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1
Q

According to ASC Topic 815, hybrid instruments must be accounted for

A

At fair value if an election is made not to bifurcate the hybrid instrument

When a firm elects not to bifurcate a hybrid financial instrument, changes in fair value should be recognized:
Prospective basis
In current/future earnings

Example:

  1. A bond payable with an interest rate based on the S & P 500 Index.
  2. An equity instrument with a call option, allowing the issuing company to buy back the stock.
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2
Q

What rates can be used to translate the cash flow statement?

A
  1. Historical

2. Weighted average

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3
Q

Components of other comprehensive income

A
  1. Unrealized gains or losses in AFS securities
  2. Unrealized gains or losses in pension costs
  3. Foreign currency translation adjustments
  4. Unrealized gains or losses from certain derivative transactions
    effective portion of forecasted transaction goes to OCI
    ineffective portion goes to current income
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4
Q

How are the following treated/recorded:

  1. Increase in the unrealized excess of cost over market value of marketable equity securities classified as trading-type securities
  2. Gain on remeasuring a foreign subsidiary’s f/s from the functional local currency into the functional currency
  3. Purchase of R&D services
A

Income from continuing operations

With separate disclosure either on the face of the statement or in the notes

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5
Q

Where does this go in the financials:

The accumulated amount of the unrealized excess of cost over market value of AFS marketable equity securities

A

Separate component of SE

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6
Q

Where does this go in the financials:
A loss on translating a foreign subsidiary’s f/s from the functional local currency into the reporting currency during this period

A

OCI

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7
Q

Extraordinary Items

A

Both:

  1. Unusual
  2. Infrequent

Extraordinary items should be shown net of taxes in a separate section in the income statement.

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8
Q

Fair Value Hedge:
Gain or loss on hedged item/instrument

example: Fair Value option is elected for AFS securities

A

Included in net income

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9
Q

Cash Flow Hedge:

Gain or loss on hedged item/instrument

A

Ineffective portion in net income

Effective portion in OCI

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10
Q

Common permanent tax differences

A
  1. Tax exempt interest
  2. Fines and penalties
  3. Life insurance on key employees when firm is beneficiary: proceeds from such a policy are not taxable but are a gain for the books
  4. Dividends received deduction
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11
Q

DTL or DTA?
Revenue recognized earlier in books than for tax
(AR, unrealized gain on trading securities)

A

DTL

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12
Q

DTL or DTA?

Expenses recognized earlier in books than for tax (prepaid expenses, depreciation)

A

DTL

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13
Q

DTL or DTA?
Revenue recognized later for books than tax
(unearned revenue)

A

DTA

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14
Q

DTL or DTA?
Expenses recognized earlier for books than tax
(accrued expense, bad debt expense, warranties)

A

DTA

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15
Q

DTL or DTA?

Deferred tax benefit

A

DTA

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16
Q

Gains from remeasuring a foreign subsidiary’s financial statements from the local currency, which is not the functional currency, into the parent company’s currency should be reported as a

A

Part of continuing operations

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17
Q

Freight in
Transportation to consignees
Warehousing

A

Incorporated into the inventory calc

Both are inventoriable costs of bringing goods to the point of sale

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18
Q

Freight out

A

Part of SG&A

Excluded from the cost of goods sold computation since the cost of delivering goods from the point of sale to the customers is a noninventoriable selling expense

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19
Q

For IFRS reporting, if the functional currency is the same as the presentation currency, any translation gains or losses are generally reported as

A

A gain or loss on the statement of income.

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20
Q

Under the equity method, goodwill is considered

A

Any excess paid over the FV of the net assets

Significant influence = Investments between 20% and 50% of the outstanding stock
Should be accounted for under the equity method

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21
Q

Items included in the net assets available for benefits of a defined benefit pension plan trust include:

A
  1. The net change in the fair value of each significant class of investments
  2. Contributions
  3. Benefits paid
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22
Q

Budgetary Comparison Schedule (CAFR) should include

A
  1. General
  2. Major special revenue fund types

For which annual budgets have been legally adopted

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23
Q

Unrealized holding gains and losses on trading securities

A

Included in income

24
Q

Unrealized holding gains and losses that result from a debt security being transferred into the held-to-maturity category from the available-for-sale category

A

Accumulated OCI

Amortized over the remaining holding period

25
Q

Foreign currency translation adjustments

A

OCI

26
Q

The difference between the
accumulated benefit obligation
and the
fair value of pension plan assets

A

Accumulated benefit obligation and the fair value of plan assets is no longer used to determine pension liability

Do not include to arrive at pension cost

Represents the unfunded accumulated benefit obligation which could require recognition of an additional minimum liability

27
Q

Reserved for Encumbrances account of a governmental fund type is increased when

A

A purchase order is approved

When goods or services are ordered (PO approved): Appropriations are encumbered, or restricted from use, in the amount of the estimated purchase cost

Encumbrances xx
Reserved for Encumbrances xx

28
Q

The entry to record the purchase of treasury stock under the par value method is

A

Treasury stock (par)
Additional paid-in capital *
Retained earnings (plug)
Cash (cost)

The treasury stock account reduces total stockholders’ equity, as do the debits to the other SE accounts

29
Q

Any financial or physical variable that has either observable changes or objectively verifiable changes qualifies as an

A

Underlying

ASC 815
An underlying is commonly a specified price or rate such as a stock price, interest rate, currency rate, commodity price, or a related index. However, any physical or financial variable with observable changes or objectively verifiable changes qualifies as an underlying

30
Q

Accounting treatment for equity investments

A

Financial reporting % owned
FV or amortized cost 20
Equity or fair value method 20-50
Consolidated or equity 51-100

31
Q

Cash payments to suppliers

A

Cash payments to suppliers
+ Increase in AP
– Increase in inventory
= Cost of Goods Sold

32
Q

In a statement of cash flows (indirect approach),

a decrease in prepaid expenses should be

A

Added to net income

When prepaid expenses decrease, reported expenses exceed cash paid. The decrease in prepaid expenses must therefore be added to net income.

Indirect approach:
Net income adjusted for changes in current assets (other than cash) and in current liabilities.
Noncash events removed from net income to complete the conversion of net income from an accrual basis to a cash basis.

33
Q

An employer sponsoring a defined benefit pension plan is subject to the pension liability recognition requirement. A pension liability must be recorded equal to the unfunded

A

Projected benefit obligation

less the fair value of plan assets

34
Q

A stock dividend of less than 20-25% is recorded

A
  1. On the date of declaration
  2. At the FV of the shares to be issued

Charged to retained earnings
Credited to the stock dividend distributable and PIC

35
Q

Change in accounting principle

A

Retrospective application to all prior periods

unless it is impracticable to do so

36
Q

Calculation for percentage of completion method

A

Current year’s profit =
(Costs to date/Total expected cost)
× Expected profit − Profit recognized in previous periods

Based on this formula, only income previously recognized is required in the calculation. Progress billings to date is an accumulation of amounts billed, and the balance in the account does not normally coincide with the costs incurred to date.

37
Q

Costs of internally developed software after the development stage may be

A

Capitalized and amortized over the asset’s economic life

38
Q

According to ASC Topic 820:

The fair value of an asset should be based upon

A

The price that would be received to sell the asset

39
Q

Entry to record the budget amounts in the government

A

Estimated Revenues xx
Appropriations xx
Budgetary Fund Balance xx

Appropriations represent maximum spending authority

40
Q

Acid-test ratio

A

Quick assets divided by current liabilities

Quick assets =

  1. Cash
  2. Temporary investments in Marketable equity securities
  3. Net receivables

Measures the ability to pay current liabilities from cash and near-cash items.

41
Q

Underlyings are

A
  1. Exchange rates
  2. Commodity prices
  3. Insurance index

Characteristic of a derivative instrument

42
Q

A corporation declared a dividend, a portion of which was liquidating. How would this declaration affect each RE and APIC?

A

Decreases both

A liquidating dividend represents a return of capital to stockholders because the dividend declared exceeds the corporation’s retained earnings. When a corporation declares a liquidating dividend, the following journal entry is made:

Retained earnings (balance)   
Additional paid-in capital (plug)   
   Dividends payable     (dividend amount)
43
Q

Return on common stockholder’s equity

A

(NOI - preferred dividends) / (average stockholder’s equity available to cs)**

**this is essentially common stock + RE

44
Q

ASC Topic 450 requires that an estimated loss from a contingency be accrued by a charge to income and the recording of a liability if the loss is both

A
  1. Probable
  2. Reasonably estimable

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.

45
Q

The four foreign currency hedges are

A

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

46
Q

Qualitative characteristics of faithful representation

A
  1. Neutrality
  2. Completeness
  3. Free from error
47
Q

A stock dividend has what effect on SE?

A

No effect.

Stockholders merely receive more shares of stock.

The journal entry to record a small stock dividend (less than 20-25%) transfers an amount equal to the fair value of the stock to be issued from retained earnings to paid-in capital. Therefore, one part of stockholders’ equity decreases while another part increases. The journal entry below summarizes the net effect of the entries to record a stock dividend.

Example: 10% dividend, $1 par, $30 FV:
Dr: Retained earnings (10,000 × $30) 300,000
Cr. Common stock (10,000 × $1) 10,000
Cr. Paid-in capital 290,000

48
Q

In a period of rising prices, the use of which of the following inventory cost flow methods would result in the highest cost of goods sold?

A

LIFO

49
Q

A company changes from the double-declining balance method of depreciation for previously recorded assets to the straight-line method. According to ASC Topic 250, the effect of the change should be reported separately as a(n)

A

Component of income from continuing operations on a prospective basis.

ASC Topic 250 requires changes in depreciation method to be treated as a change in estimate and handled on a prospective basis.

50
Q

Net Realizable Value

ceiling

A

Selling less disposal costs

Market value is the replacement cost subject to an upper limit (ceiling) and a lower limit (floor).

51
Q

Floor

A

NRV less a normal profit margin

NRV = selling less disposal costs
Market value is the replacement cost subject to an upper limit (ceiling) and a lower limit (floor).

52
Q

NFPs should prepare the following FS

A
  1. Statement of financial position (assets, liabilities, net assets)
  2. Statement of activities
  3. Cash flow

Voluntary Health and Welfare organizations also need to prepare a Statement of Functional Expenses

53
Q

Change from
LIFO to FIFO
Completed contract to % of completion

A

Change in principle

Retrospective

54
Q

Change from Straight-line to DDB

A

Change in estimate

Prospective

55
Q

Change from Non-GAAP to GAAP

A

Error correction

Retrospective: beginning balance of earliest period adjusted

56
Q

Derivative instruments are characterized as having one or more

A
  1. Notional amounts

2. Underlying

FAR (19 decks)

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