1
Intermediate Accounting II
Chapter 19 Study Guide - Part 2
1. Define the following terms:
(a) contingent losses
(b) contingent gains
2.
Identify the following terms in relation to contingent
liabilities and assets, and indicate the appropriate accounting
action according to FASB Statement #5:
(a) the future event is likely to occur
(b) the chance of the future event occurring is slight
(c) the chance of the future event occurring is more
than b but less than a.
3. Explain the exception to the general rule regarding remote
liabilities.
4. Name two of the five factors to consider in determining when the
liability for litigation becomes probable.
5. Explain why the disclosure of potential liabilities
from litigation may affect the outcome of the litigation.
6. Explain the primary reason given for failure to recognize
environmental liabilities in the financial statements.
7.
Explain the likely future
environmental liabilities.
in
relation
to
reporting
8. According to FASB Statement 131, list five types of information
that must be disclosed in relation to business segments.
9. According to FASB Statement 131, how are business segments to
be identified?
10. Name and describe the three tests used to determine if a
segment is reportable, and indicate how many tests have to be
met.
2
Chapter 19 - Part 2 (continued)
11. According to FASB Statement 131, what additional information
must be reported in relation to segments in the following
situations:
(a) firms that define their segments in terms of product lines
and have significant operations in other countries
(b) firms that define their segments geographically
(c) if revenue from any one customer is more than 10% of the
total revenue?
12. According to FASB Statement 131, how does a business determine
the accounting practices (such as the inventory method) to be
used in segment reporting? What undesirable outcome may result
from this rule?
13.
Explain the
statements.
SEC's
requirement
in
relation
to
interim
14. Explain the integral part of annual period concept of preparing
interim statements, and explain how LIFO liquidation relates
to this concept.
15. Indicate if quarterly statements in the 10-Q SEC filing have to
meet the following requirements:
(a) be audited
(b) conform to GAAP
Assignment:
1. Exercise 19-31
2. Exercise 19-32
3. Exercise 19-35
3
Intermediate Accounting II
Chapter 13 Study Guide
Test Objectives:
1. Be able to describe or define the following terms:
(a) contributed or paid-in capital
(b) retained earnings
(c) preemptive right
(d) cumulative preferred stock
(e) dividends in arrears
(f) participating preferred stock
(g) convertible preferred stock
(h) callable preferred stock
(i) redeemable preferred stock
(j) treasury stock
2. Explain why par value has little significance today.
3. Explain the required balance sheet presentation for mandatory
redeemable preferred stock.
4. Be able to show the journal entries necessary to record the
following transactions:
(a) the issuance of par value stock
(b) the issuance of no par stock with a stated value
(c) the issuance of no par, no stated value stock
(d) the issuance of stock through a stock subscription
(3 entries)
(e) the reacquisition of preferred stock for immediate
retirement assuming an excess paid over par is first
allocated to PIC in excess of par and the rest to retained
earnings
(f) the purchase, resale, and retirement of treasury stock using
the cost method assuming any sale below cost is first
allocated to PIC from sale of treasury stock and then to
retained earnings
5. Explain the appropriate treatment of stock subscriptions
receivable on the balance sheet, and explain the logic behind
this treatment.
6. Explain how to determine the amount to use in recording the
issuance of stock for property other than cash or for services
rendered.
7. Name three reasons why companies acquire their own stock.
Chapter
13
(continued)
4
8. Name two ways in which a company may reacquire its own stock.
9. Explain an alternative to the cost method of treating treasury
stock, and indicate the method most frequently used.
10. Be able to describe or define the following terms and indicate
why each is offered:
(a) stock rights
(b) stock warrants
(c) stock options
11. Explain how the exercise period for warrants and options
usually differs from rights.
12. Explain how the transfer right of rights and warrants differs
from options.
13. Explain the recording requirements of each of the following on
the books of the issuer:
(a) issuance of stock rights
(b) sale of the stock under rights
14. Explain the difference between detachable and nondetachable
warrants.
15. Be able to calculate the value assigned to detachable warrants
given the following information:
(a) total issue price of bonds or preferred stock
(b) the market value of the warrants
(c) the market value of the securities without the warrants
16. Be able to show the entries necessary to record the following
on the books of the issuing corporation:
(a) the issuance of bonds or preferred stock with detachable
warrants given the selling price, the par or face value,
and the value assigned to the warrants
(b) the exercise of a portion of the warrants given the cash
paid and the par value of the common stock
(c) the expiration of a portion of the warrants
17. Explain the treatment of nondetachable warrants.
5
Chapter 13 (continued)
18. Explain the new requirement in relation to stock
options that became effective in 2006.
19. Name two factors that should be considered in the valuation of
a fixed option under the fair value method.
20. Be able to show the following entries under the fair value
method:
(a) to record annual compensation expense (You will be given
the option price, the number of options, the estimated
fair value of the options, and the vesting period.)
(b) to record the exercise of the option
21. Show the entry necessary to record expired options.
22. Explain the treatment of stock options under IFRS 2.
23. Explain the difference between a fixed stock option plan and a
performance-based stock option plan.
24.
Show the annual entry to record
performance-based plans:
(a) stock options
(b) cash settlement plans (SARs)
the
following
types
of
25. Be able to calculate the amount of the annual compensation
expense for a SARS plan given the threshold price, the market
price at the end of each year for a four-year period, and
the number of option shares.
26. Explain the treatment of broad-based stock purchase plans that
allow employees to purchase stock at a discount of 5% or less
under FASB Statement #123.
27. Be able to show the following entries related to mandatory
redeemable preferred stock under FASB Statement #150 given
the selling price and the redemption price:
(a) the sale of the stock
(b) the recording of implicit interest
(c) the redemption of the stock
6
Chapter 13 (continued)
28. Be able to show the following entries under FASB Statement
#150:
(a) the writing of a put option
(b) the settlement of a maintenance obligation by the
agreement to issue a fixed number of common shares
(c) same as (b) , but assume the shares are variable
to guarantee a certain market value.
29. Be able to show the journal entry necessary to record the
conversion of preferred stock into common stock given the par
value and the excess for the preferred stock, the par value of
the common stock, and the conversion ratio.
30. Name four transactions that increase retained earnings and four
that decrease retained earnings.
31. Name four types of dividends and name two types that do not
decrease retained earnings.
32. Name three types of prior period adjustments.
33. Explain what is meant by appropriated retained earnings.
34. Name three reasons for appropriating retained earnings.(TBAIC)
35. Explain the major purpose of a voluntary appropriation.
36. Be able to record the following transactions on the books of
the issuer:
(a) cash dividend on the date of declaration
(b) cash dividend on the date of record
(c) cash dividend on the date of payment
(d) property dividend on the date of declaration given the
market value of the property and the cost of the property
(e) property dividend on the date of payment
(f) small stock dividend on the date of declaration given the
shares outstanding, the stock dividend percentage, the
market price of the stock, and the par value of the stock
(g) small stock dividend on the date of issuance
37. Explain the difference between a small and a large stock
dividend.
38. Explain the three possible alternative entries for a large
stock dividend on the date of declaration depending on
state law.
Chapter 13 (continued)
7
39. Describe the following terms and indicate the purpose of each:
(a) stock split
(b) reverse stock split
40. Explain why a company that uses a stock dividend rather than a
stock split to lower the market price of its stock may hinder
its ability to pay future cash dividends.
41. Explain what is meant by a liquidating dividend, and be able to
show the journal entry necessary to record the declaration of
a liquidating dividend to be distributed from paid in capital
in excess of par value.
42. Name four types of other comprehensive income items that are
part of stockholders= equity
8
Assignment:
1. Exercise 13-24 (Record part b to the same account used for state
incorporation fees, and on part d, the original acquired costs
are irrelevant to the issuing company.)
2. Exercise 13-27
3. Exercise 13-28 (Debit Paid in Capital in Excess of Par for a
proportionate amount, $18 per share.)
4. Exercise 13-29 (part 1a only) (On Aug. 1, debit Paid in Capital
from Sale of Treasury Stock for any credit balance before
debiting Retained Earnings.) (On Sept. 1, debit Paid in
Capital in Excess of Par for a proportionate amount, $16
per share.)
5. Exercise 13-30
6. Exercise 13-31
7. Exercise 13-32
8. Exercise 13-33
9. Exercise 13-34
10. Exercise 13-35 (parts 1 & 2 only)
11. Exercise 13-38 (part a only)
12. Exercise 13-40 (parts a & b)
13. Exercise 13-42
14. Problem 13-59
9
Intermediate Accounting II
Chapter 16 Study Guide
Test Objectives:
1. Explain why companies maintain two Asets of books@.
2. Indicate which of the following differences in financial and
taxable income do not create accounting problems:
(a) permanent differences
(b) temporary differences
3. Name an example of a nontaxable revenue and a nondeductible
expense that create permanent differences in taxable and
financial income.
4. Give one example of each of the following temporary differences
in taxable and financial income, and indicate if each example
creates a deferred tax liability or a deferred tax asset:
(a) financial revenues or gains that are not taxable in this
period but will be in the future
(b) tax expenses or losses that were not recognized for
financial reporting but will be in the future
(c) tax revenues or gains that were not recognized for financial
reporting but will be in the future
(d) financial expenses or losses that were not tax deductible in
this period but will be in the future
5. Name the term used to identify the process of accounting for
temporary differences in taxable and financial income.
6. Fill in the four steps necessary to compute the amount of
deferred tax using the assets and liability method under the
provisions of FASB Statement #109:
(a) identify the types and amounts of existing
differences
(b) measure the deferred tax
for taxable
temporary differences using the applicable tax rate
(c) measure the deferred tax
for deductible
temporary differences using the applicable tax rate
(d) reduce deferred tax
by a
if it is more likely than not that some or all of the
deferred tax
will not be
10
Chapter 16 (continued)
7. Be able to indicate the debit(s) and credit(s) necessary to
record each of the following tax transactions:
(a) increase in the current tax to be paid
(b) increase in the deferred tax liability - noncurrent
(c) increase in the deferred tax liability - current
(d) reversal of a deferred tax liability - noncurrent
(e) increase in a deferred tax asset - part current and part
noncurrent
(f) reversal of a deferred tax asset - current
(g) decrease in a tax rate that decreases a deferred tax
liability - current
(h) increase in a tax rate that increases a deferred tax
liability - noncurrent
(i) decrease in a tax rate that decreases a deferred tax asset current
(j) increase in a tax rate that increases a deferred tax asset noncurrent
(k) recognition of a deferred tax asset - noncurrent and a
larger deferred tax liability - noncurrent
(l) recognition of a deferred tax asset - noncurrent and a
smaller deferred tax liability - noncurrent
(m) recognition of a deferred tax asset - current and a deferred
tax liability - noncurrent
(n) recognition of a deferred tax asset - current or noncurrent,
with a valuation allowance
(o) NOL carryback
(p) NOL carryforward
(q) NOL carryforward with a valuation allowance
8. Indicate the tax rate that should be used to determine the
initial deferred tax account.
9. Indicate the account classification of the deferred tax asset
valuation allowance account, and explain its purpose.
10. Name three categories of taxable income that can be used to
reduce or avoid the creation of a deferred tax asset valuation
allowance.
11. Be able to work a problem similar to exercise 16-24.
12. Be able to work a problem similar to exercise 16-25.
13. Be able to work a problem similar to exercise 16-25 but
assuming a deferred tax asset.
14. Explain how a NOL is used to reduce past income tax expense.
11
Chapter 16 (continued)
15. Explain how a NOL is used to reduce future income tax and why
a valuation allowance may reduce or eliminate the recognition
of the tax benefit.
16. Name a situation when the scheduling of the periods in which
temporary differences are expected to be reversed is necessary.
17. Explain when the tax rate of a past year is used to value a
deferred tax asset.
18. Complete the following tax items that must appear in the body
of the income statement or in notes:
(a) current tax
or
(b) deferred tax
or
(c)
tax credit
(d) Government
recognized as tax reductions
(e) benefits of operating
(f) adjustments of a deferred tax liability or asset for
enacted changes in tax laws or
or a change
in the tax
of an enterprise
(g) adjustments in the beginning-of-the-year
because of a change in circumstances
(h) the specific accounting differences between the financial
statements and the tax returns that gave rise to
and
(i) a
of reported income tax expense
related to continuing operations with the amount of income
tax expense that would result from applying federal tax
rates to pretax financial income from continuing
operations
20. Name the most common source of deferred tax items.
21. Explain the relationship between U.S. and international
treatment of deferred income taxes.
12
Assignment:
1. Exercise 16-23
2. Exercise 16-24
3. Exercise 16-25
4. Exercise 16-26 (Also show the journal entry if assumption (2) is
not applicable and the entry if assumption (2) is applicable
5. Exercise 16-31
6. Exercise 16-33
7. Exercise 16-36
13
Intermediate Accounting II
Chapter 20 Study Guide
1. Provide the following information in relation to accounting
changes:
(a) four main reasons for such changes
(b) two functions of accountants in relation to these changes
(c) two main categories of accounting changes
(d) five suggested alternatives for reporting changes
(e) one argument for restating prior periods for accounting
changes
(f) one argument against restating prior periods for accounting
changes
2. Provide the following information in relation to changes in
accounting estimates:
(a) two examples
(b) required treatment
(c) a change in accounting principle that is treated as a change
in an estimate
3. Provide the following information in relation to changes in
accounting principles:
(a) two examples of changes in accounting principles (TBAIC)
(b) two situations under which a company may change its
accounting principles and give two examples of the second
situation (TBAIC)
(c) type of change in accounting principle that is treated
as an error correction
(d) the general rule regarding the treatment of a change
from one acceptable accounting principle to another
(e) example of a change in accounting principle that does not
allow for retroactive adjustment due to impracticality
(f) two disclosures required in relation to changes
in accounting principle. (TBAIC)
4. From the following information, show the journal entry to record
a change from LIFO to FIFO:(See lecture notes)
(a) net increase in the value of inventory
(b) increase in the current year's tax payable
5. Name the two pro forma informational items that must be
reported for the full current year and the preceding year
after a business combination.
14
Chapter 20 (continued)
6. Explain the bookkeeping treatment of accounting errors made
in prior years that have not been counterbalanced or
reversed.
7. Give an example of a error in net income that, when not
detected, is automatically counterbalanced in the following
period, and give an example of one that is not automatically
counterbalanced.
8. Indicate the journal entry necessary to correct the following
errors:
(a) an understatement of inventory if the error has been
counterbalanced
(b) an understatement of inventory if the error is discovered
before it is counterbalanced
(c) failure to record a credit sale
(d) failure to record depreciation
Assignment:
1. Exercise 20-27
2. Exercise 20-28
2. Exercise 20-29 (Also show the journal entry necessary to report
the change in accounting principle.)
15
Intermediate Accounting II
Chapter 18 Study Guide
1. Describe the following terms:
(a) dilution of earnings
(b) antidilution of earnings
2. Name the two types of EPS figures that must be reported
for firms with complex capital structures under FASB
Statement #128, and explain the difference between the
two figures.
3. Explain the difference between a simple and a complex capital
structure.
4. From the following information, be able to calculate a basic
EPS:
(a) # shares of common stock at the beginning of the year
(b) sale of additional shares of common stock
(c) stock dividend
(d) stock split
(e) purchase of treasury stock
(f) net Income
(g) preferred dividends declared
5. Explain the effect of a stock dividend or split on the # of
shares used to calculate EPS for prior periods that are
presented for comparison purposes with the current period.
6. Explain how to calculate the deduction from net income for
preferred dividends if the preferred stock is cumulative.
7. Provide the following information in relation to diluted EPS:
(a) two major types of potentially dilutive securities
(b) date of assumed exercise or conversion
(c) when options, warrants, and rights are considered to be
dilutive
(d) market price used to measure dilution on options,
warrants, and rights
(e) two methods of treating cash that would have been received
from the exercise of options, warrants, or rights and the
method selected by FASB.
16
Chapter 18 (continued)
8. From the following information, be able to calculate diluted
EPS:
(a) # shares of common stock at the beginning of the year
(Assumed unchanged during the year.)
(b) net income
(c) preferred dividends
(d) # shares applying to a stock option, exercise price, and
the date granted
(e) average market price of the stock for the year
9. Be able to determine the basic and diluted EPS using the
data in objective #8 but assume the option was exercised
during the year. You will be given the date of the exercise
and the market price at the time of the exercise.
10. Explain how each of the following are adjusted to net income in
determining diluted EPS:
(a) interest expense on convertible bonds
(b) amortization of bond premium on convertible bonds
(c) amortization of bond discount on convertible bonds
(d) dividends on convertible preferred stock
11. From the following information, be able to calculate
diluted EPS:
(a) common stock outstanding (no change during the year)
(b) face value and contract rate of interest on convertible
bonds
(c) conversion terms
(d) net income for the year
(e) tax rate
(f) preferred dividends declared
(g) annual amortization of bond discount or premium
12. From the following information, be able to calculate diluted
EPS:
(a) # of shares of common stock outstanding (no change during
the year)
(b) net income for the year
(c) dividends on convertible preferred stock
(d) # shares of convertible preferred stock
(e) conversion ratio
13. Explain why no dual computation of EPS is necessary with a net
loss.
17
Chapter 18 (continued)
14. From the following information, determine if the options or the
convertible securities are potentially dilutive:
(a) net income
(b) preferred dividends
(c) average market price of the stock
(d) # shares of common stock outstanding (no change during the
year)
(e) a list of stock options and the option price
(f) a list of convertible securities including the adjustment
to net income and the increase in the # shares of common
stock associated with each security
15. From the information in objective #14, be able to calculate
diluted EPS.
16. List income statement figures for which EPS should be presented
in the following ways:
(a) on the face of the income statement (two figures)
(b) on the face of the income statement or in notes to
the statements (two figures)
Assignments:
1. Question #5
2. Exercise 18-20
3. Exercise 18-24 (Calculate EPS for Income from Continuing
Operations and for Net Income.)
4. Exercise 18-25
5. Exercise 18-26
6. Exercise 18-28
7. Exercise 18-33