FAR Deck 1

Question 1

In consignment sales, who retains title and includes inv on its B/S? When is the sales rev recognized?

Answer 1

Consignor retains title and includes inv on B/S until rev is recognized when the goods are sold to a third party

Question 2

What are the effects of over/understatements of inv on COGS?

Answer 2

Over/understatement of beg inv has same directional effect on COGS.

Over/understatement of end inv has opposite directional effect on COGS

Question 3

Lower of Cost or Mrkt Rule

Answer 3

Cost: LIFO or retail inv method (use cost to date)

Mrkt: Middle of 3 options
Mrkt ceiling = Net SP less costs to complete and dispose (aka NRV)
Replacement cost = cost to purchase the item as of valuation date
Mrkt floor = mrkt ceiling less a normal profit margin

Question 4

Lower of Cost and NRV rule and state when it is used

Answer 4

Used for all inv NOT costed using LIFO or Retail Inv Method

NRV = Net SP less costs to complete and dispose of the inv (aka mrkt ceiling)
Cost: (remember to use cost to date)

Question 5

Inventory Equation

Answer 5

Beg Inv
Add: Purchases
= COG avail for sale
Less: End Inv
= COGS

Question 6

Are marketable debt and equity securities investments or cash/cash equivs?

Answer 6

investments

Question 7

When can different bank balances be netted together?

Answer 7

Different accts @ same bank&raquo_space;> can net
Different accts @ different banks&raquo_space;> negative bal must be recorded as a separate liability

Question 8

Definition of factoring receivables process, factor itself, and nonrecourse

Answer 8

Process by which a company converts its receivables to cash by assigning them to a factor (w/ or w/o recourse)

factor = company that takes on risk of receivables

nonrecourse&raquo_space;> sale is final and that the assignee (the factor) assumes the risk of any losses on collection

Question 9

How does a factor record receivables?

Answer 9

Records gross amt of receivables purchased, factor’s expected AUA/bad debt exp (not the original), its fee as a gain

Trade rec
Bad debt exp = AUA
AUA = bad debt exp
Gain on Purch
Cash = gross - fee

Question 10

When to use “Lower of Cost or Mrkt” versus “Lower of Cost or NRV”

Answer 10

Lower of Cost or Mrkt when inventory under LIFO or Retail Inventory Method

Lower of Cost or NRV when inventory IS NOT under LIFO or Retail Inventory Method

Question 11

What is included in the cost of consigned inventory?

Answer 11

actual cost of inv & any costs needed to get inv in place for sale (often includes shipping costs like freight in, in-transit insurance premiums, etc)

Question 12

How to calculate COGS

Answer 12

Add: Beg inv, purchases, freight in
Less: end inv, purchase discount

Question 13

Steps to calc capitalized interest

Answer 13

1. Det if there is a connection with a “discrete manu activity”
2. calc weighted avg expenditures (NOT AMT OF $ BORROWED) by summing (loan pmt X % of year)
3. multiply step 2 by annual interest rate
4. check to make sure capitalized interest amt does not exceed total interest costs

Note: interest can’t be capitalized after construction project is complete

Question 14

What interest rate to use on construction borrowings?

Answer 14

Use % on specific construction loan if available. Otherwise, determine the weighted avg int rate

weighted avg int rate: (Loan 1 / total loans) * IR for Loan 1 + (Loan 2 / total loans) * IR for Loan 2

Question 15

Expense versus capitalize?

Answer 15

expense ordinary repairs

capitalize “additions” or “benefit several periods” or “improve efficiency”

Question 16

What is included in cost of land?

Answer 16

Costs of getting the land ready for intended use ( includes demolishing old bldgs)
Add: title insurance and legal fees
Less: salvage value

Question 17

How are leasehold improvements recorded?

Answer 17

capitalized then amortized over the lesser of the life of the improvements or the remaining term of the lease

Question 18

When should depreciation start for a piece of equipment?

Answer 18

@ date of installment

Question 19

When is equipment recorded as a liability?

Answer 19

Once the company has the legal title to the machine

Question 20

Depr: Sum of the Years Digits

Answer 20

Depr = (Cost - SV) X (remaining life of asset / sum of the years’ digits”

Note!! You must calculate every year’s depr individually and add them together

5 yr life&raquo_space;> 15 = 1+2+3+4+5

Question 21

Depr: Double declining

Answer 21

Depr= 2/est life of asset X (Cost - Accum Depr)

Note: SV can be ignored but asset should not be depreciated below the est SV

Question 22

Units of production

Answer 22

Use when an asset’s service potential declines w/ use

Question 23

If an asset’s value increases, is the recorded B/S amt adjusted upward?

Answer 23

No, asset not adjusted upward

Question 24

Is subsequent reversal of an impairment loss allowed under GAAP?

Answer 24

No - subsequent reversal is prohibited (unless the asset is held for disposal)

Question 25

depletion exp

Answer 25

depletion exp = (purch price + development costs + est restoration costs - expected salvage value) /est units removed* (# of units of resource sold)

Question 26

What happens when a permanent impairment occurs?

Answer 26

BV is reduced and a loss is credited to Accum Depr CY's depr exp should still be added to AD

Question 27

Characteristics of Crypto Assets

Answer 27

- reps a digital value or right and is created or resides on a distributed ledger - similar to indefinite intangible asset when asset DOES NOT provide the asset holder w/ enforceable rights or claims to an underlying good - classified as intangible assets w/ indefinite lives - recognized at FV (reflected in current period) IF certain criteria are met

Question 28

Are legal fees for a patent capitalized or expensed?

Answer 28

capitalize if defense is successful expense if defense fails

Question 29

Are development costs of a new product idea (R&D) capitalized or expensed?

Answer 29

Expensed

Question 30

At what price are acquired intangible assets recorded?

Answer 30

@ price paid or the fair value of the property acquired

Question 31

How are intangible assets amortized?

Answer 31

Over the lesser of the useful economic life or legal life

Question 32

When is recoverability test performed?

Answer 32

Performed on intangible assets w/ a limited life