FAR CPA Lessons 209-233 Flashcards

Question

What kind of hedge is a Forecasted Transaction

Answer 1

cash flow hedge

Answer 2

fair value hedge

Answer 3

To make a profit as a result of exchange rate changes either by buying foreign currency for future delivery at a price lower than its value when delivered or by selling foreign currency for future delivery at a price higher than it can be bought at the delivery date.

Answer 4

when a domestic (U.S.) entity must convert financial statements denominated (expressed) in a foreign currency into their domestic (dollar) equivalents.

Answer 5

1. Apply equity method by U.S. investor 2. Combine with other entities 3. Consolidate with U.S. parent (and other subsidiaries)

Answer 6

1. To provide information that is generally compatible with the expected economic effects of rate changes on an enterprise's cash flows and equity, and 2. To reflect in consolidated statements the financial results and relationships of the individual consolidated entities as measured in their functional primary currencies in conformity with U.S. GAAP.

Answer 7

The currency in which the foreign entity's books of account are maintained

Answer 8

The currency in which the final (e.g., consolidated) financial statements are expressed

Answer 9

The currency of the primary economic environment in which an entity operates and generates net cash flows

Answer 10

cumulative inflation of 100% or more over a three-year period

Answer 11

1. If operations are a direct and integral component or extension of a U.S. entity's (e.g., Parent's) operations, or 2. When the foreign entity is located in a country with a highly inflationary economy, defined as cumulative inflation of 100% or more over a three-year period.

Answer 12

If the foreign entity generates most of its cash flows in the currency of another foreign country or if required by law or contract.

Answer 13

Use exchange rate at dates on which earned or incurred - or a weighted average

Answer 14

Use spot rate at balance sheet date

Answer 15

Use historic rate in existence when paid-in-capital rose

Answer 16

The amount needed to make the Balance Sheet (expressed in dollars) balance is the amount of the translation adjustment.

Answer 17

calculated as beginning retained earnings + translated net income - dividends declared converted at spot rate at date of declaration

Answer 18

Assets and liabilities valued at past prices: - Securities carried at cost, if any - Inventories carried at cost - Prepaid costs - Fixed assets/accumulated depreciation - Intangibles (goodwill, etc.) - Deferred revenue - Paid-in capital Revenue and expenses related to assets and liabilities converted at Historic Rate (only): - COGS (when Inventory at cost) - Depreciation - Amortization of Intangibles (not GW!)

Answer 19

Amount needed to make the trial balance debits and credits (expressed in dollars) balance is amount of remeasurement adjustment -reported as a gain or loss in the income from continuing operations on the income statement

Answer 20

If the U.S. dollar is the functional currency of a foreign entity, the financial statements of that entity should be converted to U.S. dollars using the remeasurement process

Answer 21

Monetary and non-monetary

Answer 22

A foreign currency other than the recording currency equals the functional currency

Answer 23

Foreign, functional and presentation

Answer 24

A lease is a contractual agreement between a lessor and lessee conveying the right to use property, plant, or equipment for a specified period of time in exchange for consideration (“consideration” is usually cash payments).

Answer 25

A lease that does not transfer control (or ownership) of the leased asset to the lessee. This is a lease that is not classified as a finance lease by the lessee, is not classified as a sales-type lease or direct-financing lease by the lessor, and has a lease term greater than 12 months.

Answer 26

A lease that transfers control (or ownership) of the leased asset to the lessee. The lessee recognizes a right-of-use asset and a lease liability on its books and recognizes interest expense and amortization over the lease term The lessee “capitalizes” the leased asset. The lessor removes the asset from its books, replaces it with a financial asset (lease receivable), and recognizes interest revenue over the lease term.

Answer 27

the present value of the future lease payments is debited to the leased asset (right-of-use asset) and credited to the lease liability accounts

Answer 28

the present value of the future lease payments is debited to the leased asset (right-of-use asset) and credited to the lease liability accounts

Answer 29

the present value of lease payments is debited to the financial asset (a receivable) created at inception (beginning of the lease)

Answer 30

records lease or rent expense as time passes, typically on a monthly basis. - Lessee monthly journal entries: - Lease Expense (debit) - Cash or Accounts Payable (credit)

Answer 31

records lease or rent revenue as earned, also typically on a monthly basis. - Lessor monthly journal entries: - Cash or Accounts Receivable (debit) - Lease Revenue (credit)

Answer 32

1. Calculate the interest to be included in the lease expense by using the effective interest method. 2. Calculate the amortization of the right-of-use asset based on the portion of lease payment assigned to the lease liability and to the amortization of the right-of-use asset.

Answer 33

he period during which the lessee can reasonably be expected to continue leasing the asset. It is the fixed noncancelable term of the lease plus periods covered by bargain renewal options plus all periods covered by renewal options during which there is a loan outstanding from the lessor to the lessee.

Answer 34

an option whereby the lessee will have an opportunity in the future to purchase the asset at an amount that is significantly less than the asset's fair market value on that future date.

Answer 35

related to the condition of the property at the time that it reverts back to the lessor. If the lessee guarantees the residual value, the lessee is responsible for the condition of the asset at the conclusion of the lease term

Answer 36

the lessee is not responsible for the condition of the asset at the conclusion of the lease agreement

Answer 37

- casualty insurance - maintenance - property taxes These costs are usually not capitalized by either party; rather they represent annual expenses associated with owning and maintaining the asset.

Answer 38

All the payments the lessee is expected to make under the lease 1. The annual lease payments 2. Bargain purchase option 3. If no bargain purchase option exists, any residual value guaranteed and expected to be paid by the lessee at the expiration of the lease term 4. . Any penalty payments the lessee is required to make for not renewing the lease term 5. Excluded are payments required by the lessee for damage, extraordinary wear and tear, or excessive usage because they cannot be estimated

Answer 39

All the payments the lessor is expected to receive the lease 1. The annual lease payments 2. Bargain purchase option 3. If no bargain purchase option exists, any residual value guaranteed and expected to be paid by the lessee at the expiration of the lease term 4. . Any penalty payments the lessee is required to make for not renewing the lease term 5. Excluded are payments required by the lessee for damage, extraordinary wear and tear, or excessive usage because they cannot be estimated 6. Any residual value guaranteed by a third party unrelated to either the lessee or the lessor

Answer 40

1. The lease agreement transfers ownership of the leased asset to the lessee at the conclusion of the lease term 2. The lease contains a bargain purchase option (BPO) 3. The lease term is 75% or more of useful life 4. Present Value is 90% or more of market value 5. The asset does not have any alternative use to the lessor

Answer 41

the lease is a finance lease for the lessee the lease is a sales-type lease for the lessor

Answer 42

the lessee has an operating lease the lessor has either an operating lease or a direct-financing lease

Answer 43

1—The present value of the sum of the lease payments and guaranteed residual value is greater than or equal to the fair value of the asset. 2—Collectibility of the lease payments and guaranteed residual value is probable. If the two criteria are both met, then the lessor has a direct-financing lease. If they are not met, then the lessor has an operating lease.

Answer 44

1. Short-Term 2. Operating 3. Finance

Answer 45

1. Operating 2. Sale-type 3. Direct financing

Answer 46

1. Interest Expense 2. Amortization Expense 3. Executory costs

Answer 47

an annuity with the first payment occurring at the beginning of the first period

Answer 48

The lessee capitalizes the lease at the lesser of the present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease.

Answer 49

A right-to-use asset account - The leased asset is typically included in plant assets or property, plant, and equipment - At the present value of minimum lease payments

Answer 50

computed using the lower of the implicit interest rate (the rate of return set by the lessor), if the lessee knows the rate or can determine it, and the lessee's incremental borrowing rate.

Answer 51

a best estimate of what the asset will be worth at the end of the lease

Answer 52

interest revenue gross profit

Answer 53

At inception (lessor assumes a new asset, i.e. Lease Receivable) Lease Receivable (Debit) - Sum of min lease payment + residual value Unearned Interest Receivable (Credit) - Total interest over term Sales (Credit) - Fair value = Selling price Cost of Goods sold (Debit) - Cost of asset Asset (Credit) - Cost of asset

Answer 54

when the lease does not meet any of the five lease criteria for a sales-type lease and essentially there is a guarantee of residual value by a third party.

Answer 55

Lease Receivable (Debit) - Fair value of the leased asset Deferred gross profit (Credit) - Difference b/t fair value and cost Inventory (Credit) - Cost of the asset

Answer 56

calculate the interest on the receivable as if it were a sales-type lease and then calculate the interest on the receivable as a direct financing lease. The difference between the two interest calculations tells us what the deferred gross profit is

Answer 57

``` Cash (Debit) - Total cash received Deferred gross profit (Debit) - difference in interest calcualted for STL and DF lease Lease Revenue (Credit) - Using interest percentage Lease receivable (Credit) - Lease principle reduction based on STL calcualtion ```

Answer 58

Rate that effectively amortizes the net lease receivable to zero over the lease term

Answer 59

The owner of the property sells its asset and immediately leases it back. The asset is not physically moved. The transaction is entirely financial.

Answer 60

the control of the asset should transfer to the buyer-lessor from the seller-lessee (Must meet the revenue recognition criteria for a sale)

Answer 61

an operating lease or a short-term lease

Answer 62

1. Assets obtained through finance and operating leases. 2. General description of the leases, including important terms and features such as residual values and discount (interest) rates. 3. Breakout of the cost associated with finance leases between the amortization of the right-of-use asset and the interest on the lease liabilities. 4. The cost of operating and short-term leases. 5. Future minimum lease payments in the aggregate and for each of the five succeeding years for both finance and operating leases.

Answer 63

1. General description of the leases, including terms such as purchase or renewal options. 2. Allocation of lease payments between lease and nonlease components. 3. A breakout of lease income—from sales-type leases, direct financing leases and interest income. 4. A breakout of the net lease receivable—amount of gross lease receivable, deferred gross profit, and any residual value assumptions.

Answer 64

Using the shorter of the lease term or the useful life of the asset

Answer 65

A legal fee that is incurred because the lease was executed is considered an initial direct cost; this cost is included in the initial measurement of the right-of-use asset. A legal fee that is incurred before the execution of the lease may not be considered an initial direct cost and is expenses when incurred

Answer 66

- legal fee that is incurred because the lease was executed - document fees associated with preparing the lease documents - commissions paid to agents to secure the lease - fees paid for third-party guaranteed residual values

Answer 67

An initial direct cost is included in the right-of-use asset and is amortized as part of the right-of-use asset over the life of the lease. Use actual value not present value like BPO etc.

Answer 68

- property taxes - insurance - maintenance costs

Answer 69

- When the lessee makes payments directly to the third party, then the lessee should expense the payments as incurred (most likely scenario to see on the exam). - When the payments are required fixed amounts and are made to the lessor (similar to how lease payments are made), then the costs should be included in the measurement of the lease liability.

Answer 70

The lessee will include the present value of yea payment increase in the lease liability. If the variable lease payment amount is unknown then the variable lease payment is not included in the lease liability and is expensed in the period incurred.

Answer 71

guaranteed - include in cost of goods sold and sales revenue unguaranteed - subtract from cost of goods sold and sales revenue No effect either way on lease receivable, unearned interest and equipment/inventory accounts *Gross profit is not effected because the residual value effects revenue and expenses equally

Answer 72

sales revenue minus cost of goods sold *No present value factors included

Answer 73

1. Hospitals and other healthcare entities 2. Colleges, universities and other educational organizations 3. Voluntary health and welfare organizations (VHWOs) 4. Other nonprofit organizations (ONPOs)

Answer 74

FASB regulates the accounting and reporting practices for all private not-for-profit-organizations; GASB governs governmentally affiliated organizations. Colleges and universities and healthcare organizations can be organized as not-for-profit, governmental, or for-profit commercial entities. If organized as a governmental entity, GASB standards apply. When organized as a not-for-profit or for-profit entity, FASB standards apply.

Answer 75

Most not-for-profit organizations fall under this category Traditional reporting practices (fund model) are still expected to be used for internal reporting, however, funds are not used for external reporting.

Answer 76

These organizations are predominantly publicly funded hospitals and universities, although museums, parks, and landmarks can fall into this category as well They use fund reporting in their independent statements and for reporting purposes are usually combined with the primary government entity and accounting and financial reporting is determined by the GASB.

Answer 77

to disclose the sources of an NFP's resources and how they were expended rather than the determination of net income.

Answer 78

An economic resource measurement focus

Answer 79

1. Statement of Financial Position 2. Statement of Activity 3. Statement of Cash Flows 4. Expenses by nature and function in one place, either on the face of the state of activity or as a separate financial statement

Answer 80

- It does not include any fund information but instead is presented "for the organization as a whole" - Net assets (the residual of assets over liabilities) are broken down into two categories based on whether or not there are any donor-imposed restrictions

Answer 81

These net assets represent net assets that are free of donor restrictions on usage and the NFP can use these net assets for any purpose.

Answer 82

A donor may place permanent or temporary restrictions on a donation. These are only the assets with permanent restrictions

Answer 83

1. Purpose-type restriction | 2. Time restriction

Answer 84

occurs when the donor stipulates that the resources from the donation must be spent on something specific (For example a drug-free youth education programs at the YMCA)

Answer 85

occurs when the donor stipulates that the resources must be spent in a certain time period

Answer 86

A donor may make a contribution with restrictions that it never be spent, such as an endowment fund that is to remain intact but the income from the endowment can be used by the NFP in accordance with the donor's stipulations, if any.

Answer 87

1. Revenues and Gains 2. Net Assets Released from Restrictions 3. Expenses and Losses 4. Change in Net Assets (including reconciliation of beginning and ending Net Assets)

Answer 88

``` From donors without restruction 1. Contributions 2. Fees 3. Other Investment Income 4. Net Unrealized and Realized Gains and Endowment 5. Net unrealized and Realized Gains on other investments 6. Other From donors with restrictions - total ```

Answer 89

Expenses by nature and function 1. Program A 2. Program B etc 3. Management and General 4. Fun Raising 5. Fire Loss List Changes in net assets with donor restrictions Contributions Investment Income on Annuity Agreements etc List Changes in permanent restrictions net assets

Answer 90

Expenditures made to further the main mission of the organization

Answer 91

Expenditures made to provide the organizational infrastructure and to raise resources. Supporting services are always reported on two line items: - Management and general - Fund raising

Answer 92

The resources have been spent for the intended capital purpose, which always results in the increase of an asset account.

Answer 93

The resources have been spent for the intended operating purpose, which always results in the recognition of an expense.

Answer 94

The time or event specified in the restriction on the resources has occurred; note that it is not necessary that the resources be spent.

Answer 95

Changes in Net Assets

Answer 96

- unrestricted contributions - unrestricted investment earnings - revenue restricted for operating purposes - revenue from exchange transactions - operating expenditures (salaries, supplies, interest expense) - grants to other organizations;

Answer 97

- inflows from the sale of capital assets - marketable securities wtc - outflows for the purchase of capital assets etc

Answer 98

Has two subsections (i) include contributions and investment revenues restricted for long-term purposes (e. g., restrictions for acquisition of capital assets, endowments) (ii) other financing activities for debt proceeds, debt repayment, lease payments, etc.

Answer 99

(1) within the face of the Statement of Activities in the net assets without donor restrictions (2) as a schedule in the notes to the financial statements (3) as a separate financial statement

Answer 100

the appropriate characterization of the net assets of a nongovernmental not-for-profit organization

Answer 101

In the period they are received, regardless of if it is received inc ash. Donations other than cash are recorded at fair value as of the date of the gift.

Answer 102

Because conditional contributions depends on the occurrence of some future uncertain event, revenue recognition occurs when the condition is met or the chance of not meeting the condition becomes remote. Record as a refundable advance until the condition is met.

Answer 103

1. Contributions without donor restrictions | 2. Contributions with donor restrictions

Answer 104

may be recognized as contributions as long as they are unconditional. Conditional promises to give are promises that depend on a specific event occurring in the future. They cannot be recognized as contributions until the uncertain future event has occurred.

Answer 105

An allowance for uncollectible pledges should be recorded in a manner similar to a for-profit organization's accounting for accounts receivable.

Answer 106

Recognized as contribution revenue net of the estimated uncollectible pledges

Answer 107

Recognize revenue at the net present value of the contributions. The portion to be collected in following years is put to the donor restriction account while the current year has no donor restrictions. As the cash is received reclass the revenue from restrictions to no restrictions.

Answer 108

recognize the value of services that are donated to the organization if two conditions are met: 1. Nonfinancial assets are enhanced 2. Services required a) special skills provided b) by persons possess those skills and the services would c) normally have been purchased by the organization

Answer 109

Debit an asset or expense account | Credit Contributed revenue

Answer 110

1. Held for public exhibition, education, or research in furtherance of public sector rather than financial gain 2. Protected, kept unencumbered, care for, and preserved 3. Subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections.

Answer 111

When a resource provider transfers assets to a nonprofit entity and (1) does not grant the recipient organization variance power and (2) the recipient organization and the beneficiaries are not financially interrelated

Answer 112

Both a donor (or beneficiary) and a not-for-profit organization receive benefits, often at different times in a multiyear arrangement A donor makes an initial gift to a trust or directly to the not-for-profit organization, in which the not-for-profit organization has a beneficial interest but is not the sole beneficiary.

Answer 113

include works of art, cultural treasures, historical documents and property, and so on. Donated inexhaustible fixed assets do not need to be capitalized and are not depreciated

Answer 114

1. Held for public exhibition, education, or research rather than financial gain; 2. Protected, kept unencumbered, cared for, and preserved; and 3. Subject to a policy that requires proceeds from sales of collection items to be used to acquire other items for collections.

Answer 115

contributions to the organization from third parties for which the principal (corpus) must remain intact in perpetuity. Recorded in net assets with donor restrictions Earnings on the endowment may be: - expendable-restricted - expendable-unrestricted - nonexpendable

Answer 116

Earnings from a permanent endowment that are expendable but only for specified purposes

Answer 117

Earnings from a permanent endowment that are expendable at any time, for any purpose

Answer 118

depending on the stipulations of the donor

Answer 119

the principal can be spent Amounts set aside by the governing board of the organization to be spent for specific purposes shown as a line item in the Net Assets without a Donor Restriction category as "Net assets without donor restrictions designated for ________"

Answer 120

only the earnings can be spent Amounts set aside by the governing board of the organization, rather than outside sources, of which the principal must be retained and invested. Quasi-endowments are included in Net Assets without a Donor Restriction.

Answer 121

Gifts and bequests from third parties that are to be retained and invested for a period of time or until a specific event occurs. they can ultimately be spent, they are classified as Net Assets with a Donor Restriction until the criterion is me

Answer 122

Earnings on pure endowments are reported as Endowment Income or Investment Income on the accrual basis. The regular endowment does not allow any of the principal to be spent, original asset is a net asset with donor restrictions Interest Earned Recorded as: - If there are no restrictions on use, then report income under Net Assets without a Donor Restriction. - If the income must be spent for specified purposes, or may not be spent until a specified time or event, report under Net Assets with a Donor Restriction. - If the income may not be spent but must be used to increase or maintain the corpus, report under Net Assets with a Donor Restriction.

Answer 123

An endowment is underwater when its fair value is less than original gift amount or a level stipulated by the external donor or by law. Disclose: - The fair value of the endowment - The original endowment amount or the level required by the donor or by law - The amount of deficiency in the underwater endowment fund

Answer 124

Investing activity

Answer 125

Operating activity

Answer 126

Financing activity

Answer 127

Net Asset without donor restrictions

Answer 128

fair value at the time of donation

Answer 129

at fair value or quoted market prices

Answer 130

These are gross charges for direct patient care. - Room charges - Doctors' fees - Medicine - Bandages

Answer 131

When patients enter the hospital, the charity cases are immediately identified and eliminated from the patient service revenue calculations. The amount of donated charity cases are identified and disclosed in the notes

Answer 132

+ Gross Patient Service Revenues (including Ancillary Revenues) − Charitable Services = Patient Service Revenue − Less Contractual Adjustments and Estimated Uncollectible Amounts = Net Patient Service Revenue (first line in Statement Activities)

Answer 133

determine the transaction price, which is the amount of consideration a hospital expects to be entitled to receive in exchange for services and goods to be delivered.

Answer 134

revenues from items related to the main operations of the hospital, but not directly related to patient care - Cafeteria sales - Research grants - Gift of medicine - Parking garage - Tuition from classes

Answer 135

ayments made to healthcare providers for comprehensive client coverage provided for a fixed fee (e.g., HMOs) revenues should be recognized during the period covered and estimated obligations related to patient care for this period should be accrued. - Shows as a separate line item in the operating section

Answer 136

- Inpatient services - outpatient procedures - home health services - research - teaching

Answer 137

- Management - Administrative - Fiscal

Answer 138

1. Statement of Net Position (Changes in assets or balances sheet) 2. Statement of Revenues, Expenses, and Changes in Net Position 3. Statement of Cash Flows

Answer 139

Other Operating Revenues

Answer 140

revenues for patient-related services such as radiology, pathology, laboratory work, and so on—are part of patient services revenues.

Answer 141

- equity transfers - receipt of restricted contributions - contributions of long-lived assets - restricted investment returns - unrealized gains/losses of unrestricted investments (except trading securities)

Answer 142

- Patient Service Revenues - Premium Fees - Other Revenues

Answer 143

Nonoperating Gains in the General Fund

Answer 144

Net of scholarship allowances and uncollectible amounts

Answer 145

Scholarship allowances are the difference between the stated tuition rate and the amount that is actually paid by the student and/or third parties making payments on behalf of the student.

Answer 146

Scholarships are actual amounts paid to students by the college rather than a reduction of charges

Answer 147

Activities carried on by the educational institution but not related to the delivery of instruction. Examples include housing services, dining services, athletic programs, college stores, student unions, etc.

Answer 148

- Statement of Financial Position - Statement of Activities - Statement of Cash Flows following FASB standards. Two classifications of net assets: 1. Net Assets without a donor restriction 2. Net Assets with a donor restriction

Answer 149

- Statement of Net Position - Statement of Revenues, Expenses, and Changes in Net Position - Statement of Cash Flows * Followng GASB guidelines Three components of Net Position are reported: Net investment in Capital Assets Restricted Unrestricted

Answer 150

either as a cash flow hedge or as a fair value hedge, generally, at management’s discretion

Answer 151

if the forward contract exceeds the investment being hedged, then the percentage of investments units/forward contract units is the percent of the forward contract that can offset an investment

Answer 152

Full cost allocations

FAR CPA Lessons 209-233 Flashcards

(176 cards)