FAR EXAM

Question 1

Ending inventory is overstated then COGS is

Answer 1

Understated. This is simply saying purchases were made from inventory that were not accounted for.

Add to inventory:
Debit Inventory
Credit AP or Cash

Subtract from inventory (you sold an item):
Debit COGS
Credit Inventory

Remember:
Opening Inventory
Add: Purchases
Less: Ending Inventory
COGS

Question 2

Stock dividends affect APIC and retained earnings how for equity?

Answer 2

APIC increases due to the stock dividend increasing the paid in capital from excess over par value.
Also, smaller stock dividend (less than 20-25%) you record as capitalizing at fair value and decreasing Retained Earnings.

Journal Entry:

Debit Retained Earnings
Credit Common Stock
Credit APIC

Question 3

Business combination under the acquisition method (consolidated balance sheet). How do you report goodwill?

Answer 3

You need to find the FV of the Company less the FV of the net assets.

First, how much did it cost to purchase the business? If percentage is less than 100% acquired, back into the purchase price by divided the percentage given and the cost.

Second, Subtract the FULL purchase price from the FV of the business acquired.

Question 4

Lease liability is measured at

Answer 4

present value of minimum lease payments

Question 5

What is the journal entry for stock dividends? (Not in excess of 20 or 25 percent)

Answer 5

You record the stock dividend at fair value.

Debit Retained Earnings
Credit Share capital
Credit APIC