questions Flashcards
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Ace Co. sold to King Co. a $20,000, 8%, 5‑year note that required five equal annual year-end payments. This note was discounted to yield a 9% rate to King. The present value factors of an ordinary annuity of $1 for five periods are as follows:
8%: 3.993
9%: 3.890
What should be the total interest revenue earned by King on this note?
A.
$9,000
B.
$8,000
C.
$5,560
D.
$5,050
The first thing one needs to answer this question is the annual payment needed to pay the note. Because the note yields a higher rate (9%) than it pays (8%), the note should have a discount. Since the note has a stated rate of 8%, the annual payments will be based on the present value of an ordinary annuity based on the 8%: Thus, the annual payment is $20,000 ÷ 3.993, or $5,009 annually.
The present value of the note, however, and thus the initial discount is based on the yield percentage of 9%. Therefore, the note’s initial present value is the payment amount multiplied by 3.89 ($5,009 × 3.89), or $19,485.
The total amount of interest revenue one earns on a note is related to the total payments and also the present value of the note, with a discount recognized here initially, on this note. The total amount to be received on this note is 5 × $5,009, for a total of $25,045.
Interest is generally the amount returned over and above the amount originally recognized, which was the $19,485 originally. Thus, the total interest revenue is $25,045 − $19,485, or $5,560.
When should an anticipated loss on a long-term contract be recognized under the percentage-of-completion method and the completed-contract method, respectively?
Percentage of completion, immediately; Completed contract, immediately
requires use of the interest rate implicit in the lease when:
this rate can be determined and
the implicit rate is less than lessee’s incremental rate.
1
comprehensive annual financial report (CAFR)
|Government-wide |*Government-wide Statement
| Financial | of Net Position
| Statements |----------------------------------------
| (One Set) |*Government-wide Statement
| | of Activities
|----------------------------------------------------------
| |Governmental |*Governmental Funds Balance
| | Funds | Sheet
| | Financial |-------------------------------
| | Statements |*Governmental Funds Statement
| | | of Revenues, Expenditures,
| | | and Changes in Fund Balances
| | |------------------------------- Basic | | |*General Fund and major Special Financial | | | Revenue Funds Statement of Statements | | | Revenues, Expenditures, and (Consists | | | and Changes in Fund Balances of Two | Fund | | - Budget and Actual (can be Categories | Financial | | reported as RSI)
of |Statements |--------------------------------------------- Statements | (Three |Proprietary |*Proprietary Funds Statement
| Sets) | Funds | of Net Position
| | Financial |-------------------------------
| |Statements |*Proprietary Funds Statement of
| | | Revenues, Expenses, and
| | | Changes in Net Position
| | |-------------------------------
| | |*Proprietary Funds Statement of
| | | Cash Flows
| |---------------------------------------------
| |Fiduciary |*Fiduciary Funds Statement of
| | Funds | Net Position
| |Financial |-------------------------------
| |Statements |*Fiduciary Funds Statement of
| | | Changes in Net Position -----------------------------------------------------------------------comprehensive annual financial report (CAFR)
The CAFR financial section. The financial section of the CAFR includes the following:
a. Auditor’s report
b. Management’s discussion and analysis: Required supplementary information that precedes the basic financial statements and in which management introduces those statements and provides an analytical overview of the government’s financial activities.
c. Basic financial statements: The basic financial statements consist of four sets of financial statements (one set of government-wide financial statements and one set of fund financial statements for each of the three categories of funds), as illustrated in Exhibit 6. The government-wide financial statements present data for the governmental activities and business-type activities of the primary government, the primary government in its entirety, and its discretely presented component units. The fund financial statements present data for major governmental funds, for nonmajor governmental funds as a whole, for governmental funds (total), for major enterprise funds, for nonmajor enterprise funds as a whole, for enterprise funds (total), for the internal service fund type, and for each fiduciary fund type.
d. Notes to the financial statements: These are notes to the basic financial statements. Any narrative explanations accompanying the combining statements, individual fund statements, and/or schedules are referred to simply as narrative explanations.
e. Required supplementary information other than Management’s Discussion and Analysis: Certain historical trend information relating to pension plans must be presented after the notes by most governments with single-employer or agent multiple-employer PERS. Likewise, some must include similar information on other postemployment benefit plans. (Recall that governments that choose not to present the budgetary comparison statements for the general fund and major special revenue funds as basic financial statements must include them as required supplementary information.) Finally, if a government uses the modified approach to report infrastructure capital assets, certain required supplementary information related to the modified approach must be presented.
f. Combining statements: by fund type and/or fund category: In which separate columns present individual nonmajor fund data (grouped by fund type) for each nonmajor fund for the governmental fund category—if there are two or more nonmajor governmental funds; for each nonmajor enterprise fund where there are two or more nonmajor enterprise funds; for each individual internal service fund where there are two or more of these funds; or for each individual fiduciary fund for each fiduciary fund type of which there is more than one fund of that given type.
g. Individual fund statements: Where a government has only one nonmajor fund of a particular fund category or, if necessary, to present prior-year or budgetary comparisons not presented in the basic financial statements or required supplementary information.
h. Schedules: May be used to present data in the statements in greater detail, to report cash receipts and disbursements, to present detailed budgetary comparison data, or for other purposes deemed appropriate by management.
NONEXCHANGE TRANSACTIONS
CLASSES AND TIMING OF RECOGNITION OF NONEXCHANGE TRANSACTIONS
Exhibit 15
CLASS RECOGNITION ------------------------------------------------------------------------ Derived tax revenues Assets* -------------------- ------- Examples: sales taxes, personal Period when underlying exchange has and corporate income taxes, occurred or when resources are motor fuel taxes, and similar received, whichever is first. taxes on earnings or consumption
Revenues
--------
Period when underlying exchange has
occurred. (Report advance receipts
as deferred revenues.) When modified
accrual accounting is used, resources
also should be "available."**
Imposed nonexchange revenues Assets*
(other than derived tax revenues) ——-
——————————— Period when an enforceable legal
Examples: property taxes, most claim has arisen or when resources
fines, and forfeitures are received, whichever is first.
Revenues
--------
Period when resources are required to
be used or first period that use is
permitted (e.g., for property taxes,
the period for which levied). When
modified accrual accounting is used,
resources also should be "available."
Government-mandated Assets* and liabilities
nonexchange transactions ———————–
———————— Period when all eligibility
Examples: federal government requirements,*** including time
mandates on state and local requirements, have been met or (for
governments asset recognition) when resources
are received, whichever is first.
Voluntary nonexchange Revenues and expenses or expenditures
transactions ————————————-
——————— Period when all eligibility
Examples: certain grants and requirements***, including time
entitlements, most donations requirements, have been met. (Report
advance receipts or payments as
deferred revenues or advances,
respectively. Permanent endowments,
term endowments, and similar gifts
should be reported as revenues when
the resources are received.) When
modified accrual accounting is used
for revenue recognition, resources
also should be “available.”
post dated check = cash?
no, receivables
effective tax rate
total tax due divided by the total book net income earned before tax
earnings per share be presented on the face of the income statement of publicly held enterprises.
true
