FAR 3

Question 1

How Start-up Cost is treated?

Answer 1

Expensed as incurred.

Question 2

How would collection of an account previously written off affect accounts receivable and the allowance of uncollectible accounts?

Answer 2

no effect on A/R
increase Allowance account

JE1 - record recovered account
A/R Dr.
Allowance Cr.

JE2 -record cash received
Cash Dr.
A/R Cr
Based on these JE AR would be offset and allowance has increased.

Question 3

Garcel Inc. held unfinished inventory at a cost of $85,000 with a sales value of $125,000.
The inventory will cost $10,500 to complete. The normal profit margin is 30% of sales.
The replacement cost of the inventory was $75,000. What amount should Garcel report
as inventory on the balance sheet under lower of cost or market?

Answer 3

The cost of the inventory is $85,000 and this will be compared to the:
Replacement cost: $75,000
Market ceiling (net realizable value): $125,000 – $10,500 = $114,500
Market floor: $114,500 – ($125,000 × 30%) = $77,000
The middle value is the market floor of $77,000; because this is lower than the cost of
$85,000, the inventory on the balance sheet will reflect a total of $77,000.

Question 4

When do you capitalize software development cost?

Answer 4

Once the technological feasibility is established.

Question 5

FIFO and LIFO in rising price

Answer 5

FIFO= result in highest ending inventory, the lowest COGS and Highest Income
LIFO=Lowest ending inventory, highest COGS and lowest Income