Module 2

Question 1

Subsequent event evaluation
SEC filers and non- filers

Answer 1

SEC: Evaluate events through the date statements issued
Non: “available to be issued”

Question 2

Fair value

Answer 2

The most advantageous market price for an asset or liability after considering transaction costs

Uses the “exit” price

Question 3

Fair value hierarchy

Answer 3

Level 1 input is highest
Level 3 is lowest

Question 4

Fair value disclosures

Answer 4

1. Valuation techniques and inputs including judgements and assumptions
2. The uncertainty in the measurement at the reporting date
3. How changes in the measurement affect the entity performance and cash flows

Question 5

3 tests to determine operating reportable segments - only has to meet 1 of the 3

Answer 5

1. 10% combined revenues to internal and external parties
2. 10% of the greater of reported profit or loss
3. 10% of combined assets of all operation segments

Question 6

Reportable segments
75% reporting sufficiency test

Answer 6

Requires that reportable segments total at least 75% of revenue from external parties

Question 7

Segment operating profit (loss)
Definition/equation

Answer 7

Segment revenues from sales (to internal and external customers)
Less directly traceable costs
Less reasonably allocated costs
Equals segment operating profit loss

Question 8

Segment disclosures

Answer 8

1. Segment profit loss
2. Segment assets
3. Other certain items

Question 9

Disclosures for all public entities

Answer 9

1. Products and services
2. Geographic areas
3. Major customers

Question 10

SEC reporting requirements are outlined in Regulation

Answer 10

S-X

Question 11

SEC electronic filing must use

Answer 11

XBRL
eXtensible Business Reporting Language utilizes a taxonomy w tags that identify and define data found in the statements and footnotes

Question 12

OCBOA - other comprehensive basis if accounting

Answer 12

Cash basis statements
Modified cash basis
Income tax basis

Question 13

Partnership contribution recording

Answer 13

Fair value
Less the present value of liabilities assumed by the partnership

Question 14

Admission of new partners
Accounting methods

Answer 14

Exact method- no adjustment to partner accounts
Bonus method - adjust partner accounts for any difference
Goodwill method - adjust partner accounts for any difference and adjust the goodwill assets

Question 15

Withdraws of partners - accounting methods

Answer 15

Bonus method
Goodwill method

Question 16

Partnership contributions
Partner contributes assets cost 10K w fair value 20K, which figure to use

Answer 16

Use the fair value for the contribution
20K

Question 17

Partnership net income
Deduct partner draws to determine partner shares?

Answer 17

No

Question 18

Ratio
Days in inventory aka Inventory Conversion period

Answer 18

1. Cost of good sold/365 days
2. Ending inventory/ figure #1

Question 19

Ratio
Return on assets

Answer 19

1. Average total assets - beginning or year and end of year divided by 2
2. Net income / average total assets from #1

Question 20

Partnership contribution
Assets with liens

Answer 20

Fair market value of the asset net of any liabilities is the amount of the new partners capital account

Question 21

Ratio
Inventory turnover

Answer 21

1. Average inventory - add beginning and ending then divide by 2
2. Cost of good sold / #1 average inventory

Question 22

Calculating cost of goods sold

Answer 22

Beginning inventory
Add purchases
Subtract ending inventory
Equals cost of good sold

Question 23

Common modifications to cash basis stmts (modified cash basis)

Answer 23

1. Recording long term liabilities
2. Accrual of income taxes
3. Capitalization of inventory

Question 24

Calculating partnership capital account interest

Answer 24

1. Net profit - deduct the partnership interest owed
   Then any profit or loss remaining gets split to the partner accounts
2. Plus the interest the accounts were owed

Question 25

Income tax basis financial statements

Answer 25

Recognize income and expenses when these items are recognized on the entity’s tax return…. So they are adjusted to the reporting period

Question 26

Partnership accounts are equity accounts

Answer 26

Natural debit balance

Question 27

Partnership - Exact Method

Answer 27

Exactly how much does a partner need to contribute to become an equal partner - old partner accounts stay the same

Question 28

Partnership New partner gets 1/5 interest of partnerships 180,000 net assets How much does she need to contribute?

Answer 28

1. Take 5-1=4 2. 180,000/4= 45,000

Question 29

Partnership - new partner joining for 20%, net assets not given

Answer 29

1. Total the current capital account balances 2. 20% is 1/5…5-1=4 Divide current capital account balances total by 4

Question 30

Partnership - Bonus Method

Answer 30

Bonuses can affect either new partner or the old ones. It increase (decreases) the individual partner accounts without changing the net assets. If the bonus goes to the old partners then it is split according to their profit ratio

Question 31

Partnership - Goodwill method

Answer 31

The goodwill always goes to the old partners, never the new The goodwill increases the individual partner accounts and also changes the net assets of the partnership

Question 32

Partnership distributing profit and loss

Answer 32

1. Pay any guarantees 2. Pay any interest on ending capital account balances 3. Pay any salaries 4. Then calculate distribution according to profit and loss ratios 5. Then repay draws

Question 33

Partnership liquidation

Answer 33

Partnership advances can’t be repaid if any of the partners have a negative capital account balance The partner capital accounts have to absorb the negative capital account balance first before the advances are repaid

Question 34

Partnerships - calculating additional paid in capital APIC

Answer 34

Assets (D) Liability-fair value (C) Common stock (C) APIC (C). xxx Assets = Liabilities + Common stock issued + APIC … squeeze for the APIC

Question 35

Market participants

Answer 35

Independent of one another Knowledgeable and acting in their best interest

Question 36

Conversion cash basis to accrual Revenue

Answer 36

1. Add ending accounts receivable 2. Subtract beginning a/r 3. Subtract ending unearned (or deferred) revenue 4. Add beginning unearned (or deferred) revenue

Question 37

Determining fair value when there’s no principal market

Answer 37

Evaluate the options using the quoted price netted with the transaction cost to determine the right market, but the fair value answer is only the quoted price with out the transaction cost

Question 38

Principal market Most advantageous market

Answer 38

Principal market sells the most quantity Most advantageous offers the best price after transaction costs (but the answer is the price without the transaction costs factored in)

Question 39

Level 1, 2, and 3 inputs

Answer 39

Level 1 active market, identical asset Level 2 uses inputs other than quoted prices that are observable or unobservable Level 3 unobservable inputs

Question 40

Determining most advantageous market with transportation costs

Answer 40

1. Determine the most advantageous market- transport costs not a factor 2 in the final answer subtract the transport cost from the exit price of the most advantageous market price

Question 41

Fair value measurement methods

Answer 41

1 Market approach - aka most advantageous market, comparing markets 2 Income approach - impaired items 3 Cost (replacement) approach