Beeker Beeker Profess Professiona iona Educati Education on
'Questio,n
CPA--00018
"The C o m p a n y contributed , $ 2 S 0 ~ O O O cash to ms C om om p 1 40 4 0 ,0 ,0 0 0 health humanhuman-ser servic vic orqanl orqanlzat zatlon lons, s, o f w l hi hi ch ch $ 8 0 ~ "O " O O O was contrib contribute ute by employees through a dd dd i n , o n e n w i h e Comp Compan any' y' comm commitm itmen en envi enviro ronm nmen ent, t, th C o 1 00 00 , 0 0 rede redesi sign gn prod produc uc pack packaq aqmq mq." ." W h a t amount expense?
should
incl includ uded ed in Yew's lncorn lncorn statem statement ent
he
charita charitable ble contrib contributi utions ons
10 00 $ 3 90,000 b. c.$410,000 d. $ 4 9 0 , 0 0 0 Explanat cn
Choice "a" c o e c T h i n c u de de s
Cha ab
c on on t b u o n
Choice "b" Choice
°C'1'
Choice "d" Re
n co co l e c n co co r e c
Th
company g la la v
recognlzed charities.
$310,000 g la la v e $ 8 0 ~ O O O ,a ,a n d thle,company $ ' 6 0 ~ O O O . Reda Redasi siqn qnln ln
c om om pa pa n
g la la v e o n l
R ,s ,s de de 's 's ig ig ln ln l n ' p ac a c ka ka q n q
n co co l e 'c 'c t T h
mo
,$250,000 6,-,--- 00
educ educat atio io prog progra rams ms Health ( $ 1 4 0 ~ " O O O. O. . $ 8 0 , 0 0 0 ) Total Nlote: Of h e $ 1 4 0 ~" ~ " OO O O O ~mployees co rity rity but
include
c om om pa pa n
g la la v e o n l
$ 6 0 ,0 ,0 0 0 o f h e $ 14 1 4 0~ 0 ~ "O "O OO O O .E mp m p lo lo ye ye e no
c on on t b u o n
pack packag agin in
g la la v $ 80 8 0 ,0 ,0 0 0 .
c ha ha r y .
$ 6 0 ,0 ,0 0 0 o f h e $ 14 1 4 0~ 0 ~ "O "O OO O OEmployees . ,gave,$80~"OOO",
Beeker Beeker Profess Professiona iona Educati Education on
S co co t C o rp rp o a t o n o l report the a n on
he Ne Ne Ne
b. d, . .... .
ed for glr,eate' glr,eate'lr lrthan t han statement the: he ~n om using
Scott
sihowliln'gthe ro eeds amount ount as eeds as ar carrying am c on on t n u n q o pe pe ra ra t o n s e o n h ow ow i al mo ao ar a im im " me es wi ta l g a~ a~ n a s p ar ar t o f d is is ccoo n n ue u e d operations, mc me the o ta h ow ow i al ~ na na s op at ne me
- 11- -· -· =· =· 1· 1· ·· ·· ·
en
es
.'
hoic hoic "d is correct, T h a n a c o n e su su l e d g la la l n ,w ,w h h s ho ho u b e reported u s n g h e n e c on on ce ce p (l.e. y~ n a m ou ou n T h g a resulted h e e co co gn g n l o no no f a n a ss ss e n o h e ordinary ur proceeds e s c a r y~ business, extraordinary dlscontlnued operations. Choice "a"
(and losses)
Choice "b" is mcor mcorre rect ct Gain Gain extraordinary nary ltems included in extraordi lilnfre 'que 'que nt.
ne conc concep ept, t, fixed a ss ss e s a e s a r san
Ga hoic hoic "c lossesfrom included in dlscontlnusd operations Discontinued o pe only repo report rted ed Io th pe ra ra t o n a r only
r ep ep or or te te d u S n ' h e net me definitlon reported
disposal of
mp
ng he mp
ep
ar entity,
pe ra ra t o n o f r oz oz e o o Decemb December er .2:~" .2:~"ear Flint Flint Corp Corp.t .t directors discontinue o pe divi divisi sion on an to sell th dlvlsion's possible. T h ne at es nu On ua 6 "Y "Y e ~ " $2:0,000 in December $30,000 the et ~ n a in in , $'90 he en division's $'90,0 ,000 00 Assu Assumi ming ng dlvi dlvisi sion on qual qualif ifie ie mp us in in es es s a n ~ gn gn o ~ ng ng nl co co m a xe xe s w ha h a t a mo m o un un t o f g a n / o s o m discontinued the b us operatlons should F l n t r ec ec oq oq n iz iz e co m a te te me m e n o rY rY ea e a r .21 lts n co 8"
$0
$40~"OOO $60~"OOO d",$90~"OOO b.
c.
Bxplanation
hoic hoic "c is correct, n ,C ,C O lm l m e ta t a te te m en en t T h mo he Choice "a"
$,60,000 g a o pe p e ra ra t n g loss
ro
Decemberwould
n co co r e ' p e
h i , ab a b ov ov e
discon discontmu tmued ed operat operation ionswo swould uld reported in Flint's Year ar wo the glalillnrom disposal ln Februa February, ry, and th this a s discon discontin tinued ued operat operation ions, s, be n co co m e s ta ta te te m e n reported in Flint's Year
w ou ou l
be co ec om
all
mc
w 'S 'S '
included ln Year
OCCUIr,.
Choice "b" lilsincorrect.
It includes the p e
December, Year
ea r wlth h e Y ea
amounts.
g ln ln o r e s t h J an an u ar ar y o p er er at at in in g lo s, Op rati ln ga ga in in llll os os s f ro ro m hoic hoic "d lils incorrect, rating ng loss losses es re included i ln discontinued o pe pe ra ra t o ns ns , a lo lo n w ~ m pa p a l n en en t o s e s and , ga ga in in s / l os os s e o n d is is p os os a l
cost imme years to expensinq th cost immedi diat atel ely, y, OffOff-Li Line ne made made thle'change in reco recogn gnit itio io of an to id lncrea lncreasin sin number number of demos demos placed placedwit wit resu result lt in sale sales, s, Off.. Off..Line L ine had defe deferr rred ed demo demo st
Decemb mber er $500!"OOO at Dece 3. umulat ativ iv shou should ld OffOff-Li Line ne repo report rtas as umul
$300,000
effe effect ct
hang hang
ts in acco accoun unti ti
flna flnanc ncla la stat statem emen ents ts
principle?
what what amou amount nt
$0
c. $350,000 ,d",$500,OOO Bxplanation
Choice "a" i! inse insepa para ra le from from ff ct
ch nq
liln lilnes esti ti at
Wh ,n
ch ng
in ccou ccount ntin in
dj stme stment nt is made made
hoic hoices es b" "e", "e", nd "d ar liln liln olrr olrre' e' si ce
umulat umulatlv lv
ff ct
ri ci le is onsi onsi er
inse insepa para ra le cumulativ tiv prospectively, No cumula
dj stme stment nt is made made
is
Beeker Beeker Profess Professiona iona Educati Education on
acco accoun unfi fing ng esti estima mate te be repo report rted ed
b. d.
inco income me fro co.ntiilnuh11'gperations. IB,yrast a te te me me n o f a l prio rastat atln ln th fina financ ncia ia prio perio periods ds pres presen ente ted, d, correction error, sa of footno note te disc disclo losu sure re only only IB,yfoot
Explanation
Choice "a" is corr correc ect, t, W h effect change in acco accoun untin tin prin princi cipl pl lilSinseparable change i n a c co overall co u nt nt in in g estlrnate, th reporting e a m en en t o r he report reported ed prospe prospecti ctivel vel ompo ompo en mcom mcom frorn contln contlnuln uln operat operation ions. s.
of esti estima mate te .. Thus,
·ilncol ·ilncolrrect rrect IR,estatement IR,estatement of ll prio prio peri period od is the retroa retroacti ctive ve accounting treatment that is appl applie ie corr correc ecti tion on of rror rror an th retr retr spec specti ti ccou ccount ntln ln tr atme atment nt g ~ ve ve n t o chanqes in aceountlnq principle. H ow accoun unti ting ng prin princi cipl pl of chanqe in ow e g e ln acco at pa bl ef ma accounflnq lnaccountlng estimate. n co c o rr rr ec ec t Correction Choice " c te me m e n o f p r o r p e o ds ds . retained earnlnqs with e s a te h an an g a cc cc ou ou n n g p r n c p l h a n se se pa pa r 11,6' Ii
Ch disclosure a lo lo n
ec Wh ur n ev e v e h e a pp pp rc rc p a te te ac ac ccoo un un t n q
6,n
Th
me pe adjustment to n o h e e a m en e n t a pp pp ro ro p a t for ,e of ha un ma
wa pr treatment,
at
for
ac
ha
e,
l il i w h i c h t h e plan wa located, portion 'of th resultant Koff's me fo 11996· was 40°1'b. year-e in om extraordinar loss unde UI..S",GAAP'?
d.
covere by insuranc w a $ '7 0 0 ,0 0 0 " stat ment.w at amount should Koff report
$700,000
Bxplanat io hoic "c is orrect th loss must b e b o t h e se , c r it e ri a lo t ot al l $ 7 0 0 ~ , 0 0 0 loss), Choice "a" s in co r e c hoic
"b lils
hoic
"d lilsincorrect.
reported extraordinary loss unusual n a u r a n n f e qu en t in occurrence reported e t mc ax an R ,e v~ e h e c r e r
o r e po r n g a n e x a o
U .S " G AA P , Th earthquake lilnthis ca o rd in a loss 0 ,0 0
inary o s
loss, IR,ev~ewyour calculations. appropriate
extraordinary loss
d a ll e s I m e e t 0 '% , o
Beeker Professiona Education
Du Ye ,Do mp 15 we 0 0 ,0 0 0 Ye m c o m a taxes, what m o m c om e s ta te m e nt s
0 0 0 00 .
0" 00
mp
15 Ye
4..
'Year3
$250,000
S".
0 0 0 00 ) 50 000
$850,000 $900,000
Explanation
Choice c "
me
reported ~nthe Year c or re c operatinq losseswould os es an h l S 'a i o n in would ,e reported in th period liltoccurred .. mo
Choice "a" mo ho
n co r e c
e po r or ed ~n
Choice "b" mo ho
n co r e c
e po r
Choice should
or ed
me
me me
h e o ta l projected gains and losses ln Year er ur
noU ng
Y e a 3. E.ach
h e o ta l projected er ur
no
Ye
projected o s it occurred,
Ye
Ye
Ea
E ac h a mo un t
loss,
for ,3
ly, contlnulnq operations continuinq operations
dlscontlnued
the
operations
Bxplanation
Choice "d" is correct,
same' year,
operatlonsalso. Cholce "a" Choice "b"
Choice
°C'T
operations, the declsion date
Beeker Professiona Education
transa ti to ur hase lilt U.S,,,, GAAP', Gold should report the: 8"
b.
d'
IN teffect teffe
exceeded
the salle of the Iron bonds" Assume the
in
th ,two tr nsacti ns ti
ln
an xtraor inar
gain
ly
te
transactionas an extraordinary loss, income before extraordinar
liltemls
B x p l a n a t. Io n
,(2 is
in
ld in
GAAP'.,
ti
Choices "a" and "b" in
it
is
fo
in l) in
U.,S",
tw "wl
rc
investment is
in
1I08 iln"incom
before .S 'G AP
i:
im
te
tw
il fr tymile fr
th
iv
Co,
lo
fo
~OSSI6'S
IU. .. GAAP?
8"
from contlnum
operations
from contlnuinq operations
from contlnulnq operations from contlnum
operations in te
Bxplanat ion
hoic
"a ls corr ct ~c .as
th or in ry an ty ic
fl acti itie
continuing operations becaus
in
'Cane
ever before (i this,la
of th company, IIIFRSprohibit
hoices b" "e", nd "d ar liln olrre, t, er rule
th reportin bove
of gains/losses as extraordinary.
Beeker Professiona Education
Lore 'CO. ,e r.
theaccrual basis of accountin
ti
dlurin the current
ln
Explanation
ic ri
ti
AA it an dj stment to retained earnlnqs
ln
in
li
ll
Choice "b" ls ii!ncolrrect Ca basi re ortinq is no an cc ntin principl un er ccru ip th from ls ln ange in acco ntln prin iple ar no rior ri dj stme ts in te d, they ar tr at statement,
re
rt
is ri
accountm in lnaddition, retrospe tively ur
following should bs included lilngl,en,eralland
Wh
b. c. d.
administrative expenses?
Yes
Yes Yes
Nl es Nl
Nlo Nlo
Expl.anat ion ic Advertlsln
is classlfled
te
is classlfled se,llilingi e x p e n s e .
pa at
n e it
th
income statement,
Beeker Professiona Education
Uln,der u.s. A A P , s: operationswhen
me
a " A n e x a o d in a item. 1 0 " , c um u a t v e e f e c type change in,accounting principle, natureand linfr 6 ·q u en t occurrence. d. INot unusual infrequent lilnoccurrence. Explanation
presented
component
losses that ar unusua in nature or occu infrequently
mcome f ro m c o nt in u in g operations,
Choice "a" lilsin orrect Un U",S.GAAP, extraordinary item h e n co m s ta te me n after m co m o m c on t n u n g operations.
re hown
hoic "b i s i nc o rr ec t Cumulative e f c t h an p a c o u n g principle d ju s m en t h e , r et a n e d the openlilng balance o f r e a in e d earninqs ln called retrospective appllc tl n, Ther re ll accounting prlnclple, T h mu er ly ow hoic
"c
Th
tax in
te
extraordinary ~ te m u n de r U.S. G I A A P .
separate sectio
is measured,
e a m en t
Beeker Professiona Education
'Questinn
CPA....0055
O n O c o be r 0X Ho Co expected h a h e al wo ld cc tual nd estimate perafl lo se 1/11X4 to 9/30/X4 10/1lX4 to 112131/X4 1/11X5 to 3 / 3 1 1 X 5
p la n t o d l S P O S '6 ' one' th company's operatinq seqrnents, Host an estimated eqment ad ~20XSat g a o f$ 35 0~ OO O . T h foll ws
${300,OOO) 1(200,000) 1(400,000)
In its 20X4 mcome statement, what taxes?
h ou l
discontinued operations before income
H os t
a " $ 20 0 ,0 .0 0 1b",$550,o.OO d.
$900,000
Bxplanation
Choice U C l " is correct, operations 0X disposal .. The, . 20 X 4 o ss e
2 0X 4 income statement H o s w o u include tn projecte .20X5 operafln losses are $ S O O , O O O total.
loss from discontinued the projected
Th proiecte 20X5 operafinq o s o f $ 4o .O ~0 0 0 ano the projected gaJn on isposa 2 0 X 5 n co m e statement,
Choice "a is incorrect, dlscontinued operations, er nq
Each, a mo u po on
Choice "b" is incorrect, os o m discontinued
n c u de s a l 'f on Ea
hoic
"d
n co r e c mo
ou ur
ep
mo nt
n c u de s a l of th
ou
projected
od date, w ou l
included i n l i t s
0X an b e n c u de d
h e period lt occurred,
be
pe
ould
occurred,
0X
os
~ r e 20 X 0X mu
During Orca Corp, decided to change from average method, Inventory balances unde each m e January
D ec em be r3 1
O rc a
n co m e a x a t
Orca should report th B",
$ '7 1 , 0 0 0 7 9 ,- 0 0 0
Y ea r
in lows:
io
he we gh ed
Weigh:te,d~a'Vera'g,e
F.lFO
1, Year
we
$77,000 83,-
3 0 °A , . cumulative
this accountlnq change a s a (n )
Adjustment to be,g~nn~nglI retaIiineo ,6 a r n I inqs, i income from contlnumq operations. m. income afte extraordinary itemls. p. .ana
on
Choice "a" lilscorrect, The c um u a t v e Ibe,g~nning retained earnlnqs, Choice "b" s in co r e c separate Choice " e n '
Th
changes
Choice "d i s i nc o rr e ct .
e f e c of change ln
cumulative
a c co u nt in g h an g
ta
mq component
ms unusual a n d l il nf r, eq u en t principle ..
a c o un tm q
presented net ~ncome,.
nature, E x a o d in a
principle affects retained earnings, n o
h e n co m
em
h av e
s ta te me n
On Oc 11 0X Wa mm ma .Ka assets 0X On Wa at he 00 estimated value component's carryin value. W a n d l a l s o estimated h a K a m w o u incu operatin losses 1 10 0 0 0 period 3,1, 6' October 1, 2 0 X 3 throuq December 0X 0 ,0 0 period January 1, 2 0X 4 o ug h e b u a 28, 2 0 X 4 " , Allesttmates proved materially correct, D'ilsre'9Iardlinglincome wh Wa report 1 I0 5 o m d l o n u s op aton c O m p a t 2 0X 3 a n 2 0X 4 income statements? 20X4
20X3
b.
17 00 $11.25,000
$50",000 $75",000 $1175,000
d. Bxplanation
Choica "b" 1 10 0 0 0 carryinq
recognized
Th mp me 0X
0X
year
mp
0 00 . S i mp
occurred.
hoic
"a mc API ,3 p e o d n wh ic h h e
o cc u
Choice "c i s i nc o rr e ct .
mp discontinued o pe ra t o n 1 10 5 C h o i c e "d" is incorrect,
ma "additional"
mp mc projected
It
projected se mp
h e period
includes th mp mp
AS
me
14 pe aton
0X
ar mp
2 0X 3, o pe ra f n q
Io
1 2S ,O OO ,
0X carrylnq year n , w h c h
Ol 0X
wo
no an
mp
o ss e
ms
of the me
0 ,0 0 0 .
00
0X
w o years, T h a t used to rule included lilnthe, pa ed
00 0X Th me mp e ~ h e disposed
w h c h h e c om po ne n the a s e t w a committed At already o cc u e d nth disposal, years,
'f
o pe ra t o n o f reported in t h i s , period in
a nd l h e m pa i m en t
Beeker Professiona Education
Uln.der u.s. G l A A P , ly
b.
c. d.
in
jn
in
Af mu accounting business. ha ge After cumulative effect of accountinq business .. ng Before cumulativ effect of accountin business .. After dlscontlnueo o pe ra t o n o f
me nd after discontinue
operation
discontinue
operations ofassqment
in
Explanation
n co m
occurrence") should reported separatel seqment business Th cumulativ
effect
w l h l Y memorizlnq
liln accounting p r n c p l
a f e r dlscontlnued o pe ra t o n
shown on th retained eamlng
the mnemonic "idea" isso lillmportant
of
statement,
es mat a", IB,y d.
ti ln
ln li
tu
In
io lili
in
be io
..
Bxpl.ana io
ic ri ds if th change affect ic change ic
in ln both .. lilt es no io
io in accounting principle. aI
in
tA
ff ct prio ts
ta
tm
fe
only th curran
eriods," no io im
is
nd subsequent (f ture ar in s.
retain
ir
errors," "chang ff
iv fi in ntlties, an io
falililed wa a dd l o nv a $ 3 0 ,0 0 0 c h a n g e a ig h 2", Both the $ 5 0 , 0 0 0 $30,000 prior period a d u s m en t ~ nY ea r 2? 8"
b. c. d.
$SO,OOO
l li n e t o
related n co m
a xe s
Illn, a t h e b eg in n n g o f Y ea r wa ma W lh la t a m u n should IFoy report
$0 $30!,,000 $50!,,000 $80!,,000
Bxplanat.Ion hoic
"c is correct, ,$.50,000",
Tlhe cumulative e f e c o ' c lh a ng e accountln principl is now retained earninqs statemen me the beglinn~ngl balance retained e ·a r nl il ng ls ,a s s um l in g t ha t t h cumulati ff ct an calculated '" An ma however, change in dspreclatlon method sinc change in depreclatio method i ls n o i on g e r consldered to be c ha ng e in accountin principia'.' in re ia io considered both chan in method change e s m a te . T he se , change should be accounted change in estimate handle prospectively. pr ciatio meth should change wi the retroactive o r r e tr o sp e c ti v alculatlon sh ul ma noadjustment shoulld be retained earnlnqs. Th or ct of he al ui perio adjustment. Choices " I ' a ' U ! " " b I T , andtd"
ar
a c u ew a a n n co r e c
pe
os h le 'a bo v
treated explanation.
wi Vane C'ooo.'s a l b a a nc e 'o n co m e s ta te m en t followinq:
alles Co sales Adminlstrative expenses sale of equipmen Salles cornmisslons lnterest revenu Flrei'ght long-ter Loss on earl retirement Uincolillectibile accounts expens Totals
ac
or
year
Cre'dit $,5J5~OOO
$,240~~000
70000 O~"OOO
50000 ~~
25~OOO
15000 ,~ debt (unusual '& infrequent item)
Other i'nformation Flilnished ,goods inventory: January December 31 Year '1 Vane'iis
income ta
V an e Y e pe r at i n s ?
th
1,
20",000 115,~000 $,420,000
$,400~000 $,360,000
ra',e iis 3 0 0 / 0 , " , income statement, w ha t a mo un t should Vane reportas income fr
multiple-ste
co ti ulnq
.. $11.2:6,000
b. c. d.
$11.2:9,500 $1140,000 $147,000
!explanation
Choice
UCI~
is correct, $ 1 4 0 , 0 0 0 .
N l e o f credit over debits ($.600~420), e m loss on eart retirement add extraordinar long-ter lncome from continuin operation ' 1 ' I N at O O / 0 ~ 3 0 o / 0 tax), incomeafte in om ta es from continum operation
$180~,,000
debt
20",000. 20 ~ ~00
$,140,000
early retlilre,mentof n g- te r Choice "a" is incorrect. ,$.20,000 d eb t h a w l l b e po r e d a f e r n co m o m c on t n u n q operations, ou be c o nt in u in g o p e ra ti on s . Choice "b" ul Choice mc
me mc nc me
om
nt $,10,000 nu op at
$25~000 a n n q operaflons,
h e $10.,,000 me
is
e x a o d in a me
me
em
'Que,stio.n CPA--00071
Per I U . S , , , , G A A P , wh l c h l o f h e f o o w in g statements is correc r eq a rd in q a c co u n n g changes financial statement t ha t a re , e f e c t h e st teme ts differen reportin entity ", Cumulative-effec adjustment should reported a s s e pa ra t it th in te in h e e a change. b. IN restatements adjustment ar required if the change mvolve consolidated methods accountlng f o s u b s ld la r ie s . restatements .o adjustments re required li th chan es involv h e c os t o r e qu ' methods accountlng fo investments. in ta ts o f prior period presented should restated, Expilanation
hoic "d lilscorrect, Flnancla statements o f a l p r o r period "change in entity" such as resulting from: 1" .2",
presente
should
restated when there ls
C lh la ng l n g co m pa n e s consolldated n an c a l s ta te me n Consolldated flnancla statements vs Prevlous lilndlilv~duallnanelal statements.
Choice "a" is incorrect. Cumulativ ..e ffect adjustment year change. hoic
"b is incorrect.
R e s a te m en t
ar
ar reported
required fo changes
en
h e retained earninqs st te en in th o f subsidiaries),
Pe A A P , changes ~ n vo l v ~ ng lh e c o s a n d eq uity method hoic "c accounting fOlr investments considered to be change lilnaccountinq principle. change from , e q u ~ t y m e t h o d requires restatement; however, change from th equity method method requir restatement ls accounte fo prospectively, N o e : F IR S d oe s n o discuss
repolrtliln'gentity,
Beeker Professiona Education
Uln.d,erU",S. G 1 A A P ! " tu transactio result
b.
c.
d.
te
GEJ'in
Loss
V,S,s
Yes
Yes lo lo
materi te
transactio
th
ls infreque fr
in occurrence bu ti io
unusua in th
lo lo Yes
Explanation
Choice "a" operatlons'twhan
th
~Y tu transactio
tr sactio th is "infrequen ln occurrence component continuing ~no lo s, whlilile tr nsacti th ar nusual infr qu nt
G1AAP,
results liln.
materi
mp
me B e f or e d is ,c o n ,t in u e , operations .of .se"gm'ent business
Ne't of income,tax,es
Ib",
c. d.
the
Yes. lo lo Yes
lo lo
Explanation
hoic "b lils Ye th in om tate en as IN
net ~aff,er
(not before)
N o U nd e U.. !" ompone of mcome:
it
s'6'glml,ent
ld
business ..
ly
thod
pr ciatio
ma ur~n,g
to fr
th straight-line m e h o 1 ~w a s $ 5 O ~ "O O On, d 0~ 00 ma Ma th
Holly's income a x a t
th
as am):
d.
accountinq t o b e ,g l n n ~ n gretain earnlnqs Cumulative ff ct of c ha ng e inaccounting N o o f h e above,
JDXP'"
.ana
8"
of s. it h is , un i o f p ro du c o n method, T h e o . rl il g li n a cl o s t of s es t m a e d wa years. Holly e s m a e s h a h e w a 8 ,S OO d u m q Y e 00 a c co u nt in g
principle $2,0 0. principl
change in lts Y e a r
,$.2,000 $,1 ,400
flnancial statements
s . lncornestatemant, incomestatement.
hoic "d lils c h a n g e ln h e m e h o of depr cl ti is consld re c h a n g e ln th im T he s c ha ng e should as change in estimate handled ro pectiv ly Th ne de re lati et od sh ul used of h e b eg l n n n g o f h e year 'f h e c u e n book chanqean shouldstartwit underlylnq asset, Nlo.retroactiv or retrospectiv lculatio houl ad adjustment should be made to retained earnmqs.
Choices
"I'a'U",
"b",
"c ar incorrect, pe th
above explanation.
1, in ls it oper ti ns re orte 'ilnSmith'
is onti ue
ll 8"
c.
JDXP'"
O pa ra t n q te
s s s fo r fl
the period
Ye
in om
tate ent?
ld
in
int
.,
to February 2 8 " , YearZ,
th
II only Ia II111nly. and I~II only, Ia ly .ana
on
Ye losses ar
in ot ntlcipat
th an
ccru d,
Choice "a ls 'ilncolrre'ct.Th oper tl Ye
in
Choice "b" Ye
ln
Ye
ln
lo se to be in lu ed lnSmlth's th
le
ft
losses, Projected operating
ft osses.
th
ft
th
ft
be the
u.s.
in thefinancial
b. c.
Retained IR tain lncorn lncorn
io
te earnlnqs st teme tate en ft come fr tate entaft ccme fr
should
te
financial ofapplicable income taxes, lilnth current:
before dlvldends
adju tmen of th openin lance, onti ui er ti ns nd ef re xtraor in ry te ls onti ui er ti ns nd afte extraordin ry it ms
Explanation
tax,
in
Choice "a" lilsincorrect. Th adjustment lilsbefore net affect th mcom
statement,
should be
.an
la
in 0to
Becker Professiona Education
Pac I C O . esti at it two- ea quip en warr nd ca ed ha Odlfference o m h e estimate is reported:
this a, b. c.
ty costs based
solidi in Year ,$.110per unlilt.The' effe
of
In Year
income from continuin operations. accountin change n e Ye inco from onti ln op rations. naccou ti hang rs ulrlnq Year financial statements restated. Ye me As financia restated,
.-= X-,T\ P . ' anat
.' ro -I
.1'
Choice "a" i s c o rr e ct , Th effect e s m a t a n w l be e po r e d Rul,e: Change earnlnqs ),, hoic "b statement
n co m
e s m a e s a f e c only ol
An
un mq
ma o m c on t n um g o pe ra t o n
ur nt qe of
$100 to
'l 0) is
change in
subsequent period
wn
retained
et
ed
nc Re at or o n requiredwhen comparative financial Choice financlal s ta te m en t prior perlodadiustrnents subsequently discovered correctlons o f e r o rs , c ha ng e me wn lin,entlilt or changes a c co u n ti n princlple. hoic
"d
n co l r e c t T h a n error,
ac
s ta t n q
ne
es mat
o f w ar ra n
c os t
lndicata
ma
'Que.stion C P A - - 0 0 0 8 3 of
the be,g~nn~nglalance.
Bxpl anat io Choice "d lil correct, in
made
ppro riat
change in estimate Is.handled prospectively. fo tn te
isclosur
is necessary,
Choices "a", "b", andl'r'cuare incorrect, pe th above explanatio
..
cumulati
ffecta iustrnen
is
Beeker Professiona Education
'Que,stion C P A - - 0 0 0 8 5
le Flrei,ght~in Firei'ght ~Out Officers salarie insurance Sales representative
fe 00 16,0 000 ,_
__
__
00 __
85,000 salaries
__
a. $2,60,0.00 b. c.
d.
$550,000 $635,0.00 $810,0.00
Expllanation
Ac ountln an le al Offlcars salarie Insurance,
25,000 00 85,000 ;I 2,60,000 __
Total Fralqht-in
sales: freight-out
s !e l n ge xp en se ; a n
s a e s salariesare
Choice "b" lilsincorrect. Fralqht-in s a a r e s a r s e ~ ngexpenses. l
pa
o f c os t o f n ve n o l y :
Choice " e n ' n co r e c e ' g lh t salaries are se'[II[~nglxpenses.
pa
o f o s o f n ve n o ry ; frelqht-out
s e n g e xp en se ; and sales
o f c os t o f n ve n o lr y
s e U n g e xp en se ; a n sales
hoic "d n co r e c F re i g h ~ i ls p a salaries are se'[II[~nglxpenses.
e ' g h ~ ou t
r e g h ~ ou t
sellirrq
se,[II[ingexpenses. sales
2, 'Year '1~"Union ' C O . estimated u se fu l
line ,$.26,4,000 it method of 6'lilglht salvag value, 4~"U n i o n determined useful U f e o f fr the, date acquisition a n d w l il ll il ih a v e a salvage to reflect th $24,000. An accountm ha ge dditiona data Th ccumulat depreciatlon fo this machin should h a v e balance at December 3. Yeard, f:
c. d.
$1176,000 1 1 0 ,0 0 $154,000 $1146,000
Explanation
De Oripinal Accurn deprec NIBV
ec ab cost
Useful life yrs
$2 6,4
11,65
Sallvage
<2:4>
_, '" '"
2 /3 , Y ,
Years elapsed
=:
Accumulated dI,eprec., 99 (Year =:
(99)
1 2 /3 , 1 1 Y ,e a
Ballance,
Annual de'prec,
yrs
yr
,47 (Year $1146
-Year
3)
Beeker Professiona Education
Ii
uses tlhlle'units pr ucti epil ti meth d. As reported ln Krey's year ..e n financial statements Cumulative eitect ot change in accounting princip.J,e
Pro, form effect .of retroactive application .of new d e p . e 'i io n b a s e
V,S,S
b.
Yes
Yes Nlo
d.
Nlo
Yes
the change, which
the foll~owlilngshould be
~, xpl.anat.ton Choice
°C"I'
counfl
is orrect INa'. .Nl
This is.a change in "accou ti
rinciple is nl used fo
ha ge
in accounti
stim te," whichaffects onlly th currentand ri cipl ."
Beeker Professiona Education
'1 system w e h te d a ve ra q p e o d n ve n o r system '" H a e y u se s U .S . G A A ,P ~ l o n a le nd a year basis, he cumulative effect o f n o p re se n c om pa ra t v e n an c a l s ta te me n s . a ng e d e e rm in ed ; I"
b.
c.
As
1.Year
",
D u n g h e e ~g ht mo n h s e nd in q A u g u s 3 , Y ea r aW 6 , g h e d a ve ra g o f h e p u c ha se s
w ,e ~g h e d v e a q
o f h e purchases,
Expl.ana io
Choice "a" lilscorrect, a s IRul,e: The cumulative effect earnlnqs wa Be'Qlinninglretained Choice "b" lilsincorrect,
made.
Choice "c average.
"d'tare
a nu a
1, Year
I"
th
I be 'g li nn in g lo f t he , year,
ln accountlng principl e qu a h e d ~ e r e no e between retained w h retained e a n ln g w o u d l h av e been l i i fh e c h a n g mi comparatlv flnancla me presented, earliest year presente is adjusted fo the cumulative 6 ,f if ec to f t h c h a nq e . fth
cumulative Th
declslon is
determined mu
determined b y
w e ig lh t e d
Y ea r 11hail damaqe severa Toncan Co.t v an s Hailstorms ha frequently inflicte simila damage to y ,e a s , T on ca n h a save mone Toncan's vans. insurance a n e i h e paying fo repairs, or s,eliling damaged replacin them Y ea r 1, th damage vanswere solidifor less h a h e carrylnq amount ma reported lin To ca 's Year fi ncia s ta te m en t u nd e U.S. 'GAAP? 8"
Ib",
Ii II dama or The actual lo income taxes. Th ac ua halil~damaqe loss in contin uing operations with no separate disclosure .. expected averag hail damage IIoS8 ln continulnq operations with no separate' dlsclosure. ave ragle'hai damage IIoS8 in continuing operations w i s ep a a t d is c o su re .
Explanation
e qu en t h e damage is Choice "b" lils corr ct Actu hall darnaq m u reported, S i nc e , t h hailstorms ar considered extraordinary g a n l o ss . T hu s h e d am ag e would b e s ho w ln continuing operations, separate disclosure is necessary s in c h a darnaqe isa common occurrence. Choica "a" is extrao rd Ii n a r y , Choice
m ab le ;
un
il to
Ac ul no
me
mu
infrequent so th
me
Choice ec E s m a e d h a damage m a lilncludl,edin income calculaflons,
reported, E s m a on
n o be classlflsd
loss
ma ma
ma
,pr
seqrnent 8"
b.
Inc",
discontinued
Ye
",Ace's lo
from ls onti ue
not:
lnclud employee relocation costs associated w U l h the d e o n dispose. Exclude, operatlng o ss e o m the d a te ' h e decislon to dispose o f h e Y e a r 1. lnclud addltional pensio costs associated w l h e declsion to dispose. h e c u e n period U l P t O the d a te , t h declsion made.
Expl s i n ,
the se'glml,entwas
0"
Q_
correct d a te , t h e decislon included,
Ace's loss on dlscontinued o pe ra t o n th seqmen made unti
Choice "a" n co l e c E ,m lp l o y e e e lo ca t o n c os t i n t h e l os s f ro m disconflnued operations. Choice " c hoic
until the
a ss oc ia te d
n co r e c Additional o m discontinued operations,
"d i s i n c or r ec t ,
Ace's
1o
operatinq losses should be included
s ho u
wi
not exclude operatin losses Year operatln h e d ec ls io n
wi discontinued
,se me
wa
d is po s
should
disposeshould
ma
losses included mcluded in
t h i s , current
date,
Ali Year
Beeker Professiona Education
.Year 1 , h e
mb 00 00 Ye mo In its Y e
oa Di ec Al ofAlpha's 1 1 0 0 0 00 ", a
wa nc me
me
wh
Ma 30 %,
mo nt
Ma
Ma Ui ~n ma Al wa 0 0 ,0 0 0 w a actually o l M la xy r
nc
mml Ya ei o r $ 40 0 ,0 0 0
or
a mo u a s h an ,
nt ue
wo Al s ca r
nq
pe
a. $ 9 8 0 , 0 0 0 b.
c.
$11,190,000 $11,400,000 $1,7'00.,000
Explanation
Choice "b" lils correct, Since the a i a lu e o f A lp ha ' me 0 Q O OO Y wo $11,700,000 7 '0 0 / ( 10 0 % . 3 0 °A , ) o r $ 1 1 ,1 9 0 ,0 0 0 , Choice "a"
ec
Choice "c is incorrect Choice "d"
Ye lilt
11
11
ae li es wa
a tm q of tax.
$ 30 0 ,0 0 0 e s 1.
$ 1 4 00 " 0 0 0
ha
ot
00 00
ar Yl ngva ue me wo
0 0 ,0 0 0
he
m pa i
4 00 ,0 0 0 , b u n o h e $ 30 0 " 0 0 0 m pa l m en t net o f a x
.$.1
tax.
Beeker Professiona Education
1, h e B oa r o f D i e c o r o f M ax y M an U a c u r~ ng l n c discontinue the, operations itsAlpha divlsion Maxy estimated that Alpha's YsarZ operatinq loss would falr value, ofAlpha's a c h le s w a s $,300,000 less h a h e carrying amounts.,Tlhle' $500,000 ti tu lp operatin loss was. $ 1 4 0 0 ,0 0 0 , division o r $400",000 less than it carrylnq amount Maxy's. effective a x a t is 30 actually s o
In its Year
income statement, what amount should M la xy r e po r a s loss from discontinued operations?
a. $350,000 b.
c.
$500,000 $4.20,000 $600,000
Explanation
1 1 0 5 5of $SOO,OOO $1100,000, of tax, for
Ch
incorrect.
Year
lo
fr
total o f $ '6 0 0 ,0 0 Q It in lude
"d
.70
ed perati ns woulldl include b o h e Ys rZ oper ti im th "additional" loss (o disposal) $420,00Q,.
th Year 2 :o pe ra t n g o s tax.
Choice "b" lils incorrect. It includes th Y e disposal, report th Year .2operatinq
hoic The,
disconti
S5
mq
ax
o f $SOO,OOO
the $3,00,000
$SOO,OOO, ot
n co r e c e po r he loss from discontinued operations from discontinued operations should include both the operatin disposal $,1OO~OOO, $ ,6 0 0 ~O O O x 7 0 $,420~000.
00 00
loss
lmpairrnent l os s o n
tax. $,500~OOO and!
'Quest inn CPA....0098
p re ta x o s o n O l e ig l c u e nc y e xc ha ng e due ma or un ec devaluation foreign ,government. p re ta x o s from discontlnued operations lvlsio .. -$500,000 equipmen damage by urri ane. This w a hurrican ever st ke Mlildlway"s area, Ml il d w a y a l is o received $,1,000,000 insurance company to replace buildlnq, with c a rr yi n lu been destroye $300,000 the hurrican .. W h a t amount should M l l l dw a yr ep o r · il n t s y e a r . e. n income statement as extraordinary taxes under I U . S " , GAAP?
c. d.
loss before income
$100,0.00 11 00 00 $11,800,000 $2,SOO,OOO
Explanation
Choice "a"
nd lo se from isco ti ue extraordinary l it em l S T h e hurrican isan extraordinar litem and h e o ss , n e o f n su ra nc e hoic
urre cy devalu ti ns
"b is incorrect.
Choice " e n ' extraordinary items Equipmen loss Bulldinq loss insuranc proceeds Hurrican loss
T h e h u r c an e lo
devalu ti
devaluations is as follow
considered to be extrao rdIii airy" discontinued operation
800,0.00 300000 (1c!,OOOrOOO) 100,000
Choice "d" i s · il n co l rr e 'c t . F o r 6'lilgn urrenc extraordinary items W h e n the loss on th n d the, ,$300,000 ll in loss et
valuatio an losses from discontinued operations ar hurrican is reported s h ou l i ln c lu d i, et h $800,000 equipment the S' ,0.00,000 m su r o ce e
N lo te : U n de r IFRS, h e e po r n g o ;f g la l n s o ss e
2 0 1 1 E d it io n . .D is lr ~b u t, e
is
is ,$.100,000.
a s extraordinary is prohiblted.
l D eV l ry /B e c k e' f I E dL lc a U o na ll lD e v el op l m "e n t C o r p . . C o p y ~ ig h t 7 ' 20 1 0 l D eV l ry lB e c k e' l I E du c a U on a ll D ev e lo p lm " e n t C o r p . . A l lI Ir ig lh t s
In
of
", b. c. d.
c ha nq e
situations
mp
adjustment?
h e estimated usefullives o f e d a ss e p u h a e d n p o r y ea rs , mathematical error ln th calculation o f p r o r years' depreclatlon sWliltclhfrom the,straiqht ..~ ineto double ..d eclinin balanc method 'of depreciation, 'of e xp e e d u sa fu l lfe.
Bxpl.ana io
correct c o r ec t h e error,
An e r o r c o e c o n
accounted fo by a d
Choice "a" is incorrect. This p r o r p e o d adjustment.
od ma
nc
that is handled prospectively,
Choice U C l " i s i nc o rr e c This change 'GAAP m e depreciation ea ed as h an g lnaccountlng e s m a t e ff ec te d by method depreclatlon that handle prospectively, an prior-period adjustment. accounting principle hoic "d lilsincorrect. This is perio flnanclal statements
business actlilvUy ordinary
me
another GAAP'
requireadlustment
of pr or
Beeker Professiona Education
Mellow ' C O . epre iate A t h e b eg l n n g l o f h e should IM,elllowreport
, $ 1 2 , 0 0 0 asset o ve r v e years, uSlin,gthe stralqht-line salvag value, ea w a d e e rm in e h a h e, a s e t w i s t a n h e Iour e a s . W ha t a mo un t la io
a",$600 b. $ 9 0 0 c. $ 1 1 , S O O d. $ 2 , 4 0 0 Explanation
Choice "a" is he determined h a h e assetwould h an g period, T h c ha ng e ls ma
ea a c o un t
the es
years, 6 0 a te , ( th e
depreciated wn 00 w ou l be depreciated ma b e n gh e of he as et years
wa Changes in
Cholce "b" n co l e 'c t. T h i a ns w e h e a nn ua l difference betwee the, depreciation depreciaflon e xp en s h a ee et ac el a te d $ ,2 4 0 0 0 $ 1 5 0 0 a n h e c o e c depreciatlon expense, R e o a e , s ta te me n no ap op at ha ge n a o un t es ma e. hoic "c restated ($.24,000 estimate. hoic "d nc a mo un t o f h ea nn ua l be th depreciation period,
:=
Th we depreclation expense depreclation bee retroactivel $ '1 " ,5 0 0 ) , R ,e t r oa c: l v ee s ta te m e n n o t a p pr op r a t o r c ha n ge s n a cc o un t n g
Th n sw e depreciation
h e undepreciated
mo
year o r 1 h 1 '6 ' years, IE~thelrway", it certainly e ma in in g c os t w i depreciated o ve r h e e ma in in q the
En Co a pp l a nc e , gr ou p. , Operations Envoy' operations. E n ld Wh Wh W lh e E nv o W l h ,e ,n En v o
b. c. d. ',
household E,nvoy losses with small ow or hi from is th earliest the small appllance ou wi at Wh th smal applianc ,group as discontinue operation?
classifies lil as. held fo sale receives a n o f e r a i h e seqrnent. firs sell theassets o f h e seqrnent. s e l th majorit th seqrnent
.anat on
Choice "a" operations 1'
whe
Th
ie
mp io entity ts th followinq "held fOlr sale' criteria:
IMlanagemlent commits
2" Th
mp or mme
comp nent is
to mp un ke
es
condition,
lnltiated,
mp
probable
mp '6",
reported in discontinued
1'
h a s l g n~ ~ c an ct ha ng e
within o n
ea
actively m a rk e e d o . th e p l a n
se wi
ma
w ~1 Ib e w U d l w n
rather than le current year
a,
y, ar .T ln
machin
ri in ll
of
os $ 4 6 ~ O O O ld
im
ti
lv
lu
~,!OOO.
th
$3,200
Explanation.
te
correct,
iv
fu li book
rlglinaI cost Curren
ix
00
1,000),/12]1
in
im
sth
fo th
*'
im
li
years:
Choice "a" alue.ran by slnq th entire th assist houl only be pr ciat =:$3,750].
ti
th t,
if
1($311 0 0 0
l12
th
$46~OOO 1 5 0 00 = $3·1~OOO
oo valu
this proble '! depreciate over th rernalnlnq
if ·s
1 ,0 0 0
te 'ove th re ai in
,6 =$5,000
Il II~f
gth tn
asset, ( $ 4 '6 ~ , !0 0 0 . . $ 1 , 0 0 0 l ' d es c b e a bo ve .
The depreclationafter
ic is in ld th assist ha been years rather than described above, no retrospectively
years,
ig
.. in
te
fe·s
ie
ly
fa
!Questinn
CPA--05458
Uln.der u.s.
gain
d ir ec t
to
IN income Comprehensiv income. r o c o n n u in g operations ne o f a x" , f ro m d is c o nt in u e d op rations, ne of tax. Bxpl.ana io
Choice °a'JIils correct, Ulnder U.S ..GAAP', extraordinary item ar reported a s o mp on e of income, me disconfmued o p a t o n Th p o n g o f g la ~n s o s e s a s extraordinary p ro h b i e d u nd e IFRS. Choice °Ib'J' incorrect extraordinary mp income.
loss) only indirectly affect
hoic "c i s i nc o rr e c Extraordinary items ar reported dlscontinued operations. hoic "d lilsincorrect. E x t r a or d li ln a lr y i te m s a r e reported an dlscontinued operations
comprehensiv
meom
tax after income from contlnulnq operations ta
fter mcom fror contln ln
peration
Beeker Professiona Education
.Jordan Co, Gain on disposal Foreiqn c u e n
wi
period:
buslness s8'glmI8,nt a ns la t o n g a
Ulnder U , . S . G ! A A P " ,w h a t amount th curren period?
1$.500~000 100,000
extraordinary
presented
Jordan's income statement fo
ib",$1100,000
d.
$600,000
Explanation
Choice "a" is correct, information, Jordan Compan w i n o report extraordinary current period The $ 50 0 " ,0 0 0 g la ' on th disposal business se'glml,entw~1I reported dlsconfmued op,erations.,Tlh s,$1100,OOOforei,gn currency translation g la i nw U l 1 b e income from continuing operations, Forelilgn currency-related ,gain,s and considered to be extraordinary.
Choices "b", "c"~
"d ar incorrect, pe th
above,
'Questinn
GPA....5697
mp
accounting?' a",
c. d.
cash-basis o f a c co u nt in g toaccrual-basis
change
c ha ng e a cc ou n n g principle, rsqulrln the cumulative effect reported ii th mcom statement, Pr specti ely, Wlilthno mounts re tate cumulativeadjustment. As an extraordinary item n e o f a x io tax), byadjustinq t h b e gl in n li n, g balance
xp .ana
retained earnmqs.
ton
h an g correction that is accounted
om non,,'GAAP/IFIRS, method GAAP/ RS a d ju s ti n b e g l l nn i n g lretained earninqs.
t he , c a s basis h e a c u a basl cannot Choice "a" lils'ilncolrrect. accounting principle G AA P m e is change from aecounflnq to 'GAAP method 'of accounting. change lilnaccounting principl must be c ha ng e from ,s,acceptable G A A P method to lie,is recorded, another acceptabl G1AAP method. itionally, ti in qinnin retained ar in is djuste fo th cumulative effact N, me a d u s e , o r h e c um u a t e f e c 'of c ha ng e a cc ou n n g p r n c p le . hoic
"b
a cc ou nt e
mc accounted m en t o r p ro sp e ct lv e y .
nq et oa
me
Choice o m the cash basis period adjustrnents a re , n o reported extraordinary items.
basis Pr pe
ad
period a d u s m en t me ev
prlor-penodadlustment,
Pr or
P r io r . .
4 , R a Corp. 10 00 January Year Raft estimated th machine' oriqinal useful o . b e 1O years and it salvag valu $ 1 0 ~ , 0 0 0 . R a f uses th stralqht-lln method of depreclatlon is subjec 0 0 tax December prior period adjustment? Year 4,f~nanciall statements, w h a t amount should af re rt a"
b.
$ 11 0 2 9 '0 0 $1105,0.00
d.
$1'68,000
Explanat io co ec h e machin ha ee orrectly capitalize in would h a v e , recorded annua depreciatlon o f $ ,2 0 ,0 0 0 . $ 21 0 ,0 0 0 . c os t ~ $ 1 0 ,0 0 0 s a v ag e year H fe ] Y ea r 1, h e d i e re nc e b e w ee n h e for total accumulated depreciatlon prio period adjustment $ 60 " 0 0 0 totalexpense that should reflected in retain earn qs January 1, Y e a r 2 10 ,0 0 0 h a w a meorrectl recorded: C o r r e c t accountlnq ~Depreciatio expens Incorrect accountlnq ~Asse purchase expens Prior period adjustment before ta me $150,0.00
1~
mu := $ 1 0 5 ~ , 0 0 0
-Year Y ea r
60,000 ~ 2 1 0 ,....000. $'150,000
in.
10'
b. c. d.
I B , y reportinq proforma
IBy In
tl
c.xp,._.anatl0n
periods.
future consideration. mounts fo prio erio ln tu lilif
io
Benefits relate
to oluntary
mploye
termin ti n,
Bxpl.ana io
ic
is
ts
ic employee termination. le ic
ta
lo
ts
ls
ti it
,xlian disposal activities",
lu
te
lu ta
fo ir
te
ix
ly ls
le li
Which 810,
b. d.
foll wi
is
criteria fo recogn~zingl
liabilityassociated
commitment to an xi lan. llqatl The xist nc of pr sent to transfer assets of an obliglating event, entity dlscretion future tr nsfe The
with e,xlilor disposal activities
th future assets.
Bxpl.ana io
hoic "a lilscorrect, An entity's commitmen to an Ililabillityrecognitle .. Iliability ls only recognized whl,e,n ), An obligatlnq ), 'T
vent re ults liln
3), 'The' entity
re en .di
obliqafion
disposal plan by lits'ellf"is not enouqh to result in followinq criteria are met:
its fresh produce dlivlilsii,on~"aeportabl
seqmen o f h e e n y ' o pe ra t o ns v T h s a e , o f the n, wh wa flnalized December 15~resulted in g la l o f $ ,1 5 0 ,0 0 0 . T h dlvislon ha operatin losses of $ 5 0 0 " , 0 0 0 ,durliln'gthe curren year also paid employee termlnatio b en e o f $ ,2 00 ,0 0 0 a n d $ 2 0 O O terminate operatln lease. [~glnoring income taxes, w h a t ls t he , o s s from dlscontlnued operations h a L oc kw o o should re ognize liltscurren year income statement?
b.
d.
50 000 $550,000., 0 ,0 00 . $7,2:0,000.,
xp .ana ton
hoic "c dlscontlnued operation w i n c u d e the g a o m the s a e , o f h e divlslon, th operatin loss th employee termlnatlo benefits the terminat th operatln ~ease. Exit disposal costs related to dlscontlnued operation re reported in dlscontlnusd operations the lin,colme statement: Gain sale Operatinq [loss Termination benefits Co terminate the leas,e Loss on discontinued operations
150,000 (500",000) (2 0~"0 0 ) , (20,OOO} $(57'0,000) terminate the peration le se re reported in dlscontmue operations
Choice "a" is incorrect employee terminatio benefits exit disposal costs related t o d is c on t n u e d operations th income statement Choice "b" li!sincorrect, [Both th employee terminatio are exitand disposal costs related to discontlnued operations o n h is , in co m e s ta te m en t Cholca "d" li!sincorrect, g la i w ~ 1 1o f s e h e o ss e
.t o f t [h le ·d is co n t n u e
o p er a o n .
mu mu
mi operation [lease reported in discontinued dlscontinued o p a t o n
Th
Beeker Professiona Education
followinq $190,000
gl in on reacquisitio
a ns ac t o n
du nq
bo ds
'T is at ri
an retire en
en is also onsidere
$260,000 anothe location. $90,000
loss on tlhe'abandonmen
of equipment, sth
considered extraordinary?
.. $ 1 1 0 0 , 0 0 0 . b.. $1170,000., c.$3'60,000., .. $450,000., Explanat cn
hoic "c is orrect IFRS prohibit th reportin infrequent ~temsate extraordinar unde IFRS: isit Gain on disposal 'of component os ab ndonment of uipmen 'Total
of 'gainsliloss,esa
extrao rd
$19 0 , 0 0 0 26,0~"OOO {90",OOO) $3'60,000
Ii
fo
not
On o f h e , c ur re n t So Co. uses FIIF'O'lilnve,ntorysyst,em.Solid IFRS, is co p a r at iv e reporf n ' e q Ire ents, mu sh et for: a" 10",
c.
J an ua r January
c ha nq a no calendar year basis~"and complies w i
wn
me
1 b 6'glinningle taine
RS mi mu
earnings o n
ba
of
of h e p r o r y ea r
current year. the c ur re n y ea r
Explanation
Choice "b" is correct, U l e r R S w h records change in cc ntin principl th ntit must an minimum] present thre bala ce heet prior p e o d a n b eg l n n n g o f prior current period en (a period] other flnancial statemen (current period andl prior perlilod),.Tlnle' cumulative effect wo adjustment is adjustment to ibeglinningl retained earninqs bala ce heet fo t h b e g in n li n the prio year o f h e prior periodwhich w ou l b e J an ua r hoic "a lilsiillncolrre'ct. Under F RS "w he n a n entity accountin principle, th e,nUty must (a lr la curren period prior lPer~od~"and be,g~nning of prior wo financial statement (current period prio period). Tine, cumulative effect adjustment woul show asan adju tmen o f t h b eg l n n h1 1 ' etaine earninqs o n h e sheet prior perlod.whlchwould 11 th prio ear, of th Ui rrent ye r.
incorr,ect.The cumulative e f retained earnmqsas date t h d ec is io n hoic "d retained
mq
mu ft period
Ii'S
wh
he made.
reported
decision is made,
adjustment to beqinning
me
