Weekly Review Quiz #515 - FAR: Select Transactions
Thank you for taking our Financial Accounting and Reporting (FAR) review quiz. Check back again for five new sample BEC CPA questions to help you prepare for the exam.
Under IFRS, a change in accounting estimate is accounted for
- Prospectively in the period of change and future periods.
- Currently in the financial statements.
- As a cumulative effect of an accounting change in the income statement.
Correct Answer B.
Changes in accounting estimates are accounted for on a prospective basis in the period of the change and in future periods.
Which of the following describes an "accounting mismatch" as that expression is used in IFRS?
- Debts don't equal credits.
- Liabilities exceed assets.
- Related assets and liabilities are valued using different measures.
- The value of a hedging instrument does not equal the value of the hedged item.
Correct Answer C.
An “accounting mismatch” refers to a circumstance where related assets and liabilities are valued using different measures.
On December 12, 20X8, Averseco entered into a forward exchange contract to purchase 100,000 units of a foreign currency in 90 days. The contract was designated as and qualified as a fair value hedge of a purchase of inventory made that day and payable in March 20X9. The relevant direct exchange rates between the foreign currency and the dollar are as follows:
At December 31, 20X8, what amount of foreign currency transaction net gain or loss should Averseco recognize in income as a result of its foreign currency obligation and related hedge contract? (Ignore premium/discount and present value considerations.)
Correct Answer C.
The net loss will be $7,000. The gain or loss on the payable will be measured as the number of foreign currency units multiplied by the change in the spot rate between the date the liability arose, December 12, and the end of the year, December 31. Thus, the loss on the payable will be 100,000 foreign currency units × ($0.98 − $0.88 = $0.10) = $10,000. The gain or loss on the forward contract (disregarding any premium/discount at initiation of the contract and without using a present value factor) will be measured as the number of foreign currency units multiplied by the change in the forward rate between the date the contract was executed, December 12, and the end of the year, December 31. Thus, the gain on the forward contract will be 100,000 foreign currency units × ($0.93 − $0.90 = .03) = $3,000. The net will be $10,000 − $3,000 = $7,000, the correct answer.
How should a nongovernmental not-for-profit organization report depreciation expense in its statement of activities?
- It should not be included.
- It should be included as a decrease in unrestricted net assets.
- It should be included as an increase in temporarily restricted net assets.
- It should be reclassified from unrestricted net assets to temporarily restricted net assets, depending on donor-imposed restrictions on the assets.
Correct Answer B.
It is presented as a decrease in unrestricted assets.
The cumulative effect of a change in accounting principle should be recorded as an adjustment to retained earnings, when the change is:
- Cash basis of accounting for vacation pay to the accrual basis.
- Straight-line method of depreciation for previously recorded assets to the double-declining-balance method.
- Longer useful life of equipment to shorter useful life.
- Completed-contract method of accounting for long-term construction-type contracts to the percentage-of-completion method.
Correct Answer D.
Accounting-principle changes such as this one are recorded by retroactively restating prior-year financial statements. The entry to record the change results in an adjustment to the beginning balance of retained earnings in the year of the change.
We hope you found this week’s quiz helpful. These questions are just a small sample of what you will find in Wiley CPAexcel. Visit our Weekly Review Quiz Archive to view past quizzes with answers and rationales. If you haven’t already done so, Sign Up to receive our free review quizzes every week via email.
Our courseware contains over 2,600 pages of electronic study text, over 5,500 proficiency questions, over 5,100 past exam questions, over 4,200 electronic flashcards, over 450 task-based simulations and personalized progress reports to manage and track your mastery of the material. Learn more about Wiley CPAexcel.