II. Select Financial Statement Accounts Flashcards
During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which inventory cost flow methods?
FIFO. Under the FIFO method, ending inventory is the same whether a perpetual or periodic system is used. The inventory flow is always in chronological order, and ending inventory is made up of the latest (most recent) purchases. Under the LIFO method, ending inventory is made up of the first (oldest) purchases. When LIFO periodic is used, the first/last purchase determination is based upon the chronological order of all purchases. When LIFO perpetual is used, this determination is made continuously based on the inventory layers available. Therefore, LIFO periodic ending inventory is usually different from LIFO perpetual ending inventory.
When calculating the rule of lower of cost or market (LCM) to identify the value, what are the formulas for each component?
“Cost” is the historical cost (original unit cost) of the good.
“Market” value is the replacement cost subject to an upper limit (ceiling) and a lower limit (floor):
- The ceiling is the net realizable value, which is the selling price less disposal costs.
- The floor is the net realizable value less a normal profit margin.
What is the formula for calculating uncollectible accounts expense/bad debt expense?
The ending allowance balance - The pre-adjustment allowance balance
OR
(Ending gross AR - Ending net value of AR) - (Beginning balance - Write-offs + Recoveries)
When should the costs associated with an asset (eg, equipment) be capitalized?
Costs that increase EITHER the life OR productivity are capitalized.
What amount of interest should be capitalized during building construction?
The amount of interest cost which should be capitalized during building construction is the lower of avoidable interest or actual interest. Avoidable interest equals the interest computed on the weighted-average amount of accumulated expenditures on the building
What assets qualify for interest capitalization?
Assets which qualify for interest capitalization are those constructed or otherwise produced for an enterprise’s own use and those intended for sale or lease that are constructed or otherwise produced as discrete projects. The capitalization period shall end when the asset is substantially complete and ready for its intended use.
At what level should Goodwill be tested for value impairment?
Each reporting unit
How would a gain/loss on refunded debt be reported?
This gain is included in income from continuing operations, as would other gains and losses such as on equipment disposal.
What is accretion expense?
Accretion expense is simply the increase in the asset retirement obligation over time.
The asset retirement obligation is initially recorded at present value or fair value, and over time grows with interest until it reaches its future value—the amount due. Accretion expense is similar to the interest cost component of pension expense—the growth in projected benefit obligation. It is caused by the fact that the asset retirement obligation is recorded at present value but not paid until later.
Per ASC 470-10-45-14, an enterprise may exclude a short-term obligation from current liabilities only if:
(1) it intends to refinance the obligation on a long-term basis.
(2) it demonstrates an ability to consummate the refinancing.
What do you do with an exchange in assets that lacks commercial substance?
If there is a loss, record the loss and then record new asset at its FV.
If there is a gain but no cash is received, no gain is recognized and asset is recorded at BV + any cash paid.
If there is a gain and cash is received, recognize gain in proportion to cash received and record asset at FV less the unrecognized portion of gain.
If the proportion of cash received to value of asset is more than 25%, record the gain in full and the asset at FV.
What are the non-accelerated methods of depreciation and their formulas?
Straight line: (Cost - Salvage Value) / # of years
Service Hours Method: [(Cost-Salvage Value) / Total Service Hours)] x Hours Used
Units of Output: [(Cost - Salvage Value) / Total units)] x Units produced
What are the accelerated methods of depreciation and their formulas?
Sum of Years Digits: [# of years remaining x (Cost - Salvage Value)] / Sum of the Years
Double Declining: 2x Straight Line Rate x (Cost - Accumulated Depreciation)
What is the difference between “definite life intangibles” and “indefinite life intangibles” ?
While external costs (legal fees, etc.) are capitalized for both, only definite life intangible assets are amortized over their useful life.
What are the formula’s for calculating the Book Value Per Share?
(Common Stockholders’ Equity) / (# of Common Shares Outstanding)
OR
(Total Owners’ Equity - Preferred Stock Claims) / (# of Common Shares Outstanding)
