7/4 Flashcards
1,200,000 note payable dated Oct 1 yr 1, 15% int. Three equal payments of 400,000.
How much accrued interest payable reported on the Dec 31, yr 2 FS
1,200,000 less first payment 400,000 = 800,000
800,000 x .15 = 120,000
120,000 x 3/12 = 30,000
30,000 reported as interest payable
Adjustments for converting from cash basis to accrual basis
Add increases in current assets
Subtract decreases in current assets
Add decreases in current liabilities
Subtract increases in current liabilities
How should the effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate be reported?
As a component of income from continuing operations.
Overall effect is a change in estimate. reported prospectively as a component of income from continuing operations.
Which of the following statements is correct regarding reporting comprehensive income?
- Comp inc must include all changes in stockholder equity for the period
- Comp Inc is reported in the year-end statements not interim statements
- A separate statement of comp income is required
- Accumulated other comp inc is reported in stockholder eq. on BS
Accumulated other comprehensive income is reported in the stockholder equity section of the bal sheet.
For purposes of determining the period over which subsequent events must be evaluated, FS are considered to be available to be issued when
- FS are in a form and format that comply with GAAP
- All approvals necessary for the issuance of the FS have been received
- FS have been widely distributed to FS users
1 and 2
A business combination is accounted for as an acquisition. Which of the following expenses related to the business combination should be included in the determination of net income of the combined corp for the period?
- Fees of finders and consultants
- Registration fees for equity securities issued
Yes to finder fees
No for registration
In year 10, hail damaged several vans. Hailstorms are frequent. Toncan sold the vans in year 10 for less than carrying amount. How should the hail damage cost be reported in Toncan’s year 10 FS under GAAP?
Actual year 10 damage loss in continuing operations, with no separate disclosure.
Because the storms are frequent, the damage is not considered unusual. Thus damage are continuing operations. No separate disclosure since common occurrence.
If Hutton borrowed 100 by issuing 100 LT note payable, what would be the effect on the following ratios: Current & Debt to Assets
-Increase , No effect, Decrease
Both would increase
Current Ratio - Current Asset/ Current Liab. Numerator increase
Debt to Assets Ratio - Total Liab / Total Assets. Numerator and Denominator Inc. Ratio would increase slightly
Which of the following is a component of other comprehensive income?
- cumulative currency-translation adjustments
- minimum accrual of vacation pay
- charges in market value of inventory
- unrealized gain or loss on trading securities
cumulative currency-translation adjustments
Chatham owned 25% of voting stock of Boyrum Co. Chatham applied the equity method to account for this investment. Boyrum reported income of 100,000 and paid 30,000 in dividends during the period. What amount should Chatham report as investment income?
25,000. Under the equity method, investment income is equal to the investor’s proportional share of the investee’s net income. Cash dividends are treated as a return of capital rather than investment income.
For exchanges that have commercial substance the basis of the new machine is equal to? The gain/loss is equal to?
The basis is equal to the FV of the old machine plus the cash paid.
The gain/loss is equal to the difference between the FV and the book value of the asset given up.
For exchanges that lack commercial substance the basis of the new crane is equal to? The gain/loss is equal to?
BV - 120,000
FV - 125,000
FV New Crane - 110,000
Cash received - 15,000
The basis is a product of the cash received, the book value of the crane given up and the gain of the transaction.
Difference between BV and FV is 5,000 Cash received 15,000 FV of new is 125,000 (110,000 plus 15,000) 15,000/125,000 = 12%; 12% x 5,000 = 600 Dr New Crane 105,600 (plug) Dr Cash 15,000 Cr BV old Crane 120,000 Cr Gain 600
The gain/loss recognized is equal to the total gain multiplied by the portion of the FV received as cash. 600 per above calc.
Retained earnings balance 400,000. In year 2 it is determined that insurance premiums of 60,000 for the three year period were paid and fully expensed. Tax rate is 30%. What amount should Conn report as adjusted beginning retained earnings?
428,000
60,000 x 2/3 = 40,000. 40,000 x .7 = 28,000
400,000 + 28,000 = 428,000
Reportable segment “size” test is calculated using…
Reportable segment “reporting sufficiency” test is calculated using…
Size - total sales and revenues, 10% of them
Reporting sufficiency - 75% of the total external sales. Start with the segments reported under the size test. Add segments until you are above the 75% threshold.
How should the acquirer recognize a bargain purchase in a business acquisition?
As a gain in earnings at the acquisition date.
Property owned by Arp Co. was acquired by the city in connection with a condemnation proceeding resulting in a payment of 100,000 to Arp. The property’s BV was 70,000. Arp paid 45,000 for replacement property. What amount of gain should be reported?
30,000 - Payment 100,000 minus BV 70,000.
New property will have a BV of 45,000
Construction Co. began project. Total amount spent on project during yr 3 was 250,000. To pay for construction, borrowed 200,000 at 10%. Funds not needed were temporarily invest in short term securities yielding 3,000 int rev. Other debt outstanding was 150,000, 10 yr, 7%. How much interest should be capitalized by starlight during yr 3?
Avoidable interest - 250,000/2 = 125,000 x .1 = 12,500
Actual interest = 200,000 x .1 + 150,000 x .07 = 30,500
The lower of the 2 can be capitalized.
Jerry Co. purchased land 15 years ago at 125,000. The company has a contract to sell the land in January next year for 875,000.
What is the measurement basis and amount
Historical, 125,000
Broccoli Co. acquired Asparagus Co. four years ago recording 900,000 of goodwill as part of the acquisition. No impairment losses were recorded in prior years.
What is the measurement basis and amount
Historical cost, 900,000
Crump purchased an investment in bonds issued by Sliding Rock Inc. at 800,000. Crump decided to hold the investment for the 10 year life. The fair value of the bond on Dec 31 was 755,000.
What is the measurement basis and amount?
Amortized Cost, 800,000
Company has a long-lived asset with a carrying value of 120,000. Expected future cash flows of 130,000, PV of future cash flows of 100,000. Market value 105,000. What amount of impairment loss should be reported under GAAP?
0
- Compare the carrying amount to the undiscounted future cash flows
Which of the following should be disclosed for each reportable operating segment of an enterprise under GAAP?
Profit or loss
Total Assets
Both. For each reportable segment, both profit and total assets should be disclosed.
Eagle corp issued 600 of its 10% 1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, yr 1 and mature April 1, yr 11. Interest is payable semiannually on April 1 and Oct 1. What amount did Eagle receive from the bond issuance?
609,000
Face 600,000
Proceeds at 99 = 600,000 x .99 = 594,000
Accrued interest 600,000 x .1 = 60,000 x 3/12 = 15,000
Total 594,000 + 15,000 = 609,000
Dallas acquired 80% of Style for 120,000. Style paid 5,000 cash dividend to stockholders. What should Dallas report as its share of the earnings from subsidiary?
16,000
BB 36,000
Dividends paid 5,000
YE Bal 51,000
So unadjusted RE must be 56,000 (51,000 + 5,000) So Net income must have been 20,000. 80% of 20,000 is 16,000
What is the formula for lower of cost or market?
Selling Price -Cost to dispose =Net realizable value -% profit margin =Floor Market = middle number between NRV, Floor and replacement costs
Value of inventory is the lower between cost or market
A partnership was incorporated. They issued 1,000 $5 par value. What amount would be credited to additional paid in capital?
Total Assets 140,000 BV Liab 10,000 Eq 130,000 FV Assets 120,000 FV Liab 10,000
FV of assets 120,000 - 10,000 Liab = 110,000 eq
110,000 - 5,000 PV = 105,000 APIC
Under US GAAP, a gain that is both unusual and infrequent should be reported?
As income from continuing operations.
Bee uses the direct write off method for uncollectible AR. During the period Bee’s cash collections from customers equals sales adjusted for the addition or deduction of
Accounts Written Off and/or Increases in AR balance?
Deductions in accounts written off
Deductions in AR balance
A company signed a five year contract with a customer on yr 1. They agreed to modify they contract in yr 2. What condition must be present in order for the contract modification to be accounted for as a separate contract?
- price of the original contract remains the same
- Scope of the original contract increases through the addition of distinct goods or services
- Performance obligations of the original contract are partially satisfied
- The original contract is terminated.
The scope of the original contract increases
contract modifications represent a change in price or scope or both.
Draxler pays 988,472 to purchase a 1,000,000 bond maturing in five years and paying interest semi annually at annual rate of 2.75. Market rate is 3. With two years remaining, the manager determines the bond will pay the full 1,000,00 but will pay 3,000 less in interest. PV .9422 and annuity 3.8544.
If the bonds FV with two years remaining is 994,800 and the amortized cost is 995,182. The credit loss, assuming the bond is held to maturity is closest to
11,545
Annual interest 1,000,000 x 2.75% = 27,500 or 13,750 semi - 3,000 = 10,750
PV of face is 1,000,000 x .9422 = 942,200
PV of annuity is 10,750 x 3.8544 = 41,435
Total 942,200 + 41,435 = 983,635
Loss = 995,182 - 983,635 = 11,547 or 11,545 given as an answer
