FAR: ALL: 2/15/2018 Flashcards Preview

CPA: Tiffany's Notes > FAR: ALL: 2/15/2018 > Flashcards

Flashcards in FAR: ALL: 2/15/2018 Deck (10):
1

Which of the following concepts is not part of the definition of a derivative under IFRS?

1) The instrument has one or more underlyings.
2) The instrument requires little or no initial net investment.
3) The instrument permits net settlement.
4) The instrument has a notional amount.

The instrument has a notional amount.

The definition of a derivative under IFRS does not include the concept of notional amount.

2

Verona Co. had $500,000 in short-term liabilities at the end of the current year. Verona issued $400,000 of common stock subsequent to the end of the year, but before the financial statements were issued. The proceeds from the stock issue were intended to be used to pay the short-term debt. What amount should Verona report as a short-term liability on its balance sheet at the end of the current year?

1) $0
2) $100,000
3) $400,000
4) $500,000

$100,000

This answer is correct. ASC 470-10-45-14 allows classification of short-term liabilities expected to be refinanced to be classified as noncurrent assuming that the short-term liabilities do not arise from the normal course of business (e.g., accounts payable and accrued liabilities). Therefore this answer is correct because the $400,000 may be reclassified as noncurrent.

3

Which one of the following payments by an acquirer in a business combination is most likely to be a part of the cost in recording a business combination transaction?

1) Payment by the acquirer to settle a trade payable due to the acquired entity
2) Payment by the acquirer to the acquiree's management personnel to remain with the firm for one year following the business combination
3) Payment by the acquirer to the acquiree for a valid patent not previously recognized by the acquiree
4) Payment by the acquirer to reimburse the acquiree for cost it incurred in carrying out the business combination

Payment by the acquirer to the acquiree for a valid patent not previously recognized by the acquiree

Payment for a valid patent, even though not previously recognized by the acquiree, most likely would be a part of the business combination transaction. Since costs of developing a patentable item are expensed when incurred, the acquiree may not have recognized any asset associated with the patent, but the acquirer should record the patent acquired in a business combination at fair value.

4

Rig Co. sold its factory at a gain and simultaneously leased it back for 10 years. The factory's remaining economic life is 20 years. The lease was reported as an operating lease.

At the time of sale, Rig should report the gain as

1) Part of income from continuing operations.
2) An asset valuation allowance.
3) A separate component of stockholders' equity.
4) A deferred credit.

A deferred credit

The gain or loss on a sale-leaseback is deferred and amortized over the term of the lease for both operating and capital leases. There is no information about present value of lease payments or fair value of the asset.

Because this is an operating lease, the deferred gain is treated as a deferred credit. If it were a capital lease, it would be treated as an asset valuation allowance.

5

In 20X5, Elm Corp. bought 10,000 shares of Oil Corp. at a cost of $20,000. On January 15, 20X6, Elm declared a property dividend of the Oil stock to shareholders of record on February 1, 20X6, payable on February 15, 20X6. During 20X6, the Oil stock had the following market values:

January 15 $25,000
February 1 26,000
February 15 24,000

What is the net effect in retained earnings?


1) $20,000
2) $24,000
3) $25,000
4) $26,000

$20,000

The property dividend is recorded at market value, with a debit of $25,000 to retained earnings at declaration. A gain of $5,000 on the securities is recognized as a gain on disposal (as if it were sold). The net effect is a decrease in retained earnings of $20,000.

6

Which of the following is a fundamental (primary) qualitative characteristic of useful financial information included in IASB's Framework?

1) Comparability.
2) Timeliness.
3) Relevance.
4) Understandability

Relevance

Relevance and faithful representation are the two fundamental qualitative characteristics of financial information (IASB Framework 5-18).

7

In April Year 1, Delta Hospital purchased medicines from Field Pharmaceutical Co. at a cost of $5,000. However, Field notified Delta that the invoice was being canceled and that the medicines were being donated to Delta.

Delta should record this donation of medicines as

1) A memorandum entry only.
2) A $5,000 credit to nonoperating expenses.
3) A $5,000 credit to operating expenses.
4) Other operating revenue of $5,000.

Other operating revenue of $5,000.

Medicine is considered essential to the major ongoing operation of the hospital, therefore the donation of medicine is recorded as other operating revenue at its fair value.

dr. Inventory of Medicine

cr. Donated Revenues

ASC 958-605-30-9

8

500 shares of 6%, $100 par convertible preferred stock were issued at $103 per share. Each share is convertible into 20 shares of $5 par common stock. The journal entry to record conversion includes which of the following?

1) Dr. preferred stock $51,500.
2) Dr. retained earnings $1,500
3) Cr. paid in capital in excess of par, common $1,500.
4) Cr. common stock $51,500

Cr. paid in capital in excess of par, common $1,500.

The contributed capital accounts for the preferred are closed and the total amount is transferred to the common stock accounts resulting from issuance upon conversion. The total par value of common stock is first credited to the common stock account. If there is a credit remainder, it is recorded in paid in capital in excess of par, common. If there is a debit remainder, retained earnings is debited. In this case, there is no remainder. The journal entry is:

DR: Preferred stock 500($100) 50,000
DR: PIC-preferred 500($103 − $100) 1,500
CR: Common stock 500(20)($5) 50,000
CR: PIC-common 1,500

9

Hospital, Inc., a not-for-profit organization with no governmental affiliation, reported the following in its accounts for the current year ended December 31:

Gross patient service revenue from all services provided at the established billing rates of the hospital (note that this figure includes charity care of $25,000) $775,000
Provision for bad debts 15,000
Difference between established billing rates and fees negotiated with third-party payors (contractual adjustments) 70,000

What amount would the hospital report as net patient service revenue in its statement of operations for the current year ended December 31?

1) $680,000
2) $690,000
3) $705,000
4) $735,000

$680,000


The formula is as follows:
+  Gross Patient Service Revenues (including Ancillary Revenues): $775,000
−  Charitable Services: $25,000
=  Patient Service Revenue: $750,000
−  Less Contractual Adjustments: $70,000
=  Net Patient Service Revenue (first line in Statement Activities): $680,000

10

How should a nongovernmental not-for-profit organization classify gains and losses on investments purchased with net assets with donor restrictions?

1) Gains may not be netted against losses in the statement of activities.
2) Gains and losses can only be reported net of expenses in the statement of activities.
3) Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in net assets without donor restriction.
4) Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in permanently restricted net assets.

Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in net assets without donor restriction.


Correct! If the donor placed restrictions on the use of gains (purpose or time restrictions), the gains are temporarily restricted until the restriction is met. If there are no restrictions, the gains and losses are unrestricted. Revenues and expenses that must be reported should be reported separately but gains and losses may be reported net.