires the disclosure of the aggregate amount of maturities and sinking fund requirements for all long-term debt for each of the five years following the balance sheet date. The detail of each year for both is shown.
1400
When does a liquidating dividend occur?
When the investee pays more income than was earned during the period the investor owned the shares of the investee.
1401
Describe the cost method:
The cost method is for an investment that DOES NOT give the investor significant influence. The dividends are recognized in income of the investor. The investment remains on the balance sheet at cost unless there is a permanent decline in value, or there is a liquidating dividend.
1402
Under IFRS, are gains and losses on the changes in fair value of equity investments reported in the income statement or in other comprehensive income?
It can be either. If the investment is held for trading purposes, then the changes in fair value are reported in profit/loss.If it's NOT held for trading, the investor may elect to report changes in fair value through other comp. income.
1403
What type of investments can be transferred between categories under IFRS?
Only debt. Equity securities are not allowed to be transferred between categories under IFRS. When investments are transferred, prior period statements must be restated for comparative purposes.
1404
Under IFRS, if debt securities are held NOT as part of the business plan, what are they measured at?
Fair value.
1405
Under IFRS, if debt securities are held as part of the business plan, what are they measured at?
Amortized cost.
1406
Under the equity method for GAAP, what effect does the sub's income and dividends have on the investor's investment account?
The investor's share of income increases the investment account, and dividends decrease the investment account. The investor's share of income from the investee is also recognized as income for the investor.
1407
Which form of business combination results in a NEW legal entity?
Consolidation. In consolidation, 2 or more existing entities are combined into one new legal entity.In a merger, one pre-existing entity is combined into another pre-existing entity. In an acquisition, one entity acquires a controlling interest and both continue to exist as separate legal entities.
1408
Accretion expense is essentially growth in the:
Asset retirement obligation.
1409
Purchases of treasury stock do not affect retained earnings under the:
Cost method.
1410
Return on equity is considered what kind of ratio?
A profitability ratio
1411
What is the defensive-interval ratio and what type of ratio is it?
It is the ratio of quick assets to daily operating expenditures. It is a liquidity ratio.
1412
Does the cost method or the fair value method require a reconciliation of the changes in carrying amounts between the beginning and end of a period?
They both require said reconciliation.
1413
If a decline in inventory value is not considered temporary, the decline is recognized in the quarter in which the decline occurs. Later recoveries are:
Recognized as gains to the extent of the previous losses only.
1414
A discount on a bond is essentially:
Extra interest expense.
1415
Which regulation governs the form and content of financial statement disclosures?
Regulation S-X.
1416
The notional amount in a derivative refers to:
The specified unit of measure. If you have an option to buy 100 shares, the notional amount is the 100 shares.
1417
Where does a first time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?
In retained earnings.
1418
What are the 4 components of the IASB monitoring board? (1 on top, 3 on bottom)
The IFRS foundation is on top, and below it is the IFRS advisory council, the IASB, and the IFRS interpretation committee.
1419
What does the IFRS foundation do and how long is their term?
They appoint members of the IASB, the IFRS Advisory Council, and the IFRS interpretations committee. The trustees serve 3 year terms
1420
What are the objectives of the IFRS foundation? (4)
To develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards. To promote us and rigorous application of IFRS. To consider the needs of a range of size and type of entities. To promote and facilitate adoption of IFRS through convergence.
1421
What does the IASB do?
They establish IFRS reporting standards, but they do NOT have enforcement power. Enforcement is the responsibility of the securities regulators in the national jurisdictions.
1422
What is the IFRS advisory council and who appoints them?
They advise the IASB on priorities and the views of interested organizations. Members are appointed by the IFRS foundation
1423
What does the IFRS interpretations committee do and who appoints the members?
They are similar to the FASB's emerging issues task force: they identify issues in the context of IFRS, their interpretations are reviewed by the IASB. The members are appointed by the IFRS foundation.
1424
What is an SME?
Small and medium-sized entities. IFRS has one single standard for companies that are not publicly traded. Revisions to SME standards only happen once every 3 years.
1425
What are the 2 assumptions in the IASB framework?
That the accrual method is used, and that the entity is a going concern
1426
What statements are required for a first-time adopter of IFRS?
Upon adoption, the first set of statements must have 3 statements of financial position, 2 statements of comprehensive income, two separate income statements, two statements of cash flows, and two statements of changes in equity. Basically they need 3 balance sheets and 2 of everything else.
1427
What is the TRANSITION date of a company to IFRS?
The opening date of the balance sheet for the earliest comparative financial statements. If the first IFRS reporting date is as of Dec 31 Year 2, then the transition date will be Jan 1 year 1.
1428
Upon first time adoption of IFRS, an entity can elect to use fair value as deemed cost for:
Any individual item of property, plant, and equipment.
1429
What is the first reporting date when switching to IFRS?
The year end date for the period which IFRS is first applied.
1430
What are the major characteristics of IFRS for SMEs?
Disclosures are simplified. LIFO is prohibited. Goodwill and indefinite life intangible assets are amortized over a period NOT exceeding 10 years. Depreciation is based on a component approach. Simplified temporary difference approach to income tax accounting. Reversal of impairment charges is allowed in some circumstances. No disclosures for earnings per share and segment disclosures.
1431
Can revenue and AR from a sales commitment be recognized?
Yes. IFRS defines revenue from a balance sheet point of view and is based on the inflow of economic resources.
1432
What is the difference in transfer of receivables under GAAP and IFRS?
GAAP focuses on whether control has shifted from the transferor to the transferee. IFRS focuses on whether the transferor has transferred the rights to receive cash flows from the receivable and whether or not substantially all the risk and rewards of ownership were transferred.
1433
What is the general rule of IFRS when it comes to the value of assets?
That assets aren't carried at more than their recoverable amount. If the asset's carrying value is greater than the amount that could have been recovered through the asset's use or by selling the asset, then it is impaired.
1434
What is the definition of RECOVERABLE AMOUNT under IFRS?
The higher of the fair value less cost to sell or the value in use. Fair value less cost to sell is the amount obtainable from the sale in an arms-length transaction. The value in use is the discounted present value of the future cash flows expected from the asset.
1435
What is a CGU under IFRS?
A cash generating unit is the smallest group of assets that can be identified that generates cash flows independently of the cash flows from other assets.
1436
Does IFRS permit recovery of an impairment loss?
Yes.
1437
Whats the difference in GAAP and IFRS of the reversal of an inventory write-down?
Under IFRS a reversal is allowed. Under GAAP it is NOT allowed.
1438
How often is useful life and depreciation method reviewed under IFRS?
Annually. Under GAAP it's only when events or circumstances change.
1439
Component depreciation GAAP vs. IFRS
Under IFRS, when an item of PPE comprises of individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately.
1440
PPE revaluation GAAP vs IFRS
PPE can be remeasured to fair value if fair value can be reliably measured.
1441
Where does an increase in PPE's fair value ABOVE its original cost go under IFRS?
It goes into a revaluation surplus account which is in OCI. If a truck had gone down in value 10k then back up 15k in the next year, the first 10k would be in the profit and loss statements. The extra 5k would go into the revaluation surplus account in OCI.
1442
What investment classifications exist under IFRS?
Held to maturity which is debt measured at amortized cost, and Fair value, all equity is at fair value.
1443
Difference of HTM classification in GAAP vs IFRS:
Under GAAP the test is whether the firm has the positive ability and intent to hold to maturity. Under IFRS it's the business model test, which evaluates if holding the debt for the cash flow is part of the business model.
1444
Transfer from HTM differences GAAP vs IFRS
In GAAP you transfer from HTM when you no longer have the positive ability and intent to hold to maturity. Under IFRS you transfer from HTM only when the business model objective changes
1445
OCI for investments differences in GAAP vs IFRS:
In GAAP gains/losses are recorded in OCI ONLY for AFS securities. In IFRS the entity may ELECT to records gains/losses to OCI at the initial measurement, but the election cannot be undone.
1446
IFRS investment property
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1447
What is a small stock dividend?
Below 20 to 25 % of the previously outstanding shares.
1448
What effect do stock dividends have on retained earnings?
If it is a SMALL dividend they reduce RE by the amount of shares issued X current stock price.If they are a LARGE dividend (bigger than 25%), they are recorded at par value.
1449
JE for treasury stock purchase under cost method?
DR: Treasury stockCR: CashContributed capital is NOT affected. If treasury shares are resold at less than cost, then retained earnings is reduced by the difference in cost and reissue price.
