Fixed Assets Inventory and Investments Flashcards
How are Research and Development costs recorded?
They are expensed in the period incurred and are not capitalized.
Which expenditures are included in the cost of a building?
All expenditures to get the building into working condition are ready for use
Which expenditures are included in the cost of land?
All expenditures to get the land ready for its intended use:
Title & County Fees
Clearing of Land - Dirt work etc.
Demolition and removal of old buildings (minus any scrap or salvage)
Note: capitalized land costs are not depreciated
In an exchange of non-monetary assets how much gain is recognized if no additional cash is exchanged when there is no significant difference in resulting cash flows?
If the cash flows from the assets exchanged are not significantly different no gain or loss is recognized on a non-monetary exchange as it lacks commercial substance.
The new asset is recorded at the book value of the asset given up.
The only gain that can be recognized is any boot (cash) received.
In an exchange of non-monetary assets what gain is recognized if resulting cash flows are significantly different?
If resulting cash flows are significantly different then the transaction has commercial substance and a gain/loss is recorded on the exchange.
The new asset is recorded at the FAIR VALUE of the assets given up unless the asset acquired has a fair value that is easier to determine.
How is donated property recorded by the donee?
Recorded at Fair Value + costs associated with getting the property into working condition for its designed purpose
Exam Tip - Think of a charity holding afair and then donating the property which is then recorded atfair value
How is donation of property recorded by the donor?
Recorded at Fair Value of asset given up.
Gain or Loss is recorded.
How is double-declining balance (DDB) depreciation calculated?
1 / (Useful Life x 2 x Book Value)
Ignore salvage value.
How is Sum of Year’s Digits (SYD) depreciation calculated?
(Cost - Salvage Value) x (Remaining Useful Life / SYD) : Depreciation expense
For example the depreciation factor for the third year of a 10-year asset would be:
: 8 / (10+9+8+7+6+5+4+3+2+1) : 8/55 : 14.5%
Remaining useful life : 8 SYD : 55
How is straight line depreciation calculated?
(Cost - Salvage Value) / Useful life : depreciation expense
When is an asset considered to be impaired? How is impairment loss calculated?
When the un-discounted future cash flows are less than the carrying value of the asset.
Carrying Value - Fair Value : Impairment Loss
Note: impaired assets that recover their value can’t be written back up once written down
How are legal fees to defend a patent amortized?
If the patent is SUCCESSFULLY defended the legal fees are amortized over the patent’s economic life.
If unsuccessful they are expensed immediately.
What are the two steps for testing goodwill impairment?
Compare the CV to the FV. If FV is greater than CV no impairment exists you’re done.
If impairment appears to exist the assets and liabilities should be compared to the total value of the reporting unit. The difference is Goodwill. Compare this amount to the CV of the Goodwill and write it down accordingly.
How are costs for developing software recorded?
Expenses prior to technological feasibility are expensed as R&D.
After technological feasibility but prior to production costs are capitalized.
Expenses incurred during production are charged to inventory.
Expenses incurred training on internal use software are expensed.
What expenditures are included in the cost of equipment?
All expenditures to get the asset into working condition and ready for use:
Purchase price + liabilities assumed Shipping Taxes Insurance Installation Testing Legal fees Construction loan interest
Any alterations to existing facilities or equipment necessary for the new purchase and installation that extend the life or increase the efficiency of these assets are capitalized.
Which costs are inventoriable?
Purchases - Net of Discounts, Freight, Warehouse expenditures
When does ownership of goods transfer when shipped FOB Shipping Point?
FOB Shipping Point puts the inventory into the hands of the buyer from the loading dock
When does ownership transfer when goods are sent FOB Destination?
FOB Destination keeps the items in the seller’s inventory until it reaches the buyer
Which costs are non-inventoriable?
Sales Commissions
Interest on liabilities to vendors
Shipping expense to customers
When are discounts recorded under the gross method?
Under the gross method, discounts are recorded only when used.
Under the net method, when are discounts recorded?
Under the net method, discounts are recorded whether used or not.
Unused discounts are allocated to financing expense.
How is gross margin calculated?
Gross Margin : Sales - COGS (BI + P - EI)
Describe the periodic inventory system.
Inventory is counted at certain times throughout the period
Weighted-average cost flow method is used.
Describe the perpetual inventory system.
Inventory count continually updated
Uses a moving-average cost flow method
In periods of rising prices, under which cost flow system would ending inventory be the same under both periodic and perpetual inventory methods?
Under the FIFO system, periodic and perpetual inventory methods will both have the same ending inventory.
How is inventory turnover calculated?
COGS / Average Inventory
How is Average Day’s Sales in inventory calculated?
365 / Inventory Turnover
Under a consignment system, who holds the consigned goods in inventory?
The CONSIGNOR holds the consigned items in their inventory count. The cost includes the shipping to the consignee.
Under a consignment system, does the consignee hold consignment inventory in their own inventory?
No. Consignment goods are maintained in the inventory of the consignor, not the consignee.
What effect does overstatement or understatement of inventory have on ending retained earnings?
Misstatement of beginning inventory does NOT have an effect on ending retained earnings.
Misstatement of ENDING inventory does have an effect on retained earnings.
How does misstatement of ending inventory effect Ending Retained Earnings?
EI Over : COGS Under : ERE Over
EI Under : COGS Over : ERE Under
Which costs are included in COGS first under the FIFO (first in first out) system?
The first (oldest) inventory you have in stock is the first inventory you record for COGS purposes. If your oldest inventory on the shelf cost you $1 when you bought it, COGS is $1
This is just for inventory pricing. It has nothing to do with physically selling the oldest item on the shelf - It is purely for accounting purposes
Which costs are included in COGS under the LIFO (last in first out) system?
The last (newest) inventory you have in stock is the first inventory you record for COGS purposes. If your newest inventory on the shelf cost you $1.50 when you bought it, COGS is $1.50
How is Weighted Average Cost Per Unit calculated under a weighted average inventory system?
COGAS / Total Units : Weighted Average Cost Per Unit
How does FIFO’s COGS relate to LIFO’s in a time of changing prices?
FIFO’s relationship to COGS will be opposite LIFO’s relationship to COGS in periods of falling/rising prices.
How do FIFO and LIFO change in a period of rising prices?
FIFO has the Lowest COGS
FIFO is a cat that sees a mouse starts Low and is Rising
If COGS is Low, that means EI is High
How do FIFO and LIFO change in a period of falling prices?
FIFO has the Highest COGS
Remember: FIFO, that silly cat, got High from Catnip and is Falling off the couch
If COGS is High, that means EI is Low
Under a Lower of Cost or Market, how are the benchmarks calculated?
Market Ceiling : Net Realizable Value : Selling Price - Selling Costs
Market : Replacement Cost
Market Floor : Net Realizable Value - Normal Profit
How are Available-For-Sale securities recorded on the Balance Sheet?
At Fair value as either Current or Non-current assets.
How are Available-For-Sale security Unrealized G/L treated?
Included in OCI (Other Comprehensive Income)
How are Unrealized G/L for Available-For-Sale securities that are reclassified to Held-to-Maturity or Trading Securities treated?
HTM - Stockholder’s Equity
/ Trading Securities - Current Period.
How are Held-to-Maturity securities recorded on the Balance Sheet?
Amortized cost as Current or Non-current assets.
If reclassified as AFS - Unrealized G/L go to Stockholder’s Equity
If reclassified as Trading Securities - Unrealized G/L recognized in Current Period
How are Held-to-Maturity securities Unrealized G/L treated?
Trick question - Unrealized gains or losses are not applicable because they are HTM
How are Trading Securities recorded on the Balance Sheet?
At Fair Value as a Current Asset
Unrealized gains/losses are recorded on the Income Statement
If they are reclassified as held-to-maturity or available-for-sale- there is no effect upon transfer.
How are Trading Securities Unrealized G/L treated?
Recorded on the Income Statement
If they are reclassified as HTM or AFS - there is no effect upon transfer.
