30 quest unsure
Bard Co., a calendar-year corporation, reported income before income tax expense of $10,000 and income tax expense of $1,500 in its interim income statement for the first quarter of the year. Bard had income before income tax expense of $20,000 for the second quarter and an estimated effective annual rate of 25%. What amount should Bard report as income tax expense in its interim income statement for the second quarter?
Interim period tax expense equals the estimated annual effective tax rate, times year-to-date "ordinary income," minus the tax expense recognized in previous interim periods. Accordingly, the income tax expense reported in the interim income statement for the second quarter is calculated as follows: First quarter pre-tax income $10,000 Second quarter pre-tax income 20,000 Total year-to-date income $30,000 Times: estimated effective annual tax rate 25% Total tax expense $ 7,500 Minus: income tax expense for first quarter (1,500) Income tax expense for second quarter $ 6,000
According to the FASB's conceptual framework, noncurrent payables are usually measured and reported at
Present value is in theory the most relevant method of measurement because it incorporates time value of money concepts. In practice, it is used only for noncurrent receivables and payables. Determination of the present value of an asset or liability requires discounting at an appropriate interest rate the related future cash flows expected to occur in the due course of business.
The weighted-average method
determines an average cost only once (at the end of the period) and is therefore applicable only to a periodic system.
The moving-average method
requires determination of a new weighted-average cost after each purchase and thus applies only to a perpetual system.
On December 1, Year 1, Shine Co. agreed to sell an operating segment on March 1, Year 2. As a result, the segment qualified as a component of an entity classified as held for sale. This operating segment represents a major geographical area. Throughout Year 1, the segment had operating losses that were expected to continue until its disposition. However, the gain on disposal was expected to exceed the operating segment's total operating losses in Year 1 and Year 2. The amount of estimated net gain from disposal recognized in discontinued operations in Year 1 equals
A component of an entity, e.g., an operating segment, reporting unit, subsidiary, or asset group, may be disposed of or classified as held for sale. Thus, the gain on disposal will be recognized when it occurs in Year 2.
In Year 1, Cobb adopted the dollar-value LIFO inventory method. At that time, Cobb's ending inventory had a base-year cost and an end-of-year cost of $300,000. In Year 2, the ending inventory had a $400,000 base-year cost and a $440,000 end-of-year cost. What dollar-value LIFO inventory cost would be reported in Cobb's December 31, Year 2, balance sheet?
A price index for the current year may be calculated by dividing the ending inventory at current-year cost by the ending inventory at base-year cost. This index is then applied to the current-year inventory layer stated at base-year cost. Consequently, the index for Year 2 is 1.1 ($440,000 ÷ $400,000), and the dollar-value LIFO cost at December 31, Year 2, is $410,000 [$300,000 base layer + 1.1 ($400,000 - $300,000) Year 2 layer].
On November 1, Year 1, Iba Co. entered into a contract with a customer to sell 150 machines for $75 each. The customer obtains control of the machines at contract inception. Iba's cost of each machine is $45. Iba allows the customer to return any unused machine within 1 year from the sale date and receive a full refund. Iba uses the expected value method to estimate the variable consideration. Based on Iba's experience and other relevant factors, it reasonably estimates that a total of 20 machines (12 machines in Year 1 and 8 machines in Year 2) will be returned. Iba estimates that (1) the machines are expected to be returned in salable condition and (2) the costs of recovering the machines will be immaterial. During Year 1, 10 machines were returned. At the end of Year 1, Iba continues to estimate that a total of 20 machines will be returned within 1 year from the sale date. Question: 14 What amount of an asset for the right to recover machines from customers will be reported in Iba's December 31, Year 1, balance sheet?
An asset for the entity's right to recover products from the customer must be recognized. This asset is measured after determining the refund liability. It must be presented separately from inventory. The asset is measured at the former carrying amount of inventory minus any expected costs to recover the goods. Accordingly, in its December 31, Year 1, balance sheet, Iba reports a refund asset of $450 [($45 carrying amount per machine × 10 machines expected to be returned in Year 2) - $0 recovery cost].
Peters Corp.'s capital structure was as follows: December 31 Year 7 Year 8 Outstanding shares of stock: Common 100,000 100,000 Convertible preferred 10,000 10,000 9% convertible bonds $1,000,000 $1,000,000 During Year 8, Peters paid dividends of $3.00 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock, and the 9% bonds are convertible into 30,000 shares of common stock. Assume that the income tax rate is 30%. If net income for Year 8 is $350,000, Peters should report DEPS as
Answer (C) is correct. Potential common stock is included in the calculation of DEPS if it is dilutive. When two or more issues of potential common stock are outstanding, each issue is considered separately in sequence from the most to the least dilutive. This procedure is necessary because a convertible security may be dilutive on its own but antidilutive when included with other potential common shares in the calculation of DEPS. The incremental effect on EPS determines the degree of dilution. The lower the incremental effect, the more dilutive. The incremental effect of the convertible preferred stock is $1.50 [($3 preferred dividend × 10,000) ÷ 20,000 potential common shares]. The numerator effect of the conversion of the bonds is $63,000 [$1,000,000 × 9% × (1.0 - .30 tax rate)]. The incremental effect of the convertible debt is $2.10 ($63,000 ÷ 30,000 potential common shares). Because the $1.50 incremental effect of the convertible preferred is lower, it is the more dilutive, and its incremental effect is compared with the BEPS amount, which equals $3.20 [($350,000 - $30,000) ÷ 100,000]. Because $1.50 is lower than $3.20, the convertible preferred is dilutive and is included in a trial calculation of DEPS. The result is $2.92 [($350,000 - $30,000 + $30,000) ÷ (100,000 + 20,000)]. However, the $2.10 incremental effect of the convertible debt is lower than the $2.92 trial calculation, so the convertible debt is also dilutive and should be included in the calculation of DEPS. Thus, the DEPS amount is $2.75 as indicated below. $350,000-$30,000+$30,000+$63,000/100,000 +20,000 +30,000
South Co. purchased a machine that was installed and placed in service on January 1, Year 1, at a cost of $240,000. Salvage value was estimated at $40,000. The machine is being depreciated over 10 years by the double-declining-balance (DDB) method. For the year ended December 31, Year 2, what amount should South report as depreciation expense?
DDB is an accelerated depreciation method that determines periodic depreciation expense by multiplying the carrying amount at the beginning of each period by a constant rate that is equal to twice the straight-line rate of depreciation. Because this machine has a 10-year useful life, the straight-line rate is 10% (100% ÷ 10 years), and the DDB rate is 20% (10% × 2). Each year the carrying amount of the asset decreases by the depreciation expense recognized. Salvage value is ignored in determining the carrying amount except as a floor beneath which the asset may not be depreciated. The carrying amount at the end of the first year was $192,000 [$240,000 cost × (100% - 20%)]. Thus, second-year depreciation is $38,400 ($192,000 × 20%).
Earnings per share disclosures are required for
Guidance for presentation of earnings per share applies to entities with publicly traded common stock or potential common stock. It also applies to those that have filed or are in the process of filing with a regulatory body in preparation for issuing such securities. Furthermore, if EPS data are presented by nonpublic entities, they must comply with such guidance. EPS disclosures are therefore required only for public companies.
Under ASC 606, which of the following methods, if any, are acceptable for estimating the amount of variable consideration in contracts with customers? Adjusted Market Assessment Minimum Amount in the Range of Possible Amounts
The amount of variable consideration must be estimated by applying consistently throughout the contract period one of two methods: (1) expected value or (2) most likely amount. The expected value method may provide an appropriate estimate if an entity has a large number of contracts with similar characteristics. The expected value is the sum of probability-weighted amounts in the range of possible consideration amounts. The most likely amount method may provide an appropriate estimate if the contract has only two possible outcomes. The most likely amount is the single most likely amount in a range of possible consideration amounts.
Costs that can be reasonably associated with specific revenues but not with specific products should be
The expense recognition principle of associating cause and effect (matching) applies when a direct cause-and-effect relationship can be demonstrated between costs and particular revenues. A typical example of expenses recognized by the association of cause and effect is cost of goods sold that is recognized in the periods in which the related revenue is recognized. Association of costs with revenues also can be applied to services. Association of costs with specific products is not necessary.
Ian Co. is calculating earnings per share amounts for inclusion in the Ian's annual report to shareholders. Ian has obtained the following information from the controller's office as well as shareholder services: Net income from Jan 1 to Dec 31 $125,000 Number of outstanding shares: Jan 1 to March 31 15,000 April 1 to May 31 12,500 June 1 to Dec 31 17,000 In addition, Ian has issued 10,000 incentive share options with an exercise price of $30 to its employees and an average market price for the year of $25 per share. What amount is Ian's diluted earnings per share for the year ended December 31?
The numerator of diluted earnings per share (DEPS) is equal to the basic earnings per share (BEPS) numerator plus the effect of dilutive potential common stock (PCS). This amount is divided by the BEPS denominator plus the effect of dilutive PCS. The BEPS numerator is equal to net income available to common shareholders, or $125,000. The BEPS denominator is the weighted-average number of shares outstanding. It equals 15,750 {[15,000 × (3 ÷ 12)] + [12,500 × (2 ÷ 12)] + [17,000 × (7 ÷ 12)]}. Share options are considered to be dilutive if the average market price for the period exceeds the exercise price. Thus, because the average market price of $25 is less than the exercise price of $30, these options are antidilutive. Given that no dilutive PCS exists, DEPS equals BEPS of $7.94 ($125,000 ÷ 15,750).
The following information relates to a company's year-end inventory: Inventory cost $910 Selling price of inventory $1,000 Normal profit margin 10% of selling price Current replacement cost $740 Cost of completion and disposal $100 Under IFRS, what is the company's year-end inventory balance?
Under IFRS, inventories are measured at the lower of cost or net realizable value (NRV). NRV is the estimated selling price less the estimated costs of completion and disposal. The inventory cost is $910. The NRV is $900 ($1,000 - $100). The lower of the two is $900. Therefore, the company's year-end inventory balance is $900 under IFRS.
When revenue from contracts with customers is recognized over time, the progress toward complete satisfaction of a performance obligation may be measured using the
When revenue is recognized over time, the progress toward complete satisfaction of a performance obligation must be measured. This progress must be measured either by the output method or the input method. To determine the appropriate method, an entity must consider the nature of the good or service that it promised to transfer to the customer. The chosen method should measure the entity's performance in transferring control of the promised asset to the customer. The input method recognizes revenue on the basis of (1) the entity's inputs to the satisfaction of the performance obligation relative to (2) the total expected inputs to the satisfaction of that performance obligation. Examples of input methods include (1) resources consumed, (2) labor hours expended, (3) costs incurred, (4) time elapsed, or (5) machine hours used. When an entity's inputs are incurred evenly over time, recognition of revenue on a straight-line basis may be appropriate.
