FAR — Financial Accounting & Reporting

According to the FASB Conceptual Framework, which of the following statements correctly describes the trade-off between the fundamental qualitative characteristics of relevance and faithful representation?

On October 1, Year 1, Host Co. committed to a plan to dispose of a major component of its business that qualifies as a discontinued operation. The sale is expected to occur on March 1, Year 2. For the year ended December 31, Year 1, the component had an operating loss of $300,000. The estimated fair value of the component is $1,500,000, and its carrying amount is $1,800,000. Estimated costs to sell are $50,000. The corporate tax rate is 25%. What amount should Host report as the loss from discontinued operations in its Year 1 income statement?

A company has a debt covenant requiring a current ratio of at least 2.0. On December 31, Year 1, the company has current assets of $800,000 and current liabilities of $500,000. On January 15, Year 2, before the financial statements are issued, the company refinances $200,000 of its short-term debt into a long-term note due in 5 years. The refinancing agreement is non-cancelable. How should the $200,000 debt be classified on the December 31, Year 1 balance sheet, and is the covenant violated?

Orion Corp. reports under US GAAP. In preparing its statement of cash flows for the year ended December 31, Year 1, the following data is available:<br/>- Net Income: $500,000<br/>- Gain on sale of equipment: $20,000<br/>- Purchase of treasury stock: $50,000<br/>- Amortization of bond discount: $5,000<br/>- Increase in net accounts receivable: $30,000<br/>- Decrease in prepaid expenses: $10,000<br/>- Payment of cash dividends: $40,000<br/><br/>What is the net cash provided by operating activities?

Parent Co. owns 80% of Sub Co. During Year 1, Parent sold inventory to Sub for $500,000. The cost of the inventory to Parent was $350,000. At December 31, Year 1, Sub had sold 60% of this inventory to outside parties. The tax rate is 25%. In the consolidated balance sheet at December 31, Year 1, by what amount should the inventory be reduced to eliminate the intercompany profit?

On January 1, Year 1, Acquirer Inc. purchased 100% of Target Corp. for $1,000,000. Target's equity consisted of $200,000 Capital Stock and $600,000 Retained Earnings. The fair value of Target's identifiable net assets was $900,000. The difference between fair value and book value was due to a patent with a 10-year remaining life. What is the annual amortization expense adjustment required for the consolidation worksheet for Year 1?

Regarding SEC reporting requirements, which of the following statements is correct concerning a 'Large Accelerated Filer'?

Alpha Corp. has the following capital structure during Year 1:<br/>- Net Income: $800,000<br/>- Weighted Average Common Shares Outstanding: 100,000<br/>- 5,000 shares of 6% Cumulative Preferred Stock, $100 par, convertible into 20,000 common shares. No dividends were declared.<br/>- $1,000,000 of 4% Convertible Bonds, convertible into 30,000 common shares.<br/><br/>Tax rate is 25%. What is Diluted Earnings Per Share (EPS)?

A company reports the following for its operating segments:<br/>- Segment A: Revenue $400, Profit $50, Assets $1,000<br/>- Segment B: Revenue $100, Loss ($30), Assets $200<br/>- Segment C: Revenue $50, Profit $5, Assets $100<br/>- Segment D: Revenue $40, Loss ($40), Assets $50<br/><br/>Total Revenue = $590. Total Assets = $1,350.<br/>Which segments are reportable based on the quantitative thresholds?

On January 15, Year 2, before the Year 1 financial statements were issued, a customer of Apex Corp. declared bankruptcy due to a fire that occurred on January 10, Year 2. The customer owed Apex $50,000 at December 31, Year 1. How should this event be treated in the Year 1 financial statements?

Under ASC 820, which of the following inputs would be considered Level 3 in the fair value hierarchy?

Company X is preparing its interim financial statements for the first quarter. The company expects to earn $200,000 pre-tax income each quarter. It has a permanent difference of $20,000 (tax-exempt income) expected for the full year. The statutory tax rate is 30%. No other temporary differences exist. What is the income tax expense for the first quarter?

Under ASC 606, how should a company account for a contract modification that adds distinct goods at a price that does NOT reflect their standalone selling price?

On January 1, Year 1, Lessee Corp enters a 10-year lease for a building. Annual payments are $50,000 due at the beginning of each year. The building's useful life is 15 years. The lease grants Lessee an option to purchase the building for $10,000 at the end of the lease, which is significantly below the expected fair value of $200,000. The implicit rate is 5%. How should Lessee classify this lease and amortize the Right-of-Use (ROU) asset?

Company A has a bank account with Bank X with a balance of $50,000 and an overdraft of $10,000 in a separate account at Bank Y. The accounts are not linked. How should these be reported on the balance sheet?

On July 1, Factor Co. transferred receivables with a face value of $100,000 to Finance Corp. Factor Co. retained a 5% holdback for adjustments. Finance Corp. charged a 3% fee and withheld the holdback. The transfer was without recourse and met the criteria for a sale. What is the loss on sale reported by Factor Co.?

A company adopted Dollar-Value LIFO on Jan 1, Year 1, when the inventory value was $200,000 (Base Year Cost). On Dec 31, Year 1, the ending inventory at current year cost is $231,000. The relevant price index is 1.05. What is the Dollar-Value LIFO inventory balance at Dec 31, Year 1?

Under US GAAP, which inventory method requires the use of 'Lower of Cost or Market' (where Market has a ceiling and floor), rather than 'Lower of Cost or Net Realizable Value'?

Construction of a qualifying asset began on Jan 1. Weighted Average Accumulated Expenditures (WAAE) were $1,000,000. The company had a specific construction loan of $600,000 at 8% and general debt of $2,000,000 at 5%. What amount of interest should be capitalized?

Company A exchanges a truck (Book Value $20,000, Fair Value $25,000) for a machine from Company B (Fair Value $22,000) and receives $3,000 cash. The exchange lacks commercial substance. What gain should Company A recognize?

Tech Co. incurred the following costs for developing software for internal use:<br/>- Preliminary project stage: $50,000<br/>- Application development stage (coding/testing): $200,000<br/>- Training employees: $30,000<br/>- Data conversion costs: $20,000<br/><br/>What amount should be capitalized?

Investor Inc. purchased 30% of Investee Co. for $600,000 on Jan 1. The book value of Investee's net assets was $1,500,000. The difference was attributed to equipment with a 5-year remaining life. Investee reported Net Income of $200,000 and paid dividends of $50,000. What is the carrying value of the investment at Dec 31?

A company holds a debt security classified as Available-for-Sale (AFS). Cost = $100,000. Fair Value at Year 1 end = $90,000. The decline is not due to credit factors (no credit loss). In Year 2, the Fair Value rises to $95,000. What is the accounting impact in Year 2?

On Jan 1, Year 1, a company issued $1,000,000, 5% bonds due in 5 years. The bonds were sold to yield 6%. Interest is paid annually on Dec 31. The PV of the bonds is $957,876. What is the carrying value of the bonds at Dec 31, Year 1?

A lessee enters a 5-year lease with annual payments of $20,000 due at the BEGINNING of each year. The rate is 5%. PV of Annuity Due (5 yrs, 5%) = 4.55. PV of Ordinary Annuity (5 yrs, 5%) = 4.33. What is the initial Lease Liability balance on Day 1 (after the first payment is made)?

Lessor Co. enters a sales-type lease. The equipment cost $60,000 and the fair value is $75,000. The present value of the lease payments is $75,000. What is the immediate effect on the Lessor's income statement?

A construction company enters a contract with a bonus clause. If completed by Dec 31, they get a $100,000 bonus. Based on history, they estimate a 60% chance of finishing on time (getting $100k) and 40% chance of being late ($0). Under ASC 606, what amount of variable consideration should be included in the transaction price?

On Jan 1, Year 1, a company sold a subscription for $120 covering 12 months. On March 31, the customer upgraded, adding features for the remaining 9 months for an extra $45 (total). The new features are NOT distinct from the original service. How is this modification accounted for?

In Year 1, a company has a $100,000 temporary difference (Liability > Tax Basis) that will reverse in Year 3. The enacted tax rates are: Year 1 (21%), Year 2 (25%), Year 3 (28%). What is the Deferred Tax Liability at Dec 31, Year 1?

A company has a Deferred Tax Asset (DTA) of $100,000 arising from NOL carryforwards. Management determines it is 'more likely than not' that only 60% of the DTA will be realized. What is the journal entry to record the Valuation Allowance?