WILEY CMAEXCEL LEARNING SYSTEM EXAM REVIEW 2016: SELF-STUDY GUIDE Part 1: Financial Reporting, Planning, Performance, and Control

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1 ERRATA Added text is underlined. Deleted text is struck out. Modified text is in bold. In some cases, additional text, before and/or after the change, may be included to clarify the context or specific location. Italicized text is FYI. Section A: External Financial Reporting Decisions Topic 1: Financial Statements Page: 29 Figure 1A-3: +/- Extraordinary items +/- Changes in accounting principle Net income Page: 31 Order revised as appropriate for balance sheet presentation: Capital stock Shareholders Equity Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive income Page: 36 Figure 1A-9 change as follows: Increase (decrease) Decrease (increase) in merchandise inventory Topic 2: Recognition, Measurement, Valuation, and Disclosure Page 46: Level 1 inputs: The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs: The fair value hierarchy gives intermediate priority to inputs other than quoted prices included in Level 1, that can be determined indirectly from the values of related assets with quoted prices in active markets are observable either directly or indirectly for assets or liabilities, such as quoted prices for similar assets or liabilities in active markets. Level 3 inputs: The fair value hierarchy gives the lowest priority to unobservable inputs and should be used only if observable inputs are not available. Page: 48 Figure 1A-11 On July 10, $50,000 $49,500 is received. Page: 49 Debit alignment of cost of goods is modified. Dr. Sales returns and allowances Cr. Accounts receivable selling price selling price P a g e 1 John Wiley and Sons, Inc.

2 Dr. Merchandise inventory (or Loss on damaged goods) Cr. Cost of goods sold cost of goods cost of goods Page: Similarly, if the allowance for doubtful accounts had a $6,000 $1,000 debit balance, then the amount needed to adjust the balance in the allowance account to the desired level would be a debit credit of $2,000 $5,000. Allowance for Doubtful Accounts Existing balance 6,000 1,000 Adjustment 2,000 5,000 Desired ending balance 4,000 Page: 52 If an amount previously written off using the direct write-off method is later collected, the amount is debited to cash and credited to a revenue account, such as uncollectible accounts recovered. the amount is debited to accounts receivable and credited to a revenue account such as bad debts recovered and then another entry debits cash and credits accounts receivable. The first entry re-establishes the receivable. Dr. Accounts receivable Cr. Bad debts recovered The second journal entry records the cash received. Dr. Cash Cr. Accounts receivable Page: 69 Income Statement (partial Other revenues and gains Interest revenue Other expenses and losses Loss on sale of securities Net income Other comprehensive income Unrealized holding gain (loss) on availablefor-sale securities Total other comprehensive income Comprehensive income xxx (12,000) xxx Page: 73 Undervalued depreciable assets ($1 million/10 years) $ 100,000 Unrecorded intangibles ($1.5 million/15 5 years) 300,000 Total $ 400, P a g e 2 John Wiley and Sons, Inc.

3 Page: 88 Alignment modified Dr. Income tax expense Dr. Deferred tax liability Cr. Income tax payable GAAP amount Difference IRS amount Page: 98 If the remaining 6,000 shares are reissued for $8 per share: Dr. Cash 44,000 48,000 Dr. Additional paid-in capital treasury stock 4,000 Dr. Retained earnings 6,000 2,000 Cr. Treasury stock (6,000 $9/share) 54,000 Par (or stated value) method. In this method, treasury stock is recorded at par value and additional paid-in capital is debited for the amount in proportion to the original issue price. Page: 99 The journal entry for the reacquisition of 10,000 $1 par shares (originally sold for $8 per share) for treasury stock at $9 per share would be: Dr. Treasury stock 10,000 Dr. Additional paid-in capital in excess of par 70,000 Dr. Retained earnings 10,000 Cr. Cash 90,000 If 4,000 treasury shares are reissued at $10 per share: Dr. Cash 40,000 Cr. Treasury stock (4,000 $9 $1/share) 4,000 Cr. Additional paid-in capital treasury stock in excess of par 36,000 Page: 101 Dr. Cash ($20/share 1,000 shares) 20,000 Dr. Paid-in capital stock options 4,000 6,000 Cr. Common stock ($8 1,000 shares) 8,000 Cr. Additional paid-in capital common stock 16,000 18,000 ([$20 $4] 1,000 shares) Page: 104 Journal entry for the 30% stock dividend (large stock dividend): Dr. Retained earnings 10,000 30,000 Cr. Common stock dividend distributable 10,000 30,000 (100,000 shares 10% 30% $1 par/share) Dr. Common stock dividend distributable 10,000 30,000 Cr. Common stock 10,000 30, P a g e 3 John Wiley and Sons, Inc.

4 Page: 109 Total estimated gross profit on the contract would be ($11,250,000 $10,000,000) = $1,250,000, so 25% of this amount, or $312,500, is recognized as gross profit the first year. Also, during the year the company billed the customer $2,250,000 and received $1,875,000 in payments. Page: 111 The current-period loss (based on the example above) is calculated in Figure 1A-42, continuing from the long-term construction contract illustration previously discussed. Figure 1A-42 Computation of Recognizable Loss in Current Period Cost to date (12/31/Year 2, assuming $2,500,000 was incurred in Year 2) Estimated costs to complete (revised) Estimated total costs Percentage complete: ($4,315,680 / $7,547,396) (5,000,000/11,000,000) Revenue recognized in Year 2: ($6,660,000* 57.2%) $1,665,000 ($11,250,000* 45.45%) $2,812,500 Costs incurred in Year 2 Loss recognized in Year 2 $4,315,680 3,231,716 $7,547, % 2,144,520 $5,000,000 6,000,000 $11,000, % 2,300,625 2,797,360 $(652,840) *(Contract price 45.45%) - revenue recognized in Year 1 Revenue recognized in Year 2 on project. Cumulative revenue recognized up to Year 1 on project (computed in prior discussion). Page: 112 Dr. Construction expense 2,797,360 2,500,000 Cr. Construction in progress 652, ,375 Cr. Revenue from long-term contracts 2,144,520 2,300,625 2,500,000 $(199,375) Section C: Performance Management Topic 3: Performance Measures Page: 371 Question 1C1-CQ2216 Page: 372 Question 1C1-CQ18 The financial statements show a $3,000 loss for a job that was budgeted to show a $6,000 profit. Actual (purchased and used) Budget d. The flexible budget variance was $900 unfavorable favorable. Section D: Cost Management Topic 5: Business Process Improvement Page: Please remove product testing from inclusion as a prevention costs. 2. Please make note that product testing is an appraisal cost P a g e 4 John Wiley and Sons, Inc.

5 Essay Exam Support Materials Page: 527 Correction to LO s. Should be No. 5 not No. 55: as outlined in Auditing Standard No. 55. Page: 648 Question 1D-ES03 The last sentence on the page beginning Without this planning and should be Without this planing and Note: Planing is a manufacturing process applicable to the scenario. Page: 681 Under Answer B: occurrences of gross margin need to be replaced with gross profit Page: 691 Answer to Question 1D-ES03 Table A.1. Split-Off Value Total should be $1,300,000 $1,350,000 Page: 692 Answer to Question 1D-ES03 Table A.2. Split-Off Value Total should be $1,350,000 $1,300,000 Answers to Section Practice Questions Page: 739 The other available answer choices are incorrect. Note that the flexible budget variance includes all variable costs variances (material, direct labor, and variable overhead) as well as the fixed overhead budget variance. is the variance between the actual results and flexible budget amount, which equals $900 unfavorable P a g e 5 John Wiley and Sons, Inc.

WILEY CPAEXCEL EXAM REVIEW: FINANCIAL ACCOUNTING AND REPORTING APRIL 2017

WILEY CPAEXCEL EXAM REVIEW: FINANCIAL ACCOUNTING AND REPORTING APRIL 2017 ERRATA Added text is underlined. Deleted text is struck out. Modified text is in bold. In some cases, additional text, before and/or after the change, may be included to clarify the context or specific