Area 2

Question 1

COGS

Answer 1

beginning inventory + purchases - ending inventory

Question 2

5- step recognition process for revenue

Answer 2

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

Question 3

Total contract profit

Answer 3

Total contract price - total estiamted costs

Question 4

% complete

Answer 4

costs incurred to date/ total estimate costs

Question 5

Total recognized to date

Answer 5

Total contract profit * % complete

Question 6

profit recognized current period

Answer 6

Total profit recognized to date - profit previously recognized

Question 7

How is CIP vs. Progress Billings reported on the balance sheet?

Answer 7

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

Question 8

Revenue from long-term contracts is recognized over time if 1 out of 3 criteria are met:

Answer 8

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

Question 9

Construction in Progress (CIP)

Answer 9

construction expenses + gross profit/loss

Question 10

In-process R&D acquired through a business combination is recorded and measured as

Answer 10

Recorded as indefinite-lived intangible asset
Measured at fair value as of the date of acquistion

Question 11

How to calculate estimated ending inventory using the Gross profit(margin) method

Answer 11

Beginning inventory
Add: net purchases to date
Good available for sale
Less: estimated COGS
Estimated ending inventory

Question 12

How to calculate inventory loss

Answer 12

Estimated ending inventory
- salvage value of inventory
-insurance proceeds

Question 13

How to calculate estimated gross profit in $

Answer 13

Net sales to date * estimated gross profit %

Question 14

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

Answer 14

[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

Question 15

If-converted method of computing earning per share data assumes conversion of convertible securities as of the

Answer 15

Beginning of the earliest period reported (or at time of issuance, if later)

Question 16

When to test for recoverability for long-lived assets
Ex. When should a long-lived asset be tested for recoverability?

Answer 16

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

Question 17

For the purpose of computing basic EPS, how should the income available to common shareholders be calculated

Answer 17

The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss

Question 18

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?

Answer 18

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.

Question 19

Calculating deferred tax asset (DTA) or liability (DTL)

Answer 19

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

Question 20

How to determine the amount of cash collected from customers

Answer 20

Credit Sales
Deduct: write-offs
Deduct: increase in the A/R balance
Equals: cash collected from customers

Question 21

Income tax expense (benefit)

Answer 21

Current income tax expense(benefit) +/- deferred income tax expense(benefit) = income tax expense(benefit)

Question 22

Current income tax expense

Answer 22

current taxable income * current tax rate

Question 23

Deferred income tax expense

Answer 23

ending net DTA or DTL +/- beginning net DTA or net DTL

Question 24

Amortization expense of intangible asset with finite useful life

Answer 24

amortization expense = (cost - residual value)/ useful life

Question 25

How to calculate asset reitrement obligation

Answer 25

Beginning Balance + new obligations at FV + adjustment for accretion expense to increase future value - payment to satify obliation = ending balance

Question 26

Compensation expense recognized

Answer 26

Intrinsic value at grant date * # of option vested

intrinsic value at grant date = market price - exercise price