FAR 2 F1-F4 Flashcards
Is obsolete inventory included in COGS? If not where is it recorded and how it treated?
Written off obsolete inventory is classified as an operating loss.
Reduces inventory and included in unusual gains or losses in the Income Statement. Not included in COGS.
What is a market participant?
Buyers and sellers acting on their economic best interest who are independent (not related parties), who are knowledgeable about an asset or liability, and are willing and able to transact for that asset or liability.
EX: Company purchased asset zoned for recreational use
When changing inventory valuation, specifically any inventory valuation other than LIFO is it treated as a retrospective change where beginning retained earning is adjusted?
From LIFO - FIFO, weighted average, ect OK
From FIFO, weighted average - LIFO impossible to calculate earlier layers of inventory so it would be $0
A company is required to file quarterly financial statements with the United States Securities and Exchange Commission on Form 10-Q. The company operates in an industry that is not subject to seasonal fluctuations that could have a significant impact on its financial condition. In addition to the most recent quarter end, for which of the following periods is the company required to present balance sheets on Form 10-Q?
A. The end of preceding fiscal year.
B. The end of the corresponding fiscal quarter of the preceding fiscal year.
C. The end of the preceding fiscal year and the end of the corresponding fiscal quarter of the preceding fiscal year.
D. The end of the preceding fiscal year and the end of the prior two fiscal years.
Choice “A” is correct.
Due to the absence of seasonal fluctuations, the end of the preceding fiscal year is the appropriate period to include in addition to the most recent
quarter end.
What is the sum of years formula?
Ex: 3+2+1 = 6
Third year = 3+2+1/6 * 9000
What is the Journal entry for undervalued asset amortization and Cash dividends under the equity method?
For undervalued asset amortization:
Dr Equity Revenue (Income Statement) $XXX
Cr Investment Account (Balance Sheet). $XXX
For Cash Dividends:
Dr Cash (B/S). $XXX
Cr Investment Account(B/S). $XXX
: Undervalued asset amortization affects both the investment account (an asset) and the Investment income account (a revenue), while cash dividends affect the investment account but not the investment income account.
What are the steps involved when evaluating whether or not a long-lived asset is impaired?
1) Compare carrying amount of the asset to the un-discounted expected future $ flows of the asset
2) If Un-discounted future cash flows > the CV of asset = No impairment
If Un-discounted future cash flows < the CV of asset = impairment
3) If impairment is recognized subtract CV - Fair Value to solve for impairment loss
What pair of values are used to determine the impairment loss of an intangible asset with an indefinite life other than goodwill?
Test for impairment is comparing the intangible assets Fair value to its Carrying amount.
What account is credited when an permanent impairment loss occurs for a fixed asset?
Accumulated depreciation
What is the equation for Dollar Value LIFO’s Index?
Index = E.I. at Current year cost / E.I. at Base Year Cost
What needs to occur for a transaction to be classified as a monetary exchange?
When boot is greater than 25% of total consideration > (Cash + FV of Asset given up)
All gains and losses must be recognized by both parties in the transaction
Dr Truck - New XXX (Cash + FV of asset given up)
Dr Accum Dep XXX (of old asset)
Cr Cash XXX (Given up)
Cr Truck - Old XXX (Original Cost)
Cr Gain XXX
What is capitalized for Land? What would not be included?
Anything that gets the land ready for its use:
Purchase price + Demolition property/trees + real estate taxes in arrears - Scrap Sales + Legal fees(attorney fees)/commission costs
Driveways/Parking lots not included: separate asset
Lawn and garden sprinkler system not included: separate asset
Not included: Debt issuance costs - presented on the B.S. as a direct reduction in carrying amount of bond.
What costs are included to capitalize a warehouse? What costs are not included?
What are considered separate assets and expenses?
Pay attention to how long construction lasted.
Loan (borrowings to finance construction is not included), no interest after construction has been completed
Interest incurred from start to finish of construction date + Labor + materials + overhead to construct warehouse
Parking lot is a separate asset - recorded on a different ledger account, parking lot is depreciated over a different useful life of 15 years
Water line ruptured during excavation - repair is considered an expense since asset existed before construction
What is capitalized for a new machine?
Invoice Price + Sales Tax paid + Installation costs
Finance charges on purchase loan is an interest expense
When a marketable security is classified as current how do you classify it?
At FV amount at year end and classified as Equity Security
