Progress Test - Chapter 1-5

Question 1

F1:

Cumulative effect of an inventory pricing change on prior years earnings reported on financial statements for:

Answer 1

LIFO to Weighted Average

Not from Weighted Average to LIFO; it is considered impractical to go to LIFO

Question 2

F1:

A change of accounting PRINCIPLE INSEPARABLE from the change of accounting ESTIMATE should be reported as:

Answer 2

As a component of income from continuing operations, in the period of change and future periods if the change affects both.

Question 3

F2, 42:

Under current cost accounting, what is the holding gain formula?

Answer 3

Rule: Under current cost accounting, holding gain on inventory is the excess of REPLACEMENT Cost at the BALANCE SHEET DATE over the ORIGINAL PURCHASE PRICE

Note 1: Price level index is used for the “historic cost/constant dollar” method - not the “current cost” method

Question 4

F2:

During a period of inflation in which a liability account remains constant, there is …..

Answer 4

A purchasing power GAIN, if the item is a MONETARY LIABILITY.

Question 5

F3:
What is the carrying amount of a equipment when the sub sold it to the parent in excess of sub’s carrying amount but less than it’s original cost?

Answer 5

Parent’s original cost less Sub’s recorded gain.

Question 6

F3:
Temporary declines in aggregate market values of available-for-sale securities are charged to (decrease) STOCKHOLDERS’ EQUITY

Answer 6

Subsequent recoveries and/or advances in aggregate market value are credited to (increase) OTHER COMPREHENSIVE INCOME to reflect fair value.

Question 7

F3:

Bargain purchase in a business acquisition is recognized as:

Answer 7

As a gain in earnings at the acquisition date

Question 8

F3:

How to determine the reported total retained earnings in a consolidation?

Answer 8

Only use the Parent’s Retained Earnings amount; 100% subsidiary equity account is eliminated.

Question 9

F4:
Under U.S. GAAP, long-lived assets that are impaired can only have their carrying value restored if they are held for disposal.

Answer 9

Assets that are HELD for CONTINUED USE that are impaired are not permitted to have any restoration of carrying value. Keep in mind that any write-ups are limited to previous write-downs.

Question 10

F5:

Loss on extinguishment of debt for bonds

Answer 10

Face value of bonds retired

= Net Carrying value

= Loss