ACBS 400B EXAM 1 PRACTICE QUESTIONS
AND DETAILED SOLUTIONS
◉ Disclosure issue: Related party transaction examples.
Answer: Between a parent company and its subsidiary. Between
subsidiaries of a common parent. Between the firm and entities
controlled by the managers.
◉ Disclosure issue: Related party transaction disclosure.
Answer: Need to provide: description of the transaction, nature of
relationship, amounts involved
◉ Disclosure Issue: Special events include.
Answer: Errors, Fraud (irregularities), illegal acts. Very uncommon,
require correction to financials and additional disclosures
◉ Disclosure issues: Recognized Subsequent Events.
Answer: Event that provide additional evidence about conditions
that existed at the BS date
◉ Disclosure issues: Nonrecognized subsequent events (disclose or
not?).
,Answer: Events that provide evidence about conditions that did not
exist at the balance sheet date
◉ Steps to reporting Post-Balance-Sheet events.
Answer: 1) identify if subsequent event represents a significant
change in the economics of the FS
2) if event gives additional evidence about conditions that existed at
BS data, recognition is required (ignoring event harms accuracy of
FS)
3) if event provides evidence about conditions that did not exist on
the BS date they are nonrecognized subsequent events. (no FS adj.
required but in some cases footnotes is needed).
◉ Disclosure Issues- Diversified Companies.
Answer: Investors and investment analysts want IS, BS, and CF info
on individual segments that compose the total income figure of what
type of companies?
◉ Diversified companies: Conglomerate firms.
Answer: aggregation of different business with different risk
profiles. Aggregate picture does not reflect the underlying variation
in the business
◉ Objective of reporting Segment Info.
, Answer: Provide info on the different business. Better understand
the enterprise's performance and better assess its prospects for
future net CF
◉ Diversified Companies: Basic Principles.
Answer: 1) Management approach: define segments base on how
management views them. 2) Segment must have revenues and
expenses, performance assessed using discrete financial info. by
chief decision maker. 3) Acct. Principles that companies use for
segment disclosure need not be the same principles they use to
prepare consolidated statements. 4) Companies may aggregate info
about two or more operating segments only if the segments have the
same basic characteristics in certain areas.
◉ Diversified company segments must have:.
Answer: Revenues and expenses. performance assessed using
discrete financial info by chief decision maker.
◉ Diversified companies may aggregate info about two or more
operating segmetns only if the segments have the same basic
characteristics in each of the following areas:.
Answer: 1) Nature of the products and services provided. 2) nature
of the production process. 3) type of class of customer. 4) methods of
product or service distribution. 5) nature of regulatory enviroment
AND DETAILED SOLUTIONS
◉ Disclosure issue: Related party transaction examples.
Answer: Between a parent company and its subsidiary. Between
subsidiaries of a common parent. Between the firm and entities
controlled by the managers.
◉ Disclosure issue: Related party transaction disclosure.
Answer: Need to provide: description of the transaction, nature of
relationship, amounts involved
◉ Disclosure Issue: Special events include.
Answer: Errors, Fraud (irregularities), illegal acts. Very uncommon,
require correction to financials and additional disclosures
◉ Disclosure issues: Recognized Subsequent Events.
Answer: Event that provide additional evidence about conditions
that existed at the BS date
◉ Disclosure issues: Nonrecognized subsequent events (disclose or
not?).
,Answer: Events that provide evidence about conditions that did not
exist at the balance sheet date
◉ Steps to reporting Post-Balance-Sheet events.
Answer: 1) identify if subsequent event represents a significant
change in the economics of the FS
2) if event gives additional evidence about conditions that existed at
BS data, recognition is required (ignoring event harms accuracy of
FS)
3) if event provides evidence about conditions that did not exist on
the BS date they are nonrecognized subsequent events. (no FS adj.
required but in some cases footnotes is needed).
◉ Disclosure Issues- Diversified Companies.
Answer: Investors and investment analysts want IS, BS, and CF info
on individual segments that compose the total income figure of what
type of companies?
◉ Diversified companies: Conglomerate firms.
Answer: aggregation of different business with different risk
profiles. Aggregate picture does not reflect the underlying variation
in the business
◉ Objective of reporting Segment Info.
, Answer: Provide info on the different business. Better understand
the enterprise's performance and better assess its prospects for
future net CF
◉ Diversified Companies: Basic Principles.
Answer: 1) Management approach: define segments base on how
management views them. 2) Segment must have revenues and
expenses, performance assessed using discrete financial info. by
chief decision maker. 3) Acct. Principles that companies use for
segment disclosure need not be the same principles they use to
prepare consolidated statements. 4) Companies may aggregate info
about two or more operating segments only if the segments have the
same basic characteristics in certain areas.
◉ Diversified company segments must have:.
Answer: Revenues and expenses. performance assessed using
discrete financial info by chief decision maker.
◉ Diversified companies may aggregate info about two or more
operating segmetns only if the segments have the same basic
characteristics in each of the following areas:.
Answer: 1) Nature of the products and services provided. 2) nature
of the production process. 3) type of class of customer. 4) methods of
product or service distribution. 5) nature of regulatory enviroment
