FAR Own Flashcards 2

Question 1

How do you report deferred gross profit relating to installment A/R collections 12 month beyond the balance sheet date?

Answer 1

They should be reported in the current asset section as a contra account

Question 2

When do current cost financial statements report holding gains?

Answer 2

They report holding gains for good sold during the period and holding gains on inventory at the end of the period

Question 3

Calculate a holding gain

Answer 3

Replacement Cost
- Original Purchase Price
= Holding Gain

Question 4

Where do you disclose the effect of changing prices?

Answer 4

They should be disclosed in supplementary info to the financial statements

Question 5

When can you reverse a previous impairment of fixed asset under US GAAP?

Answer 5

If the FV exceeds the CV the year after impairment under US GAAP, you can reverse it if the asset is HELD FOR DISPOSAL

Question 6

Are impairment reversals allowed under IFRS and if so where are they reported?

Answer 6

Yes, and they are reported on the income statement.

Question 7

Under the cost method of accounting, how do you account for dividends?

Answer 7

Dividends are included as income (but not earnings)

Question 8

When would the cost basis investment account be reduced?

Answer 8

1. Shares of stock are sold
2. Cumulative dividends are greater than cumulative earnings (a return of capital)
3. subsidiary incurs losses that substantially reduce net worth

Question 9

How do you account for preferred stock?

Answer 9

Preferred stock does not allow the investor to exercised influence, so preferred stock is accounted for using the COST METHOD

Question 10

How does a liquidating dividend effect an investment in the cost method vs. the equity method?

Answer 10

A liquidating dividend decreases the investment in subsidiary account for BOTH the cost and equity method

Question 11

Calculate the NCI under IFRS Partial Goodwill Method

Answer 11

NCI=FV of the subs net assets * NCI%

Question 12

Calculate goodwill under the full goodwill method

Answer 12

FV of the sub - FV of the subs net assets

Question 13

Calculate goodwill under the IFRS Partial Goodwill method

Answer 13

Acquisition cost - FV of subs net assets ACQUIRED

Question 14

Calculate NCI using the Full Goodwill Method

Answer 14

FV of sub * NCI%

Question 15

What will result in the most conservative ending inventory when applying the lower of cost or market rule?

Answer 15

Applying the LCM rule to each individual inventory item will result in the most conservative EI

Question 16

What is the LIFO reserve and what is the adjusting entry

Answer 16

The difference between inventory on the LIFO method vs. any other method
To decrease LIFO:
DR: COGS
CR: LIFO Reserve

Question 17

How do you handle obsolete inventory in the COGS equation?

Answer 17

TAKE THEM OUT: it is an operating loss and does not factor into the COGS equation

Question 18

How do you handle interest incurred during the construction of machinery used by a firm?

Answer 18

CAPITALIZE it as part of the HC to acquire the fixed asset only during the construction process (then expense)

Question 19

How do you handle interest incurred during the construction of machinery to be sold?

Answer 19

EXPENSE all interest costs (this machinery is inventory not a fixed asset)

Question 20

Calculate the weighted average interest rate

Answer 20

[(6,000,000/14,000,000).08]+[(8,000,000/14,000,000).09]=8.57%

Question 21

What interest rate do you use if the average accumulated expenditures outstanding exceeds the amount of specific new borrowing for construction?

Answer 21

The interest of the excess is computed based on the interest rate for other borrowings of the company

Question 22

What is the equation for sum of the years digits deprectiation

Answer 22

(Cost - Salvage Value) * Years(Years + 1)/2

For example: if useful life is 5 years: 5(5+1)/2=15

Question 23

What is the equation for declining balance

Answer 23

IGNORE SALVAGE VALUE:

Net Book Value as of Beginning of year * 2/useful life (If double declining)

Question 24

Calculate the total land depletion cost:

Answer 24

REAL property
(Residual Value)
\+Extraction/development cost
\+Anticipated restoration costs
\+Land purchase price