FAR Questions and Rules
Last Modified: 2013-01-24
- The effective income tax rates for operations for the full year should reflect anticipated foreign tax rates and available tax planning alternatives.
- In addition, the effect of other anticipated tax credits, capital gains rates, and foreign tax credits should be included
- Third company into subsidiary company
- Subsidiary company (now consolidated with third company) into parent company
- A liability that requires the periodic payment of interest should be classified as an accrued liability or debt
- A liability that is secured by collateral should be classified as a loan payable.
- Both ending inventory and net income decrease when going from FIFO to LIFO in a period of rising prices (inflation).
- The reason for this is that under LIFO, ending inventory has a lower valuation than under FIFO since older, lower costs are assigned to ending inventory.
- Similarly, under LIFO, cost of goods sold has a higher valuation than under FIFO since recent, higher costs are assigned to goods sold. This higher cost of goods sold means that net income under LIFO decreases.
- If an individual fixed asset is revalued, then the entire class of fixed assets to which that asset belongs must be revalued. Individual fixed assets cannot be revalued alone
- Revaluation gains are reported in OCI as revaluation surplus
- Revaluation losses are reported on the income statement
- IFRS requires that revaluations be made with sufficient regularity to ensure that carrying amount does not differ material from fair value.
- Yes, the portion of the proceeds allocated to the warrants is recorded as contributed capital, and the amount will be less than their market value because the total proceeds were less than the combined market values of the bonds and the warrants.
- Rule: Allocate amounts separately to debt and detachable warrants according to their relative FMV's at the date of issuance. The amount allocated to detachable warrants is recorded as contributed (additional paid-in) capital.
- Revenue earned on the investments purchased increase the sinking fund.
- When the cash is used to retire the bonds (purchase the investments) the sinking fund is decreased
- APIC and Retained Earnings would both be decreased.
- RULE: A "liquidating dividend" is a return of capital (which decreases APIC) and a distribution of earnings (which decreases retained earnings)
Retained earnings (80%) 80,000APIC (20%) 20,000
Cash (dividend payable) 100,000
- The lease payments should be reported as an Outflow equal the the current year principal payments only.
- Cash payments made to reduce the principal are properly reported as financing activity. Cash interest payments would be reported as a component oc cash from operating activities.
- Financial statements should not report an amount of cash flow per share.
- Neither cash flow nor any component of it is an alternative to net income as an indicator of an enterprise's performance, as reporting per share amounts might imply.
- Under the Indirect Method, The company should report the unamortized bond discount in its statement of cash flows as an Addition to net income in the operatin activities section.
- Amortization of bond discount is an income-related item; thus, it is almost automatically an operating activity, not a financing activity.
- Because the amortization of the discount was originally subtracted to get to net income in the first place, it is added back to net income for an Indirect method statement of cash flows.
- Retained earnings is reduced on January 15, Year 1, the date of declaration, which is when the board of directors formally approves a dividend.
- A liability is created (dividends payable), and retained earnings is reduced (debited).
- On the dividend payment date, the liability (dividends payable) is reduced (debited) and the cash payment is recorded (credit to cash).
- Onal should not report anything ($0) on its income statement.
- Gains and losses on treasury stock transactions are never recorded on the income statement.
- Gains are recorded by increasing APIC - Treasury stock.
- Losses are recorded by first eliminating any balance in APIC-Treasury stock and then decreasing retained earnings.
- The Year 4 balance sheet should include a noncurrent deferred tax liability only.
- Future taxable income will be greater than future accounting income since future taxable expenses will be less than future accounting expenses. Under U.S. GAAP, the related deferred tax liability is classified according to the related asset which is a noncurrent asset.
- Under U.S. GAAP component of net periodic pension cost is measured using the Projected Benefit Obligation
- Service cost represents the increase in the projected benefit obligation resulting from the employee's services rendered during the year.
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