Lecture 2 Flashcards
1
Q
Amortization of capitalized software cost
A
equals the greater of straight-line amortization OR sales revenue from the software for the period ÷ total projected sale . Capitlized amt * above
2
Q
Patent amortization and amortization expense
A
Under U.S. GAAP, the research and development costs should be expensed. The patent will be capitalized and amortized over 10 years (the lesser of legal life or economic life
3
Q
AR Calc
A
AR (Beg)+Rev-collections-unearned fees = AR End
4
Q
Royalty
A
Royalties paid should be reported as expense in the period incurred.
5
Q
Goodwill
A
200,000 of goodwill is capitalized as a component of the purchase of the other entity. $80,000 is expensed since it is an internal development of goodwill and cannot be capitalized. Goodwill is not amortized, but it is subject to an impairment test.
6
Q
R&D
A
Under U.S. GAAP, R&D contracted out to a third party, preproduction prototypes and models costs, and, costs for searching for new products or new process alternatives are reported as R&D expense
7
Q
Goodwill impairment IFRS
A
Choice “d” is correct. Goodwill will be decreased by $13,000 because this represents the impairment loss allocated to goodwill. Under IFRS, goodwill impairment is calculated by using a one-step test at the cash generating unit level in which the carrying value of the cash generating unit is compared to the cash generating unit’s recoverable amount ($45,000 − $32,000 = $13,000). An impairment loss is then recognized to the extent that the carrying value of the cash generating unit (including goodwill) exceeds the recoverable amount of the cash generating unit impairment loss, which is $13,000. THIS AMOUNT is first allocated to goodwill. Any remaining impairment loss would be allocated on a pro rata basis to the other assets of the cash-generating unit.
8
Q
Franchise amortization
A
The $50,000 franchise cost will be amortized on a straight-line basis over 10 years ($5,000 per year). The balance in the franchise account will be $50,000 - $5,000 = $45,000. The 3% of franchise operation revenue is an operating expense, unrelated to the intangible asset balance.
9
Q
Notes recceivable
A
Interest expense calculated based on the principal balance - principal payments = final balance*Interest rate. This would be interest receivable and a current asset
10
Q
Trademark
A
The cost of a trademark is amortized over its economic life. Amortized basis is the cost. Dont get confused if they give you something else like the unamorized costs on sellers books
11
Q
Becareful with this trick, repairs occur evenly ththe year roughout mean you gotta divide by two in the end
A
Since repairs are incurred evenly during the first year (July 1 is average date) only ½ of 40% will be earned in the current year.
12
Q
Cash basis
A
Income is put in revenue inflows . investment out flow is not taken out of income neither is drawing from capital account
13
Q
R&D expense
A
Under U.S. GAAP, Research and development includes costs incurred prior to technological feasibility for developed software that is to be sold, leased, or marketed. This software is for internal use, unrelated to production and is not considered research and development. Market research is also not research and development because it is not aimed at discovery of new knowledge to develop a new product or service.
14
Q
Patent
A
Legal fees and other costs associated with registering a patent are capitalized. Research and development costs are expensed under U.S. GAAP. once the patent is established, legal costs to successfully defend the patent should be capitalized and amortized over the LESSER of the patent’s useful economic life or its legal life.
15
Q
Patent
A
IF unsuccesful defence that have to expense amount previously capitaized
16
Q
Read question carefully, remmebr to remind yourself to be careful right before the exam
A
Read question carefully, remmebr to remind yourself to be careful right before the exam
17
Q
intere
A
Int Rec beg +revenue-interest collected=Intere Rec Ending
18
Q
make note of dates
A
if rent is due at dec 15 that means half a month of reh as nt is due next mont
19
Q
rev
A
(Rec beg-unearnedbeg )+ rev-collectons-writeoffs=(rec end-unearned end)
20
Q
Interest payable
A
Principal-first payment= notes payable balanceinterest rateremaining months of the year not paid
21
Q
Commission payable
A
Commission earned +salary minimum-salary advances=sales commission payabe
22
Q
Franchise revenue
A
The franchisor should report revenue from initial franchise fees when all material conditions of the sale have been “substantially performed.” Macklin Co. will recognize the entire initial fee in the current year.
23
Q
R&D inclusions and exclusions
A
Research is the planned efforts of a company to discover new information that will help either create or improve a new product, service, process, or technique or one in current use. Items not considered research and development include: Routine periodic design changes to old products or troubleshooting in production stage, marketing research, quality control testing and reformulation of a chemical compound.
24
Q
Unlimited right of return
A
Choice “a” is correct. When there is an unlimited right of return, nothing should be recorded as sales revenue unless four conditions are satisfied. These conditions are the following:
The sales price is substantially fixed (it seems like it is in this question).
The buyer assumes all risk of loss (no information).
The buyer has paid some form of consideration (no information).
The amount of returns can be reasonably estimated (which they can in this question).
25
Software developed internally
For software developed internally, costs incurred in the preliminary project stage are expensed under U.S. GAAP. In this question, the costs AFTER the preliminary project stage are capitalized and depreciated over the economic life of the product (3 years). Depreciation expense is thus $3,333,333. The 5-year life of the equipment on which the package will be used is a distracter.
26
R&D
Choice "b" is correct. Development or improvement of techniques and processes is a research and development (R&D) cost.
Choice "d" is incorrect. Offshore oil "exploration" costs (assumed to be geological and geophysical expenses) that is the primary activity of a company is not an R&D cost. These costs would be expensed (as cost of services sold) by a company whose primary activity is the incurring of such geological and geophysical costs. If these "exploration" costs are not assumed to be geological and geophysical expenses, they would be the drilling of exploratory wells looking for commercial oil & gas deposits; in that event, they would be capitalized and then amortized. Either way, the costs are not an R&D cost.
Choice "c" is incorrect. Research and development performed under contract for others is not an R&D cost. The purchaser buying the research and development will be able to expense its expenditures as R&D costs.
Choice "a" is incorrect. Market research, even though the term contains the word research, is not an R&D cost.
27
revenues
Revenues should be recognized in the period in which they were earned and realized or realizable. Expenses are recognized when an entity's economic benefits are used up in delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations.
UVW provided advertising services but did not yet benefit from the travel or lodging.
28
Amortization
ohan Co.'s intangible asset is a finite life intangible asset. Finite life intangibles are amortized over the period to be benefited. Abco Co.'s goodwill is not amortized, but is instead analyzed periodically (at least annually) for impairment.
29
1% returns on gross
this means sales returns = 1% * gross sales
Net sales = Sales -sales returns
Becareful with wording
30
startup
GAAP requires that start-up costs, including organizational costs, be expensed as incurred, without exception.
31
permanently withdrawn from sale under governmental order because of a potential health hazard in the product.
The patent has been permanently impaired and a loss equal to its carrying amount should be recorded. The charge against income is: balance of $54,000 written off.
32
Goodwill
Choice "b" is correct. U.S. GAAP requires that goodwill be tested for impairment at the reporting unit level. The evaluation of goodwill impairment involves two major steps.
Step 1: Identify potential impairment by comparing the fair value of each reporting unit with its carrying amount, including goodwill.
Assign assets acquired and liabilities assumed to the various reporting units. Assign goodwill to the reporting units.
Determine the fair values of the reporting units and of the assets and liabilities of those reporting units.
If the fair value of a reporting unit is less than its carrying amount, there is potential goodwill impairment. The impairment is assumed to be due to the reporting unit's goodwill since any impairment in the other assets of the reporting unit will already have been determined and adjusted for (other impairments are evaluated before goodwill).
If the fair value of a reporting unit is more than its carrying amount, there is no goodwill impairment and Step 2 is not necessary.
Step 2: Measure the amount of goodwill impairment loss by comparing the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill.
Allocate the fair value of the reporting unit to all assets and liabilities of the unit. Any fair value that cannot be assigned to specific assets and liabilities is the implied goodwill of the reporting unit.
Compare the implied fair value of the goodwill to the carrying value of the goodwill. If the implied fair value of the goodwill is less than its carrying amount, recognize a goodwill impairment loss. Once the goodwill impairment loss has been fully recognized, it cannot be reversed.
33
Amortization
The carrying amount of both tangible and intangible assets held for use needs to be reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The future cash flows expected to result from use of the asset and its eventual disposition need to be estimated. If this sum of undiscounted expected (future) cash flows is less than the carrying amount, an impairment loss or expense needs to be recognized. Tech Co anticipates that cash flow will be generated indefinitely at the current level resulting in no impairment. No expense is recognized.
34
Reversal of impairment under US GAAP
Under U.S. GAAP, subsequent reversal of intangible asset impairment losses is prohibited unless the intangible asset is held for sale.
35
Cash to accrual
The $20,000 decrease in accounts receivable represents cash paid in the current period on accounts receivable from prior periods. Under the cash basis, this $20,000 would be recorded as current period income but under the accrual basis the revenue would have been recorded in the prior periods. Therefore cash basis income in the current period is $20,000 higher than accrual basis income.
The $16,000 increase in accounts payable represents expenses incurred but not yet paid. Under the cash basis, no expense would be recorded for the $16,000 increase because cash has not been paid. Under the accrual basis, expenses totaling $16,000 are recorded when the payables are recorded. As a result, cash basis income is $16,000 higher than accrual basis income.
36
Franchise
The unearned franchise fee will not be reported at $100,000 because the 3 installments of $20,000 are interest free payments. Interest free payments must be discounted and reported at present value. Therefore, the unearned franchise fee is:
Unearned franchise fees = $40,000 cash payment + $48,000 PV of future payments = $88,000
37
Research and development expense
Research and development expense does not include the amount paid for the equipment purchased for current and future projects because the equipment has alternate future uses. This equipment will be capitalized, but the related depreciation expense will be allocated to R&D while the equipment is being used for R&D. Equipment purchased for current projects only is expensed
38
R&D
All relevant costs incurred before technological feasibility is established should be expensed as research and development expenditures. After technological feasibility is established, all relevant costs are capitalized until the product is released for sale. At that point all relevant costs are included in "Inventory" (normal product costs) and charged to "Cost of Goods Sold" when sold
39
IFRS
Research costscpsts
Development
Under IFRS, all research costs must be expensed. The capitalized costs of the patent include the purchase price of the patent, the VAT taxes, and the legal costs to register the patent.Under IFRS, development costs may be capitalized if certain criteria are met. If the patent has been granted, it is generally appropriate to capitalize the related design costs.
40
Impairment
Under U.S. GAAP, impairment analysis begins with a test for recoverability in which the net carrying value of the asset is compared to the undiscounted cash flows expected from the asset. If the net carrying value exceeds the undiscounted cash flows, then an impairment loss is recorded equal to the difference between the carrying value and fair value of the asset. In this problem, the carrying value of $500,000 is less than the undiscounted future cash flows of $515,000, so no impairment loss is recorded.
41
IFRS impairment
xplanation
Choice "c" is correct. Under IFRS, the goodwill impairment test is a one-step test in which the carrying value of a cash-generating unit ( CGU) is compared to the CGU's recoverable amount, which is the greater of the CGU's fair value less costs to sell and its value in use (PV of future cash flows expected from the CGU). For this CGU, the fair value less costs to sell of $955,000 is the recoverable amount because it exceeds the value in use of $940,000. The impairment loss is:
Impairment loss = Recoverable amount - Carrying value
Impairment loss = $955,000 - $1,015,000 = $(60,000)
42
Goodwill
Choice "b" is correct. Under U.S. GAAP, goodwill impairment exists because the $3,310,000 fair value of the reporting unit is less than its $3,450,000 carrying value of the reporting unit. After allocating $3,170,000 of the fair value of the reporting unit to its assets and liabilities other than goodwill, the $140,000 ($3,310,000 - $3,170,000) unallocated fair value is the implied fair value of the goodwill and the goodwill impairment loss is:
43
revaluation
he entity has a revaluation loss of $20,000 ($150,000 revalued amount from Year 5 - $130,000 fair value on 12/31/Y6). The revaluation loss will be recorded in Year 6 other comprehensive income and will offset the $30,000 revaluation surplus in accumulated other comprehensive income (AOCI), for a net revaluation surplus of $10,000 reported in AOCI on December 31, Year 6.REVALUATION LOSS IS RECORDED IN oci IF THEIR IS A PREVIOUS REVALUATION GAIN. oTHERWISE IN INCOME STATEMENT
44
Cash Vs Accrual
If prepaid expenses increased. this means per the cash basis, this had been recorded as an expense. But per the accrual basis it should not be an expense because its prepaid . If accrued payables increases. This means per cash nothing was recorded , but infact per accrual an expense should have been recorded.
45
Accrued revenue
Accrual-based revenue will count all sales applicable to Year 2, regardless of when they are collected. Year 2 sales include the cash receipts in Year 2 ($200,000) plus the Year 3 cash receipts applicable to Year 2 ($75,000).
46
amortization of intangible assets (lesser of )
Intangible assets should be amortized over the lesser of the useful economic life or the legal life. The useful economic life is 25 years and the legal life is 30 years, so the copyright will be amortized over 25 years.
47
Goodwill
At a reporting unit level, when the fair value is less than the carrying amount, a loss on impairment is booked on the income statement (a debit) and a reduction in goodwill (credit) is booked to the balance sheet.
48
Revaluation
Make sure you amortize if info if given before calculatin on of revaluation loss or gain
49
IFRS R&D
The research costs associated with an internally developed asset will always be expensed. Assuming a company can reliably measure the costs associated with each component, under IFRS the development costs may be capitalized if all of the following criteria are met:
Technical feasibility has been established.
The company intends to complete the asset.
The company has the ability to sell or use the asset.
Sufficient resources are available to complete the development and sell / use the asset.
The asset will generate future economic benefits.
50
Patent
Development costs of a new product idea are a direct expense. Legal fees incurred to apply for a patent and to successfully defend the patent rights are capitalized as an asset. even though money is spend developed an idea that was patented that money is expensesd
51
R&D
Under U.S. GAAP, the only acceptable method of accounting for research and development costs is a direct charge to expense, except for materials, equipment, or facilities that have alternate future uses that are capitalized and depreciated over their useful live
52
Expense applicable to multiple periods
The entire amount of software maintenance costs ($15,000) cannot be expensed in Year 1 because the maintenance period begins on March 1. Total expense related to the maintenance agreement and the software modifications for the year ended December 31, Year 1, will include the amortization expense of $1,000 and 10 months of expense related to the software maintenance contract, which is $12,500 and not the entire expense of $15,000.
53
READ the questions very carefully t
the day before exam, go over your game plan
54
R&D
Depreciation on equipment used in various R&D projects would be included as a research and development expenditur.Equipment used in research and development activities that has alternative future uses is capitalized and depreciated over its useful life.
55
Engineering followup
Engineering follow-up in an early phase of commercial production is not considered a research and development cost. When the product is in commercial production, it is out of the R&D phase.
56
R&D
Under U.S. GAAP, unless the tangible assets associated with the research and development (R&D) expenses have alternative future uses or the work is undertaken on behalf of others under a contractual agreement, the costs associated with the R&D expenses are direct charged as an expense on the income statement.
57
Software
Costs associated with computer software that is developed to be sold, leased, or licensed may be capitalized once technological feasibility has been established. The costs will continue to be capitalized until the date the software is released for sale. In this question, the product was determined to be technologically feasible on June 30 and was released for sale on October 1. Any costs incurred between July 1 and September 30 (in this case, $750,000) are capitalized. Any costs incurred before June 30 ($1,300,000) or after October 1 ($275,000) are expensed.
58
IFRS goodwill
Goodwill generated internally cannot be capitalized; it will be treated as an expense in the period incurred.
59
Expense calc
two components to expense : Amortization expense and impairment . Fair less costs to sell is used
60
Completed contract
Under the completed contract method, revenue is recognized when the contract is complete, however expected losses are recognized immediately in their entirety. Project 2 is estimated to have a $20,000 loss, [$300,000 − $280,000 − $40,000 = $20,000 loss]. ARB 45 para. 11
61
Percentage of completion
CITD/Total cost * Gross profit-profit previously recognized
| Gross profit = Contract price-total costs
62
Total cost
total cost = cost incurred to date +remaining costs
63
Completed contract
When a company uses the U.S. GAAP "completed contract" method to account for a long-term construction contract, revenue is recognized when the job is completed, not when progress billings are collected or when they exceed recorded costs.
64
Final year Percentage of completion
Under the percentage-of-completion method, annual gross profit equals [total cost incurred/total expected cost] × [total expected gross profit] less total gross profit previously recognized. In the final year of the contract, actual rather than expected amounts are used.
65
Completed contract
Contract sales price-actual total costs=gorss profit
66
Current liability in percentage of completion
The excess of accumulated costs(CITD) ($2,000,000) plus estimated earnings ($250,000) over related billings ($1,800,000) will represent a current asset. A liability only exists when progress billings exceed costs and estimated earnings. Estimated earnings under the completed contract method are calculated as follows:
Calculate estimate profit = $9,000,000 − ($2,000,000 + $6,000,000) = $1,000,000
Percent complete = $2,000,000 / ($2,000,000 + $6,000,000) = 25%
Calculate gross profit earned to date = $1,000,000 × 25% = $250,000
67
percentage of completion for two years
make sure you calculate correct cost incurred to date
the estimated total grss profit will be different each year
68
asset/liability calc for two years
If the sum of cumulative costs incurred plus cumulative gross profit recognized exceeds cumulative billings, the excess is reported as a current asset. If cumulative billings exceeds the sum of cumulative costs incurred plus cumulative gross profit recognized, the difference is reported as a current liability. If the two amounts are equal, no asset or liability is recognized. Note that everything is cumulative.
Year End 1 Year End 2
Cumulative costs incurred $ 1,200,000 $ 2,200,000
Add: Cumulative gross profit recognized 800,000 1,800,000
Less: Cumulative billings (2,500,000) (4,000,000)
$ (500,000) $ 0
69
Installment sales
Earned Gross profit = GP% * Collections
Deferred Gross profit=GP%*Installment receivable
Sales-collections-writeoff=installment receivable
Used when no reasonable basis for collectibilit
Somtimes the percentage will give you a close answer
Exclude interest from deferred gp calc
70
Cost recovery
The cost recovery method is appropriate when there is no reasonable basis for estimating collectibility.
Using the cost recovery method, all gross profit on the sale is deferred until the cost of the item sold is collected. In the first year, $18,360 is collected, $15,860 of which is principal reduction ($50,000 x 5% interest = $2,500; $18,360 − $2,500 = $15,860). Since $15,860 is less than the cost of $20,000, no gross profit is recognized in the first year.
notice interest is excluded here too
71
cost recovery and installment sales
Under the cost recovery method, revenue is recognized after cash equaling the cost of the item is collected. Under the installment method, gross profit is recognized as a gross profit percentage times the cash collected from the sale.
72
cost recovery
Choice “b” is correct. Under the cost recovery method, gross profits are not recognized until cash collections exceed the amount of costs incurred. Cost of goods sold totals $2,500. As of June, only $1,000 was collected in cash; because cash collected falls short of cost of goods sold, no gross profits are recognized as of June 30. As of December, $3,400 total was received in cash. $3,400 – $2,500 = $900 in gross profit, which can be recognized as of December 31.
Cash collection-cost=gross profit
73
Non-Monetary
When a nonmonetary exchange lacks commercial substance, the general rule is that no gain or loss is recognized and the book value approach is used. However, in this question, cash/boot is received and a proportional part of the gain is recognized (the $4,000 cash is 20% of the total consideration of $20,000, and the realized gain is $8,000, so $1,600 of the realized gain is recognized and $6,400 of the realized gain is not recognized).
74
Non-Monetary
In any exchange, all realized losses are fully recognized in accordance with the principle of conservatism. Of course, theoretically, such losses should have already been recognized as part of the impairment process. only if the cash amount is less 25% of total consideration(cashplusfairvalueofassetgivenup). If greater than 25% than recognize the full gain
% = total boot/total consideration received ( boot plus fair value of asset receved
75
non-monetry
However, because this exchange lacks commercial substance, Campbell will only recognize a gain if it received boot/cash. If boot/cash is given, or there is no boot/cash in the transaction, then no gain is recognized. Because Campbell pays cash of $700, not gain is recognized.
76
non-monetary
Choice "c" is correct. $0. Under U.S. GAAP, this appears to be a transaction (1) that lacks commercial substance and (2) appears to be an exchange that was made merely to facilitate sales to customers (inventory was traded).
In order to have commercial substance, either (1) the risk, timing, and amount of the expected future cash flows from the asset transferred differs significantly from the risk, timing, and amount of the expected future cash flows from the asset received, or (2) the entity-specific value (based on the company's expectations of value of the asset and not that of the marketplace) of the asset received differs significantly (in relation to the fair values of the assets exchanged) from the asset transferred.
In this case, inventory was traded for inventory, and only $1,000 of cash was paid in the transaction. The future cash flows configuration does not appear to be affected (as both assets are inventory and the $1,000 cash is not significant), nor would it appear that the entity-specific value of the assets received compared to the assets transferred differs much (and is certainly not significant in relation to the fair value of the assets exchanged).
Further (and perhaps even more compelling for the exchange to be treated as lacking commercial substance), the exchange is inventory for inventory, and inventory is a product that is ordinarily held to be sold to customers. One of the three exceptions (the second one) to the general rule of valuing a transaction at fair value is if the exchange was made solely to facilitate a sale to a third party that is not a party to the exchange (such as a customer). Remember that lack of commercial substance was the third exception.
It appears that this exchange "lacks commercial substance" or falls under the "exchange that facilitates the sale" rules and, since boot was paid, there would be no gain recognized for accounting purposes. Since the fair value of the inventory relinquished exceeded the carrying amount of that inventory, there would be no loss either.
77
Non-monetary
Under IFRS, exchanges of dissimilar assets are regarded as exchanges that generate revenue and all gains and losses are recognized. In this problem, the entity gave up cash and an asset in exchange for equipment with a fair value equal to the carrying value of the asset given up. The following JE can be used to illustrate this problem, assuming that the fair value of the new equipment is $10,000 and that $1,500 in cash was paid
78
non-monetary with commercial substance
For nonmonetary exchanges that contain commercial substance, meaning that the amount and timing of future cash flows changes as a result of this exchange, gains and losses are recognized immediately.
79
General notes on non-monetaru
always make a journal entry for the asset given up and cash involved. than calculate the value of the asset received as a plug.
Remember the gain is on the asset being given up, the difference between book value and fair value of asset given up
Note when boot is paid . The % = boot/considerationed transferred ( boot plus fair value of asset transferred)
80
non monetary commercial substance vs no commercial sustance
When a transaction involving a nonmonetary exchange lacks commercial substance, the reported amount of the nonmonetary asset surrendered is used to record the newly acquired asset. If the transaction has commercial substance, the fair value approach is use.
The fair value of the assets surrendered or received is used for reporting when the exchange has commercial substance.
81
functional currency
The foreign subsidiary's functional currency is the currency of the environment in which the subsidiary primarily generates and expends cash.
Rule: The functional currency of a company may be:
A foreign entity's local currency, which is typically the one in which the entity keeps its books;
The currency in which the financial statements will be presented, which is the currency of the parent company; or
A foreign currency other than the one in which the foreign entity maintains its books.
Rule: The functional currency of an entity generally depends upon the environment in which the entity generates and expends cash (unless there is a requirement by law to use another currency), which may be any of the above three. However, the functional currency cannot be the local currency if the foreign entity operates in a highly inflationary environment (i.e., approximately 100% over three years).
82
Foreign exchange gains
Gains and losses resulting from foreign exchange transactions that are an "extension" of the parent's domestic operations are included as a component of "income from continuing operations" in the period in which they occur. They are not extraordinary items.
83
Foreign exchange
Rule: "Translation adjustments" are not included in determining net income for the period but are disclosed and accumulated as a component of other comprehensive income in consolidated equity until disposed of.
However, gains or losses from remeasuring the foreign subsidiary's financial statements from the local currency to the functional currency should be included in "income from continuing operations" of the parent company.
Note: Assume the question had asked the following instead:
"What amount should Park report as a foreign exchange gain in its statement of income and comprehensive income (or statement of comprehensive income, by itself)?"
In that case, the answer would have been $15,700.
84
foreign exchange
Cumulative foreign exchange translation loss should be reported as a component of accumulated other comprehensive income. A cumulative foreign exchange translation loss would be a debit to accumulated other comprehensive income; therefore, contra to shareholders' equity.
Rule: "Translation" adjustments are not included in determining net income for the period but are disclosed and accumulated as a component of other comprehensive income in consolidated equity until sale or until liquidation of the investment takes place.
85
remeasurement
In these circumstances, the remeasurement method is used and the historical rates should be used only for those balance sheet accounts carried at "cost" (most non-monetary items). Otherwise follow the general rule and use the "current" rate.
Choices "a", "c", and "d" are incorrect. Bonds payable and accrued liabilities are "monetary" items. Marketable equity securities are non-monetary items, but are reported at fair value. Because they are reported at fair value, they should be remeasured using the current exchange rate.
86
tricks
Think the transaction all the way through. For example if transaction took place in year one but paid in year two e the gain loss woudl be year one year end exchange rate compared to year two
87
FOREIGN CURRENCY
A subsidiary's financial statements are usually maintained in its local currency. If the subsidiary's functional currency is its local currency, the subsidiary's financial statements are simply "translated" to the reporting currency. The resulting adjustment is reported as other comprehensive income. If the subsidiary's functional currency is not the same as its local currency (the functional currency may be the reporting currency or another currency), the subsidiary's financial statements must be "remeasured" into the functional currency. The resulting gain or loss on remeasurement is reported in the consolidated income statement. IF FUNCTIONAL CURRENCY =LOCAL CURRENCY THAN TRANSLATION. IF FUNCTIONAL CURRENCY IS NOT THE LOCAL CURRENCY i.e REPORTING CURRENCY THAN REMEASURMENT IS REQUIRED
88
The subsidiary's functional currency is the currency of the country in which it is located. What total amount should be included in Rowan's December 31 consolidated balance sheet for the above accounts?
The rate to be used to translate all assets and all liabilities from the functional currency to the reporting currency (the U.S. dollar) is the current rate, that is, the exchange rate in effect at the balance sheet date.nder the translation (current) method, all income statement items, including salaries expense and sales to external customers, are translated using the weighted-average exchange rate for the current year.
89
translation method
When the translation method is used, all assets and liabilities are translated to the reporting currency using the current (year-end) exchange rate, while common stock and additional paid-in capital are translated using historical exchange rates.
90
foreign currency
uionsse common sense for calculat
