Special Purpose Frameworks Flashcards
Which of the following statements about the accrual basis of determining taxable income is true?
A.
Increases in accounts receivable are not included in gross income.
B.
An item is included in gross income for the year in which it is earned.
C.
Property or services received are included in gross income when actually or constructively received.
D.
None of the answers choices are true statements regarding the accrual method.
The accrual method for tax purposes is, for the most part, the same as the accrual method required by GAAP. An item is included in gross income for the year in which it is earned. A deduction can be recognized when:
•all the events have occurred to create the liability and
•the amount of the liability can be determined with reasonable accuracy.
The Private Company Decision-Making Framework includes standards for which of the following?
A
Variable interest entities
B.
Goodwill
C.
Hedge accounting
D.
All of the answer choices are correct.
FASB) found the need to develop a financial reporting framework for smaller privately managed businesses. A definition of public business entity and three Accounting Standards Updates (ASUs) have been issued as part of this project. The ASUs cover variable interest entities, goodwill, and hedge accounting.
In financial statements prepared on an income-tax basis, how should the nondeductible portion of expenses, such as meals and entertainment, be reported?
Taxable income is an amount resulting from the application of tax rules governing revenues and expenses. Some revenues/expenses are specifically excluded or subjected to limitation(s).
When determining net income using the income-tax basis, a fair determination necessitates using the nondeductible (for taxes) portion of expenses (such as meals and entertainment) as long as they are legitimate business expenses.
Income is constructively received and included in gross income if:
A.
it is readily available to the taxpayer.
B.
actual receipt is not subject to substantial limitations or restrictions.
C.
it is readily available to the taxpayer and actual receipt is not subject to substantial limitations or restrictions.
D.
None of the answer choices are necessary for the income to be included in gross income.
Income that is constructively received is included in gross income. An example is interest income credited to an account by a financial institution. Income is constructively received if:
•it is readily available to the taxpayer and
•actual receipt is not subject to substantial limitations or restrictions.
What are some types of special purpose frameworks?
A.Cash basis. A basis of accounting that the entity uses to record cash receipts and disbursements and modifications of the cash basis having substantial support (for example, recording depreciation on fixed assets).
b. Tax basis. A basis of accounting that the entity uses to file its income tax return for the period covered by the financial statements.
c. Regulatory basis. A basis of accounting that the entity uses to comply with the requirements or financial reporting provisions of a regulatory agency to whose jurisdiction the entity is subject (for example, a basis of accounting that insurance companies use pursuant to the accounting practices prescribed or permitted by a state insurance commission).
d. Contractual basis. A basis of accounting that the entity uses to comply with an agreement between the entity and one or more third parties other than the auditor.
Which of the following statements regarding the modified cash basis of accounting is true?
A.
The modified cash basis is a hybrid method that combines features of both the cash basis and the accrual basis.
B.
Modifications to the cash basis accounting include such items as the capitalization of assets and the accrual of income taxes
C.
The resulting balance sheet would include long-term assets, accumulated depreciation, and a liability for income taxes.
D.
All of the answer choices are true.
The modified cash basis is a hybrid method that combines features of both the cash basis and the accrual basis. Modifications to the cash basis accounting include such items as the capitalization of assets and the accrual of income taxes. If these modifications are made, the resulting balance sheet would include long-term assets, accumulated depreciation, and a liability for income taxes. The income statement would report depreciation expense and income tax expense. Modified cash basis financial statements are intended to provide more information to users than cash basis statements while continuing to avoid the complexities of GAAP.
The modified cash basis does not comply with GAAP unless there are no material differences in this method and GAAP.
The financial reporting framework for small- and medium-sized entities has been developed by the:
A.
AICPA.
B.
FASB.
C.
IASB.
D.
None of the answer choices are correct.
The AICPA found the need to develop a financial reporting framework for smaller privately managed businesses. The framework provides an intuitive and understandable framework that is relevant, simplified, and cost-effective.
