NINJA Financial Statement Accounts

Question 1

Are liabilities/assets arising from multiple defined benefit plans netted on the balance sheet?

Answer 1

No, liabilities are shown separate from assets.

Question 2

When the allowance method of recognizing uncollectible accounts is used, the entries at the time of collection of a small account previously written off would:

Answer 2

increase the allowance for uncollectible accounts.

Question 3

Is a liquidating dividend payment considered income to the receiver?

Answer 3

No, it is a return of capital.

Question 4

What is generally associated with the terms of convertible debt securities?

Answer 4

An interest rate that is lower than nonconvertible debt

Question 5

When a company issues stock to employees that vests in the future, what stock price is used to calculate compensation expense?

Answer 5

The stock price on the day of issuance.

Question 6

Pitbull Construction Corporation applies IFRS, has equipment that it can reliably measure fair value of, and has chosen to apply the revaluation model to valuing this equipment on its accounting records. The carrying value of this equipment on Pitbull’s books at the end of last year, December 31, 20X1, was $200,000. At the end of this year, December 31, 20X2, due to decreased demand for the equipment, especially when resold as used, the fair value is $150,000. For the year 20X2, in relation to this equipment for which Pitbull has chosen to apply the revaluation method, Pitbull must:

Answer 6

decrease the operating income for the period 20X2 by the decrease to fair value, $50,000.

Question 7

Estimates of price-level changes for specific inventories are required for which inventory method?

Answer 7

Dollar-value LIFO

Question 8

Is accrued interest on bonds included in the bonds payable calculation?

Answer 8

No, bonds payable is face value +/- premium/discount

Question 9

How is income recognized using the installment method?

Answer 9

Cash collected multiplied by gross profit percentage.

Question 10

One incorporation, Dee, Inc., issued common stock at a price in excess of its par value. No other stock transactions occurred, except treasury stock was acquired for an amount exceeding this issue price. If Dee uses the par value method of accounting for treasury stock appropriate for retired stock, what is the effect of the acquisition on the following?
Net Common Stock
Additional paid in capital
Retained earnings

Answer 10

All will decrease

Question 11

Under IFRS, if a recovery of inventory write down is required (when net realizable value increase) what does the inventory on hand that was written down recover to?

Answer 11

Original cost.

Question 12

How are consigned goods carried on the books of the consignor (the owner of the goods who sends the goods for consignment)?

Answer 12

They are carried at cost (not at selling price).

Question 13

How is life insurance expense on officers calculated?

Answer 13

Premium paid - increase in cash surrender value

Question 14

Wall Corp.’s employee stock purchase plan specifies the following:

For every $1 withheld from employees’ wages for the purchase of Wall’s common stock, Wall contributes $2.
The stock is purchased from Wall’s treasury stock at market price on the date of purchase.
The following information pertains to the plan’s 20X1 transactions:

Employee withholding for the year—$350,000
Market value of 150,000 share issued—$1,050,000
Carrying amount of treasury stock issued (cost)—$900,000
Before payroll taxes, what amount should Wall recognize as expense in 20X1 for the stock purchase plan?

Answer 14

Since Wall Corp. contributes $2 for every $1 the employees contribute, Wall Corp.’s expense in 20X1 for the employee stock purchase plan is:

2 × Employee withholding = 2 × $350,000 = $700,000
The gain on the treasury stock issued does not affect the expense. It is recorded separately as “Contributed Capital from Treasury Stock Transactions.”

FASB ASC 718-10-30-2

Question 15

Birk Co. purchased 30% of Sled Co.’s outstanding common stock on December 31, 20X1, for $200,000. On that date, Sled’s stockholders’ equity was $500,000, and the fair value of its identifiable net assets was $600,000. On December 31, 20X1, what amount of goodwill should Birk attribute to this acquisition?

Answer 15

Purchase price less % of identifiable net assets

$20,000

Purchase cost of stock $200,000
Less 30% of identifiable assets (30% of $600,000) 180,000
——-
Excess of purchase price over fair value of assets (Goodwill) $ 20,000
=======

Question 16

Since there is no reasonable basis for estimating the degree of collectibility, Astor Co. uses the installment method of revenue recognition for the following sales:

                                        20X2            20X1
                                      --------        -------- Sales                                     $900,000        $600,000 Collections from:  20X1 sales                                100,000         200,000  20X2 sales                                300,000           --- Accounts written off:  20X1 sales                                150,000          50,000  20X2 sales                                 50,000           --- Gross profit percentage                       40%             30% What amount should Astor report as deferred gross profit in its December 31, 20X2, balance sheet for the 20X1 and 20X2 sales?

Answer 16

20X2 20X1
——— ———
Sales $900,000 $600,000
Less: Write-offs (50,000) (200,000)
Collections (300,000) (300,000)
——— ———
Uncollected sales on December 31, 20X2 $550,000 $100,000
Times gross profit % x 0.40 x 0.30
——— ———
Deferred gross profit $220,000 $ 30,000
========= =========

Total deferred gross profit on
December 31, 20X2 = $220,000 + $ 30,000 = $250,000

Question 17

On December 31, 20X1, Roth Co. issued a $10,000 face value note payable to Wake Co. in exchange for services rendered to Roth. The note, made at usual trade terms, is due in 9 months and bears interest, payable at maturity, at the annual rate of 3%. The market interest rate is 8%. The compound interest factor of $1 due in 9 months at 8% is .944. At what amount should the note payable be reported in Roth’s December 31, 20X1, balance sheet?

Answer 17

$10,000 - face value

The Roth Co. note is due in 9 months. FASB ASC 835-30 (Interest on Receivables and Payables) does not require any special treatment for notes maturing in less than one year. Wake Co. should report the Roth Co. note at its face amount, $10,000.

Question 18

On January 2, 20X1, Lem Corp. bought machinery under a contract that required a down payment of $10,000, plus 24 monthly payments of $5,000 each, for total cash payments of $130,000. The cash equivalent price of the machinery was $110,000. The machinery has an estimated useful life of 10 years and estimated salvage value of $5,000. Lem uses straight-line depreciation. In its 20X1 income statement, what amount should Lem report as depreciation for the machinery?

Answer 18

$10,500

The machinery is recorded at the cash equivalent price of the machinery, $110,000.

Straight-line depreciation for 20X1 = $(110,000 - $5,000) / 10 years
= $ 105,000 / 10 years
= $ 10,500
The total cash payment of $130,000 includes interest of $20,000.

Question 19

The original cost of an inventory item is below the net realizable value and above the net realizable value less a normal profit margin. The inventory item’s replacement cost is below the net realizable value less a normal profit margin. Under the lower of cost or market method, the inventory item should be valued at:

Answer 19

Net realizable value less a normal profit margin

Replacement cost is the basic measure of market value in the context of lower of cost or market valuation of inventory. However, there are both a “ceiling” and a “floor” to consider in order not to overstate or understate the inventory value. Net realizable value (selling price minus costs to complete and dispose) is the ceiling. Net realizable value minus a normal profit margin is the floor. The measure of market value cannot exceed the ceiling or be lower than the floor. Therefore, the market value is considered to be the middle value of replacement cost, the net realizable value, and the net realizable value less a normal profit margin. If replacement cost is between the ceiling and the floor, then replacement cost is the measure of market value. If replacement cost is above the ceiling, then net realizable value is the measure of market value. If replacement cost is below the floor, then net realizable value less a normal profit margin is the measure of market value.

In this problem replacement cost is below the floor, therefore, net realizable value less a normal profit margin is the measure of market value. The cost is higher than this measure. Therefore, under the lower of cost or market concept, net realizable value less a normal profit margin is the value of the inventory.

FASB ASC 330-10-35-1

Question 20

At the acquisition date, July 2, 20X1, reporting unit R has a fair value of $370,000 and a carrying amount (including goodwill of $100,000) of $470,000. On December 31, 20X1, the fair value of the assets and liabilities assigned to reporting unit R is $330,000, and the fair value of R is $400,000. The goodwill impairment loss reportable is:

Answer 20

$30,000

Impairment of goodwill is a two-step process:

Step 1, Compare:

(a) year-end fair value of reporting unit $400,000
(b) carrying amount, including goodwill $470,000
If (b) exceeds (a), go to step 2.

If (a) exceeds (b), no impairment.

Step 2, Compare:

(a) implied fair value of reporting
unit goodwill ($400,000 - $330,000) $ 70,000
(b) carrying amount of goodwill $100,000
Since (b) exceeds (a) by $30,000, an impairment loss of $30,000 is recognized.

If (a) exceeds (b), no impairment.

Note: The impairment loss cannot exceed the recorded goodwill.

Question 21

Trans Co. uses a periodic inventory system. The following are inventory transactions for the month of January.

1/1 Beginning inventory 10,000 units at $3
1/5 Purchase 5,000 units at $4
1/15 Purchase 5,000 units at $5
1/20 Sales at $10 per unit 10,000 units
Trans uses the average pricing method to determine the value of its inventory. What amount should Trans report as cost of goods sold on its income statement for the month of January?

Answer 21

Units Unit Cost Total
—— ——— ——-
Beginning inventory 10,000 $3.00 $30,000
1/5 purchase 5,000 4.00 20,000
1/15 purchase 5,000 5.00 25,000
—— ——-
Total 20,000 $75,000

Weighted-average cost per unit = $75,000 ÷ 20,000 units = $3.75 per unit
Units in ending inventory = 20,000 available for sale - 10,000 sold = 10,000 units
Cost of ending inventory = $3.75 per unit × 10,000 units = $37,500
Cost of goods sold = $75,000 - $37,500 = $37,500
Of course, if one noticed that half of the units available for sale were sold, one could have determined that the cost of goods sold would be half of the cost of goods available for sale using the weighted-average method.

Question 22

At year-end, Rim Co. held several investments with the intent of selling them in the near term. The investments consisted of $100,000, 8%, 5-year bonds purchased for $92,000, and equity securities purchased for $35,000. At year-end, the bonds were selling on the open market for $105,000 and the equity securities had a market value of $50,000. What amount should Rim report as trading securities in its year-end balance sheet?

Answer 22

$155,000 - fair or market value if not held to maturity

Question 23

Weir Co. uses straight-line depreciation for its property, plant, and equipment, which, stated at cost, consisted of the following:

                      December 31, 20X2   December 31, 20X1
                      -----------------   ----------------- Land                          $ 25,000            $ 25,000 Buildings                      195,000             195,000 Machinery and equipment      + 695,000           + 650,000
                         ---------           ---------
                           915,000             870,000 Accumulated depreciation     - 400,000           - 370,000
                         ---------           ---------
                          $515,000            $500,000
                         =========           ========= Weir's depreciation expense for 20X2 and 20X1 was $55,000 and $50,000, respectively. What amount was debited to accumulated depreciation during 20X2 because of property, plant, and equipment retirements?

Answer 23

$25,000

$ 370,000 December 31, 20X1, accumulated depreciation
+ $55,000 20X2 depreciation
———
$ 425,000 12/31/X2 balance disregarding any retirements in 20X2
- 400,000 Actual accumulated depreciation balance on 12/31/X2
———
$25,000 20X2 depreciation adjustments because of retirements
=========
OR
Beginning Balance + Additions - Deductions = Ending balance
12/31/X1 Accum. Dep. + 20X2 Dep. Exp - Retirements = 12/31/X2 Balance
$370,000 + $55,000 - $25,000 = $400,000
(Deprec. Associated
with Retirements)

Question 24

Upon the death of an officer, Jung Co. received the proceeds of a life insurance policy held by Jung on the officer. The proceeds were not taxable. The policy’s cash surrender value had been recorded on Jung’s books at the time of payment. What amount of revenue should Jung report in its statements?

Answer 24

Proceeds received less cash surrender value

The cash surrender value of the policy was carried in Jung Co.’s accounts as an asset. The proceeds received less the carrying amount (i.e., the cash surrender value) should be reported by Jung as a gain (revenue).