Financial Simulated Exam #1

Question 1

Which of the following should not be reported as general and administrative expenses?

• Freight in
• Freight out
• Sales representatives salaries

Answer 1

None of these are G&A expenses.

• Freight in is part of cost of sales
• Freight out is a selling expense
• Sales salaries are selling expenses

Question 2

How is days sales in A/R calculated?

Answer 2

Ending A/R (net) / Sales (net) / 365

**Do not use the Average A/R balance for the year

Question 3

How is interest capitalization computed on construction projects?

Hint: Step 1 is the calculation for avoidable interest (The potential amount to be capitalized)

Answer 3

1) Calculate:
Weighted average of accumulated construction expenditures during the year * Interest rate on the construction loan = Avoidable interest

2) Compare the Avoidable Interest to total actual interest cost incurred (total interest cost incurred for any purpose) and capitalize the lower amount

Question 4

How is impairment loss calculated under US GAAP?

Hint: Step 1 is to perform a test of recoverability

Answer 4

Step 1) Test of Recoverability = Net Carrying Value is compared to the undiscounted cash flow expected from the asset. If net CV > undiscounted cash flow then an impairment loss is recorded

Impairment Loss = Fair Value - Carrying Value

Question 5

Nonmonetary exchanges of similar assets - How is gain recognized when exchanges lack commercial substance

Hint: Depends if boot is received

Answer 5

GR for gains when exchange lacks commercial substance:

1) No boot is received = no gain (No cash, no gain)
2) Boot is Paid = No gain (Cash paid, no gain)
3) Boot is Received = Recognize Proportional Gain

Proportional gain is calculated as:
Cash Received / (Total FV received + cash received)

Multiply proportional gain % with FV old less BV old to get “Math” gain/loss

Question 6

How are balance sheet accounts reported under the acquisition method?

Answer 6

Under the acquisition method, all balance sheet accounts must be adjusted to fair value on the acquisition date.

Journal Entry:
In the consolidating work paper, debit or credit by the amount of the increase/decrease from BV

Question 7

How is goodwill calculated under the IFRS partial goodwill method?

Answer 7

Partial goodwill = Purchase price − FV net assets acquired