FAR - RESTUDY Flashcards
(105 cards)
1
Q
Which account is part of Comprehensive Income?
A) Deferred Revenue
B) Sales Revenue
A
B) Sales Revenue
Comprehensive Income = Income Statement + OCI
On the Income statement, the first line is: REVENUE
2
Q
How is Comprehensive Income presented on the financial statements?
A
Comprehensive Income may be shown as a separate section under Net Income, or in separate statement.
Tax effects for each component must be disclosed either in the financial statement notes, or on the face of the statement.
3
Q
How are gains and losses on “fair value hedges” be reported in the financial statements:
A
Earnings, as part if Net Income
4
Q
How are gains and losses for “net investment hedges” be reported in the financial statements:
A
OCI
5
Q
What is the formula for computing EPS with the Treasury Stock method?
A
Number of Shares
Less: (# of Shares * Exercise Price)/Avg. Market Price
= Additional Shares Outstanding
6
Q
How many days does Large Accelerated Filers have to file their 10K?
A
60 days
7
Q
How many days does Accelerated Filers have to file their 10K?
A
75 days
8
Q
How many days does Non-Accelerated Filers have to file their 10K?
A
90 days
9
Q
How many days does Large Accelerated Filers have to file their 10Q?
A
40 days
10
Q
How many days does Accelerated Filers have to file their 10Q?
A
40 days
11
Q
How many days does Non-Accelerated Filers have to file their 10Q?
A
45 days
12
Q
Adjustment for the prior year understatement of amortization expense is reflected in ________.
A
Beginning retained earnings
13
Q
When translating a foreign financial statement, where would the gains and losses from remeasurement reported?
A
Net Income
14
Q
When translating a foreign financial statement, where would the gains and losses from translation reported?
A
OCI
15
Q
What is a liquidating dividend and how does it differ from a normal dividend?
A
A liquidating dividend reduces capital (APIC) and is not like a regular dividend that is distributed from earnings. However, it still does reduce stockholder’s equity since capital is part of SE.
16
Q
How do you reflect a change in accounting principle in the financial statements?
A
Retrospectively, all prior period FS are changed, with the cumulative effect of the changed adj in beg RE of the earliest period presented
17
Q
How do you reflect a change in accounting estimate in the financial statements?
A
Prospectively
18
Q
How do you reflect a correction of an error in the financial statements?
A
Retrospectively, disclosure required
19
Q
How do you reflect a change in reporting entity in the financial statements?
A
Retrospectively, disclosure required
20
Q
Net Profit Margin
A
Net Income / Net Sales
21
Q
Debt Ratio
A
Total Liabilities / Total Assets
22
Q
Asset Turnover
A
Net Sales / Avg. Assets
23
Q
A/R Turnover
A
Net Sales / Avg. AR
24
Q
How do you adjust cash to accrual?
A
Add: Increases to Current Assets
Subtract: Decreases to Current Assets
Add: Decreases to Current Liabilities
Subtract: Increases to Current Liabilities
25
Where should company disclose the timeframe of the fiscal year for financial statements?
Summary of significant accounting policies
26
What must be done if a company recognizes revenue incorrectly in the previous years?
This is considered a correction of error. Adjust beg retained earnings of the earliest period presented.
27
JE to record credit loss adjustment
D: Allowance for Credit Losses
CR: A/R
28
Which inventory method is the best for lowest ending inventory during an inflationary environment?
FIFO
29
How do you calculate depreciation under the Double Declining Depreciation Method?
Step 1: Calculate Straight Line Rate (1 / Useful Life)
Step 2: Double it (Straight Line Rate * 2)
Step 3: Apply DDD % to Carrying Value each year used (not the depreciable base as we don't use salvage value) (depreciation each year will be a different number!)
30
How do you calculate the index number under Dollar-value LIFO?
Ending inventory at current year cost / Ending inventory at base year cost
31
Pledging of receivables as collateral only requires _____.
A disclosure because the receivables remains on the company books.
32
Inventory Equation
Beg Inventory
Add: Purchases
Add: Freight In
Add: Transportation costs
= Cost of Goods Available For Sale
Less: Ending Inventory
= COGS
33
What is the key feature of the periodic inventory system?
Inventory is only updated through physical counts, usually at the end of the period.
34
What is the key feature of the perpetual inventory system?
Inventory is continuously updated after every purchase and sale.
35
How is COGS calculated under the periodic inventory system?
COGS = Beginning Inventory + Purchases − Ending Inventory
36
How is COGS determined in a perpetual inventory system?
COGS is recorded with each sale, based on the cost of the specific inventory sold.
37
Which inventory system allows real-time tracking of inventory?
Perpetual inventory system.
38
Which inventory system is simpler and cheaper to maintain?
Periodic inventory system.
39
Which inventory valuation method is best for reflecting the true economic value of ending inventory during?
Dollar-Value LIFO because it uses a price index that adjusts for inflation or deflation (End Current Year Inventory/End Base Year Inventory).
40
Which intangible asset has a limited useful life?
Patents, therefore it is subject to the recoverability test when testing for impairment
41
When do you capitalize and depreciate an asset?
A physical asset used in a trade or business with a useful life greater than one year.
42
Under the percentage-of-receivables method, how do you adjust allowance for credit losses at year-end?
Step 1: Calculate how the company determines its allowance for credit losses at year-end. It usually a % of A/R at YE.
Step 2: Compare the balance of the allowance for credit losses (usually given in the problem) to the YE allowance in Step 1.
Step 3: The difference from Step 2 is what the company needs to adjust by.
DONT USE THE ANSWER FROM STEP 1. That is the ENDING balance for allowance for credit losses (after any write offs).
43
Interest during construction should be ________.
Capitalized
44
Interest before or after construction should be ________.
Expensed as incurred
45
Under the periodic inventory system, if ending inventory is understated then: COGS? Net Income?
COGS is OVERSTATED
Net Income is UNDERSTATED
46
Under U.S. GAAP, long-lived assets that are impaired can only have their carrying value restored if they are _________.
Held for disposal.
47
When the current expected credit loss (CECL) method of recognizing credit loss expense is used, the allowance would decrease when a (an):
Specific accounts receivable balances are written off.
48
How should restoration costs for land be treated after mining operations are done?
Add to the depletion base of the mine.
49
When a payable arises from transactions with customers/vendors in the normal course of business, for example issuing a bond due in 9 months in exchange for services, how do you account for this in the financial statements?
Since the payable is due in less than a year, than the face amount of the bond would be reported on the balance sheet as a current liability. Interest rates don't need to be computed
50
How is the amount of ARC (Asset Retirement Cost) and ARO (Asset Retirement Obligations) determined?
By discounting the expected future cash flows to present value (fair value).
51
Bond issuance costs ____ the cash received from the bond issuance and are ____ from the carrying value of the liability.
Reduced, Deducted
52
How do you calculate accrued interest when a bond is retired between interest payment dates?
1. Start with Face Value of the bond.
2. Multiply by the Annual Coupon Rate to get the yearly interest.
3. Divide by 2 if interest is paid semiannually (or use actual frequency).
4. Determine the fraction of the period that has passed since the last interest payment.
5. Multiply the interest amount by the time fraction to get accrued interest.
53
What is the criteria for a finance lease?
At least ONE of the below must be met:
1. Ownership transfers at the end of the lease
2. Written purchase option
3. PV of minimum lease payments is 90% of FV of asset
4. Lease term is more than 75% of the asset useful life
5. Asset is specialized in nature
54
Serial bonds are those issued with _____ at various dates.
Scheduled maturities
55
Term bonds are issued with _____ maturity date.
A single fixed
56
On the balance sheet, the discount on a bond is:
Shown as a deduction from the face value of the bond (it is not shown directly) to show its present value.
57
On the balance sheet, the premium on a bond is:
Shown as a addition from the face value of the bond (it is not shown directly) to show its present value.
58
What is the effect of discount amortization on interest expense?
It increases interest expense above the cash interest paid.
59
What is the effect of premium amortization on interest expense?
It decreases interest expense below the cash interest paid.
60
In a finance lease, when is it appropriate to use the ROU asset's useful life versus lease term?
If the lease terms either meet the "Ownership transfer" or "written purchase option," use the asset's useful life for amortization since there is a high chance the lessee will keep the asset.
If all other criteria is met besides the first two, then use the lease term for amortization.
61
What does the carrying amount of a bond investment represent under U.S. GAAP?
The investment cost excluding accrued interest, adjusted for unamortized premium or discount.
62
When a bond is purchased between interest dates, how is accrued interest treated in the journal entry?
Recorded separately as Interest Receivable, not part of the Investment in Bonds account.
63
What is the formula for straight-line amortization of bond premium?
Premium ÷ Total months (or periods) to maturity from purchase date.
64
Where is accrued interest reported on the financial statements?
As Interest Receivable on the balance sheet, separate from the carrying amount.
65
What is included in the bond purchase price?
Investment amount (premium or discount) plus any accrued interest.
66
When asked to calculate the carrying amount (PV) of a note receivable and the first payment is made on the same date of the transaction, how do you decide on how many periods to use for the PV factor?
Total period for payments (or number of payments) less 1 for the first payment on the transaction date.
So for example, total lease payments is 9 but first payment was made on the date of the lease inception so it would only be 8 periods for the PV factor.
67
When can bonds or notes due within one year be classified as noncurrent liabilities?
When the issuer intends and is able to refinance them with long-term debt, and this is demonstrated after the balance sheet date but before the financial statements are issued. Disclosure of the refinancing is required.
68
How are mandatorily redeemable shares classified under U.S. GAAP?
As liabilities, because they create an unconditional obligation to transfer assets at a set date, even though they are in share form.
69
How do you calculate the Right-of-Use (ROU) Asset at lease inception?
ROU Asset = Lease liability + Initial direct costs + Prepaid lease payments
70
What happens if bond premium amortization is not recorded?
Interest expense and carrying value will both be overstated, SE understated
71
What happens if bond discount amortization is not recorded?
Interest expense and carrying value will both be understated, SE overstated
72
How should the change in unamortized bond discount be reported in the statement of cash flows?
As an addition to net income in the operating activities section.
73
When companies use the equity method for investment in other companies, how should that be reported?
If the company have "significance influence," the company should only report the accounting policy for the investment
74
Conversion of debt to equity _______ disclosed as supplemental information in the statement of cash flows.
should be
75
In the statement of cash flows, the purchase of a U.S. treasury bill...
Is not reported because it is considered to be a cash equivalent item
76
What should be disclosed in the financial statements related to deferred taxes?
Types and amounts of existing temporary differences, and the nature & amount of each type of operating loss and tax credit carryforward
77
What happens to tax expense when a deferred tax asset is not expected to be fully used?
A valuation allowance is created, which decreases the asset and increases financial statement tax expense.
78
Why does the absence of future taxable income increase tax expense?
Without future income, a valuation allowance is needed for the deferred tax asset, increasing financial statement tax expense.
79
What happens when a company no longer needs a valuation allowance for a deferred tax asset?
The allowance is reversed, increasing the asset and decreasing financial statement tax expense.
80
What is the journal entry to create a valuation allowance for a deferred tax asset?
D: Income Tax Expense XXX
CR: Valuation Allowance - DTA XXX
81
What is the journal entry to reverse a valuation allowance?
D: Valuation Allowance - DTA XXX
CR: Income Tax Benefit XXX
82
For an indirect method statement of cash flows, there is always a supplemental disclosure of...
Interest Paid, Income Taxes Paid
83
How do you calculate and eliminate intercompany profit when a parent sells inventory to a subsidiary at a markup on cost?
1. Find cost and intercompany profit:
Cost=Sales / (1+Markup %)
Profit=Sales−Cost
2. Eliminate intercompany profit:
%Remaining = Ending Inventory / Total sale
%Sold = 1- % remaining
Profit in Ending Inventory = Profit x %Remaining
Profit in COGS = Profit x %Sold
84
What is the purpose of inter-period tax allocation, and how do temporary and permanent differences affect it?
To match the correct tax expense to the same period as the financial accounting income (GAAP), even if the tax paid to the IRS is different.
85
The governmental fund measurement focus is on the determination of:
Financial position and current financial resources
86
Cash contributions and unconditional pledges are ____ as contribution revenue in the year in which the cash or pledge is _____.
Recognized, received
87
For NFP accounting, how are expenses recognized?
All expenses are recognized as changes in net assets WITHOUT donor restrictions.
88
Net assets with donor restrictions used as stipulated by a donor's requirements would result in...
A reclassification from with to without donor restrictions.
89
True or False: In NFP accounting, endowment funds can be released from restrictions.
False, endowment funds are not and usually are not released from restrictions.
90
The statement of financial position for a NFP...
Provides information about the assets, liabilities, and net assets of a voluntary health and welfare organization
91
The statement of activities for a NFP...
Provide information about the ongoing revenues and expenses associated with a voluntary health and welfare organization
92
The statement of cash flows for a NFP...
Provides information about sources and uses of cash and cash equivalents
93
Which financial statements should not-for-profits prepare?
Statement of Financial Position (Balance Sheet), Statement of Activities, and Statement of Cash Flows
94
What is a donor restriction in NFP accounting?
A limitation placed by the donor on how or when a contribution can be used, but the contribution is unconditional and recognized as revenue when received.
95
What is a donor condition in NFP accounting?
A requirement that a future, uncertain event must occur before the contribution becomes the NFP’s. Revenue is not recognized until the condition is met.
96
Does a restriction delay revenue recognition in NFP accounting?
No. A restriction affects how the money is used, not when it's recognized. The revenue is recognized immediately.
97
How is a contribution with a restriction recorded in NFP accounting?
As contribution revenue with donor restrictions (net assets with donor restrictions).
98
How is a contribution with a condition recorded in NFP accounting?
As a liability (refundable advance) until the condition is met.
99
Reclassifications of net assets resulting from satisfaction of donor restrictions temporary in nature are displayed on...
the face of the statement of activities.
100
Governmental funds (GRSPP)
General fund
Special Revenue fund
Debt Service fund
Capital Projects fund
Permanent fund
101
Proprietary funds (SE)
Internal Service fund
Enterprise fund
102
Fiduciary funds (CIPPOE)
Custodial fund
Investment fund
Private Purpose fund
Pension and Other Employee Benefit fund
103
Governmental funds use...
the current financial resources measurement focus and modified accrual basis of accounting
104
Proprietary and fiduciary funds use...
the economic resources measurement focus and accrual basis of accounting.
105
