Review

Question 1

What are the following reports and who is required to file:
10-K
10-Q
8-K
S-X

Answer 1

SEC Registrants (companies with assets of more than 10 million and 500 or more shareholders and securities that trade on a national securities exchange
10-K - Annual Report
10-Q - Quarterly Report
8-K - Material Disclosures
S-X - Form & Content

Question 2

What does/doesn’t the Fair Value Option (ASC 825) apply?

Answer 2

Does:
AFS, HTM, & Equity Method Securities
Certain Financial Liab.
Firm Commitments
Written Loan Commitments
Non-financial insurance settled by a third party
Warranty contracts settled by a third party
Host financial instrument that is an embedded nonfinancial dervative instrument separated from a nonfinancial hybrid instrument

Doesn't:
Consolidations
Pensions
Leases
Share-Based Payments
Stock Options
Postemployment Benefits
Exit/Disposal Activities
Financial Instruments that are a component of Equity

Question 3

What accounting policies must be disclosed?

Answer 3

1. Accounting principles used when alternatives exist
2. Principles peculiar to a particular industry
3. Unusual or innovative applications of accounting principles

Question 4

Regarding ASC 820 and Fair Value Election, what is the difference between the Principal & Most Advantageous Market?

Answer 4

Principal = where the greatest volume & level of activity occurs

Most Advantageous = where the maximum price occurs

Question 5

According to ASC 850, Related Party Disclosures, what should be disclosed on the FS?

Answer 5

Material transactions except:
Compensation agreements
Expense allowances
Items in the ordinary course of business
Transactions which are eliminated in the preparation of the consolidated/combined FS

Material Transaction Disclosures Include:

1. Nature of relationship
2. Description of transactions
3. Dollar amounts of transactions
4. Amount due to/from

Question 6

Risks & Uncertainties must be disclosed in what four areas?

Answer 6

1. Nature of Operations
   Quantification not required
2. Use of Estimates in FS preparation
3. Certain Significant Estimates
   If possibility of change in near term would cause a material difference
4. Current vulnerability due to concentrations

Question 7

Are losses due to Strike considered extraordinary?

Answer 7

No

Question 8

How is COGM Computed?

Answer 8

Direct Method:
Beg WIP
\+ DM Used
\+ DL
\+ Factory OH
- End WIP
= COGM

Indirect Method
Beg Finished Goods
\+ COGM
- End Finished Goods
= Cost of Sales

Question 9

Do Gains/Losses on Trading Securities require separate disclosure?

Answer 9

Yes

Question 10

Foreign Currency Translation - Remeasurement vs Translation:

Answer 10

Remeasurement Method
Functional does NOT equal Local Currency
Gain/Loss recognized in Income
Aggregate Gain/Loss disclosed either in FS or Notes
Monetary A&L = Current Rate on BS Date
Non-Monetary A&L = Historical 
SHE = Historical (except RE which is brought forward)
Dividends = Historical on date of dec.
R&E = WA of year except for allowcations

Current Rate Method
Functional EQUALS Local Currency
A&L = Current Rate on BS Date
R&E = WA Rates for the year
SHE = Historical
Dividends = Historical rate on date of declaration

Question 11

Other Comprehensive Income is composed of what?

Answer 11

1. Unrealized G/L on AFS Securities
2. FC Translation adjustments
3. Minimum Pension Liability Adjustments
4. Reclassification to avoid double counting

Question 12

How is a transaction computed into constant dollars?

Answer 12

Use the To/From Ratio:
Ex:
Year 1 CPI = 180
Year 2 CPI = 200
Depreciation Exp is $200,000 a year

200/180*$200,000 = $222,222

Question 13

What are examples of Exit Activities?

Answer 13

1. Sale & termination of line of business
2. Closure of business activities at a particular location
3. Relocation of business activities
4. Changes in Management Structure
5. Fundamental reorganization of the business

Question 14

Under IFRS, what items must be disclosed on the Income Statement?

Answer 14

1. Income
2. Finance Costs (Interest Expense)
3. Share of Profits under Equity Method
4. Tax Expense
5. Discontinued Operations
6. Profit or Loss
7. Non-controlling interest in P/L
8. Net P/L attributable to equity holders in the parent

Question 15

Difference between Sales Type Lease & Direct Financing Lease?

Answer 15

Gross Profit is earned on a sales type lease at the inception of the lease

A Direct Financing Lease is when a Bank acts as a third party to purchase the asset in cash from the manufacturer or dealer and then leases to the company needing the equipment

A Sales Type Lease is when the company leases directly from the Manufacturer/Dealer

Question 16

In financial reporting for segments of a business enterprise, segment data may be aggregated when?

Answer 16

Before performing the 10% tests if all of the aggregation criteria are met

Question 17

When goods are sold with unlimited right of return and an obligation to pay based on sale of the goods, when is revenue recognized by the original seller?

Answer 17

When the buyer is obligated to pay the seller

Question 18

What are the four types of foreign currency hedges?

Answer 18

1. Unrecognized Firm Commitment
2. AFS Securities
3. Forecasted Transaction
4. Net Investment in Foreign Operation

Question 19

How is current year profit calculated in the percentage of completion contract method?

Answer 19

Current Year Profit = (Costs to Date/Total Expected Cost) x Expected Profit - Profit recognized in previous periods

Question 20

Under IFRS, what is the approach used in segment reporting?

Answer 20

Management Approach

Question 21

What two criteria are required for a derivative to be classified as a hedge?

Answer 21

1. Sufficient documentation to identify (1) the objective and strategy of the hedge (2) the hedging instrument & hedged item (3) how the effectiveness of the hedge will be assessed on an ongoing basis
2. The hedge must be highly effective throughout it’s entire life

Question 22

Under the Periodic Inventory System, what is the difference between the Gross & Net Methods?

Answer 22

Under the Gross Method, Purchase Discounts are recorded when actually realized

Under the Net Method, Purchase Discounts are realized right off the bat and adjusted later if they are not met

Question 23

Under the Percentage of Completion contract method, what are done with an expected loss in gross profit?

Answer 23

It should be expensed entirely in the current period instead of multiplying by the percentage of completion

Question 24

What is included in the Construction in Progress account when using the Percentage of Completion Contract Method?

Answer 24

1. Cost to Date
2. Gross Profit Recognized (A loss would not be subtracted, but would be shown as a separate liability - Unearned Revenue)

Question 25

How is the Gross Margin Method for Inventory used?

Answer 25

By taking the historical margins on sales to estimate the Cost of Inventory This method is typically used for Interim Reporting because it is not accurate enough to use for year-end reporting

Question 26

When there is a decline in market value below the contract price on a noncancelable purchase commitment, what must be done?

Answer 26

1. An unrealized loss must be reported in the period of decline 2. The nature of the contract should be disclosed in the FS.

Question 27

Pension Asset/Liability is the result of what?

Answer 27

The cumulative amount of pension expense vs the funded pension amount

Question 28

Under IFRS, where are gains/losses recorded?

Answer 28

OCI

Question 29

When depreciating capital software, what methods are appropriate?

Answer 29

The greater of: 1. The SL Depreciation 2. Ratio of Actual Yearly Sales to Total Expected Sales

Question 30

The test for impairment for assets is?

Answer 30

UNDISCOUNTED future cash inflows less related cash outflows

Question 31

May Development Costs be capitalized?

Answer 31

Yes in very restrictive conditions

Question 32

Can Assets which have been written down and had a loss recorded before the asset was classified as for sale be written back up?

Answer 32

Yes, but only to the carrying amount before the write down.

Question 33

What is a nonreciprocal asset transfer?

Answer 33

Donation of an asset at FMV Gains/Losses are reported on the difference between the CV and the FMV

Question 34

What is considered program revenue on the government-wide financial statements?

Answer 34

1. Charges for Services 2. Operating Grants & Contributions 3. Capital Grants & Contributions