FAR MCQ Flashcards Preview

CPA Flashcards > FAR MCQ > Flashcards

Flashcards in FAR MCQ Deck (94):

What is adjusted cash balance?

Adjusted cash balance = Book balance before adjustments + amounts credited by the bank not reflected in the book balance – unrecorded bank charges +/- errors made in recording transactions


Under IFRS, when may financial liabilities be measured at fair value?

When it will result in more relevant information.


What happens when an entity elects the fair value option for all financial instruments?

When an entity elects the fair value option for all financial instruments, all changes in fair value are recognized in income regardless of whether the securities are classified as trading, available for sale (AFS), held to maturity, or otherwise.


What happens when an investment in a debt security is reclassified from available for sale (AFS) to held to maturity (HTM)?

The transfer occurs at its market value on the date of transfer. Any unrealized holding gain or loss is recognized in other comprehensive income (OCI) and amortized as an adjustment to the effective interest rate on the HTM security.


Where are unrealized gains and losses on available for sale investments are reported?

In other comprehensive income, a component of stockholders’ equity, unless they are not considered temporary, in which case they are reported in income. Realized gains and losses are recognized in net income in the period of sale, in an amount equal to the difference between the selling price and the original cost.


Under IFRS, when may financial liabilities be measured at fair value?

When it will result in more relevant information.


What is a required disclosure regarding fair value hedges?

The amount of net gain or loss recognized in earnings when a hedged firm commitment no longer qualifies as a fair value hedge


Disclosure of information about significant concentrations of credit risk is required for?

All financial instruments.


The retail inventory method includes which of the following in the calculation of both cost and retail amounts of goods available for sale?

Purchase returns


Estimates of price-level changes for specific inventories are required for which of the following inventory methods?

Dollar-value LIFO


The lower of cost or market rule for inventories may be applied to total inventory, to groups of similar items, or to each item. Which application generally results in the lowest inventory amount?

Separately to each item


Assuming constant inventory quantities, which of the following inventory costing methods will produce a lower inventory turnover ratio in an inflationary economy?

FIFO (first in, first out)


U.S. GAAP and IFRS differ on the allowance of which cost flow assumption to be applied to value ending inventory on a balance sheet, and cost of goods sold on an income statement?

Last in, first out


When equipment is retired, accumulated depreciation is debited for the original cost less any residual recovery under which of the following depreciation methods?

Composite depreciation: yes; Group depreciation: yes


Could current cost financial statements report holding gains for goods sold during the period and holding gains on inventory at the end of the period?

Goods sold: Yes; Inventory: Yes


Compared to the accrual basis of accounting, the cash basis of accounting understates income by the net decrease during the accounting period of?

accrued expenses


The lower of cost or market rule for inventories may be applied to total inventory, to groups of similar items, or to each item. Which application generally results in the lowest inventory amount?

Separately to each item


A company should recognize goodwill in its balance sheet at which of the following points?

Goodwill has been created in the purchase of a business.


What amount of amortization expense should you report for a trademark with an indefinite life?

Should not be amortized until its useful life is determined to be no longer indefinite. Any intangible asset with no clear legal or economic limits on its use can thereby be considered to have an indefinite (unlimited) useful life. It is not amortized, but is instead tested annually for possible impairment (as is goodwill).


How are current receivables acquired as a result of customary trade terms normally reported?

At their Face Value


If a premium on a bonds payable transaction is not amortized, what are the effects on interest expense and total stockholders' equity?

Interest expense: overstated; Total stockholders’ equity: understated


When purchasing a bond, the present value of the bond's expected net future cash inflows discounted at the market rate of interest provides what information about the bond?



The market price of a bond issued at a premium is equal to the present value of its principal amount and?

The present value of all future interest payments, at the market (effective) interest rate.


Texas A&M University, a publicly held institution, is required to report under the standards of which of the following bodies?



The basic accounting principle that states that an entity is assumed to have a life that is indefinite is the principle of?



The Securities and Exchange Commission was created under which of the following acts?

The 1934 Securities Exchange Act


According to the FASB conceptual framework, an entity's revenue may result from?

A decrease in a liability from primary operations


What are the four assumptions that underlie GAAP?

the economic entity assumption, the going concern assumption, the periodicity assumption, and the monetary unit assumption


With respect to the objective of general purpose financial reporting, what are U.S. GAAP and IFRS differences?

With the issuance of SFAC 8, chapter 1, U.S. GAAP and IFRS have the same “Objective of General Purpose Financial Reporting.”


Which of the following statements best describes an operating procedure for issuing a new Financial Accounting Standards Board (FASB) Accounting Standards Update?

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


With respect to the qualitative characteristics of useful financial information, what are U.S. GAAP and IFRS differences?

With the issuance of SFAC 8, chapter 3, U.S. GAAP and IFRS have the same “Qualitative Characteristics of Useful Financial Information.”


With respect to footnote disclosure, who requires more?(IFRS or GAAP)



How should the amortization of bond discount on long-term debt be reported in a statement of cash flows prepared using the indirect method?

In operating activities as an addition to income


When debt is issued at a discount, interest expense over the term of debt equals the cash interest paid:

Plus discount


What type of bonds in a particular bond issuance will not all mature on the same date?

Serial bonds


With respect to the statement of comprehensive income, what are U.S. GAAP and IFRS differences?

Both U.S. GAAP and IFRS allow a separate statement of comprehensive income or a combined statement.


Disclosure is required by publicly held companies if 10% or more of total revenues are derived from:

Both sales to a single customer and export sales.


When converting a bond to stock, what do you do with the unamortized discount?

Subtract it from the par value of the stock


Which of the following is generally associated with the terms of convertible debt securities?

An interest rate that is lower than nonconvertible debt


How should you report a note receivable issued that matures in less than one year?

At it's face amount disregarding any interest


In a sale-leaseback transaction, a gain resulting from the sale should be deferred at the time of the sale-leaseback and subsequently amortized when:

The seller-lessee retains the right to substantially all of the remaining use of the property.


When should rental expense begin on a lease agreement?

The inception of a lease is the date of the lease agreement. Rental expense should begin as of that date.


At the inception of a capital lease, the guaranteed residual value should be:

Included as part of minimum lease payments at present value.


How should you depreciate a leased asset under a capital lease?

If it meets criteria 1 or 2 (TT/BPO) -depreciate over useful life -take out salvage value If it meets criteria 3 or 4 (75/90) -depr over SHORTER of useful life or lease term -ignore salvage value


What are the components of the lease receivable for a lessor involved in a direct financing lease?

The minimum lease payments plus residual value


How do you calculate annual lease payments?

FV of equip divided by PV factor


How do you calculate interest revenue over the life of a lease?

Annual lease payment = Fair value of equipment / Present value factor = $323,400 / 4.312 = $75,000 Total lease amount collected = Annual lease payment x 5 years = $75,000 x 5 = $375,000 Interest revenue = Lease amount collected - Fair value of equipment earned = $375,000 - $323,400 = $51,600


For a capital lease, the amount recorded initially by the lessee as a liability should normally:

Equal the present value of the minimum lease payments at the beginning of the lease.


Which of the following types of leases is tested for impairment?

1) Capital leases or lessees 2) Long-lived assets of lessors subject to operating leases 3) Proved oil and gas properties that are being accounted for using the successful-efforts method of accounting 4) Long-term prepaid assets.


How do you capitalize the PV of minimum lease payments?

Multiply the annual payments by the PV factor of an annuity due.


A/P are valued at their?

NRV or settlement value


How do you account for dividends in arrears?

Disclose, but do not accrue. They are not an accrued liability until they are declared. Can be disclosed on the face of the Balance Sheet or in the notes.


The effective interest rate for a loan restructured in a troubled debt restructuring is based on?

The effective interest rate is based on the original contractual rate, rather than on the current interest rate or the rate specified in the restructuring agreement.


In the case of a transfer of assets to satisfy a debt in a troubled debt restructuring, the debtor shall recognize a gain/loss on the transfer of assets?

Equal to the difference between the fair value and carrying value of the liability liquidated.


A troubled debt restructuring is normally accomplished by?

Transfer from the debtor to the creditor of assets (e.g., real estate, receivables) to satisfy fully or partially the debt Issuance of an equity interest to the creditor by the debtor to satisfy fully or partially the debt Modification of terms of the debt, such as: 1) reduction in the interest rate for the remainder of the life of the debt 2) extension of maturity date(s) at an interest rate less than the current rate for new debt 3) reduction of the face amount or maturity amount of the debt 4) reduction of accrued interest


How do you calculate deferred gross profit?



(Accounts written off)

= Uncollected Sales

x Gross Profit Rate

= Deferred Gross Profit



How do you report the amortization of a discount on a bond or note payable?

Reported as interest expense


How do you calculate the effective interest rate when it is not given? 

Effective interest = Carrying value of the bonds × Effective interest rate × Time period

In this case:

$13,016 = $185,953 × Unknown effective interest rate × 1/2 year

Effective interest rate = ($13,016 ÷ $185,953) × 2 = 14%

If interest is paid semi-annualy don't forget to times it by 2


What are the required disclosures of a defined benefit contribution plan?

A description of the plan's key elements, such as investment policies

Components of pension expense

Reconciliation of projected benefit obligation and fair value of plan assets

Funded status

Rates used in measuring benefit amounts (discount, return on plan assets, compensation)

Best estimates of next year's contributions to the plan


An overfunded single-employer defined benefit postretirement plan should be recognized in a classified statement of financial position as a?

Non current asset


Interest cost included in the net pension cost recognized by an employer sponsoring a defined benefit pension plan represents the?

Increase in the projected benefit obligation due to the passage of time.


How do you calculate accrued pension cost?

Service and interest cost

(Contribution to the plan)

(Interest on contribution)

Accrued pension cost



What is the present value of all future retirement payments attributed by the pension benefit formula to employee services rendered prior to that date and based on current and past compensation levels?


Accumulated benefit obligation


What effect will the amortization of prior service cost have on the company's current-year financial statements?

Other comprehensive income will be increased.


For a defined benefit pension plan, the discount rate used to calculate the projected benefit obligation is determined by:

Neither the expected rate on plan assets nor the actual return on plan assets.



On what date would a company decrease it's Retained Earnings when there is a cash dividend?

At the date of dividend declaration an entry to reduce retained earnings and record a dividend liability is made.


How do you record a G/L on the Income Statement from the sale of treasury stock?

Gains and losses do not result from buying and selling your own equity shares


When a company declares a 30% stock dividend, which adjustments should be made when recording the stock dividend?

Dr. to Retained Earnings for the par value of the stock

Cr. to Common Stock for the par value of the stock


How do you calculate book value per share?

  Total Equity - Liquidation value to preferred
    No. shares common stock outstanding


How are dividends per share of common stock calculated?

Dividends per share is the dividends paid out divided by total shares.


What is a liquidating dividend?

The liquidating dividend is that portion of the cash dividend that exceeds the balance in retained earnings.

Liquidating dividends are a return of the investment rather than a return on the investment.



For an accelerated filer, what is the maximum number of days after the company's fiscal year-end that the company has to file Form 10-K with the SEC?

Annual 10-K reports are due within 75 days for fiscal years for accelerated filers.  The requirement is 90 days for other filers.


A company that is a large accelerated filer must file its Form 10-Q with the U.S. Securities and Exchange Commission within how many days after the end of the period?

40 days


Deficits accumulated during the development stage of a company should be?

Reported as a part of stockholders’ equity.


What are the primary characteristics of governmental structure?

(1) The representative form of government and the separation of powers

(2) The federal system of government and the prevalence of intergovernmental revenues

(3) The relationship of taxpayers to services received



At the end of the accounting period, the components of other comprehensive income are transferred to which of the following stockholders' equity accounts?

Accumulated other comprehensive income



What is the purpose of reporting comprehensive income?

To summarize all changes in equity from nonowner sources



Which SEC document provides instructions for filing the nonfinancial statement forms required under the Securities Act of 1933?

Regulation S-K


How do you calculate gross profit?

Net Sales - COGS


What are the required disclosures for EPS?

A reconciliation of the numerators and denominators of the basic and diluted EPS computations.

The effect given to preferred dividends in income available to common shareholders.

Securities that could be diluted in the future that were excluded from the current period's diluted EPS because they were not dilutive.


For EPS purposes, securities of a subsidiary that are convertible into parent company's stock shall be considered:

Potential common shares of the parent for consolidated diluted EPS



Options to purchase common stock are excluded from the computation of diluted EPS if:

Their exercise price is greater than the average market price.


Under IFRS, which revenue recognition method should be used if the outcome of rendering services cannot reliably be estimated?


Cost Recovery Method


How are discontinued operation items that occur at mid year initially reported?

Included in Net Income and disclosed in the notes to interim financial statements


What are the required disclosures by IFRS for the correction of an error?

For a correction of an error, IFRS requires that the following be disclosed:

The nature of the error

The correction to specific line items and earnings per share

The amount of the correction at the beginning of the earliest period presented



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

As a component of income from continuing operations


A balance arising from the translation or remeasurement of a subsidiary’s foreign currency financial statements is reported in the consolidated income statement when the subsidiary’s functional currency is?

The US Dollar


Which Income Statement items are subject to the application of intraperiod income tax allocation?

Discontinued operations

Cumulative effects of accounting changes

Prior-period adjustments

Direct adjustments to capital accounts


How do you calculate the effective tax rate?

The effective tax rate would be the total tax due divided by the total income earned.


Which approach is used to determine income tax expense?

Asset & Liability Approach


What are the three primary criteria for determining reportable segments?

A public entity shall report separately information about an operating segment that meets any of the following quantitative thresholds…:

1) Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments.

2) The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of either:

A) The combined reported profit of all operating segments that did not report a loss

B) The combined reported loss of all operating segments that did report a loss.

3) Its assets are 10 percent or more of the combined assets of all operating segments.