questions

Accounting 402 Questions

Accounting Rule-Making:

What was the function of the Committee on Accounting Procedure?

What are Accounting Research Bulletins?

What led to the demise of the Committee on Accounting Procedure?

What rule-making body replaced the Committee on Accounting Procedure?

What are Accounting Research Studies? How do they differ from Accounting Research Bulletins?
What are Opinions of the Accounting Principles Board?
Over what time period did the Accounting Principles Board exist?
What happened to the Accounting Principles Board?

Why was the Wheat Committee established?
Why was the Trueblood Committee established?
Explain the current rule-making structure in accounting.
What is the composition of the FASB membership?

Explain the nature of a Discussion Memorandum and an Exposure Draft.
Explain the nature of Statements of Financial Accounting Concepts.
What are FASB Interpretations and FASB Technical Bulletins?

What is the Emerging Issues Task Force? What function does it fulfill?
What are consensus statements?

Historical Development of Accounting:

How early can record-keeping be traced?
What is the first evidence of Double-entry bookkeeping?
What was the impact of the religious crusades on the development of accounting?
The partnership form of business had what influences on accounting?
What was Pacioli's contribution to accounting development?
What are Littleton's antecedents of double entry bookkeeping?
What were the characteristics of accounting at the close of the fifteenth century?
What effect did Adam Smith have on the development of accounting?
What was the Industrial Revolution and what impact did it have on accounting?
What is the "balance sheet theory of profit?"
What influence did the development of the corporation have on accounting?
What influence did the adoption of an income tax law have on accounting?
What influence did governmental regulation have on the development of accounting?

Theory vs. Practice

Evaluate the statement, "it works in theory, but not in practice."
How was theory defined in "A Statement of Basic Accounting Theory (ASOBAT)?"
How did A. C. Littleton define and differentiate theory and practice?

Attempts at A Conceptual Framework

Identify the attempts at developing a conceptual framework of accounting.
What was the fate of each of these attempts?
Discuss the evolution of the FASB's conceptual framework project. Why is it important to have a conceptual framework?

Components of a Conceptual Framework

What are postulates?
Discuss the characteristics of postulates.
Discuss the basic accounting postulates of going concern, separate business entity, periodicity, and the monetary unit.

How do basic postulates and broad principles differ?
What is the revenue recognition principle?
What is the expense recognition principle?
Why is the historical cost principle used in accounting?
Why is consistency important to the accounting process?
What is meant by "objectivity" in accounting?
What is the role of materiality in accounting?
What is meant by conservatism?

Role of Government in Setting Accounting Standards

Securities and Exchange Commission

What are ASR's, FRR's and AAER's?
Does the SEC have legal authority to prescribe accounting principles? If so, have they? If the SEC hasn't, why not?
Who established the Securities and Exchange Commission?
What is the role of the Office of the Chief Accountant?
What is Regulation S-X?

What was the Moss committee?
What was the Metcalf committee's major recommendations?
What impact did the Metcalf committee have on the regulation of the accounting profession?
What was the main concern of the Dingle committee?
Why did Congress pass the Sarbanes-Oxley bill?
What is the Public Company Oversight Board (PCOB)?
What actions have been taken to date to impliment the PCOB?

Generally Accepted Accounting Principles

What are "generally accepted accounting principles?"
Do APB Opinions, Accounting Research Bulletins, and Statements of Financial Accounting Standards constitute substantial authoritative support?
Do departures from APB Opinions, ARBs, and FASB Standards have to be disclosed? Why or Why not?
What does the phrase "substantial authoritative support" mean?
Explain the "House of GAAP"

Income--General Concepts

What are the objectives of income reporting?
Discuss the capital maintenance approaches to income. What do these approaches have in common?
What is (are) the shortcoming(s) of the capital maintenance approaches?
What is the "transactions" approach to income?
What are external transactions?
What are internal transactions?
What is income to investors and how does it differ from income to shareholders?

Reporting the results of operations

ARB 43--Chapter 8

Describe the all-inclusive concept of income.
What arguments can be made for the all-inclusive concept of income?
Describe the current operating performance concept of income.
What arguments can be made for the current operating performance concept of income?
How can income equalization be accomplished using the current operating performance concept of income?
In ARB 43, Chapter 8, which income concept was advocated by the Committee on Accounting Procedure?
How were extraordinary items defined in ARB 43, Chapter 8?
Where were these extraordinary items to be reported in the financial statements?

APB Opinion No. 9

In APB Opinion No. 9, the Accounting Principles Board moved closer to which income concept?
Which item(s) of profit or loss could properly be excluded from income determination under Opinion No. 9?
How were extraordinary items to be reported in the financial statements under Opinion No. 9? Why was this reporting format considered appropriate?
How were extraordinary items defined under Opinion No. 9?
Cite some examples of extraordinary items under Opinion No. 9.
Certain types of gains and losses were not to be considered extraordinary. Identify one category and explain why it should not be considered an extraordinary item.

APB No. 30--Extraordinary items

What criteria must be met in order for a gain or loss to be considered extraordinary? Explain each criteria in detail.
What role does the environment play in the determination of extraordinary items?
What factors are included in the environment?
In absence of evidence, a gain or loss should be considered ordinary or extraordinary?
In APB Opinion No. 30, the Accounting Principles Board moved closer to which income concept?
How should a material event or transaction that fails to meet one or the other of the criteria for an extraordinary item, but not both, reported in the financial statements? Explain in detail.

FAS No. 144--Section Dealing with Disposals of a Business Component

Why should the results of continuing operations be reported separately from the discontinued operations?
What caption(s) would be found under "Discontinued Operations?"
What item(s) would be found in under the "Discontinued Operations?"
If an adjustment occurs in a current period of a loss on discontinued operations reported in a prior period, how should the adjustment be reported in the current period?
If discontinued segment assets are sold for more or less than the anticipated NRV in a year subsequent to the year in which the initial loss is recorded, how will this fact affect the financial reporting in the year of disposal? (similar to the above question)
In general, if gains are expected on the disposal of a business segment, when should they be recognized?
If a segment has been discontinued in 19X6, what impact does this fact have on the 19X5 financial statements presented with the 19X6 statements for comparative purposes?

Prior Period Adjustments

According to APB Opinion No. 9, what were prior period adjustments? What criteria had to be met in order for an item to be classified as a prior period adjustment?
Were prior period adjustments expected to numerous?
What were some examples of prior period adjustments under Opinion No. 9?
If a prior period adjustment were recognized in a period, how was it to be reported in the financial statements?
Why was FAS Statement No. 16 issued? How did it modify APB Opinion No. 9?
There are only two items that are to be treated as prior period adjustments under Statement 16. What are they?

Change in Accounting Principle

Define a change in accounting principle.
How are most changes in accounting principle accounted for and reported?
What is the "Cumulative effect of a change in accounting principle?"
How is the cumulative effect reported in the financial statements?
What argument(s) can be made for retroactively reporting changes in accounting principles?
Why did the APB rule out the retroactive restatement approach for most changes in accounting principles?
Explain in detail how a change in accounting principle would be reported in the financial statements.
If a change in principle occurs in year 3, what method of accounting (old or new) should be used in preparing year 3 financial statements?
What are "pro-forma presentations?" Where are they reported?
What disclosures are necessary when a change in accounting principle occurs?
What changes in accounting principles should be reported retroactively?

Change in Accounting estimate

What necessitates a change in accounting estimate? Why do changes in accounting estimates occur?
How is a change in accounting estimate reported?
How does a change in accounting estimate differ from an error correction?
Should prior periods' financial statements be restated for a change in accounting estimate?
Should pro-forma presentations be made for a change in accounting estimate?

Change in the Reporting Entity

Describe a change in the reporting entity.
How should a change in the reporting entity be reported?

Corrections of Errors

Are error corrections considered to be accounting changes?
How are errors defined?
How are corrections of errors in financial statements of past periods reported in the current period?
How would a change from an unaccepted accounting principle to an accepted accounting principle be reported in the financial statements?
Once errors in previous years' financial statements are discovered, should the errors be corrected before being issued again? Discuss.

Earnings per share

What is earnings per share?
What is the general formula for computing earnings per share?
What is basic earnings per share?
What is diluted earnings per share? What is the objective of reporting earnings per share?
What is a simple capital structure?
What is a complex capital structure?
Where is earnings per share reported in the financial statements?
If a company has convertible bonds outstanding, how do the bonds affect the computation of basic earnings per share? Of diluted earnings per share?
If a company has convertible preferred stock outstanding, how does the preferred stock affect the computation of basic earnings per share? Of diluted earnings per share?
Explain the treasury stock method.
Explain the dilutive and anti-dilutive affect on earnings per share.

Comprehensive Income

Why did the FASB believe that presenting a comprehensive income number was necessary? What is the purpose of presenting comprehensive income?
What is comprehensive income?
What are the two components of comprehensive income?
Discuss the alternate formats for reporting comprehensive income.
On what financial statement would accumulated other comprehensive income be found? Explain.

Financial Reporting and Changing Prices

What are the two methods of attempting to cope with the problems created by changing price levels?
Define monetary assets. Give an example of a monetary asset.
Define nonmonetary assets. Give an example of a nonmonetary asset.
Define monetary liabilities. Most liabilities are monetary. Why? Give an example of a nonmonetary liability and explain why it is not monetary.
Are current assets and monetary assets the same?
If an entity holds monetary assets during a period of increasing prices, what occurs? Why?
If an entity holds a monetary liability during a period of increasing prices, what occurs? Why?
What are purchasing power gains and losses? Under what conditions do they occur and how are they to be reported?

Balance Sheet--General Concepts

What information does the balance sheet contain?
Is the balance sheet for a period of time or a point in time?
By what other titles is the balance sheet known?
What is the purpose of preparing a classified balance sheet?
What is the difference between the account format and the report format of the balance sheet?
What are the typical asset classifications in the balance sheet?
What two classifications of liabilities appear on the balance sheet?
Explain the various types of owners' equity accounts found in the balance sheet.
Explain the nature and purpose of appropriated retained earnings.

Assets

Discuss the concept of an asset. What characteristics are necessary for an item to be an asset?
"Assets are future periods' expenses." Do you agree or disagree with this statement? Why?

Current Assets and Current Liabilities

Discuss the nature of current assets.
The normal operating cycle is an integral part of the definition of current assets. Explain the current operating cycle.
Discuss the nature of current liabilities.
What is net working capital?
What is the purpose of the current ratio? The acid-test (quick) ratio?

Classification of Short Term Obligations Expected to be Refinanced

What are Short term obligations?
What are Long-term obligations?
What does refinancing a short term obligation on a long term basis mean?
What types of short term obligations are to be classified as current liabilities?
Under what conditions should a short-term obligation other than one classified as a current liability be excluded from current liabilities?
What does "intent to refinance" mean?
How can the ability to consummate the refinancing of a short term obligation be demonstrated?
If a financing agreement is involved, what conditions must be present?
If a short-term obligation is repaid after the balance sheet date with a current asset and subsequently a long-term obligation or equity security is issued whose proceeds are used to replace current assets before the balance sheet is issued, how should the short term obligation be classified in the balance sheet?
Explain the rationale for the answer in the previous question.

Trade Receivables

What is the valuation basis for accounts receivable on the balance sheet? Explain.
Explain the direct write off method of accounting for bad debts. Is this method an acceptable accounting procedure?
What is the allowance method of accounting for bad debts?
Explain the allowance method based on sales. What is it that is being estimated under this approach?
Discuss the allowance method based on an analysis of accounts receivable?
Why would there likely be a balance in the allowance for doubtful accounts prior to the current year's adjustment?
Why would it be important to classify receivables as to source?

Interest on Receivables and Payables

Why was APB Opinion No. 21 issued?
What types of notes are covered by this opinion?
How is total interest defined in a note?
When the face amount of a note and the proceeds from the note differ, what is the difference called?
How is the difference between the face of the note and the proceeds accounted for?
When a note is exchanged for cash plus some stated or unstated right or obligation, how should the note be accounted for?
If a note is exchanged for property, goods or services, and the note contains an unrealistic interest rate, how should the note be accounted for?

Inventories

What does the term "inventory" mean?
A manufacturing firm would have what type(s) of inventory(ies)?
A merchandising firm would have what type(s) of invetory(ies)?
What is the objective of accounting for inventories?
What is the primary basis of accounting for inventories?
Explain the various cost flow assumptions for inventory.
What should be the primary concern in selecting a cost flow assumption for inventories?
When is a departure from the cost basis required in accounting for inventories?
Explain the lower of cost or market approach to valuing inventory?
What does the term "market" mean?
What are the limits on the "market" number? What is the ceiling? what is the floor? How are they calculated? Why are a floor and ceiling limit imposed?
Lower of cost or market may be applied either directly to each item, to major categories, or to the total of the inventory. Which approach provides the most conservative valuation of the inventory and why?
When can inventories properly be stated above cost? What impact does valuing inventories above cost have on the financial statements?
If a company has a firm purchase commitment, and the value of the items subject to that commitment have materially decreased at the end of the year, how should the resulting loss on the firm purchase commitment be accounted for?

The Equity Method of Accounting for Investments in Common Stock

Explain the "Cost Method" of accounting for investments in common stock.
Explain the "Equity Method" of accounting for investments in common stock.
What is an "investee?"
What is an "investor?"
Under the equity method, earning of income by the investee has what effect on the investor?
Under the cost method, earning of income by the investee has what effect on the investor?
What is the basis for recognizing income from an investor under the cost method?
What are liquidating dividends?
What effect do liquidating dividends have on an investment accounted for under the cost method?
What is significant influence? How can significant influence be demonstrated? What role does it play in selecting a method to be used for accounting for an investment in common stock?
For an investor that can exercise significant influence over an investee, how can the use of the cost method be utilized to smooth or manipulate the investor's income?

FAS No. 115: Accounting for Certain Investments in Debt and Equity Securities

What is a "held-to-maturity" security?
How are held-to-maturity securities reported in the financial statements?
What is a "trading" security?
How are trading securities reported in the financial statements?
How are unrealized gains and losses on trading securities reported in the financial statements?
What are "available-for-sale" securities?
How are available-for-sale securities reported in the financial statements?
How are the unrealized gains and losses on available for sale securities reported in the financial statements?
How are transfers between categories accounted for?
What is the appropriate classification of held-to-maturity, available-for-sale and trading securities on the balance sheet?
Discuss how a permanent impairment of a security below its amortized cost will be accounted for.

Plant Assets

What are the characteristics of plant assets?
How is the cost of a plant asset determined?
If the cost of a plant asset exceeds its fair value, then at what amount should the asset be recorded? Why?
If the value of a plant asset exceeds its cost, should the asset be recorded at more than its cost?
What are land improvements?
How is depreciation defined for accounting purposes?
Is depreciation a process of valuation?
Identify and discuss the various depreciation methods.

Accounting for Non-monetary transactions

What is a non-monetary transaction?
What is a non-reciprical transfer?
What is an exchange?
What is the basic principle to be followed in a non-monetary transaction?
What is the cost of a non-monetary asset acquired in an exchange?
Under what circumstances should the basic principle be modified?
If an exchange does not result in the culmination of an earnings process, the accounting for the exchange of a nonmonetary asset between an enterprise and another entity should be based on what amount?
If an amount of monetary consideration is involved in an exchange of similar productive assets, should there be any gain recognized and if so, by whom?
How is the amount of gain to be recognized, if any, determined?
If a loss occurs on an exchange of similar productive assets involving an amount of monetary consideration, would the loss be recognized and if so by whom?
How much of the loss should be recognized?

Capitalization of Interest Cost

Discuss the diversity in practice concerning the capitalization of interest costs prior to the Issuance of FAS No. 34.
Should the historical cost of acquiring an asset include any interest cost? If so, why?
What are the objectives of capitalizing interest costs?
What assets qualify for capitalization of interest cost?
Should interest cost be capitalized for routinely manufactured inventories? Why or why not?
What types of assets should interest not be capitalized for?
If land is undergoing activities necessary to get it ready for its intended use, should interest cost be capitalized?
In general, what amount of interest cost should be capitalized for qualifying assets?
How is the amount of interest to be capitalized in an accounting period determined?
Discuss the determination of the capitalization rate(s).
What is the limit on the amount of interest to be capitalized during an accounting period?
What is the meaning of the term "expenditures?"
When does the capitalization period begin?
How long does the interest capitalization continue?
When should the capitalization period end?

Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of

When should a company review its assets for possible impairment?
If there is an indication that the carrying amount of an asset may not be recoverable, what should be done?
What condition requires the recognition of an impairment loss?
What is fair value and what role does it play in determining whether or not an impairment loss has occurred?
If an asset held for use is written down due to the recognition of an impairment loss, and the asset's fair value later recovers, can some or all of the impairment loss be restored?
How should impairment losses be classified and reported?
If an asset held for sale is written down due to the recognition of an impairment loss, and the asset's fair value later recovers, can some or all of the impairment loss be restored?

Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of--FAS No. 144

Assets Held for use:

What is impairment and when should a company test for it?
How is recoverability determined?
How much of a previously recognized impairment loss may be restored?
How should an impairment loss be reported/disclosed?
How does an impairment loss affect future depreciation of an asset?

Assets Held for Sale:

What criteria must be met in order to classify a long-lived asset as held for sale?
How should a long-lived asset held for sale be measured?
What is included in "cost to sell?"
How do expected future losses from operations of an asset held for sale impact the valuation of that asset?
How much of a previously recognized impairment loss on assets held for sale may be restored?
How should impairment gains and losses recognized for held for sale asset be reported?
Where should the results of operations of a component of anentity classified as held for sale be reported?

Intangible Assets (ARB 43, Chapter 5, APB Opinion No. 17 and FAS No. 142)

What is the value of an intangible asset?
What two types of intangible assets were identified in ARB No. 43, Chapter 5?
According to ARB 43, Chapter 5, how were these two types of intangible assets accounted for?
How did APB Opinion No. 17 change the identification and accounting for intangible assets?
According to APB No. 17, over what period of time was it appropriate to amortize intangible assets?
What was (were) appropriate method(s) to be used in amortizing intangible assets?
How does FAS No. 142 change the identification and accounting for intangible assets, particularly goodwill?
What is meant by impairment of goodwill?
What is the relationship between accounting for intangible assets and accounting for business combinations?

Accounting for Research and Development Costs : FASB Statement No. 2

What are the objectives of FASB Statement No. 2?
How are "research" and "development" defined in Statement No. 2?
How are research and development costs to be accounted for under Statement No. 2?
Are the costs of materials and equipment or facilities that are acquired or constructed for research and development activities and that have alternative future uses considered to be R&D costs? Explain.
Are the costs of materials and equipment or facilities that are acquired or constructed for a particular research and development project and have no alternative future uses considered R&D costs? Explain.
What disclosures are necessary under Statement No. 2?

Accounting For Leases: FAS No. 13

How is a lease defined?
What accounting problem is created with leased assets?
Who are the parties to a leasing agreement?
What is an operating lease?

What are the criteria for a capital lease from the standpoint of the lessee?
Why are these criteria used?
Explain how a lessee should account for a capital lease and an operating lease.

How does the criteria for a capital lease from the standpoint of the lessor differ from the lessee?
Explain how the lessor computes the amount of lease payments to be charged to the lessee.
What is a direct-financing lease?
What is a sales-type lease?
Explain the accounting for both a sales-type lease and a direct financing lease.

What is a guaranteed residual value? How does a guaranteed residual value affect the accounting for a lease by the lessee? By the lessor?
Compare the accounting for a lease with a guaranteed residual value and for a lease with an Unguaranteed residual value.

What are initial direct costs?
What impact do initial direct costs have on a sales-type lease?
What impact do initial direct costs have on a direct-financing lease?

Explain how a lease for both land and a building should be accounted for.
What is a sale and lease-back?
How are gains and losses on sale and leasebacks accounted for?
What are executory costs?
Are executory costs capitalized as part of the lease transaction? Explain.

Accounting for Income Taxes--FAS Statement No. 109

What is intra-period tax allocation?

What is inter-period tax allocation?

Why are there differences between pre-tax accounting income and taxable income?

What are permanent differences?

What are temporary differences?

What type of differences give rise to income tax allocation?

What is the deferred method, or viewpoint, concerning tax allocation?

What is the asset/liability method, or viewpoint, concerning tax allocation?

What is the net-of-tax method, or viewpoint, concerning tax allocation?

Compare the comprhensive and the partial allocation viewpoints concerning tax allocation.

What are the objectives of inter-period tax allocation?

When should a deferred tax asset be reduced by a valuation allowance?

Should deferred tax liabilities be discounted to present value?

What are the rules for balance sheet presentation of deferred income taxes?

Accounting for Employer Pension Costs

What is a pension plan?

Wht type(s) of pension plan(s) are covered under FAS No. 87?

Differentiate between the accumulated benefit obligation and the projected benefit obligation.

What are the components of periodic pension expense?

Define the service cost compent of periodic pension expense.

Define prior service cost. How is prior service cost included in pension expense?

How are gains and losses on related to the pension plan recognized?

What components are pension expense could be negative; that is, reduce pension expense for the period?

When accounting for pension expense, how should any difference between net periodic pension expense and the payment into the pension fund be reported?

When is it necessary to report an additional minimum liability?

When an additional minimum liability is recorded, what accounts are involved in the entry?

Under construction!!!