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Question 1

When should a company expense interest of a machine it build for 1.) itself 2.) to sale?

Answer 1

1. ) for it self, interest can be capitalized until after completion
2. ) for sale, interest must be expenses as incurred

Question 2

When should Startup costs be expensed?

Answer 2

As incurred

Question 3

How is a sub’s goodwill treated in an acquisition?

Answer 3

It is not included in the price.

Price sub for 300k. NBV is 200. Id assets are 60 and sub’s GW is 10.

Price 300
GW 50
FV 250
ID 50= 60-10
NBV 200

Question 4

During year 2, Taft received dividends of $30,000 from Flame and recorded $180,000 as its equity in the earnings of Flame. Additional information follows:

1. ) All the undistributed earnings of Flame will be distributed as dividends in future periods.
2. ) The dividends received from Flame are eligible for the 65% dividends received deduction.
3. ) There are no other temporary differences.
4. )Enacted income tax rates are 30% for year 2 and thereafter.

In its December 31, year 2 balance sheet, what amount should Taft report for deferred income tax liability?

Answer 4

180,000 - 30,000= 150,000 (permanent and temp difference)

Dividend received deduction is 65%
150,000 x 65%= 97,500 (permanent)
150,000x35%= 52,500 (temp)

52,500x30%=15,750 DTL

Question 5

Should both or either bonds and equity securities be reported at FV in year end financials?

Answer 5

Yes, both.

Question 6

What type of liability is recorded when Book value expense > Tax deductions?

Answer 6

DTA

Question 7

What are the 3 criteria for a prior period adjustment?

Answer 7

1) the effect of the adjustment is material to income from continuing operations,
(2) the adjustment can be identified with a prior period, and
(3) the amount of the adjustment could not be estimated in prior periods.

Question 8

what numbers are used to compute cumulative change to F/S?

Answer 8

Beg of the year numbers. the change would be recorded to RE.

Question 9

Are debt and equity securities cash equivalents?

Answer 9

No

Question 10

What is the formula for compensation expense, when accounting for stock compensations?

Answer 10

Expense= FV of equity instrument - employee contributions

Question 11

Legal fees incurred in successfully defending a patent suit should be capitalized when the patent has been Internally developed? Purchased from an inventor?

Answer 11

yes to both

Question 12

What is the ratio used to calculate percentage of completion method?

Answer 12

The total cost incurred to date to total estimated costs.

Question 13

Are out going freight/ handling and wasted materials treated as inventory or expenses for the period?

How is transport insurance to the consignee treated?

Answer 13

Expensed for the period.

As part of the inventory. It is a cost needed to bring the inventory to its selling condition.

Question 14

What are examples of permanent taxable differences?

Answer 14

Any tax-exempt interest
• Fines and penalties
• Life insurance premiums on key employees
• Dividends received deduction

Question 15

What is a Derivative and its elements?

Answer 15

1. ) A derivative is is a financial instrument (or other contract)
2. ) 3 elements
   a. ) Has one or more underlyings and one or more notional amount
   b. ) require little or no initial net investment
   c. ) Its terms require or permit a net settlement

Question 16

When do you bifurcate and how do you allocate value?

Answer 16

Bifurcation should occur when if the two objects are not clearly and closely related and the embedded derivative must meet the definition of a derivative instrument.

The derivative is accounted for at fair value or mark to market value with gains and losses in the income statement and the remaining value is assigned to the other item.

Question 17

What are translation losses or gains (adjustments)?
Are they reported in the income statement?
Where are gains/losses resulting from Purchases/Sales reported?

Answer 17

Gains or losses that result from converting Recording (foreign) into reporting (Final) currency. These are not included in NI, but instead included in OCI. The adjustment is used to balance (plug) the balance sheet after conversion.

Question 18

How does topic ASC 440 require that sinking fund be disclosed?

Answer 18

It requires that LT term debt during the next 5 years be disclosed detailing the sinking fund and debt, including amounts, maturity dates and requirements.

Question 19

According to SFAC 7, Using Cash Flow Information and Present Value in Accounting Measurements, the most relevant measurement of an entity’s liabilities at initial recognition and fresh-start measurements should always reflect

Answer 19

The credit standing of the entity

Question 20

What are the 5 criteria for determining if a lease is a finance lease?

Answer 20

If ownership transfers at the end of the lease
• If there is a purchase option at the end of the lease that the
lessee is reasonably certain to exercise
• If the lease term is greater than or equal to 75% of the useful
life of the leased asset
• If the present value of the lease payments is greater than or
equal to 90% of the FMV of the leased asset
• If the asset is specialized in nature such that is has no
alternative use to the lessor after the lease

Question 21

The inventory on December 31, year 1, using the dollar-value LIFO inventory method was $600,000. The Yr 2 inventory at yr 2 prices is 780,000. The Relevant price index at year-end (base year 1) is 1.20. What is the Yr2 inventory under dollar value method?

Answer 21

780/1.20= 650
650-600=50
50x1.2= 60
600+60=660,000

Question 22

Which of the following statements concerning disclosure requirements for derivatives used as cash flow hedges is/are correct?
I. The net gain or loss recognized in earnings during the period must be disclosed.
II. The amount of gain or loss deferred in other comprehensive income must be disclosed.
III. A listing of each of the derivatives used for cash flow hedges and the amount of each must be disclosed.

Answer 22

I and II only

Question 23

The moving-average unit cost

Answer 23

Beg Invenotry remaining at year end + Purchases =Ending inventory.
Ending inventory/units on hand

Question 24

How should the costs of internally developed software after the development stage treated?

Answer 24

Costs may be amortized over the life of the asset.

Question 25

How are abnormal freight charges for manufacturing inventory treated?

Answer 25

Expensed in the period

Question 26

What rates can be used to translate cash flows?

Answer 26

Historical costs or weighted average cost (if not substantially different)

Question 27

The method used to determine what information to report for business segments is referred to as the

Answer 27

Management approach

Question 28

What inventory systems do the weighted average and moving average use?

Answer 28

Periodic and perpetual respectively.

Question 29

Are FV prices adjusted for the cost of selling and transportation costs?

Answer 29

No to selling and yes to transport

Question 30

What are types of R&D costs and can they be capitalized?

Answer 30

Costs in the development stage of a product, like testing and research, modification of design or process. These costs must be expensed when incurred. Equipment and facilities that have alternative uses can be capitalized. Included: Laboratory research Conceptual formulation and design of possible products or process alternatives Modification of the formulation or design of a product or process Design, construction, and testing of preproduction prototypes and models Design of tools, jigs, molds, and dies involving new technology Design of a pilot plant Developing a patent (excluding registration and legal fees) Excluded: Engineering follow-through Quality control and routine testing Troubleshooting Adaptation of an existing capability to a particular customer’s needs Routine design of tools, jigs, molds, and dies Legal work in connection with patent applications Software development costs Fasb excludes acquisition, delvelooment or improvement of a product for use in its selling or admin costs So r&d expenses must be to develop a product not something that helps a business perform.

Question 31

How do you record a non monetary transaction with commercial substance? With and without cash involved? Without commercial substance?

Answer 31

Commercial substance is when an exchange is substance fully different or the CFs will dramatically change with the exchange. A.) With commercial substance If cash is involved, the giver of cash adds the cash value to the FV of equipment given. The receiver of cash subtracts it. B.) Without commercial substance 1. ) If there is a loss record loss and new equip at FV. 2. ) If there is a gain with no cash received, then no gain. New equip is recorded at BK value + cash you paid.

Question 32

How are intangible assets with finite useful lives treated?

Answer 32

Amortized over its useful life and tested for impairment periodically.

Question 33

What is the formula for net patient service revenue?

Answer 33

Gross patient revenue - Charitable services - contractual adjustments.

Question 34

What are provisions?

Answer 34

Accounts that are uncertain as to timing. (bad debts, taxes)

Question 35

For an unrecognized firm commitment to qualify as a hedged item it must?

Answer 35

1. Be binding on both parties. 2. Be specific with respect to all significant items. 3. Contain a nonperformance clause that makes performance probable.

Question 36

When the US dollar for an item purchased decreases against the FC is it a gain or a loss?

Answer 36

This would be a gain. Bc you would have to pay less. For example if the dollar fell from .75 to .74 against 1 FC. 500,000 for 1 FC JE: Dr AP 5,000 Cr FC gain 5,000 If there was an increase in the dollar from .74 to .76 JE: Dr FC loss 10,000 Cr AP 10,000

Question 37

When the US dollar for an item sold decreases against the FC is it a gain or a loss?

Answer 37

It is a loss. Bc you would get paid less For example if the dollar fell from .75 to .72 against 1 FC. 500,000 for 1 FC JE: Dr FC loss 15,000 Cr AR 15,000 If there was an increase in the dollar from .72 to .74 JE: Dr AR. 10,000 Cr FC gain 10,000

Question 38

When a company elects not to bifurcate a hybrid instrument and accounts for the hybrid instrument at fair value, which method(s) of disclosure are permissIble?

Answer 38

1. ) As a separate line item for fair value and non-fair value instruments on the balance sheet. 2. ) As an aggregate amount of all hybrid instruments with the amount of the hybrid instruments at fair value shown in parentheses on the balance sheet.

Question 39

What is the Journal entry for a company that had 15k in deferred tax liability PY. Recognized $8,000 of bad debt expense for the books, and wrote off $3,000 of accounts (this amount is deductible for tax purposes), recognized a $2,000 unrealized gain on trading securities purchased during the current year, credit sales for the year totaled $80,000. Collections on account were $60,000. The firm began the year with no accounts receivable balance.

Answer 39

DTA= (8k-3k= 5k) x .3= 1,500 DTL= (80k-60k= 20k) + 2k x .3= 6,600 (the 15k should be reduced to 6.6k. so reduced by 8,400) Tax payable= (60k - 3k) x.3 = 17,100 + 15,000= 32,100 Dr Tax Exp 22,200 (plug) Dr DTL 8,400 Dr DTA 1,500 Cr Tax Payable 32,100

Question 40

what is the remeasurement process? | Where are the remeasurement adjustments recorded?

Answer 40

This process is used to convert Reporting currency to functional currency. For example, if a foreign co. uses a foreign currency, but its functional currency is the US dollar. These adjustments are recorded in the income statement under continuing ops.

Question 41

JEs for a sales type lease as lessor: ``` Ex: FV of equip 25,771 Cost 20,000 Borrowing/implicit rate 8% 3 year lease/ useful life Annuity due ```

Answer 41

PV of annual payment: 25,771=lease payment x 2.78326 25,771/2.78326 = 9,259 1/1/01: inception Dr lease AR 27,777 (9,259 x 3) Cr unearned int 2,006 (plug) Cr sales. 25,771 Dr COGS 20,000 Cr equip. 20,000 Dr cash 9,259 Cr lease AR. 9,259 12/31: year end Dr unearned int 1,321. [(25,771- 9259) x 8%] Cr int revenue. 1,321 1/1/02: Dr cash 9,259 Cr lease AR 9,259 12/31/02: Dr unearned int 686 [(16,512 + 1321-9259)x 8%] Cr int revenue. 686 1/1/03 Dr cash 9259 Cr lease AR 9,259

Question 42

what is a underlying?

Answer 42

any financial or physical variable that has either observable changes or objectively verifiable changes. Exchange rates, commodity prices and insurance index

Question 43

If the functional currency equals the local currency. Ex: a a 100% owned British subsidiary of a US parent company, reports its financial statements in local currency, what method is used to convert the F/S?

Answer 43

Current method, which uses the weighted average rate.

Question 44

What is the general criterion for Hedging?

Answer 44

The general criteria for a hedging instrument are that sufficient documentation must be provided at the beginning of the process and the hedge must be "highly effective" throughout its life.

Question 45

What are the JE of a quasi restructuring? Mgmt wants to reduce Assets by 150 and PP&E by 350. Current assets $ 550,000 Property, plant, and equipment (net) 1,350,000 Other assets 200,000 Total assets $2,100,000 Total liabilities $ 600,000 Common stock 1,600,000 Additional paid-in capital 300,000 Retained earnings (deficit) (400,000) Total Liabilities + Equity $2,100,000

Answer 45

``` 1.) Reduce Assets Dr RE 500 Cr C.A. 150 Cr PPE 350 RE deficit is now $900 (400 +500) 2.) Create enough APIC, with C/S to absorb deficit Dr C/S 600 Cr APIC 600 APIC balance is now $900 3.) Absorb deficit with APIC Dr APIC 900 Cr RE 900 ```

Question 46

What is the accrual JE? A firm has 100,000 in operating income. There are some differences between tax and book: 10k of municipal bond interest, Book rent exp 20k, tax rent expense 25k. 30% tax rate. 35% enacted tax rate for future years.

Answer 46

Dr tax expense 24,250 (plug) Cr Deferred tax liability 1,750 (5,000 x .35) Cr Tax payable 22,500 (75,000 x .30)* *bond interest is not taxable so not included

Question 47

What is the cost approach and the market approach?

Answer 47

Cost approach uses the price to replace an asset. Market approach uses prices, transactions and other info from identical assets to value

Question 48

What is the deferred tax benefit JE? NOL of 40k 30% tax rate.

Answer 48

Dr DTA 12k | Cr income tax benefit 12k

Question 49

Gain on an involuntary conversion (Pine has elected to replace the property within the statutory period using total proceeds) $350,000 Depreciation deducted for tax purposes in excess of depreciable deducted for book purposes 50,000 Federal estimated tax payments, year 3 70,000 Enacted federal tax rate, year 3 30% Pretax book income of 800,000. its current federal income tax liability on its December 31, year 3 balance sheet?

Answer 49

800,000 (350,000) Non taxable gain (50,000) Not included in book income 400,000 Total 400,000 x 30% = 120,000 Tax payments 120,000 (70,000) Payments made 50,000 12/31 tax liability

Question 50

Do credit indexes contracts meet the definition of a derivative?

Answer 50

Yes

Question 51

What is a notional amount?

Answer 51

Shares of stock

Question 52

Cv 120 Future expected cash flows 130 PV of future expected cash flows 100 Market value 105 What is the impairment?

Answer 52

$0 Expected cash flow is greater than CV 130>120

Question 53

A company has an asset with CV of 120k, expected future cash flows of 130k, present value of expected future cash flows of 100k and market value of 105. What is the impairment loss?

Answer 53

0. An impairment occurs when CV exceeds FV and the loss is only recognized if the CV is not recoverable. It’s not recoverable if it exceeds the sum of the expected value of undiscounted cash flows of the asset. 130 > 120. Not impairment loss