Area 2: Select Accounts

Under ASC 606, how should a company account for a contract modification that adds distinct goods at a price that does NOT reflect their standalone selling price?

On January 1, Year 1, Lessee Corp enters a 10-year lease for a building. Annual payments are $50,000 due at the beginning of each year. The building's useful life is 15 years. The lease grants Lessee an option to purchase the building for $10,000 at the end of the lease, which is significantly below the expected fair value of $200,000. The implicit rate is 5%. How should Lessee classify this lease and amortize the Right-of-Use (ROU) asset?

Company A has a bank account with Bank X with a balance of $50,000 and an overdraft of $10,000 in a separate account at Bank Y. The accounts are not linked. How should these be reported on the balance sheet?

On July 1, Factor Co. transferred receivables with a face value of $100,000 to Finance Corp. Factor Co. retained a 5% holdback for adjustments. Finance Corp. charged a 3% fee and withheld the holdback. The transfer was without recourse and met the criteria for a sale. What is the loss on sale reported by Factor Co.?

A company adopted Dollar-Value LIFO on Jan 1, Year 1, when the inventory value was $200,000 (Base Year Cost). On Dec 31, Year 1, the ending inventory at current year cost is $231,000. The relevant price index is 1.05. What is the Dollar-Value LIFO inventory balance at Dec 31, Year 1?

Under US GAAP, which inventory method requires the use of 'Lower of Cost or Market' (where Market has a ceiling and floor), rather than 'Lower of Cost or Net Realizable Value'?

Construction of a qualifying asset began on Jan 1. Weighted Average Accumulated Expenditures (WAAE) were $1,000,000. The company had a specific construction loan of $600,000 at 8% and general debt of $2,000,000 at 5%. What amount of interest should be capitalized?

Company A exchanges a truck (Book Value $20,000, Fair Value $25,000) for a machine from Company B (Fair Value $22,000) and receives $3,000 cash. The exchange lacks commercial substance. What gain should Company A recognize?

Tech Co. incurred the following costs for developing software for internal use:<br/>- Preliminary project stage: $50,000<br/>- Application development stage (coding/testing): $200,000<br/>- Training employees: $30,000<br/>- Data conversion costs: $20,000<br/><br/>What amount should be capitalized?

Investor Inc. purchased 30% of Investee Co. for $600,000 on Jan 1. The book value of Investee's net assets was $1,500,000. The difference was attributed to equipment with a 5-year remaining life. Investee reported Net Income of $200,000 and paid dividends of $50,000. What is the carrying value of the investment at Dec 31?

A company holds a debt security classified as Available-for-Sale (AFS). Cost = $100,000. Fair Value at Year 1 end = $90,000. The decline is not due to credit factors (no credit loss). In Year 2, the Fair Value rises to $95,000. What is the accounting impact in Year 2?

On Jan 1, Year 1, a company issued $1,000,000, 5% bonds due in 5 years. The bonds were sold to yield 6%. Interest is paid annually on Dec 31. The PV of the bonds is $957,876. What is the carrying value of the bonds at Dec 31, Year 1?

A lessee enters a 5-year lease with annual payments of $20,000 due at the BEGINNING of each year. The rate is 5%. PV of Annuity Due (5 yrs, 5%) = 4.55. PV of Ordinary Annuity (5 yrs, 5%) = 4.33. What is the initial Lease Liability balance on Day 1 (after the first payment is made)?

Lessor Co. enters a sales-type lease. The equipment cost $60,000 and the fair value is $75,000. The present value of the lease payments is $75,000. What is the immediate effect on the Lessor's income statement?

A construction company enters a contract with a bonus clause. If completed by Dec 31, they get a $100,000 bonus. Based on history, they estimate a 60% chance of finishing on time (getting $100k) and 40% chance of being late ($0). Under ASC 606, what amount of variable consideration should be included in the transaction price?

On Jan 1, Year 1, a company sold a subscription for $120 covering 12 months. On March 31, the customer upgraded, adding features for the remaining 9 months for an extra $45 (total). The new features are NOT distinct from the original service. How is this modification accounted for?

In Year 1, a company has a $100,000 temporary difference (Liability > Tax Basis) that will reverse in Year 3. The enacted tax rates are: Year 1 (21%), Year 2 (25%), Year 3 (28%). What is the Deferred Tax Liability at Dec 31, Year 1?

A company has a Deferred Tax Asset (DTA) of $100,000 arising from NOL carryforwards. Management determines it is 'more likely than not' that only 60% of the DTA will be realized. What is the journal entry to record the Valuation Allowance?

Company repurchased 1,000 shares of its $10 par common stock for $15 per share. It uses the Cost Method. Later, it reissued 500 shares for $12 per share. What is the journal entry for the reissuance?

A company declares a 10% stock dividend when the stock price is $50 and par value is $10. There are 100,000 shares outstanding. What is the effect on Retained Earnings?