FREE Certified Public Accountant (Financial Accounting & Reporting) Questions and Answers
A customer gave Misk, Inc. a $750,000 note with a one-year term and 9% yearly interest. Misk discounted the note at National Bank for a 12% effective interest rate after holding it for six months. How much money did Misk get from the bank?
Explanation:
Misk will first determine the note's maturity value, which will be $750,000 for the note's face value plus $67,500 for a year's interest at 9%. The bank will earn $817,500 after six months since the debt will be discounted. The reduction will be $49,050, or $817,500 X 12% X 6/12. As a result, Misk will get $768,450 from the bank instead of $817,500 ($49,050).
Which of the following claims about donated assets are true?
Explanation:
When assets are received in a nonreciprocal transfer, under which neither equity nor other assets are exchanged, the entity will recognize the assets at their fair values and recognize the total fair value of assets received as a form of non operating income.
The Candy Company and Dandy Company traded inventory in an ineffective business deal. The list for Candy and Dandy had fair values that were 30% more than their expenses. However, Candy paid Dandy cash to make up the difference because Dandy's inventory was more valuable. Who, if anyone, will count the deal as a gain?
Explanation:
In an exchange involving like and unlike assets, such as cash, that lacks commercial substance, only the person receiving the unlike assets will experience a profit. Only Dandy will profit from the deal because Candy gave Dandy cash to compensate for a discrepancy in the values of the items they exchanged.
According to Catastrophe Corporation, it is not a going concern and is most certainly going out of business. Which accounting principle will Catastrophe use?
Explanation:
When a company has decided it is not a going concern, it indicates a good chance that it won't be able to pay its debts as they are due for at least a year after the financial accounts are released. The entity will change to the liquidation basis of accounting when liquidation is imminent, which occurs when the entity has adopted a plan of liquidation or when one is being imposed upon it. Whether or not an entity will use the tax or cash basis of accounting is unrelated to whether or not it is a going concern.
Which two of the following accounting concepts are most similar to consistency and feedback, respectively?
Explanation:
Since users may spot trends and utilize this knowledge to predict what might be expected to happen in the future when goods are accounted for consistently from year to year, consistency is linked to predictive value. Feedback has a confirming value since it can show to what extent earlier predictions were accurate by revealing actual outcomes, for example. Full disclosure refers to the totality of the information disclosed, whereas recognition refers to when items appear on financial statements. The concept of cost/benefit states that no entity should gather or share information at a cost that outweighs the advantages of doing so.
Which of the following statements regarding the effect a collection of an account previously written off would have on accounts receivable and allowance for doubtful account balances is correct when the allowance method of recognizing uncollectible performances is used?
Explanation:
Which of the following statements regarding the effect a collection of an account previously written off would have on accounts receivable and allowance for doubtful account balances is correct when the allowance method of recognizing uncollectible performances is used?
When a company decides it is not a going concern, there is a good chance it won't be able to pay its debts, which are due at least a year after the financial accounts are released. The entity will change to the liquidation basis of accounting when liquidation is imminent, which occurs when the entity has adopted a plan of liquidation or when one is being imposed upon it. Whether or not an entity will use the tax or cash basis of accounting is unrelated to whether or not it is a going concern.
Explanation:
Items included in other comprehensive income and reported in total in accumulated other comprehensive income, a component of stockholders' equity, include:
-Unrealized gains and losses on securities that are available for sale.
-Adjustments to an asset or liability for a pension are based on the difference between the projected benefit obligation and the fair value of the plan assets.
-Translation adjustments brought on by the consolidation of foreign subsidiaries.
-Changes in the fair value of the plan assets.
Unrealized profits and losses are not recorded, and held-to-maturity securities are reported at amortized cost rather than fair value. When their value changes, fair value hedges are reported in income, not other comprehensive income.