CLFP - Accounting & Finance Questions With Correct Answers Already Passed!!

ASC 842 is what type of standard? - Accounting; relates to Financial Statements What does ASC 842 do for financial reporting? - requires operating leases to be reported on the balance sheet WHIlE maintaining the distinction between finance leases ("capital leases") and operating leases. What were the big picture significant changes brought about by ASC-842 for the lessee and lessor? - Made it so that lessee could no longer use off-balance sheet financing. Made lessor have to refocus sales techniques on other attributes of leasing. What are the 5 classifications set forth by ASC-842 that define a "finance lease for lessee" and "sales type lease for lessor"? - 1. Lease TRANSFERS ownership of property @ EOT 2. BARGAIN PURCHASE OPTION included 3. TERM of lease is for major part (75%) of useful econ life 4. PV of PMTs (+ any residual) guarantees equal (or 90%) of the fair value of leased equip 5. SPECIALIZED EQUIP that only the lessee can use without major mods. What is the source of literature that now governs lessor and lessee treatment of lease accounting? - ASC 842 - Leases What does ASC-842 require of lessees when it comes to lease accounting? - To use the 1. term of the lease, 2. the pmt stream, and 3. the lessee's incremental borrowing rate to calculate and capitalize the value of the asset's right of use offset with a corresponding lease liability. If none of the 5 criteria set forth by ASC 842 are met, the transaction is classified as what type of lease for the lessee? - An Operating Lease for lessee If none of the 5 criteria set forth by ASC 842 are met by the lessee, who then is responsible for step 2 in the evaluation process? - The lessorWhat are the 3 financial statement lease classifications for a lessor? - 1. Operating 2. Sales-type 3. Direct financing If any of the 5 criteria set forth by ASC 842 ARE met then it is considered what for the lessee? - A finance lease (formerly called a capital lease) If any of the 5 criteria set forth by ASC 842 ARE met then it is considered what for the lessor? - A sales type, operating, direct financing How should Internally prepared financial statements be viewed? - With skepticism; because the preparation is under the control of the entity that benefits from publishing a favorable statement. What are the 3 externally prepared financial statements? - Compiled, reviewed, and audited Compiled financial statements - Preparer represents management's representation in financial statement format. Preparer has no responsibility to verify the accuracy of the information. Compiled statements may be on a GAAP basis or Other Comprehensive Basis of Accounting. For compiled statements, if there is a departure from GAAP or omissions of disclosures/statements... - It must be disclosed in the accountant's compilation report. Reviewed financial statements - The accountant's review report offers limited assurance that there are no material modifications that should be made to conform to GAAP. Preparer conducts various procedures (ratio analysis and interviews with company people). Reviewed fin stmnts are required to be full disclosure fin stmnts. Any departure from GAAP or other omissions must be described in report. Audited financial statements - Provides highest level of assurance. Uses GAAS which requires eval of internal controls and external confirmations of balances $ and A/R, inventory monitoring, etc. What are some recent changes to audited financial statement requirements? - Auditor must evaluate potential areas of fraud specific to industry and company and test for these potential issues. Any departures from GAAP may require auditor to report on the effect of these deviations.Other than guidance from the SEC...What is the single source of authoritative U.S. accounting and reporting standards? - The ASC accounting standards codificarion