Area 2 Flashcards
COGS
beginning inventory + purchases - ending inventory
5- step recognition process for revenue
for revenue
1 identity a contract with customer
2 identity separate performance obligations
3 determine total consideration
4 allocate total consideration
5 recognize revenue when or as performance obligations are satisified
Total contract profit
Total contract price - total estiamted costs
% complete
costs incurred to date/ total estimate costs
Total recognized to date
Total contract profit * % complete
profit recognized current period
Total profit recognized to date - profit previously recognized
How is CIP vs. Progress Billings reported on the balance sheet?
if CIP exceeds progress billings the excess is reported as a current asset, if Progress billings exceeded CIP then a current liability would be recognized
Revenue from long-term contracts is recognized over time if 1 out of 3 criteria are met:
1 Goods or services being consumed as they are delivered
2 Goods or services being controlled by the customer while they are created
3 No alternative use for the goods or services existing for the selling entity
Construction in Progress (CIP)
construction expenses + gross profit/loss
In-process R&D acquired through a business combination is recorded and measured as
Recorded as indefinite-lived intangible asset
Measured at fair value as of the date of acquistion
How to calculate estimated ending inventory using the Gross profit(margin) method
Beginning inventory
Add: net purchases to date
Good available for sale
Less: estimated COGS
Estimated ending inventory
How to calculate inventory loss
Estimated ending inventory
- salvage value of inventory
-insurance proceeds
How to calculate estimated gross profit in $
Net sales to date * estimated gross profit %
How to calculate gain recognized
Ex. Fair value of $25k for a new machine with a FV of $20k and received $5k cash. Old machine cost $80k and had accum depreciation of $64k. Exchange transactions lacked commercial substance
[Cash Receivied/ (cash received + FV of asset received)] * gain realized
Ex. [5k cash received/ 5k+ 20k FV of machine received)]*9k realized gain
9k realized gain = 25k fair value - 16k CV of machine
16k CV of machine = 80k cost - 64k accum depr
If-converted method of computing earning per share data assumes conversion of convertible securities as of the
Beginning of the earliest period reported (or at time of issuance, if later)
When to test for recoverability for long-lived assets
Ex. When should a long-lived asset be tested for recoverability?
Significant adverse changes in: physcial condition or the use of asset; legal factors/ business climate that affects the value; market value
Costs significantly exceeding the original amount expected to acquire/construct the asset
Projection that demonstrates continuing losses associated with an asset
Probably asset will be disposed before the end of its expected useful life
Ex. When events or changes in circumstances indicate that its carrying amount may not be recoverable
For the purpose of computing basic EPS, how should the income available to common shareholders be calculated
The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss
Company issues a discounted, noninterest bearing note in exchange for borrowed funds. What is the relationship of cash received as compared to the face value of the note and effective interest rate as compared to the discount rate?
Cash received vs. Face value of note –> lower
Effective rate vs. discount rate –> higher
Reasoning: The effective interest rate (yield rate or market rate) is the rate that the borrower incurs. Since the borrower repays the face amount but receives an amount less than the face, the effective rate paid will be higher than the discount
For example: 1,000 noninterest bearing note is discounted at 10% and matures in one year will result in cash received of $900. At maturity the borrower pays the $1k to the lender which is repayment of the $900 received plus the $100 discount.
Calculating deferred tax asset (DTA) or liability (DTL)
Temporary difference during the reporting period * future enacted tax rate = DTL or DTA
Future endacted tax rate is the rates expected to be in effect when a temporary difference is reversed or realized
How to determine the amount of cash collected from customers
Credit Sales
Deduct: write-offs
Deduct: increase in the A/R balance
Equals: cash collected from customers
Income tax expense (benefit)
Current income tax expense(benefit) +/- deferred income tax expense(benefit) = income tax expense(benefit)
Current income tax expense
current taxable income * current tax rate
Deferred income tax expense
ending net DTA or DTL +/- beginning net DTA or net DTL
Amortization expense of intangible asset with finite useful life
amortization expense = (cost - residual value)/ useful life
How to calculate asset reitrement obligation
Beginning Balance + new obligations at FV + adjustment for accretion expense to increase future value - payment to satify obliation = ending balance
Compensation expense recognized
Intrinsic value at grant date * # of option vested
intrinsic value at grant date = market price - exercise price
