#13

Question 1

Is fixed assets current or noncurrent?

Answer 1

Noncurrent assets

Question 2

How is deferred taxes classified?

Answer 2

based on the classification of the related asset or liability

Question 3

Current assets include

Answer 3

cash, cash equivalent, inventory, accounts receivable (the part that’s due within a year)

Question 4

current ratio

Answer 4

current assets / current liabilities

Question 5

quick ratio

Answer 5

(cash + net receivables + marketable securities) / Current liabilities

Question 6

When you try to calculate the cash on balance sheet, remember to mix it up with liabilities

Answer 6

Got it

Question 7

When a company pledges (assigns) receivables in return for a loan, the assigning company retains the title to the receivable and will use the proceeds collected from the receivables to repay the loan

Answer 7

Basically, the company pledging the receivables still have title and responsible for collecting, but the proceeds are for repaying the loan

Question 8

Allowance for uncollectible ammount

Answer 8

% of accounts receivable * accounts receivable

Question 9

Is allowance for bad debt expense a debit or credit balance?

Answer 9

Credit balance, because it’s contra-asset

Question 10

Only things reconciling cash balance per the bank statement are

Answer 10

bank errors, deposits in transit, and outstanding checks. Other shits are in the

Question 11

Ending allowance for uncollectible expense is the begging allowance

Answer 11

+ uncollectible accounts expense

- accounts written off

Question 12

Balloon note

Answer 12

a long term loan that has one large payment at the end

Question 13

DIfference between gross method and net method for discounts

Answer 13

Gross method does not take available discount into consideration.

Net method does. If discount not taken, sales discount not taken must be credited.

Question 14

Consigned goods

Answer 14

The seller (consignor) should include the consigned goods in its inventory because title and risk of loss is retained by the consignor even though the consignee posses the goods

Question 15

Inventory is valued at

Answer 15

Valued at cost

Question 16

How to calculate price index

Answer 16

Ending inventory at Current year cost / Ending inventory at base year cost

Question 17

Periodic inventory system

Answer 17

Inventory determined by physical count, so units of inventory and associated costs are updated at the end of the accounting period

Question 18

Perpetual inventory system

Answer 18

Inventory count and CoGS are updated continuously with each sale.

Question 19

Excavation is treated as part of

Answer 19

cost of the building

Question 20

What cost of plant asset is capitalized?

Answer 20

Any cost incurred to acquire and make ready a plant asset, which includes the insurance on the machine in transit and testing the machine.

Question 21

capitalized interest is

Answer 21

the smaller of total interest and avoidable interest

Question 22

Avoidable interest

Answer 22

Interest that is avoidable if it had not made the expenditure for the asset. Based on weighted average expenditure

Question 23

Land cost include

Answer 23

Any cost incurred of getting the land ready for intended use, including razing old buildings and legal and title, minus salvage

Question 24

Interest cost during the construction period of machine to be used by itself should be

Answer 24

capitalized as part of historic cost of acquiring the asset

Question 25

Interest cost of machinery for customers (not internal use) should be

Answer 25

All interest cost should be expensed in income statement for machinery for customers.

Question 26

Net realizable value

Answer 26

Sales price - cost of disposal

Question 27

Lower of cost or market results in the lowest inventory amount is when it’s applied to all items or separately to each item?

Answer 27

All inventory results in the highest inventory amount (most liberal).
Separately to each item results in the lowest amount (most conservative). Because every inventory is valued at the lowest.

Question 28

LIFO reserve is the

Answer 28

Difference between LIFO method vs. any other cost method

Question 29

LIFE layer added in the current year at dollar-value LIFO is calculated by

Answer 29

multiply the LIFO layer at base year cost by the internally generated price index

Question 30

DIfference between weighted average method and moving average method for LIFO?

Answer 30

Weighted average method uses the weighted average for the period.
Moving average method uses the weighted average after each sale.

Question 31

Lower of cost and market

Answer 31

2 steps

1) Compare “floor”, “ceiling”, and replacement cost. Use the one that is in the middle.
2) compare the amount from previous to inventory cost. Use the lower of the two.

Question 32

What is write-off of obsolete inventory

Answer 32

operating loss, NOT as cost of goods sold

Question 33

Gross margin is

Answer 33

selling price - CoGS

Question 34

A company enters into a contract to buy certain units of a product for multiple years. If the company decides to cancel the sale of the product, how much should the company report as loss related to the purchase commitment as of the current year?

Answer 34

If decided to cancel the sale of the product, the company needs to recognize the loss of all the years in the contract, this year.

Question 35

Inventory turnover ratio

Answer 35

cost of good sold / average inventory forthe year

Question 36

Freight is cost of inventory and expensed when inventory is sold

Answer 36

so when determining the net profit, remember to expense percentage of freight cost based on the percentage sold

Question 37

Difference between GAAP and IFRS for inventory valuation

Answer 37

GAAP: lower of cost or market
IFRS: lower of cost or NRV