Timing Issues

Question 1

Revenue Recognition Under GAAP

Answer 1

evidence of existence
delivery occurred or services rendered
price is fixed
collection reasonably assured

Question 2

Revenue Recognition Under IFRS

Answer 2

measured reliably

economic benefits

Question 3

When cash is received before it is earned

Answer 3

Unearned Revenue is reported

Question 4

Realization is

Answer 4

when the entity obtains cash

Question 5

Recognition is

Answer 5

recording of transactions

Question 6

Deferred Credits reported on

Answer 6

Liability section of balance sheet

Question 7

Royalty Revenue is

Answer 7

recognized when earned

Question 8

Franshisor Accounting

Answer 8

Initial Fee not earned

prepaid cont. fee

Question 9

Under IFRS , intangible assets are recorded

Answer 9

under cost model or revaluation model

cost model - reported at cost adj for amortization and impairment

revaluation model - revalued to fair value

Question 10

Revaluation Losses are reported on

Answer 10

Income Statement

Question 11

Revaluation gains are reported on

Answer 11

OCI

Question 12

R and D costs expensed except for

Answer 12

materials that have future uses

behalf of others

Question 13

Computer software developed to be sold

Answer 13

expense costs incurred until feasibility has been established
capitalize costs after product released for sale

Question 14

Computer software developed to be used internally

Answer 14

expense costs for preliminary project state and for training and maintenance
capitalize costs after the technical feasibility state
amortized on SL basis
if sold to outsiders, proceeds received should be applied 1st to carrying amount then recognized as revenue

Question 15

Royalties paid should be reported as

Answer 15

expense in the period incurred.

Question 16

the cash basis of accounting understates income by the net decrease during the accounting period of

Answer 16

A net decrease in A/R means cash collected exceeds revenue recognized on the accrual basis. This would mean higher cash basis income than accrual basis income. This yields a “no” for Accounts Receivable.

A net decrease in Accrued Expenses means cash paid to reduce Accrued Expenses was more than the accrual basis expense recorded. This would mean a higher expense under the cash basis than under the accrual basis

Question 17

Goodwill is capitalized

Answer 17

only when incurred in the purchase of another entity

Question 18

Costs incurred for maintaining or developing goodwill are

Answer 18

expensed

Question 19

Once the patent is established, legal costs to successfully defend the patent should be

Answer 19

capitalized and amortized over the lesser of the patent’s useful economic life or its legal life.

Question 20

unrecorded liability affects work-in-process inventory (rather than cost of sales/retained earnings), there is

Answer 20

no effect on R/E but accrued liabilities are understated

Question 21

Research is the planned efforts of a company to discover new information that will help either create or improve a new product, service, process, or technique or one in current use. Items not considered research and development include

Answer 21

Routine periodic design changes to old products or troubleshooting in production stage, marketing research, quality control testing and reformulation of a chemical compound

Question 22

Collections received for service contracts should be recorded as an increase in a

Answer 22

deferred revenue account

Question 23

intangible asset is a finite life intangible asset. Finite life intangibles are

Answer 23

amortized over period benefited

Question 24

goodwill is

Answer 24

tested for impairment

Question 25

Under U.S. GAAP, subsequent reversal of intangible asset impairment losses is

Answer 25

prohibited unless the intangible asset is held for sale.

Question 26

Legal costs associated with obtaining a patent on a new product are

Answer 26

Capitalized

Question 27

Research and development costs related to developing a new product, including prototype testing, design modification and engineering salaries are

Answer 27

expensed

Question 28

the matching principle

Answer 28

Matches expenses against revenues in the same accounting period. Expenses are necessarily incurred to generate revenues. All expenses incurred to generate a particular revenue should be recorded in the same period in which the revenue is recorded.

Question 29

All relevant costs incurred before technological feasibility is established for develop computer software for ultimate sale should be

Answer 29

expensed as research and development expenditures. After technological feasibility is established, all relevant costs are capitalized until the product is released for sale.

Question 30

Under IFRS, development costs may be

Answer 30

capitalized

Question 31

Under IFRS, goodwill impairment is analyzed at

Answer 31

CGU Cash generating unit

Question 32

At a reporting unit level, when the fair value is less than the carrying amount,

Answer 32

loss on impairment is booked on the income statement (a debit) and a reduction in goodwill (credit) is booked to the balance sheet.

Question 33

Litigation costs can only be

Answer 33

capitalized as a part of the patent asset account if they result in a successful patent defense so that the patent can be retained and continue to provide benefit

Question 34

Gross Profit

Answer 34

Net Sales` - Cost of Sales ___________ Gross Profit

Question 35

Deferred revenue represents future income collected in advance. When the gift certificates are sold, deferred revenue

Answer 35

is increased

Question 36

When the certificates are redeemed, the revenue is earned and shown

Answer 36

On the Income Statement and deferred revenue is decreased

Question 37

When the certificates lapse, the company has no further liability and

Answer 37

revenue is earned and deferred revenue decreases.

Question 38

Under U.S. GAAP, the only acceptable method of accounting for research and development costs is

Answer 38

direct charge to expense, except for materials, equipment, or facilities that have alternate future uses that are capitalized and depreciated over their useful lives.

Question 39

Goodwill is recognized in the balance sheet

Answer 39

when it has been created from a business acquisition

Question 40

Equipment used in research and development activities that has alternative future uses is

Answer 40

capitalized and depreciated over its useful life.

Question 41

The minimum operating cycle for purposes of reporting a "prepaid" current asset is

Answer 41

12 months

Question 42

Deferred revenue is a liability until

Answer 42

the service has been performed

Question 43

Testing in search of a product or process alternatives would be classified as

Answer 43

research and development cost

Question 44

Under IFRS goodwill generated internally

Answer 44

cannot be capitalized It will be treated as an expense in the period incurred