BAR 4

Question 1

Rules for costs incurred to create computer software product to be sold:

Answer 1

a) expense costs incurred until tech feasibility has been establish for product b) capitalize costs incurred after tech feasibility has been established up to point that produce is released for sale

examples are planning costs, design of software, and substantial testing of project’s initial statges

Question 2

R&D costs are to be expended when incurred only exceptions are

Answer 2

1) if materials, equipment or facilities developed have alternative future uses 2) R&D costs are undertaken on behalf of others under a contractual arrangement

• Legal costs with filing a patent is not R&D costs and are capitalized as part of patent
  Examples of R&D examples: design,testing, and construction of a prototype and salaries of employees doing reasarch
  Examples of not R&D: engineering follow-up and marketing research; routine design changes to old products or troubleshooting in production stage, marketing research, quality control testing and reformulation for chemical compound

Question 3

When will goodwill impairment exists

Answer 3

when fair value of reporting is less than carrying value. Loss = carrying value - fair value

Question 4

R&D costs should be expensed when incurred unless costs are

Answer 4

1) tangible assets w long lives and alternative uses 2) reimbursable by another.

Question 5

Examples of software costs subject to amortization:

Answer 5

a) coding costs after establishment of tech feasibility, testing costs after establishment of tech feasibility, and costs of producing product masters for training materials

Question 6

How is sell of warranty treated?

Answer 6

Sell of an item with a warranty is treated as a separate performance obligation b/c it can be sold separately. It will be allocated proportionally to their individual stand-alone values with overall contract price

Question 7

When recognizing revenue over time

Answer 7

income previously recognized will be used to calculate income recognized in 2nd year.

Question 8

Calculate gross profit (loss) reported in Y2 income statement for revenue at point in time

Answer 8

= recognized when contract is complete but expected losses are recognized immediately. = contract price - cost incurred during year - estimated costs to complete

Question 9

Calculate amount to be recognized as contract revenue Y1 = Y1 desks produced * fixed price per desk

Question 10

Calculate incremental cost on obtaining contract that will be recognized as asset

Answer 10

= commission costs of obtaining contract b/c would have not been incurred if contract had been obtained and can be recognized as asset… Design and printing costs should be expensed as cost of sales related to contract

Question 11

Regarding non-compensatory stock option/purchase plans:

Answer 11

officers and employees owning specific amount of outstanding stock in company can’t participate.

Features of noncompensatory stock option/purchase plans: a) journal entry is made when stock is actually purchase b) not recognize compensation expense c) time permitted to exercise stock options is limited to reasonable period

Question 12

What is exercise date

Answer 12

Exercise date is last date employee option holder must experience option to purchase stock. JE made is not part of initial JE recorded as stock options if out of the money

Question 13

Entry on grant date or date options issued

Answer 13

No JE recorded

Question 14

Expired options JE

Answer 14

is in additional paid-in capital expired stock options is debited and additional pair-in capital-expired stock is credited

Question 15

calculate compensation expense that should be recognized end of year

Answer 15

= # options granted * $ fair value of each option at grant date / # yrs service

Question 16

Total compensation cost

Answer 16

= market price of share on date of grant * # of restricted shares awarded

Question 16

Additional paid-in capital-stock options account

Answer 16

will be affected when compensation cost is recognized for given period under compensatory stock option/purchase plan

Question 17

When acquiring in a business combination, assets of acquired is recorded at fair value

Answer 17

= building + equipment + vehicles + computer

Question 18

Determine amount of goodwill as result of acquisition

Answer 18

= purchase price - fair value of net assets acquired

Question 19

Items to be included in consideration transferred in acquisition:

Answer 19

cash, stock at fair value, and fair value of contingent consideration

Question 20

Exception to not consolidate majority-owned subsidiary:

Answer 20

a) subsidiary is in legal reorganization b) bankruptcy c) subsidiary operates under severe foreign currency exchange restrictions, controls, or other gov’t imposed uncertainties so severe they cast significant doubt on parent’s ability to control subsidiary.

Question 21

Different consolidation methods

Answer 21

consolidation = acquisition method
Fair value method = no significant influence
equity method = significant influence

Question 22

Business combination acquisition treats the following as:

Answer 22

a)) fees of finders and consultants = expensed; b) regisratation fees for equity securities issued = not expensed, rather decrease APIC (stockholders equity)

Question 23

Calculate non-controlling interest on Y1 B/S under US GAAP

Answer 23

= ($ common shares outstanding /$ acquired) *(1-% acquired)

Question 24

In consolidated B/S, what should be reported as goodwill under US GAAP

Answer 24

= ($ per share of cash purchased * # shares of outstanding common stock ) - (B/S carrying amount of net assets + fair value of PPE exceeded its carrying amount by)

Question 25

The following will be done in parent-subsidiary consolidation:

Answer 25

a) adj subsidiary’s assets and liabilities to fair value on acquisition date b) recognizing goodwill for price paid over fair value of net assets acquired during) eliminating acquired subsidiary’s equity accounts

Question 26

Under US GAAP, characteristics to determine primary beneficiary of VIE (variable interest entity):

Answer 26

a) primary beneficiary is entity that has power to direct activists of VIE that most signify impact the entity’s economic performance and absorbs expected VIE losses and/or receives expected VIE residual returns. ,

Question 27

JE to record acquisition

Answer 27

DR investment in subsidiary and legal expense
CR common stock, APIC, and cash