BAR 4 Flashcards
Rules for costs incurred to create computer software product to be sold:
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
R&D costs are to be expended when incurred only exceptions are
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
When will goodwill impairment exists
when fair value of reporting is less than carrying value. Loss = carrying value - fair value
R&D costs should be expensed when incurred unless costs are
1) tangible assets w long lives and alternative uses 2) reimbursable by another.
Examples of software costs subject to amortization:
a) coding costs after establishment of tech feasibility, testing costs after establishment of tech feasibility, and costs of producing product masters for training materials
How is sell of warranty treated?
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
When recognizing revenue over time
income previously recognized will be used to calculate income recognized in 2nd year.
Calculate gross profit (loss) reported in Y2 income statement for revenue at point in time
= recognized when contract is complete but expected losses are recognized immediately. = contract price - cost incurred during year - estimated costs to complete
Calculate amount to be recognized as contract revenue Y1 = Y1 desks produced * fixed price per desk
Calculate incremental cost on obtaining contract that will be recognized as asset
= 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
Regarding non-compensatory stock option/purchase plans:
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
What is exercise date
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
Entry on grant date or date options issued
No JE recorded
Expired options JE
is in additional paid-in capital expired stock options is debited and additional pair-in capital-expired stock is credited
calculate compensation expense that should be recognized end of year
= # options granted * $ fair value of each option at grant date / # yrs service
Total compensation cost
= market price of share on date of grant * # of restricted shares awarded
Additional paid-in capital-stock options account
will be affected when compensation cost is recognized for given period under compensatory stock option/purchase plan
When acquiring in a business combination, assets of acquired is recorded at fair value
= building + equipment + vehicles + computer
Determine amount of goodwill as result of acquisition
= purchase price - fair value of net assets acquired
Items to be included in consideration transferred in acquisition:
cash, stock at fair value, and fair value of contingent consideration
Exception to not consolidate majority-owned subsidiary:
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.
Different consolidation methods
consolidation = acquisition method
Fair value method = no significant influence
equity method = significant influence
Business combination acquisition treats the following as:
a)) fees of finders and consultants = expensed; b) regisratation fees for equity securities issued = not expensed, rather decrease APIC (stockholders equity)
Calculate non-controlling interest on Y1 B/S under US GAAP
= ($ common shares outstanding /$ acquired) *(1-% acquired)
In consolidated B/S, what should be reported as goodwill under US GAAP
= ($ 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)
The following will be done in parent-subsidiary consolidation:
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
Under US GAAP, characteristics to determine primary beneficiary of VIE (variable interest entity):
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. ,
JE to record acquisition
DR investment in subsidiary and legal expense
CR common stock, APIC, and cash
