FREE Bachelor of Science in Accountancy: FAR Questions and Answers

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Determine the depreciation in year three of an asset's useful life based on the information below.

1. Cost of asset $11,000
2. Salvage Value $1,000
3. Useful life is four years
4. Sum of years digit method is used to calculate

Correct! Wrong!

Based on the usable life, the total of the years' digits is determined as (1+2+3+4) = 10.
Cost of asset minus salvage value (11,000-1,000) equals 10,000 for the depreciable base.
Depreciation Calendar
4/10th year times 10,000 equals 4,000.
2nd year (3/10) times 10,000 equals 3,000
3rd year (2/10) times 10,000 equals 2,000.
4th year (1/10) times 10,000 equals 1,000

15% of Company B is owned by Company A. The CEO of Company A is a member of Company B's board of directors. What kind of accounting procedure ought to be applied to this investment?

Correct! Wrong!

When a firm owns 20% to 50% of another company, the equity approach is applied; however, in this case, the CEO of Company A sits on the board of directors for Company B.
By doing this, Company A would exert significant control over Company B, and the investment would be accounted for under the equity method.

Andrew, a consultant, uses a cash basis to maintain his accounting records. Gary received $300,000 in client fees in year 2. Andrew had $50,000 in accounts receivable as of 12/31/Year 1. At 12/31/Year 2, Andrew had $70,000 in accounts receivable and $6,000 in unearned income. What would Andrew's second-year service revenue be if he used the accrual basis?

Correct! Wrong!

Cash Collected – $300,000
Beginning Balance Accounts Receivable – ($50,000)
Ending Balance Accounts Receivable – $70,000
Unearned Revenue – ($6,000)
——————————————————

Service Revenue – $314,000

Relative value, commonly referred to as salvage value, is:

Correct! Wrong!

An assessment of an asset's value at the end of its useful life is called salvage value, or residual value. It is applied in the depreciation calculation.

Bobcat Corp. sold a piece of land to Crystal Corp. on September 1st, Year 3 for $300,000. The land originally cost $275,000 to Bobcat Corp. Courtside Corp's subsidiaries include Crystal Corp and Bobcat Corp. What would the land's worth be on the consolidated balance sheet?

Correct! Wrong!

As this would be an intercompany transaction, the gain that Bobcat Corp would record would be removed and the land would be written down to its original value when the consolidated financial statements are published (the amount of the gain).

Beginning inventory for ABC Corp. was $32,000 undervalued at the beginning of Year 1 while ending inventory was $57,000 inflated. So, ABC Corp's cost of goods sold for the third year was:

Correct! Wrong!

The 32,000 understatement of initial inventory results in a 32,000 understatement of cost of goods sold and an understatement of the cost of products offered for sale.
The cost of goods sold is understated by 57,000 due to the 57,000 overstatement of ending inventory. This total cost of goods sold is 89,000 underestimated.

True or False: The rules for contributions partners make while forming a partnership are the same under GAAP and tax.

Correct! Wrong!

To calculate the amount contributed to the partnership under GAAP, the fair value of the assets is used.
The net book value of assets provided to a partnership is used by the tax rule.

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