Review Materials Flashcards
Bard Co., a calendar-year corporation, reported income before income tax expense of $10,000 and income tax expense of $1,500 in its interim income statement for the first quarter of the year. Bard had income before income tax expense of $20,000 for the second quarter and an estimated effective annual rate of 25%. What amount should Bard report as income tax expense in its interim income statement for the second quarter?
Income before tax expense (10,000 + 20,000) $30,000
Tax rate x 0.25
——–
Total expense for second quarter $ 7,500
Less: Expense reported 1st quarter (1,500)
——–
Income tax expense, 2nd quarter $ 6,000
A. A. Corporation has a loading dock that is situated next to a local highway. Recently, a new major highway was completed nearby, which bypasses the loading dock, and has thus made the installation of questionable future value to the corporation. The carrying amount of the loading dock is $500,000. The undiscounted present value of the future cash flows related to the loading dock is $480,000. The discounted present value of the future cash flows related to the loading dock is $440,000. The loading dock could be sold for $450,000 right now, less a broker’s commission of $16,000. If A. A. Corporation applies IFRS, how much of an impairment loss does it need to recognize?
When an asset may have sustained a loss in value, due to circumstances occurring by the end of the year, it must be tested for impairment. Under IFRS, the test for and measure of an impairment loss is the excess of carrying value ($500,000) above recoverable amount ($440,000). The recoverable amount is the higher of the value in use (present value of discounted future cash flows) or net realizable value (sales proceeds less cost to sell). The recoverable amount here is the value in use of $440,000, which is larger than the net realizable value of $450,000 - $16,000, or $434,000. Thus, a $60,000 impairment loss is recognized.
B. $60,000
Short-Term Obligations Expected to Be Refinanced
Short-Term Obligations Expected to Be Refinanced
Short-term obligations arising from transactions in the normal course of business that are due in customary terms must be classified as current liabilities. Other short-term obligations may be excluded from current liabilities, but only if the enterprise (FASB ASC 470-10-45-14):
- a. intends to refinance the obligation on a long-term basis and
- b. demonstrates the ability to consummate the refinancing.
According to the FASB Accounting Standards Codification, a full set of financial statements for a private not-for-profit college or university would include the following:
Nongovernment VHWO/ONPO Financial Statements: VHWO/ONPO accounting and reporting are best understood in the context of VHWO/ONPO financial statements.
Four primary financial statements are required for a nongovernment VHWO/ONPO:
- Statement of financial position (balance sheet)
- Statement of activities
- Statement of cash flows
- Statement of functional expenses (optional for ONPOs)
Each of these statements is discussed and illustrated in the following sections.
Glade Co. leases computer equipment to customers under direct financing leases. The equipment has no residual value at the end of the lease and the leases do not contain bargain purchase options. Glade wishes to earn 8% interest on a 5-year lease of equipment with a fair value of $323,400. The present value of an annuity due of $1 at 8% for five years is 4.312. What is the total amount of interest revenue that Glade will earn over the life of the lease?
Annual lease payment = Fair value of equipment / Present value factor
Total lease amount collected = Annual lease payment x 5 years
Interest revenue = Lease amount collected - Fair value of equipment earned
= $375,000 - $323,400 = $51,600
How should gains or losses from fair value hedges be recognized?
The FASB requires that the following be recognized for fair value hedges:
- Changes in the fair value of the fair value hedge
- Changes in the fair value of the item being hedge
The gain or loss, along with the offsetting loss or gain attributable to the hedged risk, should be recognized currently in earnings in the same accounting period.
What was the inventory turnover for the year?
Cost of goods sold ÷ Average inventory
Average inventory is (begining inventory + ending inventory) / 2
Which account should Spring Township credit when it issues a purchase order for supplies?
Reserve for encumbrances
Issuing purchase orders and contracts represents commitment of a certain amount of the appropriation for the fiscal year. The commitment is formally recorded by debiting the “encumbrances” budgetary account and crediting the “reserve for encumbrances” or “Fund balance—reserved for encumbrances” budgetary account. The debit-balance encumbrances account can be used in a report as contra to the credit-balance appropriations account so as to reduce the balance of the appropriation for operational control. In essence, encumbrances “hold the place” of expenditures that are in process but will not be recorded until the liability is formally recognized upon receipt of goods or services.
Derived tax revenues
Imposed nonexchange revenues
properties taxes, most fines
What Are R&D Costs?
- Development of software for internal use is likely excluded from the applicability of FASB ASC 730-10-15-5.
- Marketing research is specifically excluded from the definition of research and development by FASB ASC 730-10-15-4.
Research and development costs are defined as the “planned research…for new knowledge” and “the translation of research findings…into a…design for a new product or process.” (FASB ASC 730-10-20)
EPS?
EPS = net income / average outstanding common shares
EPS = (net income – dividends on preferred stock) / average outstanding common shares. This is only if theres dividends on preferred stock
Elm City issued a purchase order for supplies with an estimated cost of $5,000. When the supplies were received, the accompanying invoice indicated an actual price of $4,950. What amount should Elm debit (credit) to the reserve for encumbrances after the supplies and invoice were received?
When the purchase order is approved by Elm City, the estimated amount is recorded in the journal entry:
Encumbrances 5,0000
_Fund Balance–Reserved
for Encumbrances 5,000_
When the purchase order is filled for $4,950, the entry is reversed, for the original estimated amount of the purchase order:
Fund Balance–Reserved
for Encumbrances 5,000
Encumbrances 5,000
The actual amount of expenditures may be more or less than the estimated amount, but that does not affect the amount by which the encumbrance or the Budgetary Fund Balance—Reserved for Encumbrances are reversed. Some jurisdictions require a purchase change order to adjust the original purchase order to the actual transaction amount before reversing.
A not-for-profit voluntary health and welfare entity should report a contribution for the construction of a new building as cash flows from which of the following in the statement of cash flows?
Finance Activities
According to FASB ASC 958-230-55-3, a contribution to a not-for-profit restricted to long-term purposes like construction shall be reported as a cash flow from financing activities. Cash flows received from investment income restricted by donor stipulation to the same purposes also are reported as financing activities, not as operating activities.
A company’s foreign subsidiary operation maintains its financial statements in the local currency. The foreign operation’s capital accounts would be translated to the functional currency of the reporting entity using which of the following rates?
When translating the capital accounts of a subsidiary, the historical exchange rate is used for the capital stock account and additional paid-in capital. This date cannot be earlier than the date the parent acquired the investment in the subsidiary.
