accounting and financial reporting: current developments

Accounting and Financial

Reporting: Current

Developments#6445K

EXAM MATERIAL

6445K Final Exam • 1

ACCOUNTING AND FINANCIAL REPORTING: CURRENT DEVELOPMENTS (COURSE #6445K)

COURSE DESCRIPTION

The purpose of this course is to inform the reader of the various changes to accounting and financial reporting affecting the accounting professional. Topics include a review of FASB projects, including those related to financial performance, leases, financial instruments, practice issues involving the statement of cash flows, fair value reporting, pensions, the international convergence project, little GAAP, and more. The structure of the course is to encourage the reader to recall existing GAAP rules coupled with identifying, stating, and outlining rules related to new and proposed pronouncements. This course also has a discussion of COVID 19’s impact on accounting and financial reporting. Prerequisites: General understanding of U.S. GAAP. Course level: Overview. Course #6445K – 16 CPE hours.

LEARNING ASSIGNMENTS AND OBJECTIVES

As a result of studying each assignment, you should be able to meet the objectives listed below each individual assignment.

ASSIGNMENT 1: SUBJECTSignificant GAAP Changes in 2020 and BeyondReporting Information About the Financial Performance of Business Enterprises

Study the course materials from pages 1 to 38Complete the review questions throughout the assignmentAnswer the exam questions 1 to 8

Objectives:

• To recognize a reason why public companies over disclose in their notes to financial statements• To identify a proposed change to the statement of cash flows• To recall the definition of free cash flow• To recognize some of the key ratios used to analyze working capital• To identify some of the symptoms of inefficiently managed working capital

ASSIGNMENT 2: SUBJECTRestatements and Other Financial Reporting AbusesThe Gradual Demise of Company Pension PlansInternational Accounting Standards ConvergenceLIFO in Low Inflation EnvironmentThe Latest on Fair Value Accounting

2 • 6445K Final Exam


Objectives:

• To recognize one of the characteristics of a multi-employer pension plan• To recognize the impact that life expectancy has on the amount of a pension liability• To identify the shift in the types of retirement plans over the past decade• To recall the types of assets and liabilities found in Level 1 of the fair value hierarchy• To recognize the type of information that is used to estimate credit losses under ASU 2016-13

ASSIGNMENT 3: SUBJECTFASB Issues New Lease Standard - ASU 2016-02The GAAP Codification OverviewBig GAAP–Little GAAPGoing Concern Assessment by ManagementSustainability and ESG Standards Is a Hot IssueFASB Classification Shifting Using Discontinued Operations RulesUpdate on Revenue Recognition StandardFASB Move to Amortize Goodwill AgainEarnings Manipulation


Objectives:

• To recognize key changes found in the new lease standard• To identify how a lessee recognizes a lease liability under the new lease standard• To identify potential impacts from implementing the new lease standard• To recognize the general structure of the FASB Accounting Standards Codification (ASC)• To recall the general GAAP rule for management’s evaluation of going concern• To identify a concentration of risk that might require disclosure• To recognize criteria for presenting a transaction as part of discontinued operations• To identify a method that can be used to record variable consideration under the revenue standard• To recognize the approaches that are used to recognize revenue under the new revenue standard• To recall the existing accounting for goodwill by a public company• To recognize a feature of high-quality earnings


ASSIGNMENT 4: SUBJECTAccounting and Auditing Issues Related to the Coronavirus (COVID-19)Accounting for PPP LoansDeferred Income Taxes, NOLs, and Other Tax MattersAccounting, Auditing, and Tax Issues Related to MarijuanaOrder of Placement of Financial StatementsRisk of Unrecorded Sales Tax Liabilities- Wayfair Decision


Objectives:

• To recall how LIFO should be valued under GAAP• To identify how to record the forgiveness of a PPP loan on the financial statements• To recognize how net operating losses are treated under the CARES Act• To recognize how to present deferred income taxes on the balance sheet under ASU 2015-17• To recognize when a state might be able to charge sales tax under the Wayfair decision

ASSIGNMENT 5: SUBJECTThe Statement of Cash Flows- Unusual Reporting Issues


Objectives:

• To identify some unusual transactions and how they are recorded on the statement of cash flows

ASSIGNMENT 6: SUBJECTAccounting Standards Updates (ASUs)


Objectives:

• To recognize the types of arrangements that qualify for the private company accounting alternative election related to goodwill amortization and acquisitions

• To recognize the accounting alternative for leases under common control in ASU 2018-17• To identify the impairment test for goodwill under ASU 2017-04


ASSIGNMENT 7:• Complete the Answer Sheet and Course Evaluation and submit to PES

NOTICE

This course and test have been adapted from supplemental material and uses the materials entitled Current Developments - Accounting and Financial Reporting © 2021 Fustolo Publishing LLC. Displayed by permission of the author. All rights reserved.

Use of these materials or services provided by Professional Education Services, LP (“PES”) is governed by the Terms and Conditions on PES’ website (www.mypescpe.com). PES provides this course with the understanding that it is not providing any accounting, legal, or other professional advice and assumes no liability whatsoever in connection with its use. PES has used diligent efforts to provide quality information and material to its customers, but does not warrant or guarantee the accuracy, timeliness, completeness, or currency of the information contained herein. Ultimately, the responsibility to comply with applicable legal requirements falls solely on the individual licensee, not PES. PES encourages you to contact your state Board or licensing agency for the latest information and to confirm or clarify any questions or concerns you have regarding your duties or obligations as a licensed professional.

© Professional Education Services, LP 2021

Program Publication Date 04/30/2021


ACCOUNTING AND FINANCIAL REPORTING: CURRENT DEVELOPMENTS (COURSE #6445K)

EXAM INFORMATION

COURSE EXPIRATION DATE: Per AICPA and NASBA standards, this course must be completed within ONE YEAR from the date of purchase.

TEST FORMAT: The following final exam, consisting of 80 multiple choice questions, is based specifically on the material included in this course. The answer sheet must be completed and returned to PES for CPE certification. You will find the answer sheet at the back of this exam packet so that you may easily remove it and use it while taking your test.

LICENSE RENEWAL INFORMATION: The Accounting and Financial Reporting: Current Developments course (#6445K) qualifies for 16 CPE hours.

PROCESSING: You must score 70% or better to pass. If you mail or fax your exam, when you pass, your Certificate of Completion will be mailed. If you do not pass, we will give you a courtesy call to inform you of this. When completing your exam online, grading is instantaneous. Upon achieving a passing score, the completion certificate is immediately available in your account under “My Completed CPE.” Please note: failed exams may be retaken. Per NASBA and AICPA guidelines, missed questions cannot be indicated until after you pass.

GRADING OPTIONS – Please choose only ONE of the following:

GRADING OPTIONS: Please choose only ONE of the following. If mailing or faxing, make sure to fill out your Answer Sheet completely prior to submitting it.

• ONLINE GRADING –Visit our website at http://www.mypescpe.com. Login to your account (if you are a first-time user, you must set up a new user account). Click on the course title of the exam you wish to take. Once all answers have been selected, click the “Submit/Grade Answers” button at the bottom of the page for instant grading and certification. If you do not see the exam listed, click on “My CPE in Progress.” Click on the “Add Exam to Account” button and follow the instructions.

• MAIL – Your exam will be graded and your certificate of completion mailed to you within one business day. Your certificate will be dated according to the postmark date. Please mail your Answer Sheet to:

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Granite Bay, CA 95746

• FAX – Your exam will be graded and you will be contacted either via phone or fax with your results within 4 business hours of receipt. A copy of your graded exam and certificate of completion will be mailed to you. Your certificate will be dated according to the fax date. If you choose to fax your exam, please do not mail it. Your fax will serve as the original. Please refer to the attached answer sheet for further instructions on fax grading. Fax number (916) 791-4099.

THANK YOU FOR USING PROFESSIONAL EDUCATION SERVICES.

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ACCOUNTING AND FINANCIAL REPORTING: CURRENT DEVELOPMENTS (COURSE #6445K) – FINAL EXAM

The following questions are multiple choice. Please indicate your choice on the enclosed Answer Sheet.

1. Which one of the following is cited as true with respect to the change in the volume of accounting standards issued over the past 25 years:

A. the volume of new standards has gradually declined since the passage of Sarbanes-Oxley Act

B. the SEC eliminated the requirement that each financial statement disclosure be tagged in XBRL to streamline the disclosure effort

C. the previous anticipated convergence with international standards created an impetus for FASB to accelerate new standards

D. over the past 25 years, the number of new GAAP documents has actually lagged behind the volume issued for compilation, review and audit engagements

2. Which of the following might be a prime reason why public companies over disclose in their notes to financial statements:

A. to protect against litigationB. to save time in removing disclosures from

period to periodC. to avoid challenges from over-reactive third

parties who seek specific informationD. because those in charge with governance

may be ignorant of accounting and disclosure issues

3. Which of the following is a proposed change to the statement of cash flows under the FASB’s financial performance reporting project:

A. the indirect method of presenting operating activities would be replaced with the direct method

B. operating activities would be replaced with recurring business activities

C. cash would be replaced with working capital as the metric

D. the name of the statement would be changed from statement of cash flows to cash transactions statement

4. Free cash flow is the amount of cash flow that is free after accounting for which of the following:

A. fixed commitments such as capital expenditures and preferred stock dividends

B. unrealized gains and losses on securitiesC. variable items such as commissions and

other variable costsD. other income or expense

5. Which of the following is the logical flow of particular elements in financial statements:

A. working capital flows to cashB. core earnings flow to working capitalC. cash flows to free cash flow

D. inventories flow to receivables


6. Which of the following is the Average Days Delinquent (ADD), if you assume the following:

• Days sales outstanding (DSO) is 45 days• Best possible DSO is 30• Credit terms are 20 days

A. 10 daysB. 15 daysC. zeroD. 25 days

7. Symptoms of inefficiently managed working capital include which one of the following:

A. bad debt amounts and volume are levelB. customer service levels are lower than

normalC. interest payments to suppliers are decliningD. receivables are growing in line with sales

levels

8. In the computation of the S&P’s Core Earnings, items excluded consist of all of the following except:

A. gains/losses from asset salesB. goodwill impairment chargesC. merger/acquisition related expensesD. pension costs

9. Company X has a restatement. Based on one study, which one of the following is likely to be one of the top individual reasons for X’s restatement:

A. accrual adjustmentsB. adjustments to prepaid itemsC. consolidation issues

D. income tax issues

10. Company X is subject to Section 954 of Dodd-Frank’s clawback provision. Which of the following is the reason why Section 954 applies to X’s restatement:

A. a material noncomplianceB. an errorC. a fraudD. an irregularity

11. One of the characteristics of a multi-employer pension plan is that:

A. many employers are part of one, identical collective bargaining agreement

B. assets contributed by one particular employer must be used for that employer’s employees only

C. employers are jointly and severally liable for the plan obligations

D. there is no withdrawal or exit fee

12. Company X is the sponsor of a pension plan that is part of a larger multi-employer plan. The multi-employer plan’s funded status is 55%. Which color code does the funded status relate to:

A. redB. greenC. yellowD. orange

13. Company X is computing the pension liability for its defined benefit pension plan. Which of the following is true as it relates to calculating the amount of X’s pension liability for its retirees:

A. the shorter the life expectancy, the greater the present value of the pension benefit obligation

B. the longer the life expectancy, the greater the present value of the pension benefit obligation

C. the life expectancy has no impact on the amount of the pension liability

D. the longer the life expectancy, the lower the present value of the pension benefit obligation


14. Which of the following is true with respect to the trend of investing by pension plans:

A. plans are moving away from equities into bonds

B. plans are moving into real estate investmentsC. plans are moving from high risk joint venture

investments to money market accounts and cash

D. plans are not significantly changing the mix of their investments

15. The _______________________ may be in trouble and may have to be bailed out by Congress because of the amount of potential claims exceeds the amount of its assets.

A. Congressional Budget OfficeB. Pension Fund Society of AmericaC. Pension Benefit Guaranty CorporationD. Social Security Administration

16. What has been the shift in retirement plans over the past decade:

A. from IRAs to defined benefit plansB. from defined benefit plans to 401k plansC. from retirement plans to no retirement plans

offeredD. from 401k plans to Keogh plans.

17. Which of the following is a reason why U.S. convergence with international standards has not occurred:

A. it would require issuing financial statements in more than one language

B. the cost to change would be significantC. it would require all companies to adopt LIFOD. international standards would be superior

to U.S. standards, thereby requiring more disclosures

18. If LIFO is used for tax purposes, which of the following is correct regarding the LIFO Conformity Requirement:

A. permits that the primary income statement be presented on FIFO or average cost basis

B. requires that the primary income statement and balance sheet must be presented on LIFO

C. permits the balance sheet to be presented on a non-LIFO basis

D. does not require either the income statement or balance sheet to be presented on a LIFO basis

19. Under the fair value hierarchy, which of the following is a description of a Level 1 input:

A. quoted prices for identical assets or liabilities in active markets

B. other than quoted prices for identical assets or liabilities

C. quoted prices for similar assets and liabilities in active markets

D. quoted prices for identical or similar assets and liabilities in markets that are not active

20. Under ASU 2016-01, which of the following is eliminated with respect to the accounting for investments:

A. available-for-sale category for equity investments

B. held-to-maturity category for equity investments

C. trading category for equity investmentsD. lower of cost or market category for all

investments


21. Lou’s Premium Lemonade is implementing ASU 2016-01 with respect to its investments in equity and debt securities. How should Lou’s account for debt securities under the ASU:

A. debt securities are recorded at fair value with the unrealized gain or loss presented on the income statement

B. there is no change in the accounting for debt securities as they continue to be accounted for under the three categories previously used

C. all debt securities are recorded at costD. debt securities are recorded at fair value

with the unrealized gain or loss recorded as part of other comprehensive income in stockholders’ equity

22. Big J’s Credit Service is implementing the changes made by ASU 2016-13 to its financial asset portfolios. In estimating credit losses under the new rules, which of the following information should Big J use:

A. past information onlyB. current information onlyC. forecasted information onlyD. past events, current conditions and

forecasted information

23. In accordance with ASU 2016-13, at inception, an entity should estimate credit losses on which receivables:

A. receivables that are probable based on historical events that have occurred at the balance sheet date

B. receivables that are expected over the life of the asset

C. receivables that are based on actual amounts that are deemed uncollectible to date

D. receivables that can be reasonably estimated over a period not to exceed five years from the balance sheet date

24. Company X is implementing the amendments made to fair value disclosures by ASU 2018-13. Which one of the following is a disclosure that must be modified (but not removed) under the ASU requirements:

A. the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy

B. the policy for timing of transfers between levels

C. the valuation processes for Level 3 fair value measurements

D. the uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date

25. One key change under the new lease standard is:

A. a small portion of operating leases, but not capital leases, are brought onto the balance sheet

B. capital leases, but not operating leases, are brought onto the balance sheet

C. no leases will be capitalizedD. most existing leases are brought onto the

balance sheet

26. Under the new lease standard, which of the following is true as it relates to the lessee:

A. a lease asset is recognized based on the fair value of the leased asset

B. an asset is recognized representing its right to use the leased asset for the lease term

C. an asset is not recognizedD. an asset is recognized only if four criteria are

met


27. Under the new lease standard, the lessee recognizes the liability at the present value of the lease payments discounted at which of the following permitted rates:

A. the lessor’s borrowing rateB. the interest rate for similar obligations in the

marketC. the lessee’s incremental borrowing rateD. 110% of the applicable federal rate

28. How does a lessee account for initial direct costs incurred in connection with a lease under the new lease standard:

A. initial direct costs are included as part of the cost of the right-of-use asset that is recorded at the commencement date

B. initial direct costs are not part of the lease asset

C. initial direct costs are expensed as period costs

D. the new lease standard is silent as to how to account for initial direct costs

29. What happens to existing leases on the date of adoption of the new lease standard:

A. existing operating leases are grandfathered but capital leases are not

B. existing capital leases are grandfathered but operating leases are not

C. the standard does not grandfather any existing leases

D. existing leases are phased into the new standard over a four-year period

30. Which of the following is one potential impact from the new lease standard for finance (Type A) leases:

A. EBITDA will likely have a favorable impact because interest will decrease while rental expense will increase

B. EBITDA will likely have an unfavorable impact because depreciation will increase while rental expense will decrease

C. EBITDA will likely have a favorable impact because interest and amortization expense will increase while rental expense will decrease

D. EBITDA will likely have an unfavorable impact because interest, depreciation and rental expense will all increase

31. One potential impact from the new lease standard is that the debt-equity ratio is likely to be which of the following:

A. higherB. lowerC. the sameD. either higher or lower depending on several

factors

32. Which of the following is the system used for the FASB ASC in presenting a Topic, Subtopic and Section:

A. XXX-YY-ZZB. XX-YYY-ZC. X-Y-ZD. XXX-YYY-ZZZ

33. With respect to the Big GAAP-LittleGAAP issue, accountants and their clients have defaulted to several techniques to avoid the burdensome task of having to comply with recently issued difficult and irrelevant accounting standards. Such techniques include all of the following except:

A. ignore the new GAAP standardsB. include a GAAP exception in the

accountant’s/auditor’s reportC. issue tax-basis financial statementsD. issue standard GAAP statements


34. Which of the following is a challenge of using the AICPA’s FRF for SMEs:

A. it is too complex to followB. it is nonauthoritativeC. it lacks core disclosures required by third

partiesD. it is too costly to implement

35. Which of the following is a key difference between IFRS for SMEs and IFRS:

A. IFRS for SMEs is more complex than full IFRS

B. IFRS for SMEs has simpler reporting needsC. IFRS for SMEs applies to large companies

while IFRS applies to small to medium-sized companies

D. IFRS for SMEs has more disclosures than IFRS

36. In accordance with the FASB’s ASC 205-40 (as amended by ASU 2014-15) related to going concern, management’s evaluation of going concern runs for what period of time:

A. one yearB. six monthsC. a reasonable period of time that is not

quantified in the ASUD. eighteen months

37. Jimmy is performing a review engagement for Company X. Which of the following terms represents the threshold Jimmy should use in evaluating X for going concern in the review engagement:

A. uncertaintyB. likely to occurC. substantial doubt

D. probable

38. In general, sustainability disclosures are required by SEC companies only to the extent such a disclosure consists of which of the following:

A. information on known climate change elements that directly or indirectly affect the company’s business operations

B. material factors that make an investment in the company “speculative or risky”

C. information consisting of evidence that climate change adversely affects the company’s financial statements within a five year period

D. generic boiler plate sample disclosures provided by the SEC

39. Under GAAP, a disclosure is required if, among other requirements, a concentration makes the entity vulnerable to the risk of which of the following:

A. a short-term negative impactB. a near-term severe impactC. a long-term disruptive impactD. a prospective loss

40. Company X has various concentrations in its business. X wants to know which concentrations might require disclosure. Under ASC 275, which of the following is not likely to be a type of concentration for which a disclosure might be required:

A. concentration of trucksB. concentration in the volume with a particular

customerC. concentration in the available sources of

materials

D. concentration in available labor


41. Company X has an unusual transaction that results in a gain. X wants to record the gain as an extraordinary item. Which of the following is true under the changes made by ASU 2015-01:

A. X may record the gain as an extraordinary item if the transaction is infrequent and unusual

B. X may not record the gain as extraordinary as extraordinary items have been eliminated under GAAP

C. extraordinary transactions are permitted under GAAP but X’s transaction does not qualify for extraordinary classification

D. extraordinary items may be disclosed only under new GAAP

42. Company Z is disposing of certain assets and wants to treat the transaction as a discontinued operation. Under GAAP, Z may categorize the transaction as a discontinued operation only if the disposal satisfies which of the following:

A. it represents a material transaction to Z’s financial statements

B. it represents a strategic shift and has a major effect on Z’s operations and financial results.

C. it represents a shift in the entity’s business philosophy going forward after the transaction is completed

D. it represents a significant change in operations before and after the disposal transaction is effective

43. Company D has variable revenue from a contract. Because D has consideration in a contract that is variable, to estimate the transaction price, which of the following is an acceptable method D can use:

A. discounted cash flow methodB. expected value methodC. weight-average index methodD. probability-weight approach found in FAC

No. 7

44. In estimating variable revenue, which of the following methods is defined as the “single most likely amount in a range of possible consideration amounts”:

A. most probable methodB. more likely than not methodC. most likely amount methodD. reasonably possible outcome method

45. In accordance with the new revenue standard, revenue is recognized under two approaches, one of which is:

A. over timeB. as cash is collected similar to the installment

sales methodC. when the transaction is complete and

collectability is reasonably assuredD. using the completed contract method or cost

recovery method

46. Under existing GAAP for goodwill, how should a public entity account for goodwill:

A. goodwill is not amortized and is tested annually for impairment

B. goodwill is amortized over 10 years straight-line

C. goodwill is amortized only if a public company makes a special election to do so

D. goodwill is tested for impairment only if there is a triggering event

47. Which of the following is generally considered a feature of high-quality earnings:

A. the earniings have several one-time itemsB. the earnings are backed by cash flowsC. the earnings come from extraordinary

operations

D. the earnings are non-recurring


48. Company X has various concentrations in its business. X wants to know which concentrations might require disclosure. Under ASC 275, which of the following is likely to be a type of concentration for which a disclosure might be required:

A. concentration of graduates from Harvard University

B. concentration in the amount of goodwillC. concentration in the sources of materials

from ChinaD. concentration in fixed assets

49. In accordance with ASC 275, how is the term “near term” defined:

A. as a period of time not more than 18 months from the date of a triggering event

B. as a period of time not to exceed one year from the date of the financial statements

C. as a period of time within five years of the date of the financial statements with certain limitations

D. as a period of time not defined by GAAP

50. Company K uses LIFO to value its inventory. At the end of the year, how should K measure its inventory under ASC 330:

A. net realizable valueB. lower of cost and net realizable valueC. lower of cost or marketD. cost

51. Which of the following costs are considered exit costs subject to the rules found in ASC 420, Exit or Disposal Cost Obligations:

A. postemployment benefit expensesB. costs associated with a contractual

arrangementC. costs to terminate a leaseD. costs to consolidate facilities to relocate

employees

52. Which of the following is an advantage of remote auditing:

A. greater interaction among audit staffB. there is a significant time savings from

avoiding travel timeC. there is less risk of complacency D. it is easier to perform certain audit

procedures such as physical inventory observations

53. Company X’s PPP loan is forgiven. How should X account for the forgiveness of debt:

A. as a credit to equityB. as a gain on extinguishment of debtC. as a deferred credit to remain on the balance

sheetD. as a reduction in eligible expenses

54. Alice’s Wonderful Applesauce has a gain on forgiveness of debt. Where should it be shown on the statement of cash flows:

A. as part of financing activitiesB. as an non-cash adjustment in operating

activitiesC. as a cash inflow in investing activitiesD. disclosed only and not included in the

statement of cash flows

55. Company L has a net operating loss in 2020. L had taxable income in years 2015 to 2019. Which of the following is true as to how L can treat the NOL:

A. L is permitted to carry the NOL forward for 20 years under the CARES Act

B. L is permitted to carry back the NOL five years under the CARES Act

C. L is not permitted to carry the NOL forward under the CARES Act

D. L is not permitted to carry the NOL back under the CARES Act


56. Company M is an S corporation and wants to convert to a C corporation effective January 1, 2020. How should M account for deferred tax assets and liabilities:

A. recognize the deferred tax assets and liabilities with the offset to retained earnings

B. recognize the deferred tax assets and liabilities with the offset recorded as part of income from continuing operations

C. record only future deferred tax assets and liabilities on new temporary differences created after the effective date as a C corporation

D. do nothing as GAAP does not permit recording deferred tax assets and liabilities once an entity has been an S corporation

57. Under the GAAP rules per ASU 2015-17 (ASC 740), how should a deferred tax liability be classified on the balance sheet:

A. always shown as current and non-current based on the estimated reversal date

B. current and non-current based on the classification of the related asset or liability

C. always non-currentD. always current

58. Company X is a nonpublic entity that has no uncertain tax positions liability. Which of the following is correct:

A. X must disclose the number of tax years open for tax examination

B. X must include an abbreviated disclosure of the number of tax years open for examination

C. the exclusion of the disclosure only applies if X is SEC registered and not a nonpublic entity

D. X is not required to disclose the number of tax years open for examination

59. In considering whether to accept a client who grows and sells marijuana, which of the following is true:

A. most marijuana businesses have to work on a cash basis

B. credit card companies now accept payments for the purchases of marijuana

C. security is no longer an issue because most banks will accept deposits from marijuana businesses

D. marijuana businesses are permitted to make payroll tax deposits by check instead of cash

60. Company X is an online retailer that sells goods in all 50 states. Which of the following is correct regarding sales tax as it relates to the Wayfair decision:

A. states can require X to pay sales tax even if X does not have a physical presence in those states

B. X might be required to pay sales tax to a state if X has more than 100 transactions in that state

C. X might be required to pay sales tax to a state if X has at least $50,000 of in-state sales collected in that state

D. X is required to collect and pay sales tax only in states in which it has a physical presence

61. Common criticisms of the statement of cash flows include all of the following except:

A. investors are unable to understand the completeness of transactions, including non-cash transactions that are not included on the statement

B. investors do not understand the indirect method of presenting cash flows from operating activities

C. users are confused about classifications of items on the statement of cash flows among operating, investing and financing activities

D. users understand the indirect method, but are more confused about the direct method


62. In general, which of the following methods do most companies use to display operating cash flows in the statement of cash flows:

A. indirect methodB. direct methodC. both the indirect and direct method using

comparative side-by-side statement presentations

D. there is no evidence to support that there is a preference for either method

63. How does the author recommend presenting the increase in cash value of life insurance on the statement of cash flows:

A. in the operating activities sectionB. in the investing activities sectionC. as a split item within the investing and

financing activities sectionsD. in the financing activities section

64. A company purchases real estate in the amount of $400,000 by borrowing $400,000 from the seller at closing. How should this transaction be accounted for on the statement of cash flows:

A. disclose as a non-cash investing and financing transaction

B. show as two items: as an outflow in investing activities and as an inflow in the financial activities section

C. show as a split with a recording in the financing activities section and a related disclosure as a non-cash transaction

D. show as an inflow in operating activities and outflow in financing activities

65. Where are insurance settlement proceeds, other than those related to the destruction of or damage to a building or equipment, included in the statement of cash flows:

A. operating activitiesB. investing activitiesC. financial activitiesD. a split between operating and investing

activities depending on the underlying basis of the damaged property

66. Common approaches that companies use to legitimately manipulate cash from operating activities include all of the following except:

A. vendor financing and extended payment terms

B. use of cash overdraftsC. shift the securities classificationD. sales of equipment

67. How should the change in vendor financing due to repaying the debt be treated in the statement of cash flows:

A. as a reduction in financing activitiesB. as a reduction in operating activitiesC. disclosed onlyD. as a reduction in investing activities

68. Facts: Company Y purchases the net assets of another company consisting of accounts receivable, inventories, fixed assets, goodwill, and assumption of accounts payable. The net price is $1,000,000 and paid for in cash. How should this transaction be presented on the statement of cash flows:

A. each individual asset and liability will be presented as a separate line item in the operating, investing or financing activities section of the statement of cash flows

B. the net price of $1,000,000 is presented as a single line item in the investing activities section of the statement of cash flows

C. the total assets are aggregated and presented as a single line item in the investing activities section, while the total liabilities are aggregated and presented as a single line item in the financial activities section

D. the entire transaction is disclosed only and not presented on the statement of cash flows


69. Facts: Company X collects a customer notes receivable from a customer in the amount of $100,000. How should this change be presented in the statement of cash flows under ASC 230:

A. as an inflow in operating activitiesB. as an inflow in investing activitiesC. as an inflow in financing activitiesD. disclosed only

70. Which of the following flows is sustainable:

A. working capital flow B. changes in working capital componentsC. cash from operationsD. by definition, no flow is sustainable

71. Company X has a wholly owned subsidiary, Company S, which is a disregarded entity (a one-member LLC). Which of the following is true under ASU 2019-12:

A. X may elect to allocate a portion of consolidated tax expense to S even though S pays no taxes

B. X is not permitted to allocate a portion of tax expense to S because X pays no taxes

C. X is required to allocate a portion of consolidate amount of tax expense to S

D. If X elects to allocate taxes to S, it must also do so for all members of the group that files a consolidated tax return

72. Company X, a not-for-profit entity, elects the accounting alternative for goodwill referenced by ASU 2019-06. Which of the following is true:

A. X is permitted to apply it to selected provisions related to goodwill

B. X is required to delay implementation for at least two years after making the election

C. X must apply it to all subsequent goodwill rules

D. X must apply it to three special provisions within GAAP with the remainder being optional

73. Company Y is a not-for-profit entity with goodwill and wishes to elect the accounting alternative identified in ASU 2019-06. Over what life is Y permitted to amortize its goodwill using the accounting alternative:

A. 10 years straight lineB. 15 years straight lineC. 40 years straight line or acceleratedD. goodwill may not be amortized

74. ASU 2019-06’s accounting alternative applies to which one of the following goodwill transactions:

A. goodwill that an entity recognizes in a business combination

B. internally generated goodwillC. goodwill from investments recorded at costD. goodwill that has been fully amortized

75. Which of the following is an example of a customer-related intangible asset in ASU 2019-06:

A. going concern valueB. customer listC. patentD. trademark

76. Company X, a not-for-profit entity, elects the accounting alternative to amortize goodwill. Which of the following is true:

A. X is not permitted to adopt the accounting alternative for acquisitions

B. X must adopt the accounting alternative for acquisitions

C. X is not required to adopt the accounting alternative for acquisitions

D. Because X is a not-for-profit entity, the accounting alternative for acquisitions is not available


77. Which of the following is considered a private company under ASU 2018-17:

A. a not-for-profit entityB. employee benefit plan on plan accountingC. an entity that is a public business entityD. a closely held business

78. Company B is an operating company that leases its office from Company C. B wishes to elect the accounting alternative in ASU 2018-17. In order to qualify for the accounting alternative, which of the following must exist:

A. B must own a majority of C’s voting interestB. B and C must be under common controlC. B and C must have a leasing arrangementD. B must provide the majority of the support for

C’s operations

79. Laura’s Homemade Pies, a public company, has $2 million of goodwill. On December 31, 2020, the Company wants to perform an impairment test on its goodwill. Under ASU 2017-04’s quantitative test, which of the following is true:

A. no impairment test is requiredB. the impairment test is required only if it is

probable that there will be an impairment writedown

C. the test uses a two-step approach which can be used only if the company does not qualify for the one-step approach

D. the test is a one-step approach

80. Big Ed’s Clothing Company is acquiring selected assets of Little Sue’s Fabric Co. Big Ed’s is trying to determine whether the assets qualify as a business. If the assets acquired are not considered a business, which of the following is true:

A. Big Ed’s must acquire only the stock of Little Sue’s

B. Big Ed’s cannot recognize and measure goodwill

C. the assets acquired cannot be recorded at fair value

D. identified intangible assets cannot be separated from tangible assets in the allocation of purchase price

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