F2 Flashcards

Question

Franchisee Accounting Expense Recognition

Answer 1

Initial Franchise Fee - intangible asset and amortize Continuing Franchise Fee - expense as incurred - expense to franchisee and revenue to franchisor in period incurred

Answer 2

For Book - expensed when incurred - not capitalized as an intangible asset, expensed immediately Tax - 5,000 + 180 month amortization - reduced over 50,000

Answer 3

Calculation - Acquisition Method: goodwill is the excess of an acquired entity's FV over the FV of the asset's net assets, including identifiable intangibles - Equity Method: for stocks, goodwill is excess of purchase price over FV of net assets Maintaining Goodwill - expense - for maintaining, developing, or restoring goodwill - also internally generated goodwill is expensed

Answer 4

GAAP - expense - exceptions: don't expense a. materials, equipment, or facilities that have alternative future use (then you capitalize and depreciate) b. research and develop cost taken on behalf of others under a contractual agreement GAAP vs IFRS - for IFRS, research must be expensed by development may be capitalized if certain criteria met

Answer 5

GAAP vs IFRS - IFRS doesn't have separate computer software development cost so do it by their RandD rules more in other cards

Answer 6

Technological Feasibility established upon completion of - a detailed program design or - completion of a working model Accounting for Costs - expense costs incurred until technological feasibility has been established - capitalize costs incurred after up to the point that the product is released for sale: coding, testing and producing product masters* a. Amortization of Capitalized Software Costs annual amortization is greater of: 1) % of revenue = total capitalized amount * (current gross rev for period / total projected gross rev) 2) straight line = total capitalized amount * (1 / estimated economic life) - inventory: costs incurred to actually produce the product are product costs charged to inventory Balance Sheet - capitalized software costs are reported at lower of cost or market (NRV)

Answer 7

- expense costs incurred for preliminary project state and cost incurred for training and maintenance - capitalize costs incurred after preliminary project state (similar to technological feasibility) - capitalized costs amortized on straight line basis - if previously developed for internal use, but sold later then proceeds should be applied first to carrying amount of software, then recognized as revenue after - change mind - cost recovery system

Answer 8

W Finite Lives - 2 step impairment test 1. determine impairment using undiscounted future cash flows 2. amount of impairment use fair value - if no fair value, then use discounted cash flows W Indefinite Life - 1 step impairment test - use step 2 only Reporting an Impairment Loss (IDA) - component of income from continuing operations - unless related to discontinued operations - restoration of previous impairment losses is prohibited, unless the asset is held for disposal GAAP vs IFRS - IFRS only uses step 2 - recoverable amt is greater of asset's FV less cost to sell or PV of future cash flows expected - allows reversal of impairment losses

Answer 9

goodwill impairment is calculated at a reporting unit level - impairment exists when carrying amount of the reporting unit of goodwill exceeds its fair value Definition of Reporting Unit - separate cash flows - mgmt regularly reviews it - operating segment or one level below Evaluation of Goodwill Impairment - step 1: identify potential impairment by comparing the fair value of each reporting unit with its carrying amount, including goodwill - step 2: measure the amt of goodwill impairment loss by comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill PCC - *amortize goodwill straight line over 10 years or less - make an acct policy election to test for goodwill impairment when a triggering event occurs IFRS vs GAAP - IFRS tests at cash generating unit (CGU) level, lower level than GAAP - one step test: compare carrying value of CGU to recoverable amount (greater of FV minus cost to sell and value in use) - impairment loss first allocated to goodwill then other assets in CGU

Answer 10

Objective is to Match Expenses against Revenues | - take credit for goods things on IS

Answer 11

recognizes income only on completion (or substantial completion) of the contract - substantially complete if remaining costs are insignificant Requirements - difficult to estimate cost of contract in progress - there are many contracts in progress so about an equal number are completed in each year and an unequal recognition of income does not result - projects are of short duration and collections are not assured GAAP vs IFRS - can't be used for IFRS - for IFRS % of completion has to be used unless final outcome can't be reasonably estimated, then use cost recovery method - cost recovery, rev can only be recognized to extent cash collected exceeds costs incurred

Answer 12

excess of accumulated costs over related billing should be in BS as current asset, and excess of accumulated billing over related cost should be a current liability - if more than 1 contract, should be separately stated on BS Current Asset Account - due on account (receivable) - "costs (+estimated gains/earnings?) of uncompleted contracts in excess of billings" sometimes called "construction in progress" - like inventory Current Liability Account - progress billings on uncompleted contracts in excess of cost + estimated gains/earnings - excess billings or retainer or deposit

Answer 13

- applicable OH and direct costs should be charged to construction in progress (an asset) - billings and/or cash received should be credited to advances on construction progress account (a liability) - the net of these two ^ is the current asset/liability - classified as current bc of the current operating cycle concept (12 months) - losses should be recognized in full in the year they are discovered (rule of conservatism) - gross profit = contract price - total cost

Answer 14

advantage: based on final results rather than estimates disadvantage: doesn't reflect matching principle

Answer 15

income recognized is the % of estimated total income either: - cost incurred to date / total expected costs = % of job "earned" or - another way to measure % of completion ~ during early stages, all or a portion of items such as materials not used or subcontract costs may be excluded in determining the % of completion

Answer 16

provision for loss should be made when current estimates of the total contract cost indicates a loss - rule of conservatism ~ if loss on contract is related to group of contracts, may treat as unit in determining losses ~ income for % of completion measured at various stages, not ordinarily interim

Answer 17

Current Asset Account - due on accounts (receivables) - costs and estimated gains/losses** of uncompleted contracts in excess of progress billings, aka "construction in progress" Current Liability Account - progress billings in excess of cost and estimated earnings on uncompleted contracts

Answer 18

advantages: accurate reporting of status and recognition of income disadvantages: using estimates

Answer 19

step 1: gross profit = contract price - estimated total cost step 2: % of completion = total costs to date / total estimated cost of contract step 3: gross profit earned to date (PTD) = gross profit % * % of completion step 4: gross profit earned for the year = PTD end of year - PTD beginning of year - construction in progress includes construction expense and gain/loss* - ** loss rule when total est cost of contract > contract price - an estimated loss on the total contract is recognized immediately in the year it is discovered - however, any gross profit or loss reported in prior years must be adjusted for when calculating the total estimated loss

Answer 20

- cash method - used when there is no reasonable basis for estimating the degree of collectibility gross profit = sale - COGS gross profit % = gross profit / sale earned gross profit = cash collections * gross profit % deferred gross profit = installment receivable * gross profit % - the deferred gross profit is a contra asset*, later gets dr. and take off the BS and cr. realized gross profit on installment sales to put into IS

Answer 21

- no profit is recognized on a sale until all costs have been recovered - at the time of sale, the expected profit on the sale is recorded as deferred gross profit - cash collections are first applied to recovery of product costs - then collections after all costs have been recovered are recognized as profit - dr. cash, cr. cost recovery receivable Compared to Other Methods - similar to installment method in that it may only be used when receivables are collected over an extended period and there is no reasonable basis for estimating their collectibility - most conservative method of revenue recognition

Answer 22

has commercial substance if future cash flow changes as a result of the transaction - any change in cash flows - change can either be in area of risk, timing, or amount of cash flows - gain/loss recognized based on fair value of asset given up minus carrying value of the asset given up* (not FV or asset received) - basis is FMV + whatever paid GAAP vs IFRS - for IFRS, nonmonetary exchanges are separated into similar and dissimilar exchanges - dissimilar have gains calculated like GAAP w commercial substance - for similar, no gain recognized

Answer 23

no commercial substance if: - no change in cash flows or - fair value can not be determined - then basis of asset received is based on carrying value of asset exchanged + gain (?) Gains - no boot received = no gain - if boot is paid = no gain - if boot is received < 25% of consideration received = recognize proportional gain - if boot received (or paid for other party*) > 25% = recognize entire gain Losses - always recognize

Answer 24

whenever a nonmonetary asset is involuntarily converted, gain/loss is recognized for financial acct purposes -gain/loss recognized

Answer 25

HC: actual exchange in value at the time CC: cost that would be incurred at the present time, the replacement cost or recoverable amt if lower*(Appreciation) ND: unadjusted for changes in purchasing power CD: dollars restated based on CPI ratios (Inflation) HCND: basis for GAAP HCCD: adjusts for Inflation (adj w general price index) CCND: adjusts for Appreciation (adj w specific price index) CCCD: adjusts for Inflation and Appreciation

Answer 26

Monetary assets and liabilities are fixed - holding monetary assets in inflation will decrease purchasing power - holding monetary liabilities in inflation will increase purchasing power Nonmonetary assets and liabilities fluctuate - inflation and deflation - fair market value know monetary/non assets and their contras F2-43***

Answer 27

2 types 1. Foreign Currency Transaction: foreign currency transactions w a foreign entity denominated in foreign currency 2. Foreign Currency Translation: conversion of financial statements of a foreign entity into FSs expressed in domestic currency

Answer 28

exchange rate at the current date for immediate delivery of currency - aka spot rate - year end

Answer 29

exchange rate existing now for exchanging two currencies at a specific future date - bet

Answer 30

rate in effect at the date of issuance of stock or acquisition of an asset - used for equity - could also be used for other assets

Answer 31

used for income statement | - takes into account exchange rate fluctuations for the period

Answer 32

currency of the entity ultimately reporting financial results of the foreign entity - us dollar

Answer 33

the currency of the primary economic environment in which the entity operates, usually the local currency or the reporting currency

Answer 34

restatement of financials denominated in a functional currency to the reporting currency using appropriate rates of exchange - functional

Answer 35

the restatement of foreign financial statements from the foreign currency to the entity's functional currency in the following situations: - reporting currency is the functional currency - FSs must be restated in the entity's functional currency prior to translating the FSs from the functional currency to the reporting currency - Dysfunctional

Answer 36

before a parent company can consolidate the FSs of a foreign subsidiary, the subsidiary's foreign FSs must be restated in the parent's company reporting currency. - the method used to restate the foreign subsidiary's FSs is determined by the functional currency of the foreign subsidiary

Answer 37

1. Prepare in accordance w GAAP 2. Determine the Functional Currency - foreign operations are relatively self contained and integrated w/i the country - day to day operations do not depend on the parent's or investor's functional currency - the local economy of the foreign entity is not highly inflationary, defined as cumulative inflation of 100% over 3 years 3. Determine Appropriate Exchange Rates 4. Remeasure and/or Translate the FSs*

Answer 38

- dysfunctional Balance Sheet first - monetary = Current/Year end Rate - nonmonetary (at cost) = Historical rate - inventory at weighted average if purchased evenly throughout the year Income Statement - non-BS accounts = Weighted Average - BS accounts = Historical rate Remeasurement Gain or Loss - income statement - plug Currency Gain/Loss to get NI to required amount needed to adjust RE in order to make the BS balance - goes to income from continuing operations GAAP vs IFRS - F2-49

Answer 39

- functional/normal - current rate method Income Statement - all IS items = Weighted Average - transfer NI to RE Balance Sheet - Assets and Liabilities = Current/YE spot rate - Common Stock/APIC = Historical rate - Retained Earnings = Roll Forward - translated RE is beginning translated RE + NI for current period less translated dividends declared for the current period Translation Gain or Loss - goes to OCI (PUFER) - translation adjustment is diff b/w debits and credits in translated trial balance - cumulative translation adjustment (CTA)

Answer 40

Types of Foreign Currency Transactions - operating transactions and - forward exchange contracts Changes in Exchange Rate - a foreign exchange transaction gain or loss will result if the exchange rate changes b/w time a purchase or sale is contracted and the time the actual payment is made Transactions Not Settled at the BS Date - mark to market (goes into income from cont. ops) - use spot rate - unsure..? F2-52 - year end difference? - hits IS Valuation of Assets and Liabilities - historical rate - asset or liability resulting from foreign currency transactions should be recorded in the US company's books using the exchange rate in effect at date of transaction good example F2-52

Answer 41

non-GAAP presentations that have wide-spread understanding and support. include: - cash basis and modified cash basis of acct - tax basis of acct - a definite set of criteria have substantial support - a regulatory basis of acct

Answer 42

following guidelines apply to all OCBOA FSs presentations: - FS titles should differentiate the OCBOA FSs from accrual basis FSs - FS should explain any change in equity accounts - statement of cash flow not required - disclosures similar to GAAP should including SSAP and disclosures

Answer 43

- revs recognized when cash received, exps recognized when cash paid - generally used by estates, trusts, civic ventures, and political campaigns and committees Presentation - cash basis FSs include a statement of cash and equity and a statement of cash receipts and disbursements 1. Statement of Cash and Equity - in pure cash basis FS, cash is the only asset, no liabilities, equity is equal to cash 2. Statement of Cash Receipts and Disbursements - revenues received - expenses paid - proceeds from asset sales - payments for purchases of assets - debt repayments - dividend payments - debt and equity proceeds

Answer 44

Common Modifications to cash basis w substantial support: - capitalizing and depreciating fixed assets - capitalizing inventory - accrual of income taxes - recording liabilities for long-term and short- term borrowings and the related interest expense - reporting investments at FV and recognizing unrealized gains and losses Presentation~ - include statement of assets and liabilities - statement of revenue collected and expenses paid ~F2-55

Answer 45

well suited for complex corps, unlike cash basis Accounting Issues - tax basis FSs are prepared based on the methods used to prepare tax return - special acct treatment must be given to nontaxable revenue and expenses not reported on tax return Nontaxable Revenues and Expenses - may be reported as: - separate line items in the rev and exp sections of the statement of revenues and expenses - additions or deductions to net income or - a disclosure in a note *- for estimating income taxes for personal financial statements, use difference between fair value and tax basis of assets and liabilities Presentation ~F2-55

Answer 46

= Balance Sheet assets reported at estimated current FV - life insurance loans payable are netted against the cash surrender value of life insurance - a business interest that constitutes a large part of an individual's total assets should be presented as a single amount at estimated current value separately from other investments - vested pension plan benefits are reported at fair value liabilities reported at estimated current amount - generally same as GAAP, but sometimes present value is lower than cost so it would be at the lower PV - deferred tax liability reported for estimated taxes due net worth at fair value is diff b/w assets and liabilities the presentation of assets and liabilities is made in order of liquidity and maturity, with no current and noncurrent classifications

Answer 47

add increases in current assets subtract decreases in current assets add decreases in current liabilities subtract increases in current liabilities

Answer 48

% of completion: - dr: construction expense (for current period costs), dr: construction in progress (for amt of gain recognized), cr: revenue completed contract: - no JE % of completion: - asset/liability (diff b/w CIP and billings) is noncurrent until year before completion then current completed contract: - always current

F2 Flashcards

(72 cards)