MCQ Notes Flashcards
Pass this mofo exam (165 cards)
1
Q
How to record non-cash asset used to settle debt?
A
Revalue to FV with gain/loss recognized on asset.
2
Q
What are the journal entries for stock dividend declaration & issuance?
A
Declaration: Dr R/E (FV of shares) Cr Stock dividend distribution (par) Issuance: Dr Stock Dividend Distribution Cr Common Stock
3
Q
What are the primary qualitative characteristics of RELEVANCE and FAITHFUL REPRESENTATION?
A
Relevance: Predictive value, confirmatory value, materiality Faithful Representation: Neutrality, free from error, and completeness
4
Q
What are the enhancing qualitative characteristics?
A
Verifiability, understandability, timeliness, and comparability
5
Q
What Basic F/S required for MD&A State & Local?
A
Statement of Net Position & Activities (Governmental activities are reported, no fiduciary activities)
6
Q
If USD is functional currency, which rate used to translate assets & liabilities?
A
When remeasuring into US dollars, the current rate (weighted avg) will be used for monetary items and for nonmonetary items carried at market. The historical rate (weighted avg) is to be used for nonmonetary items carried at cost. E.g. inventory carried at net realizable value should be remeasured using current rates because net realizable value is a market concept. Inventory & equities carried at cost are remeasured using historical rates.
Bonus: If FC = LC, Asset & Liabs translated @ current rate as of B/S date. Rev & Expense translated @ weighted average exchange rate for current year.
7
Q
How do you account for partner withdrawal under bonus method (partner has unrecognised goodwill)?
A
First, remove her capital balance. Then reduce the remaining partner’s capital balances by their p/l ratio share of the unrecognised goodwill.
8
Q
Where is a discontinued component reflected in f/s? How do you adjust operating income?
A
Current and prior f/s should show operating results of disposed segment (less tax) as a separate component of income. To restate Op income, take operating income as reported, add back discontinued operations loss, less income tax = income from continuing operations - restated.
9
Q
How to compute combined revenue for consolidated companies?
A
Restate accounts as if intercompany transaction didn’t occur, e.g. if inventory sold, eliminate BOTH cost and markup.
10
Q
What should the budgetary comparison schedule include in CAFR - Comprehensive Annual Financial Report?
A
General and Major Special Revenue Fund Types and annual budgets legally adopted. Enterprise and Pension Trust Funds are not required to be reported for budgetary compliance.
11
Q
How do you determine if an individual segment is reportable?
A
If segment sales or profits are > 75% of total operating profits OR if segment assets > 10% of total operating assets
12
Q
How do you calculate basic EPS?
A
(Net income - dividends of cumulative preferred stock/declared)/weighted average # of shares outstanding
13
Q
When must a pension asset/liability be reported?
A
Asset: When PBO (projected benefit obligation) < Fair Value of Plan Assets Liability: When PBO > Fair Value of Plan Assets
14
Q
Personal F/S: Where are estimated taxes (on excess of estimated current values of assets over their tax bases) reported?
How is business interest that constitues large amount of equity reflected?
Personal financial statements consist of …
Personal tax estimated income tax equals …
A
Between liabilities & net worth on the statement of financial condition.
Single amount equal to estimated current value of business interest.
A statement of financial condition and a statement of changes in net worth.
…difference between fair values and tax bases of assets & liabilities
15
Q
How do you solve for Cost of Goods Sold when provided with cash payments information?
A
Cash payments to suppliers + Increase in AP (unrecorded purchases) - Increase in Inventory (purchases during period, they remain unsold) = COGS
16
Q
How are investments in capital of partnership measured?
A
At FMV of assets contributed.
17
Q
How is net periodic pension expense calculated?
A
+Service cost +Interest on PBO -Return on plan assets +Amortization of unrecognised service cost or Loss (incl actuarial) +Existing net obligation (amortization)
18
Q
What’s the formula to calculate a bonus on excess over a certain amount of profit, e.g. 100K (but profit after bonus deducted is used to calculate income tax)?
A
B = x% * (income - 100K - B) 1.1=B
19
Q
How do you calculate the maturity value of CoDs maturing in 5 years?
A
If not electing FV option, don’t use market rate. Investment x future amount of $1 at interest rate % & # of periods
20
Q
How is a hybrid instrument requiring bifurcation treated?
A
Separate the embedded derivative instrument from the basic or “host” contract. The bond payable has interest rate per S&P 500. The instrument with call option - issuing company can buy back stock.
21
Q
How do you calculate inventory cost under the weighted average method?
A
Add together all units + total cost, divide units by cost
22
Q
How is the equity method applied to account for an acquisition?
A
The carrying amount is increased by the investor’s share of investee earnings & decreased by dividends received.
23
Q
What effect does it have if trustees designate money for a building?
A
This doesn’t affect the asset classification.
24
Q
What financial statements are required for an investment trust fund?
A
1.) Statement of fiduciary net position 2.) changes in fiduciary net position
25
When is enterprise wide disclosure regarding an external customer required?
When a company receives \> 10% of revenue from an external customer
26
What are the formulas for calculating installment sales?
Gross Profit = Sale - COGS
Gross Profit % = GP/Sale Price
Earned GP = Cash Collections x GP%
Deferred GP = Installment Receivable x GP%
27
How are scholarships recorded in education current funds?
As a reduction to general revenue from tuition & fees, e.g. tuition for the faculty's children.
28
Where do you report forex gain/loss if functional currency is reporting currency (USD)?
If functional currency IS reporting currency, remeasure and report gain/loss on the income statement. A foreign currency translation g/l (reported as sep component of stockholders' equity) happens when translating entity's functional currency into reporting currency.
FASB ASC 830 says 'a transaction gain/loss shall be included in net income for pd when change occurs' not as an extraordinary gain or as contra amount to asset.
29
If inventory previously written down recovers, can you revalue it to market value?
No, you can only revalue to the extent of previously recorded decline.
30
How is a donation received by a hospital recorded?
Contributions are revenue in the period received and recorded at FMV.
31
What are extraordinary items and where are they reported?
Extraordinary items must be unusual and infrequent in nature, e.g. an earthquake (unless you're in San Francisco). They're reported net of tax below continuing operations.
Non-extraordinary items are reported as a component of income from continuing operations but NOT net of applicable income taxes.
32
How are marketable securities valued in a personal statement of financial condition?
They're valued at market price.
33
How is income calculated using the % of completion method?
Income is recognised as per the progress of completion. Calculate total costs incurred to date/estimated total cost. May need to divide costs incurred by (costs incurred + costs to finish) to get total or denominator. Multiply this % by (Expected Profit - profit recognized in previous periods).
Expected Profit: In the first year, this part of formula would be (Expected Revenue - Expected Total Costs).
Progress billings to date don't necessarily reflect current costs incurred as they're an accumulation.
Reflect progress billings over (cum profit + cum costs) as a liability & (cum profit + cum costs) over progress billings as an asset.
34
How do you calculate available for sale marketable equity securities historical cost?
Add back the unrealised loss including the tax benefit. It's reported in OCI as a reduction to stockholder's equity.
35
In a partnership liquidation, how is capital distributed to partners calculated?
Cash is distributed per each partner's adjusted capital balance. Loss to date, sale of assets, and loans to partners are included. E.g. Beginning capital balance - loan - loss on sale of assets = adjusted capital balance.
36
What changes must be included on the statement of Other Comprehensive Income?
Disclose changes in unrealised gains/losses on available for sale securities, pension fund status, and foreign currency translation gain/loss.
37
If a capital lease is modified to an operating lease ...
account for the lease as a sale-leasback.
38
How is the P&L adjusted for an error correction?
Prior periods are adjusted including Net Income, Retained Earnings, and other affected balances. Prior statements need to be restated only for presentation purposes if they're used in comparatives. The actual journal entry: Dr R/E Cr Accumulated Depreciation
39
Where is the funding status of the pension reported?
On the balance sheet and statement of financial position.
40
Under IFRS, what method is used to calculated the defined benefit obligation?
Project-unit-credit method.
41
When do you recognize profit under the cost recovery method?
When the principal + interest \> cost of the asset
42
Where is unrealized gain reported if not using the FV method?
Trading securities are reported at fair value and unrealised gain is reported in earnings of the period. other bonds are recorded at amortized cost.
43
ASC 825 allows firms to elect fair value when valuing securities. How is this applied in the period?
On an instrument-by-instrument basis, AFS and Held to Maturity securities are revalued to fair value and any gain or loss is recorded in earnings for the period. This includes instruments that are otherwise reported under the equity method.
44
What effect does the purchase or issuance of treasury stock have?
Treasury stock has no effect on shares issued.
45
What approach is segment reporting?
A management approach
46
In an acquisition, retained earnings under the full equity method ...
=the retained earnings of the parent company after consolidation. Assets, liabilities, and goodwill are adjusted.
47
How do you record Fair Value of net identifiable assets in an acquisition?
Consideration paid. If it's a bargain purchase, treat as a period gain.
48
How is wages in/outflow calculated using the direct cash flow method?
Start with accrual basis salary expense plus/minus the increase or decrease in wages payable.
49
What's the carrying amount of the bond liability for the issuer?
Face value + unamortized bond premium
50
Forex gain/loss must be recorded if ..
spot rate at settlement date is different to transaction date.
51
What type of change is a business consolidation?
An accounting change, prior periods presented must be restated.
52
What is a perfect hedge?
It's effective, meaning the gain/loss on an instrument offsets the gain/loss for a hedged item.
53
How to calculate unearned royalties?
Set up a T account. for roaylties receivable. Debit side includes beginning and ending balance, credit side includes cash received. Solve for royalties earned. Set up a t account for unearned royalties. The debit side includes royalties earned while the credit side includes beginning and ending balance. Solve for unearned royalties.
54
What are the 3 distinct characteristics of derivative instruments?
1) 1 or more underlying and 1 or more notional instrument. 2.) No initial investment required. 3.) Terms allow net settlement.
Bonus: 2 primary criteria must be met for a derivative to qualify as a hedge. Docs must show objective & strategy of hedge and hedging instrument & hedged item + how effectiveness will be assessed. Hedge must be highly effective throughout its life.
55
How do you calculate the future amount for a desired fund balance if you only know the present value factor?
Divide amount by P.V. factor.
56
How is an accounting estimate inseparable from an accounting change treated?
Treat this as a change in accounting estimate - record the change in current and future period financial statements.
57
What is one purpose of SEC's regulation S-X?
S-X describes the form and content of financial statements that need to be filed with the SEC.
58
What is the function of a chief operating decision maker?
They allocate resources and assess performance of enterprise segments.
59
What type of accounting is not permissible under IFRS?
Push-down accounting
60
Where is the change in FV of servicing assets (if using FV method) reported?
In earnings for the period
61
What must be considered in interim reporting when estimating the effective tax rate?
Consider both foreign tax rates and capital gains.
62
Generally, convertible debt securities interest rate will be higher or lower than nonconvertible debt?
Lower
63
How do you calculate a depletion charge per unit?
Net cost of resource/units of resource
64
What must be included when calculating operating lease rental income?
Depreciation charge and maintenance costs. With operating leases, leased assets continue to be carried on the lessor’s balance sheet and are depreciated in the normal manner. They are not shown on the lessee’s balance sheet.
65
How do you calculate allowable for doubtful accounts expense?
Set up a T account. Debits include write-offs and adjustments to ending balance (e.g. bad debt expense). Credits include the beginning balance, the amount expensed during year 1, the unadjusted balance, and then the ending balance.
66
How are investments in life insurance valued?
At cash surrender value less outstanding loans on the po9licy.
67
Are pension plan vested benefits contingent on continued service?
No, these benefits are earned regardless.
68
How is interim tax expense calculated?
YTD income x effective Tax Rate - previously recognized tax expense
69
What are 4 types of currency hedges?
1.) Unrecognised firm commitments 2.) Available for sale securities 3.) Functional currency forecasted transactions 4.) Net investments in foreign operations
70
What are the 3 enterprise wide disclosures/
1.) Products & Services 2.) Geographic Areas 3.) Major customers
71
How do you calculate the cash that will be accumulated in 2 years from an investment?
x = PV factor then amount divided by x
72
If fair value not elected, how do you record a decline in available for sale securities?
Record on income statement as a loss. If realizing a gain on sale (where price exceeds carrying value before unrealized loss), can also record on income statement. UNREALIZED losses go in Other Comprehensive Income and in Accumulated OCI in balance sheet.
73
Where on the CF statement does treasury stock go?
Financing activities
74
Where are error corrections recorded?
in retained earnings, not on income statement
75
What impact do stock splits have/
No effect on corporate or recipient property. It only affects # of shares outstanding.
76
Where are extraordinary gains from debt extinguishment reported?
On the income statement, not in OCI.
77
What is the IFRS valuation method for intangibles?
Cost model or revaluation model
IFRS Revaluation:
Under IFRS when recording revaluation gain, first take total gain and allocate to reverse loss if necessary - this is recorded on income statement in the prior year (if reval loss recorded then). If any remainder, record as revaluation surplus in other comprehensive income in current year. Don't forget amortization!
78
How do you calculate the NRV of Healthcare Receivables?
Subtract contractual adjustments, other, and allowance for uncollectibles
79
How does IFRS treat bank overdraft and cash advances or loans in the cash flow statement?
How does IFRS treat interest received?
operating activities
interest & dividends received can be either operating or investing under IFRS. per GAAP, interest & dividend income has to be operating because they appear on the income statement.
N.B. Interest is paid on debt financing, not on investing activities. Therefore, interest paid is never reported in investing cash flow. Can be reported in either financing or operating under IFRS.
80
When is a completed contract for construction recognized?
Revenue and expenses are deferred until the contract is completed or substantially completed. Expected losses must be recognized immediately in their entirety (check contract price vs. costs incurred + costs to complete). Don't recognize revenue when progress billings are collected or when they exceed recorded costs.
81
In a quasi reorganisation, what are the JEs for the solutions approach?
1.) Revalue the assets and adjust deficit in R/E. Dr R/E, Cr PP&E. 2.) Create APIC and eliminate R/E deficit. Dr Common Stock, Cr paid in capital. 3.) Eliminate R/E deficit. Dr Paid in Capital, Cr R/E
82
How do you calculate the deferred tax liability/
Multiply cumulative temporary differences by future tax rate
83
How is an equity interest given to a creditor to settle a debt recorded?
Use FV, and record gain as the excess of the carrying amount of debt over the FV equity interest granted.
84
What is not required to be accounted for per derivatives & hedging?
Employee stock options (futures, interest rate caps, options to purchase/sell, and exchange traded securities are required)
85
What impact does the purchase of 3 month treasury bills have on the statement of cash flows?
None, it's a cash equivalent.
86
If the functional currency is a foreign currency, how is a branch's assets and liabilities translated into USD?
Use balance sheet date rate.
FC = currency used in environment where entity generates & expends cash. Can be LC (and currency books kept in), currency F/S are presented in (and parent's currency), or currency other than book currency
87
Where is the change in hospital's unrestricted, temporarily restricted, and permanently restricted net assets reported?
IN the statement of change in net assets
88
If not using fair value, what impact do common stock dividends have?
Reduce the carrying amount of the investment, as they are voting equity securities. Under equity method, dividends received reduce carrying amount of investment but don't affect investment income recognized.
Preferred dividends is dividend income. If the fair value option is used, both preferred and common stock dividends are income on the income statement.
89
Where are translation adjustments reported when translating f/s into the reporting currency?
They're reported in OCI and accumulated OCI in stockholder's equity. If functional currency = reporting currency, this goes on the income statement.
90
If an acquirer owns 80% of a subsidiary, and the subsidiary owns 10% of the parent and both issue a dividend, what amount is reported?
90% of the parent dividend (10% is going to subsidiary and is eliminated) and none of the subsidiary dividend. 20% is to external and this 20% is eliminated.
91
What is the closing entry to the general fund?
Dr Estimated Revenues Cr Estimated other financing uses Cr Appropriations Cr Budgetary fund balance (to close)
92
How is the functional currency defined under IFRS?
It's the currency of the primary economic environment where the entity operates.
93
How are development state business costs treated?
They should be deferred if they're recoverable in the future. Costs should be deferred that benefit future periods.
94
How do you calculate return on Stockholder's Equity?
Numerator: Net Income - Dividends paid preferred stocks Denominator: Average of common stock + R/E year 1 and common stock + R/E year 2
95
How is salary expense recorded when suing encumbrance accounting?
Record in expenditures as decrease to fund financing resources from non intercompany transactions. Dr Expenditures Ctrl, Cr Vouchers Payable
96
Where are cash receipts for contributions restricted for LT purposes reported on a not for profit cash flow statement?
financing activities
97
What's the JE for conversion of bonds to common stock under the market value method?
Dr Loss on Redemption Dr Bonds Payable Dr Premium on Bond Payable Cr Common stock (par) Cr APIC (market value - par)
98
Is a JE required for stock rights issued to existing stockholders?
No, if no consideration then no JE required. There's no effect on common stock or APIC.
99
If an inventory method was changed, e.g. FIFO to LIFO, what impact does it have on the income statement?
There is no cumulative effect because the change is applied retrospectively. It should already be in the carrying value.
100
How do you calculate net inventory on consignment?
Take the cost at the beginning x % sold and calculate ending inventory. Don't include money spent on advertising or sales commission.
101
How do you amortize the premium on a bond when e.g. it's 7% stated rate, 10 years, 100K FV, and yield of 6% using the effective interest rate?
1.) Compute interest expense: Carrying amount of bond x yield rate x time period = interest expense 2.) Calculate cash interest payable: FV of bonds x stated rate x time period (12/12)=cash interest 3.) Take difference between the 2 amounts, e.g. 7-6.3=0.7 Bond premium amortization. 4.) Take total bond premium, e.g. 5K - 0.7 = 4.3K new unamortized premium
102
How is lessee's balance sheet liability for a capital lease recorded?
Reduce by the minimum lease payment less the portion of minimum lease payment allocable to interest.
103
How do you disclosed servicing assets on the balance sheet?
1 of 2 ways - 1) Separate line item of amounts at FV & amounts measured using amortization method 2.) in aggregate for all servicing assets & parenthetical disclosure for amount measured at fair value
104
What are the JEs for a new bond issued with proceeds used to retire old bond?
New: Dr Cash Cr Bonds Payable Old: Dr Bonds Payable Dr Loss on early retirement Cr Unamortised discount on bonds payable Cr Cash The long term liability is increased by the excess of the 10 year bond face mount over the 15 year bond carrying amount. The 15 year bond carrying amount is the bond payable less unamortized discount.
105
What is the market called that maximizes price received for an asset?
The most advantageous
106
What is NOT required in section disclosures for pensions?
Differences in executive and non-executive plans
107
How is interest and depreciation expense accounted for in a capital lease?
Interest expense is the carrying value of the lease obligation (PV of leas obligation) x effective interest rate. Depreciation is calculated by depreciating over the life of the asset and not life of the lease if title passes to lessee at the end of the lease term.
108
How do you record a nonmonetary exchange at FV (if has commercial substance)?
Rules for nonmonetary exchange lacking commercial substance?
Dr Land (e.g. delivery truck market value + cash paid)
Dr Accum Depreciation (cost - book value of truck)
Cr Delivery truck (cost)
Cr Cash (boot paid)
To have commercial substance: 1.) risk/timing/amount of asset transferred's future cash flow differs from risk/timing/amount of asset received's future cash flow 2.) co's view of asset value transferred differs to view of asset received
Alway recognize gain as difference between FV & Carrying Val of Asset given up.
Lacking commercial substance: No boot, no gain. Boot paid, no gain. Boot received, record gain. Gain = Boot $/total consideration
109
What items are reported as infrequent but not extraordinary?
Sale of plant facility & forex transaction, gain on retirement debt.
110
When is it not possible to use installment method?
If collection of sale price is reasonably assured, e.g. sold to a triple A rated company and the value is appreciating. Entire gain can be recognized at date of sale. To calculate: Sales price - cost of building = gain recognized.
111
Are initial direct costs of sales-type leases capitalized?
No, they are expensed
112
What is the IFRS valuation model for PP&E?
Cost model or revaluation model, not fair value.
113
How to calculate interest revenue for a modification of terms troubled debt restructuring (worked example)
Old interest rate = 12%, New interest rate = 8% 1.) discount principal and interest at original effective interest rate to get start point. E.g. 70K x (2 yrs @ 12%) + 70K x 8% (new rate) x (annuity for 2 years @ 12%) = 65.2K or present value of future cash flows. 2.) Calculate interest revenue to be recognized. PV opening 65.2K + difference in interest income & receivable 2.2K = PV at year end 67.4K. Interest income = PV 65.2K x 12% or 7.8K. Interest receivable = Undisc. 70K x 8% or 5.6K. 7.8K - 5.6K = 2.2K added to CV. 3.) Interest revenue = new carrying value 67.4K x 12% = 8.1K.
114
What time value of money is needed to compute cost of machine to be paid for in 2 years?
Payment including principal + interest x the present value of $1. It's a lump sum and not an annuity.
115
What method is preferred for LT contracts when there's a lack of estimates or inherent hazards may cause forecasts to be doubtful?
Completed contract method.
116
When computing deferred tax benefit to be applied against current income tax expense what should be included and excluded?
Don't include permanent differences such as municipal interest revenue and premiums on life insurance (corporate beneficiary). Include the warranty cost, e.g. 60K x tax rate of 30% = 18K.
117
How is depreciation for R&D projects recorded?
Expensed as incurred EXCEPT intangible/fixed assets with alternate future uses. For example, equipment for current and future projects should be depreciated.
For software developed internally, costs incurred in the preliminary project stage are expensed under U.S. GAAP. The costs AFTER the preliminary project stage are capitalized and depreciated over the economic life of the product.
118
How is premium on bonds payable for warrants calculated?
Allocate the premium to the warrants using FMV. Formula: (FMV bonds w/out warrants/FMV bonds & warrants) x purchase price = amount assigned to bonds. Proceeds - Bond cost = bond premium. If FMV of bonds is not known, calculate FMV of warrants and subtract from total bond proceeds to get estimated FMV of bonds. Then take bond face - bond FMV to get bond discount.
119
HOw is sales type lease interst revenue calculated?
Reduce by first payment as this is all principal. Then multiply net receivable x rate x time (e.g. 6/12 months) = interest revenue
120
What is the complete set of financial statements required per IFRS?
Statement of financial position, statement of comprehensive income, statement of changes in equity, cash flows, and notes.
121
How are net cash receipts from bond issuance calculated?
Note: 'Issued at 103' means 103% of cost, e.g. 100 to 103K. 1.) Cash received for accrued interest = cost x interest rate x time, e.g. 2/12 = accrued interest. 2.) Bond cost at 103, e.g. 103K - accrued interest - issue costs = cash receipts.
122
What are examples of prior period errors under IFRS?
Incorrect application of accounting policies, disclosure, and measurement mistakes.
123
Exam trick on cumulative effect of changing to new accounting principle in current year
Not necessary to include in net income of either the period of change or future periods because RETROSPECTIVE application should have been applied.
124
In a stock acquisition of another company how is this valued?
Investment in stock of acquiree is recorded at FMV of securities issued or property received. E.g. issued 10 K shares at market price of 60 = 600K.
125
When is an IFRS voluntary change in accounting method applied?
RETROSPECTIVELY
126
How is a noncontrolling interest recorded per IFRS?
IFRS permits either FV or proportionate share of identifiable net assets of an acquiree. GAAP is Fair Value.
127
How to calculate interest income on a sales-type equipment lease in 2nd year of lease period (worked example)?
Details: 8 year lease, 1st of annual payments of 600K due year 2. PV is 3.52M, discounted @ 10%. Compute the interest using an amortization table.
128
What's added back to N.I. when reporting operating activities' cash flows using the indirect method?
Bond discount amortization is added back but excess treasury stock cosst over sales proceeds is not. Under indirect method, adjust income from continuing ops for changes in operating-related accounts and non-cash expenses, revenues, losses, and gains. Bond discount amort. is a charge against income but doesn't increase cash so must be added back. Treasury stock excess is financing activity.
129
How should a private not for profit uni report equity securities on statement of financial position: securities have FVs, uni own 1-3% of common stock, uni can exert significant influence?
1-3% ownership report at fair value (per SFAS124). Significant influence, use equity method (not covered under SFAS124).
130
Reporting Pension Asset/Liability, worked example.
In its December 31, year 2 balance sheet, Rice should report pension asset/liability of...
Pension a/l= Excess of amount funded over amount recorded as pension expense. Year 2 pension expense = 162K (service cost 165K + interest on PBO 15K - act rtn plan assets (18K) = pension expense 162K. Yr 2 funding 185K - pension expense 162K = 23K. Yr 1 was 20, + Yr 2 23 = 43K in year 3.
131
How do you calculate bond carrying amount for a 50K face value 8% 5 year bond, 46.139K PV with yield 10%? Interest payble June & Dec.
Create a bond amortization table. Coupon payment at 4% is face of 50K \* 4% interest for 1/2 yr). Interest expense is effective rate 5% x beg of pd carrying val. Amort of discount = diff between interest payment & expense.
132
Where does an 'expenditures' account appear?
In the governmental fund Statement of Revenues, Expenditures, and Changes in Fund Balances.
133
What instrument allows holder to sell underlying at exericse or strike price at a gain, when market price of underlying falls below strike price?
Put option.
134
If treasury stock was acquired for cash at \> par and sold at \> acqn price, what effect will that have on APIC and R/E?
APIC will increase, R/E no impact. Using the COST method, the JEs are:
1.) Purchase at \> par
Dr Treasury Stock
Cr Cash
2.) Sold \> acqn price
Dr Cash (proceeds)
Cr Treasury Stock (cost)
Cr APIC - treasury stock (excess)
135
When a partnerhsip incorporates, what should be credited to paid in capital?
Assets & Liabilities must be revalued to FV. Recalculate stockholder's equity (current assets + equpiment - liabilities). JE to create new corporation as follows:
Dr Current Assets (mkt value)
Dr Equipment (mkt value)
Cr Liabilities (mkt val)
Cr Common stock (incorporation stock issue, # of shares \* $ value)
Cr Additional contributed capital (balancing figure)
136
How does the purchase of treasury stock effect APIC and R/E assuming par value method is used?
Compare treasury share cost to amount received at original issue. Original receipt in excess of par charged to APIC and remainder to R/E. Worked example:
10K shares CS, par val $20 issued at $25/share
2K of these shares purchased as treasury stock @ $30
Dr Treasury Stock 40K (2K \*$20)
Dr APIC 10K (2K \* $5)
Dr R/E plug 10K
Cr Cash 60K (2K \* $30)
137
Recognizing depletion is an example of which accounting processes?
Amortization AND allocation. (Allocation is broader in scope and includes amortization. It's the process of assigning/distributing amounts per a plan/formula). E.g. recognizing expense for depreciation, depletion, insurance. Earned subscription revenue.
138
Can segment data be aggregated for FR purposes before the 10% test is completed?
Yes, if all the aggregation criteria are met or if after performing the 10% test a majority of aggregation criteria are met. Aggregation criteria include:
Must have similar economic chars and similar nature of products & services, production processes, customer type, distribution type, and regulatory environment.
139
For a bond issue in June with interest payment dates on April 1 and October 1, for the year ended Dec 31 how many months of interest expense was incurred?
7 months. Time period used is from date of issuance to end of year. Purchasers would have paid for accrued interest in June so they don't get a full interest payment in October. Net amount = interest earned since purchase date. Calculation of interest expense is not dependent on int. payment dates but on length of time bonds are outstanding.
140
What are 3 types of period costs generated by a capital lease?
Interest expense, amortization expense, and executory costs.
141
When a sinking fund is used to retire bonds, and when cash was transferred to purchase investments, what will cause the fund to increase?
It will increase by revenue earned on the investments. When cash is used to purchase investments, components change (cash replaced by securities) but total balance doesn't change.
142
For what accounting methods is cash recovery critical?
The cost recovery and installment methods. Cost recovery: no profit recognized until cum cash receipts exceed sold asset cost. Installment: GP rate applied to cash collections to recognize income. Delays revenue recognition because recognize as cash collected.
143
Enterprise wide disclosures are required by which organisations?
Per ASC820, a public co with 1 or more reportable segment (Doesn't apply to Not for profit or nonpublic enterprises).
144
How is uncollectible allowances expense calculated?
Formula: Ending balance + accounts written off - reinstatements - beginning balance.
145
How do you calculate net cash from operating activities (worked example)? Year 2 N.I. is 75K.
Incr in ADA is added to N.I. because reflects bad debt expense which isn't a cash outflow. Same with decrease in prepaid rent - not a cash outflow.
146
Solve for amount for revenues, gains, and other support on statement of ops for not for profit hospital (worked example):
Formula: Hospital revenue - amount for charity care + net assets released from restrictions + other revenue. 500K - 100K + 50K + 80K = 500K
147
What is included in comprehensive income?
Operating income NOT investment by owners. Per SFAC 6, comprehensive income equals net of cash receipts & outlays excl cash invested by/distributed to owners.
148
Per IFRS, when can a company net assets and liabilities of different pension plans?
They may be netted when there is a legally enforceable right to use assets of one plan to settle obligations of another plan.
149
If a subsidiary is denominated in a foreign currency, a company takes out a hedge in the sub's FC, and if the sub translation loss exceeds exchange gain on hedge, how should this be reported?
Translation loss less exchange gain in OCI (under one of 3 alternatives) and AOCI should be reported in stockholder's equity.
150
If a not for profit has both regular & term endowments, how should they be reported?
Term: temporarily restrictred Regular: Permanently restricted.
Donor of term endowment stipulates it should last specific # of years. Regular endowments last indefinitely.
151
If treasury stock is acquired at a price in excess of par and then reissued at a price in excess of acquisition amount, under par value method, what effect does this have on stockholder's equity?
Acquisition of Treasury Stock: Decrease
Reissue of Treasury Stock: Increase
JE if acquired treasury stock \> par - decreases SE:
Dr Treasury stock par value
Dr APIC common stock (balance of issue price)
Dr R/E (plug)
Cr Cash (acquisition price)
JE if reissue treasury stock \> acquisition - increase SE:
Dr Cash (reissue price)
Cr Treasury stock (par value)
Cr APIC - treasury stock (plug)
152
What risks are inherent in an interest rate swap agreement?
The risk of exchanging a lower interest rate for a higher one and the risk that a counterparty does not perform as per the agremeent.
153
For which items is the weighted average exchange rate appropriate when translating from functional (local) currency to reporting (USD) currency?
Revenues, expenses, gains, and losses.
154
What should be included in compensation expense for an ESOP (employee stock ownership plan)?
The amount contributed or committed to be contributed should be included. E.g. contribution of 30K cash + 3K shares @ market price of $18/share = 84K.
155
Which of the government funds records depreciation?
The internal service fund records depreciation. Internal service funds provide services from one govt dept to another, e.g. motor pool, central printing.
156
What costs are considered inventoriable, e.g. freight in ...
All costs incurred to acquire goods and get them prepared for sale. This includes freight-in, insurance, warehousing, handling & normal spoilage, purchases. (for a manufacturing company, direct & indirect labour, materials, and direct & indirect factory OH is included)
157
Per IFRS, what are the 3 types of hedges?
Cash flow hedge, fair value hedge, and hedge of net investment. Foreign currency hedge is incl in USGAAP only.
158
When accounting for stock-based compensation, what interest rate is used to discount the exercise price of the option and future dividend stream?
The risk-free interest rate is used for both.
159
How is NOL carryforward applied?
As in REG, carryback 2 and forward 20 for NOLs. Value of NOL carryforward = NOL x tax rate % in year NOL is to be realized
160
When can warranties be recorded at FV?
When the warranty obligation can be settled by contracting with a 3rd party.
161
Per GASB 34 Basic FS, which funds are classified as governmental funds?
General, special revenue, debt service, capital projects and permanent funds.
Bonus: Permanent funds include resources that are legally restricted - earnings, but not principal, may be expended for purposes that benefit government & citizens. Private-purpose, agency, and pension trust funds are all fiduciary and not governmental funds.
162
How do you compute LIFO inventory under the dollar value method (worked example)?
Compute each layer - year end of year 2 / price index vs. beg yr value. Multiply difference by price index and add to beg yr value, etc.
163
With an equipment lease lease, when is depreciation based on asset life rather than lease term?
When a lease is capitalized because of transfer of title or bargain purchase, depreciation is based on asset life, not lease life. Don't forget salvage.
164
Consolidation Simulation Worked Example:
Eliminate investment in Sub, record goodwill and asset write-up
165
Consolidation worksheet worked example:
Eliminate intercompany sales
Inventory sales, parent to sub - what was sold externally, e.g. 120K contained a markup. Calc the markup, e.g. 36K. Elim from COGS. Unsold inventory still has markup which must be eliminated. Example eliminating entry:
Dr Sales 200 (elim inventory sale incl markup)
Cr COGS (140K + 36K) 176\*
\*Elim inventory sale ex markup coming in & elim markup in sales going out
Cr Inventory 24K\*
\*Value in ending inventory that's now overstated - elim markup
