Misc Must Know Questions

Computer software cost. At the beginning of year five Mirage Corp. has 2 million in capitalized software cost and expects to be able to sell 10 million worth of product over five years. Sales in year five are 3 million. How much should be charged to expense in year five?

Computer software cost has a special rule. You can’t just use the straight line method. You must use the greater of the straight line method or the percent of revenue method. See image below for more details.

Total comprehensive income. Which of the following is an element of total comprehensive income an

A. investments by owners

B. sales revenue

C. distributions to owners

D. deferred revenue.

Answer is all changes in equity by everything, other than increases by owners or distributions to shareholders. Therefore, the answer is B. sales revenue.

See question and answer below in picture.

See question and answer in picture below.

See question in photo below.

See question and answer in photo above.

What is the future value formula?

FV = PV (1+ i) ^N.

PVIFA formula for ordinary annuity and annuity due?

See attached photo for answers.

Cash bases revenue to accrual basis revenue.

. Cash collected

. Change in receivable balance

. Change in unearned revenue

. Revenue earned

What is the present value formula?

PV = FV/(1+ i) ^N

Cash To accrual screenshot.

See attached picture

Cash to accrual Net Income (payables note)

Payables/Expense and net income have an inverse relationship. Ex: EOY A/P = $1,000. This represent expenses incurred this year, paid next year, subtract the amount.

Cash flows and a high level summary of the three sections.

See attached picture.

Cash Flow Direct Method - Cash received from customers /Sales formula.

= Sales + decrease in A/R + Increase in unearned revenue: Sales - increase in A/R - Decrease in unearned revenue

Cash flow - direct method note. Loss on sale of equipment.

This is NOT added to operating expense. It is included in the investment section,

Cash flow note on Interest Paid for long term debt

You do not make an adjustment in the operating section for the interest paid on long-term debt. However if there is a change in interest payable then you would. This is because interest paid is already included in net income.

Cash Flow Direct Method - Cash paid for merchandise/COGS formula.

COGs + Increase in Inventory + decrease in A/P. Additionally (- decrease in inventory- increase in A/P)

Cash flow direct method - operations/operating expense formula.

Operations + increase in prepaids, - decrease in prepaids. + decrease in accrued liabilities, - increase in accrued liabilities.