B on the real estate one.
A) Increase retained earnings by $3,808,000. aren’t you just increasing an Asset - so E should go up? Where did Taxes come into the picture at all? Unless you knew how long the RE was to be depreciated - and then straight line vs. any other accelerated method. also isn’t the depreciation in RE actually “recaptured” at the end during the sale? so why would deferred taxes come in?
Going back a little…When you sell AR with recourse, to you deduct the entire AR sold from Sales on the I/S or just the part you lost? If you sold AR for 95% of its value with recourse, don’t you just deduct 5% from Sales on the I/S?
cpk123 Wrote: ------------------------------------------------------- > A) Increase retained earnings by $3,808,000. > > aren’t you just increasing an Asset - so E should > go up? Where did Taxes come into the picture at > all? Unless you knew how long the RE was to be > depreciated - and then straight line vs. any other > accelerated method. > > also isn’t the depreciation in RE actually > “recaptured” at the end during the sale? so why > would deferred taxes come in? Taxes should be coming from depreciation no? If real estate is being brought up to fair value, then the depreciate base increases, which is then flows through the income statement, and hence will impact taxes charged on EBIT. If I remember correctly, recpature only applies when the asset is sold - at a higher value than purchased. In this case nothing has been sold. Correct me if I’m way off.
I think it’s A actually. It has to be A 
clama – taxes from recaptured depreciation is at the end - and nothing is ever deferred there, I believe.
One heads up on the Adjustments, a stupid mistake I made in practice… when adjusting debt to market value… make sure you take the current portion of long term debt with it…
C for retained earnings question B for second question. why would deferred taxes factor into this?
Your answer: A was correct! Since the property has not been sold, there is not a tax effect. The entire market value adjustment is included in retained earnings. I got this one right. No indication that the RE is sold so the additional information is there to fack you.
QuantJock_MBA Wrote: ------------------------------------------------------- > Your answer: A was correct! > > Since the property has not been sold, there is not > a tax effect. The entire market value adjustment > is included in retained earnings. > > > I got this one right. No indication that the RE > is sold so the additional information is there to > fack you. fack me sideways then
LIFO results in lower COGS, higher earnings, higher taxes, and lower cash flows when prices are falling!
Under the temporal method, the inventory and cost of goods sold (COGS) accounts are both nonmonetary accounts. Which of the following statements is least accurate regarding these accounts? A) The Inventory account is remeasured using the historical rate under both LIFO and FIFO. B) If the firm accounts for inventory using last in, first out (LIFO), then the beginning-of-period rate is used to remeasure COGS. C) If the firm accounts for inventory using first in, first out (FIFO), then a more current rate will be applied to the inventory account.
This one should be B. As we apply historic rate to COGS and current rates to imventory
I swear qbank is wrong. Ans B! I reconfirmed this with my notes and SS. Your answer: C was incorrect. The correct answer was B) If the firm accounts for inventory using last in, first out (LIFO), then the beginning-of-period rate is used to remeasure COGS. Under LIFO, the last goods purchased are the first goods out to COGS. Hence, although technically the historical rate is used to remeasure COGS, a more recent rate is typically more appropriate for COGS under LIFO.
I would say its B. (Least accurate ) LIFO --> COGS should be accounted for using end of the period not beginning of the period. with historical method. A is correct, C is also correct…since historical is current when FIFO is used.
QuantJock_MBA Wrote: ------------------------------------------------------- > I swear qbank is wrong. Ans B! I reconfirmed > this with my notes and SS. > > Your answer: C was incorrect. The correct answer > was B) If the firm accounts for inventory using > last in, first out (LIFO), then the > beginning-of-period rate is used to remeasure > COGS. > > Under LIFO, the last goods purchased are the first > goods out to COGS. Hence, although technically the > historical rate is used to remeasure COGS, a more > recent rate is typically more appropriate for COGS > under LIFO. Qbank is correct.
.
QuantJock_MBA Wrote: ------------------------------------------------------- > I swear qbank is wrong. Ans B! I reconfirmed > this with my notes and SS. > > Your answer: C was incorrect. The correct answer > was B) If the firm accounts for inventory using > last in, first out (LIFO), then the > beginning-of-period rate is used to remeasure > COGS. > > Under LIFO, the last goods purchased are the first > goods out to COGS. Hence, although technically the > historical rate is used to remeasure COGS, a more > recent rate is typically more appropriate for COGS > under LIFO. Since we are using LIFO in this case, the inventory coming in are going out 1st and assigned to COGS. So COGS has to be measured at current rate and inventory has to be measured at historic rate.
it helps if you think about historic rate not necessarily as the historic rate given in the problem, but the particular historic rate at which the inventory was purchased. sometimes it’s the current rate. there is a pretty decent question in schweser about this that involves fifo cogs and inventory purchases at varying rates - #87359
I thought we have to use the same rate for COGS as we used for inventory. So if we used LIFO inventory then we’d used a historical rate. so we’d use the historical rate also for COGS? Is this not right then?