MCQs question

Question 1

What amount of bond premium should be amortized in Wood’s debt service fund by end of Dec.31 Y1?

Answer 1

$0.00, There is no premium or discount amortization in government funds since there measurement focus is source and uses of financial resources.

Question 2

Which type of event should be reported separately as a component of income from cont. operation?

Answer 2

Event or Items that are “UNUSUAL” in nature and/or “Infrequently” occurring are reported separately as a component of income from continue operations.

Question 3

How to calculate the last year of a contract accounted for by the percentage of completion method?

Answer 3

Annual gross profit = (Total cost incurred/total expected cost)*(total expected gross profit) - total profit previously recognized. NOTE: in the final year, ACTUAL rather expected amounts are used.

Question 4

the CAF report of the governmental unit included a statistical section?

Answer 4

Yes. there are 3 sectioms: intro, basic fin stmt with required supplement information by GASB 34, and the statistical section. However, the stat section is not part of BASIC fin stmt.

Question 5

Working capital formula

Answer 5

Current Asset - Current Liabilities

Question 6

Which of the characteristics of service efforts and accomplishments is the most difficult to report for a governmental entity?

1. Comparability
2. Timeliness
3. Consistency
4. Relevance

Answer 6

Relevance - when info must be bear a logical relationship with the needs for its purpose. It must be reliable, which is hard to achieve then others(Comparability, Consistency, and Relevance)

Question 7

When & how to recognize the gain & loss on litigation?

Answer 7

1. Gain recognize only after settled and realized.

2. Loss contingency is PROBABLE and ESTIMATED and MUST be Recognized prior the settlement

Question 8

Is the recognition of depreciation expense always required for externally published fund financial statement of public colleges and private not-for-profit colleges?

Answer 8

1.For private not-for-profit -colleges - YES
2. For “public colleges” - not always. if they use fund model - NO.
NOTE: Depr. exp would be recognized in the government-wide fin stmt.

Question 9

For governement fund report how to record repair due to flooding which is not unusual, but has been infrequent in the last few years?

Answer 9

1. Record as expenditures.

2. if flood is Extraordinary item if both UNUSUAL and INFREQUENT.

Question 10

For company who manage defined contribution retirement (pension) plan, what is IS & B/S name?

Answer 10

1. IS - Stmt of Net Assets Available for Benefits.
2. B/S - Stmt of Changes in Net Assets Available for Benefits.
   NOTE: IS Net Asset available for benefit = B/S ending balance (stmt of changes in net assets available for benefits.

Question 11

How to record dividend income under the fair value method?

Answer 11

FV method used when investor own less than 20% of common stock & DON’T have influence over the investee. Earnings are not Recorded by the investor & dividends payout is not affecting investment account. (Don’t Reduce it)

Question 12

Interim Fin Stmt can be described as emphasizing which of the enhancing qualitative characteristics

Answer 12

Timeliness. - Interim fin stmt emphasize timeliness by providing fin info based on actual performance to date and estimate prior to year end.

Question 13

AR turnover formula

Answer 13

Sales Net / Average AR net

Question 14

How to document stock options to an employee expire?

Answer 14

Reclassify the remaining balance from APIC stock option (debit) to APIC expired stock option (credit).

Question 15

Which of following would result in an operating cash inflow under the direct method?

1. Increase in inventory
2. Increase in AP

Answer 15

Increase in AP since company borrowing more versus paying an expense and is classified as cash inflow under direct method.

Question 16

How to calculate the change in net position for governmental activities?

Answer 16

CPAS RIDES
Start balance (Change in fund Balance)
1. +Capital outlay
2. +Principal pmt on debt (exclude any pmt which where not made this year)
3. -Asset disposal
4. -Source (other financing, debt proceeds)
5. +Revenue accrual (did not pay yet)
6. - Interest accrual
7. - Depreciation Expense
8. +Internal Service fund change in net position
Remember that here we are reconciling the change in fund balance to the change in net position - our “income statements”. We are looking of item that are treated differently in modified and full accrual accounting.

Question 17

How determine entity should be report as primary gov unit or component unit

Answer 17

1.Separately
2.Elected governing body
3.Legal separate entity
4.Financially independent status.
If all criterias met, its Primary gov. If the did not meet them, it will component unit.

Question 18

How to determine blended vs discrete unit?

Answer 18

If unit exclusively serve the primary gov and it failed to qualify as legally independent entity, report as BLENDED.
If you fail blended req, then unit presented discreetly (as a sep column).

Question 19

Which of the following items would be reported by a custodial fund?

1. Stmt of cash flow
2. Revenue and exp
3. Curr assets & curr Liabilities
4. The fund balance

Answer 19

custodial fund ONLY report curr assets & liabilities ( and no fund balance). Because fund periodically transferred to recipients. By year end, the fund have no balance. There is no cash flow report, no revenue & expenses, no fund balance.

Question 20

What criterias fund need to meet to qualify to be treated as major funds?

Answer 20

Major funds require a fund be both:

1. 10% of its fund (INDIVIDUAL) category’s assets, revenues, or expenditures/expenses
2. and 5% of the COMBINED governmental and enterprise assets and revenues, and expenses.NOTE: General Fund always treated as a major fund.

Question 21

In order to determine EPS, interest exp, net of applicable income taxes, on convertible debt that is dilutive should be added or deducted?

Answer 21

1. Added back to net income for diluted EPS

2. Ignore for basic EPS.

Question 22

Which fin stmt are required to be presented for Special purpose government engaged only in business type activities (such as utilities)?

Answer 22

1 The fin stmt required for enterprise funds, including MD&A and RSI (req. supplement information): stmt of net position (B/S), stmt of revenue, expenses and changes in net position (I/S), stmt of cash flow, and footnotes

Question 23

Will sale of treasury stock at LEAST than cost result on decrease in stockholders equity?

Answer 23

YES. 
Cash Debit
APIC Debit
RE Debit
Treasury Stock Credit

Question 24

Can you reverse subsequent of an impairment loss?

Answer 24

NO. ITs prohibited under US GAAP

Question 25

What diff under the equity method vs making fair value election method for investment?

Answer 25

Under the equity method, Thomas’s portion of Jefferson’s income would increase the investment account on Thomas’s books, and dividends from Jefferson would decrease this same investment account and are not considered income. Under the fair value method, changes in the fair value of the investment (stock price) will be reflected in income for the period, and any dividends received are included in income for the period. Thomas would not report any changes on the investment based on the results of Jefferson’s operations, like it would under the equity method.

Question 26

Principal ptm on short -term debt & interest pmt on short-term debt which section of Cash Flow Stmt it will be reported?

Answer 26

1. Principal Pmt- FINANCING Activities

2. Interest pmt on loan - OPERATING Activities.

Question 27

The company provides compensatory stock option to employees. How comp records 30% of the stock options expired? (not exercised)

Answer 27

To document the expired options, the APIC -stock option is DEBITED & APIC - expired stock options account is CREDITED.

Question 28

How to reflect a discount on the contract with multiple obligations?

Answer 28

Allocate it proportionally across all obligation within the contract.

Question 29

The debt service fund issued a bond on March 2nd, with interest payable on March 1 (Y2) and Sep 1. The fiscal year end on June 30, how many months of interest payable should be listed on fin stmt?

Answer 29

ZERO. The debt fund uses the modified accrual basis of accounting, which will accrue interest only when its legally due (Sep 1), not at an interim date (June 30).

Question 30

Under Fair Value method (less 25% ownership), how record income & dividend from company invested?

Answer 30

Under the fair value method, changes in the fair value of the investment (stock price) will be reflected in income for the period, and any dividends received are included in income for the period. Thomas would not report any changes on the investment based on the results of Jefferson’s operations, like it would under the equity method.

Question 31

Under Equity method (over 25% investment) , how record income & dividend from company invested?

Answer 31

Under the equity method, Thomas’s portion of Jefferson’s income would increase the investment account on Thomas’s books, and dividends from Jefferson would decrease this same investment account and are not considered income.

Question 32

How to calculate the amount of accretion expense for the year related to the asset retirement obligation?

Answer 32

An asset retirement obligation(ARO) is when there will be a large disposal or cleanup cost at the end of an asset’s useful life, and it is a liability that increases over the life of the asset. Each year, the increase in the ARO is called the “accretion expense”, and is calculated from the ‘credit adjusted risk free’ interest rate and the fair value of the ARO. In this case, the accretion expense is $100,000 x 10% = $10,000.

Question 33

The functional currency of subsidiary comp may be :

Answer 33

1. Foreign entity’s local currency,
   2.The currency which is fin stmt is presented, which is the curr of the parent
2. A foreign currency other than the one in which the foreign entity maintains its books.
   Fun curr of com depends upon the environment in which the entity generates and expenses cash.
   HOWEVER, if the local currency has high inflation over 3 years, it can not be used.

Question 34

Lessor VS Lessee

Answer 34

Leasor is the owner of the asset. Lessee is renter who pays rent.