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101 Cards in this Set

  • Front
  • Back
Feedback value is a key characteristic of __________.
A. Relevance
B. Reliability
C. Both
-A. Relevance
Verifiability is a key characteristic of __________.
A. Relevance
B. Reliability
C. Both
-B. Reliability
Timeliness is a key characteristic of __________.
A. Relevance
B. Reliability
C. Both
-A. Relevance
Comparability is a key characteristic of __________.
A. Relevance
B. Reliability
C. Both
-C. Both
According to IASB, prudence is a key characteristic of __________.
A. Relevance
B. Reliability
C. Both
-C. Reliability

Reliability = [N]obody [R]elies on [F]inancials unless [V]erified
-Neutrality
-Representational
-Faithfulness
-Verified

Relevance = [P]assing [F]eels [T]errific
-Predict
-Feedback
-Timely
TRUE or FALSE: A loss on a foreign currency exchange due to a major unexpected devaluation by the a foreign goverment is extraordinary.
-FALSE, anything involving foreign currency is continuing operations.
TRUE or FALSE: Regulators are considered primary users of financial statements.
-FALSE, regulators are not primary users. Primary users include 1) Investors, 2) Creditors, 3) Lenders
TRUE or FALSE: The present value of future cash flows may NOT be used to measure inventory.
-TRUE
TRUE or FALSE: Historical cost, replacement cost, and net realizable value are all permissable methods to value inventory.
-TRUE
The objective of general purpose financial reporting is to:
A. Comply with GAAP.
B. Report on how effecively and efficiently management has used the entity's resources.
C. Provide financial information that is useful to primary users.
-C. Provide financial information that is useful to primary users.
TRUE or FALSE: Financial information in general purpose financial reports should include information about the resources of the entity, the claims against the entity, and how effectively and efficiently the entity's shareholders' have discharged their resources to use the entity's resources.
-FALSE, it should include information about how effectively and efficiently the entity's GOVERNING BOARD has DISCHARGED its responsibility - not the shareholders!
Realization occurs when ___________ is __________.
A. Receivable; Booked
B. Cash; Received
-A. Receivable; Booked
If a business ends operations and disposes a fixed asset, __________ should be used as the asset's measurement basis.
A. Historical Cost
B. Current Replacement Cost
C. Net Realizable Value
-C. Net Realizable Value
TRUE or FALSE: Reporting inventory at the lower of cost or market value is an example of conservatism.
-TRUE
TRUE or FALSE: The Fair Value (or current market value) of an asset may be determined by its current replacement cost.
-FALSE, fair value is the price to SELL, NOT TO ACQUIRE an asset!
TRUE or FALSE: An Accounting Standards Update is issued ONLY after a majority vote by the members of the FASB.
-TRUE
TRUE or FALSE: According to the IASB, Going Concern and Cash Basis Accounting are the 2 underlying assumptons of financial statement preparation and presentation.
-FALSE, Going Concern and Accrual Accounting
TRUE or FALSE: In order to issue a new IFRS standard, an exposure draft must be issued after approval by at least nine members of the IASB.
-TRUE
TRUE or FALSE: If you sell a segment of your business for a gain of 90,000, but you previously incurred a loss of (20,000) from that segment earlier in the year, your net income is 90,000 regardless because that previous loss is ALREADY INCLUDED.
-FALSE, you must net them together to get net income for the year.
TRUE or FALSE: Extraordinary losses are net of taxes.
-TRUE
TRUE or FALSE: If you dispose a segment of your business for a gain of 90,000, but you previously incurred a loss of (20,000) from that segment earlier in the year, the (20,000) is a loss from continuing operations and the 90,000 is a gain on disposal.
-FALSE you net them together as a gain (loss) on disposal.
TRUE or FALSE: An example of refinancing would be when one sells new bond debt to buy back old bond debt outstanding.
-TRUE
TRUE or FALSE: You may not have extraordinary gains - only extraordinary losses.
-FALSE, if a gain is unusual andi nfrequent, it is extraordinary.
TRUE or FALSE: If you have to make a prior period adjustment due to a correction of an error, you go back to the previous year's financial statements and adjust each applicable account.
-FALSE, you make the adjustment to beginning retained earnings at year end.
TRUE or FALSE: Interest Expense and Advertising Expense are NOT general and administrative expenses.
-TRUE
TRUE or FALSE: In year 1, you approve a plan to dispose a segment of your business in year 2, and you project a gain of 50,000. If you incur year 1 and year 2 losses of (60,000) and (30,000) respectively, your loss from discontinued operations in year 1 is ZERO, due to the rule of conservatism, whereby you must wait until you actual dispose the segment in year 2 before you can incur the loss.
-FALSE, loss from year 1 discontinued operations = (60,000). It doesn't matter if you actually disposed the segment; as long as you approved a plan to dispose it.
TRUE or FALSE: A change from FIFO to Weighted-average is considered a cumulative effect of a change in accounting principles, and you make the change currently and prospectively.
-FALSE, while it is a change in accounting principle, it is a cumulative change, so you must adjust beginning retained earnings.
TRUE or FALSE: If you apply a tax rate of 30% to Income from Continuing Operations, you multiply the Income from Continuing Operations x 30%.
-FALSE, you multiply it by 70%.
TRUE or FALSE: If A Public Company replaces their wholely-owned subsidiary with a new subsidiary, or if a Public Company acquires a new wholely owned subsidiary (a change in entity), all prior periods presented should be restated.
-TRUE
TRUE or FALSE: Infrequent but NOT unusual events that result in a gain or loss should be presented as blended in Income from Continuing Operations.
-FALSE, they should be presented SEPARATELY as a COMPONENT of income from continuing operations.
TRUE or FALSE: Extraordinary items are net of income taxes.
-TRUE
TRUE or FALSE: If you estimated a cost to be 100 and you realized you fucked up a year later - it really should have been 130, it shall be classified as an error and the beginning retained earnings must be adjusted.
-FALSE, changes in accounting ESTIMATES are handled prospectively in income from continuing operations.
TRUE or FALSE: Freight-in is a selling expense and Freight-out is part of cost of inventory.
-FALSE, vice-versa!!
TRUE or FALSE: Officers salaries and Insurance expense are examples of General and Administrative Expenses.
-TRUE
TRUE or FALSE: If you change the estimated useful life in depreciating an asset, and a salvage value is provided in this estimation, you deduct it AFTER you divide by the number of remaining years.
-FALSE, you deduct it BEFORE you divide by the number of remaining years.
TRUE or FALSE: If you have a cumulative change in accounting principle during the year, the cumulative effect of the change is determined by adjusting the beginning retained earnings of the earliest period presented.
-TRUE
TRUE or FALSE: Estimated hail storm damages that are frequent must be included in net income, due to the rule of conservatism.
-FALSE, only actual damages are included. According to SFAS 5, losses must be probable and the amount of loss must be reasonably estimated. In this case, the amount of damage caused by a hail storm cannot be reasonably estimated, therefore it cannot be incurred!
TRUE or FALSE: Employee relocation costs and pension costs associated with the decision to dispose a segment of your business may be classified as a loss from discontinued operations.
-TRUE
TRUE or FALSE: Impairment Losses for a given year are NOT classified as operating losses.
-FALSE, impairment losses are part of operating losses.
In year 1, you commit to a plan to discontinue a segment's operations and estimate that you will have a year 2 operating loss of 500,000 and currently, the fair value of your assets are 100,000 less than your carrying amount. In year 2, your estimate for the operating loss was correct; however, the fair value of your assets are now 200,000 less than your carrying amount. What is your year 1 and year 2 loss from discontinued operations, respectively?
A. (100,000); (700,000)
B. (100,000); (600,000)
-B. (100,000); (600,000)
TRUE or FALSE: Gains and losses are reported using the gross concept.
-FALSE, they are reported using the net concept.
TRUE or FALSE: Reporting of gains/losses are prohibited under IFRS.
-TRUE
TRUE or FALSE: In recognizing a liability associated with exit or disposal activities, a commitment to an exit plan is NOT enough to result in liability recognition.
-TRUE
TRUE or FALSE: In a single-step income statement, Revenues will include Sales + Purchase Discounts + Recovery of Accounts Written Off.
-FALSE, in a SINGLE-step income statement, revenues will include sales only. Examples of Sales are the proceeds from sale of goods, from rentals, and from services. (obvious stuff)
TRUE or FALSE: IDE + PUFE = Net Income
-FALSE, IDE + PUFE = Comprehensive Income. Net Income is only the 'IDE' in IDEA. (Net Income + OCI = Comprehensive Income)
TRUE or FALSE: Dividends paid to stockholder fall under comprehensive income.
-TRUE
TRUE or FALSE: Under US GAAP, comprehensive income may NOT be reported as a part of stockholders' equity.
-FALSE, it may be reported in a seperate statement, in a combined statement of income and comprehensive income, or within a statement of stockholders' equity.
TRUE or FALSE: The criteria used for determining which investments are treated as cash equivalents should be disclosed in footnotes to financial statements.
-FALSE, it should be disclosed in the summary of significant accounting poilicies.
TRUE or FALSE: In the consolidation of two companies, officers' salaries and any loans to the officers' of ONLY THE PARENT company must be disclosed in the notes to the consolidated financial statements - everything related to the subsidiary is eliminated.
-FALSE, both companies' officers' salaries must be disclosed; however, ONLY the subsidary portion of the loans to the officers must be disclosed, NOT the parent companies loans to officers! (Note: Under IFRS, the parent companies loans to officers is disclosed!)
TRUE or FALSE: Indirect Operating Expenses and General Corporate Expenses are NOT included in Operating Profit.
-TRUE
TRUE or FALSE: Sales of a segment to other segments of a company are included in that segments operating income.
-TRUE
TRUE or FALSE: In order to qualify as a reportable operating segment, the only requirement is that the segment's revenues must constitute more than 10% of the total firms combined revenues.
-FALSE, there is another requirement - the management of that operating segment must report to the Chief Financial Officer.
TRUE or FALSE: In order to qualify as a reportable operating segment, the requirement that the segment's revenues must constitute more than 10% of the total firms combined revenues can also be applied to 10% of total firm assets.
-TRUE
TRUE or FALSE: For interim financial reporting, if a business is currently in Q3, they should use the effective tax rate that was expected to be applicable for the entire year as of the end of Q1.
-FALSE, the effective tax rate should be current! It would be the effective tax rate expected to be applicable for the full year as estimated at the end of the THIRD QUARTER!
TRUE or FALSE: Due to a decline in market price in Q2, a company incurred an inventory loss, but they anticipated that the market would return to normal levels by the end of the year. It didn't. On its interim financial statements, the company properly recorded the loss ratably over the Q3 and Q4.
-FALSE, the loss should be recorded in Q4 only.
TRUE or FALSE: For segment reporting, a company must disclose SEPARATELY the amount of sales to unaffiliated customers and the amount of intracompany sales.
-TRUE
TRUE or FALSE: General Corporate Expenses and Indirect Operating Expenses should be factored into the operating segment of a particular company segment.
-FALSE, they should not be factored in.
TRUE or FALSE: Income Tax expense should be factored into the operating segment of a particular company segment.
-FALSE
TRUE or FALSE: Sales to other company segments should be factored into the operating unit of a particular company segment.
-TRUE
TRUE or FALSE: Predictive Value is an ingredient of relevance but NOT reliability.
-TRUE
TRUE or FALSE: Revenues may arise from an incidental transaction.
-FALSE
TRUE or FALSE: The objectives of financial reporting are NOT based on US GAAP - they are based on the needs of the users of information.
-TRUE
TRUE or FALSE: Composition of Fixed Assets should be disclosed in the summary of significant accounting policies.
-FALSE
TRUE or FALSE: Freight Out is a selling expense.
-TRUE
TRUE or FALSE: Sales salaries and commissions, along with Officers' salaries, are selling expenses.
-FALSE, only sales salaries and commissions are selling expenses.
TRUE or FALSE: Gains/losses from discontinued operations are a part of revenues.
-FALSE, they should be included in discontinued operations, not revenues.
TRUE or FALSE: Freight In is a general and administrative expense.
-FALSE, it is part of COGS.
TRUE or FALSE: Gain on the extinguishment of debt that is NOT unusual and NOT infrequent may be classfied as Income from Operations.
-TRUE
TRUE or FALSE: Extraordinary losses flow into net income, after tax.
-TRUE
TRUE or FALSE: When a fixed asset is sold, the gain/loss generated is classified as gain/loss from discontinued operations.
-FALSE, it should be gain/loss from continued operations.
TRUE or FALSE: Correction of errors of prior periods should be reported as an adjustment to beginning retained earnings, not as an item of net income.
-TRUE
TRUE or FALSE: Losses and additional losses caused by a workers strike are extraordinary losses.
-FALSE, they are losses from continuing operations.
TRUE or FALSE: A change to LIFO is impractical.
-TRUE
TRUE or FALSE: A change from LIFO to FIFO is a change in accounting principle.
-TRUE
TRUE or FALSE: If there is a change in accounting principle, it is treated prospectively.
-FALSE, there must be a retrospective adjustment to the beginning retained earnings.
TRUE or FALSE: Temporary market declines in inventory should be recognized in the interim financial statements when a turn-around can be REASONABLY expected to occur before the end of the fiscal year.
-FALSE, they should NOT be recognized in the interim statements.
TRUE or FALSE: Temporary market increases/declines in inventory should be recognized in the interim financial statements.
-TRUE
TRUE or FALSE: In determining a 'reportable segment', combined revenues should include sales to unaffiliated customers intersegment sales of products similar to those sold to unaffiliated customers, and interest earned on loans to other industry segments.
-FALSE, interest earned on loans to other segments is NOT a part of combined reveunues.
TRUE or FALSE: In determining the Net Income(Loss) for a developmental stage enterprise, R&D is not included - it is fully capitalized.
-FALSE, R&D is 100% expensed.
TRUE or FALSE: Net Capitalized Cost of a product equals the greater of straight-line amortization OR sales revenue from the product for the period divided by total projected sales.
-TRUE
TRUE or FALSE: An employer shall expense the employer portion of FICA taxes immediately, and book a liability for the employee portion.
-FALSE, vice versa.
TRUE or FALSE: Accrued Interest Expense represents all the accumulate interest expense paid for the term of the loan/note thus far, and you must book these entries even if interest isn't due until maturity.
-TRUE
TRUE or FALSE: Successful Legal Defense Costs are capitalized to the carrying value of the asset which it pertains to.
-TRUE
TRUE or FALSE: R&D should be capitalized as part of the cost of a patent.
-FALSE, it should NOT be capitalized.
TRUE or FALSE: Royalites paid should be reported as an expense at the date the royalty agreement began.
-FALSE, the royalties should be reported as an expense in the period incurred.
TRUE or FALSE: An expenditure designed to maintain goodwill should be capitalized to goodwill.
-FALSE, it should be expensed!
TRUE or FALSE: Testing in search of new products or process alternatives should be expensed as R&D.
-TRUE
TRUE or FALSE: Goodwill is capitalized only when incurred in the purchase of another entity. Costs incurred for maintaining or developing goodwill are expensed.
TRUE or FALSE: Goodwill is capitalized only when incurred in the purchase of another entity. Costs incurred for maintaining or developing goodwill are expensed.
TRUE or FALSE: Costs incurred to develop an asset which is for internal use only should be expensed as R&D.
-FALSE, if the asset is for internal use, unrelated to production, it is not considered R&D.
TRUE or FALSE: Once a patent is estalished, legal costs to successfully defend the patent should be capitalized and amortized over the GREATER of the patent's useful life or its legal life.
-FALSE, it should be capitalized and amortized over the LESSER of the patent's useful life or its legal life.
TRUE or FALSE: The initial purchase of a copyright should be included in the total expenses for the year of purchase.
-FALSE, the copyright should be recorded as an intangible asset, not as royalty expense.
TRUE or FALSE: Even though year 1 officer's bonuses are paid on January 31, year 2, the company's year 1 income statement should still include the officers' compensation expense.
-TRUE
TRUE or FALSE: In an unsuccessful legal defense of a patent, NOTHING pertaining to the patent is capitalized - it is all expensed. (i.e. purchase price, acquisition cost, legal fees) Whereas in a successful legal defense, EVERYTHING is capitalized.
-TRUE
TRUE or FALSE: If somebody owes you a annuity receivable over the next 10 years, and you perform ALL services in the first year, you may recognize all of it as revenue.
-TRUE
TRUE or FALSE: Laboratory research aimed at discovery of new knowledge may be classified as R&D.
-TRUE
TRUE or FALSE: Quality control during commercial production, including routine testing of products, may be classified as R&D.
-FALSE, technological feasibilty has already been established.
TRUE or FALSE: Costs of start-up activities, including organizational costs, should be expensed as incurred.
-TRUE
TRUE or FALSE: Goodwill should be tested for value impairment based on the entire business as a whole.
-FALSE, it is tested for impairment based on each reporting unit.
TRUE or FALSE: Unearned Fees are recognized as revenue under the cash basis.
-TRUE
TRUE or FALSE: Subsequent reversal of a previously recognized impairment loss is allowed; however, it must be disclosed in the notes to the financial statements.
-FALSE, it is prohibitted.
TRUE or FALSE: The Matching Principle matches revenues against expenses in the same acconting period.
-FALSE, the matching principle matches EXPENSES against REVENUES in the same accounting period. Expenses are matched to the revenues they generate.