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
