Deck 3

Question 1

A short term liability is excluded from current liabilities and included in noncurrent debt if:

Answer 1

the company intends to refinance it on a long term basis and the intent is supported by either a noncancelable contract/agreement or refinancing prior to the issuance of the financial statements.

Question 2

Deferred tax liability arising from depreciation is:

Answer 2

Reported as a noncurrent liability because deferred taxes are classified based on the classification of the related asset or liability. i.e fixed assets are noncurrent, depreciation deferred tax liability would be noncurrent as well.

Question 3

What kind of impact would write offs, under the allowance method, have on net income or total assets?

Answer 3

Write offs Dr. Allowance account and Cr. AR. They are both asset accounts; therefore, there is no effect on net income or total assets when writing off AR.

Question 4

Under IFRS, inventory is valued at:

Answer 4

The lower of cost or net realizable value. NRV is equal to the net selling price less the costs to complete and dispose, which is equal to the market ceiling under GAAP.

Question 5

Under GAAP, inventory is valued at:

Answer 5

The lower of cost or market (LCM). Market is defined as the median value of: market ceiling, market floor, and replacement cost.

Question 6

Applying lower cost or market rule to each separate item inventory results:

Answer 6

In the lowest inventory amount. Rather than by total inventory or small groups of items.

Question 7

Moving Average method:

Answer 7

A new weighted average cost is computed after each purchase, and issues are priced at the latest weighted-average cost. Weighted average is calculated by taking total costs and divide by units remaining, after every purchase.

Question 8

In consignment sales, revenue:

Answer 8

is recognized when the goods are sold to a third party. Until the sales, goods remain in inventory of the consignor.

Question 9

When the current market value of inventory is less than the fixed purchase price in a purchase commitment, the loss is:

Answer 9

recognized at the time of decline in price, a liability is recognized on the balance sheet, and a description of the loss is disclosed in the footnotes of the income statement.

Question 10

Not including inventory in current assets understates:

Answer 10

Current Assets, Overstates COGS, and Understates Net Income and Retained Earnings.

Question 11

Sales with the right to return:

Answer 11

If the likely returns cannot be estimated then the goods are included in the sellers inventory and are not recognized as revenue. Only when the returns can be estimated will the sale be recognized as revenue.

Question 12

Capitalized Interest equals:

Answer 12

The smaller of total interest incurred or the avoidable interest.

Question 13

Avoidable interest equals:

Answer 13

The interest on the weighted average amount of accumulated expenditures.

Question 14

All notes payable are required to be reported at:

Answer 14

The present value of the payments to be computed at market rate of interest (discounted), not face value..

Question 15

Revaluation losses are reported on:

Answer 15

the income statement, not OCI.

Question 16

Revaluation gains are reported on:

Answer 16

OCI, not the income statement.

Question 17

If borrowings are not tied specifically to the construction of an asset:

Answer 17

the weight average interest rate for the other borrowings of the company should be used.

debt/total debt X % + debt2/total debt X %

If there are borrowings tied to the specific construction, the rate for those borrowings would be used.

Question 18

Construction period interest is capitalized based on:

Answer 18

the weight average of the accumulated construction expenditures. The interest on the average accumulated expenditures in excess of the construction loan is computed based on the interest rate for other borrowings.

Question 19

Depreciable assets should not:

Answer 19

Be depreciated below salvage value for any depreciation method.

Question 20

For depreciation, IFRS requires:

Answer 20

Component depreciation. Component depreciation, the machinery, the component that requires replacing, and the inspection cost are recognized and depreciated separately. Get the depreciation of each and then add them together to get the total depreciation expense.

Question 21

When a permanent impairment occurs:

Answer 21

The book value is reduced and a loss is recorded. The loss is credited to accumulated depreciation.

Question 22

Composite life is:

Answer 22

An average of the total depreciable cost (each depreciation cost) divided by the total annual depreciation expense of each component.

Question 23

Under GAAP, long-lived assets that are impaired can only have their carrying value restored when:

Answer 23

they are help for disposal. Assets that are held for continued use that are impaired are not permitted to have any restoration of carrying value.

Question 24

Under IFRS, the impairment loss is recognized as the difference between:

Answer 24

The carrying value and the recoverable amount. The recoverable amount is greater of the fair value of the assets less cost to sell or the assets value in use (aka present value of future cash flows)

Question 25

Impairment losses are shown:

Answer 25

As a component of continuing operations, before tax.

Question 26

To determine whether an impairment loss exists:

Answer 26

Undiscounted future cash flows are compared to the carrying value.