Far Module 3 Flashcards
Restoration costs associated with depletion should be
Added to the depletion base
Impairment Loss is equal to
Carrying value of the assets less the fair value
Impairment test if sum of expected discounted future cash flows is less than
the carrying amount impairment needs to be calculated
Doublde declining balance calcualted by taking
value of asset time 2/n dont take out salvage value
Depreciation and composition should be disclosed in significant account policies
Depreciation yes composition no
To calculate composite depreciation
Estimates cost less salvage calue is depreciaple cost add all up
estimated cost less salvage value / years gives annual depreciation divide depreciable cost by annual depreciation
Accumulated depreciation when impaired
1)Take accumulated depreciation then add
Take the cost of the asset less the accumulated depreciation and then subtract the carrying value-This is your loss
Then add the new depreciationa nd this is your total accumulated depreciation
Depletion amount calcultion
Take amount purchased then add extraction costs then subtract amount to be sold for then divide by anticipated units extracted if you were calculating depreciatione expense it would be number of sold units that count
Sum of years digits dont subtract out depreciation
multiple depreciable base each year by new number of remaining years over sum of years digit base
If carrying value is greater than fair value it is
impaired
Youd correct a depreciation error in the year it happened
if uou have an asset that costs 900k then you have 6 year life in year 3 you catch the error you correct it if have impairment loss take 900-300=600 for annual 150k depreciation then 600-200=400k/4 years since caught in year 3
Account analysis to solve for accumulated depreciation when given
Ichor Co. reported equipment with an original cost of $379,000 and $344,000, and accumulated depreciation of $153,000 and $128,000, respectively, in its comparative financial statements for the years ended December 31, Year 10, and Year 9. During Year 10, Ichor purchased equipment costing $50,000, and sold equipment with a carrying value of $9,000. What amount should Ichor report as depreciation expense for Year 10?
First you take the beginning of the cost for year 9
344,000
Add 50000 purch
=394000
solve for the x that gets you to ending
379000
=394-379=15K then take out the 9k for 6K AD
To solve for year 10 AD
Take 128000 AD for year 9
solving for what to add =159000-128000=31000which is your ad
solving for this below=153+6K=159000
move the 6000 over for ad
153000 ending balance
Impaairment losses are shown as income from continuing operations before tax
To test for impairment undiscount future cash flows is compared to carrying value if
impairement exists fair value can be used to determine this loss
When calculating the carrying value you subtract the original cost minus accumulated depreciation not
og cost-selvage value-ad
Helpful hints for bank reconciliation TBS
If it is our bank account and we void the check that would be an addition to the book balance account Check for items that were not recorded such as deposits we added to book that don’t show up on the bank statement you would need to add that too. Deduct any outstanding checks from the bank balance that have not cleared the bank. If there is a fee associated with NSF check then that category should be nsf fee
Caash aand caash equivilants
Maturity amounts less than or equal to 90 days from purchase
Checks that aare post dates after the balance sheet date should not be included in cash
aand caash equivilaant
Cash in sinking bond fund is
restricted cash
The book balance is what is reported on the
balance sheet
To find the amount of cash disbursement in a bank first if their are items that were outstanding such as checks in prior month that cleared the bank in current month subtract
those amounts from the disbursements then add any outstanding checks this month back to get the total amount of disbursements.
Task baased simulation for reconciliations for cash and cash equivalent hints
Pay attention to if bank fees are paid if they are paid then you would debit them to reduce the liability
AAn investment account is credited to reduce the amount of the investment account
Take FMV of investments and marketable securities and add them together then subtract that amount from investments if included because these should be classified as cash and cash equivalents
If there is cash used for trust debit to reclassify as restricted cash and credit the trust to reduce it
If there is aa negative balance in a checking and no other account to offset debit the checking for the amount that it is and credit financial obligation
If you have a negative amount in another account and you have enough in your other accounts to offset it and that ios allowed in policy of bank then no entry required
To calculate the inventory when given sales for the month and average gross inventory rate
1-average percentage multiplied by the sales
If given goods aand they have not been picked up hy end of year and they are fob shipping point
Take the amount of sales multiplied by 1-average gross inventory rate this is the amount to be included in your ending inventory
If goods are on consignment and they are sold by end of year reduce by
amount sold times percentage sold
The cost to ship goods to a warehouse in included in price of inventory t or f
true
7
Part of the company’s inventory on hand at year-end is specific to New Year’s Eve. The value of that inventory decreases substantially if it is not sold before year-end. Remaining inventory of these items with an original cost of $50,000 was on hand at December 31, Year 1. In early January, Year 2, Party Supply sold these items for $10,000 and also paid $6,000 to have the inventory shipped to the buyer.
If inventory decreases in value if not sold by the end of the year take the amount
of inventory on hand then subtract the net amount of the amount sold less the amount paid and that is your ending inventory amount
Weighted average cost of inventory is calculated by taking
The total units in the denominator with the numeror being the total cost of units
To calculate the moving aaverahe of inventory only calculate each time there is a purchase not when sale
Calculated by ending inventory+mosy recent purchase aka total cost and divide by the current total quaantity
To use the round function with formulaa to make sure the cell is correct enter +round((then formula,5)
That is all
Task basedd sims inventory hints
If you are calculating the cost of goods sold for sales then that is a deduction for inventory because they have been sold they are taken out of inventory same thing for goods held on consignment
Also a reduction is if goods lose value at year end and then we sell them for lower we would deduct from inventory being reduced to lower of cost or market
cogs anad ending inventory are the saame under fifo perpetual and
fifo periodic
Helpful hints for inventory reconciling TBS
Unmatched receiving reports would affect the book value of inventory not physical since would have counted when received
Customer goods shipped but not billed
would affect the book value we wouldn’t adjust the physical inventory or add anything because they are no longer ours when they leave Vendor drop shipments never affect the book or physical these ar in no way ours Goods in transit from vendor if fob shipping point we would need to include in our book and physical since they are ours. Goods in transit to customer fob destination would still need to be included in our physical and bok since title or ownership has not transferred . Vendors good that were held on consignment and included in physical inventory would need to be excluded if not included in book that is correct should not be in physical or book customer returns counted but not billed dopnt adjust physical but do adjust book by adding back the inventory
Lower of cost or market
subtract out from cost selling price less cost to dispose less normal profit margin
Losses are only recorded in purchase aagreements where buyer
is required to purchase a fixed amount if not required to purchase certain amount no loss accounted for
When calculating added layer inventory if you have base year cost and inventory for first year
Add both aamounts together and divide current year divided by base year once you have added current year base to layer and base to layer Then add the year two layers in the total current year cost and bse year cost for year 2 will be f=divided by one another
Freight out is not included in caluclation of
cogs
freight in is capitalized as part of
Inventory
Lifo has lower
ending inventory and cost of goods sold
In inflaationary environment
Fifo produces lower inventory turnover ratio
In January, Stitch, Inc. adopted the dollar-value LIFO method of inventory valuation. At adoption, inventory was valued at $50,000. During the year, inventory increased $30,000 using base-year prices, and prices increased 10%. The designated market value of Stitch’s inventory exceeded its cost at year end. What amount of inventory should Stitch report in its year-end balance sheet?
If it increases by 10% that is your price index baase year added layer is 30,000 multiplied by 10% =30k+3k=33k then add this to the beginning 50k and you get 83 k in year end
cogs and nI are opposite if ending inventory overstaated cogs
if cogs overstaated ni understaded and understated
NRV calculated as
selling cost less cost of disposal
Transpotation costs should be added to
purchases and beginning inventory when calculating cost of goods sold
Fifo lowest cost of goods sold highest
net income
Task based simulations inventory rollforward helpful hints
Look aat last months ending inventory that will be this months beginning inventory. Then take a look at all the inventory receipts what was redceibved this month. Taake note of shipping terms was anythubg shipped in this month fob shipping point that should have been included. If using average cost nrv should always be lessthan average cost if average cost is greater than nrv you need to adjust look at the amount adjusted then multiply by amount of those units we have this will be a reduction of the balance of inventory
Sales you should report average cogs and this will also be a reduction of inventory
any other adjustments were there items that were not included but should have been were there items that couldn’t be found so need to excluded multiply these amounts by their average cot then net together and these are your other adjustments
If you enter into a bargain purchase option paay attention to number of years that factors into loss if market value goes below the amount
that you agreed to purchase items for
in nrv or cost
nrv is ceiling nrv-profit is floor and replace cost is
Orr Co. prepared an aging of its accounts receivable at December 31 and determined that the net realizable value of the receivables was $250,000. Additional information is available as follows:
Allowance for uncollectible accounts at 1/1 – credit balance
28,000
Accounts written off as uncollectible
23,000
Accounts receivable at 12/31
270,000
Uncollectible accounts recovery
5,000
For the year ended December 31, Orr’s uncollectible accounts expense would be:
First you taake the beginning balance for allowance \
28000
Then add the 5,000 that were collected to increase it
Subtract out the 23000 that were uncollectible
Then the ending will be 20000
work backward 23+20 =43
43-5=38 38 less what gives you 28 10
uestion
At the end of year one, Boller Co. had an ending balance in allowance for uncollectible accounts of $30,000. During year two, Boller wrote-off $40,000 of accounts receivable. At the end of year two, Boller had $300,000 in accounts receivable and determined that 8% of these would be uncollectible. What amount should be reported as uncollectible accounts expense on Boller’s year two income statement?
make a T account first
alllowance for uncollectible accounts
begin balance 30000
Write off
40,000
end balance 8%of 300K
=24000
Take end balance 24 aadd to 40 the debit =64 less the begin balance of 30 and that is your uncollectible expense
Without recourse
buyer of recievables assumes all liabilities seller no longer responsibl;e
Garr Co. received a $60,000, 6-month, 10% interest-bearing note from a customer. After holding the note for two months, Garr was in need of cash and discounted the note at the United Local Bank at 12%. The amount of cash Garr received from the bank was:
take the face value of the note then multiply by 5% since half a year interest this gives you 63000 when you add interest and proceeds together then you discount take 63000(12%(4/12) for the months you didn’t have it for out of the total year since had it for 2 of 6 months 4/12 left this gives you 2520 subtract this from 63000 and you get 60480
On June 1, Pitt Corp. sold merchandise with a list price of $5,000 to Burr on account. Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made FOB shipping point. Pitt prepaid $200 of delivery costs for Burr as an accommodation. On June 12, Pitt received from Burr a remittance in full payment amounting to:
First Take your sales price
5000
then multiply by your first discount 30%
this gives you a 1500 discount subtract the discount to see what you owe 3500
then multiply by the 20% discount of what you owe
then subtract that amount out 700
which brings you to 2800 you paid in the 15 day discount period so you get 2% discount on the 2800 you now ow which is
56 you now owe 2744 but you have to pay back delivery costs of 200 so you pay 2944
When percentage method of ar is used with aging the rewquired amount is just
multiplying all ar balances and then adding them up at the end
An account that waas written off and then collected in a task based sim if the AR has not been removed from the subledjer
The aadjustment is to credit the account for that amount to remove it since it was paid off
Task based simulation when given percentage of AR with increase if economic conditions worsen and given bad debt expense and percentage before and after
Take the baad debt expense and divide by the original percentage then multiply by the other percentage and this is your allowance for doubtful accounts oir BDE for the year
Task based sims on ar roll forward
pay attention to credit sales only those that say credit and approved should be included as sales in ar rollforward if we are doing rollforward we want ending balance of prior month to roll forward. If something is the same and does not change write the same amount unless otherwise noted. Pay attention to other adjustments like a an aar balance being converted to note as you will need to remove this
TBs and gen ledger and sub ledger reconciliations
Look to sub and GL first if there is an asset on one that is not on the other that’s the first adjustment. Also if you capitalize an item improperly expensed on one you probably need to do it on another. Check the journal entries stuff like freight on equipment needs to be capitalized to that equipment and not expensed.
The cost of laand includes the cost to
raise a building less the sale of scrap materials
For capitalizing interest on construction it is limited to actual borrowings to calculate if over take
weighted average cost of borrowings added up then subtract out the actual borrowings use the interest rate for other borrowings times this excess then take what was actually borrowed times the interest rate of actual borrowing add these two amounts together and that is what you can caapitaalize
Capitilize interest when three items occur
Expenditures have been made
interest is being incurred and
permits have been field
Attorney fees rela esttaae taxes in arrears andpurchase price are all included in and titles fees
The cost of the land
To create or calculate the weighted average
Take the aamount incurred divided by the total amount borrowed to get the percentage applied to that interest rate do the same for any others then add together when multiplying calculate it is follows
25%9% and 75%10% then add
When allcoating a lump sum purchase take total value of land and building original value
Then multiply by percentage aallcoated to it
The cost to build a new parking lot is
capitalized and depreciated
Machine capitaalize
Capitalize invoice sales taax and installation
On borrowings aand capitalizing interest to get the weighted average cost of borrowings for year
interest expense for year
aavoidaable interest for you
caoitaalized interest for year
interest expense for yeaar
Take each borrowing and multiply by months held till next borrowing
On next borrowing add previous borrowing amount to it.
Then to get interest for year multiply each borrowing by each interest rate for that borrowing then add all up
For aavoidaable interest take the amount of interest chosen for that borrowing
Then take the total weighted average of borrowings for the year and subtract out what you borrowed
Then you need to add the interest rate on other borrowings times your amount you could have avoided
You take the two interest amounts and add together this is numerator denominatir is your two borrowing amounts
then that is your rate for what should be applied for the avoidable interest multiply this by the ending amount of difference pf weighted average and what you borrowed that could have been avoided then add this interest amount to the interest that could have been avoided
Interest capitalized will be the lower of total for year and avoidable
Interest expense will be the difference between the two
Land capitalize thesde costs
Purchasr price cost of demolition subtract out proceeds and add any legal fees
settlement of lien and payment of accrued taxes
waarehouse capitalaize
Interest incurred during buildimg tjem total costs of construction permits
TBS hints depreciation ppe
If the asset is sold assume it is sold at the end of month stated and include depreciation for that month however if asset bought assume depreciation starts month after bought.
For accumulated depreciaation ledger when sell aasset must remove accumulated depreciation of that asset.
Unsuccessful defense of patents will be
expensed not capitalized
Internally developed intangible assets are an expense and are not capitalized
except for costs that can be specifically identified, such as design costs
thats all
