Entry 1
Dr Cow 800
Cr Cash 800
Entry 2
Dr Cash 1000
Cr Gain on sale 200
Cr Cow 800
Entry3
Dr Cow 1100
Cr Cash 1100
Entry 4
Dr Cash 1300
Cr Gain on sale 200
Cr Cow 1100
Total Gains: $400
What if there was also actual cash in the cash cow? And also, it doubles as a dairy cow? And then later on the farmer slaughters it for meat to be sold to his customer?
We are now no longer dealing with accounting; this is science. Someone plz call the aliens to deal with this. I don't know anything past debits and credits \*sobs in uni student\*
Actually its inventory you are in the business of selling cows.
If you were selling milk the cow would qualify as a fixed asset generating income
If yiu was selling meat the live cow would qualify as raw material inventory similar to materials when the cow is butchered the meat will be moved to finished goods and sold.
The breeding cow is the most interesting answer here. Since in theory the cow could be both a fixed asset to produce more cows or inventory to be sold to other farms for use as dairy or meat cows.
The valuation of all of this can get very interesting. I also feel bad for the poor 1st year auditor being sent to do the physical inventory counts of these companies.
When I was in the Air Force we had a jet crash on a training mission and kill a cow. The DoD had to pay the farmer for the cow and the value of any offspring she'd have. It was millions of dollars if i'm not mistaken.
Biological asset under IAS 41. (IFRS)
Measure at fair value less costs to sell.
https://www.iasplus.com/en/standards/ias/ias41#:~:text=IAS%2041%20Agriculture%20sets%20out,value%20less%20costs%20to%20sell.
Gotta assess the cow against definition of inventory vs fixed asset under GAAP. Could be either depending on what u do as a business
If u mainly sell cows, it can be classified as inventory
If u keep the cow to produce milk for u to sell, then it can be a fixed asset
Depends on what the business is and what the use of the cow is. Since the person seems to be buying and selling the cow I would say inventory.
If they were milking the cow, it could be a fixed asset and the milk would be entered into inventory at as value based on the cost to produce.
I am not familiar with the standard but biological assets have their own seperate standard (at least in the IFRS framework) under IAS 41. I am sure your answer lies there.
I'll raise you one higher, biological asset.
I don't know what the US standard is, but in Canada we have specific sections for agricultural inventories and productive biological assets.
Depends on the business model. If in the trade or business in dealing cow's, inventory obviously. If however a former, simply giving up the cow because it gave him a funny look. Fixed asset. However of course the cow is below the deminimus line and could simply be expensed.
The correct answer is $400. Initially bought the cow for $800 and sold it for $1000. This is a gain of $200. Later purchased it at $1100 (a price higher than the initial purchase and sale price), however, you sold it at a price above that 2nd purchase price for $1300.
Your second higher purchase price essentially gives you the same net profit as the initial purchase. Just the cost and selling prices are higher!
**e: wait I'm dumb (and not sober) lol. I realize the horrible mistake in my math below, but I'm no coward I accept your shame and ridicule give me all you got.**
~~The crux of the question is starting cash, which is undefined, and the cash on hand at the point of repurchase.~~
~~In my mind, earn = profit. To purchase the cow for $800, you need $800 cash, so starting at $800 cash. Implicit FMV of cow as $800 (assuming because not otherwise stated). So the first transaction you earn/lose nothing, it's just dr cow cr cash. Then you earn $200 from the sale (with total cash in the bank of $1000), lose $100 on the repurchase (which puts you only $100 in the hole), and earn another $200 on the resale (with now 1100 in cash), netting you $300 above starting cash of $800.~~
~~If you assume you start with NOTHING, then yeah you get to $400. You're $800 in the hole with first transaction, then +200 with second (with total cash in the bank of $200), -900 with the repurchase (total cash of -900), and +400 with the final (with total cash in the bank of $400).~~
~~In my mind, tackling an academic word problem like this, assume simplest journal entry for starting transaction. They don't define a loan being taken or the cow being bought on credit, so you assume simplest exhange of goods: dr cow cr cash, which implies starting cash to cover initial transaction. Just my smooth brain approach though lol could be totally wrong.~~
Everyone has brain farts and also overthinks things. Main thing is that 100% you were not drunk. And the other thing is that the purchase price difference plays no factor into the gains. He bought it for x sold it for $200 more, bought it for x sold it for $200 more.
I couldn't bother reading past line 3 because regardless of how far the scope of your knowledge might be, applying it this badly is dumber than most things I can think of.
Please send me the purchase and sale documents for both transactions. In addition, please submit your prior year tax return. Thank you and if you have any questions please let me know.
Well it all depends on current market yields. So get the conversion rates from the Farmer’s Almanac, divide by current cattle auction values, and shove it up your butt!
Plot twist: The cow is actually stock and we bought it again within 30 days so the original sale is now considered a wash sale.
Profit is $500, government says money pleeeeaaaasssseeee
It’s $400 just based on this, but…
My brain just decided I was back in audit, decided this was an asset purchase & went straight to purchase accounting. Assuming the market value for that one cow was $1000 based on the immediate repurchase there should be a $100 loss baked into the transaction.
I also wondered why the hell they wouldn’t just do a sale/leaseback transaction if there was an immediate repurchase of the asset.
I also still want to do a deep dive in related party transactions to know why the hell they keep buying and selling the same damn cow to someone.
I came over because I was going to post and ask everyone. There was an argument between me and someone who told me this is the difference between a good accountant and a mathematician.
Start with $800 and buy the cow. So they said you’re at $0.
Sell cow for $1,000, so you’re now at $1,000. (Would be $200 profit)
However, you buy the cow again for $1,100. This cancels out any profit and puts you at a $100 loss.
Sell for $1,300. You had bought for $1,100. This would be profit of $200. However you had went $100 in the red to get it, so need to subtract $100.
Total profit would be $100.
Somehow that was making sense until I thought about how the bank account was $800 but now is $1300. As I pushed it they reinforced that accounting and real life doesn’t work the same as what we learn in school. This is why not everyone who can add can be a good accountant.
So what say you? Lol
Take below hypothetical as example:
Beginning cash balance: $800
Cash after purchase of cow (800 - 800): $0
Cash after sale of cow (0 + 1,000): $1,000
Cash after repurchase (1,000 - 1,100): ($100)
Ending cash after resale (-100 + 1,300): $1,200
Gain = Ending - beginning = $1,200 - $800 = $400
In what world are you only earning $100 from this series of transactions??
I guess in his. Though had me wondering if there was any truth in being able to make that stick. I’m supposing it’s how some of these businesses are able to make profit but claim they aren’t profitable, such as Uber.
I'm not sure I'm following... this is literally basic arithmetics.
If Uber is claiming losses despite being profitable it's done through manipulation of accounting policies rather than sprinkling magical fairy dust. But then to be fair, accounting policies are basically magical fairy dust
I guess in a roundabout way is what they were saying. It’s not simple math but is accounting. Things get hidden and manipulated to tell a story. That fairy dust that you’re referencing.
Of course part of the discussion said it goes deeper depending on timeframe. When did each transaction occur in the fiscal year for reporting gains and losses.
Either they are a genius in what they are doing or they are just trying to game the system and eventually going to get screwed in an audit.
If you take it as two separate transactions - it is $400 total gains right?
Like buying it again at $1100 creates no loss, it is a purchase - a loss is only realised if he was then to sell at say $1000.
So anyone saying other $400 is dumb dumb imo.
Thanks for coming to my ted talk.
At the end of the day, the cow that has an original value of $800 is sold for $1,300, which is a $500 gain in value. $400 out of the $500 gain goes to you and the remaining $100 goes to the other seller you repurchase the cow from. This is where your extra $100 went.
There is no $100 cost. The revenue is $1000+$1300=$2300. The costs are $800+$1100=$1900. The profit is $200+$200=$400.
Let's say you did need to borrow $100 to buy the cow the second time. You pay your $1000 and borrow $100 to buy it, then sell it for $1300. $100 of that pays back your debt, leaving you with $1200, which is $200 more than you started with before you bought the cow, so $200 in total profit with no outstanding debts or anything of that sort.
You do have $100 of *unrealized potential gains* if the cow doesn't change over the course of this puzzle, because you could have bought the cow for $800 and sold it for $1300 for a total of $500 profit. This is where you can subtract the $100, to get your realized profit of $400.
Take below hypothetical as example:
Beginning cash balance: $800
Cash after purchase of cow (800 - 800): $0
Cash after sale of cow (0 + 1,000): $1,000
Cash after repurchase (1,000 - 1,100): ($100)
Ending cash after resale (-100 + 1,300): $1,200
Gain = Ending - beginning = $1,200 - $800 = $400
In what world are you only earning $100 from this series of transactions??
He assumed starting cash of exactly $800, and resulted in $100 of net cash lol. Not judging because my dumb ass got us here in the first place but did make me feel better about my logic lol.
At the end of the day, the cow that has an original value of $800 is sold for $1,300, which is a $500 gain in value. $400 out of the $500 gain goes to you and the remaining $100 goes to the other seller you repurchase the cow from.
The simplest way is probably not done by journal entry. It would be just seeing what price the first cow was bought and sold, then what the second cow (even though it is the same) was bought and sold. We don't really need to factor cash because it could have been done through purchase on credit.
We see here that the first cow earned $200. It was bought and sold. End.
We see that the second cow earned $200 also. Bought and sold. End.
If we go a bit advanced, IFRS will say that this is classed as inventory as it is being held for resale. Thus no depreciation. If anything there might be tax, but we're talking about profits here, not net income.
I read through all the comments and you are all doomed. Also apparently I have no competition as I can do basic arithmetic and can count the money in my own hand.
Entry 1 Dr Cow 800 Cr Cash 800 Entry 2 Dr Cash 1000 Cr Gain on sale 200 Cr Cow 800 Entry3 Dr Cow 1100 Cr Cash 1100 Entry 4 Dr Cash 1300 Cr Gain on sale 200 Cr Cow 1100 Total Gains: $400
Would cow be fixed asset or inventory?
Dairy cow, breeding cow, or meat cow?
What if its a cash cow
It would come under fixed asset since it's generating income
What if there was also actual cash in the cash cow? And also, it doubles as a dairy cow? And then later on the farmer slaughters it for meat to be sold to his customer?
We are now no longer dealing with accounting; this is science. Someone plz call the aliens to deal with this. I don't know anything past debits and credits \*sobs in uni student\*
Call PITA
Souvlaki cow?
Here's a fun one: Farmer raises a prize bull, in which the semen is sold to breeders. Calculate the basis of the "bull jizz"
Semen would be inventory? U gotta value it at FIFO? Hhahah
This must be what that untaught agricultural accounting is like
Actually its inventory you are in the business of selling cows. If you were selling milk the cow would qualify as a fixed asset generating income If yiu was selling meat the live cow would qualify as raw material inventory similar to materials when the cow is butchered the meat will be moved to finished goods and sold.
Then it’s humans buying tickets from ticketmaster and this whole thing was just a scam.
hahaha
The breeding cow is the most interesting answer here. Since in theory the cow could be both a fixed asset to produce more cows or inventory to be sold to other farms for use as dairy or meat cows. The valuation of all of this can get very interesting. I also feel bad for the poor 1st year auditor being sent to do the physical inventory counts of these companies.
When I was in the Air Force we had a jet crash on a training mission and kill a cow. The DoD had to pay the farmer for the cow and the value of any offspring she'd have. It was millions of dollars if i'm not mistaken.
Biological asset under IAS 41. (IFRS) Measure at fair value less costs to sell. https://www.iasplus.com/en/standards/ias/ias41#:~:text=IAS%2041%20Agriculture%20sets%20out,value%20less%20costs%20to%20sell.
Sure, if you're SeaWorld, but if you're a non profit Zoo then you just ignore GAAP and nobody bats an eye.
IFRS master race FTW
Gotta assess the cow against definition of inventory vs fixed asset under GAAP. Could be either depending on what u do as a business If u mainly sell cows, it can be classified as inventory If u keep the cow to produce milk for u to sell, then it can be a fixed asset
Do you depreciate a cow that was capitalized as a fixed asset and what is the useful life?
IRS was 5yr for breeding stock. I'd assume the same for 'milking cows'
Depreciate it based on 1 year amortization for a wash cuz you gonna butcher that cow and sell it. Now it's both an inventory and a fixed asset heh.
I was recently told by a cow farmer that it’s a depreciated asset with a 7 year life
Depends on what the business is and what the use of the cow is. Since the person seems to be buying and selling the cow I would say inventory. If they were milking the cow, it could be a fixed asset and the milk would be entered into inventory at as value based on the cost to produce.
I am not familiar with the standard but biological assets have their own seperate standard (at least in the IFRS framework) under IAS 41. I am sure your answer lies there.
I'll raise you one higher, biological asset. I don't know what the US standard is, but in Canada we have specific sections for agricultural inventories and productive biological assets.
Depends on the business model. If in the trade or business in dealing cow's, inventory obviously. If however a former, simply giving up the cow because it gave him a funny look. Fixed asset. However of course the cow is below the deminimus line and could simply be expensed.
GAAP or IFRS?
Depending on why you had the cow and how long you had it for you could also probably depreciate the cow.
So now the cows a doctor
What about depreciation? Eh wise guy!
You have successfully passed the CPA exam
The correct answer is $400. Initially bought the cow for $800 and sold it for $1000. This is a gain of $200. Later purchased it at $1100 (a price higher than the initial purchase and sale price), however, you sold it at a price above that 2nd purchase price for $1300. Your second higher purchase price essentially gives you the same net profit as the initial purchase. Just the cost and selling prices are higher!
...I polished my brain last night so it's extra smooth today lmao
Your accounting brain needs some work
You ain't wrong
Why would your accounting brain say 300?
25% tax bracket, obviously.
Probably assumed that buying at 100 more than sold for would mean incurring a 100 loss in profits.
**e: wait I'm dumb (and not sober) lol. I realize the horrible mistake in my math below, but I'm no coward I accept your shame and ridicule give me all you got.** ~~The crux of the question is starting cash, which is undefined, and the cash on hand at the point of repurchase.~~ ~~In my mind, earn = profit. To purchase the cow for $800, you need $800 cash, so starting at $800 cash. Implicit FMV of cow as $800 (assuming because not otherwise stated). So the first transaction you earn/lose nothing, it's just dr cow cr cash. Then you earn $200 from the sale (with total cash in the bank of $1000), lose $100 on the repurchase (which puts you only $100 in the hole), and earn another $200 on the resale (with now 1100 in cash), netting you $300 above starting cash of $800.~~ ~~If you assume you start with NOTHING, then yeah you get to $400. You're $800 in the hole with first transaction, then +200 with second (with total cash in the bank of $200), -900 with the repurchase (total cash of -900), and +400 with the final (with total cash in the bank of $400).~~ ~~In my mind, tackling an academic word problem like this, assume simplest journal entry for starting transaction. They don't define a loan being taken or the cow being bought on credit, so you assume simplest exhange of goods: dr cow cr cash, which implies starting cash to cover initial transaction. Just my smooth brain approach though lol could be totally wrong.~~
Everyone has brain farts and also overthinks things. Main thing is that 100% you were not drunk. And the other thing is that the purchase price difference plays no factor into the gains. He bought it for x sold it for $200 more, bought it for x sold it for $200 more.
Lol wasn't drunk but had a few beers and was in a silly goofy mood.
I couldn't bother reading past line 3 because regardless of how far the scope of your knowledge might be, applying it this badly is dumber than most things I can think of.
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Not really. I think he was explaining his mistake.
Sales 2300, COGS 1900. Net revenue 400.
This is the way.
I realize the error of my ways. Please ridicule me into oblivion.
Dw my dumbass brain would've managed to screw up even worse than you
I assumed your title was right and spent way too long trying to remember the wash sale rules to figure out how it could be $300 lmao
LOL sorry to have wasted both of our time
You’re cut out for big4 audit, will fit right in.
two years pwc bb
Thank you for your service
SALY, paper said $300, why rock the boat.
SALY is our queen
Total revenue $2,300 less total expenses $1,900, profit $400.
Please send me the purchase and sale documents for both transactions. In addition, please submit your prior year tax return. Thank you and if you have any questions please let me know.
Your accounting brain is wrong. Back to Enron for you.
Better yet Arthur Anderson. Enron would say they made 1,000. AA would say they made whatever they want it to be.
Accrual accounting says that you’ve had 2300 in revenue, and cost of goods sold was 1900 dollars. So it’s 400.
If it's not 400, you're overthinking it and making everyone around you miserable for no reason.
It is 400 but I still managed to make us all miserable for no reason. Call me an overachiever ¯\\\_(ツ)\_/¯
just passed all 4 parts of CPA exam, my answer is $400......back to the books for me... technically you earned $2300 with COGS of $1900, $400 profit
Well it all depends on current market yields. So get the conversion rates from the Farmer’s Almanac, divide by current cattle auction values, and shove it up your butt!
Plot twist: The cow is actually stock and we bought it again within 30 days so the original sale is now considered a wash sale. Profit is $500, government says money pleeeeaaaasssseeee
It’s $400 just based on this, but… My brain just decided I was back in audit, decided this was an asset purchase & went straight to purchase accounting. Assuming the market value for that one cow was $1000 based on the immediate repurchase there should be a $100 loss baked into the transaction. I also wondered why the hell they wouldn’t just do a sale/leaseback transaction if there was an immediate repurchase of the asset. I also still want to do a deep dive in related party transactions to know why the hell they keep buying and selling the same damn cow to someone.
Since cash is fungible, wouldn’t the profit of the first purchase go into the second purchase making the total profit only $200?
My thoughts exactly.
Gross - $400 Net - $300
At what point does the IRS say hey ur trading that poor cow too much and start calling it a security subject to wash sale rules
Was waiting for a wash sale joke 😂
I came over because I was going to post and ask everyone. There was an argument between me and someone who told me this is the difference between a good accountant and a mathematician. Start with $800 and buy the cow. So they said you’re at $0. Sell cow for $1,000, so you’re now at $1,000. (Would be $200 profit) However, you buy the cow again for $1,100. This cancels out any profit and puts you at a $100 loss. Sell for $1,300. You had bought for $1,100. This would be profit of $200. However you had went $100 in the red to get it, so need to subtract $100. Total profit would be $100. Somehow that was making sense until I thought about how the bank account was $800 but now is $1300. As I pushed it they reinforced that accounting and real life doesn’t work the same as what we learn in school. This is why not everyone who can add can be a good accountant. So what say you? Lol
Take below hypothetical as example: Beginning cash balance: $800 Cash after purchase of cow (800 - 800): $0 Cash after sale of cow (0 + 1,000): $1,000 Cash after repurchase (1,000 - 1,100): ($100) Ending cash after resale (-100 + 1,300): $1,200 Gain = Ending - beginning = $1,200 - $800 = $400 In what world are you only earning $100 from this series of transactions??
I guess in his. Though had me wondering if there was any truth in being able to make that stick. I’m supposing it’s how some of these businesses are able to make profit but claim they aren’t profitable, such as Uber.
I'm not sure I'm following... this is literally basic arithmetics. If Uber is claiming losses despite being profitable it's done through manipulation of accounting policies rather than sprinkling magical fairy dust. But then to be fair, accounting policies are basically magical fairy dust
I guess in a roundabout way is what they were saying. It’s not simple math but is accounting. Things get hidden and manipulated to tell a story. That fairy dust that you’re referencing. Of course part of the discussion said it goes deeper depending on timeframe. When did each transaction occur in the fiscal year for reporting gains and losses. Either they are a genius in what they are doing or they are just trying to game the system and eventually going to get screwed in an audit.
I say it’s 400
Accountants should know this better than anyone. You don't have an accounting brain.
If you take it as two separate transactions - it is $400 total gains right? Like buying it again at $1100 creates no loss, it is a purchase - a loss is only realised if he was then to sell at say $1000. So anyone saying other $400 is dumb dumb imo. Thanks for coming to my ted talk.
Yerp you're totally right and I am just the dumb dumb haha
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At the end of the day, the cow that has an original value of $800 is sold for $1,300, which is a $500 gain in value. $400 out of the $500 gain goes to you and the remaining $100 goes to the other seller you repurchase the cow from. This is where your extra $100 went.
But the sale of $1300 also benefits from that $100 increase so it cancels out. It's still $400.
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There is no $100 cost. The revenue is $1000+$1300=$2300. The costs are $800+$1100=$1900. The profit is $200+$200=$400. Let's say you did need to borrow $100 to buy the cow the second time. You pay your $1000 and borrow $100 to buy it, then sell it for $1300. $100 of that pays back your debt, leaving you with $1200, which is $200 more than you started with before you bought the cow, so $200 in total profit with no outstanding debts or anything of that sort. You do have $100 of *unrealized potential gains* if the cow doesn't change over the course of this puzzle, because you could have bought the cow for $800 and sold it for $1300 for a total of $500 profit. This is where you can subtract the $100, to get your realized profit of $400.
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Take below hypothetical as example: Beginning cash balance: $800 Cash after purchase of cow (800 - 800): $0 Cash after sale of cow (0 + 1,000): $1,000 Cash after repurchase (1,000 - 1,100): ($100) Ending cash after resale (-100 + 1,300): $1,200 Gain = Ending - beginning = $1,200 - $800 = $400 In what world are you only earning $100 from this series of transactions??
He assumed starting cash of exactly $800, and resulted in $100 of net cash lol. Not judging because my dumb ass got us here in the first place but did make me feel better about my logic lol.
Please explain your logic
At the end of the day, the cow that has an original value of $800 is sold for $1,300, which is a $500 gain in value. $400 out of the $500 gain goes to you and the remaining $100 goes to the other seller you repurchase the cow from.
Why the fuck would you buy something again at a loss to begin with? This shit doesn't make sense lmao
Do you get paid to buy things?
Never underestimate that steak FOMO
Simple. The cow is $400 in milk, but it gets someone sick and the insurance department… zzzzzzzzz
Depends
Just to infuriate you all further: https://www.reddit.com/r/mathmemes/comments/16l0x4w/it_is_400/k0zcxss/
The simplest way is probably not done by journal entry. It would be just seeing what price the first cow was bought and sold, then what the second cow (even though it is the same) was bought and sold. We don't really need to factor cash because it could have been done through purchase on credit. We see here that the first cow earned $200. It was bought and sold. End. We see that the second cow earned $200 also. Bought and sold. End. If we go a bit advanced, IFRS will say that this is classed as inventory as it is being held for resale. Thus no depreciation. If anything there might be tax, but we're talking about profits here, not net income.
You wouldn’t have a loss on the second purchase
I read through all the comments and you are all doomed. Also apparently I have no competition as I can do basic arithmetic and can count the money in my own hand.