FAR 5-5 - Sheet1

Question 1

Q2001. What are the two ways to ESTIMATE inventory?

Answer 1

A2001. 1. Gross Margin Method (Not GAAP). 2. Retail Method.

Question 2

Q2002. What 3 things need to be known when using the Retail Method to estimate inventory?

Answer 2

A2002. 1. Beginning inventory & purchases at cost & retail. 2. Additional markups & markdowns. 3. Sales for the period.

Question 3

Q2003. What are the 3 methods of the retail method to estimate inventory?

Answer 3

A2003. 1. Weighted Average, LCM. 2. LIFO Retail 3. D-V LIFO Retail

Question 4

Q2004. How does the Retail Method estimate ending inventory?

Answer 4

A2004. Using a cost/retail ratio, ending inventory is converting from retail dollars to cost dollars.

Question 5

Q2005. Why are markdowns not included in the Weighted Average, LCM retail calculation?

Answer 5

A2005. It results in a larger denominator for the ratio to help approximate lower of average cost or market.

Question 6

Q2006. How is the Weighted Average, LCM retail calculated?

Answer 6

A2006. Sum of beginning inventory, net purchases, and net markups.

Question 7

Q2007. LIFO Retail requires 2 cost/retail ratios be calculated, what are they?

Answer 7

A2007. 1. Beginning inventory 2. Net purchases

Question 8

Q2008. How are PP&E recorded?

Answer 8

A2008. At acquisition cost, plus all reasonably necessary cost to bring it to the location & make it ready for use.

Question 9

Q2009. What is the basis of a PP&E purchased on a Deferred Payment Plan?

Answer 9

A2009. At its cash equivalent price, or an imputed interest rate to obtain the PV of payments to be made.

Question 10

Q2010. What is the basis of a PP&E purchased by Issuance of Securities?

Answer 10

A2010. At the assets FV or the FV of the securities issued, whichever is more clearly determinable.

Question 11

Q2011. What is the basis of PP&E that are Self-Constructed?

Answer 11

A2011. All directly related costs: DM,DL, & OH.

Question 12

Q2012. What 3 types of PP&E assets qualify for interest capitalization?

Answer 12

A2012. 1. Constructed or produced for self-use on a repetitive basis. 2. Acquired for self-use through arrangements requiring down or progress payments. 3. Constructed or produced as discrete projects for sale (RE or ships).

Question 13

Q2013. How are donated PP&E assets recorded?

Answer 13

A2013. At FV along w/ any incidental costs.

Question 14

Q2014. How is a nonreciprocal transfer of PP&E recorded?

Answer 14

A2014. At FV, and a G or L is recognized on the disposal.

Question 15

Q2015. What is the accounting for nonmonetary PP&E exchanges?

Answer 15

A2015. The acquisition is recorded at FV of either the asset surrendered or received, whichever is more clearly determinable. A G or L should also be recognized.

Question 16

Q2016. What are the 3 exceptions when a nonmonetary PP&E exchange should be based on recorded amounts (rather than FV)?

Answer 16

A2016. 1. The FV of the asset received or surrendered is not clearly determinable. 2. PP&E held for sale in ordinary course of business for asset to be sold in same line of business to facilitate sales. 3. Transaction lacks commercial substance.

Question 17

Q2017. What is commercial substance?

Answer 17

A2017. The future cash flows are expected to change significantly if: 1. Configuration of future cash flows of new assets differs from those transferred. 2. Entity-specific value of new assets differs from those transferred in relation to FV of assets exchanged.

Question 18

Q2018. What is the formula for the portion of BV sold when receiving boot? And what is the carrying amount of the new asset?

Answer 18

A2018. BV of old asset x [boot / (boot + BV of new asset)] New asset = BV of old asset - portion of BV sold

Question 19

Q2019. When an exchange involving boot indicates a loss, how much of the loss is recognized?

Answer 19

A2019. The entire loss.

Question 20

Q2020. How would the entity paying boot record the new asset?

Answer 20

A2020. The new asset’s basis is boot + recorded amount of old asset No gain should be recognized.

Question 21

Q2021. What is the Sum-of-Years’-Digits (SYD) formula for depreciation?

Answer 21

A2021. (Cost - Salvage) x (Life / SYD) For n years, SYD = n x (n + 1) / 2

Question 22

Q2022. What is the Double-Declining-Balance (DDB) formula for depreciation?

Answer 22

A2022. 2 x (Cost - Accumulative Depreciation) ————————————- Life

Question 23

Q2023. What is the Variable Charge Method formula for depreciation?

Answer 23

A2023. (Cost - Salvage) x Current Use ——————————————– Total Expected Usage

Question 24

Q2024. What are the 3 categories of impaired assets?

Answer 24

A2024. 1. Held for Sale 2. Assets Held for Use 3. Disposals Other Than by Sale

Question 25

Q2025. How often are intangible assets tested for impairment?

Answer 25

A2025. At least annually.

Question 26

Q2026. When is an impairment loss recognized on intangible assets?

Answer 26

A2026. When the carrying amount is not recoverable and it exceeds its FV.

Question 27

Q2027. What are Research & Development (R&D) Costs?

Answer 27

A2027. Research - discovery of knowledge that will be useful in developing or improving products. Development - Translating research findings into plans or designs.

Question 28

Q2028. What is the accounting for R&D activities? What is the exception?

Answer 28

A2028. They are expensed in the period in which acquired. Unless the item has an alternative future use.