Principles

Question 1

From Accrual to Cash

Answer 1

^Cash = ^L + ^E - ^OA

Question 2

From Cash to Accrual

Answer 2

^E = ^A - ^L

Question 3

Relevance

Answer 3

• Predictive Value
• Confirmatory Value
• Materiality

Question 4

Faithful Representation

Answer 4

• Completeness
• Neutrality
• Free From Error

Question 5

Enhancing Qualitative Charactertistics

Answer 5

• Comparability
• Verifiability
• Timeliness
• Understandability

Question 6

Replacement Cost

Answer 6

• Amount required to be paid currently for an asset you already have
• Entry Price

Question 7

Historical Cost

Answer 7

• Original cost of an asset

- Entry Price

Question 8

Net Realizable Value

Answer 8

• Equals estimated selling price less cost to complete & sell
• Exit Price

Question 9

Measurement Basis for firm that is liquidating

Answer 9

Net Realizable Value

Question 10

Discounted Cash Flows - Risk Adjusted Rate

Answer 10

Multiply Cash flow by its present value factor

Question 11

Discounted Cash Flows - Risk Free Rate - Weighted Average

Answer 11

• Multiply total cash flows by probability then by present value factor
• Add if there are multiple years

Question 12

Principal vs most advantageous market

Answer 12

If there is a principal market use that one, but if there isn’t, then use the most advantageous market

Question 13

Market Participants

Answer 13

• Independent
• Acting on own interest
• Knowledgeable
• Able & willing

Question 14

FV assumes highest & best use

Answer 14

• Physically possible
• Legally allowed
• Financially possible

Question 15

FV Measurement Techniques

Answer 15

• Market Approach: Uses prices and other information generated by market transactions involving assets & liabilities that are identical or comparable
• Income Approach: Converts future amounts into a single present amount.
• Cost Approach: Uses amount that would currently be required to replace an asset. Replacement cost

Question 16

Things that are Eligible for FV

Answer 16

• Firm commitment that would otherwise not be recognized at inception and only involves financial instruments; or a written loan commitment
• Insurance or warranty contract that can be settled by a 3rd party

Question 17

Things that are NOT eligible for FV

Answer 17

• An investment in a subsidiary that is to be consolidated
• An interest in a variable interest entity that is to be consolidated
• Employers’ and plans’ obligations (or assets) for pension benefits, other postretirement benefits, postemployment benefits, and other employee-oriented plans
• assets and liabilities recognized under lease accounting
• Demand deposit liabilities of financial institutions
• Financial instruments classified as stockholder’s equity

Question 18

FV differentiation

Answer 18

• Recurring: measured at FV period after period; like equity securities
• Nonrecurring: measured at FV when certain conditions are met; like an impairment of an asset

Question 19

IFRS for SME - Cost or Equity Method with significant influence

Answer 19

Can use both while GAAP only allows equity method with significant influence

Question 20

Accounts Receivable under Cash accounting

Answer 20

Don’t net allowances against accounts receivable

Question 21

Accounts Receivable & unearned fees

Answer 21

Unearned fees are debited in A/R

Question 22

What is current cost income?

Answer 22

Sales Revenue minus expenses on a current basis

Question 23

Realized holding gains & losses

Answer 23

Difference between current & historical cost

Question 24

Disclosure for Concentrations

Answer 24

• Information about shared activity, region, or economic characteristics of the group
• Amount of accounting loss that the entity would incur as a result of the concentrated party’s failure to perform according to the terms of the contract
• Information regarding entity’s policy of requiring collateral.

Question 25

Effect Net Income has on retained earnings and equity

Answer 25

If you record a loss on the income statement and decrease net income, remember Net Income is included in the retained earnings formula so it decreases therefore decreasing equity.