Assignment 2 & 3 Formulas & Notes

Question 1

Contract Revenue Recognition (Service/product paid once work complete & services that are paid overtime)

Answer 1

Amount customer paid
Times: Percent of the aggregate price for completed service.
Equals: Revenue for services completed

Question 2

Percent of Aggregate Price

Answer 2

Stand-alone price of service/product
Divide: Aggregate price
Equals: Percent of aggregate price

Question 3

Percent Complete Method

Answer 3

Cumulative cost incurred
Divide: Total estimated cost
Equals: Percent complete

Question 4

Percent Complete Method Revenue Recognition

Answer 4

Contract price
Multiply: Percent completed
Equals: Revenue

Question 5

Variable Consideration

Answer 5

See Q4 on Assignment 2

Question 6

Recognizing Revenue w/ Estimated Return

Answer 6

Cash received
Multiply: (1- Estimated return %)
Equals: Revenue

Question 7

Calculating Return Allowance Liability

Answer 7

Cash received
Multiply: Estimated return %
Equals: Liability for return allowance

Question 8

Cost of Sales w/ Estimated Return

Answer 8

Carrying value of inventory given to customer
Multiply: (1 - Estimated return %)
Equals: Cost of sales

Question 9

Calculating Inventory Return Allowance

Answer 9

Carrying value of inventory given to customer
Multiply: Estimated return %
Equals: Inventory return allowance

Question 10

Revenue Recognition w/ Gift Cards

Answer 10

Amount redeemed
Divided by: Redemption rate
Equals: Revenue

Question 11

Calculating Ending Balance for Allowance Account

Answer 11

Beginning balance of allowance
Plus: Bad debt expense
Minus: Write-offs
Equals: Ending balance of allowance

Question 12

Converting LIFO Inventory to FIFO Inventory

Answer 12

LIFO inventory
Plus: LIFO reserve
Equals: FIFO inventory

Question 13

Converting LIFO Cost of Sales to FIFO Cost of Sales

Answer 13

LIFO cost of sales
Plus: LIFO beginning reserve
Minus: LIFO end reserve
Equals: FIFO cost of sales

Question 14

Leases

Answer 14

See week 10 slides 23-45.

Question 15

Inventory, FIFO, LIFO

Answer 15

See week 9

Question 16

Calculating Goodwill

Answer 16

Total purchase consideration
Minus: Fair value of net indentifiable assets
Equals: Goodwill

Question 17

Calculating the Increase in Assets as a result of consolidation

Answer 17

Fair value of net identifiable assets
Plus: Goodwill
Minus: Cash consideration
Equals: Increase in assets

Question 18

Calculating Goodwill w/ Non-controlling Interest

Answer 18

Total consideration (including the fair value of non-controlling interest)
Minus: 100% Fair Value of the aquiree’s net identifialbe assets
Equals: Goodwill

(see week 11 slide 23)

Question 19

Net Identifiable Assets (NIA)

Answer 19

Identifiable assets
Minus: Identifiable liabilities
Equals: Net identifiable assets

(see week 11 slides 31-32)

Question 20

Calculating Goodwill with previously held equity interests

Answer 20

1) Total consideration (including the fair value of non-controlling interest)
Minus: 100% Fair Value of the aquiree’s net identifialbe assets
Equals: Goodwill

2) Total consideration & value to be allocated to net assets
Plus: Non-controlling interest
Minus: Net identifiable assets
Equals: Goodwill

(see week 11 slides 26-30)

Question 21

Calculating Consideration with previously held equity interests

Answer 21

Fair value of items transferred by acquirer
Plus: Fair value of contingent consideration
Plus: Fair value of non-controlling interests
Plus: Fair value of previously held equity interests
Equals: Total consideration

(see week 11 slide 30)

Question 22

Calculating Ending ESO Obligation

Answer 22

Beginning ESO obligation
Minus: Fair Value of ESOs exercised
Plus: Fair value of ESOs granted
Plus: Revaluation loss
Equals: Ending ESO obligation

Question 23

Options Exercised

Answer 23

Options exercised equal the intrinsic value when time value equals 0. Time value equals 0 when the options expire.

Question 24

Intrinsic value

Answer 24

Stock price
Minus: Exercise price
Equals: Intrinsic value

Intrinsic value cannot be negative, so if the stock price is less than the exercise price the intrinsic value is 0.

Question 25

Inputs for calculating the fair value of options

Answer 25

1. Stock price at grant date
2. Exercise price
3. Expected stock price volatility
4. Expected life of the options
5. Risk free rate
6. Expected dividends on common stock

Question 26

Pension Expense

Answer 26

Service cost
Plus: Interest cost
Minus: Expected return on plan assets
Equals: Pension expense

Question 27

Pension Benefit Obligation at the end of the year (When there is complete certainty)

Answer 27

PBO at the beginning of the year
Plus: Service cost
Plus: Interest cost
Minus: Benefits paid during the year
Equals: PBO at the end of the year

Question 28

Fair Value of Plan Assets at the end of the year (When there is complete certainty)

Answer 28

FVPA at the beginning of the year
Plus: Contributions made during the year
Plus: Actual return on plan assets
Minus: Benefits paid during the year
Equals: FVPA at the end of the year

Question 29

Pension Liability or Asset

Answer 29

PBO at the end of the year
Minus: FVPA at the end of the year
Equals: *Pension liability at the end of year

*Liability if positive. Asset if negative.

Question 30

Service cost, interest cost, & expected return on plan assets. components of operating or financial expenses?

Answer 30

Interest cost: Financial expense.
Expected return on plan assets: Financial expense.
Service cost: Operating expense.

Question 31

Effect on Net Income from Pension

Answer 31

Net financial expense before tax
Minus: Net operating profit before tax
Equals: Net income

Question 32

Taxable Income

Answer 32

US Federal
Divide: US statutory rate
Equals: Taxable income

(For all tax questions see week 13: Ford Case slides 48-80).

Question 33

Effective Tax Rate

Answer 33

GAAP tax expense
Divide: GAAP pre-tax income
Equals: Effective tax rate