Mega Set FAC

Disadvantages of gross profit method 1) It is an ___ of ending inventory (2) It generally relies on __ in determining the markup. (3) Care must be exercised when applying a blanket gross profit rate when there are ___

(1) It is an estimate. (2) It generally relies on past percentages in determining the markup. (3) Care must be exercised when applying a blanket gross profit rate when there are varying gross profits

Acid Test Ratio

(Cash+Short-term investments+Net receivables)/Current liabilities

Depletion cost per unit

(Total cost - residual value)/ Total estimated units available

straight line depreciation

(cost - salvage value) / useful life

Earnings per share

(net income - preferred dividends) / weighted average common shares outstanding

Exchanges of non-monetary assets are ordinarily accounted for on the basis of

- Fair value of asset given up - Fair value of asset received Whichever is more clearly evident The company should recognise immediately any gains or losses on the exchange when the transaction has commercial substance

When exchanging the debt instrument for property, goods, or services in a bargained transaction, the stated interest rate is presumed to be fair unless

- No interest rate is stated, - The stated interest rate is unreasonable - The stated face amount is materially different from the current cash price for the same or similar items or from the current fair value of the debt instrument.

Companies should record PPE

- at FV of what they give up - at FV of the asset received Whichever is more clearly evident

Companies accrue an expense and related liability for a provision only if (3 points)

1) Present obligation as a result of past event 2) probably that an outflow will be required 3) Reliable estimate can be made This applies for litigation

Historical costs include

1) Purchase price, including import duties and non-refundable purchase taxes, less trade discounts and rebates 2) Costs attributable to bringing the asset to the location and condition necessary for it to be used in a manner intended by the company

general-purpose financial statements

1) provide financial reporting information to a wide variety of users, 2) providing the most useful information possible at the least cost.

For unfiled suits and unasserted claims and assessments, the company must determine:

1) the degree of probability that a suit may be filed or a claim or assessment may be asserted and 2) the probability of an unfavorable outcome

Spectrum received a 500,000 subsidy from government to purchase lab equipment in 2019. The lab equipment is 2,000,000 and has a useful life of 5 years and is depreciated on a straight line basis. IFRS Can record this grand in 2 ways.

1. Credit deferred grant revenue (as a deferred income) 2. Credit the lab equipment (by deducting grant from asset carrying amount)

The straight line depreciation method is limited because it 1. Assumes that the __ is the same each year 2. ____ expense is essentially the same each period

1. Economic usefulness is the same each year 2. Maintenance and repair expense is essentially the same each period

IASB Due Process

1. Independent standard-setting board 2. Thorough and systematic process for developing standards 3. Engagement with investors, regulators, business leaders and the global accountancy profession at every stage of the process 4. Collaborative efforts with the worldwide standard-setting community.

Cost of purchase includes

1. Purchase price 2. Import duties and taxes 3. Transportation costs 4. Handling costs directly related to acquisition of the goods

All expenditures of cost of land

1. Purchase price 2. Closing costs, such as title to the land, attorney's fees and recording fees 3. Costs of grading, filling, draining and clearing (making the site suitable for use) 4. Assumption of any liens, mortgages, or encumbrances on the property 5. Additional land improvements that have an indefinite life

Companies can choose only one type of asset to revaluate, but:

1. Revaluation applies to all assets in the class of assets 2. Make every effort to keep asset values up to date.

Company X purchases an asset today in exchange for a 10,000 zero-interest bearing note payable 4 years from now. What is the recorded amount of the transaction? Interest rate is 9%

10,000/(1.09)^4

Company X has paid 100 in VAT on its materials. It then sold its finished goods and incurred 200 in VAT. The amount of VAT company X has to pay is.

100

Weighted average interest rate 500,000 @ 14% 300,000 @ 10%

14%*(5/8)+10%(3/8) = 12.5%

Hanoi LTD has equipment with cost of 26,000,000 with 12,000,000 accumulated depre. The recoverable amount is 11,000,000. How much is the impairment? What is the journal entry?

14,000,000 - 11,000,000 = 3,000,000 Dr Impairment loss 3,000,000 Cr Accumulated depreciation - equipment 3,000,000

Using gross profit method to estimate inventory. There is the below information Inventory, first May 160,000 Purchases (gross) 640,000 Freight-in 30,000 Purchase discounts 12,000 Sales 1,000,000 Sales returns 70,000 Compute the estimated inventory at 31 May, assume that gross profit is 25% of cost

160,000+640,000+30,000-12,000 = 818,000 Sales: 930,000 COGS = 930,000 * 0.80 = 744,000 818,000-744,000=74,000 Gross profit 25% of cost, so costs are 100%. 25%/(100+25) = 20% of revenue.

2/10, n/30

2% discount if paid within 10 days, otherwise net amount due within 30 days

Carrying amount of Cruz's equipment is 200,000, FV less cost to sell is 180,000 and the value in use is 175,000. How much is the impairment?

20,000

The weighted average accumulated expenditure was 250,000 There is a special debt of 200,000 at 12% interest taken for this project. There is a general debt of 500,000 at 14% and 300,000 at 10%. The weighted average interest rate is 12.5%. What is the avoidable interest?

200,000*12% + (250,000-200,000)*12.5% General debt = 24,000 + 6,250 = 30,250

A machine has carrying amount of 200,000. It has an estimated useful life of 5 years and recoverable amount is based on value in use. Company indicates that it's future cash flows will be 40,000 for 5 years and receive 10,000 of residual value at the end of 5 years. Discount rate is 5%. What is the impairment? (PV of cash flows = 159,708.4. PV of residual value =6,805.8, total 166,514.2)

200,000-166,514.20 = 33,486 Dr loss on impairment 33,486 Cr Accumulated depreciation - machinery 33,486

Camel company had a manufacturing plant that was destroyed by tornado in 2022. They reached a settlement in 2023. At the time of tornado the building had a carrying value of 3,500,000 (6,000,000 - depre 2,500,000) and the settlement amount was 5,000,000. Record the transaction

2022 Dr Loss from tornado 3,500,000 Dr Accumulated depreciation 2,500,000 Cr Building 6,000,000 2023 Dr Cash 5,000,000 Cr Gain from insurance settlement

You purchase an automobile from Hamlin Auto for €30,000 on January 2, 2022. Hamlin estimates the assurance-type warranty costs on the automobile to be €700 (Hamlin will pay for repairs for the first 36,000 kilometers or 3 years, whichever comes first). You also purchase for €900 a service-type warranty for an additional 3 years or 36,000 kilometers. Hamlin incurs warranty costs related to the assurance-type warranty of €500 in 2022 and €100 in 2023 and 2024. Hamlin records revenue on the service-type warranty on a straight-line basis What entries should Hamlin make in 2022?

2022 Dr Cash 30,900 Cr Unearned service revenue 900 Cr Sales Revenue 30,00 Dr Warranty expense 500 Cr Cash 500 Dr Warranty expense 200 Cr Warranty liability 200

Amutron NV began operations on January 1, 2022. The company employs 10 individuals and pays each €480 per week. Employees earned 20 unused vacation weeks in 2022. In 2023, the employees used the vacation weeks, but now they each earn €540 per week. Amutron accrues the accumulated vacation pay on December 31, 2022, as follows. The journal entries for 2022 and 2023 is:

31 Dec 2022 Dr salaries and wages expense 9,600 Cr Salaries and wages payable 9,600 2023 Dr Salaries and wages payable 9,600 Dr Salaries and wages expense 1,200 Cr Cash 10,800 This is for the redemption in 2022.

Any contingent liability less than __ probable would require no disclose

5%

Contingent liability are disclosed when it is __ probable

5-50%

A diminishing charge method using sum-of-the-year digits would depreciate the first year as

5/15 (1+2+...5)

Under IFRS, a parent company does not have to consolidate subsidiary companies that are less than ___ percent owned

50%

Company B has total assets at a fair value of 350,000. A decides to purchase company B for 400,000. The goodwill recorded is

50,000

SA company acquired a mine for silver. The lease cost is 50,000 and the related exploration costs are 100,000. Intangible development costs incurred in opening the mine are 850,000. SA estimates that the mine will provide approximately 100,000 ounces of gold. The depletion cost per unit is:

50,000+100,000+850,000 = 1,000,000 1,000,000/100,000 = 10 per ounce

Castle Bank agrees to lend €100,000 on March 1, 2022, to Landscape Co. if Landscape signs a €100,000, 6 percent, four-month note. At June 30, 2022. The journal entry for interest is:

6%/3*100,000=2,000 (4 months elapsed) Dr Interest expense 2,000 Cr interest payable 2,000

Evermaster AG issued €100,000 of 8% term bonds on January 1, 2022, due on January 1, 2027, with interest payable each July 1 and January 1. Investors require an effective-interest rate of 10%. Calculate the bond proceeds. PV of 100,000 = 61,391 PV of interest payable (semiannually, 10 periods) = 30,887

61,391+30,881 = 92,278

Evermaster Corporation issued €100,000 of 8% term bonds on January 1, 2022, due on January 1, 2027, with interest payable each July 1 and January 1. Investors require an effective-interest rate of 6%. Calculate the bond proceeds. PV Of 100,000 = 74,409 PV of interest = 34,129

74,409+34,129 = 108,530

In preparing a statement of cash flows, which of the following transactions would be considered an investing activity? a) Sale of equipment at book value b) Sale of merchandise on credit c) declaration of a cash dividend d) Issuance of bonds payable

A

[Journal entry] Pioneer signs a contract for advertising inserts to start last Sunday in November. Pioneer will start work on content of the flyers in November and payment of $7,000 is due following delivery of the Sunday paper containing the flyers.

A business transaction has not occured

General Journal

A chronological list of transaction and other events, expressed in terms of debits and credits to accounts. Journal entries are recorded in the journal.

Income statement

A financial statement showing the revenue and expenses for a fiscal period.

Assurance type warranty should be recorded as

A warranty liability. Obligations should be expensed in the period the goods are provided or services performed.

Expense Recognition Principle

Accounting principle that dictates that the recognition of expenses is related to net changes in assets and earning revenues, that is, "let the expense follow the revenues."

How to present accounts receivable and allowance for doubtful accounts on the balance sheet?

Accounts receivables 500 less: allowance for doubtful account (25)

IFRS requires capitalizing the 1) Capitalize no borrowing costs 2) Charge construction with all borrowing costs of funds employed, identifiable or not 3) Capitalize the actual borrowing costs incurred during construction.

Actual interest. This method is consistent with historical costs.

To prepare SCF, increase in accounts payable is

Added

Cost of land includes

All expenditures to acquire land and ready it for use

Intangibles are (depreciated/amortized/depleted)

Amortized

Service type warranty

An additional warranty, not included in the sales price of the product. A service-type warranty is recorded as a separate performance obligation. (unearned service revenue)

Average Cost Method

An inventory costing method that uses the weighted-average unit cost to allocate the cost of goods available for sale to ending inventory and cost of goods sold. Average cost = total cost/units

Companies must evaluate limited-life intangibles __ for impairment

Annually

Using gross profit method to estimate inventory. There is the below information Inventory, first May 160,000 Purchases (gross) 640,000 Freight-in 30,000 Purchase discounts 12,000 Sales 1,000,000 Sales returns 70,000 Compute the estimated inventory at 31 May, assume that gross profit is 25% of sales

Answer in picture 160,000+640,000+30,000-12,000 = 818,000 Sales: 930,000 COGS = 930,000 * 0.75 = 697,500 818,000-697,500 = 120,500 (ending inventory)

Decision usefulness (investors are interested in assessing)

Approach that requires that financial reporting be useful to investors by helping them assess (1) the company's ability to generate net cash inflows and (2) management's ability to protect and enhance the capital providers' investments.

When a company purchases plant assets subject to cash discounts for prompt payment, how should it report the discount?

As a reduction in purchase price of the asset (most common method)

[Practice] Purchase office equipment $5,200, giving a 10% promissory note in exchange

Asset +5,200 (Equipment) Liabilities +5,200 (Promissory note payment)

[Practice] Pay cash of $16,000 for a delivery van

Assets + 16,000 (Van) Assets - 16,000 (Cash)

[Practice] Received $4,000 cash for service performed

Assets +4,000 (Cash) Equity +4,000 (Revenue)

[Practice] Owners invest $40,000 in exchange for ordinary shares

Assets +40,000 (Cash) Equity +40,000 (Shareholders equity)

[Practice] Disburse 600 cash for secretarial wages

Assets -600 (Cash) Equity - 600 (Expense)

[Practice] Pay off a short term liability of $7,000

Assets -7,000 (Cash) Liabilities -7000(liabilities paid off)

Statement of financial position is also known as

Balance sheet

Assets held for disposable are continuously revalued instead of depreciated

Because they are recovered through sale rather than operations.

Capitalization period begins and end with (EAB) - When __ are being incurred for __ - ___ are in progress - ___ is being incurred

Begins with: - Expenditures for the assets are being incurred - Activities that are necessary to get the asset ready for its intended use or sale are in progress -Borrowing cost is being incurred Ends when asset is substantially complete and ready for use

What is the following accounting treatment Legal fees to obtain patent on new laser scanner

Capitalize as patent and amortise to overhead as a part of cost of goods manufactured

Goodwill that is internally generated should not be __

Capitalized in the accounts

An impairment loss on intangible assets will be recognised when the

Carrying amount is higher than recoverable amount (FV less cost to sell or value in use)

Impairment test is conducted based on the __ to which the goodwill is assigned. Impairment is tested annually

Cash-generating unit (CGU)

Qualitative characteristic - Enhancing Qualities

Comparability, verifiability, timeliness, and understandability

Intangibles are recorded at __

Cost

Once agricultural produce are harvested, the NRV becomes __

Cost

Product costs is the

Cost directly connected with bringing the goods to the buyer's place of business and converting such goods to a saleable condition

Amortization of limited-life intangibles are

Cost less residual value (residual assumed to be zero)

Companies value PPE in subsequent periods using either

Cost method or Fair value method

Goodwill is measured at

Cost over fair value of identifiable net assets

A company intends to dispose of its impaired assets. The asset is reported to be at the lower of :

Cost vs net realisable value

Period costs

Costs that are matched with the revenue of a specific time period and charged to expense as incurred.

Current Ratio

Current assets/current liabilities

A debt is classified as current when the __ is violated

Debt covenant (breach of agreement)

Mineral resources are (depreciated/amortized/depleted)

Depleted

Fixed assets are (depreciated/amortized/depleted)

Depreciated

IFRS requires each part of PPE that is significant to total cost be __

Depreciated separately

International Organization for Securites Commissions (IOSCO)

Does not set accounting standards, but dedicated to ensuring that global markets can operate in an efficient and effective basis. Supports the use of iFRS as the single set of international standards in cross-border offerings and listings.

Net method for purchase cost $10,000 with terms 2/10 n/30 4,000 paid within discount period

Dr Accounts payable 3,920 Cr Cash 3,920

Gross method for purchase cost $10,000 with terms 2/10 n/30 4,000 paid within discount period

Dr Accounts payable 4,000 Dr Sales discount 80 (4,000*0.02) Cr Cash 4,000

Net method for purchase cost $10,000 with terms 2/10 n/30 6,000 paid after discount period

Dr Accounts payable 5,880 (9,800-3920) Dr sales discount lost 120 Cr Cash 6,000

Gross method for purchase cost $10,000 with terms 2/10 n/30 6,000 paid after discount period

Dr Accounts payable 6,000 Cr Cash 6,000

Assume that on July 1, Randall Co. pays the £1,000 amount that Brown had written off on March 1. The entries are:

Dr Accounts receivable 1,000 Cr Allowance for doubtful account 1,000 Dr Cash 1,000 Cr Accounts receivable 1,000

Tan realises that the recoverable amount of the equipment is 96,000 which is greater than its carrying amount of 90,000. The previous impairment on the equipment was 20,000. The journal entry for reversal of impairment is:

Dr Accumulated depreciation - Equipment 6,000 Cr Recovery of impairment loss 6,000

Lenovo has an equipment with Fair Value at 460,000 and a carrying amount of 400,000 (500,000 - 100,000 Depre). Lenovo revalues equipment to fair value over the life of the equipment. The subsequent journal entry is:

Dr Accumulated depreciation - equipment 100,000 Cr Equipment 40,000 Cr Unrealized gain on revaluation - equipment 60,000 1. Reduce accumulated depre to zero 2. Reduce equipment by 40,000 to reflect FV of 460,000 3. Record unrealised gain (460,000-400,000)

The financial vice president of Brown Furniture authorizes a write-off of the £1,000 balance owed by Randall Co. on March 1. The entry to record the write-off is

Dr Allowance for doubtful account 1,000 Cr Accounts receivable 1,000

Journal entry to write off an uncollectible account

Dr Allowance for doubtful accounts 10 Cr Accounts receivable 10

Bancroft has 420 milking cows that were purchased for $460,000. There was a change in carrying value of 33,800 due to growth and price changes of the cows. The journal entry is:

Dr Biological asset 33,800 Cr Unrealized holding gains or loss - income 33,800

January 1, 2024, Evermaster calls the entire issue of 100,000 at 101 and cancels it. The carrying amount at 2024 is 94,925. The journal entry is

Dr Bonds payable 94,925 Dr loss on extinguishment of debt 6,075 Cr Cash 101,000

On December 31, 2022, Wunderlich plc issued a promissory note to Brown Interiors Company for architectural services. The note has a face value of £550,000, a due date of December 31, 2027 (5 years), and bears a stated interest rate of 2 percent, payable at the end of each year. Wunderlich cannot readily determine the fair value of the architectural services, nor is the note readily marketable. The company imputes an 8 percent interest rate as appropriate in this circumstance. The journal entry is:

Dr Building (building in process) 418,239 Cr Notes Payable 418,239 Dr Interest expense 33,459 Cr Cash 11,000 Cr Notes payable 22,459

Recording 12,000 loss under COGS method

Dr COGS 12,000 Cr Inventory 12,000

Hills farms sells 1,000 of wheat to sunshine baking. They have a VAT of 10%. Record the journal entry.

Dr Cash 1,100 Cr Sales revenue 1,000 Cr Tax payable 100

Scandinavian Imports issues a €10,000, three-year note, at face value to Bigelow ASA. The stated rate and the effective rate were both 10 percent. Scandinavian would record the issuance of the note as follows. The interest incurred each year would be

Dr Cash 10,000 Cr Notes payable 10,000 Dr Interest expense 1,000 Cr Interest payable/cash 1,000

[Journal entry] Shareholders invest $100,000 cash in an advertising venture to be known as pioneer advertising agency Inc

Dr Cash 100,000 Cr Share Capital - Ordinary 100,000

Assume that Santos SA issues $100,000 in bonds dated January 1, 2022, due in five years with 9 percent interest payable annually on January 1. At the time of issue, the market rate for such bonds is 9 percent. The Journal entry for the bond issuance is:

Dr Cash 100,000 Cr Bonds payable 100,000

Assume Evermaster issued its five-year bonds, dated January 1, 2022, on May 1, 2022, at par of 8%(€100,000). Evermaster records the issuance of the bonds and interest on July 1 as follows.

Dr Cash 100,000 Cr Bonds payable 100,000 Interest expense July 1 Dr Interest expense 4/12*100,000*8% = 2,667 Cr Cash 2,667

Castle Bank agrees to lend €100,000 on March 1, 2022, to Landscape Co. if Landscape signs a €100,000, 6 percent, four-month note. Landscape records the cash received on March 1 as follows:

Dr Cash 100,000 Cr Notes payable 100,000

On March 1, Landscape issues a €102,000, four-month, zero-interest-bearing note to Castle Bank. The present value of the note is €100,000. Landscape records this transaction as follows

Dr Cash 100,000 Cr Notes payable 100,000

Schedule for bonds issued at a premium

Dr Cash 108,530 Cr Bond payable 108,530 Dr Interest expense 3,256 Dr Bond payable 744 Cr Cash 4,000

[Journal entry] Pioneer receives a $12,000 cash advance from KC, a client, for advertising services that are expected to be completed by December 31

Dr Cash 12,000 Cr Unearned Service Revenue 12,000

[Journal entry] Shareholders invested $15,000 cash in the corporation in exchange for ordinary shares

Dr Cash 15,000 Cr Share capital-ordinary 15,000

Halo supermarket sells 2,400 of goods. They have a sales tax of 10%. Record the journal entry.

Dr Cash 2,640 Cr Tax payable 240 Cr Revenue 2,400

[Journal entry] Pioneer receives $28,000 in cash and bills Copa Company $72,000 for advertising services of $100,000 provided in October

Dr Cash 28,000 Dr Accounts receivable 72,000 Cr Service revenue 100,000

36,000 of milk harvested was sold to a local cheese-maker for 38,500. The sale is recorded as

Dr Cash 38,500 Cr Revenue 38,500 Dr COGS 36,000 Cr Inventory 36,000

Issued a $50,000, 12-month, 8% note to Orion in payment of account. Record the entry and the first interest payment (3months).

Dr Cash 50,000 Cr Notes payable 50,000 Dr Interest expense 1,000 (50,000*0.08*1/4) Cr Interest payable 1,000

Logo university sells 10,000 season soccer tickets at 50 each. Record the journal entry.

Dr Cash 500,000 Cr Unearned revenues 500,000

City decides to provide a zero-interest 10,000,000 loan payable at the end of 10 years on the condition that they will employ at least 50% of the local community over the next 10 years. To record this transaction: (Pv of loan = 6,499,300, discount = 3,500,700)

Dr Cash 6,499,300 Cr notes payable 6,499,300 Dr Cash 3,500,700 Cr Deferred grant revenue 3,500,700 First year the obligation is fulfilled Dr Deferred grant revenue 584,937 (9%*6,499,300) Cr Grant revenue 584,937 Using effective-interest rate.

Barrett group recorded depreciation on a machine costing 18,000 for nine years at 1,200 per year. If it sells the machine in the middle of the tenth year for 7,000, the depreciation to the date of the sale is 600. The entry to record the sale is:

Dr Cash 7,000 Dr Accumulated depreciation 11,400 Cr Machinery 18,000 Cr Gain on disposal of machinery 400

Turtle Cove Company issued the three-year, $10,000, zero-interest-bearing note to Jeremiah Company. The implicit rate that equated the total cash to be paid ($10,000 at maturity) to the present value of the future cash flows ($7,721.80 cash proceeds at date of issuance) was 9 percent.

Dr Cash 7,721.8 Cr Notes payable 7,721.8 Dr Interest Expense 694.96 Cr Notes payable 694.96

Borrowed $75,000 from the Shore Bank by signing a 12-month, zero-interest-bearing $81,000 note. Record the entry and the first interest payment (3months).

Dr Cash 75,000 Cr Notes payable 75,000 Dr Interest expense 1,500 (6,000 *3/12) Cr Notes payable 1,500

Marie Co. issued for cash a €10,000, three-year note bearing interest at 10 percent to Morgan Corp. The market rate of interest for a note of similar risk is 12 percent. Marie Co. records the issuance of the note as follows. The interest expense will be

Dr Cash 9,520 Cr Notes payable 9,520 Dr Interest Expense 1,142 Cr Notes payable 142 Cr Cash 1,000

Green Market AG acquires the customer list of a large newspaper for €6,000,000 on January 1, 2019. Green Market expects to benefit from the information evenly over a three-year period. Record the purchase of the customer list and the amortization of the customer list for each year on the straight-line basis

Dr Customer list 6,000,000 Cr Cash 6,000,000 Dr Amortisation expense 2,000,000 Cr Accumulated amortisation - Customer list 2,000,000 or Cr customer list 2,000,000

Barrett group recorded depreciation on a machine costing 18,000 for nine years at 1,200 per year. If it sells the machine in the middle of the tenth year for 7,000, the depreciation to the date of the sale is:

Dr Depre expense 600 (1.2k/2) Cr Accumulated depre-Machinery 600

On January 1, 2022, Wildcat Oil Company erected an oil platform in the Gulf of Mexico. Wildcat is legally required to dismantle and remove the platform at the end of its useful life, estimated to be five years. Wildcat estimates that dismantling and removal will cost $1,000,000. Based on a 10 percent discount rate, the fair value of the environmental liability is estimated to be $620,920 ($1,000,000 x .62092). During the life of the asset, Wildcat allocates the asset retirement cost to expense. Using the straight-line method, Wildcat makes the following entries to record this expense.

Dr Depreciation expense (620,920/5) 124,184 Cr Accumulated depre-plant assets 124,184

[Journal entry] Pioneer's board of directors declares and pays a $5,000 cash dividend to shareholders

Dr Dividends 5,000 Cr Cash 5,000

On January 1, 2022, Wildcat Oil Company erected an oil platform in the Gulf of Mexico. Wildcat is legally required to dismantle and remove the platform at the end of its useful life, estimated to be five years. Wildcat estimates that dismantling and removal will cost $1,000,000. Based on a 10 percent discount rate, the fair value of the environmental liability is estimated to be $620,920 ($1,000,000 x .62092). Wildcat records this liability on Jan. 1, 2022 as follows.

Dr Drilling platform 620,920 Cr Environment Liability 620,920

On January 10, 2027, Wildcat contracts with Rig Reclaimers, Inc. to dismantle the platform at a contract price of $995,000. The estimate of dismantling the platform previously was 1,000,000. Wildcat makes the following journal entry to record settlement of the liability.

Dr Environment liability 1,000,000 Cr Gain on settlement of liability 5,000 Cr Cash 995,000

[Journal entry] Pioneer purchases office equipment costing $50,000 by signing a 3-month, 12%, $50,000 note payable

Dr Equipment 50,000 Cr Notes payable 50,000

[Journal entry] Pioneer pays $6,000 for a one-year insurance policy that will expire next year on September 30. The first month of insurance has expired.

Dr Insurance expense 500 Cr Prepaid insurance 500

On January 1, 2022, Wildcat Oil Company erected an oil platform in the Gulf of Mexico. Wildcat is legally required to dismantle and remove the platform at the end of its useful life, estimated to be five years. Wildcat estimates that dismantling and removal will cost $1,000,000. Based on a 10 percent discount rate, the fair value of the environmental liability is estimated to be $620,920 ($1,000,000 x .62092). In addition, Wildcat must accrue interest expense each period. Wildcat records interest expense and the related increase in the environmental liability on December 31, 2022, as follows.

Dr Interest Expense (620,920*10%) 62,092 Cr Environment Liability 62,092

[Journal entry] Pioneer signed a three-month 12% note payable in the amount of 50,000 on October 1. Prepare the adjusting entry on Oct 31 to record the accrual of interest

Dr Interest Expense 500 Cr Interest Payable 500

On March 1, Landscape issues a €102,000, four-month, zero-interest-bearing note to Castle Bank. The present value of the note is €100,000. Landscape records this transaction on 30 June (4 months later) as follows: On maturity the journal entry is"

Dr Interest expense 2,000 Cr Notes payable 2,000 (zero-interest) Dr Notes payable 102,000 Cr Cash 102,000

The depletion cost per unit is 10: 25,000 ounces of gold were extracted. The journal entries are:

Dr Inventory 250,000 Cr Accumulated depletion 250,000

Bancroft harvested $36,000 worth of milk for the month of January. The journal entry to record such a transaction is:

Dr Inventory 36,000 Cr Unrealized holding gain or loss - income 36,000

Fluffy Cake Mix Ltd. sells boxes of cake mix for £3 per box. In addition, Fluffy Cake Mix offers its customers a large durable mixing bowl in exchange for £1 and 10 box tops. The mixing bowl costs Fluffy Cake Mix £2, and the company estimates that customers will redeem 60 percent of the box tops. The premium offer began in June 2022. During 2022, Fluffy Cake Mix purchased 20,000 mixing bowls at £2, sold 300,000 boxes of cake mix for £3 per box, and redeemed 60,000 box tops What entries should Fluffy Cake Mix record in 2022?

Dr Inventory 40,000 Cr Cash 40,000 Dr cash 900,000 Cr Revenue 900,000 Dr Cash 6,000 Dr Redemption expense 6,000 Cr Inventory 12,000 Dr Redemption/premium expense 12,000 Cr Redemption/premium liability 12,000

Purchased inventory from Orion Company on account for $50,000. Darby records purchases gross and uses a periodic inventory system. The journal entry for the purchase is:

Dr Inventory 50,000 Cr Accounts payable 50,000

Siemens Group (DEU) purchased land for €1,000,000 on January 5, 2019. The company elects to use revaluation accounting for the land in subsequent periods. At December 31, 2019, the land's fair value is €1,200,000. The entry to record the land at fair value is as follows.

Dr Land 200,000 Cr Unrealized gain on revaluation - land 200,000

Scorcese A.S. is involved in a lawsuit at December 31, 2022. (a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for 900,000 as a result of this suit.

Dr Lawsuit loss 900,000 Cr Lawsuit liability 900,000

Recording 12,000 loss under loss method

Dr Loss due to decline to NRV 12,000 Cr Inventory 12,000

At December 2020, Tan records an impairment loss of 20,000. The journal entry is

Dr Loss on impairment 20,000 Cr Accumulated depreciation - equipment 20,000

Lerch SE has a patent with a carrying value of 5,000,000. However, recently there was a discovery that has affected the patent and the patent is impaired. Lerch determines the the patent's value in use is at 2,000,000. Make the journal entry for the impairment.

Dr Loss on impairment 3,000,000 Cr patents 3,000,000

Hamburg Bank loaned €20,000,000 to Bonn Mortgage Company. Hamburg Bank agrees to accept from Bonn Mortgage real estate with a fair value of €16,000,000 in full settlement of the €20,000,000 loan obligation. The real estate has a carrying value of €21,000,000 on the books of Bonn Mortgage. The journal entry for Bonn is.

Dr Note Payable (to Hamburg Bank) 20,000,000 Dr Loss on Disposal of Real Estate 5,000,000 Cr Real Estate 21,000,000 Cr Gain on Extinguishment of Debt 4,000,000

Oasis Development Co. sold a corner lot to Rusty Pelican as a restaurant site. Oasis accepted in exchange a five-year notehaving a maturity value of £35,247 and no stated interest rate. The land originally cost Oasis £14,000. At the date of sale the land had a fair market value of £20,000. Oasis uses the fair market value of the land, £20,000, as the present value of the note. Oasis therefore records the sale as

Dr Notes Receivable 20,000 Cr Land 14,000 Cr Gain on sale of land. 6,000

Castle Bank agrees to lend €100,000 on March 1, 2022, to Landscape Co. if Landscape signs a €100,000, 6 percent, four-month note. At 1 July 2022 (Maturity), the journal entry is:

Dr Notes payable 100,000 Dr Interest payable 2,000 Cr Cash 102,000

Hamburg Bank agrees to accept from Bonn Mortgage 320,000 ordinary shares (€10 par) that have a fair value of €16,000,000, in full settlement of the €20,000,000 loan obligation. Bonn Mortgage (debtor) records this transaction as follows.

Dr Notes payable 20,000,000 Cr Share capital-ordinary 3,200,000 Cr Share premium - ordinary 12,800,000 Cr Gain on extinguishment of debt 4,000,000

Jeremiah Company receives a three-year, $10,000 zero-interest-bearing note. The market rate of interest for a note of similar risk is 9 percent. How does Jeremiah record the receipt of the note? PV = 10,000/(1.09^3)=7,721.80

Dr Notes receivable 7,721.8 Cr Cash 7,721.8

Morgan Corp. makes a loan to Marie Co. and receives in exchange a three-year, €10,000 note bearing interest at 10 percent annually. The market rate of interest for a note of similar risk is 12 percent. Prepare the journal entry to record the receipt of the note? PV = PV principal + PV interest = 7,118+2,402=9,520

Dr Notes receivables 9,520 Cr Cash 9,520

The carrying amount of a patent is 1,600,000 and the recoverable amount is 1,750,000. The journal entry on the reversal is

Dr Patent 150,000 Cr Recovery of impairment loss 150,000

Harcott Co. incurs $180,000 in legal costs on January 1, 2019, to successfully defend a patent. The patent's useful life is 10 years, amortized on a straight-line basis. Harcott records the legal fees and the amortization at the end of 2019 as follows.

Dr Patents 180,000 Cr Cash 180,000 Dr Amortisation expense 18,000 Cr Patent/Accumulated depre - patent 18,000

[Journal entry] Pioneer pays $6,000 for a one-year insurance policy that will expire next year on September 30

Dr Prepaid Insurance 6,000 Cr Cash 6,000

Net method for purchase cost $10,000 with terms 2/10 n/30

Dr Purchase 9,800 Cr Accounts Payable 9,800

Gross method for purchase cost $10,000 with terms 2/10 n/30

Dr Purchases 10,000 Cr Accounts Payable 10,000

[Journal entry] Pioneer pays $9,000 office rent in cash for October

Dr Rent expense 9,000 Cr Cash 9,000

[Journal entry] Employees receive total salaries of $10,000 for a five-day work week, or 2,000 a day. Prepare the adjusting entry on Oct 31 to record accrual for salaries.

Dr Salaries and Wages expense 6,000 Cr Salaries and wages payable 6,000

[Journal entry] October 26: Employees are paid every four weeks. The total payroll is $2,000 per day The pay period ended no Friday, October 26, with salaries of $40,000 being paid.

Dr Salaries and wage expense 40,000 Cr Cash 40,000

Denson Machinery Company begins production of a new machine in July 2022 and sells 100 of these machines for $5,000 cash by year-end. Each machine is under warranty for one year. Denson estimates, based on past experience with similar machines, that the warranty cost will average $200 per unit. As a result of parts replacements and services performed in compliance with machinery warranties, it incurs $4,000 in warranty costs in 2022 and $16,000 in 2023. What are the journal entries for the sale and the related warranty costs for 2022 and 2023?

Dr Sales 500,000 Cr Cash 500,000 2022 Dr Warranty expense 4,000 Cr Cash 4,000 Dr Warranty expense 16,000 Cr Warranty Liability 16,000 2023 Dr Warranty liability 16,000 Cr Cash 16,000

Interstate transportation company exchanged a number of used trucks plus cash for a semi truck. The used trucks have combined book value of 42,000 (cost 64,000 - 22,000 accumulated depre) with FV of 49,000. Interstate must pay 11,000 on top of the trucks for the semi-truck. The cost is as follows. The exchange has no commercial substance FV Of truck exchanged 49,000 Cash 11,000 Cost of semi-truck: 60,000 The recorded transaction is

Dr Truck 53,000 Dr Accum depre 22,000 Cr Trucks 64,000 Cr Cash 11,000 Book value is used

The first year of a $900, 3 year service warranty has finished. Record the journal entry.

Dr Unearned Revenue 300 Cr Warranty revenue 300

[Journal entry] An evaluation of the service Pioneer performed for Knox during October, the company determines that it should recognise 4,000 of revenue in October.

Dr Unearned Service Revenue 4,000 Cr Service revenue 4,000

Logo university sells 10,000 season soccer tickets at 50 each. Record the journal entry after each game. One season is 5 games

Dr Unearned revenue 100,000 Cr Revenue 100,000

Information processing PA trades its used machine for a new model. The exchange has commercial substance. The used machine has a book value of 8,000 (12,000 less 4,000 accumulated depreciation) and fair value of 6,000. The new model lists for 16,000. PA is given a trade in allowance of 9,000 for the used machine. The costs is as follows. List price of new machine: 16,000 Less: Trade in allowance: (9,000) Cash payment due: 7,000 (16-9) FV of used machine: 6,000 Cost of new machine: 13,000 (7+6) How does PA record this transaction?

Dr equipment 13,000 Dr accumulated depreciation 4,000 Dr loss on disposal of equipment 2,000 Cr Equipment 12,000 Cr Cash. 7,000 Loss on disposal = FV - BV = 6,000-8,000

Interstate transportation company exchanged a number of used trucks plus cash for a semi truck. The used trucks have combined book value of 42,000 (cost 64,000 - 22,000 accumulated depre) with FV of 49,000. Interstate must pay 11,000 on top of the trucks for the semi-truck. The cost is as follows. The exchange has commercial substance FV Of truck exchanged 49,000 Cash 11,000 Cost of semi-truck: 60,000 The recorded transaction is

Dr equipment 60,000 Dr accumulated depre 22,000 Cr Cash 11,000 Cr Trucks 64,000 Cr Gain on disposal of trucks 7,000

Morgan Corp. makes a loan to Marie Co. and receives in exchange a three-year, €10,000 note bearing interest at 10 percent annually. The market rate of interest for a note of similar risk is 12 percent. Prepare the journal entry to record the interest revenue at the end of first year.

DrCash 1,000 CrNotes Receivable 142 Cr Interest revenue 1,142

Times Interest Earned

EBIT/ interest expense

Which basic assumption is this: The economic activities of Tokai Rubber Industries and its subsidiaries are managed for accounting and reporting purposes

Economic entity

Costs included for restructuring provision include things that are direct and incremental, such as:

Employee termination, contract termination and onerous contract provisions. These need to be directly related to termination

Net Realizable Value (NRV)

Estimated selling price less cost to complete and cost to sell

What is the following accounting treatment Engineering costs incurred to advance the laser scanner to full production stage

Expense as operating expense. Capitalize as R&D

What is the following accounting treatment Salaries of research staff designing new laser bone scanner

Expense immediately as R&D

What is the following accounting treatment Materials, labor and overhead costs of prototype laser with economic viability not achieved

Expense immediately as R&D

Google recognises depreciation expense for a machine over the 2 year period during which that machine helps the company earn revenue

Expense recognition

R&D costs before economic viability are

Expensed as incurred.

General-purpose financial statements are prepared primarily for

External users

Biological assets are measured on initial recognition and the end of each reporting period at __

Fair value less cost to sell (NRV)

Agricultural produce are measured at __ at the __

Fair value less cost to sell (NRV) at the point of harvest

Commodity Broker- Traders generally measure their inventories at __, with it's changes recognised in _ in the period of change.

Fair value less cost to sell (NRV) with changes recognised in income.

Non-current liabilities are recorded at ___, with unrealized holding gains or losses reported as part of ___.

Fair value, net income

Undeclared dividends on cumulative preference shares are recognised as liabilities T/F

False

Capital allocation process

Financial Reporting->Users -> Capital Allocation

Full disclosure is provided through

Financial Statements Notes to the Financial Statements Supplementary information

Limitations of statement of financial position includes: Many items of ___ are ___

Financial value are omitted

Dividends paid is a __ activity (operating/financing/investing)

Financing

Issue of notes payable is a __ activity (operating/financing/investing)

Financing

Overview of the Conceptual Framework

First Level = Basic Objectives Second Level = Qualitative Characteristics and Elements Third Level = Recognition, Measurement, and Disclosure Concepts.

Scenic Development AS sells land having a cash sale price of €200,000 to Health Spa Services. In exchange for the land, Health Spa gives a five-year, €293,866, zero-interest- bearing note. The €200,000 cash sale price represents the present value of the €293,866 note discounted at 8 percent for five years.

For seller Dr note receivable 200,000 Cr Land 200,000 For buyer Dr Land Cr Notes payable 200,000

FOB shipping point

Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller.

KC Corp reports information about pending lawsuits in the notes to its financial statements

Full disclosure

Reversal of impairment loss

GAAP: prohibited IFRS: GW impairment can't be reversed RA - NCV = reversal increased CV can't > CV if there was no impairment

Net carrying amount >Reacquisition price of bonds

Gain on extinguishment of debt

Which basic assumption is this: Barclays reports current and non-current classifications in its statement of financial position

Going concern

Bonds issued at a premium have an interest rate __ than the market rate

Higher

Diminishing charge method/Accelerated depreciation method

Higher depreciation cost in earlier years and lower charges in later years

Limitations of statement of financial position includes: Most assets and liabilities are reported at _____

Historical cost

Major key players on the International side are the

IASB and IOSCO

IASB issues

IFRS (international financial reporting standards)

IASB is composed of

IFRS Foundation, IASB, IFRS Advisory Council, IFRS Interpretations Committee

Companies adjust the carrying value of goodwill only when it is __ , there is no amortisation

Impaired

Indefinite life intangibles have no amortisation, but must be tested for ____

Impairment annually

Cost of equipment

Include all expenditures incurred in acquiring the equipment and preparing it for use Costs include: *purchase price *freight and handling charges *insurance on the equipment while in transit *cost of special foundations if required *assembling and installation costs *costs of conducting trial runs

Intangible development costs:

Include items such as drilling costs, tunnels, shafts. Considered part of depletion base.

Exploratory and evaluation costs

Include: - Acquisition of rights to explore - Topographical, geological, geochemical and geophysical studies - Exploratory drilling - Sampling - Activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource

Comprehensive income

Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.

Cost of buildings

Includes all expenditures related directly to acquisition or construction Costs include: -Materials, labor, and overhead costs incurred during construction -Professional fees and building permits

Companies record gains or losses to changes in NRV of biological assets in __ when it arises

Income

IFRS requires grants to be recognised in __ on a systematic basis that matches with the related costs that they are intended to compensate.

Income

To find financing costs

Income from operations - x = income before taxes x = interest revenue and expenses

How would the item be reported in financial statements? Purchase cost of a franchise

Intangible

IASB stands for

International Accounting Standards Board

Land for real estate concerns for resale is classified as __

Inventory

What is the following accounting treatment Purchase of materials for use on current and future R&D expense.

Inventory and allocate to R&D projects. Expense as consumed

Purchase of equipment is a __ activity (operating/financing/investing)

Investing

Land acquired for speculation is classified as an ___

Investment

Find the weighted average accumulated expenditure 1. Jan 1 100,000 2. June 30 100,000 3. Dec 31 100,000

Jan 1 100,000 * 1 June 30 100,000 * 0.5 Dec 31 100,000 * 0 (none of expenditure in this year) 150,000

This is the amortisation schedule for an effective interest method. Remember how it is applied!

Journal entries: Dr Cash 92,278 Cr Bonds payable 92,278 First interest payment Dr Interest expense 4,614 Cr Bonds payable 614 Cr Cash 4,000

Limitations of statement of financial position includes: The statement uses ___ and ____

Judgements and estimates

On June 3, Bolton Company sold to Arquette Company merchandise having a sale price of £2,000 with terms of 2/10, n/60. On June 12, the company received a check for the balance due from Arquette Company. Prepare the journal entries on Bolton Company books to record the sale assuming Bolton records sales using the net method.

June 3 Accounts Receivable 2,000 Sales Revenue. 2,000 June 12 Cash (2,000*98%). 1,960 Accounts Receivable. 1,960

On June 3, Bolton Company sold to Arquette Company merchandise having a sale price of £2,000 with terms of 2/10, n/60. On June 12, the company received a check for the balance due from Arquette Company. Prepare the journal entries on Bolton Company books to record the sale assuming Bolton records sales using the gross method.

June 3 Accounts Receivable 2,000 Sales Revenue. 2,000 June 12 Cash (2,000*98%). 1,960 Sales discounts 40 Accounts Receivable. 2,000

On June 3, Bolton Company sold to Arquette Company merchandise having a sale price of £2,000 with terms of 2/10, n/60. On June 12, the company received a check for the balance due from Arquette Company. Prepare the journal entries on Bolton Company books to record the sale assuming Bolton records sales using the net method. Arquette did not remit payment until July 29

June 3 Accounts Receivable 2,000 Sales Revenue. 2,000 June 12 Cash 2,000 Accounts Receivable. 1,960 Sales discounts forfeited. 40

Assets equals

Liabilities + Equity

[Practice] Declared a cash dividend of $5,000

Liabilities +5,000 (This can be a trick question, because actually you haven't paid this dividend yet. All you have is an obligation to pay) Equity -5,000

[Practice] Convert a non-current liability of $80,000 into ordinary shares

Liability -80,000 Equity +80,000 (We notice because both L and E are on the right hand side so this balances out without relating to assets at all)

Property, Plant, and Equipment

Long-lived, tangible assets, such as land, buildings, and equipment, used in the operation of a business.

How would the item be reported in financial statements? Investment in subsidiary company

Long-term investments

Reacquisition price >Net carrying amount

Loss on extinguishment of debt

Bonds issued at a discount have an interest rate __ than the market rate

Lower

When shares are issued for property, the __ of the shares is a fair indication of the property acquired

Market price

Fuji Film reports land on its statement of financial position at the amount paid to acquire it, even though the estimated fair market value is greater

Measurement

Last in first out (LIFO)

Method for assigning cost to inventory that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold.

Which basic assumption is this: Total S.A does not adjust amounts in its financial statements for the effects of inflation

Monetary unit

Indiirect approach for SCF preparation

NI + non cash expenses (depreciation expenses etc) - Accounts receivables, notes receivables + Accounts payables (other payables) - any gain/losses for investing activities = Cash flow from operating activities

The difference between net and gross

Net recognises discount immediately, gross recognises discounts when incurred.

Is depreciation handled retrospectively? i.e changes to past depreciation can be made in the future

No

Scorcese A.S. is involved in a lawsuit at December 31, 2022. (b) Prepare the December 31 entry, if any, assuming it is not probable that Scorcese will be liable for any payment as a result of this suit.

No entry is necessary. No liability has been incurred.

Cost of parking lots and driveways included in cost of land? Y/N

No. It is depreciated under land improvements

Installation of fences around the land under cost of land? Y/N

No. It is depreciated under land improvements

The setup of a temporary improvement included in the Cost of land? Y/N

No. It is recorded as land improvement and depreciated

If a borrowing earned interest during the period of capitalization, it will be used to __ the borrowing costs to be capitalized

Offset

Proceeds from residual value of demolished building on a piece of land will be used to

Offset the cost of land.

[Journal entry] Pioneer purchases for $25,000 on account, an estimated 3-month supply of advertising materials from Aero Supplies

On account - Not paid by cash Dr Supplier 25,000 Cr Accounts payable 25,000

Depreciation expense is a __ activity (operating/financing/investing)

Operating

Increase in accounts payable is a __ (operating/financing/investing)

Operating

Increase in accounts receivable is a __ activity (operating/financing/investing)

Operating

Net income is a __ activity (operating/financing/investing)

Operating

Nestle purchased machinery with original cost of 90,000. It estimates a 20-year life with no residual value and is depreciated on a straight line basis. However, during year 11, Nestle estimates it will use the machine for an additional 20 years. What was the original depreciation and what is the new depreciation?

Original depreciation = 90,000/20 = 4,500 After 10 years residual value = 10*4,500 = 45,000 New depreciation = 45,000/20 = 2,250

Recovery of impairment loss is reported in ___ of the income statement

Other income and expenses

If inventory is understated, COGS is ___

Overstated (Less ending amount, higher COGS) Beg amount - COGS = ending amount

How would the item be reported in financial statements? Cost of equipment obtained

PP&E

How would the item be reported in financial statements? Timberland

PP&E

Bigelow Corp. lends Scandinavian Imports €10,000 in exchange for a €10,000, three-year note bearing interest at 10 percent annually. The market rate of interest for a note of similar risk is also 10 percent. How does Bigelow record the receipt of the note?

PV = 10,000 (PV of interest + principal) Jan yr1. Dr Notes receivable 10,000 Cr Cash 10,000 Dec yr1. Dr Cash 1,000 Cr interest revenue 1,000

A long term debt is reported as current liability when the debt is to be

Paid within the next 12 months.

Which basic assumption is this: The economic activities of FedEx Corporation are divided Into 12-months periods for the purpose of issuing annual reports.

Periodicity

How would the item be reported in financial statements? Lease prepayment

Prepaid rent

Companies frequently purchase plant items on long-term credit contracts. To properly reflect cost, companies account for assets purchased at the ____ (Present, historical, future) value of the consideration exchanged between contracting parties at the date of transaction.

Present value

Long term notes receivables are recorded at:

Present value of cash expected to be collected

Three things to consider in the capitalisation approach (QCA) for interest costs during construction are:

Qualifying assets Capitalisation period Amount to capitalize

How would the item be reported in financial statements? Cost of developing a patent

R&D Expense

How would the item be reported in financial statements? Cost of engineering activity required to advance design of product to manufacturing stage

R&D Expense

How would the item be reported in financial statements? Cost of searching for applications of new research findings

R&D Expense

R&D Costs are capitalised once the project reaches the __ and is __ viable

Reaches the development phase and is economically viable.

Recognising impairment

Recoverable vs carrying amount (higher of FV - cost to sell or value in use)

IASB requires discounts to be recorded as __ from the __

Reduction from the cost of inventories

For lump-sum purchases, the company allocates the total cost among various assets on the basis of their

Relative fair values. The assumption is that costs will vary in direct proportion to fair value.

Qualitative Characteristics of Accounting Information

Relevance; Faithful representation; Enhancing qualities

To prepare SCF, increase in accounts receivable is

Removed

Assume that Santos SA issues $100,000 in bonds dated January 1, 2022, due in five years with 9 percent interest payable annually on January 1. At the time of issue, the market rate for such bonds is 9 percent. The Journal entry for the interest payment is:

Repeated every year Dr Interest expense 9,000 Cr Interest payable 9,000

The objective of financial reporting places most emphasis on

Reporting to capital providers to help them make investment decisions

Accounting standard-setters use the following process in establishing international standards

Research, preliminary views, discussion paper, exposure draft, standard.

Companies may value long-lived tangible asset subsequent to acquisition at cost or fair value. Unrealized gain is often referred to as ___

Revaluation surplus

Which basic principle is this: Parmalat reports revenue in its income statement when it delivered goods instead of when the cash is collected

Revenue recognition

Net income

Revenues - Expenses

Why do we need conceptual frameworks?

Rule-making should build on and relate to an established body of concepts Enables IASB to issue more useful and consistent pronouncements over time

Cash equivalents

Short-term, highly liquid investments that can be readily converted to a specific amount of cash and which are relatively insensitive to interest rate changes.

The amount of borrowing costs to be capitalised varies on whether there is ___ debt incurred or funded from general debt obligations

Specific debt incurred to fund the project

Qualifying assets (for capitalisation approach) generally require:

Substantial period of time to get ready for intended use or sale Assets under construction for a company's own use Assets intended for sale or lease that are constructed or produced as discrete projects

Exploratory and evaluation costs are reclassified as developmental costs after:

Technical feasibility and commercial viability of production are demonstrated.

Agricultural produce

The harvested product of the entity's biological assets.

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Revenue Recognition Principle

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.

double-entry accounting

The recording of debit and credit parts of a transaction

Entity Perspective

The view that companies are distinct and separate from their owners (present shareholders).

Assurance type warranty

The warranty, included in the sales price of a company's product, that the product meets agreed-upon specifications in the contract at the time the product is sold.

Carrying amount of Cruz's equipment is 200,000, FV less cost to sell is 180,000 and the value in use is 205,000. How much is the impairment?

There is no impairment

Tan realises that the recoverable amount of the equipment is 96,000 which is greater than its carrying amount of 90,000. There was no previous impairment. The journal entry for reversal of impairment is:

There is no reversal if there wasn't impairment previously

Objective of Financial Accounting

To provide financial information about the reporting entity that is useful to 1) present and potential equity investors, 2) lenders and 3) firms.

Basic Objective of Financial Reporting

To provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity.

Tangible equipment costs are

Transportation and other heavy equipment needed to extract the resources and get it ready for market. Not included in depletion base

If inventory is understated, Net income is ____

Understated COGS is overstated (NI = Rev - COGS)

Normally, companies compute depletion on a ___ approach

Units of production method (activity approach)

Companies can either __ or __ exploratory and evaluation costs.

Write off these costs as incurred or capitalize these costs pending evaluation

Significant non-cash activities are reported in a separate note to the financial statements Y/N

Y

Amounts owed to employees are current liabilities Y/N

Yes

Architect fees considered under cost of buildings? Y/N

Yes

Attorney's fees and other closing costs are included in the Cost of land? Y/N

Yes

Commission fees paid to real estate agency under cost of land? Y/N

Yes

Costs of installing the machinery for it to begin use is part of history cost Y/N

Yes

Costs of trees and shrubbery planted (permanent in nature) included in cost of land? Y/N

Yes

Customer lists are an intangible asset Y/N

Yes

Excavation and completion costs are considered costs of buildings? Y/N

Yes

Excavation costs for new building under cost of building?

Yes

The clearing of trees and paving of the land is included in cost of land?

Yes

The import duties paid to bring a machinery to the country of operation is part of the historical costs Y/N

Yes

Trademarks are an intangible asset Y/N

Yes

Are works such as songs etc intangible assets?

Yes the copyright is an intangible asset.

Are patents intangible assets?

Yes, amortise over legal life or useful life, whichever is shorter.

Are franchise and licensing agreements intangible assets?

Yes, contract-related intangible assets. Limited life franchise should be amortised as operating expense over life of asset Indefinite life franchise should be carried at cost and not amortised.

Costs of razing and removing building under cost of land? Y/N

Yes. Cost to remove a building so that land can be used is under cost of land.

On January 1, 2022, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The bonds were issued for $559,224, and pay interest each July 1 and January 1. Prepare the company's journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 8%.

a) Dr Cash 559,224 Cr Bonds payable 559,224 b) Dr Interest expense 22,369 Cr Cash 21,000 Cr Bonds payable 1,369 c)Dr interest expense 22,423 Cr Interest payable 21,000 Cr Bonds payable 1,423

The costs for intangibles include

all acquisition costs plus expenditures to make the intangible asset ready for intended use. Typical costs include - purchase price -legal fees -other incidental expense

Historical costs

all costs incurred by a business to operate, maintain, repair, replace, or construct

Period costs include

all selling costs and administrative costs, not included as part of inventory

Goodwill is only recorded when

an entire business is purchased

Biological assets

are living animals and living plants

Basic elements

assets, liabilities, equity, income, expenses

Unearned revenues

cash received and a liability recorded before services are performed

Periodicity

company can divide its economic activities into time periods

Economic entity

company keeps its activity separate from its owners and other businesses

Depreciable base

cost - salvage value

Cost Constraint

cost of providing information must be weighed against the benefits that can be derived from using it

Self-Constructed Assets costs

costs include - materials and direct labor - overhead can be handled in two ways: 1. assign no fixed overhead 2. assign a portion of all overhead to the construction process Companies use the second method extensively

Restoration costs:

costs to restore land or other property to its original condition after extraction of the natural resource ends. It is part of the depletion base. The fair value of the obligation to restore the property after extraction

Basic Assumptions

economic entity, going concern, monetary unit, periodicity, accrual basis of accounting

Conceptual framework

establishes the concepts that underlie financial reporting

Companies must recognise an environment liability when it has an ___

existing legal obligation associated with the retirement of a long-lived assets and when it can reasonably estimate the amount of liabilities.

Accrued expenses

expenses incurred but not yet paid in cash or recorded

Prepaid expenses

expenses paid in cash before they are used or consumed

Short term notes receivable are recorded at:

face value less allowance

Going concern

financial statements are prepared with the expectation that a business will remain in operation indefinitely

Commercial substance

future cash flows change as a result of the transaction

Consigned goods

goods held for sale by one party although ownership of the goods is retained by another party

Income from operations

gross profit - operating expenses

Qualitative characteristic - Faithful representation

information that is complete, neutral, and free from error

specific identification method

inventory costing method that matches or identifies each unit of inventory with its actual cost Each piece of inventory is tracked and its cost pegged.

activity method of depreciation

is the method of depreciation in which useful life is expressed in terms of the total units of activity or production expected from the asset Asset is written off in proportion to its activity during the accounting period

Amount of interest to capitalize

limited to the lower of actual interest cost incurred during the period or avoidable interest

Monetary Unit

money is the common denominator

Current Cash Debt Coverage Ratio

net cash provided by operating activities/average current liabilities

Return on assets

net income/average total assets

Gross profit

net sales - cost of goods sold

Asset turnover

net sales/average total assets

FOB destination point

ownership of goods remains with the seller until the goods actually reach the buyer

Qualitative characteristic - Relevance

predictive value, confirmatory value, materiality

If the exchange has commercial substance

recognize gains and losses immediately else: defer gains and losses

Accrual Basis Accounting

reporting income when it is earned and expenses when they are incurred

Full Disclosure Principle

requires that companies disclose all circumstances and events that would make a difference to financial statement users

Accrued revenues

revenues for services performed but not yet received in cash or recorded

Income from continuing operations

revenues, expenses (including income taxes), gain, and losses, excluding those related to discontinued operations and extraordinary items. NOTE: This is post tax revenues

Avoidable interest

the amount of interest cost during the period that a company could theoretically avoid if it had not made expenditures for the asset

Historical cost

the amount paid for an asset and used as a basis for recognizing it on the balance sheet and carrying it on later balance sheets

First in first out (FIFO)

the first units purchased are assumed to be sold and the ending inventory is made up of the most recent purchases

Essential characteristics of accounting

the identification, measurement, and communication of financial information about economic entities (subsidiaries, parent companies) to interested parties (debt holders, shareholders, employees)

Measurement Principle

the most commonly used measurements are based on historical cost and fair value

Capital allocation

the process of determining how and at what cost money is allocated among competing interests

Debt to asset

total liabilities/total assets

declining balance method (diminishing charge methods)

uses a depreciation rate that is a multiple of the straight-line rate and applies it to the asset's beginning-of-period book value Does not deduct the salvage value in computing the depreciation base.

Non-current liabilities

value of debts of the business that will be payable after more than one year or the operation cycle of the company

The expectations gap is:

what the public thinks accountants should do and what accountants think they can do

Contingent liabilities are only reported as liability when there is more than ___ probability.

when there is more than 50% probability

Effective interest rate

yield rate of bonds, equal to the market rate of interest on the day the bonds are sold