Area 2 Flashcards
Are legal costs against for patents capitalized or expenses?
When a legal defense is unsuccessful against patent infringement all legal costs are expensed due to no future economic benefits
However when they are successful the legal fees are capitalized
What is included as R&D costs?
R&D costs includes discovering new knowledge, testing a new product/process, or improving an existing one. Prototypes are apart of R&D costs
Can goodwill be amortized over its useful life?
Private companies and NPO’s are eligible to amortize goodwill on a straight-line basis over its useful life (not more than 10 years)
Public companies do not have this option.
How is impairment tested?
Impairment is tested by comparing a reporting unit’s FV against the carrying value including goodwill.
What part of a business is goodwill assigned too, and how often does it need to be tested for impairment?
Goodwill is assigned to a reporting unit that receives the benefit of the aquired business. Goodwill assigned to each reporting unit, must be tested for impairment at least annually.
What is the two-step process for calculating amortization of internally developed software?
Step 1: amort is calculated on the straight-line method and relative sales value method. The larger amount of the two is recorded as amortization
RSV method = CV *(current period sales/(current period sales + estimated future sales))
Step 2: CV is adjusted by subtracting step 1 amort, and then compared with its NRV. If adjusted CV exceeds NRV excess is also included as amortization expense
When is a credit loss expense recognized/reported?
If an increase is required, a credit loss expense is recognized; if a decrease is required a reversal of credit loss expense is reported
How is an uncollectible account recorded when it is written off?
When an uncollectible account is written off, it is recorded as a debit (decrease) to allowance for credit loss, and a credit (decrease) to AR
When does the legal title pass to the buyer under FOB destination point?
FOB destination point, legal title passes to the buyer when received
When does the legal tile pass to the buyer under FOB shipping point?
FOB shipping point, legal title passes to the buyer when shipped by the seller
What is the difference between a consignee and consignor?
Consignee has phsyical possession of goods, but does not purchase them from the consigner
Consigner retains legal ownership and reports the inventory on its balance sheet until sold by the consignee. The consignor bears the risk of any unsold inventory
How is the initial cost of inventory calculated, and what are the typical expenses invluded in inventory costs?
The initial cost of inventory includes acquisition cost plus any ordinary and necessary costs incurred for preparation for sale to customers.
Inventory costs typically include: warehousing prior to sale, insurance, repackaging, freight-in paid by the buyer, and costs incurred to bring the inventory to saleable condition.
How are cost of goods manufactured calculated?
Beginning work-in-process
Plus additions: direct materials, direct labor, manufacturing overhead costs
Less ending work-in-process
