F4

Question 1

If you are using FIFO and prices are increasing what is happening?

Answer 1

This would indicate that overall profits would increase. The reason being prices that you first bought at are now cheap, and the ending inventory or your assets are now more valued.

Question 2

Is out of the moving average and the weighted average what are the favorable accounting systems that are needed for both?

Answer 2

For the moving average the perpetual is needed.

For the weighted average the periodic system is needed.

Question 3

What happens during increasing prices under the LIFO method?

Answer 3

You cost of goods sold will be more expensive since you are selling more expensive goods first.
Ending inventory will be cheaper.
Profit will go down.
This is beneficial for tax purposes for it will take your taxable income down.
It will also result in the lowest net income

Question 4

Whats the price index for the dollar value LIFO?

Answer 4

Ending inventory at current year cost / ending inventory at base year cost

Question 5

Whats NRV?

Answer 5

Selling Price - Costs to dispose - costs to complete.
This is also known as the ceiling.
When you minus the profit you get the floor.

Question 6

Under IFRS what is the cost model formula?

Answer 6

Cost model carrying value = historical cost - accumulated depreciation - impairment.

Question 7

Under IFRS what is the revaluation model formula?

Answer 7

Fair value at reevaluation date - subsequent accumulated depreciation - subsequent impairment.

Question 8

Are additions Cap or Expensed when it comes to equipment? Improvements or replacements? Repairs (ordinary and extraordinary)?

Answer 8

The additions are capitalized. Replacements and improvements are capitalized. Repairs are expensed for ordinary, and extra are capitalized.

Question 9

What is the Depreciation base?

Answer 9

This is the cost minus the salvage value and is the base that we will divide by the number of useful years to get depreciation.

Question 10

What is the average life for a composite problem?

Answer 10

First you would calculate the depreciation for all assets, using whatever method was asked.
You would then add up all the depreciation expenses and get a total.
Then you take the sum of the depreciable bases and divide it by the total depreciation to get the composite life.

Question 11

What is the formula for the sum of the years digits?

Answer 11

The formula is n(n+1)/ 2 is how you find the SYD.

You actually need to do (Cost - Salvage Value) x (remaining life / syd)

Question 12

What is the formula for double declining balance?

Answer 12

(2/N)*(Cost - Accumulated Depreciation)

The asset cannot be depreciated below its salvage value.

Question 13

Whats the unit of production formula?

Answer 13

(cost - salvage value)/ Estimated units or hours = rate per unit or hour

rate per unit x the number of units produced = dep exp

Question 14

What is working capital? Current Ratio?

Answer 14

Current Assets- Current liabilities

Current Ratio = Current assets/ Current liabilities

Question 15

What is the Quick ratio?

Answer 15

(Cash + net receivables(A/R - Allow for uncollectible amounts) + short term investments) / Current Liabilities

Question 16

What are the two method for accounting for write of uncollectible amounts?

Answer 16

The write off method - DR bad debt expense CR A/R

The allowance method DR allowance for uncollectible CR A/R this is the second journal entry that is made once you are sure that the account cannot be recovered.

Question 17

When doing a bank reconciliation what do you do with deposits in transit, outstanding checks, service charges, bank collections, errors, NSF, and interest income?

Answer 17

Deposits in transit - add to bank
Outstanding checks - Sub from bank
Service charges - sub from bank
Bank collections - add
NSF - subtract 
Interest income - add
Credit memos  - ADD

Question 18

What are the two ways that sales discounts can be accounted for?

Answer 18

Using the gross method and the net method.
Gross method records without the actual sale discount so at the original amount.
The net method records the receivable at the price minus the discount.

Question 19

What are the three ways of estimating uncollectible?

Answer 19

Percent of sales - income statement method, gives you addition to A/R.
Ending A/R and the aging receivables methods - both balance sheet. Gives you the ending A/R you have to find a plug.

Question 20

Whats the NRV of a A/R?

Answer 20

It is the gross receivable minus the allowance for uncollectible accounts.

Question 21

What is factoring without recourse?

Answer 21

This is considered to be a true sale. Meaning that the buyer know has the risks. The risk is gone from the seller. 
JE:
Cash
Due from Factor
Loss on Sale of Receive
DR: A/R

Question 22

What is factoring with recourse?

Answer 22

This means that the factor or the one that is buying the receivable has the option to sell back the receivable to the seller of the receivable any time.
This can be considered a sale or a borrowing.
The seller still has the risk, so its not a true sale.

Question 23

What are the following conditions that must be met in order for a sale with recourse to be considered a sale.

Answer 23

The sellers obligation for the uncollectible accounts can be reasonably be estimated.
The seller surrenders control of the future economic benefit of the receive.
The seller isn’t required to repurchase the receive.

Question 24

What is F.O.B shipping point

Answer 24

it is included in the buyers inventory as soon as it is shipped out, or put in a truck
The buyer pays for shipping and it is a freight in, added to cost of inventory a cost that is capitalized.

Question 25

What is F.O.B destination?

Answer 25

It is included in the buyers inventory when they actually get the goods landed in their place of business or shipping docks until then it is in the sellers inventory.
The seller pays for shipping and its a freight out, which is a expense (selling).

Question 26

Who has the rights to the non-conforming goods?

Answer 26

Even if they are with the buyer they are still going to be on the sellers books since they are the wrong inventory.

Question 27

What are the five criteria for recognizing a sale

Answer 27

A price is fixed.
The buyers assumes all the risk of loss since they are in the buyers possession.
The buyer has paid consideration
The amount of future returns can be estimated
The product that is sold is substianlly complete.

Question 28

For what methods are the lower of cost and market used?

For what methods are the lower of cost and net realizable value used?

Answer 28

The lower of cost and market is used for the LIFO and the retail inventory method.
The lower of cost and NRV is for the FIFO and the average cost methods.

Question 29

Under IFRS what is inventory valued at?

Answer 29

This is valued at the lower of the cost and NRV only!

And LIFO is not permitted under IFRS.

Question 30

How do you get answer for the lower of cost and market?

Answer 30

Applies only to LIFO and retail inventory.
The terms involved are
Market value which is the middle of the following.
Replacement cost - cost to purchase inventory.
Market ceiling - basically same as NRV = selling price - the costs to complete; also known as the ceiling
Market floor - market ceiling - (profit margin[Selling price x profit margin) or the normal profit.
Pick the middle number.

Question 31

How do you figure out the lower of cost and NRV?

Answer 31

You would pick the lower of the cost or the NRV which is the same as the market ceiling ( selling price - costs to dispose - costs to complete)

Question 32

Out of periodic and Perpetual what are the different account names?

Answer 32

The periodic uses purchases key term and the perpetual uses the inventory.

Question 33

What is the formula for determing COGS under the periodic method?

Answer 33

you take the Beg balance + purchases (net of returns and discount) = COGAFS - ending inventory = COGS

Question 34

What is the weighted average method?

Answer 34

This is only applicable if you using the periodic system.
= Total costs of inventory available for sale / by number of inventory available for sale.
weighted Average cost per unit x average cost( number of units sold) = COGS
weighted Average cost per unit x of units unsold = EI.

Question 35

What is the moving average method?

Answer 35

This is only used for the perpetual method.

This computes it after each purchase.

Question 36

How do you calculate the profit margin or the NRV - profit?

Answer 36

You must first find the selling price and times it by the profit margin percent which is profit / selling price.
Then you take the (NRV - (selling price *profit margin))

Question 37

How do you calculate the depletion base?

Answer 37

This only applies to natural resources.
Depletion base it the (purchase price + development costs + estimated restoration costs - salvage value) / number of removable ore, or something that is removable. That will give you depletion per ton.
- Then you take the depletion per ton times by the unti sold to get your depletion expense.

Question 38

What is the test of recoverability?

Answer 38

This is testing a fixed asset for impairment. If the sum of the undiscounted cash future cash flows are less than the carrying amount then you need to recognize a impairment loss.

Question 39

What is the calculation for an impairment loss?

Answer 39

If the Future undiscounted cash flows are less than the carrying value there is a possible impairment loss.
Then you look to see if the asset is being held for sale or if there is going to be a disposal.
Held for sale is (FV or pv of future cash flows - carrying value = impairment loss) restoration not permit
Disposal (Fv or PV of FCF - carrying value = impairment loss + disposal costs = total impairment cost) restoration permitted.

Question 40

How is impairment calculated under IFRS?

Answer 40

The carrying value is compared to the recoverable amount.
The recoverable amount is the greater of the assets fair value - costs to sell or the assets value in use (this is the FCF expected from the asset).

Question 41

What affects the allowance for doubtful accounts?

Answer 41

Increases: Written off accounts now collectible. Uncollectible amount expense.
Decreases: Uncollectible amounts written off

Question 42

What do you do for LIFO reserve?

Answer 42

This is the difference between LIFO and the other method.

1. You take the other method of inventory then subtract out the lifo inventory, and then subtract the ending LIFO inventory to get the amount that is needed in the lifo reserve.
2. The JE is DR: COGS, CR: LFIO reserve.

Question 43

What are some costs that are included in the cost of inventory?

Answer 43

• Freight in
• Costs of materials and labor that were used to bring the asset to useful life so that it can be used.
• Insurance costs that were incurred during the transit of goods.

Question 44

what are the two important rules for capitalizing interest?

Answer 44

1. Only capitalize interest on the money that was actually spent, not the total amount borrowed.
2. Always capitalize the lower of actual interest incurred or computed capitalized interest (avoidable interest)

Question 45

What are the rules for capitalizing interest versus expensing it when it comes to during or after construction?

Answer 45

• During the construction period interest costs of a machinery that is to be used as a fixed asset should be capitalized as a part of historic cost.
• Subsequent to the construction should be expensed. and the same goes for after and before construction period.

Question 46

What are leasehold improvements capitalized over?

Answer 46

They are capitalized over the lesser of the life of the improvements, or the life of the lease. Whichever is lesser.