MCQ Notes Flashcards

Question

Bank Overdraft Rules

Answer 1

Overdrafts can be offset against cash in the same bank, but if the bank has insufficient cash at the same bank, the overdrafts are reported as a current liability.

Answer 2

A subsidiary should not be consolidated when it is in bankruptcy. Consolidation of all majority-owned subsidiaries is required regardless of the industry or business of the subsidiary. A difference in fiscal periods of a parent and a subsidiary does not of itself justify the exclusion of the subsidiary from consolidation.

Answer 3

Bifurcation is the process of separating an embedded derivative from its host contract. This process is necessary so that hybrid instruments can be separated into their component parts, each being accounted for using the appropriate valuation techniques.

Answer 4

* Discount on bonds payable represents additional interest paid over the life of the bond. * The interest paid each year is equal to the principal times the coupon rate. * The discount is amortized over the life of the bond, which increases the amount of interest expense recognized each period. * The total interest expense over the term of the bond is equal to the cash interest paid plus the discount.

Answer 5

Interest expense is : **Carrying amount × Effective interest rate** Cash payment amount is : **Face amount × Stated interest rate** If the stated rate is less than the effective rate, the cash payment is less than the interest expense.

Answer 6

ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts; the recognition and measurement guidance for debt issuance costs were not affected by the amendments. Amortization of debt issuance costs also shall be reported as interest expense Issue costs will no longer be reported in the balance sheet as deferred charges. * promotion costs, * engraving and printing * underwriters' commissions all qualify as bond issuance costs

Answer 7

Bond prices and interest rate changes are **inversely** related. When bond prices increase, the market value of fixed income investments, such as bonds decreases, because now there are better opportunities on the market. When **interest rates decline**, the **value of bonds increases** because existing bonds are now relatively more valuable.

Answer 8

* Serial bonds are bond issues that mature in installments (i.e., on the same date each year over a period of years). * Term bonds, on the other hand, are bond issues that mature on a single date. * A debenture is a bond that is not secured by collateral. * A sinking fund bond is a bond issue that has a provision to set aside cash to repay the bonds at the maturity date.

Answer 9

Book value per share is calculated as the total owners’ ( stockholders) equity divided by the number of common shares **outstanding** ( treasury stock is not considered outstanding)

Answer 10

Financing activities include the repayment of debt principal ie the payment of capital lease obligations. Thus, the cash outflow is equal to the Year 1 principal payments **only**. The interest on the capital lease is classified as an operating cash outflow

Answer 11

A cost should be capitalized if it improves the _efficiency_ of the asset **or** _extends_ its useful life.

Answer 12

The cost of a successful defense and registration fees in connection with a trademark should be capitalized. Legal fees and other costs incurred in successfully defending a trademark suit may properly be charged to the trademark account because such a suit establishes the legal rights of the holder. The registration fees are a part of the cost because they establish legal ownership of the trademark.

Answer 13

The cash basis method of accounting is **not** an allowable method under GAAP unless there is no material difference from the accrual method. * Cash basis financial statements are sometimes provided for investors or creditors. * Cash basis accounting results in a measure similar to net income called **net operating cash flow**. * **Net operating cash flow** is the difference between cash receipts and cash disbursements. * The cash basis is an acceptable method for the preparation of tax returns.

Answer 14

* Treasury obligations (bills, notes, and bonds) * Commercial paper (very short-term corporate notes) * Money market funds

Answer 15

Per ASC Topic 230, receipts from sales of property, plant, and equipment and other productive assets are categorized as cash flows from investing activities.

Answer 16

A change from an accounting principle that is **not** generally accepted to one that is generally accepted is a **correction of an error**. The cash basis is not generally accepted. Consequently, the change from cash to accrual basis is a correction of an error. A correction of an error in prior years' financial statements is reported in the year of correction by restating **all** prior years affected by the error. The cumulative effect of the error on periods prior to those presented must be reflected in the carrying amounts of the assets and liabilities as of the beginning of the **earliest** year presented.

Answer 17

FASB ASC 250-10-45-18 requires that whenever a change in accounting principle is inseparable from a change in an accounting estimate, the change should be considered as a **change in estimate**. * Changes in estimates are handled **prospectively**. * That is, previously reported information in previous financial statements is not adjusted, nor is a cumulative effect of the change reported. * Prospective treatment only requires utilization of the change(s) in the current period as it effects the current period's income. * It is part of income from continuing operations because no special disclosure is required on the **face of the income statement** under the prospective approach.

Answer 18

A change in valuation technique used to measure fair value should be reported as a change in accounting estimate. The change is reported on a prospective basis; however, the disclosures for change in accounting estimate are not required for a change in valuation technique

Answer 19

A change in valuation technique used to measure fair value should be reported as a change in accounting estimate. The change is reported on a prospective basis; however, the disclosures for change in accounting estimate are not required for a change in valuation technique.

Answer 20

An entity must determine if the contract is valid and represents a substantive transaction on the basis of whether a customer has the ability and intention to pay the promised consideration in exchange for the goods or services. The objective of this assessment (referred to as a collectibility threshold) is to prevent revenue from being recognized on contracts that lack true substance. An entity only recognizes any consideration it receives as revenue when either: * the entity has no remaining obligations to transfer goods or services to the customer, and substantially all of the consideration has been received by the entity and it is nonrefundable OR * the agreement has been terminated, and the consideration is nonrefundable.

Answer 21

Where combined statements are prepared for a group of related companies, intercompany transactions and profit and losses should be eliminated. The following matters should be treated in the same manner for both combined financial statements and consolidated statements: * noncontrolling interests * income taxes * foreign operations * different fiscal periods should be treated in the same manner for both combined financial statements and consolidated statements

Answer 22

Combined statements may be used to present the financial position and the results of operations of a group of unconsolidated subsidiaries or companies under common management.

Answer 23

A complete set of IFRS financial statements includes the following: * statement of financial position * statement of comprehensive income * statement of changes in equity, statement of cash flows * notes.

Answer 24

When a company uses the completed-contract method of accounting for construction projects, all revenue and expense recognition is deferred until the project is complete or substantially complete (ASC Topic 605). Also, note that neither customer billings nor payments on account are used to determine the revenue recognized under the completed-contract method (or under the percentage-of-completion method)

Answer 25

Composite depreciation is the term given to depreciation on a group of heterogeneous assets. All of the assets are recorded in a single asset account and depreciated using a single accumulated depreciation account. The depreciation rate used is an average based on the assets in the group. When an asset is retired, the asset account is credited for the original cost of the item, and the accumulated depreciation account is debited for the original cost less any residual recovery.

Answer 26

* One of the underlying assumptions of the group-or-composite method is that assets in the group are regularly replaced with other assets similar to the ones being replaced. * As an asset is retired or replaced, an entry is made to remove the original cost from the asset account, with the difference between original cost and the proceeds received being _debited to accumulated depreciation._ * Thus, under normal conditions, no gain or loss is recognized on the retirement of a specific asset included in the group. * The composite rate is applied to the balance in the asset account at the beginning of the year. * If the balance in the asset account does not change, the group of assets will be depreciated to the estimated salvage value at the end of the composite life.

Answer 27

_Total Depreciation Base_ Total Depreciation Base depreciation = total value of assets net of salvage value total depreciation is depreciation calculated using method precscibed by asset and asset life for the year

Answer 28

Per SFAC 6, comprehensive income consists not only of its basic components (revenues, expenses, gains, and losses) but also the various intermediate components or measures that result from combining the basic components (e.g., income from continuing operations). SFAC 6 further states that over the life of an entity comprehensive income equals the net of its cash receipts and cash outlays, excluding cash invested by owners or distributed to owners. Note that under ASC Topic 220 this statement would not hold because corrections of errors and certain changes in accounting principles are still reported in retained earnings. Thus, ASC Topic 220 does not fully implement comprehensive income as defined in SFAC 6.

Answer 29

All changes in equity during a period except those resulting from investments or distributions by owners

Answer 30

The purpose of reporting comprehensive income is to report a measure of overall enterprise performance by displaying all changes in equity of an enterprise that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. An enterprise should continue to display an amount for net income with equal prominence to the comprehensive income amount displayed.

Answer 31

Comprehensive income is defined as the change in equity of a business during a period from transactions of **nonowne**r sources. Stockholders are owners of the corporation or entity; therefore, transactions between the entity and shareholder are not a component of comprehensive income.

Answer 32

Comprehensive income may be reported in a separate statement or in a combined statement of income and comprehensive income

Answer 33

Comprehensive income is defined in SFAC 6 as “the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from **nonowner sources**. It includes all changes in equity during a period, **except** those resulting from investments by owners and distributions to owners.” Thus, comprehensive income includes not only net income but also other components of comprehensive income that are **not included** in net income.

Answer 34

* The purpose of reporting comprehensive income is to report a measure of overall enterprise performance by displaying all changes in equity of an enterprise that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity with owners. * Comprehensive income (net income plus other comprehensive income) should be displayed in a financial statement that has the same prominence as other financial statements.

Answer 35

Corrections of errors shall continue to be reported net of tax in retained earnings as an adjustment of the beginning balance.

Answer 36

* Comprehensive income is net income plus other comprehensive income * Comprehensive income consists not only of revenues, expenses, gains, and losses, but also various intermediate components or measures that result from combining the basic components. * Examples of intermediate components or measures are: * gross margin * contribution margin * income from continuing operations * operating income.

Answer 37

* An acquisition form of business combination will require the preparation of consolidated financial statements. * In the merger and consolidation forms of business combination, only one firm will remain after the combination. Therefore, there will not be two (or more) sets of financial statements to consolidate.

Answer 38

The parent needs to consolidate: * Book values * Fair values of a subsidiary's assets and liabilities at the date of the business combination * Cost of its investment in the subsidiary.

Answer 39

In a constant dollar balance sheet, **nonmonetary items are restated** to the current price level, while **monetary items are not** restated because they are already stated in current dollars. Investment in bonds and long-term debt are monetary items since their amounts are fixed by contract in terms of number of dollars.

Answer 40

* The Consumer Price Index is used to compute information on a "constant dollar" basis. * The index is used to restate financial statement elements to dollars which have the same purchasing power.

Answer 41

A contingency is described as an event which is not recognized in the financial statements because it is not probable that an outflow will be required or the amount cannot be reasonably estimated.

Answer 42

IFRS provides that a contingent asset is a possible asset that arises from past events, and is confirmed only by the occurrence of uncertain future events that are not within the control of the reporting entity. A contingent asset is not recognized, but it is disclosed in the notes to the financial statements if the economic benefits are probable.

Answer 43

The effect of contingent issue agreements are not included in basic earnings per share. They are included in diluted earnings per share if the contingency is met.

Answer 44

If convertible securities are deemed to be dilutive, then interest expense should be added back to net income when computing diluted earnings per share.

Answer 45

The correction of an error in the financial statements of a prior period is a prior period adjustment which is to be shown net of tax as an adjustment to the beginning balance of retained earnings.

Answer 46

Current replacement cost adjusted for obsolescence can be used for determining fair value measurements under the **cost approach.**

Answer 47

Generally, any cost involved in preparing land for its ultimate use is considered a cost of the land. As an example, the cost assigned to the land should be the purchase price plus any costs associated with clearing the land and removal of the building (if any) less the proceeds from the sale of the building.

Answer 48

The FASB conceptual framework has identified the **cost-benefit** constraint to the **relevance** of providing financial reports. Information is not disclosed if the costs of disclosure outweigh the benefits of providing the information. Reliability is no longer part of the conceptual framework according to SFAC 8.

Answer 49

Costs of termination benefits, lease termination, and consolidating facilities or relocating employees related to a disposal activity that involves discontinued operations should be included in the results of discontinued operations.

Answer 50

A change in acctg principle is accounted for through retrospective application to all prior periods and not included in net income of period of change or future periods

Answer 51

Current cost accounting is a method of valuing and reporting assets, liabilities, revenues, and expenses at their current cost at the balance sheet date or at the date of their use or sale. A holding gain is recorded as an increase in an item's value ( replacement cost less purchase price)

Answer 52

The current ratio is a liquidity ratio that measures a firm's ability to discharge currently maturing obligations from existing current assets that are expected to be converted into cash within the maturing period of the claims. Current ratio is a measure of short-term solvency; however, it is less precise than the quick ratio because a sizable amount of total current assets may be tied up in inventory, which is less liquid. Current assets ÷ Current liabilities

Answer 53

Per ASC Topic 715, the service cost component recognized shall be determined as the actuarial present value of benefits attributed by the pension benefit formula to employee service during the period, which is known as the **projected benefit obligation**. ASC Topic 715 requires a pension liability to be recognized if the fair value of plan assets is less than the projected benefit obligation.

Answer 54

The GASB evaluated debt issuance costs and concluded that, with the **exception** of **prepaid insurance**, the issuance costs relate to services provided in the current period and thus they should be expensed in the current period.

Answer 55

* The defensive-interval ratio is a measure of time the company can survive (continue to pay operating expenses in cash) using only the quick assets (cash, marketable securities, and net accounts receivable). * It is computed by dividing total quick assets by average daily cash expenditures. * This is a liquidity measure, as it assesses how long a company can continue to keep up with its debts.

Answer 56

A deferred tax liability is recognized for the amount of taxes payable in future years as a result of the deferred tax consequences (as measured by the provisions of enacted tax laws) of events recognized in the financial statements in the current or preceding years.

Answer 57

The assumed discount rate should reflect the rates at which pension benefits could be effectively settled. This rate is sometimes referred to as the _settlement rate_. To determine the settlement rate, it is appropriate to look at rates implicit in current prices of annuity contracts that could be used to settle the obligation under the defined benefit plan. The expected return on plan assets is not used to calculate the projected benefit obligation. The actual return on plan assets is also not used to calculate the projected benefit obligation.

Answer 58

The discount rate for the projected benefit obligation is generally based on **long-term debt interest rates**. It has no direct relationship to the actual or the expected rate of return on plan assets.

Answer 59

IFRS requires the use of the projected-unit-credit method to calculate the present value of the defined benefit obligation (PV-DBO).

Answer 60

The joint FASB/GASB definition of governmental organizations included in several AICPA Audit and Accounting Guides, including State and Local Governments (paragraph 1.01), states that an organization is a government if “a controlling majority of the members of the organization's governing body” are appointed or approved “by officials of one or more state or local governments.” In contrast, many nongovernmental organizations are exempt from federal taxation.

Answer 61

Per SFAC 6, the major difference between financial and physical capital maintenance is related to the effects of price changes on assets held and liabilities owed during a period. **The financial capital concept is applied in current GAAP**. Under this concept, the effects of the price changes described above are considered "holding gains and losses," and are included in computing return on capital. Comprehensive income, which is described in SFAC 5, is "the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources." It is also a measure of return on financial capital. The concept of physical capital maintenance seeks to measure the effects of price changes that are **not currently captured under GAAP** (e.g., replacement costs of nonmonetary assets). Under this concept, holding gains and losses are considered "capital maintenance adjustments" which would be included directly in equity and excluded from return on capital.

Answer 62

A potentially dilutive security is a security that gives the holder the right to acquire shares of common stock through conversion or exercise, and therefore is considered in the computation of diluted earnings per share (DEPS) **if dilutive**. Antidilutive securities are securities that would create an **increase** in DEPS if included in the calculation of diluted EPS and **should no**t be considered when computing either basic or EPS

Answer 63

Dividends on nonconvertible cumulative preferred shares should be deducted from net income whether an actual liability exists or not. This is because cumulative preferred stock owners must receive any dividends in arrears before future dividend distributions can be made to common stockholders

Answer 64

* All potential common shres that reduce current EPS must be included in the computation of diluted EPS * Contingent Common shares that were outstanding for the full year because of the contingency are included

Answer 65

The lessor shall measure the lease receivable in a direct financing lease initially as the sum of the following amounts: * The lease payments * The unguaranteed residual value accruing to the benefit of the lessor * The guaranteed residual value by the lessee or third party

Answer 66

ASC Topic 235 requires disclosure of accounting policies and states that they are essential to users and are an integral part of the financial statements

Answer 67

Disclosure of accounting policies are essential to users and an integral part of the Financial Statements

Answer 68

Disclosure of accounting policies should identify and describe the accounting principles followed by the reporting entity and methods of applying those principles. The criteria for determining which investments are treated as cash equivalents is an example of how the entity applies accounting principles. These disclosures should not duplicate details presented elsewhere as part of the financial statements.

Answer 69

Losses associated with long-lived assets which are to be disposed of are to be reported as a component of income from continuing operations before income taxes for entities preparing income statements. Losses on long-lived assets to be disposed of are neither unusual nor infrequent occurrences. These losses are not part of selling or general and administrative expenses and they are not disclosed net of tax. Discontinued operations result from disposal of a separate business component.

Answer 70

This division oversees the compliance with the securities acts and examines all filings made by publicly held companies. All filings go to this division.

Answer 71

This division was created in 2009 in response to the credit market crisis. The purpose of the division is to integrate financial economics and data analytics into the core mission of the SEC (www.sec.gov).

Answer 72

When there is a violation of a securities law (except the Public Utility Holding Company Act), this division completes the investigation and takes appropriate actions. This division makes recommendations to the Justice Department concerning any punishments or potential criminal prosecution.

Answer 73

This division oversees the secondary markets, exchanges, brokers, and dealers.

Answer 74

Dollar-value LIFO bases inventory on "dollars" in inventory rather than "units" in inventory. Inventory layers are identified with the price index in the year in which the layer was added. ’Double extension’ and ’link-chain" are two variations of dollar-value LIFO. Link-chain differs from double extension in that inventory values are extended at beginning of the year prices for link-chain and at base year prices for double extension. Because of this difference, link-chain is more appropriate for situations in which inventory is going through rapid technological changes. The two variations are not alternatives and use of the link-chain method should be restricted to situations in which the double extension method is impractical.

Answer 75

Dollar-value LIFO uses dollar-value pools which are made up of "similar" items (in terms of interchangeability, type of material, or similarity in use). Dollar-value LIFO determines increases or decreases in ending inventory in terms of dollars of the same purchasing power. Ending inventory is **deflated to base-year cost** by dividing ending inventory by the current year’s specific conversion price index. The resulting amount is then compared with the beginning inventory which has also been stated in base-year dollars.

Answer 76

To add an increase, a new layer, using dollar-value LIFO (last in, first out), two items are needed: the total real increase (computed using base-year costs) and the total increase in price level to date so far. Once both of these amounts are acquired, multiply them and add the product to the beginning-year inventory total. 20X2 index = Inventory at current-year cost / Inventory at base-year cost = $80,000 / $60,000 = 1.333 20X2 layer = 20X2 index x 20X2 layer at base-year cost = 1.333 x $15,000 = $20,000 Dollar value LIFO inventory on December 31, 20X2 = 12/31/X1 valuation + 20X2 layer = $46,000 + $20,000 = $66,000

Answer 77

ASC Topic 958 provides that donated property from nonowners should be recorded at fair value. ASC Topic 360 provides that costs incurred in acquiring an asset are part of the cost of the asset. Both the asset’s fair value and the incidental costs incurred in its acceptance should be capitalized.

Answer 78

Donor restrictions are **_no longer_** listed as either temporary or permanent. Appropriate disclosures for restrictions on donations include: * support for a particular operating activity, * investment for a specified term * use in a specified period * acquisition of long-lived assets.

Answer 79

The effective tax rate should reflect anticipated investment tax credits, foreign tax rates, percentage depletion, capital gains rates, and other available tax planning alternatives.

Answer 80

The IASB Framework has five elements: * asset * liability * equity * income * expense. Note that income includes both revenues and gains.

Answer 81

SFAC 6, Elements of Financial Statements, contains the following definitions: **Capital maintenance concept**: the recovery of cost; separation of return on capital from return of capital. **Financial capital concept:** The effects of price changes on assets held and liabilities owed are recognized as “holding gains and losses” and included in return on capital. **Physical capital concept**: The effect of price changes are recognized as “capital maintenance adjustments” as a separate element of equity and would not be included in return on capital. SFAC 6 continues: "The financial capital concept is the traditional view and is generally the capital maintenance concept in present primary financial statements. Comprehensive income as defined in paragraph 70 is a return on financial capital."

Answer 82

The enhancing qualitative characteristics of financial reporting are * comparability (including consistency), * verifiability * timeliness * understandability

Answer 83

The enhancing qualitative characteristics of financial reporting are * comparability (including consistency) * verifiability * timeliness * understandability

Answer 84

The if-converted method of computing earnings per share assumes that convertible securities are converted at the beginning of the earliest period reported or, if later, at the time of issuance.

Answer 85

Earnings per share data shall be shown on the face of the income statement. Earnings per share amounts must be presented for: * (1) income from continuing operations, and * (2) net income. Earnings per share data on discontinued operations must be shown either on the face of the income statement or in the footnotes.

Answer 86

Earnings per share disclosures are required on the income statement for all public companies.

Answer 87

* The **principal** market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity for the asset or liability. * The most advantageous market in which the amount received would be maximized

Answer 88

An estimate of an impairment charge to a fixed asset can only be a faithful representation if the entity has applied impairment rules properly, disclosed the process of arriving at the impairment estimate and disclosed any uncertainties that affect the impairment estimate. Assuming the above is true, and no other estimate is better than the derived estimate, then the estimate is comprised of the best available information.

Answer 89

Conditions or events to examine when evaluating an entity's ability to continue as a going concern include the entity's current financial condition, conditional and unconditional obligations dues, and funds necessary to maintain operations.

Answer 90

When nonmonetary assets are exchanged with no monetary consideration involved, no gain is recognized if the transaction lacks commercial substance. When the cash flows are not significantly different, the transaction is deemed to lack commercial substance. Therefore, the accounting for such an exchange must be based on the recorded amount of the asset relinquished (ASC Topic 845).

Answer 91

Per ASC Topic 845, exchanges that lack commercial substance are recorded at book value. Therefore, gains on these exchanges are recognized only to the extent that boot is received.

Answer 92

* Sale or termination of a line of business * Changes in management structure * Relocation of business activities from one location to another

Answer 93

* Cash-basis net income reflects expenses paid * Accrual-basis net income reflects expenses recognized (accrued) * three pervasive expense recognition principles: * Systematic and rational allocation * Associating Cause and Effect ( sales commissions/sales revenue) *

Answer 94

Gains from extinguishment of debt are reported on the income statement. Gains from extinguishment of debt are not classified as other comprehensive income.

Answer 95

A factoring of accounts receivable is basically a sale of, or borrowing on, the receivables. "Factors" are intermediaries that buy receivables from companies (for a fee) and then collect payments directly from the customers

Answer 96

* ASC Topic 825 provides that the fair value option does not apply to pensions. * The fair value option may be elected on an instrument-by-instrument basis for available-for-sale securities

Answer 97

Fair value assumes highest and best use of the asset that is physically possible, legally permissible and financially feasible

Answer 98

ASC Topic 820 requires that the fair value of an asset be based upon the price that would be received to sell the asset, which is an exit price

Answer 99

Under IFRS, any investment may be accounted for by fair value through profit and loss providing it is traded in an active market.

Answer 100

* Market Approach * Income Approach * Cost Approach

Answer 101

* Does not apply to leases Applies to the following: * Firm commitments that involve financial instruments * Warranties that can be settled by paying a third party * Held to Maturity Investments

Answer 102

* The fair value option must be applied to all interests in the same entity. * Once the fair value option is elected, it is irrevocable * The fair value option must be applied to all portions of the instrument

Answer 103

Information is faithfully represented when it is **complete, neutral, and free from error and bias.** Faithful representation is a fundamental quality of decision-useful information.

Answer 104

**Completeness, neutrality, and freedom from error** are characteristics of faithful representation, a fundamental qualitative characteristic

Answer 105

Per SFAC 6, the common quality shared by all assets is "**service potential**" or "**future economic benefit**." Per SFAC 6, assets commonly have other distinguishing features, however they are not essential characteristics of assets. * legally enforceable, * tangible * acquired at a cost.

Answer 106

A tax position is a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The term tax position also encompasses, but is not limited to: * A decision not to file a tax return * An allocation or a shift of income between jurisdictions * The characterization of income or a decision to exclude reporting taxable income in a tax return * A decision to classify a transaction, entity, or other position in a tax return as tax exempt * An entity's status, including its status as a pass-through entity or a tax-exempt not-for-profit entity.

Answer 107

Fiduciary funds account for resources (and any related liabilities) held by a government entity for the benefit of others (not to support the government’s programs) in a trustee capacity (trust funds). Changes in net position of trust funds are reported as additions and deductions, using the flow of economic resources measurement focus and the accrual basis of accounting. ***Fiduciary funds do not report fund balance.*** Fiduciary funds include * pension trust funds * investment trust funds * private-purpose trust funds * Agency/Custodial funds **Fuschia - Pippa**

Answer 108

In a period of **rising prices**, the highest balance in ending inventory will result from the **FIFO** inventory cost method. This is because the cost of the highest-priced (most recent) purchases are assigned to the ending inventory

Answer 109

The FIFO perpetual inventory method will produce the same ending inventory as the FIFO periodic method. This is due to the fact that the “first-in” units are removed first under both methods. The only difference is that the units sold are removed immediately under the perpetual approach but only at the end of the period under the periodic approach. The flow and amounts are the same. ***This is not true for any other inventory method (other than specific identification)***.

Answer 110

ASC Topic 842 states that a lease shall be classified as a finance lease by the lessee if **one or more** of the **five** criteria are met. The five criteria are as follows: 1. Lease transfers ownership to the lessee during lease term 2. Lease contains a bargain purchase option 3. Lease term is 75% or more of the economic useful life of the property 4. Present value of the minimum lease payment equals 90% or more of FV of the leased property. 5. Leased asset does not have an alternative use. **The term capital lease is no longer used**

Answer 111

Financial statement disclosure of accounting policies should not duplicate details (e.g., composition of inventories or of plant assets) presented elsewhere as part of the financial statements.

Answer 112

The IFRS requires the presentation of prior year financial statements for comparative purposes.

Answer 113

Assumes highest and best use of asset to determine Fair Value for Financial Stmt purposes

Answer 114

* Firm purchase commitments, situations when a company agrees to buy a fixed amount of inventory at a future date, are **not recognized** as an asset or liability on the commitment date. * They are subject to remeasurement if the price of the asset falls below the agreed-upon firm price, creating a loss contingency. * A contingency is an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur. * Proper accounting for loss contingencies requires an assessment of the probability (i.e., probable, reasonably possible, remote) that a future event or events will confirm a loss or asset impairment or the incurrence of a liability as of the date of the financial statements.

Answer 115

* General * Special Revenue * Capital Projects * Debt Service * Permanent **Green St. Patricks Day Clover - GSPCD**

Answer 116

FASB ASC 842-10-25-2 established five criteria for classifying leases. The first set of criteria result in a finance lease for a lessee or sales-type lease for the lessor if the lease meets any of the following criteria at commencement: * Title (ownership) transfers to the lessee by the end of the lease term. * Lease contains a purchase option that the lessee is reasonably certain to exercise. * The lease term is for the major part of the remaining economic life of the underlying asset. This criterion shall not be used if the lease commencement date is near the end of the asset’s economic life. * The present value of the sum of the lease payments and any lessee guaranteed residual value not already in the lease payments equals or exceeds substantially all of the fair value of the underlying asset. * The underlying asset is specialized and is not expected to have an alternative use to the lessor at the end of the lease term. If one or more of these conditions are present, the lease is a finance lease. The FASB has removed the former bright-line tests but in FASB ASC 842-10-55-2 uses the former rules as benchmarks.

Answer 117

When goods are shipped FOB destination, title does not pass to the buyer until the goods have been delivered.

Answer 118

**Foreign currency translation** is the process of expressing in the reporting currency of the enterprise amounts that are denominated or measured in a different currency. It is converting financial statements expressed in a foreign currency (i.e., the entity's functional currency) into the reporting currency. This arises from consolidating a foreign operation into the parent (domestic) operation. Because it is not possible to combine, add, or subtract amounts measured in different currencies, it is necessary to translate elements measured in foreign currencies into a single reporting currency. FASB ASC 830-10-20 **Translation adjustments do not affect cash flows** and are **not** included in net income, but are reported as a separate component of equity. The economic effects are relatively self-contained and integrated within the foreign operation and relate to the net investment in that operation.

Answer 119

The particular significance of which currency is the subsidiary's functional currency is that exchange gains and losses resulting from **remeasuremen**t must enter into the determination of **net income,** whereas exchange gains and losses resulting from **translation do not**. In the latter case, the exchange gains and losses are included in the cumulative translation adjustment that is reported as a separate component of stockholders' equity. **(OCI)**

Answer 120

The cash flow statement may be translated at the rates in effect at the time the transaction occurred (historical exchange rates) or at weighted-average exchange rates if not substantially different.

Answer 121

When the local currency is the functional currency, and it is not experiencing hyperinflation, financial statements prepared in the foreign currency will be converted to the reporting currency using translation, **not** remeasurement. Under the **translation method** of converting from a foreign currency to a reporting currency, revenues, expenses, gains, and losses are converted using the exchange rate in effect when an item was earned or incurred; however, a weighted average exchange rate for the period can be used.

Answer 122

The four assumptions that underlie GAAP are * the economic entity assumption * the going concern assumption * the periodicity assumption * the monetary unit assumption. The economic entity assumption is the presumption that all economic events can be identified with a particular economic entity and that the activities of a company can be distinguished from those of its owners. The going concern assumption is that a business entity will continue to operate indefinitely. The periodicity assumption relates to the ability to divide the “life” of a business into shorter, artificial time periods for financial reporting purposes. The monetary unit assumption is that the monetary unit (dollars in the U.S.) is the most appropriate common denominator for measuring, reporting, and analyzing economic activity.

Answer 123

* Balance Sheet * Income Statement * Statement of Cash Flows * Statement of Changes in Shareholders Equity

Answer 124

* Perpetual * Investment * Private Purpose * Agency **Fushia - PIPPA**

Answer 125

The four foreign currency hedges are: (1) an unrecognized firm commitment 2) available-for-sale securities (3) foreign currency denominated forecasted transactions (4) net investments in foreign operations

Answer 126

* Relevance * Faithful representation **Note** Reliabiltyis no longer listed as a fundamental quality

Answer 127

* Generally accepted accounting principles (GAAP) are the basic concepts underlying financial accounting and reporting that have substantial authoritative support. * GAAP includes pronouncements of other authoritative bodies, such as the Accounting Principles Board, Governmental Accounting Standards Board, Securities and Exchange Commission, and the American Institute of Certified Public Accountants boards and committees, in addition to pronouncements of the Financial Accounting Standards Board and the FASB's Accounting Standards Codification. * GAAP also includes specific practices that have widespread use and are included in accounting textbooks and other writings.

Answer 128

* GAAP is more than just guidelines. * Accountants are required by the Accounting Principles Rule (ET 1.320.001) of the AICPA Code of Professional Conduct to follow GAAP except in those limited situations in which unusual circumstances would cause financial statements prepared in accordance with GAAP to be misleading; following GAAP is not a choice left to the discretion of the practitioner. * GAAP incorporates a consensus that spurs an evolutionary process, so that these principles continuously change over time in response to changes in economic, legal, political, and social conditions; new knowledge and technology; and demands of users for more useful information.

Answer 129

GAAP incorporates a consensus that spurs an evolutionary process, so that these principles continuously change over time in response to changes in economic, legal, political, and social conditions; new knowledge and technology; and demands of users for more useful information.

Answer 130

Information presented in notes includes the following: * Significant accounting principles used * Alternative measures for assets and liabilities * Information about long-term obligations (when due, the interest rate, restrictive covenants) * Inventory measurement method used (LIFO, FIFO, etc.) * Revenue recognition policies * Discussion of contingencies, claims, and assessments

Answer 131

Gain on involuntary conversions should be recognized as the difference between proceeds and book value of the converted asset - regardless of whether or not the proceeds are reinvested

Answer 132

GASB 1300 defines a fund “as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations…”

Answer 133

The general fund records expenditures rather than expenses

Answer 134

* Goodwill is tested for impairment by determining whether the fair value of the reporting unit is less than the carrying amount and, if so, an impairment loss is reported on the income statement. * Goodwill is not written up for increases in its value. * A subsequent reversal of a previously recognized impairment loss is prohibited. * Goodwill is not amortized.

Answer 135

* The governmental fund reporting focuses primarily on the sources, uses, and balances of financial resources. * The financial statements for governmental funds use the **_current financial resources measurement focus_**

Answer 136

Governmental funds finance and account for general government activities, such as police and fire protection, courts, inspection, and general administration, and use the **flow of current financial resources measurement focus and the modified accrual basis of accounting**. Governmental funds include the * general fund * special revenue fund * permanent funds. * debt service fund * capital projects fund ***green st. patricks day shamrock clover***

Answer 137

The government-wide financial statements display information about the reporting government as a whole. The statements would report the governmental activities reported in the **governmental funds** and the **proprietary and enterprise activities** accounted for in enterprise funds. The **fiduciary activities** are not considered part of the operations of the government itself and would **not be** included in the government-wide financial reports.

Answer 138

In order for an item to be recognized in the fin stmts IFRS requires it meet : * definition of an element * can be measured reliably

Answer 139

If a barter transaction is for goods that are similar in nature and value, then no income or expense is recognized.

Answer 140

In order for an item to be recognized in the financial statements, IFRS requires that it meet the definition of a**n element** and can be **measured reliably**

Answer 141

The revaluation method can only be used if there is an active market for the intangible asset. Under IFRS, intangible assets can be measured using either the cost model or the revaluation model.

Answer 142

IFRS has no requirement for the presentation of interim financial statements, but if they are presented, four basic financial statements are required.

Answer 143

The LIFO method is not allowed under IFRS. All of the other methods of accounting for inventory are allowed.

Answer 144

* a. Revaluation is permitted (but not required) as an alternative to the cost method; revaluation to fair value must be done on a class-by-class basis. * b. Increases in the asset's carrying amount are recognized in Other Comprehensive Income (OCI) and accumulated in equity in a Revaluation Surplus account. The increase is only recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset. When an asset is derecognized, the revaluation surplus, if any, is transferred to retained earnings. * c. Decreases in the asset's carrying amount are recognized fully in profit or loss, and recognized in OCI only to the extent of any credit balance in the revaluation surplus account related to that asset. * d. An asset is tested for impairment when there is reason to suspect loss in value. The test is to determine if the carrying value is recoverable. The recoverable amount is the greater of value in use (present value of discounted future cash flows) or net realizable value (sales proceeds less cost to sell). * e. The estimated useful life and residual value must be reviewed at least annually; any changes are accounted for as a change in accounting estimate. * f. Component depreciation is required whenever a part of an item is significant in cost compared to the total cost of the item. * g. Borrowing costs related to the acquisition, construction, or production of a qualifying asset are defined more broadly, and may include more components under IFRS than under GAAP. * h. The estimated cost of dismantling and removing an asset and restoring a site (also called decommissioning an asset) is included in the cost of the related asset. If any subsequent changes to the liability account exceed the carrying amount of the related asset (i.e., fully depreciated), the change would be recognized in profit or loss. * i. Biological assets consist primarily of plants and animals; the harvested product is referred to as agriculture produce. Biological assets are recognized after certain criteria have been met, and are carried at their fair value less point-of-sale costs.

Answer 145

The specific identification method is required for inventory items that are not interchangeable and goods that are produced and segregated for specific projects.

Answer 146

Under IFRS the stmt of cash flows may be present on the direct **_or_** indirect method

Answer 147

IFRS requires cash advances and loans from bank overdrafts to be classified as operating activities.

Answer 148

IAS 7, Cash Flow Statements, is similar to the GAAP statement except that: * bank overdrafts are presented as operating activities for IFRS and financing activities in U.S. GAAP, * interest and dividends received are presented as operating **or** investing activities for IFRS and only as operating activities in U.S. GAAP, and * the most recent two years (i.e., comparative periods) must be presented.

Answer 149

IFRS **requires** component depreciation. Separable parts of property, plant, and equipment need to be separately depreciated.

Answer 150

This is an area where IFRS and GAAP differ. * Under GAAP, direct-response advertising costs may be capitalized if specific criteria are met. * Under IFRS, advertising and promotional costs are expensed as incurred.

Answer 151

Under IFRS finance costs (interest expense) may be reported in either the operating or financing section of the statement of cash flows. However, once it is disclosed in a particular section, it must be reported on a consistent basis.

Answer 152

IFRS provides that financial liabilities may be reported at amortized cost or at the fair value through profit or loss (FVTPL). If FVTPL is elected, the resulting gain or loss is recognized in profit or loss for the period.

Answer 153

IFRS differs from U.S. GAAP when accounting for a business combination. IFRS does not require goodwill to be recognized but allows it as an option.

Answer 154

Under IFRS, inventory is presented at the lower of cost ($1,200) or net realizable value ($1,300 selling price − $150 estimated completion and selling costs). Therefore, the item should be valued at $1,150.

Answer 155

* IFRS applies an inventory valuation rule of **_lower of cost or net realizable value_**, which is defined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. * Replacement cost and normal profit margin are not used in IFRS

Answer 156

Under IFRS inventory is reported at the lower of cost or net realizable value.

Answer 157

IFRS requires a lease to be classified as a finance lease if substantially all the risks or benefits of ownership have been transferred to the lessee. When the lease contains a bargain purchase option and the lease is for the entire life of the asset, all the risks and benefits have been transferred. The term “capital lease” is no longer used.

Answer 158

They can be subtracted from cash rather than classified as a liability.

Answer 159

The IFRS does not provide requirements as to the frequency or date of revaluation of plant, property, and equipment.

Answer 160

* Under IFRS finance costs may be reported in either operating or financing section of stmt of cash flows * once disclosed in a particular section it must be reported on a consistent basis

Answer 161

An impairment loss be recognized if the sum of the expected net future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset. Net future cash flows are cash inflows less cash outflows that are necessary to obtain the inflows. Whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, an entity shall review long-lived assets and certain identifiable intangibles to be held and used for impairment.

Answer 162

ASC Topic 360 states that an impairment loss for assets to be held and used shall be reported as a component of income from continuing operations before income taxes for entities presenting an income statement and in the statement of activities of a not-for-profit organization. Although there is no requirement to report a subtotal such as "income from operations," entities that present such a subtotal must include the impairment loss in that subtotal.

Answer 163

Under U.S. GAAP, previously recognized impairments of fixed assets may not be recovered or reversed. An impairment loss for assets which are to be held and used should be reported as a component of income from continuing operations before income taxes for entities presenting an income statement.

Answer 164

GASB N50.104 groups nonexchange revenues into four different categories: * derived tax revenues * imposed nonexchange revenues * government-mandated nonexchange transactions * voluntary nonexchange transactions. Property taxes are an imposed nonexchange revenue because they are levied or imposed by government on nongovernmental entities and they are not assessments on exchange transactions. Income and sales taxes are derived tax revenues as they are assessments imposed on exchange transactions. A federal grant would be either a voluntary or mandated nonexchange transaction depending on the terms of the grant.

Answer 165

According to the IASB Framework, the financial statement element **income** is defined as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants Note that income includes both revenues and gains.

Answer 166

An income approach to fair value measurement includes using present value techniques to discount cash flows.

Answer 167

The income approach uses valuation techniques to convert future amounts to a single present value amount. Therefore, Black-Scholes-Merton, binomial models, or discounted cash flow models are examples of the income approach.

Answer 168

Using present value techniques to discount cash flows is an income approach.

Answer 169

An estimate of the **effective tax rate expected** for the annual period is made at the end of each interim period. This rate is used in providing for income taxes on a current year-to-date basis.

Answer 170

When financial statements are prepared using an income tax basis, two accounting methods can be used: (1) **modified cash basis—hybrid method of IRS** and (2) a**ccrual basis—IRS**. The modified cash basis reflects the use of accrual basis for inventories, cost of goods sold, sales, and depreciation, if these are significant. The accrual basis uses accruals and deferrals with several exceptions (e.g., prepaid income, warranty expense). When financial statements are prepared on an income tax basis, the financial statements should not simply repeat items and amounts reported in the tax return. Thus, items such as nontaxable municipal interest and the nondeductible portion of travel and entertainment expense should be fully reflected in the income statement on the basis used for tax purposes, with footnote disclosure of the differences between the amounts reported in the income statements and tax return.

Answer 171

Initial direct costs are the **incremental costs** of a lease that would not have been incurred if the lease had not been obtained.

Answer 172

Interest expense is generally considered to be a **nonoperating** item and is therefore included in **other expenses and losses.**

Answer 173

Per ASC Topic 230, interest payments to lenders and other creditors are categorized as cash flows from **operating activities**.

Answer 174

The **integral view**, used for interim reporting, holds that each interim period: * is an integral part of an annual period, * must reflect expectations for the annual period * must utilize special accruals, deferrals, and allocations

Answer 175

* IFRS does not mandate interim reporting * US GAAP provides minimum guidelines for interim reporting

Answer 176

The primary purposes of interim reporting are to provide information which is more timely than is available in annual reports and to highlight business turning points which could be "buried" in annual reports. This emphasis on timeliness comes at the expense of reliability. Accounting information pertaining to shorter periods may require more arbitrary allocations, and may not be as verifiable or representationally faithful as information contained in annual reports. Interim reports are generally more relevant and less reliable. Interim financial statements should not be any more or less comparable than annual reports.

Answer 177

Internal service funds are established to account for activities that one department within a government undertakes for the benefit of : * (1) other departments within that same government (usual case), and * (2) (sometimes) other governments, at prices approximating their external exchange value. Intergovernmental resource flows between different governments would be recognized as operating revenues or expenses/expenditures.

Answer 178

According to ASC Subtopic 350-40, costs of internally developed software after the development stage may be capitalized and amortized over the asset’s economic life.

Answer 179

During periods of rising prices, the inventory costing methods which will result in the the lowest ending inventory balance are LIFO methods, because inventory items that were purchased at the earliest date (when prices were lower) will remain in inventory and the most recently purchased and more expensive items will be expensed through cost of goods sold.

Answer 180

Inventory costs include all costs necessary to prepare goods for sale. For a merchandising concern, these costs include: * the purchase price of the goods * freight-in, insurance * warehousing * any costs necessary to get the goods to the point of sale (except interest on loans obtained to purchase the goods)

Answer 181

Investing and financing activities that do not affect cash but do affect recognized assets and liabilities should be presented in a separate schedule to accompany the statement of cash flows.

Answer 182

SFAC 6, Elements of Financial Statements, defines a liability as: * a “probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.” * Because liabilities can be reduced via providing services, a future transfer of assets is not required.

Answer 183

* The acquiring firm need only acquire greater than 50% (50% + 1 share) of the acquired firm to obtaining a controlling interest. * Both firms continue to exist and operate as separate legal entities, the acquiring firm as the parent and the acquired firm as a subsidiary.

Answer 184

Functional intellectual property has significant standalone functionality (for example, the ability to process a transaction, perform a function or task, or be played or aired); it derives a substantial portion of its utility from its significant standalone functionality. Revenue for licenses of functional intellectual property would be recognized when access to the license is granted. Symbolic intellectual property does not have significant standalone functionality; substantially all of its utility is derived from its association with the entity’s past or ongoing activities, including its ordinary business activities. Revenue for licenses of symbolic intellectual property is recognized over the period of the license.

Answer 185

The net realizable value approach is **not** an acceptable fair valuation method. The determination of fair value may require the use of one or more valuation techniques. The valuation technique used should be consistent with the **market approach, income approach, and/or cost approach, as appropriate.** * The **market approach** uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. * The **income approach** converts future amounts (e.g., cash flows) to a single present amount (discounted) using methods such as present value techniques and option-pricing models. * The **cost approach** is based on the amount that currently would be required to replace the service capacity of an asset (i.e., current replacement cost).

Answer 186

ASC Topic 450 requires accrual of a loss contingency only if both of the following conditions are met: * (1) the future losses are probable and * (2) the loss amount can be reasonably estimated. Loss contingencies that do not meet one or both of these criteria, but that are at least reasonably possible should be disclosed, but not accrued. Loss contingencies that have only a remote possibility of occurrence are generally not even disclosed.

Answer 187

* A loss contingency should be accrued if it is probable that a liability has been incurred at the balance sheet date and the amount of the loss is reasonably estimable. * If the contingency is reasonably possible, it will be disclosed in the footnotes to the financial statements

Answer 188

Per ASC Topic 450, an estimated loss from a loss contingency should be accrued if the likelihood of occurrence is probable and the amount of the loss can be reasonably estimated. If the occurrence is reasonably possible - no accrual . Disclosure of the contingency shall be made where it is at least reasonably possible that a loss was incurred

Answer 189

* **Financial Reporting Releases (FRR)**—These are formal pronouncements and are the highest-ranking authoritative source of accounting for public companies. * **Staff Accounting Bulletins (SAB**)—These provide the SEC's current position on technical issues. Although SABs are not formal pronouncements (in the sense that they have not gone through any due process), they still are of importance to financial statement preparers, because they reflect the staff's current thinking on various technical issues.

Answer 190

The method chosen for determining what information to report for business segments is referred to as the management approach

Answer 191

Using relevant information from recent transactions is a market approach

Answer 192

Current market value or "quoted market price" is used as a measurement base, for example, in the case of precious metals having a fixed selling price with no substantial cost of marketing. Discounted cash flow is used as a measurement base for assets capitalized under long-term leases. Replacement cost is used as a measurement base for inventories when the replacement cost has fallen below historical cost.

Answer 193

If the acquirer has incomplete accounting information on the date of acquisition, the measurement period **ends** when the acquirer **receives** the information **or one year** from the date of acquisition, whichever occurs first.

Answer 194

CON 5, para 71, provides that the monetary unit is the common denominator of economic activity and provides a basis for accounting measurement

Answer 195

Negative Cash Balances s/b classified as a liability rather than netted against positive cash balances

Answer 196

Donated services are recorded as donation income if the services received either: * create or enhance nonfinancial assets, or * require specialized skills, are provided by individuals possessing those skills, and would need to be purchased if not provided by the donor. Any other donated services are not recognized. Footnote disclosure of the fair value of contributed services that are not recognized as revenue is encouraged but not required.

Answer 197

The classification of contributions received as revenues or gains depends on whether the transactions are part of the NFP’s (not-for-profit entity’s) ongoing major or central activities (revenues). Events are peripheral or incidental if they are not an integral part of an NFP’s usual activities, or if their gross revenues or expenses are not significant in relation to the NFP’s annual budget.

Answer 198

There are **_three_** conditions that must be met to allow a nongovernmental not-for-profit to report costs of joint activities in a category other than fundraising activities. Those three conditions are: * one or more of the purposes of the activity is to accomplish some program function or management and general responsibility of the entity; * the audience for the activity was chosen based on some other criteria other than the ability to make contributions; and * the content of the activity motivates the audience to take specific actions other that making contributions, and these actions support the program goals or fulfill a management and general responsibility of the entity.

Answer 199

Contribution revenues (support) from gifts, grants, bequests, and so on are reported in the period they are unconditionally promised or received, whichever is earlier. * Revenues are measured at the present value (or net realizable value for any contributions expected to be received within a year after the unconditional promise was made); * Recognition of contribution revenues is not deferred because donations are restricted.

Answer 200

* Statement of Financial Position ( similar to Balance Sheet) * Statement of Activities * Statement of Cash Flow * Statement of Functional Expenses ( Voluntary Health and Welfare Entities only)

Answer 201

All not-for-profit entities (NFPs) are required to disclose an analysis of expenses by **_both_** functional and natural classifications to be presented in **one** location in the financial statements, whether in the **notes** or in a **separate financial statement.**

Answer 202

Not-for-profit entities (NFPs) **must** disclose the availability of financial assets to meet cash needs for general expenditures within one year as part of their quantitative disclosures. Additional quantitative note disclosures include information about: * The availability of financial assets due to their nature (i.e., their liquidity) * External limits imposed by donors, laws, and contracts * Internal limitations. An analysis of expenses by both functional and natural classifications **can be** disclosed either in the notes or on the face of the statement of financial position.

Answer 203

The statement of activities reports revenues as “increases in net assets without donor restrictions,” unless the use of the assets received is limited by donor-imposed restrictions.

Answer 204

The statement of activities provides important information about * (1) the effects of transactions and other events and circumstances that change the amount and nature of net assets; * (2) the relationships of those transactions and other events and circumstances to each other * (3) how the NFP’s resources are used in providing various programs or services.

Answer 205

The statement of activities for a not-for-profit entity (NFP) is the financial statement that an NFP issues in lieu of a business entity’s income statement. Unlike the statement of financial position, the statement of activities is more of a **period-of-time** measurement of the NFP **instead** of a **point-in-time measurement**. The statement of activities provides important information about : * (1) the effects of transactions and other events and circumstances that change the amount and nature of net assets * (2) the relationships of those transactions and other events and circumstances to each other * (3) how the NFP’s resources are used in providing various programs or services.

Answer 206

* The primary purpose of the statement of activities of a nongovernmental NFP organization is to report the change in net assets for the period * In NFP the statement of activities is analogous to the income statement of a business entity. * In governmental accounting, a statement of activities is required for government-wide financial reporting. The formats of the not-for-profit and the governmental statement of activities differ. * The statement of activities provides information about the change in amount and nature of net assets by reporting on changes in net assets with donor restrictions and net assets without donor restrictions for a period of time.

Answer 207

* The statement of financial position is comparable to a balance sheet, and reports assets, liabilities, and net assets (rather than equity) at a point in time

Answer 208

Not-for-profit entities (NFPs) that allocate joint costs disclose all of the following in the notes to the financial statements: * The types of activities for which joint costs have been incurred * A statement that such costs have been allocated * The total amount allocated during the period and the portion allocated to each functional expense category. NFPs are encouraged, but not required, to disclose the amount of joint costs for each kind of joint activity, if practical.

Answer 209

ASC Topic 255, nonmonetary items include assets and liabilities whose amounts may change over time in terms of a monetary unit (e.g., the U.S. dollar). Examples of nonmonetary assets and liabilities included: * inventory * property, plant, equipment * obligations under warranties * Accumulated depreciation is a nonmonetary item because it relates to equipment.

Answer 210

ASC Topic 845 requires the recording of nonreciprocal transfers at fair value of the asset transferred when it is determinable.

Answer 211

Other than GAAP, the only other bases which may be used to prepare financial statements in conformity with a comprehensive basis of accounting are the **cash basis and a basis of accounting** used to file an **income tax return**

Answer 212

SFAC 8 provides a summary of potential additional disclosures. For assets, the following items should be disclosed: * The nature, quality, and location of the asset * Future cash flows * Relation to other line items * Significant contractual, statutory, regulatory, or judicial restrictions

Answer 213

* A noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent. * A noncontrolling interest is sometimes called a minority interest. * The ownership interests in the subsidiary that are held by owners other than the parent are a noncontrolling interest. * The noncontrolling interest in a subsidiary is part of the **equity** of the consolidated group.

Answer 214

A nonmonetary exchange is recognized at fair value unless the fair value is not determinable, the exchange transaction is to facilitate sales to customers, or the exchange transactions lacks commercial substance.

Answer 215

ASC Topic 958 states that both gains and losses on nonmonetary, nonreciprocal transfers (donations) are to be recorded. The gain or loss is calculated as the difference between the fair value of the nonmonetary asset transferred and its recorded amount at the date of donation. Gains or losses related to the nonreciprocal transfer of nonmonetary assets are recognized because they have been earned or incurred by the entity at the date of transfer.

Answer 216

Certain resources of governmental funds are not monetary in nature and will not lead to a collection of monetary resources in the future. These assets, usually **prepaid items** and **inventories**, are considered nonspendable. At year-end, a category of Fund balance is set aside equaling the total of such assets.

Answer 217

The correct listing of required statements is: * statement of financial position * statement of activities * statement of cash flows

Answer 218

Most notes are discounted on a with recourse basis, requiring the estimation and recognition of a recourse liability that is taken on, based on the possible cost of having to make payments on the note if the original payor does not. The discounting is accounted for as a sale, with the difference between the “sales price” of the note and the carrying amount of the net receivable transferred being recognized as a gain or loss. If the discounting of the note does not qualify as a sale, the transaction is accounted for as a borrowing.

Answer 219

The AICPA Audit and Accounting Guide Health Care Organizations, lists proceeds from sales of cafeteria meals and guest trays to employees, medical staff, and visitors as one of the items reported as other revenue on the statement of operations. Other revenue is included in the performance indicator on the statement of operations. Net assets released from restrictions are also reported in the performance indicator if the net assets are used for operating expenses.

Answer 220

Per SFAC 8, the objectives of financial reporting focus on providing present and potential investors and creditors with information useful in making investment decisions. Financial statement users do not have the authority to prescribe the data they desire. Therefore, they must rely on external financial reporting to satisfy their information needs, and the objectives must be based on the needs of those users. According to the FASB conceptual framework, the objectives of financial reporting for business enterprises **are not based** on generally accepted accounting principles.

Answer 221

Operating expenses are usually divided into two categories: * selling expenses * general and administrative expenses

Answer 222

* Foreign currency translation adjustments * Gains and losses on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity, commencing as of the designation date * Gains and losses on intra-entity foreign currency transactions that are of a long-term-investment nature (that is, settlement is not planned or anticipated in the foreseeable future), when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting entity's financial statements * Gains and losses on derivative instruments that are designated as, and qualify as, cash flow hedges * For derivatives that are designated in qualifying hedging relationships, the difference between changes in fair value of the excluded components and the initial value of the excluded components recognized in earnings under a systematic and rational method * Unrealized holding gains and losses on available-for-sale debt securities * Unrealized holding gains and losses that result from a debt security being transferred into the available-for-sale from the held-to-maturity category * Amounts recognized in other comprehensive income for debt securities classified as available-for-sale and held-to-maturity related to an other-than-temporary impairment recognized if a portion of the impairment was not recognized in earnings * Subsequent decreases (if not an other-than-temporary impairment) or increases in the fair value of the available-for-sale debt securities previously written down as impaired * Gains or losses associated with pension or other postretirement benefits (that are not recognized immediately as a component of net periodic benefit cost) * Prior service costs or credits associated with pension or other postretirement benefits * Transition assets or obligations associated with pension or other postretirement benefits (that are not recognized immediately as a component of net periodic benefit cost) * Changes in fair value attributable to instrument-specific credit risk liabilities for which the fair value option is elected

Answer 223

* Gains/Losses on AFS securities * gains/losses on effictive portion of cash flow hedge * gains/losses from foreign currency translation * actuarial gains/losses on defined benefit pension plans these items introduce volitility

Answer 224

Other comprehensive income includes: * revenues * expenses * gains and losses that, in accordance with generally accepted accounting principles, are included in comprehensive income but excluded from net income.

Answer 225

Costs incurred in connection with securing a patent, as well as attorney's fees and other unrecovered costs of a successful legal suit to protect the patent, can be capitalized as part of patent costs. Legal fees and other costs incurred to successfully defend a patent should be amortized along with the acquisition cost over the remaining economic life of the patent. Research and development costs related to the development of the product, process or idea that is subsequently patented must be expensed as incurred, not capitalized and amortized

Answer 226

ASC Topic 825 provides that the fair value option does not apply to pensions

Answer 227

Per ASC Topic 605, the percentage-of-completion method for long-term contracts is preferable over the completed-contract method when estimates of cost to complete and extent of progress made toward completion are reasonably dependable. Under the percentage-of-completion method, income would be periodically recognized as the contract is completed.

Answer 228

The **moving average** method is used with **perpetual** records. A new average unit cost is computed each time a purchase is made and this unit cost is used in costing withdrawals of inventory until another purchase is made. The **weighted-average** computes a weighted-average unit cost of inventory for the entire period and is used with **periodic** records.

Answer 229

SFAC 8 defines **predictive value** as the quality of information that is useful in correctly f**orecasting** the outcome of past or present events. This quality contributes to the **relevance** of information, but not its faithful representation

Answer 230

ASC Topic 820 defines the principal market as the market with the greatest volume and level of activity. ASC Topic 820 does not use the terminology "relevant market"

Answer 231

Proprietary fund financial statements include: * statement of net position * statement of revenues, expenses, and changes in net position * statement of cash flows. The statement focuses on major enterprise funds and on the internal service fund type, and the direct method of presenting cash flows from operating activities is required. GASB requires that the statement classify cash flows in four activities categories (operating, noncapital financing, capital and related financing, and investing) and requires that all financing activities be classified as either noncapital or capital and related, depending on whether they are solely for capital asset construction, acquisition, or improvement.

Answer 232

Proprietary funds finance and account for a government’s self-supporting business-type activities (e.g., utilities) and use the flow of economic resources measurement focus and the accrual basis of accounting. Proprietary funds include **enterprise funds** and **internal service funds.** **Purple ISE**

Answer 233

A provision is an event which is probable and measureable

Answer 234

Prospective financial statements include information on: * the purpose of the statements, * assumptions * significant accounting policies.

Answer 235

The purchase of treasury stock decreases common stock outstanding The common stock outstanding will be decreased by the amount of treasury stock purchased When a company reacquires its own stock, the purchase does not reduce the number of shares issued or authorized, but does reduce the number of shares outstanding and the total stockholders’ equity.

Answer 236

A purchasing power gain or loss is the net gain or loss determined by restating in units of constant purchasing power the opening and closing balances of, and transactions in, monetary assets and liabilities. During a period of rising prices, monetary liabilities give rise to purchasing power gains because they will be settled with cash which can be used to purchase relatively fewer goods or services at a future time.

Answer 237

* Push down accounting is a convention of accounting for the purchase of subsidiary at purchase cost ratehr than its historical cost * IFRS does not allow * SEC requires in certain circumstances

Answer 238

* IFRS disallows the use of push-down accounting * The SEC requires the use of push-down accounting in certain circumstances.

Answer 239

_Comp**a**rability, verifiability, timeliness,_ and _understandability_ are **qualitative characteristics** that enhance the usefulness of information that is **relevant** and **faithfully represented**.

Answer 240

The process of formally recording or incorporatin an item into the finanacial statements of an entity

Answer 241

ASC Topic 360 uses undiscounted cash inflows less related outflows. If circumstances indicate that the carrying amount of an asset may not be recoverable, an entity shall estimate the future cash flows expected to result from the use of the asset and its eventual disposition. Future cash flows are defined as the undiscounted future cash inflows less the undiscounted future cash outflows necessary to obtain those inflows. Note that the use of undiscounted cash flows in the recoverability test is consistent with the measurement of property, plant, and equipment at historical cost which is an undiscounted amount.

Answer 242

Recoverable amount is defined as the greater of net selling price (fair value less costs of disposal) or value in use.

Answer 243

Under IFRS, when an entity chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, when an asset is revalued, the entire class of property, plant, and equipment to which that asset belongs must be revalued.

Answer 244

The fundamental qualitative characteristics of accounting information are **relevance** and **faithful representation**. To be relevant to investors, creditors, and other users, accounting information must be **capable of making a difference in a decision**; financial information is capable of making a difference if it has **predictive value, confirmatory value, or both**. It must also be **material**. To be **reliable**, investors, creditors, and other users must be able to depend on accounting information to represent the economic conditions or events that it purports to represent; therefore, accounting information must be complete, neutral, and free from error. Comparability, verifiability, timeliness, and understandability are **qualitative characteristics** that enhance the usefulness of information that is relevant and faithfully represented.

Answer 245

The IASB Framework provides that relevance includes the qualities of predictive value, confirmatory value, and materiality.

Answer 246

The IASB Framework provides that relevance includes the qualities of predictive value and confirmatory value.

Answer 247

A reportable segment is one in which the segment's * revenue * operating profit (or loss) * identifiable assets are 10% or more of the company's total values. Note there is not a liability test

Answer 248

The FASB allows two presentation formats: * Seperate Statement of Comprehensive Income * Statement of Earnings and Comprehensive Income

Answer 249

The FASB allows two presentation formats: * a separate statement of comprehensive income or * in a statement of earnings and comprehensive income.

Answer 250

Research is defined as planned search or critical investigation aimed at the discovery of new knowledge, and development is defined as the translation of research findings or other knowledge into a plan or design for a new product or process. Quality control during commercial production is not part of the research and development process.

Answer 251

Net assets of a nongovernment not-for-profit are defined to be the residual interest in the assets of the entity that remains after deducting its liabilities. In a business enterprise, its equity represents the ownership interest, but not for a nongovernmental not-for-profit.

Answer 252

The FASB requires that in the absence of a specific statement by the FASB to the contrary, accounting changes should be accounted for using the **retrospective approach**. Under this approach, all prior years' financial statements presented should be restated and the cumulative effect of the change should be reported in the retained earnings statement (or in the statement of changes in stockholders' equity) as an adjustment of the beginning-of-period balance of retained earnings of the earliest year presented.

Answer 253

When the revaluation method is used for reporting plant, property, and equipment under IFRS, any gain or loss is recorded in a revaluation surplus account which is classified as other comprehensive income (**OCI).**

Answer 254

The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration (that is, payment) to which the entity expects to be entitled in exchange for those goods or services. To achieve this, an entity will have to identify: * the contract(s) with a customer * identify the performance obligations in the contract * determine the transaction price, allocate the transaction price to the performance obligations in the contract * recognize revenue when (or as) the entity satisfies a performance obligation.

Answer 255

In a period of rising prices, the FIFO inventory method would result in the most recent, higher inventory costs being assigned to ending inventory. In a period of rising prices, FIFO also results in the older, lower inventory costs assigned to cost of goods sold, resulting in higher net income for the period. This would maximize profits in a period of rising prices

Answer 256

* This is the risk of loss resulting from not collecting amounts due from sales made on credit, and is the total amount of loss if those who owe failed to make any payments and the receivables proved to be of no value. This reported net of the related allowance for uncollectible accounts. * **Off-balance sheet risk:** This is the amount of risk of loss that does not show on the balance sheet. If net accounts receivable show on the balance sheet, there is no off-balance sheet risk associated with the accounts receivable.

Answer 257

ASC Topic 820 provides rules for measuring the fair value of balance sheet items such as asset impairments, business combinations, and goodwill.

Answer 258

Sale of PP&E categorized as Cash flows from **_Investing_**

Answer 259

If the transaction is deemed a sale, the seller/lessee accounts for the transfer as a sale at the point in time when the buyer/lessor obtains control of the underlying asset; derecognizes the carrying amount of the underlying asset; and accounts for the lease in accordance with the lessee accounting guidance (FASB ASC 842-20). The buyer/lessor accounts for the transfer as a purchase in accordance with other ASC Topics and for the lease in accordance with lessor accounting in FASB ASC 842-30.

Answer 260

* A sale/leaseback is a lease transaction in which the owner of the asset sells it and immediately leases it back from the buyer. * It is subject to the same capitalization criteria as any lease agreement. * Any profit (or loss) is deferred and amortized (by the lessee-seller) in proportion to the amortization of the leased asset (under a finance lease) or in proportion to the related gross rental to expense over the lease term (under an operating lease).

Answer 261

If a transfer of the asset is not accounted for as a sale of the asset, the seller/lessee should not derecognize the transferred asset and should account for any amounts received as a financial liability; conversely, the buyer/lessor should not recognize the transferred asset and should account for the amounts paid as a receivable.

Answer 262

* Recognition requirements for sale and leaseback transactions depend upon whether the transfer of the asset meets the requirements for a sale in FASB ASC 606 (Revenue from Contracts with Customers). * In accounting for the leaseback, if a sale has in fact occurred, the seller/lessee and the buyer/lessor account for the leaseback in the same manner as any other lease. * The buyer/lessor is determined to not have obtained control of the underlying asset if the leaseback is classified as a finance or sales-type lease, assessed from the seller/lessee’s perspective. Accordingly, _no sale has been deemed to have occurred._ * A repurchase option for the seller/lessee exercisable only at the then-prevailing fair market value would not preclude sale treatment, provided that the underlying asset is nonspecialized and readily available in the marketplace. * The repurchase option must be substantive in order to affect the accounting for the transaction.

Answer 263

Sale and leaseback transactions generally involve fixed assets, typically real estate or significant capital items such as airplanes, and are usually entered into because they provide financing, accounting, or tax benefits. If an entity (the transferor) transfers an asset to another entity (the transferee) and leases that asset back from the transferee, both the transferor and the transferee should account for the transfer contract and the lease in accordance with FASB ASC 842.

Answer 264

Double-declining balance method ignores the salvage value when determining the base used for the depreciation calculation Sum-of-the-years’ digits , straight line and productive output method make an adjustment to the depreciation base for salvage value.

Answer 265

* Regulation S-K describes the requirements for information and forms required by Regulation S-X * Regulation AB describes the reporting requirements for asset-backed securities. * SEC's regulation S-X describes the form and content of financial statements to be filed with the SEC. * Regulation FD mandates that publicly traded companies disclose material information to all investors simultaneously.

Answer 266

Although the SEC **has** the legal authority to prescribe accounting standards for publicly traded corporations, it continues to believe that standard setting should remain in the **private sector, subject to its oversight**. The SEC often agrees with the FASB's accounting standards, while communicating its preferences in comments on FASB Exposure Drafts and other documents.

Answer 267

Regulation S-X describes the form and content of financial statements to be filed with the SEC.

Answer 268

An enterprise shall disclose general information, including factors used to identify reportable segments and the types of products and services from which each reportable segment derives its revenues. An enterprise shall disclose certain information about reported segment profit and loss, assets, and basis of measurement.

Answer 269

Per ASC Topic 280, two or more operating segments may be aggregated into a single operating segment if: All of the aggregation criteria are met **or** If after performing the 10% test a majority of the aggregation criteria are met.

Answer 270

* ASC Topic 280 requires that if the segment’s assets are more than 10% of the combined assets of all operating segments, the segment must be reported. * Liabilities are not considered in determining reportable segments

Answer 271

The service efforts and accomplishments (SEA) performance of governmental entities is primarily measured by * output * outcome * efficiency measures These measures report what services the entity has provided, whether those services have achieved the objectives established, and what effects they have had upon the recipients and others. SEA performance information measures should meet the characteristics of * relevance * understandability * comparability * timeliness * consistency * reliability All of these measures, except for understandability and relevance, can be objectively examined

Answer 272

Per SFAC 6, revenues are i**nflows of assets** or **settlements of liabilities**, or both, during a period as a result of an entity's major or primary operations. Two essential characteristics of revenues are that revenues (1) arise from a company's **primary** earnings activities and (2) are **recurring or continuing i**n nature.

Answer 273

SFAC 6 states that recognition is the process of formally recording or incorporating an item into the financial statements of an entity Recognized is synonymous with Recorded

Answer 274

ASC Topic 235 states that the summary of significant accounting policies should encompass those accounting principles and methods that involve a selection from existing acceptable alternatives (or are peculiar to the industry in which the entity operates)

Answer 275

* A corporation’s capital structure is considered "simple" if it consists only of common stock or does not include potentially dilutive securities that could dilute earnings per common share upon conversion or exercise. * The computation of earnings per share is net income (adjusted as described below) divided by the weighted-average number of shares outstanding during the period. * Net income is decreased by both dividends on cumulative preferred stock and declared dividends on noncumulative preferred stock. * The rationale for this treatment is that both types of dividends are not available to common stockholders.

Answer 276

In governmental accounting, special revenue funds are governmental funds used to account for the proceeds of **specific revenue sources** (other than trusts for individuals, private organizations, or other governments or for major capital projects) that are legally restricted to expenditure for specific purposes. Special revenue funds are accounted for on the modified accrual basis. Some special revenue funds are: * gasoline excise taxes to be used for street maintenance and * hotel/motel bed taxes to be used for industrial development or to be allocated to the arts. If the expenditures are for purposes normally financed from the general fund, the expenditures can be recorded in the general fund and the appropriate amount transferred. Accounting for special revenue funds is exactly the same as for the general fund (budgetary accounts are also used).

Answer 277

* Prince - Debt Principal * Div- Pay Dividends * I - Issue Stock * TS - Treasury Stock

Answer 278

Investing Makes you HAPPEE * Held to Maturity * Available for Sale * Property * Plant * Equipment * Equity Investments

Answer 279

Informs how a firm obtained and used its cash during a period

Answer 280

Statement of changes in stockholders' equity includes the following: * Column headings that identify individual stockholders' equity accounts * Events changing stockholders' equity accounts * The body of the statement presented in terms of the dollar impact of various transactions and events * The impact of the transactions on the number of shares of stock, if any * Ending balances that tie to the items presented in the stockholders' equity section of the balance sheet on the same dates

Answer 281

More specifically, Concepts Statements are intended to establish the objectives and fundamental concepts that will be the basis for development of financial accounting and reporting guidance. The fundamentals are the underlying concepts of financial accounting—concepts that guide the selection of transactions and other events and conditions to be accounted for; their recognition and measurement; and the means of summarizing and communicating them to interested parties.

Answer 282

* The Statements of Financial Accounting Concepts (SFAC) were issued to establish a framework from which financial accounting and reporting standards could be developed. * The SFAC provide the theory behind accounting and reporting and provide guidance when no GAAP exists. * The SFAC are not included as GAAP.

Answer 283

* Stock dividends are distributions of the corporation's own stock (treasury or newly issued shares) to stockholders in proportion to the number of outstanding shares held. * They do not change the par value per share or the shareholder's proportional interest in the corporation, but they do increase the number of shares issued and outstanding. * A stock dividend does not change assets, liabilities, or total stockholders' equity. It merely transfers amounts between equity accounts. * Accounting for dividends represents a disbursement (credit) to the capital stock account(s) and a **reduction (debit) to Retained Earnings**. * Stock dividends are revocable up until the date of issuance (distribution) and may involve some special accounting issues.

Answer 284

Stock warrants are issued to existing shareholders so that they can purchase additional shares of stock in order to maintain their ownership percentage.

Answer 285

* A loss for a recognized subsequent event should be reported in the current year financial statements. * Recognized subsequent events result in a loss recognized in the current year and a corresponding adjustment to record the liability. * A footnote disclosure would be required for an unrecognized subsequent event if the event is material and the financial statements would be misleading if the event were not disclosed. * Gains are not recognized until realized.

Answer 286

SC Topic 235 recommends that when financial statements are issued, a statement identifying the accounting policies adopted and followed by the reporting entity should be presented as an integral part of the financial statements. The accounting policies are the specific accounting principles and the methods of applying the principles that have been adopted for preparing the financial statements.

Answer 287

The Codification encourages, but does not require, business enterprises to disclose supplementary information on the effects of changing prices.

Answer 288

Long-lived assets need to be tested for impairment when facts or circumstances indicate that the carrying amount may not be recoverable. An indication that the carrying value is no longer recoverable includes innovations in technology which may make the product or process obsolete.

Answer 289

* The transferred assets have been isolated from the transferor, even in bankruptcy. * The transferee is free to pledge or exchange the assets. * The transferor does not maintain effective control over the transferred assets through either an agreement that allows and requires the transferor to repurchase the assets or one that requires the transferor to return specific assets.

Answer 290

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.

Answer 291

Tuition and fee revenues should be reported net of tuition discounts and allowances with the discount or allowance amount parenthetically disclosed on the face of the statement. Tuition waivers are a kind of discount that lowers net tuition received from specific students. Uncollectible accounts are recognized with the use of an allowance for government college and university accounting.

Answer 292

Scholarships, for which no services are required, are to be recorded as a reduction in revenue. Tuition remissions for faculty children are considered expenses (compensation).

Answer 293

* Internal Service * Enterprise **Purple - ISE**

Answer 294

Items unusual in nature or infrequent in occurrence are to be disclosed separately in the operating section of the income statement and also may be supplemented by a footnote. Note that such items should not be shown net of income taxes.

Answer 295

Per ASC Topic 270, determining the cost of goods sold by using estimated gross profit rates is **only** appropriate for interim periods and is **not** appropriate for year-end external reporting. For year-end reporting, the actual cost of goods sold must be determined by using the inventory flow method which most clearly reflects income.

Answer 296

* The fair value option for valuing financial assets and liabilities can be elected on an instrument-by-instrument basis * The fair value option may be applied to insurance contracts that can be settled by a third party.

Answer 297

A variable interest entity should be consolidated by the **primary beneficiary.** A primary beneficiary has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and has the obligation to absorb the majority of the entity's expected losses if they occur, or receive the majority of the residual returns if they occur, or both.

Answer 298

The determination of whether an entity is a variable interest entity and which enterprise should consolidate that entity is made at the time the enterprise **initially** gets involved with the variable interest entity and is **reassessed on an ongoing basis**

Answer 299

It is presumed that an entity with equity of less than 10% of total assets does not have sufficient funding to finance its activities unless there is definitive evidence to the contrary (e.g., a source of outside financing).

Answer 300

A VIE is a legal entity, which by design either: * Cannot finance its activities without additional subordinated financial support (i.e., its expected losses exceed its total equity investment at risk), or * Its equity holders, as a group, do not have the direct or indirect ability to make decisions about the VIE's activities. Structurally, a VIE may be a _legal trust, partnership, joint venture, limited company or corporation_.

Answer 301

* Even though the equity investors in a VIE are its legal owners, because of contractual or other arrangements, they play little role in the operation of the entity and carry little risk or receive little benefit from ownership; those risks and benefits accrue to the variable-interest holders (usually also the sponsors). * Thus, a VIE is an entity in which another entity has a controlling interest achieved by a means other than holding a majority of the voting rights.

Answer 302

FASB ASC 250-10-45-5 mandates that voluntary changes in accounting principle be recognized using the **retrospective approach**, in which the cumulative effect is reported as an adjustment of the beginning-of-year retained earnings of the earliest year presented.

Answer 303

When firms lack diversification, they may be exposed to risks not faced by firms with adequate diversification. This is called **“vulnerability to concentrations.**” Such risks need to be disclosed in the notes to the financial statements when **three** conditions exist: * such a concentration exists at the date of the financial statements * the concentration makes the entity vulnerable to the risk of a near-term severe impact * it is at least reasonably possible that the events that could cause the severe impact will occur in the near term. When management’s information indicates that these **three** conditions exist, the firm must disclose it is “vulnerable to concentrations.”

Answer 304

Stock Divident is considered to have occurred on the 1st day of the year when computing hte weighted-average no. of shares

Answer 305

* Working Capital equals current assets less current laibilities * Any transactions which affect either current assets or current liabilities, but not both, will affect working capital * If a transaction affects both current assets and current liabilities, the effects will offset and there will be no change in working capital. * Cash purchases of plant assets and cash dividends paid both decrease working capital because cash, a current asset, is decreasing. * Short-term borrowings (and payments on those borrowings) have no effect on working capital because both a current asset and a current liability are affected. In a short-term borrowing cash (a current asset) increases and notes payable (a current liability) also increases. These increases offset, and there is no effect on working capital.

Answer 306

* Deferral in year-end reporting is permitted only if the advertising has not been run in the media. * Advertising costs may be deferred within a fiscal year if the benefits clearly extend beyond the interim period that the expense was paid. * Also, advertising costs may be accrued and assigned to interim periods in relation to sales. * Year-end accruals and deferrals of costs are also considered appropriate accounting treatment

Answer 307

Comprehensive income is not the same as earnings because comprehensive income is a much broader, "all-inclusive" concept of income.

Answer 308

Per ASC Topic 230, financing and investing activities which have no effect on cash flows shall be shown either in a separate schedule of noncash financing and investing activities or in narrative form in the footnotes, not in the body of the statement.

Answer 309

Group depreciation is the term given to depreciation on a group of homogeneous assets All of the assets are recorded in a single asset account and depreciated using a single accumulated depreciation account. The depreciation rate used is an average based on the assets in the group. When an asset is retired, the asset account is credited for the original cost of the item, and the accumulated depreciation account is debited for the original cost less any residual recovery.

Answer 310

Estimating bad debts based on credit sales of the period is the income statement approach in that bad debts are treated as a function of sales

Answer 311

* COD * Legally restricted compensating balances * Restricted cash funds * Postdated checks received * Checks written but not sent * Advances to employees * Postage stamps

Answer 312

This answer is correct because specific identification is required for inventory that is not interchangeable or goods that are produced and segregated for specific projects.

Answer 313

FASB ASC 805-20-55-4 includes in its scope long-term customer-relationship intangible assets of financial institutions, such as depositor and borrower relationship intangible assets and credit cardholder intangible assets. Those intangible assets are subject to the same tests and measurements as FASB ASC 360-10 requires for other long-lived assets to be held and used.

Answer 314

A short-term marketable debt security would be carried in a trading portfolio. Securities in trading portfolios are carried at market value.

Answer 315

SFAC 7 provides a framework for using future cash flows as the basis for accounting measurements at initial recognition or **fresh-start measurements** and for the **interest method of amortization**. FASB limited SFAC 7 to measurement issues (**how to measure**) and chose **not** to address recognition questions(**when to measure**). SFAC 7 introduces the expected cash flow approach, which differs from the traditional approach by focusing on explicit assumptions about the range of possible estimated cash flows and their respective probabilities.

Answer 316

According to ASC Subtopic 720-15, start-up activities are those onetime activities related to opening a new facility, introducing a new product or service, or conducting business in a new territory. The costs of long-lived assets additions and internal-use computer software systems development costs are not costs incurred in conjunction with start-up activities.

Answer 317

When a balance sheet, income statement, and statement of retained earnings are issued, a statement of cash flows must be presented for each period for which an income statement is presented.

Answer 318

A variable interest entity should be consolidated by the primary beneficiary. A primary beneficiary has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and has the obligation to absorb the majority of the entity's expected losses if they occur, or receive the majority of the residual returns if they occur, or both.

Answer 319

Available-for-sale (AFS) securities are carried on the balance sheet at **fair value**. Unrealized gains and losses from changes in fair value are reported in **Other Comprehensive Income (OCI) for the period**. OCI is then added to (subtracted from) Accumulated Other Comprehensive Income (AOCI), which is shown as a separate component of stockholders’ equity until realized.

Answer 320

Disclosures added by ASU 2017-07 include the following: * Estimated plan contributions for the year following the latest year reported in the statement of financial position * Amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit cost, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation * Description of the nature of the benefits provided * The employee groups covered * The type of benefit plan formula used * The weighted-average interest crediting rate for cash balance plans * Quantitative and qualitative disclosures about assets measured at net asset value based on the practical expedient * The service cost component * The interest cost component * The expected return on plan assets for the period * The gain or loss component * The prior service cost or credit component * The transition asset or obligation component * The gain or loss recognized due to settlements or curtailments

Answer 321

Fiduciary Funds **DO NOT** report fund balance

Answer 322

The SEC website lists the following steps in the rulemaking process: * Concept Release * Rule Proposal * Rule Adoption

Answer 323

**Both** lessees and lessors discount lease payments at the lease commencement date using the r**ate implicit in the lease.** The **lessor must** use the _incremental rate_ The **lessee** is permitted to use its **incremental** borrowing rate for purposes of discounting its lease payments if the lessee does not know the rate implicit in the lease.

Answer 324

An Accounting Standards Update is a document that communicates how the FASB Accounting Standards Codification is being amended it is not authoritative. It also provides other information to help a user of generally accepted accounting principles (GAAP) understand how and why GAAP is changing and when the changes will be effective

Answer 325

An unconditional redemption feature on stock must be reported as a liability.

Answer 326

A discontinued operation must be presented separately in the balance sheet in the period it is classified as held for sale and for all prior periods presented. The assets and liabilities of a disposal group (i.e., a component of an entity that is comprised of a group of assets) must be presented separately in the asset and liability sections, respectively. Those assets and liabilities **may not be offset** and presented as a single amount.

Answer 327

According to GASB 2450.118, footnote 6, cash inflows from noncapital financing activities include: * cash receipts from grants or subsidies to finance operating deficits.

Answer 328

* Mandatorily redeemable financial instruments * Obligations to repurchase the issuer's equity shares by transferring assets * Certain obligations to issue a variable number of shares These three classes of financial instruments must be presented in the balance sheet as liabilities. They may not be presented between the liabilities section and the equity section.

Answer 329

* (1) the entity provides a significant service of integrating the goods or services with other goods or services into a bundle that represents the combined output or outputs for which the customer has contracted (i.e., the entity is using the goods or services as inputs to produce or deliver the combined output(s) specified by the customer; * (2) one or more of the goods or services significantly modifies or customizes one or more of the other goods or services promised in the contract; and * (3) the goods or services are highly interdependent or highly interrelated.

Answer 330

For governmental units, an exchange transaction involves giving and receiving equal value in a transaction. A **nonexchange transaction** (such as property tax collected or grant provided) means the government receives value from another party without directly providing value or provides value to another party without directly receiving value.