General Knowledge

Question 1

What is the Three-Month Rule for securities

Answer 1

Highly liquid securities with ORIGINAL maturity dates of three months or less are treated as cash.

Question 2

Bad Debts - Direct Write-Off Method

Answer 2

• No entry for bad debts until customer actually defaults.
• At default, the customer’s account is written off.
• Theoretically weak, matching issue
• Only allowed if bad debt expense is immaterial

Question 3

Income Statement Approach

Answer 3

• Matching Concept
• Estimate of bad debt expense is based on the income statement
• Allowance account balance has no bearing on the amount of adjustment

Question 4

3 types of Investments

Answer 4

• Held-to-Maturity
• Trading Securities
• Available-for-Sale Securities

Question 5

What is Held-to-Maturity Securities

Answer 5

• Debt securities only
• Mgt has both intent and ability to hold the securities to maturity
• Classified on BS based on maturity date
• Carry on balance sheet at amortized cost

Question 6

What is Trading Securities

Answer 6

• Equity or Debt securities held primarily for sale in the near term
• Classified on BS as current
• Carried on BS at FMV
• Unreal holding gains/losses belong on the income statement

Question 7

What is Available-for-sale Securities

Answer 7

• Debt or Equity securities not classified as either HTM or Trading
• Debt is classified on BS by maturity date
• Equity securities are classified by mgt’s intent
• Carried on BS at aggregate FMV
• Unreal G/L go directly to SH equity (other comprehensive income)

Question 8

What is Derivatives

Answer 8

Investment that derives its value from something else (asset or liability)

Question 9

What is Hedging

Answer 9

Strategy of investing in a derivative to counterbalance the potential loss from another security or transaction

Question 10

What is Non-Hedge Derivatives

Answer 10

• Record on BS as asset or liability at FMV

- Report unrealized G/L on IS

Question 11

What is Fair Value Hedge

Answer 11

Protects against potential loss from the change in an asset’s or liabilities’s FMV

• Record on BS as asset or liability at fair market value
• Report unrealized holding G/L on IS

Question 12

What is Cash-Flow Hedge

Answer 12

Protects against potential loss from an asset’s or liability’s future cash flow

• Record on BS as asset or liability
• Unreal G/L depend on whether hedge is effective
• Effective cash flow hedges counterbalance losses elsewhere
• Ineffective cash flow hedges are reported on the IS

Question 13

What is Weighted Average

Answer 13

The weighted average cost per unit must be calculated. The ending inventory valuation is equal to the number of units in ending inventory multiplied by the WA cost per unit. Likewise, the cost of goods sold for the period is equal to the number of units sold multiplied by the WA cost per unit.

Question 14

Weighted Average Cost Per Unit =

Answer 14

Cost of Goods /

Number of Units

Question 15

FIFO

Answer 15

Assumes ending inventory contains the most recently acquired units

Question 16

LIFO

Answer 16

Assumes ending inventory contains the oldest inventory layers

Question 17

How to Calculate Cost of Goods Sold

Answer 17

Beginning Inventory
 \+ Net Cost of Purchases
 = Goods available for Sale
 - Ending Inventory
 =Cost of Goods Sold

Question 18

How does dollar value LIFO work?

Answer 18

Inventory accounted for in layers. Base year layer accounted for in base year prices, while current year layer accounted for in current prices.

Question 19

What are the three criteria for prior period adjustments?

Answer 19

(1) effect of the adjustment is material to income from continuing operations; (2) adjustment can be identified with a prior period; and (3) amount of the adjustment could not be estimated in prior periods

Question 20

How do you calculate the PV of a bond?

Answer 20

PV of one dollar at yield rate times face value of bond add that to face value times stated rate times PV of ord annuity of $1.00 at yield rate

Question 21

For long-term Construction type contracts when are losses Recognized

Answer 21

Losses are recognized Immediately When Discovered, regardless of the method used for revenue recognition

Question 22

When Should the costs of developing computer software for resale, lease, or licensing be capitalized under U.S. GAAP

Answer 22

After Technological Feasibility has been established and before the product is released for sale

Question 23

Goodwill is defined as

Answer 23

The Excess of the Fair Value of a Subsidiary over the Fair Value of the Subsidiary’s Net Assets

Question 24

What is the accounting treatment for Costs of Maintaining or developing Goodwill

Answer 24

These costs can not be capitalized, they must be expensed

Question 25

What are the 5 conditions for Revenue Recognition When the Right of Return Exists

Answer 25

The Sales Price is Substantially Fixed at the time of sale The Buyer Assumes All Risks of Loss The Buyer has paid consideration The Product sold is substantially complete The Amount of Future Returns can be Reasonably Estimated

Question 26

The four Criteria that Must be Met Before Revenue can be recognized includes

Answer 26

Persuasive Evidence of an Arrangement Exists(Contract) Delivery has occurred or services have been rendered The Price is Fixed and Determinable Collection is Reasonably Assured

Question 27

Common Revenue Recognition Criteria under IFRS Include

Answer 27

Revenues and costs can be Reliably Measured | It is Probable that Economic Benefits will flow to the entity

Question 28

What are the Criteria for revenue recognition under GAAP

Answer 28

Earned and Realized or Realizable

Question 29

State Two Types of Foreign Currency Transactions

Answer 29

Operating Transactions such as importing exporting borrowing lending or investing activities Forward Exchange contracts, which are agreements to exchange two different currencies at a specific future date and at a specific rate

Question 30

Where are Translation Adjustments reported in the financial statements

Answer 30

Translation Gains and Losses are reported in OCI and are treated as Unrealized Gains and Losses

Question 31

Identify the Exchange Rate to be used when Remeasuring different components of the Balance Sheet

Answer 31

Monetary items, use the current exchange rate Nonmonetary items, use the historical rate

Question 32

Identify the Exchange Rate to be used when Remeasuring different components of the Income Statement

Answer 32

Balance Sheet Related Items, use the Historical rate | Non Balance Sheet Related Items, use the Weighted Average Rate

Question 33

Identify the Exchange Rate to be used when Translating different components of the Balance Sheet

Answer 33

Current Exchange Rate for Assets and Liabilities | Historical Rate for Common Stock and APIC

Question 34

Identify the Exchange Rate to be used when Translating different components of the Income Statement

Answer 34

Weighted Average Rate for Revenue and Expenses

Question 35

When is the Re-measurement Method Used

Answer 35

The Reporting Currency is the Functional Currency The Financial Statements must be restated in the entity's functional currency prior to translating from the functional currency to the reporting currency

Question 36

What is the Re-measurement Method

Answer 36

It is when we Restate the Financial Statements from the Foreign Currency to the Entity's Functional Currency

Question 37

When is the Translation Method Used

Answer 37

To Restate Financial Statements Denominated in the Functional Currency to the Reporting Currency

Question 38

Under GAAP what is an Entity's Functional Currency

Answer 38

The Currency of the Primary Economic Environment in Which the Entity Operates. All of the Following Conditions must be met The Foreign Operations are Relatively Self-Contained and integrated within the country The 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

Question 39

What are Non-monetary Items

Answer 39

Assets and Liabilities that Fluctuate in Value with Inflation and Deflation For Example, Inventory, PP & E, Capital Stock These items need to be restated in constant dollars

Question 40

What are Monetary Items

Answer 40

Assets and Liabilities that are fixed in amount by contract or in terms of number of dollars Examples include cash, accounts receivable, accounts payable These are already stated in constant dollars

Question 41

How are gains and losses on Nonmonetary exchanges recognized under IFRS

Answer 41

Exchanges of Similar Assets, no gains, losses in full | Exchanges of Dissimilar Assets, Gains and Losses in Full

Question 42

How are gains and losses on nonmonetary exchanges such as Commercial Substance recognized under GAAP

Answer 42

Always Recognize Gains and Losses equal to the difference between the Fair Value of what was given up and the book value of what was given up

Question 43

How is Goodwill Impairment Analyzed under IFRS

Answer 43

Under IFRS Impairment Testing is done at the Cash Generating Unit level using a one step test that compares the carrying value of the CGU to the CGU's recoverable Amount Losses are allocated to goodwill then on a pro rata basis to the other CGU assets

Question 44

How is Goodwill Impairment Analyzed under GAAP

Answer 44

Two Step Process at the Reporting Unit 1. Compare the Fair Value with the units Carrying Value, including Goodwill 2. Compare the Implied Fair Value to the units Carrying Value

Question 45

What is the Calculation for Impairment Loss under GAAP

Answer 45

Carrying Value minus the Fair Value

Question 46

What is the Calculation for Impairment Loss under IFRS

Answer 46

Carrying Value minus the Recoverable Amount

Question 47

Define Accounting Error

Answer 47

An error in recognition, measurement, presentation or disclosure in the financial statements. IE.... mathematical mistakes, mistakes in applying GAAP, or oversight of facts that existed when the financial statements were prepared. A change in accounting principle from non-GAAP to GAAP is also a correction of an error

Question 48

Accounts INCREASED with a DEBIT

Answer 48

D-Dividends (Draws) E-Expenses A-Assets L-Losses DEAL increase with a Debit

Question 49

Accounts INCREASED with a CREDIT

Answer 49

``` G-Gains I-Income R-Revenue L-Liabilities S-Stockholders' (Owners's) Equity ``` GIRLS increase with a Credit

Question 50

REV is recognized when:

Answer 50

+Signed Contract +Services rendered or delivery +Fixed or determinable price +Collection is reasonably assured

Question 51

EXP is recognized when:

Answer 51

+Economic benefit is consumed or asset uses future benefit * EXP can be matched to REV (COGS) * EXP can be matched to period (depreciation) * EXP expensed as incurred (salaries of admin employees)