Reporting the Results of Operations

Question 1

Change in Accounting Estimates

Answer 1

A change in estimate based on new information

Question 2

ASC 250 (Accounting Changes and Error Corrections) Definition

Answer 2

This statement defines various types of changes and the manner of reporting each type.

Question 3

ASC 225 Definition of “Unusual” in relation to an Extraordinary Item

Answer 3

The underlying event or transaction should possess a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity, taking into account the environment in which the entity operates.

Question 4

Other comprehensive income includes which three items (changes must happen in each item)?

Answer 4

1) Foreign currency translation adjustment2) Change in pension prior service cost and unrealized gains or losses3) Unrealized gains and losses on certain investments in debt and equity securities

Question 5

The debtor’s accounting treatment fro troubled debt restructuring using the Transfer of Assets in Full Settlement method is described how?

Answer 5

The excess of the carrying value of the debt settled over the fair value of the assets transferred to the creditor should be recognized as a gain on debt restructuring.

Question 6

Explain some of the differences from GAAP under IFRS for preparing income statements

Answer 6

Some of the differences are that the recording of extraordinary items is prohibited, comparative statements are required, and expenses may be reported by natural (object) or by function.

Question 7

Income Statement Single-Step approach definition

Answer 7

A single-step approach lists all revenues together and then lists all expenses together regardless of the sources.

Question 8

What are the three types of Accounting Changes discussed in ASC 250?

Answer 8

The three types of accounting changes are changes in accounting principals, changes in accounting estimates, and changes in reporting entity.

Question 9

ASC 225 Definition of Extraordinary Item

Answer 9

Item must be both unusual and infrequent

Question 10

ASC 225 Definition of Comprehensive Income

Answer 10

Comprehensive Income is net income plus other comprehensive income

Question 11

Troubled Debt Restructuring Definition

Answer 11

A restructuring of a debt constitutes a “Troubled Debt Restructuring” when a creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession (by agreement or imposition of law or a court) to the debtor that it would not otherwise consider.

Question 12

Describe what IFRS does allow for the reporting of comprehensive income?

Answer 12

IFRS allows the reporting of comprehensive income in one combined statement of income and comprehensive income or as two statements: an income statement and a statement of comprehensive income.

Question 13

Income Statement Multi-Step Approach Definition

Answer 13

This approach is called multi-step because of the number of “steps” or sub-totals between the beginning net sales number and the calculation of income from continuing operations.

Question 14

Give one example of a change in Accounting Principle

Answer 14

Changing from FIFO to LIFO inventory method.

Question 15

Definition of discontinued operations according to ASC 225

Answer 15

The definition of a discontinued operation is a component unit with a set of operating and cash flows that are clearly distinguishable from the rest of the entity for operational and financial reporting purposes.

Question 16

Does ASC 270 (Accounting Changes and Error Corrections) apply to interim financial statements?

Answer 16

ASC 270, Accounting Changes and Error Corrections apply to interim as well an annual financial statements.

Question 17

What are the four basic financials statements?

Answer 17

A balance sheet, an income statement, a statement of cash flows, and a state of stockholder’s equity

Question 18

Under IFRS, is comprehensive income allowed to be shown in the statement of owner’s equity?

Answer 18

IFRS does not allow comprehensive income to be shown as part of the statement of owners’ equity.

Question 19

Give one example of a change in Accounting Entity.

Answer 19

A change in non-consolidated financial statements to consolidate financial statements.

Question 20

Prior Period Adjustment Definition

Answer 20

A prior period adjustment is required for the correction of an error in the financial statement of a prior period.

Question 21

What are the 3 Criteria for Treatment of Nonrecurring Adjustments Under ASC 250

Answer 21

1) The adjustment is material.2) The adjustment is specifically related to business activities of a specific prior interim period of the current year.3) The amount of the adjustment or settlement could not have been reasonably estimated prior to the current interim period but becomes “reasonably estimable” during the current interim period.

Question 22

Financial Statements should present what according to ASC 225

Answer 22

Financial statements should present financial position, changes in financial position and results of operations in conformity with generally accepted accounting principles that apply to established operating enterprises.

Question 23

ASC 405 Definition of impaired loan

Answer 23

ASC 405 states that a loan is impaired when it is probably that a creditor will be unable to collect all amounts due according to the contacted terms.

Question 24

Give one example of an Accounting Estimate Change.

Answer 24

Changing of the percentage used in estimating uncollectable accounts.

Question 25

Is a correction of a mathematical error on a financial statement considered an accounting change?

Answer 25

A correction of an error is not an accounting change and should be reported as a prior period adjustment.

Question 26

Treatment of Nonrecurring Adjustments Under ASC 250

Answer 26

ASC 250 requires that prior interim periods be restated for nonrecurring adjustments due to adjustment or settlement of litigation, income taxes, renegotiation proceedings or rate-making for utilities.

Question 27

Development State Enterprise Definition (ASC 225)

Answer 27

An enterprise is considered in the development stage if it is devoting substantially all of its efforts to establish a new business and either planned principal operations have not begun, or if operations have begun, there has been no significant revenue from there.

Question 28

Loan impairment definition (different than debt restructuring)

Answer 28

Impairment does not involve a formal restructuring but is a conclusion by the creditor, based on its normal review procedures, that there is a problem with the collectability of the loan receivable.

Question 29

Change in Accounting Principle

Answer 29

A change from one GAAP to another GAAP. Change must be justified.

Question 30

What accounting period(s) should changes in accounting estimates affect?

Answer 30

Changes in accounting estimates should affect the period of change only or the period of change and future period if the change affects both.

Question 31

General Rule of ASC 27 (Interim Financial Statements)

Answer 31

General Rule of ASC 27 (Interim Financial Statements). The results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year.

Question 32

ASC 815 - Accounting for derivatives and hedging activities added which three additional items to be included in comprehensive income?

Answer 32

1) Gains or losses on cash flow hedges.2) Gains or losses on hedges of forecasted foreign-currency-demoniated transactions.3) Gains or losses on hedging of a net investment in a foreign operation are reported in comprehensive income as part of the translation adjustment.

Question 33

The creditor's accounting treatment for troubled debt restructuring using the Transfer of Assets in Full Settlement method is described how?

Answer 33

The assets received are to be recorded at their fair market value when received, and the excess of the carrying value of the investment in the receivable (debt) satisfied over the fair value of the assets received should be recognized as a loss.

Question 34

Change in Accounting Entity

Answer 34

A change in the composition of the reporting entity

Question 35

How should a change in accounting principle be justified according to ASC250?

Answer 35

For a change in accounting principle, the entity should disclose the nature and reason for the change and the justification for the change.

Question 36

ASC 225 Definition of "Infrequent" in relation to an Extraordinary Item

Answer 36

The underlying event or transaction should be a type that would not reasonably be expected to recur in the foreseeable future, taking into account the environment in which the entity operates.

Question 37

How does the FASB permit disclosures of the comprehensive income?

Answer 37

The FASB permits four alternative disclosures of the components of the comprehensive income and a disclosure of accumulated other comprehensive income in the equity section of The Statement of Financial Position.

Question 38

The debtor's accounting treatment for troubled debt restructuring using the Grant of an Equity Interest in Full Settlement method is described how?

Answer 38

The excess of the carrying value of the debt settled over the fair value of the equity interest granted to the creditors should be recognized as a gain on debt restructuring. The equity interest granted is to be recorded at its fair value.