important point Flashcards
DV LIFO important parts.
ベースの変化をcurrent/Base year index でかけて、ＤＶＬＩＦＯを出す。
- Compute the change in inventory in base-year cost.
Change in inventory in Base-year cost = Ending inventory in base-year dollars - Beginning inventory in base-year dollars
$909 = $2,909 - $2,000
Question #6 (AICPA.931120FAR-P1-FA)
DV LIFO
Brock Co. adopted the dollar-value LIFO inventory method as of January 1, 2003. A single inventory pool and an internally computed price index are used to compute Brock’s LIFO inventory layers. Information about Brock’s dollar-value inventory follows:
Inventory
_________________________________
Date at base-year cost at current-year cost at dollar-value LIFO
1/1/03 $40,000 $40,000 $40,000
2003 layer 5,000 14,000 6,000
__________ __________ __________ __________
12/31/03 45,000 54,000 46,000
2004 layer 15,000 26,000 ?
__________ __________ __________ __________
12/31/04 $60,000 $80,000 ?
========= ========== ==========
What was Brock’s dollar-value LIFO inventory on December 31, 2004?
ベースを全部たしたもの÷カレントの全部足したもの＝ＰＣＩ
ベースで増えた数字Ｘ ＰＣＩ
A. $80,000 This is the ending inventory at current cost. Under DV LIFO, each year's layer must reflect the cost for the period in which it was added. This answer is the most current value for the entire inventory and it fails to quantify the previous years' layers at those years' costs. B. $74,000 C. $66,000 (correct) The ending inventory is used to construct the internal price index. At the end of 2004, the ratio of current cost to base-year cost for ending inventory is $80,000/$60,000 = 1 1/3 or 4/3. This ratio is applied to the 2004 layer at base-year cost, yielding $20,000 ($15,000 x 4/3). This amount is the increase to DV LIFO. Therefore, ending 2004 DV LIFO is $66,000 ($46,000 + $20,000).
Question #1 (AICPA.130726FAR)
Ina Co. had the following beginning and ending balances in its prepaid expense and accrued liabilities accounts for the current year:
Prepaid expenses Accrued liabilities Beginning balance $ 5,000 $ 8,000 Ending balance 10,000 20,000 Debits to operating expenses totaled $100,000. What amount did Ina pay for operating expenses during the current year?
A. $ 83,000
B. $ 93,000
An increase in prepaid expenses indicates that more cash was paid than expensed (5,000). An increase in accrued liabilities indicates that more expense was accrued than paid (12,000). The reconciliation of operating expense to cash paid is: 100,000 + 5,000 - 12,000 = 93,000.
C. $107,000
D. $117,000
Prepaidは支払いが来る前にもらったお金。accred は既に物やサービスを使用し支払ってない物。accruelが増えると未払が立つ。今期の費用として認識出来ない
For items 1 through 6, determine for each item whether the expenditure should be capitalized or expensed as a period cost.
Capitalize/Expense
1. Freight charges paid for goods held for resale.
2. In-transit insurance on goods held for resale purchased FOB shipping point.
3. Interest on note payable for goods held for resale.
4. Installation of equipment.
5. Testing of newly purchased equipment.
6. Cost of current year service contract on equipment.
Rationale:
Items 1 through 6 represent questions concerning expenditures for goods held for resale and equipment and whether these expenditures should be capitalized or expensed as a period cost. The general concept that determines whether expenditures should be product costs and, therefore, capitalized or expensed as period costs is whether or not these expenditures “attach” themselves to the assets of inventory or equipment. Costs that “attach” themselves to assets are those that are directly connected with bringing the goods or equipment to the place of business of the buyer and converting such goods to a salable (inventory) or usable (equipment) condition.
- (C) Freight charges are directly connected with bringing the goods to the place of business of the buyer.
- (C) Insurance charges are directly connected with bringing the goods to the place of business of the buyer.
- (E) Only interest costs related to continued assets constructed for internal use or assets produced as discrete products for sale or lease should be capitalized. The informational benefit of capitalization does not justify the cost of the accounting for the interest as a product cost.
- (C) Direct cost of bringing the equipment to the buyer.
- (C) Direct cost of converting the equipment to a usable condition.
- (E) Does not relate to bringing the equipment to the buyer or putting it into a usable condition.
AICPA.083727FAR-SIM
Tag Question
A firm began the construction of its new manufacturing facility in January of 20x2. The following expenditures were made on construction in that year: Jan. 1 $40,000 Mar. 1 120,000 Oct. 31 96,000 Debt outstanding the entire year:
6%, $60,000 construction loan
4%, $90,000 note payable not related to construction
6%, $90,000 note payable not related to construction
Compute interest to be capitalized using the specific method (use the construction loan first).
A. $7,000 B. $12,600 C. $8,400 D. $8,190
C
Correct!
Average accumulated expenditures is $156,000 = $40,000 + $120,000(10/12) + $96,000(2/12). This method uses the specific construction loan first, and then the remaining debt is applied. The nonspecific loans have the same principal balance. Therefore, the weighted average interest rate on those two loans is 5% (the midpoint between 4% and 6%). Capitalized interest = .06($60,000) + .05($156,000-$60,000) = $3,600 + $4,800 = $8,400. The weighted average rate on the two nonspecific loans can also be computed as: [.04($90,000) + .06($90,000)]/($90,000 + $90,000)] = 5%.
Interest Capitalization
A firm began the construction of its new manufacturing facility in January of 20x2. The following expenditures were made on construction in that year: Jan. 1 $40,000 Mar. 1 120,000 Oct. 31 96,000 Debt outstanding the entire year:
6%, $60,000 construction loan
4%, $90,000 note payable not related to construction
6%, $90,000 note payable not related to construction
Compute interest to be capitalized using the specific method (use the construction loan first).
A. $7,000 B. $12,600 C. $8,400 D. $8,190
Jan. 1 $40,000
Mar. 1 120,000 -> 120 x 10/12=100
Oct. 31 96,000 -> 96 x 2/10 = 16
Total 156,000
To compute weighted ave for the following
4%, $90,000 note payable not related to construction
6%, $90,000 note payable not related to construction
4% x 90,000 = 3,600
6% x 90,000 = 5,400
9,000 / (90,000 x 2 notes) = 5% (weighted avg int)
Interest capitalized = 60 x 6% + 5%x (156-60) = 8,400
A
Incorrect…
This response computes average accumulated expenditures based on a continuous or even spending schedule. However, the question is clear about the dates of the expenditures. For example, the March 1 expenditure should be weighted by 10/12 of the year, not as is the case for this particular response. Otherwise this answer is correct.
C
Correct!
Average accumulated expenditures is $156,000 = $40,000 + $120,000(10/12) + $96,000(2/12). This method uses the specific construction loan first, and then the remaining debt is applied. The nonspecific loans have the same principal balance. Therefore, the weighted average interest rate on those two loans is 5% (the midpoint between 4% and 6%). Capitalized interest = .06($60,000) + .05($156,000-$60,000) = $3,600 + $4,800 = $8,400. The weighted average rate on the two nonspecific loans can also be computed as: [.04($90,000) + .06($90,000)]/($90,000 + $90,000)] = 5%.
Tag Question
During 2004, Bay Co. constructed machinery for its own use and for sale to customers. Bank loans financed these assets both during construction and after construction was complete.
How much of the interest incurred should be reported as interest expense in the 2004 Income Statement?
Interest incurred for machinery for own use Interest incurred for machinery held for sale
All interest incurred All interest incurred
All interest incurred Interest incurred after completion
Interest incurred after completion Interest incurred after completion
Interest incurred after completion All interest incurred
Interest capitalized for discrete projects / own use
D
Correct!
Interest during construction on assets constructed for a firm’s own use is capitalized until construction is complete. Thus, only the interest incurred after completion is expensed.
Interest is capitalized on the construction of assets for sale only if the assets are large, individual, discrete projects, such as ships or real estate developments. The equipment constructed for sale does not appear to be a discrete item in that sense and, thus, none of the interest is capitalized. It is all expensed.
AICPA.083732FAR-SIM
Tag Question
A firm is constructing a warehouse for its own use and purchased the land for the site immediately before beginning construction. Interest is capitalized on which of the following:
Warehouse Land Yes Yes Yes No No Yes No No
Ｂ
Correct!
The average accumulated expenditures for purposes of capitalizing interest during construction of the warehouse includes the land cost, but the interest is capitalized to the warehouse only. The land is not under construction.
verage accumulated expenditures for year five on a construction project amounted to $70,000. The total cash invested in the project by the end of year five, was $160,000. During year six, the firm spent another $240,000 (total) on the project, uniformly throughout the year. Compute average accumulated expenditures for year six. A. $240,000 B. $400,000 C. $190,000 D. $280,000
Ｄ
Correct!
Average accumulated expenditures is the amount of debt for the annual period that could have been avoided. In this case, the firm has $160,000 already invested in the project at the beginning of year six. That amount represents $160,000 in debt, that could have been avoided for year six if the firm had not been involved in the construction project. The expenditures during year six were incurred evenly. Average accumulated expenditures therefore = $160,000(12/12) + $240,000/2 = $280,000. Also, [$160,000 + ($160,000 + $240,000)]/2 = $280,000.
Nonaccelerated Depreciation
AICPA.920517FAR-TH-FA
On January 1, 2005, Brecon Co. installed cabinets to display its merchandise in customers’ stores. Brecon expects to use these cabinets for five years.
Brecon’s 2005 multi-step Income Statement should include:
A. One-fifth of the cabinet costs in cost of goods sold. B. One-fifth of the cabinet costs in selling, general, and administrative expenses. C. All of the cabinet costs in cost of goods sold. D. All of the cabinet costs in selling, general, and administrative expenses.
B
Correct!
With a five year life, 1/5 of the cost of the cabinets is expensed as depreciation. The cabinets are not involved in the manufacturing of the goods. Rather, they are used to help sell the merchandise.
Thus, the depreciation is not included in cost of goods sold; rather, it is included in selling, general, and administrative expenses.
この場合はBreconの商品を売りやすくする為にこのキャビネットが設置されたため、償却金額をselling GAに含む
AICPA.090634FAR-II-D
Accelerated Depreciation
Ajax Corp. has an effective tax rate of 30%. On January 1, 2000, Ajax purchased equipment for $100,000. The equipment has a useful life of 10 years. What amount of current tax benefit will Ajax realize during 2000 by using the 150% declining-balance method of depreciation for tax purposes instead of the straight-line method?
A. $1,500 B. $3,000 C. $4,500 D. $5,000
A
Correct!
The two depreciation amounts for 2000, the first service year of the asset, are: SL, $10,000 ($100,000/10); and 150% DB, $15,000 (1.5 x SL amount or 1.50/10 x $100,000). The difference, $5,000 is the excess of the 150% DB deduction over the SL deduction. The tax benefit of the $5,000 excess is $1,500 ($5,000 x .30). The firm will pay $1,500 less in taxes if it uses the 150% DB method compared with the SL method.
AICPA.910558FAR-P1-FA
No Significant Influence
On January 2, 2004, Adam Co. purchased, as a long-term investment, 10,000 shares of Mill Corp.’s common stock for $40 a share.
On December 31, 2004, the market price of Mill’s stock was $35 a share, reflecting a temporary decline in market price. On December 28, 2005, Adam sold 8,000 shares of Mill stock for $30 a share.
For the year ended December 31, 2005, Adam should report a loss on disposal of long-term investment of:
A. $100,000 B. $90,000 C. $80,000 D. $40,000
C
Correct!
The realized loss on the sale of available-for-sale securities is the decline in market value since the acquisition of the securities sold. The $80,000 loss equals 8,000($40-$30). The loss to the beginning of 2005 is unrealized and recorded in owners’ equity.
ＡＦＳが売れるときは今までunrealizedＯＣＩにためておいた金額もincome Statement上に計上されるので、
2005年の年初の金額からひくのではない。
AICPA.930504FAR-P1-FA
Cost Method and Transfers Between Classifications
Sun Corp. had investments in marketable equity securities costing $650,000. On June 30, 20x2, Sun decided to hold the investments indefinitely and, accordingly, reclassified them from held-for-trading to available-for-sale on that date. The investments’ market value was $575,000 at December 31, 20x1, $530,000 at June 30, 20x2, and $490,000 at December 31, 20x2.
What amount should Sun report as net unrealized loss on noncurrent marketable equity securities in its 20x2 statement of stockholders’ equity?
A. $40,000 B. $45,000 C. $85,000 D. $160,000
質問はＯＣＩに含まれる数字を聞いている。 ｘ2年6月末にTradingからＡＦＳに変更になったので、 ｘ2年6月末から同年年末までのＯＣＩを計上。 A Correct!
The securities were classified as available-for-sale at June 30, 20x2. The decline in market value from that date to December 31, 20x2 is $40,000 ($530,000-$490,000).
That amount is reported in owners’ equity because holding gains and losses on securities available-for-sale are not recognized in earnings.
B
Incorrect…
This is the decline in market value from December 31, 20x2 to June 30, 20x2. The securities were not classified as available-for-sale during this period, but as trading securities. The holding loss during this period is recognized in income.
Sealco also determined the following concerning its investments in Northco:
Northco has 200,000 shares of common stock outstanding. Sealco acquired its investment in October 2010, has no other relationship with Northco, and originally intendeds to sell its Northco stock in the near-term to realize the price appreciation.
During January 2011, Sealco did not make any adjustments to its investment accounts. On January 30, 2011, Sealco management decided that the prospects of price appreciation for its investment in Northco warranted holding that investment indefinitely and reclassified the investment accordingly. At that time, the fair value of its investment in Northco was $110,000.
In Item A, below, record the accounting classification of the investment in Northco before reclassification and, in Item B, the classification of the investment after the reclassification. Click on each shaded box and select the appropriate classification for each from the list provided.
Accounting Classification
A. Before Reclassification ｘｘｘｘ
B. After Reclassification ｘｘｘｘｘ
Rationale:
ＨＴＭではないのは、ＨＴＭはＤｅｂｔＯｎｌｙ
Accounting Classification A. Before Reclassification Trading B. After Reclassification Available-for-sale Rationale:
Items A and B
Prior to reclassifying its 2% investment in Northco, the investment was classified as “trading” because Sealco had no other relationship with Northco and intended to sell its investment in the near-term to realize price appreciation. When Sealco decided to hold its investment indefinitely, rather than sell it in the near-term, the investment was reclassified to available-for-sale.
Situation
Harold Johnson, an investor in Acme Co., asked you for advice on the propriety of Acme’s financial reporting for two of its investments. Assume that Acme does not elect the fair value option for reporting its financial assets and liabilities. You obtained the following information related to the investments from Acme’s December 31, year 1 financial statements:
20% ownership interest in Kern Co., represented by 200,000 shares of outstanding common stock purchased on January 2, year 1, for $600,000.
20% ownership interest in Wand Co., represented by 20,000 shares of outstanding common stock purchased on January 2, year 1, for $300,000.
On January 2, year 1, the carrying values of the acquired shares of both investments equaled their purchase price.
Kern reported earnings of $400,000 for the year ended December 31, year 1, and declared and paid dividends of $100,000 during year 1.
Wand reported earnings of $350,000 for the year ended December 31, year 1, and declared and paid dividends of $60,000 during year 1.
On December 31, year 1, Kern’s and Wand’s common stock were trading over-the-counter at $18 and $20 per share, respectively.
The investment in Kern is accounted for using the equity method.
The investment in Wand is accounted for as available-for-sale securities.
You recalculated the amounts reported in Acme’s December 31, year 1 financial statements, and determined that they were correct. Stressing that the information available in the financial statements was limited, you advised Johnson that, assuming Acme properly applied generally accepted accounting principles, Acme may have appropriately used two different methods to account for its investments in Kern and Wand, even though the investments represent equal ownership interests.
Identify the following amounts on Acme’s financial statements. If no other amount is appropriate, enter 0 (zero).
Carrying value of Kern investment
Carrying value of Wand investment
Income on Income Statement
Kern investment
Wand investment
Other comprehensive income
Kern investment
Wand investment
Equity Method
Rationale:
Carrying value of Kern.
Balance sheet - Acme reported its investment in Kern at a carrying amount of $660,000
Calculations
Equity in earnings = $80,000 ($400,000 x 20%)
Dividend rec’d = $20,000 ($100,000 x 20%)
Carrying amount = $600,000 + $80,000 - $20,000 = $660,000
Carrying value of Wand.
Balance sheet - Acme reported its investment in Wand at a fair value of $400,000
Calculations
20,000 shares x $20 per share = $400,000
Income Statement Amounts Income from Kern $400,000 x 20% = $80,000 Income from Wand $12,000 dividend income Dividend income $12,000 Calculations
$60,000 x 20% = $12,000
Other Comprehensive Income
Kern Investment $0
Wand investment Unrealized gain $100,000
Calculations
$400,000 - $300,000 = $100,000
The following information pertains to Dayle, Inc.’s portfolio of marketable investments for the year ended December 31, year 2:
Fair value Year 2 activity Fair value
Cost 12/31/Y1 Purchases Sales 12/31/Y2
Held-to-maturity securities
Security ABC $100,000 $95,000
Trading securities
Security DEF $150,000 $160,000 $155,000
Available-for-sale securities
Security GHI 190,000 165,000 $175,000
Security JKL 170,000 175,000 160,000
Security ABC was purchased at par. All declines in fair value are considered to be temporary. Dayle does not elect the fair value option for any of its financial assets.
For the following questions, choose from the answer list below.
Answer List
A. $0 D. $ 15,000 G. $100,000 J. $160,000
B. $ 5,000 E. $ 25,000 H. $150,000 K. $170,000
C. $ 10,000 F. $ 95,000 I. $155,000
Items 1 through 6 describe amounts to be reported in Dayle’s year 2 financial statements. For each item, select from the following list the correct numerical response. Enter the appropriate capital letter in the space provided. An amount may be selected once, more than once, or not at all. Ignore income tax considerations.
Amount
- Carrying amount of security ABC at December 31, year 2.
- Carrying amount of security DEF at December 31, year 2.
- Carrying amount of security JKL at December 31, year 2.
Items 4 through 6 require a second response. For each item, indicate whether a gain or a loss is to be reported.
Amount Gain/Loss
- Recognized gain or loss on sale of security GHI. Loss
- Unrealized gain or loss to be reported in year 2 net income. Loss
- Unrealized gain or loss to be reported at December 31, year 2, as a separate component of stockholders’ equity entitled “accumulated other comprehensive income.” Loss
Rationale:
- (G; $100,000) Held-to-maturity securities shall be measured at amortized cost. Since this debt security was purchased at par, there is neither a discount nor a premium to amortize, therefore amortized cost equals par or $100,000. Ignore fair value.
- (I; $155,000) Investments in securities that are not classified as held-to-maturity and that have readily determinable fair values shall be measured at fair value. $155,000 is fair value.
- (J; $160,000) Same explanation as question 2. Since security JKL is not a debt security classified as held-to-maturity and since it has a readily determinable fair value it shall be …measured at fair value.
- (D, L) Recognized gains and losses on the sale of available-for-sale securities are measured as the difference between original cost ($190,000) and the selling price of the securities ($175,000). The unrealized loss that existed in accumulated other comprehensive income in the equity section prior to the sale ($25,000) will be reversed as a credit to unrealized loss and that reversal will be reported as other comprehensive income and closed to accumulated other comprehensive income that is reported in the equity section of the balance sheet. The journal entry to record the sale would be
Cash 175,000
Realized loss on sale of A-F-S securities 15,000
A-F-S securities 165,000
Unrealized loss on A-F-S securities 25,000 - (B, L) The only unrealized gains or losses on securities reported in the net income relate to value changes in trading securities. In this case the value of the JKL securities has decreased from $160,000 to $155,000.
- ＡＦＳで売れた物件は今までunrealized gain としてＯＣＩに計上されていた金額は、ＡＯＣＩから差っ引く。
(C, L) The 1/1/Y2 balance of the unrealized gain or loss on A-F-S securities reported in the equity section was $20,000, the difference between the 1/1/Y2 $25,000 unrealized loss of GHI ($190,000 - $165,000) and the 1/1/Y2 $5,000 unrealized gain of JKL ($175,000 - $170,000). The changes during the year were (1) the $25,000 reversal (credit) of the unrealized loss of GHI when it was sold and (2) the $15,000 loss ($175,000 - $160,000) in value during the year of JKL. The Other Comprehensive Income account would appear as follows:
Other Comprehensive Income
Beg. bal. –
12/31/Y2 JKL 15,000 12/31/Y2 Reverse GHI 25,000
Close to Accumulated Other
Comprehensive Income 10,000
The Accumulated Other Comprehensive Income account would appear as follows:
Accumulated Other Comprehensive Income
1/1/Y2 20,000
10,000 12/31/Y2 Close from Other Comprehensive Income
12/31/Y2 Balance 10,000
AICPA.951126FAR-FA
Equity Method
Grant, Inc. acquired 30% of South Co.’s voting stock for $200,000 on January 2, 2004.
Grant’s 30% interest in South gave Grant the ability to exercise significant influence over South’s operating and financial policies. During 2004, South earned $80,000 and paid dividends of $50,000. South reported earnings of $100,000 for the six months ended June 30, 2005, and $200,000 for the year ended December 31, 2005. On July 1, 2005, Grant sold half of its stock in South for $150,000 cash. South paid dividends of $60,000 on October 1, 2005.
Before income taxes, what amount should Grant include in its 2004 Income Statement as a result of the investment?
A. $15,000 B. $24,000 C. $50,000 D. $80,000
C
Correct!
Grant uses the equity method because it has significant influence over South. Under the equity method, the investor recognizes its share of the investee earnings in its own income.
Thus, Grant will recognize $24,000 (.30 x $80,000) as equity in the earnings of South, in its own income.
AICPA.921130FAR-TH-FA
Equity Method
Pal Corp.’s 2004 dividend income included only part of the dividend received from its Ima Corp. investment. The balance of the dividend reduced Pal’s carrying amount for its Ima investment. This reflects that Pal accounts for its Ima investment by the:
A. Fair Value method, and only a portion of Ima’s 2004 dividends represent earnings after Pal’s acquisition.
B. Fair Value method, and its carrying amount, exceeded the proportionate share of Ima’s market value.
C. Equity method, and Ima incurred a loss in 2004.
D. Equity method, and its carrying amount exceeded the proportionate share of Ima’s market value.
Liquidating Dividend / 今期でたＮＩより配当金のほうが多くなり、ＮＩでまかなえない分をＩｎｖｅｓｔｍｅｎｔ から配当金額をもってくること。
Correct!
A
The portion of the dividend reducing the investment carrying value is a liquidating dividend. A liquidating dividend occurs when the investee pays more income than was earned during the period the investor owned the shares of the investee.
For example, assume that Pal held 1% of Ima’s outstanding stock from January 1-December 31 of 2004 only. Ima earned $40,000 during 2004 but paid $50,000 in dividends ($10,000 coming from earnings before 2004). Pal would receive $500 dividends in total (1%), but only $400 are attributable to earnings during the period Pal was a shareholder. Thus, $100 of the dividend is attributable to income earned by Ima before Pal became an investor. From Pal’s viewpoint, this is a return of a portion of Pal’s investment, a liquidating dividend.
Under the cost method, liquidating dividends are treated as a reduction in the investment account whereas normal dividends are treated as income. The wording of the question implies that dividends are otherwise treated as income. Thus, the equity method could not be the method used by the firm.
Under the equity method, all dividends are treated as a reduction in the investment account. No dividends received are treated as income under the equity method.
AICPA.920540FAR-P1-FA
Equity Method
Sage, Inc. bought 40% of Adams Corp.’s outstanding common stock on January 2, 2004 for $400,000. The investment gave Sage significant influence over Adams.
The carrying amount of Adams’ net assets at the purchase date totaled $900,000. Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values exceeded their carrying amounts by $90,000 and $10,000, respectively. The plant has an 18-year life. All inventory was sold during 2004. Goodwill, if any, is expected to have a useful life of 40 years. During 2004, Adams reported net income of $120,000 and paid a $20,000 cash dividend.
What amount should Sage report in its Income Statement from its investment in Adams for the year ended December 31, 2004?
A. $48,000 B. $42,000 C. $36,000 D. $32,000
ＢCorrect!
This is a question on the full equity method.
Goodwill on the purchase = price of investment - 40%(fair value of Adams net assets)
= $400,000 -.40($900,000 + $90,000 + $10,000)
= $400,000 - $400,000 = 0 (there is no goodwill to amortize)
Investment income:
40% of Adams income: .40($120,000) $48,000
Less 40% of excess of fair value of inventory over book value at acquisition. The inventory is sold, and therefore, the cost of goods sold of the investor must be increased by this amount: .40($10,000) (4,000)
Less depreciation on 40% of the excess of fair value over book value of equipment: .40($90,000)/18 (2,000)
Equals amount Sage reports as investment income $42,000
AICPA.900506FAR-P1-FA
Equity Method
Lee, Inc. acquired 30% of Polk Corp.’s voting stock on January 1, 2004 for $100,000. During 2004, Polk earned $40,000 and paid dividends of $25,000.
Lee’s 30% interest in Polk gives Lee the ability to exercise significant influence over Polk’s operating and financial policies. During 2005, Polk earned $50,000 and paid dividends of $15,000 on April 1 and $15,000 on October 1.
On July 1, 2005, Lee sold half of its stock in Polk for $66,000 cash.
Before income taxes, what amount should Lee include in its 2004 Income Statement as a result of the investment?
A. $40,000 B. $25,000 C. $12,000 D. $7,500
ＣCorrect!
$12,000 = .30($40,000). Under the equity method, the investor recognizes its share of investee earnings in its own income. The equity method is used because Lee has significant influence over Polk.
Income Statementときたら、Equity Income をきいている
AICPA.081232FAR-SIM
ＥｑｕｉｔｙＭｅｔｈｏｄ
When an investor owns 40% of the voting stock of an investee, and a standstill agreement is executed between the investor and the investee, which of the following is most likely to be used in accounting for the investment?
A. Cost.
B. Fair market value.
C. The lower of cost or fair market value.
D. Equity method of accounting.
D
Incorrect…
Even though the investor owns 40% of the voting stock of an investee, if a standstill agreement exists between the investor and the investee, the investor cannot exercise significant influence over the investee and would not use the equity method to carry and report the investment. Instead, the investor likely would use fair value to account for the investment. A standstill agreement is a written agreement between two firms whereby certain actions between the firms are limited.
B
Correct!
Even though the investor owns 40% of the voting stock of an investee, if a standstill agreement exists between the investor and the investee, the investor cannot exercise significant influence over the investee and likely would use fair value to carry and report the investment. A standstill agreement is a written agreement between two firms whereby certain actions between the firms are limited.
(AICPA.130502FAR)IFRS - Equity Method
According to IFRS guidance on equity method accounting, under what circumstances would the investor be required to recognize the associate’s (investee’s) losses that exceed the investor’s investment?
I. The associate’s return to profitability is imminent and assured.
II. The investor has guaranteed the obligations and commitments of the associate.
A. I only. B. II only. C. Both I and II. D. Neither I nor II.
A. I only.
Under IFRS, when the associate’s (investee) losses exceed the investor’s investment, the investor should discontinue recognizing its share of the associates losses even if the associate’s future profitability appears imminent and assured.
B. II only.
If the investor has obligations or commitments to make payments on behalf of the associate, it may continue to recognize its share of losses to the extent of those obligations.
C. Both I and II.
D. Neither I nor II.
Tag Question
In its 2005 financial statements, Cris Co. reported an interest expense of $85,000 in its income statement and a cash amount of $68,000 paid for interest in its cash flow statement. There was no prepaid interest or interest capitalization at either the beginning or end of 2005. The accrued interest at December 31, 2004 was $15,000.
What amount should Cris Co. report as accrued interest payable in its December 31, 2005 balance sheet?
A. $2,000 B. $15,000 C. $17,000 D. $32,000
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Correct!
An analysis of the accrued interest payable account leads to the correct ending balance: Beginning balance \+ Interest expense - Interest payments = Ending balance $15,000 \+ $85,000 - $68,000 = $32,000
AICPA.921142FAR-TH-FA
Deferred Revenue Principles
Buc Co. receives deposits from its customers to protect itself against nonpayments for future services. These deposits should be classified by Buc as
A. A liability.
B. Revenue.
C. A deferred credit deducted from accounts receivable
D. A contra account
Deferred Revenue-
Nonpaymentに対する客からもらったデポジットは会社にとってはライアビリティとなる。
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Correct!
The firm has an obligation to return the deposit, and therefore records a liability upon receipt. It is probable that the deposit will be returned, and it is a result of a past transaction. A deposit meets the general definition of a liability.
