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Flashcards in Test 1 Deck (50):
1

When going about LCM what steps do you need to go through to find the carrying value of inventory and the adjustment for individual products

First set up table with headings going across (each being their own column): Selling price,-selling cost,=NRV(Ceiling), Normal profit, NRV-NP(floor)

Second set up table labeled across: Replacement cost (1), NRV (2), Floor (3), Market (middle of 1,2,3), Cost, Inventory value(lower of market or cost).

Third: carrying value is lower of total from market and cost column.

Four: make adjusting entry based off difference from value chosen in step 3 and the total from inventory column.

2

What are the two appropriate adjusting entries for LCM or LCNRV

Debit: COGS
Credit: INVENTORY

OR UNUSUALLY

Debit: LOSS ON WRITE DOWN
Credit: INVENTORY

3

What steps do you take for LCNRV method by individual products

First: set up chart with titles going across for Cost, NRV, and Inventory Value (pick lesser values from cost and NRV columns).

Second: total up the Cost and NRV columns. The lesser of those two is the carrying value.

Third: subtract total inventory value from lesser of cost or NRV column

4

Inventory write downs reduce what

Reduces Inventory and Net Income

5

When do you use LCNRV

If the company uses FIFO/AVG Cost methods

6

When do you use LCM

The company uses LIFO

7

How do you find NRV

Estimated selling price less the % selling costs

8

After comparing NRV and cost, the company will record inventory at the lower of the two. Which requires adjustments?

Cost > NRV there needs to be a journal entry

9

What is the market figure when replacement cost is below floor

The floor is the market

10

What is the market figure when replacement cost is above the ceiling

Ceiling is the market figure

11

What is the market figure when replacement cost is between the floor and ceiling

The replacement cost is the market

12

What type of bonds have equity characteristics

Convertible bonds and bonds with detachable warrants

13

When convertible bonds are issued, they are issued using

Straight debt issuance under GAAP. under IFRS it’s a compound debt instrument

14

How do you handle the journal entries in terms of interest when there is a bond sold at a premium/discount

Premium is debited with each interest expense
Discount is credited with each interest expense

15

How do you record the conversion of bonds to stock under the book value method

Debit: bond payable
Debit/credit the premium or discount for whatever hasn’t been amortized yet
Credit common stock

16

What is the difference between market and book value methods of valuing equity accounts

Book value uses book value as balance
Market value uses market value of stock

17

How do you record the conversion of bonds to stock under the market value method

Debit bond payable
Debit/credit prem or disc
Loss/gain
Credit common stock for market amount of stock multiplied by how many shares

18

Why do companies by stock in other companies

To get a higher rate of return

19

Lacks significant influence (<20%) what do you use

adjusted cost method: don't record % of earnings or amortization.

20

What if it has significant influence (20%-50%)

use the equity method and report at cost adjusted for subsequent earning and dividends

21

What if you have control >50%

Use consolidation method which means combining investor and companies financial statements

22

What does debuting fair value adjustment do to the value of the investment

Increases it

23

When adjusting retained earnings what will you debit/credit along with it in regards to tax effects

If crediting RE we need to also credit ITP

If debiting RE we need to also debut refund-income tax

24

Held to maturity instruments are

Debt securities which an enterprise has the intent and ability to hold to maturity. They are reported at amortized cost

25

Trading securities are

Debt and equity securities held principally for selling in the near term. They are reported at fair value and recognized in NET INCOME

26

Available for sale securities are

Reported at fair value and unrealized holding gains/losses are excluded from earnings and are reported in OCI

27

Effective interest method

Interest for a period equals the market rate if the interest when debt was purchased multiplied by the outstanding balance of the debt

28

Characteristics of trading securities

Balance sheet reported at FMV
Unrealized gains and losses go to NI
OPerating activities

29

Available for sale

Bs valued at FMV
Unrealized gain loss goes to OCI
INVESTING ACTIVITY

30

Held to maturity

Recorded on BS at amortized cost
Investing activity
If elects Fvo treat as trading security going through NI

31

When an AFS Is sold what do you not record

Anything under the allowance account, you only record a realized gain

32

What classifies am impairment loss

If FV < Carrying Value...then we see if it’s OTT

33

What method do you use for 0-20% ownership

Adjusted Cost Method (you use this if you can't do Fair-Value)

34

What method do you use for 20-50% ownership

Equity method

35

what method do you use over 50% of ownership

consilidation

36

What entries do you make under Equity method

Intitial investment
% of income through D: Inv. and C: Equity account
% of dividends through D: Cash C:Inv.
Need to record depr. Amort or GW by D: Equity and C: Investment (if applicable)

37

What entries do you make under adjusted cost method

Initial Investment
No entry for % of earnings
% of cash Div through D: Cash and C: Div. revenue
No entry for amort,goodwill,depr

38

What happens to the carrying value if their is a discount

it increases along with interest over time

39

what happens to the carrying value if their is a premium

it decreases along with interest over time

40

What is the JE for early retirement evertime

D: BP (Face)
D: Prem (unamortized amount)
D: Loss (Plug)
C:BIC (unamortized)
C: Discount (unamortized)
C: Cash (Given)
C: Gain (plug)

41

What is a characteristic of a debenture bond

They are unsecured

42

What is a characteristic of a serial bond

they are due on a set date every year

43

What is the Je for a detachable warrant at issuance

D: Cash
D: Discount
C: BP
C: APIC-Warrant

44

how do you go about finding the PV of a bond

The stated rate will tell us how much money were gone get. Multiply the stated by face to get interest and then use the effective rate to find proper value in PV and PVOA table, then multiply by face and interest amount .

45

Through rates how do we know a bond is issued at a discount

Market rate is greater than the stated rate

46

How would yo set up an amortization table for a discount (Premium)

Date, Cash interest (statedxface),Effective interest (effective x outstanding balance.), increase (decrease) in balance, outstanding balance

47

For a HTM security, how would you record a credit loss and a non credit loss

Credit loss:
Debit: OTT Impairment Loss-NI
Credit: Discount on Bond investment

Non Credit:
Debit: OTT Impairment loss OCI
Credit: Fair Value Adj.

48

For a trading security, how would you record OTT

TS are already marked down to market value so do:
Debit: Unrealized Holding loss-NI
Credit: FVA

then adjust fair value
Debit: FVA
Credit: Unrealized Holding gain on TS-NI

49

For a AFS, how would you record a credit loss and a non credit loss

credit loss:
Debit: OTT Impairment loss-NI
Credit: Discount on BP

non credit loss:
Debit: OTT impairment loss-OCI
Credit: Fair value non-credit loss

50

what are the criteria for OTT

1. intends to sell the investment
2. more likely than not that they will sell the investment prior to fair value recovery
3. there has been a credit loss