CPA Financial Accounting and Reporting (FAR) : CPA Financial Accounting and Reporting (FAR)
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #4 : Retirement Benefits
All of these costs except per capita claims are included in other benefits such as pensions.
Interest cost
Service cost
Prior service cost
Per capita claims
Per capita claims
Of the following costs, which is unique to postretirement health care benefits?
Example Question #5 : Retirement Benefits
Actuarial assumptions and the accumulated postretirement benefit obligation must be disclosed.
A
Neither
A & B
B
A & B
Which of the following facts about health care benefits should be disclosure? A) the assumed healthcare cost trend rate used to measure the expected cost of benefits covered by the plan B) The accumulated postretirement benefit obligation
Example Question #6 : Retirement Benefits
Where should the funded status of a defined benefit pension plan be reported?
Income statement
Notes to the financial statements
Statement of cash flows
Statement of financial position
Statement of financial position
The funded status of a company pension plan should be reported on the statement of financial position as an asset or liability depending on the status.
Example Question #1 : Stock Compensation
On January 2, Year 1, The Ludlow Corporation grants its president the rights to receive cash equal to the increase in market price of the company's stock for 1000 shares of stock. The market price on that date is $27 per share and that price rises to $30 per share on December 31, Year 1. At December 31, Year 2, the market price is $50 per share. The president must work for 3 years to earn these rights. The rights are valued at $5 per share on January 2, Year 1, at $6 per share on December 31, Year 1, and at $12 per share at December 31, Year 2. What amount of expense should the company recognize in Year 2?
$3,000
$4,000
$6,000
$8,000
$6,000
At December 31, Year 1, the company has expensed $2K for these rights (1K shares x valuation of $6 per share / 3 years). At December 31, Year 2, the value of the rights has risen to $12 per share, so the company must true up their total cost up to that time. The total cost at the end of Year 2 should be $8K (1K shares x $12 per share x 2/3 years). The company must record an additional $6K in Year 2 to get to the correct balance
Example Question #2 : Stock Compensation
On August 1, Year 1, the Webber Company issued stock options to all of its employees. A total of 50,000 options were distributed equally among its employees. On the date of issuance each option was priced at $2.25 and the employees were given until the end of August to convert their options. The option price was set at $63 and the market price on the date of issues was $66. All options were converted by August 31 when the market price of the stock was $68. What amount of expense should the Webber Company recognize in Year 1?
$112,500
$150,000
$250,000
$0
$0
The expense recorded is $0 because the stock options meet the requirements for being non-compensatory (that is, all employees are included equally, the discount on shares was very small, and employees only had 1 month to convert).
Example Question #3 : Stock Compensation
On January 2, Year 3, the Beans Company gives its CEO 1,500 options to buy stock in the company. The market price per share on that date is $25 and the option price is $22. The price increases to $29 per share on December 31, Year 3, and to $30 per share on December 31, Year 4. A computer pricing model values each option at $4 on the date of the grant, at $5 on December 31, Year 3, and at $7 on December 31, Year 4. The CEO must work for three years in order to earn these options and then has one additional year to exercise them. What amount of expense should Beans Company recognize in Year 4 related to these stock options?
$2,000
$6,000
$1,500
$7,000
$2,000
For compensatory stock options, the expense is determined at the grant date only and is amortized over the vesting period. The expense for Year 4 is calculated as $4 per share x 1,500 shares / 3 years.
Example Question #1 : Stock Compensation
Any post retirement health benefits are accrued in a manner similar to pension benefits. The expected postretirement health benefits must be fully accrued by the date the employee is fully eligible for the benefits. The accrual will begin when the employee is hired through the eligibility date.
Benefits are paid
Employee retires
Employee is fully eligible for benefits
Benefits are utilized
Employee is fully eligible for benefits
The employer's obligation for postretirement health benefits that are expected to be provided to or for an employee must be fully accrued by the date the:
Example Question #1 : Stock Compensation
Overfunded pension plans, which have a great asset count than liability, are reported as a noncurrent asset for balance sheet reporting purposes.
Current liability
Noncurrent asset
Noncurrent liability
Current asset
Noncurrent asset
An overfunded single employer defined benefit postretirement plan should be recognized in a classified statement of financial position as a:
Example Question #6 : Stock Compensation
On which date would a public entity be required to measure the cost of employee services in exchange for an award of equity interests based on the FMV of the award?
Vesting date
Grant date
Restriction lapse date
Exercise date
Grant date
Equity instruments are to be valued at grant date when they are issued for employee services.
Example Question #1 : Accrued Payroll Expense
A company has a defined benefit plan in operation that covers six employees who have an average of 5 years left to work. On January 1, Year 5, the company amends the plan and this amendment results in an increase in the pension benefit obligation of $350,000. Also in Year 5, the plan's actuary updates the plan's assumptions, which increases the pension benefit obligation by $220,000. What amount is reported in accumulated other comprehensive income related to the defined benefit plan at the end of Year 5?
$220,000
$290,000
$70,000
$500,000
$500,000
The amount reported in AOCI is the amount of these changes that has not yet been amortized. For the plan amendment, amortization begins in the current year over the 5 years the employees plan to continue working ($350K / 5 years = $70K). Therefore, $280K remains in AOCI. For the changes in assumptions, amortization will not begin until the following year, so $220K remains in AOCI.
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