Page 1 of 2 Gleim CPA Review Updates to Financial 2014 Edition, 1st Printing July 2014 NOTE: Text that should be deleted is displayed with a line through the text. New text is shown with a blue background. Study Unit 4 – Financial Statement Disclosure Page 140, Subunit 4.3, 1.a.: These edits update the GAAP requirement of reporting interim information. 1. Overview a. Reporting of interim information is required, and minimum disclosure requirements apply GAAP do not require reporting of interim financial information. But GAAP must be applied when entities report such information, including when publicly traded companies issue summarized interim information. Moreover, federal securities law requires certain entities that meet the definition of an issuer to report interim quarterly information on Form 10-Q. 1) For many reasons, the usefulness of interim financial information is limited. Hence Thus, their best qualitative characteristic is timeliness. Study Unit 7 – Inventories Page 273, Simulation Tab 5 answer explanation: This update corrects the answer and calculation in the answer explanation. 5. Cost of Goods Sold Schedule (7 Gradable Items) 1. K) $65,600. The beginning inventory was $65,600 (8,000 × $8.20). 2. B) $368,900. Given. Bristol records purchases at gross amounts. 3. H) $(18,000). Given. In a periodic system used in conjunction with the gross method, the amount of purchase (cash) discounts is subtracted to determine goods available for sale. 4. C) $5,000. Given. In a periodic system, freight-in is an addition to goods available for sale. Ordinarily, it is not allocated to cost of goods sold and ending inventory. 5. D) $421,500. Goods available for sale is the sum of beginning inventory, net purchases, and freight-in. 6. M L) $(176,000). Bristol applies the LCM method to total inventory. Per-unit replacement cost ($8) is the per-unit market amount because it is less than NRV ($8.80) and greater than NRV minus a normal profit margin ($8.80 – $1.05 = $7.75). Total inventory at market is therefore $176,000 [(55,000 units purchased – 33,000 units sold) × $8]. Because the ending inventory is assumed to consist of 8,000 units from beginning inventory, 12,000 units from the first quarter layer, and 2,000 units from the second quarter layer, total inventory at cost is therefore $180,400 [($8,000 × $8.20) + (12,000 × $8.25) + (2,000 × $7.90)]. Under the direct method, the $4,400 loss ($176,000 - $180,400 – $176,000) is debited to COGS and credited to inventory. 7. N) $245,500. Cost of goods sold equals goods available for sale minus ending inventory adjusted for the direct writedown to market. Copyright © 2014 Gleim Publications, Inc. and/or Gleim Internet, Inc. All rights reserved. Duplication prohibited. www.gleim.com Page 2 of 2 Study Unit 11 – Employee Benefits Page 411, Subunit 11.7, Question 27: This update corrects an amount in the correct answer explanation. 27. On January 1, Year 3, five key employees left Oak Corporation. What amount of compensation expense should Oak report in the income statement for the year ended December 31, Year 3? A. $5,400,000 B. $3,600,000 C. $2,400,000 D. $1,200,000 Answer (C) is correct. REQUIRED: The compensation expense recognized in Year 3 after a change in estimate. DISCUSSION: Given that all options vest at the same time (known as cliff vesting), the $7,200,000 (600,000 shares × $12 estimated fair value) total compensation cost should be allocated proportionately to the 3-year requisite service period. Thus, $2,400,000 ($7,200,000 ÷ 3) should be expensed in the annual income statement for the year ended December 31, Year 2. However, only 15 key employees are covered in Year 3. The total compensation expense for these employees is $5,400,000 [(30,000 options × 15 employees) × $12 fair value]. The amount to be recognized each year of the requisite service period is $1,800,000 ($5,400 5,400,000 ÷ 3). The revised cumulative amount to be recognized at the end of Year 3 is therefore $3,600,000 ($1,800,000 × 2 years). Because $2,400,000 was expensed in Year 2, Year 3 expense is $1,200,000 ($3,600,000 revised cumulative expense – $2,400,000). Answer (A) is incorrect. The total compensation expense for the entire requisite service period is $5,400,000. Answer (B) is incorrect. The total compensation expense that should be recognized in Years 2 and 3 combined is $3,600,000.Answer (C) is incorrect. The amount of $2,400,000 is based on the assumption that all 20 key employees remain employed. Copyright © 2014 Gleim Publications, Inc. and/or Gleim Internet, Inc. All rights reserved. Duplication prohibited. www.gleim.com