F3 Flashcards
What is the process of determining the inventory cost using LCNRV
LOWER OF!
1. Compare the cost (stated in problem)
2. NRV (sales price - Cost to sell/dispose)
What is the formula for COGS?
Beginning Inv
ADD: Purchases
ADD: Freight In
ADD: Transportation to cosignees
LESS: Ending inventory (should include cosignee inv)
How should costs to develop a computer software for sale be treated
Costs before Technological feasibility = Expensed
Costs after Technology feasibility = Capitalized until released for sale (all remaining will be COGS)
When is Goodwill capitalized?
ONLY when incurred in the purchase of another entity.
What is the rate of double declining depreciation?
2
____
N
If a building that was burned down and refurbished, and cost and A/D of damaged portion are ID –> how to account for this?
Capitalize cost of refurbishing
record loss in CY = Carrying amount of building and damaged portion of builiding
Under the NRV method for AR: What is the JE to record Writeoff of an uncollectible
DR: ADA
CR: AR
When are costs capitalized?
Costs are capitalized to put a fixed asset in place
Capitalize costs that improve quality, efficiency, or productive capacity of a fixed asset.
When permanent impairment occurs, what is the entry to record the loss?
DR: Loss on asset
CR: A/D of asset
Which of the following costs are included in the cost of land?
- Title and recording fees
- Clearing of trees and grading them
- Interest on loan to purch land
- Architect fees
- Installation of sewage system
- title and recording
- clearing of trees and grading
Int only capitalized with discrete manufacturing activity
Architect fees are part of buildings
Sewage = land improvement
How are capitalized costs related to software products amortized?
Greater of:
- S/L
- Percentage of revenue = (Sales to date/ Expected sales) *capitalized costs
What are the three reconciling items to the bank balance?
Deposits in transit
O/S check
Bank errors
What value is recorded when an Intangible asset is purchased?
recorded at cost
How do you calc periodic cost under LIFO inventory?
Ending Inventory units * Oldest cost
How can you tell if there is commercial substance in an exchange?
If future cash flows are expected to change significantly.
If an exchange lacks commercial substance - what is the G/L and how is the new asset valued?
No G/L recorded if NO boot paid
Asset valued at the BV of transferred asset
Which inv costing method most closely approximates the current cost of COGS?
LIFO - bc Last in (most recently purchase is first one expense
Which inv costing method most closely approximates the current cost of EI?
FIFO - most recent purchases stay in Ending inventory
What are the 2 criteria in ID of R&D costs exceptions
Capitalize when
1. materials/equip/facilities developed have alt future use
2. R&D costs are undertaken on b half of contractual arrangement
What is the criteria to recognize capitalized interest?
Lower of:
1. avoidable interest (interest you could have avoid if not started building) = WA accum expenditures compare to borrowings … if WA Accum ependitures is > .. take percentage of borrowings * avg int rate
2. actual interest incurred
In the calculation of the carrying amount - is salvage value included?
No, only purch price LESS A/D
What is the impact of Ending inventory(overstated/understated) to RE?
If overstated EI –> COGS understated –> NI overstated –> RE is overstated
When exchange lacks commercial substance and there is no boot paid/rec OR you paid boot - how much is the G/L recorded?
G: NONE
L: can recognize
If Lack commercial substance and boot rec - what is the G rule?
If below 25% of total consideration (Cash/whole FV) –> recognize proportionally (i.e if 12% then can only rec 12% of the gain and the remainder goes to the cost of the new machine)
If 25% –> recognize full gain
How do you get your calc your avg economic life for composite depreciation?
Total Depreciable cost (Cost - SV)
______________________________________
Total annual depreciation
What is the formula for depreciation expense for units - of - production
- Rate per unit =((cost - SV)/ Est units)
- Rate per unit * # of units produced = depreciation expense
What is the entry for total/permanent impairment
DR: A/D
DR: Impairment loss
CR: Asset at cost
How do you calc the depletion base?
Cost to purch property
+ development cost
+ restoration cost
- Residual value
How to calc depletion?
Unit depletion rate (depletion base/ Est Recoverable units) * # units extracted
In periods of rising prices - how will FIFO and LIFO inventory be impacted
FIFO –> Higher EI –> Lower COGS –> NI increase –> RE higher
LIFO –> Lower EI –> Higher COGS –> NI decrease –> RE down
How do you calc WA inventory
Total inventory costs available for sale
______________________
Total inv available
How do you calc the price index and the ending year cost for dollar lifo
Price index = EI @ current cost / EI @ Base cost
Lifo layer @ dollar LIFO = LIFO layer at base year cost * Price index
In a forward/future purchase commitment –> what is the risk
The risk of price increasing
What type of cost is a redesign of a product qualify as
R&D - improve product
How is the gain/Loss recognized from involuntary conversion?
rec as part of income from continuing operations as
Selling price - CV of FA
When comparing the periodic and perpetual inventory methods - how do the amount calc in FIFO and LIFO differ for EI and COGS?
FIFO: EI and COGS are SAMEin both
LIFO:
COGS= Periodic > perpetual
EI = Perpetual > periodic
How are proceeds from the sale of scrap of old buildings capitalized to land?
They are deducted from the cost of land (not amort of life of plant)
How are legal fees incurred to purchase land classified?
Capitalize
Which of the following is included in capitalization cost for equipment:
- purchase price
-Sales tax paid
-installation cost - finance on loan
all but loan
as the others were costs incurred to get asset ready for intended use
If there is commercial substance in a transaction - how would a gain be recognized?
In full regardless of boot paid (do the JE)
Quantitative: How to determine if there is an impairment and what the amount should be for tangible assets?
- IF BV > undiscounted FCF –> Impairment
- Impairment = BV - Fair value
How much depreciation is allocated to maintenance agreeements?
NONE
What is the amortization pd for a leasehold improvement?
The life of which the expected benefit of the improvement (ie. if 2 years left –> S/L for 2 years)
What is the amortization period for a Intangible asset?
Lessor of:
Economic life OR Legal life
What is the calc for sum of years remaining depreciation (i.e solve for year 2 out of 8)
8 years = 1+2+3+4+5+6+7+8 –> 36
Cost - SV
__________
Life
Yr 2 = Cost - SV *( 7/36)
What is the amortization method used for assets with a finite life?
S/L unless otherwise deemed more appropriate
When a company pledges(assigns) receivables in return for a loan - who has title and how is the loan and receivables pledged treated?
Company that assigns will still retain title to receivables
Assigning company will use proceeds collected from receivables to repay loan
If there is a decline in inventory during quarter 2 and no increase the remaining portion of the year - at what time during the year is this reported?
At the year end in the last quarter of
What is the definition of an R&D cost
pursuit of new knowledge and the translation of that knowledge to new products and new processes
Significant improvement of the design of existing products
Product alternative
What are common examples of expense NOT R&D
Market research, quality control, routine or periodic changes
Natural resource exploration
If a FA has been purchased for multiple R&D projects, how is this accounted for?
The machine is capitalized and annual depreciation (over estimated life of equipment) is included in the annual R&D cost
DR: R&D exp
CR: A/D
If a FA has been purchased for only R&D project has “no other future use” - how is this accounted for?
Machine is expensed in full in the CY as R&D exp (no other use)
IF a FA has been purchased for a R&D project and the project ends in CY - how is this accounted for?
Capitalize asset
During time of the project –> depreciation = R&D cost
After project is over –> depreciation is depreciation exp each year for remaining usefulife
What costs are capitalized to patents
registration, legal costs, cost of patent purch from competitors
What is a major disadvantage of using periodic inventory?
That COGS used for financial reporting includes both cost of inventory sold and shortages VS perpetual will account for them separate
When shipping FOB Destination - at what date does the recipient record a liability for the machine?
At the date which goods are delivered (when legal title is transferred)
If an intangible asset has an indefinite life - what is the amortization for the year?
NONE - amort only for assets with definite lives
What is the accounting treatment for a purchase commitment that the market value is less than the fixed purchase price?
Loss must be recognized on the I/S
Recognize liability on BS
Disclose nature of contract in notes to F/S
How are start up and organizational costs treated?
Expensed immediately
What interest is capitalized during construction for OWN USE (not sale to customers)?
ONLY during construction of building (not before or after)
