7/30 Flashcards
A machine costing 800,000 has an annual depr of 100,000 over 8 years. During year 4 reed concluded that the machine suffered permanent impairment and 200,000 is a reasonable estimate of the recoverable value. In Reed’s yr 4 balance sheet, what is the carrying amount of the machine?
160,000
New BV 200,000
remaining live 5 years.
annual depr 200,000 / 5 = 40,000
200,000 - 40,000 = 160,000
Which of the following statements is most accurate in regard to the capitalization of computer software costs to be licensed?
Capitalized software costs are reported on the balance sheet at cost
Coding and testing costs after tech feasibility is established can be capitalized
Amortization begins once tech feasibility is established
Software costs intended to be licensed can only be expensed
Coding and testing costs after tech feasibility can be capitalized
prior to tech feas, coding and testing are expensed. after they are capitalized.
For GAAP purposes, costs to develop computer software for ultimate sale
Should be expensed if they are relevant design costs incurred before tech feas
Should be capitalized if they are relevant design cots incurred before tech feas
Should be capitalized
Should be expensed as incurred
Should be expensed if they are relevant design costs incurred before tech feas
An entity tested its goodwill for impairment and determined the following
BV 1,015,000
FV 935,000
Estimated FV of cash flows 940,000
Goodwill bal. 110,000
What amount of goodwill impairment should be reported?
80,000
BV - FV
Organization costs are treated how on the FS
Expensed immediately
Big Brown Copr has the following derivative investments Yr1, Yr 2
Speculative 280,000 yr 1, 310,000 yr 2
FV Hedge 600,000 yr 1, 745,000 yr 2
Cash Flow Hedge 430,000 yr 1, 510,000 yr 2
What amount of gain from these derivatives should Big Brown report
175,000 Net Income and 80,000 OCI
No hedge (speculative) and FV hedges report to current earnings Cash flow hedges are included in OCI
On Feb 1, Yr 1 Davis issues 12% 1,000,000 10 yr bonds at 1,117,000. Davis reacquired all of these bonds at 102 plus interest on May 1. The unamortized bond premium was 78,000. What is Davis’ gain on the retirement?
58,000
Dr Bond Payable 1,000,000
Dr Unamortized Premium 78,000
Cr Cash 1,020,000
Cr Gain 58,000
Jones has the following
Outstanding common 110,000 yr 1 and 2
Convertible preferred 10,000 yr 1 and 2
8% convertible bonds 1,000,000 yr 1 and 2
Jones paid dividends of 3.00 per share on its preferred stock. Preferred shares are convertible into 20,000 share of common stock. The bonds are convertible into 30,000 shares of common stock. Net Income is 850,000. Assume income tax is 30%.
What is diluted earnings per share?
5.66
Net income 850 + Interest 80 - Tax on Interest 24 = 906,000
Adjusted shares 110,000 + 20,000 + 30,000 = 160,000
906,000 / 160,000 = 5.6625
What are reported in the financing activities section of the statement of cash flows
Cash changes in interest bearing debt, changes in own eq.
resources from owners, issuing stock
paying cash dividends or stock repurchase
Issuing bonds, notes, debenture, debt,
payment of principal
Toigo purchased merchandise from a vendor on Nov 20 for 500 british pounds. Payment was due Jan 20. The spot rates were
Nov 20 1.25
Dec 31 1.2
Jan 20 1.17
How should the foreign currency transaction gain be reported on Toigo’s FS Dec 31
As a gain of 25 in the income statement
625 nov 20 vs 600 Dec 31.
Governmental funds are
General Special Rev Debt Services Capital projects Permanent
They use current financial resources measurement focus
Fund accounting
GRaSPP SE CIPPOE
Governmental
General, Special Revenue, Debt Service, Capital Projects, Permanent
Proprietary - Business Type
Internal Service, Enterprise
Fiduciary - Excluded from Gov FS
Custodial, Investment Trust, Private Purpose trust, Pension and Other Employee benefit trust
Measurement focus of governmental funds
Current financial resources - Governmental
Economic resources - Proprietary and Fiduciary
Leasehold improvements should be amortized over
The lesser of the remaining life of the lease or life of improvement
For a troubled debt restructuring involving a modification of terms, which of the following specified by new terms would be compared to the carrying amount of the debt to determine if the debtor would report a gain?
- The PV of debt at the modified interest rate
- The total future cash payments
- The amount of future cash payments designated as principal repayments
- The PV of debt at the original interest rate
The total future cash payments
Carrying amount - total future cash payments = gain
Criteria for a financing lease
Ownership transfer at end of lease Written purchase option PV of lease payments = fair value of asset Lease terms are 75% of useful life Asset is specialized
The board of directors granted 10,000 stock options to the CEO. Option price 25. The options are excersisable on Dec. 31, yr 4. Options expire Dec 31, yr 5. FV of each option is 5 at grant date. The corp must recognize
- 50,000 of compensation expense in yr 1
- 50,000 of compensation expense when the options are exercised
- 12,500 of compensation expense per year for four years
- 10,000 of compensation expense per year for five years
12,500 compensation expense per year for four years
10,000 shares x 5 fv = 50,000 over 4 years is 12,500
Which of the following statements is correct regarding reporting comprehensive income?
- a separate statement of comprehensive income is required
- comprehensive income must include all changes in stockholder equity
- accumulated other comprehensive income is reported in the stockholder eq section
- comprehensive income is reported in the year end statements but not in interim
accumulated other comprehensive income is reported in the stockholder equity section of the balance sheet.
According the FASB conceptual framework, which of the following would cause earnings to differ from comprehensive income
- unrealized gain from trading debt securities
- unrealized holding loss from AFS debt securities
- realized gain from sale of held to maturity debt security
- dividends declared but not paid
Unrealized holding loss from AFS debt securities
Concept is preparing its income statement for year end. In preparing the statement the line item displayed before considering income tax is
- accumulated other comprehensive income
- income from continuing operations
- income from operations
- net income
Income from operations
Steam acquired equipment under a finance lease for six years. Lease payments were 60,000. Interest is 5%. Annuity factor for six years is 5.0757. What amount should steam report as interest expense?
15,227
Finance lease is recorded as DR ROU Asset and Cr Lease Liability for 304,542 (60,000x5.0757). Interest expense will be 304,542x5%=15,227
How should a publicly traded company report a change in fair value hedge AFS security attributable to foreign exchange risk?
In earnings
FV hedge is an instrument designed to hedge exposure from changes in FV of a recognized asset or liability.
Goodwill should be tested for value impairment at which of the following levels under GAAP?
Each reporting unit.
Reynolds is owed 18,000 above and beyond his capital balance.
Calculate the bonus charged to each partner
Lewis 35%, Reynolds 25%, Sandford 40%
Lewis 35/75 x 18,000 = 8400
Sandford 40/75 x 18,000 = 9600
Goodwill method booked for partner leaving
Extra paid 18,000
Lewis 35%, Reynolds 25%, Sandford 40%
Goodwill booked 18,000/.25=72,000
Lewis 72,000 x .35 = 25200
Reynolds 72,000 x .25 = 18000
Sandford 72,000 x.4 = 28800
Scott exchanged nonmonetary assets with Dale, no cash was exchanged. The carrying amount of the asset surrendered by Scott exceeded both the FV and BV of the asset received by Dale. Scott Should
Recognize the difference between the BV surrendered and BV received as a loss
Recognize the difference between the BV surrendered and FV received as a gain
Recognize the difference between the BV surrendered and FV received as a loss
Recognize no gain or loss
Recognize the difference between the BV surrendered and FV received as a loss
Able leased equipment to Baker under a noncancelable lease with a transfer of title. Will able record depreciation expense and/or interest revenue related to the lease?
No depreciation and yes Interest revenue.
Interest income earned on payment date.
Asset will be removed from Able’s books.
Contingency Treatments
Accrue and Disclose probable and reasonably estimated
Disclose probable and no estimate
Disclose reasonably possible
Which of the following describes the relationship of interest expense related to bonds payable when a discount on bonds payable has been recorded using the effective interest method?
Interest expense will decrease each year
Interest expense will increase by the same amount each year
Interest expense will be the same each year
Interest expense will increase by a larger amount each year
Interest expense will increase by a larger amount each year.
Quattro signed a lease from Cinco on July 1, yr 1 for equip. with a five year life. The lease does not include any option to buy the equipment. 4 year lease term. No ownership transfer. Five equal payments of 10,000 per year with first due upon signing. Incremental borrowing rate 8%.
PV of annuity 8% for 5 yrs = 3.993
PV of annuity 8% for 4 yrs = 3.312
What should Quattro report for Equipment, Accum Depr and Lease Payable
Finance lease as lease term is greater than 75% of useful life.
Lease Liab = 10,000 x 3.312 = 33,120
Equipment = 33,120 + 10,000 initial payment = 43,120
Accum Depr = 43,120 / 8 = 5,390 (4 is the lesser of the lease or useful life)
