FAR (2nd Deck) Flashcards
Deferred Income Tax Liability
Income Tax Liability
What would be the JE for the Issuance of Common Stock?
What would bethe JE for the Repurchase of Common Stock in the above problem?
What is the Ending APIC Balance?
Since Front Market is the most advantageous, it would be the $52/shr that should be use.
It would be the Side market for Selling Price of $50/shr, the cost is only use to determine the NET, You make the determination based on the greater NET amt after cost. But you always pick the Selling price!!!
7M Contract - 8M Total Cost = ($1M) Loss
Note that in this question, if there is a cost > contract agreement, the loss is immediately recognized!
No revenue is allocated based on cost.
“When is a contract modification treated as a SEPARATE contract?”
Must have BOTH:
Additional DISTINCT goods/services
Price reflects standalone selling price (Think: New & Different = New Contract)
A company has an equity investment with a historical cost of $500,000 that is traded in an active market. At December 31, year 1, the quoted price for an identical investment was $400,000 and the quoted price for a similar investment was $430,000. Using the company’s internal present value of cash flows model, the company arrived at a value of $410,000. What amount is the value of the investment on December 31, year 1?
It should be the quoted price for the identical investment for $400,000. Since it is a equity investment.
A company holds a financial asset that is actively traded in two different markets. The company transacts in both markets equally. The price of the asset in market A is $50. If the company sells the asset in market A, it incurs a transaction cost of $4. The price of the asset in market B is $48. If the company sells the asset in market B, it incurs a transaction cost of $1. What is the fair value of the financial asset?
Since Market B Net amt 47 > Market A $46, then the FV of the Financial Asset is Market B Selling Price for $48!
A company that uses the accrual method of accounting started the fiscal year with assets of $600,000 and liabilities of $400,000. During the fiscal year, the company recorded credit sales of $250,000, of which $8,000 remained to be collected at year end, and incurred expenses of $90,000, of which $72,000 was paid in cash. A stock dividend valued at $10,000 was declared and issued to stockholders during the year. What is the year-end balance of total equity?
Anchor Co. owns 40% of Main Co.’s common stock outstanding and 75% of Main’s noncumulative preferred stock outstanding. Anchor exercises significant influence over Main’s operations. During the current period, Main declared dividends of $200,000 on its common stock and $100,000 on its noncumulative preferred stock. What amount of dividend income should Anchor report on its income statement for the current period related to its investment in Main?
Note: This question is trying to test your understanding of how you should treat ownership of stock.
The reasson why we ignore CS oustanding for Income statement is because there is significant influence. *Refer to chart below.
The Non Cumulative PS, is a non voting stock, therefore the 75% is not considered significant. So you take the 75% x $100,000 = $75,000
At the end of Year 1, Cody Co. reported a profit on a partially completed construction contract by recognizing construction revenue as the performance obligation was satisfied. By the end of Year 2, the total estimated profit on the contract in Year 3 had been drastically reduced from the amount estimated at the end of Year 1. In Year 2, a loss equal to one-half of the Year 1 profit was recognized. Cody is allowed to use the completed contract method for income tax purposes and reports the recognized profit at the end of the contract. The Year 2 balance sheet should include a
Dunn and Grey are partners with capital account balances of $60,000 and $90,000, respectively. They agree to admit Zorn as a partner with a one-third interest in capital and profits, for an investment of $100,000, after revaluing the assets of Dunn and Grey. Goodwill to the original partners should be
How do you calculate for Book Value per Common Share?
How do you find current tax liability/expense? (aka, Steps to get from Book Income to Taxable Income)
On January 2, Year 1, Ross Co. purchased a machine for $70,000. This machine has a 5-year useful life and a salvage value of $10,000, and it is depreciated using the straight-line method for financial statement purposes. For tax purposes, depreciation expense was $25,000 for Year 1 and $20,000 for Year 2. Ross’ Year 2 income, before income taxes and depreciation expense, was $100,000 and its effective tax rate was 30%. If Ross had made no estimated tax payments during Year 2, what amount of current income tax liability would Ross report in its December 31, Year 2, balance sheet?
How do you find TOTAL income Tax expense/benefit?
Current Income Tax Exp/Benefit + Deferred Inc. Tax Exp/Benefit
Murphy Co. had 200,000 shares outstanding of $10 par common stock on March 30 of the current year. Murphy reacquired 30,000 of those shares at a cost of $15 per share and recorded the transaction using the cost method on April 15. Murphy reissued the 30,000 shares at $20 per share and recognized a $50,000 gain on its income statement on May 20. Which of the following statements is correct?
Murphy’s net income for the current year is overstated.
Why?
On July 1, Year 1, Cove Corp., a closely held corporation, issued 6% bonds with a maturity value of $60,000, together with 1,000 shares of its $5 par value common stock, for a combined cash amount of $110,000. The market value of Cove’s stock cannot be ascertained. If the bonds were issued separately, they would have sold for $40,000 on an 8% yield to maturity basis. What amount should Cove report for additional paid-in capital on the issuance of the stock?
We need to determine what is the APIC for CS, since the total proceeds received is for two types of securities we need to determine what portion is for CS.
On March 1, Year 1, Rya Corp. issued 1,000 shares of its $20 par value common stock and 2,000 shares of its $20 par value convertible preferred stock for a total of $80,000. At this date, Rya’s common stock was selling for $36 per share, and the convertible preferred stock was selling for $27 per share. What amount of the proceeds should be allocated to Rya’s convertible preferred stock?
Understand, when two shares are sold together as one price, you allocate % based on the investment Fair Value.
Beck Corp. issued 200,000 shares of common stock when it began operations in Year 1 and issued an additional 100,000 shares in Year 2. Beck also issued preferred stock convertible to 100,000 shares of common stock. In Year 3, Beck purchased 75,000 shares of its common stock and held it in Treasury. At December 31, Year 3, how many shares of Beck’s common stock were outstanding?
Equity
In Dec 31 Y1 Company BoD Cancels 50000 Shares of $2.50 par value CS held in Treas.
Before cancellation: Common stock is 540,000
Equity
Equity
Equity
On July 1, Year 1, Cove Corp., a closely held corporation, issued 6% bonds with a maturity value of $60,000, together with 1,000 shares of its $5 par value common stock, for a combined cash amount of $110,000. The market value of Cove’s stock cannot be ascertained. If the bonds were issued separately, they would have sold for $40,000 on an 8% yield to maturity basis. What amount should Cove report for additional paid-in capital on the issuance of the stock?
Equity
On March 1, Year 1, Rya Corp. issued 1,000 shares of its $20 par value common stock and 2,000 shares of its $20 par value convertible preferred stock for a total of $80,000. At this date, Rya’s common stock was selling for $36 per share, and the convertible preferred stock was selling for $27 per share. What amount of the proceeds should be allocated to Rya’s convertible preferred stock?
Equity
Equity
Equity
Verona Co. had $500,000 in short-term liabilities at the end of the current year. Verona issued $400,000 of common stock subsequent to the end of the year but before the financial statements were issued. The proceeds from the stock issue were intended to be used to pay the short-term debt. What amount should Verona report as a short-term liability on its balance sheet at the end of the current year?
