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CPA > FAR - Becker F1 > Flashcards

FAR - Becker F1 Flashcards

1
Q

According to the FASB and IASB conceptual framework, the primary users of financial reports are

A
  • Lenders
  • Investors
  • Creditors
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2
Q

According to the FASB and IASB conceptual framework, useful information must exhibit the fundamental qualitative characteristics of:

A

relevance & faithful representation

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3
Q

What is the underlying concept governing the recording of gain contingencies?

A

Conservatism

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4
Q

According to the FASB conceptual framework, what attribute is not used to measure inventory?

A

Present value of future cash flows

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5
Q

According to the FASB and IASB conceptual frameworks, the objective of general purpose financial reporting is to:

A

provide financial information that is useful to primary users.

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6
Q

According to the FASB and IASB conceptual framework, COMPLETENESS is an ingredient of:

A

Faithful Representation

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7
Q

RELEVANCE ingredients:

A

Passing confirms money - PCM

  • Predictive value
  • Confirming value
  • Materiality
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8
Q

FAITHFUL REPRESENTATION ingredients:

A

Completely neutral is free from error

  • Completeness
  • Neutrality
  • Freedom from error
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9
Q

What is the underlying concept that supports the immediate recognition of a contingent loss?

A

Conservatism

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10
Q

According to the FASB conceptual framework, the process of reporting an item in the financial statements of an entity is:

A

Recognition

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11
Q

The joint FASB and IASB conceptual framework project is intended to establish:

A

A common set of objectives and concepts for use in developing standards of financial accounting and reporting.

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12
Q

Financial information provided in general purpose reports include information about:

A
  • information about the resources of the entity
  • the claims against the entity
  • how effectively and efficiently management and governing body have discharged to use the resources
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13
Q

According to the FASB conceptual framework, what conforms to the realization concept?

A

depreciation equipment was sold in exchange for a note receivable

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14
Q

According to the FASB and IASB conceptual frameworka, what are the ENHANCING qualitative characteristic?

A
  • Timeliness
  • Understandability
  • Comparability
  • Verifiability
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15
Q

A U.S public company needs guidance in accounting for and reporting a complex derivative transaction that it entered into with a European subsidiary. This company is most likely to find the appropriate guidance in the:

A

FASB Accounting Standards Codification

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16
Q

The International Financial Reporting Standards cannot be used by a U.S. public company as a source of U.S. GAAP

A

TRUE

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17
Q

The FASB Statements of Financial Accounting Concepts are GAAP

A

FALSE

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18
Q

FASB Statements of Financial Accounting Standards are included in the FASB Accounting Standards Codification

A

TRUE

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19
Q

SFAC

A

FASB Statement of Financial Accounting Concepts

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20
Q

SFAC #7 - five elements of present value (or economic value) measurement used to establish the value of assets or liabilities using cash flows.

A

UVOTE

  • Uncertainty, The price for bearing uncertainty
  • Variations, Expectations about time variations of future cash flows
  • Other factors (liquidity issues and market imperfections)
  • Time value of money (the risk-free rate of interest)
  • Estimate of future cash flow
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21
Q

The quality of information that helps users forecast future outcomes is:

A

Predictive value (a Relevance component)

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22
Q

Quality that provides feedback about evaluations previously made by users

A

Confirming value (a Relevance component)

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23
Q

Quality that financial information faithfully represents the reported economic phenomena.

A

Representational faithfulness

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24
Q

Depiction of financial information that is free from bias in selection or presentation

A

Neutrality

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25
Q

What assumption means that money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis?

A

Monetary Unit (GAAP)

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26
Q

Assumption that presumes that an entity will continue to operate in the foreseeable future

A

Going concern

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27
Q

Assumption that economic activity can be divided into meaningful time periods

A

Periodicity assumption

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28
Q

Best describes an operating procedure for issuing FASB Accounting Standards Update

A

An ASU is issued only after a majority vote by the members of the FASB

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29
Q

Financial Accounting is more precise than Managerial Accounting

A

TRUE

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30
Q

Managerial Accounting focuses on the future

A

TRUE

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31
Q

Financial Accounting focuses on the future

A

FALSE, focus on past reporting

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32
Q

Conservatism states:

A

revenues and gains should be recognized when the earnings process is complete, but that expenses and losses should be expensed immediately.

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33
Q

Replacement cost (acquisition cost) is defined as:

A

the amount of cash or its equivalent that would be paid to acquire or replace an asset currently.

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34
Q

Current market value (FMV):

A

is the price to SELL(not acquire) an asset.

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35
Q

Historical cost:

A

is the amount paid by a company to acquire an asset.

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36
Q

Net realizable value:

A

is the selling price of an asset less any disposal costs

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37
Q

What are the underlying assumption of financial statement preparation and presentation, according to IASB

A

Going concern and accrual accounting

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38
Q

What is the MOST authoritative source of U.S. GAAP?

A

FASB Accounting Standards Codification (ASC)

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39
Q

FASB SFAC are not GAAP.

A

TRUE

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40
Q

Best describes an operating procedure for issuing a new International Financial Reporting Standard?

A

An exposure draft has to be approved by at least 9 of the 15 IASB members

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41
Q

Reliability is:

A

referred to as faithful representation in SFAC No. 8

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42
Q

According to what SFAC is financial information relevant if it is capable of making a difference in the decisions made by users and has predictive and/or confirmin value.

A

SFAC No. 8

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43
Q

A proposed accounting standards update is prepared by the FASB as part of the due-process activities for amending the FASB Accounting Standards Codification (ASC)

A

TRUE

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44
Q

A proposed statemnent of position is issued by:

A

the American Institute of Certified Public Accountants (AICPA)

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45
Q

Accounting research bulletins are no longer issued

A

TRUE

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46
Q

A proposed staff accounting bulletin is issued by:

A

U.S. Securities Exchange Commission and is not part of the due process activities of FASB for amending FASB ASC

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47
Q

Gains and losses of fixed assets are reported using the NET CONCEPT

A

TRUE

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48
Q

Fixed assets are not considered a component of an entity

A

TRUE

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49
Q

Should you combine gains and losses from previous years once a business declares it is discontinuing its division?

A

NO, only net out the gains and losses for that particular year only

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50
Q

Changes in estimates are handled how?

A

Prospectively, which means that you do not go back and make changes in the prior years. So there should not be cumulative effect adjustments.

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51
Q

What happens when a change in accounting principle is considered inseparable from a change in estimate?

A

The change will be handled as a change in estimate, so it is prospectively and has no cumulative effect adjustments

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52
Q

How should the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate be reported?

A

Same as a change in estimate.

Prospectively, as a component of income from continuing operations

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53
Q

What accounting treatment is applied for a correction of error?

A

Retroactive

Requires a restatement to prior periods by making adjustments to retained earnings.

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54
Q

What factors constitutes an extraordinarily loss under US GAAP?

A

The event must be both unusual AND infrequent

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55
Q

What happens to the operating result of a component once the company decides to dispose that component?

A

The operating results, as well as the gain and loss from the disposal for that period, should be reported separately from continuing operations. The results should be reported in discontinued operations.

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56
Q

Difference between US GAAP and IFRS for extraordinary gains and losses?

A

US GAAP allows reporting of gains and losses as extraordinary.

IFRS prohibits that reporting. So the gain and loss would be reported as a component of income from continuing operations

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57
Q

Cash basis reporting is NOT an accounting principle under accrual accounting principles so:

A

It cannot be a change in accounting principle. It would be a correction of error, resulting in prior period adjustments to retained earnings

58
Q

Under US GAAP, a material gain or loss should be presented separately as a component of income from continuing operations when it is?

A

Unusual OR infrequent in occurrence.

If it was AND then it would be extraordinary

59
Q

Cumulative effect of a change in accounting principle is shown as:

A

An adjustment to beginning retained earnings

60
Q

What happens when a company’s asset’s carrying value is more than the FMV during a held for sale?

A

The company reports an impairment loss

61
Q

Impairment losses are included in which period?

A

The period that the company puts the component up for sell

62
Q

What is IDEA?

A

Income from continuing operations - I/S

Discontinued operations - I/S

Extraordinary items - I/S

Accounting principle changes - R/E

63
Q

Change in accounting estimates affects:

A

Only the current and subsequent future periods ( if the change effects both)

64
Q

What requires adjustments to prior periods?

A
  • change in entities
  • change in accounting principle
  • correction of errors
65
Q

A change in depreciation method is no longer considered to be a change in accounting principle, so

A

It is now considered a change in estimate, so it is prospective, meaning no adjustments are needed. The change will take effect in the current year.

66
Q

IFRS doesn’t discuss changes in reporting entity, but US GAAP does.

A

TRUE

67
Q

The cumulative effect of a change in accounting estimate should be shown separately:

A

It should not be recorded separately on and financial statements. Only a footnote disclosure is necessary, if it is a material change.

68
Q

Are foreign devaluations and losses from discontinued operations extraordinary items?

A

NO

69
Q

Under IFRS, reporting of gains and losses as extraordinary is prohibited?

A

TRUE, but allowed for US GAAP

70
Q

Are expropriation of plant by a foreign government and the loss relative to illegality of product, extraordinary items?

A

YES

71
Q

Which items are not extraordinary?

  • foreign exchange loss
  • lose relative to default on A/R
  • severance agreement with CEO
A

All of these are not extraordinary

72
Q

What are the “held for sale” criteria? Hint. There are 6

A
  1. Management commits to a plan to sell the component
  2. The component is available for immediate sale in its present conditions
  3. An active program to locate a buyer has been initiated
  4. The sale of the component is probable and the sale is expected to be completed within a year
  5. The sale of the component is being actively marketed
  6. It is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn
73
Q

Under US GAAP, an extraordinary gain should be reported as a direct increase to:

A

Net income.

Extraordinary items are a component of net income, after ID

74
Q

What cost are associated with exit and disposal activities?

A
  • costs to relocate employees
  • benefits related to involuntary (not voluntary) employee termination
  • cost to terminate a contract that is not a capital lease ( capital lease termination costs are accounted for separately from exit and disposal activities )
75
Q

What are the criteria for recognizing a liability associated with exit or disposal activities?

A
  1. An obligating event has occurred
  2. The event results in a present obligation to transfer assets or to provide services in the future.
  3. The entity has little or no discretion to avoid the future transfer of assets or providing of services
    * an entity’s commitment to an exit or disposal plan is not enough to result in liability recognition
76
Q

Where are exit and disposal costs reported?

A

Reported in discontinued operations on the income statement

77
Q

Employee termination benefits are exit and disposal cost:

A

TRUE

78
Q

Cost to terminate a operating lease are exit and disposal cost related.

A

TRUE

79
Q

Under IFRS, changes in accounting principle must:

A

Present three balance sheets (end of current period, End of prior period, and beginning of prior period) and two of each other F/S (current period and prior period). Adjustments are made to the beginning of retained earnings in the PRIOR PERIOD (US GAAP is made in the current period for no comparative F/S)

80
Q

Unrealized gain on available-for-sale securities is reported on?

A

OIC - other comprehensive income

81
Q

Under IFRS and US GAAP, correction of errors are retrospective, so:

A

The amount of correction needs to be corrected in the year it was incorrect

82
Q

Assets “held for sale” are no longer depreciated.

A

TRUE

83
Q

Assets actively held for sale is valued at?

A

Lower of its book value OR net realizable value

84
Q

Held for sale assets are classified as current assets because they are expected to be sold within a year.

A

TRUE

85
Q

Comprehensive income relates to PUFE R means?

A
  • Pension adjustments
  • Unrealized gains and losses (AFS securities), but trading securities is reported in net income
  • Foreign currency items
  • Effective portion cash flow hedges
  • Revaluation surplus ( IFRS only), but revaluation loss is reported in net income
86
Q

Comprehensive income is NON-OWNER TRANSACTIONS.

A

TRUE

87
Q

Mnemonics for comprehensive income PUFE R. What’s the saying?

A

PUFE likes to revalue his income

88
Q

Comprehensive income includes all changes in equity during a period except those resulting from owner investments and distributions. T/F?

A

TRUE

89
Q

Owner investments and distributions get included into comprehensive income. T/F

A

FALSE, comprehensive income is changes in equity from non-owner transactions

Also, issuing capital stock is a non-owner transaction.

90
Q

Presentation of comprehensive income MUST be shown on the face of the I/S?

A

NO

  • it can be shown on the face of the income statement, below net income in a separate section

OR

  • in a separate “statement of comprehensive income”

OR

  • as a component of the statement of changes of owner’s equity (US GAAP ONLY)
91
Q

Related tax effects for components must be disclosed during presentation of comprehensive income. T/F?

A

TRUE.

Must be disclosed on the face or in the notes of the statement

92
Q

Reclassification adjustments must be shown in the F/S that discloses comprehensive income to:

A

Avoid double counting in comprehensive income items, which currently displayed in net income

93
Q

Transactions with shareholders are not included in comprehensive income, such as:

A

Paying dividends and issuing capital stocks

94
Q

Comprehensive income is presented in BOTH interim (quarterly) and year end financial statements. T/F?

A

TRUE.

  • with income statement OR
  • by itself
95
Q

Accumulated OCI ( other comprehensive income ) is a component of stockholder’s equity on the balance sheet. T/F?

A

TRUE

But remember that stockholder’s transactions DO NOT APPLY to comprehensive income

96
Q

The four components of OTHER COMPREHENSIVE INCOME are:

A
  • Pension changes in funded status: due to gains and losses, prior service costs, and net transition assets or obligations
  • Unrealized (holding) gains and losses on AFS Securities and the transfers from held maturity to AFS securities
  • Foreign currency items, including translation adjustments
  • Effective portion of cash flow hedges
97
Q

What is the purpose of information presented in notes to the financial statements?

A

To provide disclosures required by GAAP, SFAC PARA. 7

98
Q

Loans to officers should be reported as related party disclosures. T/F?

A

TRUE.

Because they are outside of the ordinary course of business. US GAAP does not require officers salaries to be included, but IFRS does.

99
Q

BOTH the amount due to the affiliate and the dollar amount of the purchases during the year must be disclosed in a related party transaction. T/F?

A

TRUE

If you’re not sure, disclose the most rather than the least

100
Q

IFRS DOES NOT require loans to officers and officer’s salaries to be disclosed as related party transactions. T/F?

A

FALSE

  • IFRS requires both to be disclosed, but US GAAP does not require salaries to be disclosed, only the loan
101
Q

When should significant estimates be disclosed?

A

When it is reasonably Possible ( not probable)

102
Q

Interim financial statements emphasize which ENHANCING qualitative characteristics?

A

Timeliness

By providing financial information based on actual performance to date and estimates prior to year end

103
Q

How should interim financing reporting be viewed primarily?

A

As reporting for an integral part of an annual period

104
Q

At the end of which quarter, should effective tax rate expected to be applicable for the full year? Estimated?

A

At the end of the second quarter.

105
Q

When are losses reported on interim income statements?

A

When the loss is probable and estimable

106
Q

Which tax rate should be used to calculate tax expense for interim financial statements?

A

The effective annual income tax rate

107
Q

What valuation method is used for interim financial statements?

A

Lower of cost OR market method

108
Q

For interim reporting, what happens to expenses that benefit multiple periods?

A

The expenses should be allocated equally to those periods that it benefits

109
Q

How are discontinued operations and extraordinary items that occur at midyear initially reported?

A

Included in net income and disclosed in the notes to interim financial statements

110
Q

A reportable operating segment is one having, what percentage of all revenue (including revenue from unaffiliated sales and from inter segment sales) ?

A

10 % of all revenue

111
Q

Unaffiliated customers sales and intracompany sales MUST be disclosed separately. T/F?

A

TRUE

112
Q

Operating profit by segments is based on the measure of profit reported to the “ Chief Operating Decision Maker “. T/F?

A

TRUE.

In direct operating expenses, Interest expense, income taxes, equity in net income of another company, gains or losses on discontinued operations, and general corporate expenses are NOT allocated to the divisions solely for the purposes of segment disclosures. UNLESS, they are included in the determination report

113
Q

US GAAP DOES NOT REQUIRE public business enterprises to report segment information about a company’s major customers if that customer provides 10% or more of the combined revenue of all operating segments. T/F

A

FALSE

Applies to all segments and not just a particular one

114
Q

A segment meets the size test if the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of:

A
  1. The combined reported profit of all operations segments that did not report a loss, or
  2. The combined reported loss of all operating segments that did report a loss.
115
Q

ONLY publicly-traded enterprises are required to report on business segments. T/F?

A

TRUE

116
Q

Segment liabilities are reported in both US GAAP and IFRS. T/F?

A

FALSE

  • segment liabilities are reported under IFRS ONLY
117
Q

Do development stage enterprises use the same GAAP as established enterprises?

A

Yes

  • development enterprises also has to provide additional disclosures
118
Q

All organization costs (start-up costs) should be expensed when incurred, such as:

A
  • legal fees for incorporation and other related matters
  • underwriting fees for initial stock offerings should be recorded as a reduction of contributed capital
  • exploration costs should be expenses as research and development
  • purchases of mineral rights should be capitalized as fixed assets
119
Q

What kind of disclosures would a development stage enterprise have?

A
  1. Describe cumulative net losses as a “deficit accumulated during the development stage “ in the balance sheet
  2. Show revenue and expenses for each period being presented, and present a cumulative amount (generally of losses) from the company’s inception, in the income statement
  3. Include cumulative amounts of cash inflows and outflows from the company’s inception and for each period, in the statement of cash flow
  4. Include, # of shares of stock, dates of issuance, dollar amount assigned, and non cash considerations, in the statements of shareholder’s equity
120
Q

What is FORM 3?

A

Form required to be filed by directors, officers, or beneficial owners of a class of equity securities of a registered company and DOES NOT contain financial statements

121
Q

What is form 10-K?

A

Annual report of a U.S registered company, has f/s

122
Q

What is form 20-F?

A

The annual report of non-U.S registrant, has audited f/s

123
Q

What is form 11-K?

A

Annual report of an entity’s employee benefit plan, has financial statements of benefit plan

124
Q

What is form 40-F?

A

Annual report by specific Canadian companies registered with the SEC, has audited f/s

125
Q

What is form 6-K?

A

Semi-annual report filed by foreign private issuers, has unaudited f/s

126
Q

What is the maximum amount of days after the company’s fiscal year end that the company has to file form 10-K with the SEC? For an accelerated filer

A

75 days

An accelerated filer is an issuer:

  • with a public float of greater than or equal to $75 million
  • subject to the SE Act’s reporting requirements for greater than or equal to 12 months
  • that previously filed at least 1 report
  • which is not eligible to file quarterly and annual reports on forms 10-QSB and 10-KSB
127
Q

Days to file with SEC for large accelerated filers?

A

60 days

128
Q

Days to file with SEC for non-accelerated filers?

A

90 days

129
Q

When do 10-Q need to be filed for large and small corporations?

A

Large corporation = within 40 days after the end of the quarter

Small corporation = within 45 days after the end of the first three quarters of each fiscal year.

130
Q

Financial capital maintenance is considered to be an element of both “currently reported net income” and “comprehensive income “. T/F?

A

True

131
Q

What is an assets essential characteristics?

A

They are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

132
Q

Should both depreciation method and composition be disclosed in the summary of significant accounting policies?

A

No,

Depreciation method should be but not composition

133
Q

Significant accounting policies disclosures are based on?

A

Method of accounting policies

134
Q

Freight-in is a part of ?

A

Cost of goods sold

135
Q

Freight out is a part of?

A

Selling expenses

136
Q

Is loss on abandonment of equipment extraordinary?

A

No

It’s not usual

137
Q

Do both anti trust action cost and production costs get reported as extraordinary?

A

No

Only antitrust action is extraordinary

138
Q

Changes to LIFO:

A

Do not require cumulative effect adjustments

They are treated prospectively

139
Q

Changes from LIFO:

A

Requires cumulative effect adjustments

Handled retrospectively

140
Q

Temporary market declines in inventory need not be recognized at interim when a turn around can REASONABLY be expected to occur before the end of the fiscal year? T/F?

A

True

141
Q

The computation of a company’s second quarter provision for income taxes uses an effective tax rate expected to be applicable for the full fiscal year. The effective tax rate should reflect anticipated:

A
  • foreign tax rate
  • available tax planning alternatives
  • anticipated tax credits
  • capital gains rates
  • foreign tax credits
142
Q

To be a reporting segment, a segment must be at least 10% of:

A
  1. Combined revenues

OR

  1. Operating income (of all segments not having an operating loss)

OR

  1. Identifiable assets

CPA (15 decks)

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