F3- Assets and Related Topics

Capitalized Costs

Includes installing/ rearrangement costs, costs to make equipment ready to use, and wall removal; whatever is considered an improvement/ increases usefulness

Value for acquisition of land

Purchase price + real estate tax + attorney fees; all costs to purchase land and prep for use; capitalize on balance sheet

Dollar value LIFO ending inventory

1. Calculate price index for year ( CY cost / base year cost)

2. Apply price index to layers

3. Add new layers together

JE to write off specific account under CECL method for recognizing credit losses

Allowance for expected credit losses (DR)

Accounts Receivable (CR)

[no effect on net income or working capital]

Cash and cash equivalents

• Currency and demand deposits (cash)

• Equivalents: short term highly liquid investments that are readily convertible into cash and close to maturity (90 days or less from purchase date)

Is discount on note receivable applied to the face value or maturity value?

Maturity

Consignor vs consignee

Consignor: owner of the goods

Consignee: selling the goods on behalf of consignee

Carrying value after a subsequent measurement

New fair value - cost to sell

Interest cost incurred…

Incurred during construction period: capitalize

Incurred before or after: expense as interest expense

Start up costs

Expense as incurred; one time expenses a business incurs when starting a new operation

Test for Impairment losses

• if carrying amount < or = undiscounted cash flows NO IMPAIRMENT

• if carrying amount > undiscounted cash flows IMPAIRMENT

• Impairment = (carrying amount - fair value) + disposal cost

2 methods for bank reconciliation

Simple reconciliation; reconciliation of cash receipts and disbursements

Diffs to look for in reconciling bw bank and cash balance

Deposits in transit, outstanding checks, service charges, bank collections, errors, NSF, interest income (DO BINS)

Simple reconciliation

Reconcile cash receipts and disbursements

PPE

Fixes assets shown separately on BS at original/ acquisition cost

Donated fixed assets should be recorded at what cost?

Fair market value and recorded as gain on income statement

Capitalizations

Additions, improvements, replacements, extraordinary repairs, DM/DL/MOH, interest

(Expense ordinary repairs)

Rules for capitalizing interest

1. Capitalize $ amount spent, not the borrowed amount

2. Capitalize lower of the actual incurred amount or computed cap. interest (avoidable interest)

Amortization rule (for intangible assets with finite lives and right-of-use assets (leases))

Amortized over the shorter of the estimated or remaining legal life

Impairments of finite intangibles

Determine Impairment- use undiscounted cash flows

Amount of impairment- use fair value

JE for Franchise accounting

(DR) Franchises (PV)

(DR) discount on note payable

(CR) note payable

(CR) cash (down payment)

Inventory valuation

Beginning balance + purchases + freight in - sales

Components of simple reconciliation

“DO” Bank- Deposits in Transit; Outstanding Checks

“BINS” Book- Bank collections, interest income; NSFs, service charges

Errors

Which inventory costing method will produce lower inventory turnover ratio in inflationary environment?

FIFO; CoGS will be lower, and ending inventory will be higher

Inventory costing method best for COGS and Ending Inventory

COGS - LIFO

End Inventory - FIFO