Select Financial Statement Accounts - Area 2 Flashcards
Calculate the ceiling and floor for the Lower of Cost or Market method.
Ceiling - NRV = Sell Price less cost to sell (and/or dispose) - (Ceiling in LCM)
Floor = NRV-Normal Profit Margin
Moving average inventory calculation
Weighted average cost = Cost of goods available for sale / Number of units available for sale
How are bonds with detachable warrants accounted for?
Bonds with detachable warrants are accounted for in separate accounts. Warrants are included in APIC.
Warrants are accounted for at fair value at the time of issuance.
How to calculate inventory price index?
The price index is computed by dividing the ending inventory at current year cost by its base year cost.
How are Retirement Obligations of Assets accounted for?
Retirement obligations include dismantlement, restoration, and abandonment.
These costs are capitalized into the asset and amortized over its useful life.
Are unrealized losses and gains for items in OCI included in Stockholder’s Equity in the balance sheet?
Yes. Unrealized gains and losses increase or reduce the stockholder’s equity account by the corresponding amount.
Gain=Increase
Loss=Decrease
How is leased equipment depreciated?
The PRESENT VALUE of minimum lease payments is depreciated over the shorter of the useful life of the asset or the term of the lease.
Exclude guaranteed residual value or salvage value. Only use the present value of the minimum lease payments.
Difference between Nominal Dollars vs Constant Dollars.
Constant dollars reflects the same amount as the original date purchased. Think historical cost.
Nominal Dollars reflects the updated price as of the date provided. Think fair value.
What is moving average inventory?
It is the combined weighted average inventory costs revaluated after purchases.
Example: Purchase 01/05 and 01/10. Sale of inventory on 01/15. Purchase of Inventory on 01/25.
The moving average inventory for 01/31 would be the weighted average of - the weighted average of the inventory remaining after the sale on 01/15 and the purchase on 01/25.
In short - take the previous weighted average after the sale and calculate the new weighted average that includes the purchase of new inventory.
During periods of inflation, which inventory method has the highest COGS? FIFO or LIFO?
LIFO has the highest COGS which gives it the lower inventory value.
The opposite is true for FIFO. FIFO has a lower COGS in an inflationary period, but a higher inventory value.
Which depreciation method does group depreciation and composite depreciation use?
Straight line depreciation.
The composite depreciation method refers to the depreciation of a collection of assets that are dissimilar. The group depreciation method refers to the depreciation of a collection of assets that are similar in nature.
Regarding stock rights, which of the following situations requires a journal entry instead of just a memorandum entry?
A- Stock rights are issued to existing stockholders.
B- Stock rights are exercised.
C- Stock rights are expired.
D- All the above.
B- Stock rights are exercised.
Inverse is true. Only memorandum entries are required when issuing stock rights or if they expire.
What is the percent allowed of taxable income to be deducted from a net operating loss?
80%
NOLs may not be carried back but are carried forward indefinitely.
Is accrued interest included in the bond value for a purchase mid term?
No. If a bond is purchased midterm, the interest is amortized separately and only the premium or discount is amortized from the bond value.
When working on midterm issuances, use monthly amortization as it will yield a more accurate number.
When can you accrue a loss?
When it is probable and reasonably estimable.
