Progress Test 7.21.14

Question 1

When should “extraordinary gains or losses” and gains or losses from the sale of fixed assets be reported?

Answer 1

Rule: The entire amount of an “extraordinary gain or loss” or an “unusual or infrequently occurring item,” e.g., a gain or loss from sale of fixed assets, should be reported during the period (quarter) incurred.

Question 2

According to the FASB and IASB conceptual frameworks, one of the fundamental qualitative characteristics of useful financial information is:

Answer 2

Relevance and faithful representation are the fundamental qualitative characteristics of useful financial information.

Question 3

How do you calculate accounts receivable?

Answer 3

Installment Sales - Collection on Sales = A/R
Example:
Collection on Sales (Realized Gross Profit/Profit Margin)

Installment Sales $1,400,000
Collection on Sales ($600,000)
Account Receivable $800,000

Question 4

How do you calculate deferred gross profit?

Answer 4

Installment Sales * Gross Profit Rate = Total Gross Profit - gross profit realized.

Installment Sales            $1,400,000
GP Rate                                      .40
Total Gross Profit            $560,000
Less: GP Realized           $240,000
= Deferred GP                 $320,000

Question 5

What do you do with legal costs when you successfully defend an attempted infringement of the patent.

Answer 5

Add the successful legal defense of patent to the carrying value.

Question 6

What are debt securities classified as Held-to-Maturity and Available-for-sale reported as?

Answer 6

Debt securities (bonds) classified as held-to-maturity are reported at amortized cost (cost adjusted for amortization or premium or discount).

Debt securities classified as available-for-sale are reported at fair value.

Question 7

What is the formula for COGS with goods on consignment?

Answer 7

Beginning Inventory
\+ Purchases
\+Freight In
= Cost of goods available for sale
- Ending Inventory by company
- Ending inventory by consignee
= Cost of Goods Sold

Question 8

Under U.S. GAAP, one criterion for a capital lease is that the term of the lease must equal a minimum percentage of the leased property’s estimated economic life at the inception of the lease. What is this minimum percentage?

Answer 8

The U.S. GAAP lease term criterion is that the lease term be greater than or equal to 75% of the economic life of the leased asset.

Question 9

How is a cumulative effect of a change in accounting principle treated?

Answer 9

The cumulative effect of a change in accounting principle is shown as an adjustment to beginning retained earnings.

Question 10

Under U.S. GAAP, how are research and development costs treated?

Answer 10

Research and development costs should be expensed under U.S. GAAP.

Question 11

How are patent registration costs treated under U.S. GAAP?

Answer 11

Registration costs are capitalized and amortized over the lesser of the legal life or economic life.

Question 12

How are the research costs associated with an internally developed asset treated under IFRS?

Answer 12

The research costs associated with an internally developed asset will always be expensed.

Assuming a company can reliably measure the costs associated with each component, under IFRS the development costs may be capitalized if all of the following criteria are met:

1. Technical feasibility has been established.
2. The company intends to complete the asset.
3. The company has the ability to sell or use the asset.
4. Sufficient resources are available to complete the development and sell/use the asset.
5. The asset will generate future economic benefit.

Question 13

When the equity method is used to account for investments in common stock, which of the following affects the investor’s reported investment income?

Answer 13

Under the equity method undervalued asset amortization will decrease the investor’s reported investment income, but cash dividends received will only affect the balance sheet investment account.

Rule: Undervalued asset amortization affects both the investment account (an asset) and the investment income account (a revenue), while cash dividends affect the investment account but not the investment income account.

Question 14

Which of the following items should be treated in the same manner in both combined financial statements and consolidated statements?

Different Fiscal Periods
Foreign Operations

Answer 14

Different fiscal periods and foreign operations are treated in the same manner in both combined financial statements and consolidated statements.

Question 15

What inventory accounting method is not permitted under IFRS?

Answer 15

LIFO

Question 16

What is the calculation for bond issue price?

Answer 16

Bond issue price is the sum of the present values of the maturity value and the interest payment annuity.

Question 17

An entity has modified liability for its interactive data (XBRL) exhibits for a period…

Answer 17

XBRL exhibits submitted to the SEC are subject to modified liability for 24 months from the time the filer first is required to submit interactive data files.

Question 18

Could current cost financial statements report holding gains for goods sold during the period and holding gains on inventory at the end of the period for Good Sold and Inventory?

Answer 18

Current cost financial statements report holding gains for goods sold during the period and holding gains on inventory at the end of the period.

Question 19

When a company needs cash they may decide to discount the note. What is the formula?

Answer 19

Face of note
\+ rate on note (months of notes/12)*rate)
- Disc by bank ((months/12)*Rate)
= Proceeds from bank
- face of note
= net interest income (expense)