2/4 Select Financial Statement Accounts (37%)

On November 1 of the current year, Mason Corp. issued $800,000 of its 10-year, 8% term bonds dated October 1 of the current year. The bonds were sold to yield 10%, with total proceeds of $700,000 plus accrued interest. Interest is paid every April 1 and October 1. What amount should Mason report for interest payable in its December 31 current-year balance sheet? $17,500 $16,000 $11,667 $10,667

$16,000 $800,000 × 0.08 × 3/12 = $16,000 Even though the bonds have only been outstanding for two months (November and December) by the end of the year, nevertheless, the bonds pay interest on October and, in this case, owe the interest to be paid starting to accrue from October (the interest payment date). Thus, the interest payable up until the end of December for the year is based on the face amount ($800,000), the stated interest rate (8%), and the time from the October 1 payment date until the end of December. Thus, the interest payable at the end of the year is $16,000:

On December 30, Devlin Co. sold goods to Jensen Co. for $10,000, under an arrangement in which (1) Jensen has an unlimited right of return and (2) Jensen's obligation to pay Devlin is contingent upon Jensen's reselling the goods. Past experience has shown that Jensen ordinarily resells 60% of goods and returns the other 40%. What amount should Devlin include in sales revenue for this transaction on its December 31 income statement? $4,000 $10,000 $0 $6,000

$0 This arrangement is not substantially different from a consignment. Devlin does not meet the requirements for a sale until Jensen has sold the goods.

Troop Co. frequently borrows from the bank to maintain sufficient operating cash. The following loans were at a 12% interest rate, with interest payable at maturity. Troop repaid each loan on its scheduled maturity date. Date of Maturity Term of Loan Amount Date Loan 11/01/X1 $10,000 10/31/X2 1 year 02/01/X2 30,000 07/31/X2 6 months 05/01/X2 16,000 01/31/X3 9 months Troop records interest expense when the loans are repaid. Accordingly, interest expense of $3,000 was recorded in 20X2. If no correction is made, by what amount would 20X2 interest expense be understated? $1,080 $1,240 $1,280 $1,440

$1,080 Total interest expense recorded when paid with 12% interest: $10,000 x .12 x 1 year = $1,200 (1 year of interest paid for11/1/X1 to 10/31/X2)$30,000 x .12 x 1/2 year = 1,800 (1/2 year from 2/1/X2 to 7/31/X2)Total interest paid/expensed $3,000====== Total interest accrued: $10,000 x .12 x 10/12 year = $1,000 (10/12 year from 1/1/X2 to 10/31/X2)$30,000 x .12 x 6/12 year = 1,800 (6/12 year from 2/1/X2 to 7/31/X2)$16,000 x .12 x 8/12 year = 1,280 (8/12 year from 5/1/X2 to 12/31/X2)Total interest accrued = $4,080====== Interest must be recognized as it is accrued, not when it is paid. Therefore: Interest accrued $4,080Interest paid (3,000)Understated interest $1,080

On January 2 of the current year, Otto Co. purchased 40% of Penn Co.'s outstanding common stock. The carrying amount of Penn's depreciable assets was $1,000,000 on January 2. Penn's depreciable assets had an original useful life of 10 years, and a remaining useful life of 5 years. Otto recognized $8,000 amortization for the current year ending December 31 related to its investment in Penn due to the excess of fair value over book value on these assets. What was the fair value of Penn's depreciable assets on January 2 of the current year? $900,000 $1,000,000 $100,000 $1,100,000

$1,100,000 8000 amortization

In Year 2, Ajax, Inc., reported taxable income of $400,000 and pretax financial statement income of $300,000. The difference resulted from $60,000 of nondeductible premiums on Ajax's officers' life insurance and $40,000 of rental income received in advance. Rental income is taxable when received. Ajax's effective tax rate is 30%. In its Year 2 income statement, what amount should Ajax report as income tax expense—current portion? $90,000 $102,000 $108,000 $120,000

$120,000 Income tax expense—current is the tax currently payable ($400,000 × 0.30 = $120,000). Journal Entry: Tax expense-current 120,000 Tax payable 120,000

Asp Co. was organized on January 2, 20X1, with 30,000 authorized shares of $10 par common stock. During 20X1 the corporation had the following capital transactions: January 5: issued 20,000 shares at $15 per share. July 14: purchased 5,000 shares at $17 per share. December 27: reissued the 5,000 shares held in treasury at $20 per share. Asp used the par value method to record the purchase and re-issuance of the treasury shares. In its December 31, 20X1, balance sheet, what amount should Asp report as additional paid-in capital in excess of par? $150,000 $140,000 $125,000 $100,000

$125,000 jan 5 cash (20k*15) = 300,000 Cr. APIC (20k*(15-10)) = 100,000 Cr. CS (20k*$10) = 200,000 july 14 Dr. Treasury stock (5k*10) = 50,000 Dr. APIC (5k*(15-10) = 25,000 Dr. Retained Earnings (5000*(17-15)) = 10,000 Cr. Cash (5k * 17) = 85,000 Dec 27 Dr. Cash (5k*20) = 100,000 Cr. APIC (5000*(20-10) = 50,000 Cr. Treasury stock (5000*10) = 50,000 balance of APIC = 100k - 25k + 50k = 125k. * (5,000 shares / 20,000 shares) x $100,000 = 25% x $100,000 = $25,000 OR* 5,000 shares x ($15 original issue price per share - $10 par value share) = $25,000

Leer Corp.'s pretax income in the current year was $100,000. The temporary differences between amounts reported in the financial statements and the tax return are as follows: Depreciation in the financial statements was $8,000 more than tax depreciation. The equity method of accounting resulted in financial statement income of $35,000. A $25,000 dividend was received during the year, which is eligible for the 65% dividends-received deduction. Leer's effective income tax rate was 20%. In its current-year income statement, Leer should report a current provision for income taxes of: $23,350. $17,850. $16,350. $21,900.

$16,350. 100,000 + 8000 - 35000 = 73000. pretax depreciation + higher deprec than tax deprec - 35000 equity method income = 73,000. 25000*(1-0.65) dividends that are taxable = 8750. 73000+8750 = 81750 total taxable income. 81750 *0.20 tax rate = 16350.

On January 1 of the current year, Lundy Corp. purchased 40% of the voting common stock of Glen, Inc., and appropriately accounts for its investment by the equity method. During the year, Glen reported earnings of $225,000 and paid dividends of $75,000. Lundy assumes that all of Glen's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 30%. Ignore the dividends-received deduction. Lundy's current enacted income tax rate is 25%. Lundy uses the liability method to account for temporary differences and expects to have taxable income in all future periods. The increase in Lundy's deferred income tax liability for this temporary difference is: $37,500. $27,000. $18,000. $45,000.

$18,000. When applying the equity method to an investment for financial accounting purposes, the income earned by the company partially owned is recognized by the owning investing company on its own books. Lundy has financial accounting income of 225000 earnings* 40% = $90,000, and this income is not recognized for tax purposes until received in dividends later on. Of course, Lundy did receive some dividends already, (75000*40%) = 30,000. Thus, 60,000 of deferred income for tax purposes will generate a future tax due, a deferred tax liability now of 18,000 (60,000 x the future tax rate of 30%). All deferred tax liabilities and deferred tax assets are classified on the balance sheet as noncurrent.

A company manufactured 1,000 units of product during the year and sold 800 units. Costs incurred during the current year are as follows: Direct materials and direct labor $7,000 Indirect materials and indirect labor 2,000 Insurance on manufacturing equipment 3,000 Advertising 1,000 What amount should be reported as inventory in the company's year-end balance sheet? $1,400 $2,600 $2,400 $1,800

$2,400 exclude advertising costs, they're expensed as incurred. The work-in-process and finished-goods inventories of a manufacturing concern include the applicable direct and indirect materials and labor costs and a representative share of the manufacturing overhead costs (which would include insurance on manufacturing equipment). Inventory cost should not include any general and administrative expenses such as advertising. Total costs incurred related to the manufacturing of inventory is $12,000 ($7,000 + $2,000 + $3,000). The $1,000 in advertising costs is expensed as incurred and is not capitalized to inventory. There were 1,000 units produced and 800 units sold, so 200 units remain in inventory at a cost of $2,400 ($12,000 total inventory × 200/1,000 units). Note that because no cost assumptions (i.e., LIFO, FIFO, weighted average) were provided, we can assume that all inventory was manufactured at the same cost.

On July 1, Year 1, Pell Co. purchased Green Corp. 10-year, 8% bonds with a face amount of $500,000 for $420,000. The bonds mature on June 30, Year 9, and pay interest semiannually on June 30 and December 31. Using the interest method, Pell recorded bond discount amortization of $1,800 for the six months ended December 31, Year 1. From this long-term investment, Pell should report Year 1 revenue of: $20,000. $18,200. $21,800. $16,800.

$21,800. If bonds are purchased at a discount, then the discount is immediately recorded as a credit in the acquiring corporation's books. As the discount is amortized, it is thus debited, to decrease it. When cash is received as interest, the additional debit to amortize the discount adds to the debit to cash to increase the total credit to recognized revenue. 500k x8% x 6/12 (semiannually) + 1800 discount amortized.= 21,800.

Pine Limited owns a 15% royalty interest in a natural gas well. Pine receives royalty payments on January 31 for the gas sold between the previous June 1 and November 30, and on July 31 for oil sold between the previous December 1 and May 31. Production reports show the following oil sales: May 1, 20X7-October 31, 20X7 $650,000 November 1, 20X7-December 31, 20X7 124,000 November 1, 20X7-April 30, 20X8 730,000 May 1, 20X8-October 31, 20X8 718,000 November 1, 20X8-December 31, 20X8 137,000 What amount should Pine report as royalty revenue for 20X8? $198,600 $217,200 $219,150 $237,750

$219,150 In this question, one needs to convert from cash receipts to accrual earnings. Compute the amount of earnings properly allocable to 20x8, and then compute the percentage. Revenue for Jan 1-Apr30 = 730k-124k = 606k. + revenue for May 1-Oct 31 = 718k. + revenue for Nov 1 - Dec 31 = 137k. = 1,461,000 x 15% = 219,150

On December 31, 20X1, Kale Co. had the following balances in the accounts it maintains at First State Bank: Checking account 101 $175,000 Checking account 201 (10,000) Money market account 25,000 90-day certificate of deposit due February 28, 20X2 50,000 180-day certificate of depositdue March 15, 20X2 80,000 Kale classifies investments with original maturities of three months or less as cash equivalents. On the December 31, 20X1, balance sheet, what amount should Kale report as cash and cash equivalents? $200,000 $320,000 $190,000 $240,000

$240,000 you can net the checking accounts. 175 - 10 +25 + 50 = 240k. money market acct is considered cash. The 180-day (6-month) certificate of deposit would not be included in cash and cash equivalents because its original maturity is more than three months. Accounts with the same bank can be netted.

Mare Co.'s December 31, 20X1, balance sheet reported the following current assets: Cash $ 70,000Accounts receivable 120,000Inventories 60,000Total $250,000 An analysis of the accounts disclosed that accounts receivable consisted of the following: Trade accounts $ 96,000 Allowance for uncollectible accounts (2,000) Selling price of Mare's unsold goods out on consignment at 130% of cost, not included in Mare's ending inventory 26,000 Total $120,000 On December 31, 20X1, the total of Mare's current assets is: $224,000. $230,000. $244,000. $270,000.

$244,000. selling price of Mare's unsold goods out on consignment at 130% of cost, not included in Mare's ending inventory = 26,000. This 26000 selling price would reduce the a/r balance to 94000. (120k-26k). 26000/1.30 (130% of cost) = 20,000. cost of cosigned goods. add this 20k to inventories. 70k cash + a/r 94k +80k = 244,000.

Lake Construction Company recognizes contract revenue over time, based on cost to date versus total estimated cost. During Year 1, Lake Construction Company entered into a fixed-price contract to construct an office building for $10,000,000. Revenue is recognized over time. Information relating to the contract is as follows: At December 31 Year 1 Year 2 Percent complete 20% 60% Estimated total cost at completion $7,500,000 $8,000,000 Income recognized (cumulative) 500,000 1,200,000 Contract costs incurred during Year 2 were: $3,200,000. $3,300,000. $3,500,000. $4,800,000.

$3,300,000. yr 1 = 20%*7500000 = 1.5 mil yr 2 = 60%*8000000 = 4.8 mil 4.8 mil - 1.5 mil = 3.3 mil At the end of Year 1, the company was 20% finished with a project costing $7,500,000 total, so they must have already expended $1,500,000 (0.20 × 7,500,000). By the end of Year 2, the company was 60% done with a total estimate of $8,000,000 cost, so by the end of the year, the total costs expended so far must have been $4,800,000 (0.60 × $8,000,000). During Year 2, the additional costs to go from $1,500,000 total cost to $4,800,000 total cost must have been expended, for a total year 2 cost of $3,300,000 ($4,800,000 - $1,500,000).

Coriander Corporation acquired assets subject to unconditional retirement obligations measured at undiscounted cash flow estimates of $237,000 and discounted cash flow estimates of $153,000. Coriander reported a total asset retirement obligation of $196,000 in last year's financial statements. Coriander paid $102,000 toward the settlement of previously recorded asset retirement obligations and recorded an accretion expense of $61,000. What amount should Coriander report for the asset retirement obligation in this year's balance sheet? $563,000 $349,000 $308,000 $257,000

$308,000 An asset retirement obligation (ARO) refers to an obligation associated with the retirement of a tangible, long-lived asset, such as a nuclear power plant. An entity should originally recognize the fair value of an ARO in the period in which it is incurred if a reasonable estimate of fair value can be made. The amount is $308,000, computed as follows: Total obligation $196,000 Add: Discounted cash flow 153,000* Accretion expense 61,000 Deduct: Payment (102,000) $308,000======== * The original undiscounted cash flow of $237,000 should be adjusted to the discounted cash flows estimate.

Alton Co. had a cash balance of $32,300 recorded in its general ledger at the end of the month, prior to receiving its bank statement. Reconciliation of the bank statement reveals the following information: Bank service charge: $15 Check deposited and returned for insufficient funds check: $120 Deposit recorded in the general ledger as $258 but should be $285 Checks outstanding: $1,800 After reconciling its bank statement, what amount should Alton report as its cash account balance? $30,338 $30,392 $32,138 $32,192

$32,192 Alton's cash balance is $32,192, calculated as follows: Balance per books $32,300 Less bank's service charge $ (15) Less NSF check (120) Plus net difference from check error ($285 - $258) 27 (108) = Adjusted book balance $32,192 ** checks outstanding have already been deducted from the book balance of 32,300.

On January 2, 20X1, Smith purchased the net assets of Jones's Cleaning, a sole proprietorship, for $350,000, and commenced operations of Spiffy Cleaning, a sole proprietorship. The assets had a carrying amount of $375,000 and a market value of $360,000. In Spiffy's cash-basis financial statements for the year ending December 31, 20X1, Spiffy reported revenues in excess of expenses of $60,000. Smith's drawings during 20X1 were $20,000. In Spiffy's financial statements, what amount should be reported as Capital-Smith? $390,000 $400,000 $410,000 $415,000

$390,000 Under the cash method of account, revenue is recognized when received in form of cash, and expenses are recognized when paid in cash. The owners' capital account maintains a record of the ownwer's investment and the earnings for the owner, and is lowered by drawings. Capital-Smith balance January 2, 20X1 $350,000 (purchase price not market value) Add: Net income 60,000 Subtotal $410,000 Deduct: Withdrawals (20,000) = Capital-Smith balance December 31, 20X1 $390,000

On December 31 of the previous year, Jason Company adopted the dollar-value LIFO retail inventory method. Inventory data are as follows: LIFO Cost Retail Inventory, 12/31 previous year $360,000 $500,000 Inventory, 12/31 current year -- 660,000 Increase in price level for current year 10% Cost to retail ratio for current year 70% Under the LIFO retail method, Jason's inventory at December 31 of the current year should be: $472,000. $437,000. $462,000. $483,200.

$437,000. 660,000 / 1.10 (1 + 10% inc) = 600,000. 360,000 LIFO cost + (100k x 0.7 x 1.10) = 437,000. When applying the dollar-value LIFO retail method, you need to (as in dollar-value LIFO) restate ending-year retail to base-year prices. Then, This is a $100,000 increase (5000 retail to 600 retail) in the ending-year retail amount over the retail amount at the beginning of the year (in base-year prices). Now, determine the ending inventory using dollar-value LIFO retail directly, by adding to the beginning inventory of $360,000 the new layer of $100,000 multiplied by both the new layer's cost-to-retail percentage and the new layer price level of 1.1: $360,000 + ($100,000 × 0.7 × 1.1) = $437,000

On December 31, 20X1, Byte Co. had capitalized software costs of $600,000 with an economic life of four years. Sales for 20X2 were 10% of expected total sales of the software. At December 31, 20X2, the software had a net realizable value of $480,000. In its December 31, 20X2, balance sheet, what amount should Byte report as net capitalized cost of computer software? $450,000 $480,000 $540,000 $432,000

$450,000 When software costs are capitalized, yearly amortization of these cossts is based on the greater of the ratio of the current sales to expected total sales or the straight-line method over the useful life of the asset (4 years). sales ratio = 10% x 600k = 60,000. straight line = 25% x 600k = 150,000. Since straight-line amortization is larger and is used, the remaining capitalized cost is 600k - 150k = 450k. Since the NRV, 480k, is greater than the 450k, there is no need for additional write-off. FASB ASC 350-40-35-4 states: "Amortization: The costs of computer software developed or obtained for internal use shall be amortized on a straight-line basis unless another systematic and rational basis is more representative of the software's use." FASB ASC 985-20-35-4 states: "Net Realizable Value of Capitalized Software Costs: At each balance sheet date, the unamortized capitalized costs of a computer software product shall be compared to the net realizable value of that product. The amount by which the unamortized capitalized costs of a computer software product exceed the net realizable value of that asset shall be written off." only if NRV is less than amortized cost, do we write down!!!

A company granted its employees 100,000 stock options on January 1, year 1. The stock options had a grant date fair value of $15 per option and a three-year vesting period. On January 1, year 2, the company estimated the fair value of the stock options to be $18 per option. Assuming that the company did not grant any additional options or modify the terms of any existing option grants during year 2, what amount of share-based compensation expense should the company report for the year ended December 31, year 2? $500,000 $600,000 $700,000 $800,000

$500,000 The FASB requires that the fair value method be used for stock options. The fair value method recognizes the cost of consideration received for employee services to be the fair value at the grant date of the stock options ($15). The servicing period is the three-year vesting period. The company should report $500,000 [(100,000 × $15) ÷ 3] of share-based compensation expense for the year ended December 31, year 2.

Lyle, Inc., is preparing its financial statements for the year ending December 31, 20X1. Accounts payable amounted to $360,000 before any necessary year-end adjustment related to the following: On December 31, 20X1, Lyle has a $50,000 debit balance in its accounts payable to Ross, a supplier, resulting from a $50,000 advance payment for goods to be manufactured to Lyle's specifications. Checks in the amount of $100,000 were written to vendors and recorded on December 29, 20X1. The checks were mailed on January 5, 20X2. What amount should Lyle report as accounts payable in its December 31, 20X1, balance sheet? $510,000 $410,000 $310,000 $210,000

$510,000 Unadjusted Dec 31 a/p = 360,000. + debit balance in Ross a/c (need to reclassify as a prepaid asset) +50,000 +100,000 checks recorded but not yet mailed = 510,000. adjusted a/p balance to be reported on Dec 31, 20x1.

Dodd Corp. is preparing its December 31 current-year financial statements and must determine the proper accounting treatment for the following situations: For the current year ended December 31, Dodd has a loss carryforward of $180,000 available to offset future taxable income. However, there are no temporary differences. Based on an analysis of both positive and negative evidence, Dodd has reason to believe it is more likely than not that the benefits of the entire loss carryforward will be realized within the carryforward period. On 12/31 of this year, Dodd received a $200,000 offer for its patent. Dodd's management is considering whether to sell the patent. The offer expires on 2/28 of next year. The patent has a carrying amount of $100,000 at 12/31. Assume a current and future income tax rate of 30%. In its current-year income statement, Dodd should recognize an increase in net income of: $0. $54,000. $70,000. $124,000.

$54,000. Deferred tax assets are measured by the total temporary differences x tax rates in effect when the tax differences unwind. The loss carryforward is recognized as a deferred tax asset at the total future deductible amount multiplied by the future tax rate that will be available for the later tax deductions. All deferred tax liabilities and deferred tax assets are classified on the balance sheet as noncurrent. Thus, the deferred tax asset is a tax benefit (lowering of this year's income tax expense) and will increase net income by the total amount of the expected benefit amount of $54,000 ($180,000 deduction × 0.30 (the future tax rate of 30%)). The other gain is not recognized until the sale is finalized and agreed to by both parties.

Garcel, Inc. held unfinished inventory at a cost of $85,000 with a sales value of $125,000. The inventory will cost $10,500 to complete. The normal profit margin is 30% of sales. The replacement cost of the inventory was $75,000. What amount should Garcel report (accounted for under the LIFO method) as inventory on balance sheet? $114,500 $75,000 $85,000 $77,000

$77,000 NRV (ceiling) = 125k sales value - 10.5k to complete = 114,500. Replacement cost = 75,000. NRV - normal profit margin (floor) = 114,500 NRV - (30%*125,000 sales value) = 77,000. market value will be the replacement cost unless replacement cost > net realizable value (NRV) (estimated selling price less costs of completion and disposal), in which case market will be net realizable value (the ceiling); OR replacement cost is less than net realizable value reduced by a normal profit margin (the floor), in which case market will be the floor. NRV (ceiling) $125,000 - $10,500 = $114,500Replacement cost = $ 75,000NRV - Normal profit (floor) $114,500 - (30% × $125,000) = $ 77,000 Garcel should report inventory at $77,000, the lower of cost or market. (Note: market cannot be less than the floor value of $77,000.)

Ott Company acquired rights to a patent from Grey under a licensing agreement that required an advance royalty payment when the agreement was signed. Ott remits royalties earned and due, under the agreement, on October 31 each year. Additionally, on the same date, Ott pays, in advance, estimated royalties for the next year. Ott adjusts prepaid royalties at year-end. Information for the current year ended December 31 is as follows: Date Amount 01/01 Prepaid royalties $ 65,000 10/31 Royalty payment (charged to royalty expense) 110,000 12/31 Year-end credit adjustment to royalty expense 25,000 In its December 31 balance sheet, Ott should report prepaid royalties of: $25,000. $40,000. $85,000. $90,000.

$90,000. prepaid royalities = 65k + 25k = 90k ending balance of prepaid royalties. Here one needs to convert from the cash method to the accrual method as to the deferred amount of royalty expenses. The royalty payment was charged to (added to) royalty expense, but there was also a year-end credit adjustment downwards to royalty expense. The only reasonable debit to the year-end credit to royalty expense would be to debit (add to) prepaid royalties, as this could only be deferred (not properly accrued this year) royalty expenses.

The following financial ratios and calculations were based on information from Kohl Co.'s financial statements for the current year: Accounts receivable turnover10 times during the year Total assets turnover 2 times during the year Average receivables during the year$200,000 What was Kohl's average total assets for the year? $1,000,000 $2,000,000 $200,000 $400,000

1,000,000 we know that x/200k (avg receivables) = net credit sales. so, 200k x 10 = 2 mil net credit sales. 2 mil net credit sales / 2 = 1 mil total assets. total asset turnover is the multiple of total assets to get sales. Since the total asset turnover is 2, the sales were twice the level of total assets making 2 the divisor.

NRV is defined to be the estimated ____ price in the ordinary course of business - reasonably predictable costs of _____, disposal, transportation.

selling completion

On December 31, 20X1, Roth Co. issued a $10,000 face value note payable to Wake Co. in exchange for services rendered to Roth. The note, made at usual trade terms, is due in 9 months and bears interest, payable at maturity, at the annual rate of 3%. The market interest rate is 8%. The compound interest factor of $1 due in 9 months at 8% is .944. At what amount should the note payable be reported in Roth's December 31, 20X1, balance sheet? $9,652 $9,440 $10,000 $10,300

10,000 The Roth Co. note is due in 9 months. FASB ASC (Interest on Receivables and Payables) does not require any special treatment for notes maturing in less than one year. Wake Co. should report the Roth Co. note as its face amount, 10,000.

On December 31, 20X1, Roth Co. issued a $10,000 face value note payable to Wake Co. in exchange for services rendered to Roth. The note, made at usual trade terms, is due in 9 months and bears interest, payable at maturity, at the annual rate of 3%. The market interest rate is 8%. The compound interest factor of $1 due in 9 months at 8% is .944. At what amount should the note payable be reported in Roth's December 31, 20X1, balance sheet? $9,440 $9,652 $10,300 $10,000

10,000. maturity less than 1 year is reported at fair value.

The following condensed balance sheet is presented for the partnership of Smith and Jones, who share profits and losses in the ratio of 60:40, respectively: Other assets $450,000 Smith (loan) 20,000 $470,000======== Accounts payable $120,000 Smith (capital) 195,000 Jones (capital) 155,000$470,000======== The partners have decided to liquidate the partnership. If the other assets are sold for $385,000, what amount of the available cash should be distributed to Smith? $195,000 $136,000 $156,000 $159,000

136,000 470k - 20k loan = 450k. - 385k = 65k loss on sale. allocate the 65k. 60% x 65k = 39k. 40% x 65k = 26k. so, smith capital = 195k - 39k loss allocation - 20k loan = 136k.

In Year 1, Lobo Corp. reported for financial statement purposes the following revenue and expenses that were not included in taxable income: Premiums on officers' life insurance under which the corporation is the beneficiary $ 5,000 Interest revenue on qualified state or municipal bonds 10,000 Depreciation deducted for income tax purposes in excess on depreciation reported for financial statement purposes 10,000 Estimated future warranty costs to be paid in Year 2 and Year 3 60,000 Lobo's enacted tax rate for the current and future years is 30%. Lobo expects to operate profitably in the future. There were no temporary differences in prior years. The deferred tax benefit is: $18,000. $19,500. $21,000. $22,500.

18000 60000 estimated future warranty costs x 30% tax rate for current and future years. Deferred tax benefits only come about from temp differences, like depreciation and warranty costs. All deferred tax assets and liabilities are classified as noncurrent, and apply to both financial accounting and to tax accounting, but are taken at different times for each. The other items are only taken into account in financial accounting, and are not income or expense items for taxes. When depreciation for tax purposes is in excess of depreciation for financial accounting, then it will not give rise to a benefit, but instead to a liability. This leaves only the warranty costs, which do give rise to a deferred tax benefit, since the warranty costs will defer to future years' additional tax deductions. The way to measure the deferred tax benefit is by multiplying the estimated warranty costs by the future tax rate of 30%: $60,000 × 0.30 = $18,000

Selected data pertaining to Lore Co. for the calendar year is as follows: Net cash sales $ 3,000 Cost of goods sold 18,000 Inventory at beginning of year 6,000 Purchases 24,000 Accounts receivable at beginning of year 20,000 Accounts receivable at end of year 22,000 What was the inventory turnover for the year? 2.0 times 1.5 times 1.2 times 3.0 times

2.0 times need to have beg inventory, ending inventory, COGS, average inventory. to get ending inventory = beg inventory = purchases - COGS to get avg inventory = beg inv + end invent ) /2 = 9000. cogs = 18000 / aveg inv =9000) = 2 times.

The following pertains to Pell Co.'s construction jobs, which commenced during 20X1: Project 1 Project 2 Contract price $420,000 $300,000 Costs incurred during 20X1 240,000 280,000 Estimated costs to complete 120,000 40,000 Billed to customers during 20X1 150,000 270,000 Received from customers during 20X1 90,000 250,000 If Pell recognizes revenue over time based on cost incurred to total cost, what amount of gross profit (loss) would Pell report in its 20X1 income statement? $20,000 $22,500 $(20,000) $40,000

20,000 project 1 = 240/240+120 = 2/3 (66%) 420k * 2/3 = 280k. - 240k actual cost incurred = 40k gross profit. project 2= contract price = 300k - (280k+40k) = (20,000) estimated loss. Pells total gross profit loss = 40k from project 1 - (20k) from project 2 = 20k. (we don't do a percentage of loss, we have to recognize the entire loss in project 2). Because Project 2 reflects an anticipated loss, the entire amount of the loss (not the percent completion of loss) must be recognized in accordance with the conservatism principle.

On June 2, 20X1, Tory, Inc., issued $500,000 of 10%, 15-year bonds at par. Interest is payable semi-annually on June 1 and December 1. Bond issue costs were $6,000. On June 2, 20X6, Tory retired half of the bonds at 98. What is the net amount that Tory should use in computing the gain or loss on retirement of debt? $248,000 $248,500 $247,000 $249,000

248000 500k/2 = 250k. bond issue costs related to bonds retired = 1/2 x 6000 = 3000. bond issue cost amortized by 6/2/x6 = 5/15 x 3000 = 1000. 250k - 2k = 248k. bond carrying value prior to retirement.

On January 1 of the current year, Wren Co. leased a building to Brill under an operating lease for 10 years at $50,000 per year, payable the first day of each lease year. Wren paid $15,000 to a real estate broker as a finder's fee. The building is depreciated $12,000 per year. For the year, Wren incurred insurance and property tax expense totaling $9,000. Wren's net rental income for the year should be: $35,000. $29,000. $27,500. $36,500.

27500 50,000-(15k/10yrs = 1500) - 12000-9000 = 27500.

On July 1, one of Rudd Co.'s delivery vans was destroyed in an accident. On that date, the van's carrying amount was $2,500. On July 15, Rudd received and recorded a $700 invoice for a new engine installed in the van in May, and another $500 invoice for various repairs. In August, Rudd received $3,500 under its insurance policy on the van, which it plans to use to replace the van. What amount should Rudd report as gain (loss) on disposal of the van in its year-end income statement? $1,000 $300 $0 $(200)

300 2500 carrying value + 700 new engine = 3200. 3500-3200 = 300 gain. the repairs are not included because they are considered maintenance. the repairs should be EXPENSED not capitalized.

Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash. The following loans were at a 12% interest rate, with interest payable at maturity. Loeb repaid each loan on its scheduled maturity date. Date of Loan Amount Maturity Date Term of Loan 11/01/X1 $ 5,000 10/31/X2 1 Year 02/01/X2 15,000 07/31/X2 6 Months 05/01/X2 8,000 01/31/X3 9 Months Loeb records interest expense when the loans are repaid. As a result, interest expense of $1,500 was recorded in 20X2. If no correction is made, by what amount would 20X2 interest expense be understated? $720 $640 $620 $540

5000 x 12% x 10/12 15000 x 12% x 6/12 8000 x 12% x 8/12 2040 int exp - 1500 = 540 understatement.

Hoyt Corp.'s current balance sheet reports the following stockholders' equity: 5% cumulative preferred stock, par value $100 per share;2,500 shares issued and outstanding $250,000 Common stock, par value $3.50 per share;100,000 shares issued and outstanding 350,000 Additional paid-in capital in excess of par value of common stock 125,000 Retained earnings 300,000 Dividends in arrears on the preferred stock amount to $25,000. If Hoyt were to be liquidated, the preferred stockholders would receive par value plus a premium of $50,000. The book value per share of common stock is: $7.00. $7.50. $7.25. $7.75.

7.00 book value per share = total equity - liquidation value to preferred ) / # of shares of common stock total equity = 250k + 350k CS + 125k + 300k (all of the elements) = 1,025,000. preferred value = par + premiums + dividends in arrears = 250k + 50k + 25k = 325,000. 1,025,000-325,000 ) / 100,000 = $7.00 / share.

The term "tax position" as used by the FASB refers to which of the following? A decision not to file a tax return An allocation or a shift of income between jurisdictions The characterization of income or a decision to exclude reporting taxable income in a tax return All of the answer choices are correct.

All of the answer choices are correct. All of the listed choices are contained in the FASB ASC 740-10-20 definition: "A position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. A tax position can result in a permanent reduction of income taxes payable, a deferral of income taxes otherwise currently payable to future years, or a change in the expected realizability of deferred tax assets. The term tax position also encompasses, but is not limited to: "A decision not to file a tax return "An allocation or a shift of income between jurisdictions "The characterization of income or a decision to exclude reporting taxable income in a tax return "A decision to classify a transaction, entity, or other position in a tax return as tax exempt "An entity's status, including its status as a pass-through entity or a tax-exempt not-for-profit entity."

Cali, Inc., had a $4,000,000 note payable due on March 15 of the current year. On January 28 of the current year, before the issuance of its prior-year financial statements, Cali issued long-term bonds in the amount of $4,500,000. Proceeds from the bonds were used to repay the note when it came due. How should Cali classify the note in its prior-year December 31 financial statements? As a current liability, with separate disclosure of the note refinancing As a current liability, with no separate disclosure required As a noncurrent liability, with separate disclosure of the note refinancing As a noncurrent liability, with no separate disclosure required

As a noncurrent liability, with separate disclosure of the note refinancing When a debt that is due within the next 12 months is refinanced (repaid with the proceeds of a long-term debt) after the balance sheet date, but prior to a balance sheet issuance, the debt that was due in 12 months can be classified as a noncurrent liability, as long as the refinance was intended by management as of the balance sheet date. A disclosure of the details is required in the footnotes to the balance sheet.

Estimates are a necessary part of the preparation of financial statements. It is necessary to explicitly communicate to the users of the financial statements that estimates have been used and that many of the amounts reported are approximations rather than exact amounts. This understanding should help users to make better decisions. Disclosure of certain significant estimates must be made when which of the following conditions are present? It is at least reasonably possible that the estimate of the effect on the financial statements will change in the near term due to one or more future confirming events. The effect of the change would be material. Both of the conditions described must be present. At least one of the conditions described must be present.

Both of the conditions described must be present. Estimates are a necessary part of the preparation of financial statements. It is necessary to explicitly communicate to the users of the financial statements that estimates have been used and that many of the amounts reported are approximations rather than exact amounts. This understanding should help users to make better decisions. (FASB ASC 275-10-05-6) The financial statements must include an explanation that the preparation of the statements requires the use of management's estimates in conformity with GAAP. The statements must also disclose certain significant estimates. (FASB ASC 275-10-50-6) Certain significant estimates are those estimates involving a situation where it is reasonably possible that the estimate will change in the term and the effect of the change will be material. Disclosure of these significant estimates must be made when both of the following conditions are present (FASB ASC 275-10-50-8): It is at least reasonably possible that the estimate of the effect on the financial statements will change in the near term due to one or more future confirming events (reasonably possible is the chance is more than remote but less than likely). The effect of the change would be material.

Generally, which inventory costing method approximates most closely the current cost for each of the following? Cost of goods sold: LIFO; Ending inventory: FIFO Cost of goods sold: LIFO; Ending inventory: LIFO Cost of goods sold: FIFO; Ending inventory: FIFO Cost of goods sold: FIFO; Ending inventory: LIFO

Cost of goods sold: LIFO; Ending inventory: FIFO Because LIFO (last in, first out) counts the most recent purchases as sold items, its cost of goods sold will be closest to current costs. Since FIFO (first in, first out) counts the most recent purchases as still in inventory, the ending inventory under FIFO will be closest to current costs.

A company has 10,000 shares of common stock issued and 2,000 shares of treasury stock. The par value of the stock is $10 per share. On January 1, year 1, the company declared a 5% dividend to be paid in cash on June 30, year 1. What journal entry should the company record on the declaration date? Debit retained earnings for $5,000 and credit dividends payable for $5,000. Debit dividends expense for $5,000 and credit dividends payable for $5,000. Debit retained earnings for $4,000 and credit dividends payable for $4,000. Debit dividends expense for $4,000 and credit dividends payable for $4,000.

Debit retained earnings for $4,000 and credit dividends payable for $4,000. The company only has 8000 shares of stock outstanding (10,000 shares issued - 2000 shares in treasury stock) because treasury stock is considered issued but not outstanding. When the company paus the 5% dividend, it is paid only to shares outstanding. Since the company owns 2000 of the 10,000 shares, it wouldn't make sense to pay a dividend to itself. The value of the dividend is 4000 (8000 shares x $10 par x 5%).

XYZ Corporation pays an insurance premium of $5,000 on a $100,000 whole life policy on the life of its president. The cash surrender value of the policy increases from $22,000 to $25,000 during the period covered. The insured officer dies at the end of the period of coverage. Which of the following would be included in the entry to receipt of the proceeds of the death benefit? Cash is credited for $100,000. Insurance expense is credited for $5,000 Cash Surrender Value of Life Insurance is credited for $100,000. Gain of Life Insurance Coverage is credited for $75,000.

Gain of Life Insurance Coverage is credited for $75,000. At the time of death of an insured officer or employee, a gain would be recognized equal to the excess of the face amount of the policy over the cash surrender value at the time. In this case, the entry would be: Cash 100,000 Cash Surrender Value 25,000 Gain from Proceeds of Life Insurance 75,000

On May 1 of the current year, Marno County issued property tax assessments for the fiscal year ending the following June 30. The first of two equal installments was due on November 1 of this year. On September 1, Dyur Co. purchased a 4-year-old factory in Marno subject to an allowance for accrued taxes. Dyur did not record the entire year's property tax obligation, but instead records tax expenses at the end of each month by adjusting prepaid property taxes or property taxes payable, as appropriate. The recording of the November 1, payment by Dyur should have been allocated between an increase in prepaid property taxes and a decrease in property taxes payable in which of the following percentages? Increase in prepaid property taxes, 33-1/3%; Decrease in property taxes payable, 66-2/3% Increase in prepaid property taxes, 66-2/3%; Decrease in property taxes payable, 33-1/3% Increase in prepaid property taxes, 50%; Decrease in property taxes payable, 50% Increase in prepaid property taxes, 0%; Decrease in property taxes payable, 100%

Increase in prepaid property taxes, 33-1/3%; Decrease in property taxes payable, 66-2/3% The payment of property taxes, when made, will be a payment covering 6 months' accrual. The payment will be made in the middle of the 6-month period covered, and thus some of the expense will have already accrued. The 6 months covered by the payment are July, August, September, October, November and December, and the payment is made on November 1. Thus, the payment is 2/3 (4 out of 6 months) for property tax expenses already accrued and payable (lowering the payable) and 1/3 for expenses yet to accrue (2 out of 6 months, prepaid for November and December).

Goll Co. has a 25% interest in the common stock of Rose Co. and an 18% interest in the common stock of Jave Co. Neither investment gives Goll the ability to exercise significant influence over either company's operating and financial policies. Which of the two investments should Goll account for using the equity method? Jave only Rose only Neither Rose nor Jave Both Rose and Jave

Neither Rose nor Jave only use the equity method if the % ownership gives them the ability to exercise significant influence over either company's operating and financial policies.

On incorporation, Dee, Inc., issued common stock at a price in excess of its par value. No other stock transactions occurred, except treasury stock was acquired for an amount exceeding this issue price. If Dee uses the par value method of accounting for treasury stock appropriate for retired stock, what is the effect of the acquisition on the following? Net common stock: No effect; Additional paid-in capital: Decrease; Retained earnings: No effect Net common stock: Decrease; Additional paid-in capital: No effect; Retained earnings: Decrease Net common stock: Decrease; Additional paid-in capital: Decrease; Retained earnings: Decrease Net common stock: No effect; Additional paid-in capital: Decrease; Retained earnings: Decrease

Net common stock: Decrease; Additional paid-in capital: Decrease; Retained earnings: Decrease Journal entry for acquisition of treasury stock using par value method: Dr. Cr. Treasury stock (common stock) XXX Additional paid-in capital XX Retained earnings X Cr. Cash XXXX The debit to Retained Earnings is for the excess of reacquisition cost over original issue price. Note: Common stock outstanding decreases. Additional paid-in capital decreases. Retained earnings decreases.

Isle Co. owned a copy machine that cost $5,000 and had accumulated depreciation of $2,000. Isle exchanged the copy machine for a computer that cost $4,000. Isle's future cash flows are not expected to change significantly as a result of the exchange. What amount of gain or loss should Isle report and at what amount should it record the asset? No gain or loss in the income statement; $3,000 asset in the balance sheet No gain or loss in the income statement; $4,000 asset in the balance sheet $1,000 gain in the income statement; $3,000 asset in the balance sheet $1,000 gain in the income statement; $4,000 asset in the balance sheet

No gain or loss in the income statement; $3,000 asset in the balance sheet. Normally, in a nonmonetary exchange, the asset received should be recorded at the fair value of the asset surrendered or the fair value of the asset received, whichever is more clearly evident. However, there are three exceptions in which the exchange is recorded at the carryover amount, not fair value. One of those exceptions is for exchange transactions that lack commercial substance, as does the exchange above. Isle should record the new copy machine at the carryover amount of $3,000 and not any gain or loss.

Which of the following statements is correct regarding the provision for income taxes in the financial statements of a sole proprietorship? The provision for income taxes should be based on business income using individual tax rates. The provision for income taxes should be based on business income using corporate tax rates. The provision for income taxes should be based on the proprietor's total taxable income, allocated to the proprietorship at the percentage that business income bears to the proprietor's total income. No provision for income taxes is required.

No provision for income taxes is required. A sole proprietorship business is not a taxable entity. Business income (or loss) is "passed through" to the owner. Therefore, there would be no required provision for income taxes. Instead, the taxes would be paid by the owner on the proprietor's personal tax return.

Must an entity identify immaterial performance obligations and allocate a portion of the transaction price to them? No. An entity only needs to identify material performance obligations in a contract and allocate transaction price to those. Yes. All performance obligations in a contract must be identified, with transaction price allocated to each identified performance obligation. No. An entity needs to identify all performance obligations related to contracts accounted for in a foreign currency but not those accounted for in U.S. dollars. No. Entities can combine all performance obligations into one for revenue recognition purposes if the contract period is for greater than one year.

No. An entity only needs to identify material performance obligations in a contract and allocate transaction price to those. The FASB decided that, for purposes of identifying performance obligation in a contract, an entity would not be required to identify goods or services promised in a contract that are immaterial in the context of the contract.

Peel Co. received a cash dividend from a common stock investment. Peel should report an increase in the investment account if it uses which method of accounting? The cost method The equity method Either the cost method or the equity method None of the answer choices are correct.

None of the answer choices are correct. Under the cost method the receipt of a cash dividend is recorded as income from investments. The investment account remains unchanged. Debit Credit Cost Method Journal Entry: Cash XX Dividend Income XX The receipt of a cash dividend is treated very differently under the equity method. Since income of the investor is recorded by the investor when reported, cash dividends are treated as a reduction in the investment account. Debit Credit Equity Method Journal Entry: Cash XX Investment in XYZ Co. XX Thus, neither method results in an increase in the investment account for a cash dividend received.

On November 1, 20X1, Key Co. paid $3,600 to renew its only insurance policy for three years. On December 31, 20X1, Key's unadjusted trial balance showed a balance of $90 for prepaid insurance and $4,410 for insurance expense. What amounts should be reported for prepaid insurance and insurance expense in Key's December 31, 20X1, financial statements? Prepaid insurance: $3,300; Insurance expense: $1,200 Prepaid insurance: $3,400; Insurance expense: $1,100 Prepaid insurance: $3,490; Insurance expense: $1,010 Prepaid insurance: $3,400; Insurance expense: $1,200

Prepaid insurance: $3,400; Insurance expense: $1,100 3600/36 months = 100 per month x 2 = $200 november and december expense. 3600 prepaid insurance - 200 expense 2 mo. = 3400. Insurance expense on dec 31, 20x1 = total payments for insurance - prepaid insurance balance total payments for insurance = (90 + 4410) - 3400 = 1100. Note: Because the trial balance does not show a prepaid amount for the $3,600, and the $90 amount is too small to relate reasonably to the renewal policy, it can be assumed that the books need to be adjusted to transfer the correct prepaid amount ($3,400) from expense and expense the $90, which likely represents the expired remainder of the old policy.

A company whose stock is trading at $10 per share has 1,000 shares of $1 par common stock outstanding when the board of directors declares a 30% common stock dividend. Which of the following adjustments should be made when recording the stock dividend? Additional paid-in capital is credited for $2,700. Treasury stock is debited for $300. Retained earnings is debited for $300. Common stock is debited for $3,000.

Retained earnings is debited for $300. 300 stock x $1 par = 300fro r/e. When the 30% dividend is issued, 1,000 shares are outstanding. Thus, 30% of 1,000 shares (300 shares) will be issued in the stock dividend. A 30% stock dividend is a large stock dividend that lowers retained earnings only by the par value of the newly issued shares. No additional paid-in capital is recorded, and common stock is credited for 300 × $1 par for $300, and retained earnings is debited by the same amount. The fair value of the stock is not used.

A firm's ending inventory balance was overstated by $1,000. Which of the following statements is correct according to a periodic inventory system? The retained earnings were overstated by $1,000. The cost of goods available for sale was overstated by $1,000. The gross margin was understated by $1,000. The cost of goods sold was overstated by $1,000.

The retained earnings were overstated by $1,000. To solve this question, try using the inventory formula: Cost of goods sold (COGS) = Beginning inventory (BI) + Purchases (P) - Ending inventory (EI) If EI is overstated, then COGS is understated. This results in overstating net income (NI). Since NI closes into retained earnings (RE) at year-end, RE would also be overstated (by $1,000). Cost of goods available for sale (CGAS) is BI + P and would not be affected by the amount in EI.

A corporation issuing stock should charge retained earnings for the market value of the shares issued in: an employee stock bonus. a purchase of a subsidiary. a 10% stock dividend. a 2-for-1 stock split.

a 10% stock dividend. FASB ASC 505-20-30-3 provides that for issuances of additional shares less than 20% or 25%, the issuing corporation should transfer from earned surplus (retained earnings) "an amount equal to the fair value of the additional shares issued." Thus, retained earnings should be charged for an amount equal to the market value of the shares issued in a 10% stock dividend.

A transaction that is unusual in nature or infrequent in occurrence should be reported as: a component of income from continuing operations, net of applicable income taxes. nonoperating income or loss, net of applicable income taxes. a component of income from continuing operations, but not net of applicable income taxes. nonoperating income or loss, but not net of applicable income taxes.

a component of income from continuing operations, but not net of applicable income taxes.

A transaction that is unusual in nature or infrequent in occurrence should be reported as: a component of income from continuing operations, net of applicable income taxes. nonoperating income or loss, net of applicable income taxes. a component of income from continuing operations, but not net of applicable income taxes. nonoperating income or loss, but not net of applicable income taxes.

a component of income from continuing operations, but not net of applicable income taxes. These items should be included in the computation of net income from continuing operations prior to income tax expense.

lack of commercial substance? use carryover ___ value

book

Inventory measured using any method other than LIFO or the retail inventory method (e.g., FIFO or average cost) is measured at the lower of______________

cost and net realizable value (NRV)

no change in monetary gains? the transaction...

does not have commercial substance

Under the deferred method of accounting for deferred income taxes, a credit balance in the deferred income taxes account that appears on the balance sheet (statement of financial position): - does not represent a payable in the usual sense in which the term "payable" is used in financial statements. - indicates that the amount of revenue reported to date for financial reporting purposes is less than the amount of income reported to date for tax purposes. - represents a payable in the usual sense in which the term "payable" is used in financial statements. - indicates that the amount of expense reported to date for financial reporting purposes is greater than the amount of expense reported to date for tax purposes.

does not represent a payable in the usual sense in which the term "payable" is used in financial statements. A credit balance in the deferred income taxes account does not represent a payable in the usual sense in which the term "payable" is used in financial statements. The term "payable" is normally associated with an amount that is owed to an outside party. A credit balance in the deferred income taxes account results from temporary differences between the amount of income or expense reported for tax purposes and that reported for financial statement purposes. A credit balance indicates that either (a) the revenue to-date for financial reporting purposes exceeds the income to-date included in taxable income or (b) the expense to-date for financial reporting purposes is less than the amount of expense to-date included in taxable income. The credit balance in the deferred income taxes account represents the tax expense recognized to-date for financial reporting purposes that is expected to be included in taxable income in future years. However, it does not represent an amount "owed" to the federal government at the balance sheet date. All deferred tax assets or liabilities are classified as long term on the balance sheet.

The original cost of an inventory item accounted for under the LIFO method is below the net realizable value and above the net realizable value less a normal profit margin. The inventory item's replacement cost is below the net realizable value less a normal profit margin. Under the lower of cost or market method, the inventory item should be valued at: original cost. replacement cost. net realizable value. net realizable value less normal profit margin.

net realizable value less normal profit margin. "the floor" cant go below this - replacement cost is below this, so we have to go with NRV - normal profit margin.

The original cost of an inventory item accounted for under the LIFO method is below the net realizable value and above the net realizable value less a normal profit margin. The inventory item's replacement cost is below the net realizable value less a normal profit margin. Under the lower of cost or market method, the inventory item should be valued at: original cost. replacement cost. net realizable value. net realizable value less normal profit margin.

net realizable value less normal profit margin. In this problem, replacement cost is below the floor; therefore, net realizable value less a normal profit margin is the measure of market value. The cost is higher than this measure. Therefore, under the lower of cost or market concept, net realizable value less a normal profit margin is the value of the inventory.

A departure from the cost basis is required when the utility of goods is no longer as great as cost; for inventory, the loss should be recognized in the ____ in which the decline takes place.

period

The replacement cost of an inventory item accounted for under the retail method is below the net realizable value and above the net realizable value less a normal profit margin. The inventory item's original cost is above the net realizable value. Under the lower of cost or market method, the inventory item should be valued at: original cost. replacement cost. net realizable value. net realizable value less normal profit margin.

replacement cost. At the end of a fiscal year, inventory must be assessed for a loss of value, the lower of cost or market rule. Market value is defined as replacement cost (what you could repurchase the inventory for), so long as replacement cost is less than NRV (what you can sell the item for) and above NRV - a normal profit margin. Here replacement cost qualifies (it is between NRV and NRV - normal profit margin) as the designated market. Since original cost is above replacement cost (market), market is lower than cost, an we carry the inventory at market or replacement cost. Note that inventory measured using any method other than LIFO or the retail inventory method (e.g. FIFO or average cost) is measured at the lower of cost and NRV, which is defined to be estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. If the NRV of inventory is lower than its cost, the difference is recognized as a loss in earnings in the period in which it occurs.

Hilltop Co.'s monthly bank statement shows a balance of $54,200. Reconciliation of the statement with company books reveals the following information: Bank service charge: $10 Insufficient funds check: $650 Checks outstanding: $1,500 Deposits in transit: $350 Check deposited by Hilltop and cleared by the bank for $125, but improperly recorded by Hilltop as $152 What is the net cash balance after the reconciliation? $52,363 $53,023 $53,050 $53,077

theres no way of finding the unadjusted ending month balance per books in the cash account, but we can find the corrected ending cash balance from the info given by starting with the ending bank balance. 54200 + deposits in transit - outstanding checks = corrected ending balance. = 53050. the other adjustments would be adjustments to ending cash balance, which we do not have, the check error being the company's error not the bank's error.