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cpa > Chapter 2 - Matching, Foreign Currency, Other FS Presentation > Flashcards

Chapter 2 - Matching, Foreign Currency, Other FS Presentation Flashcards

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CPA flashcards
1
Q

What is the criteria for revenue recognition of a contract?

A

Signed contract/written confirmation
Delivery of goods (risks/rewards transferred)
Price is fixed
Collection reasonably assured

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2
Q

When do you recognize royalty revenue? Services? Unearned revenue?

A

As time passes (when earned)
When services rendered
Recognize as liability on BS

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3
Q

What are start-up costs? How are they treated?

A

One time organizational costs for new businesses

Expenses when incurred (can write off $5k for taxes)

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4
Q

How do you treat R&D costs (GAAP)? Any exceptions & their treatments?

A

Expensed when incurred
Exceptions: Tangible assets with alternative future uses (capitalize & depreciated over useful life)
R&D on behalf of others in contract

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5
Q

How do you treat R&D costs (IFRS)?

A

All research costs expensed

Some development costs can be capitalized

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6
Q

Which items are not considered R&D?

A 
Periodic changes
Marketing research
QC testing
Staff training costs
Chemical compound reformation
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7
Q

How do you treat costs related to computer software to be sold/leased?

A

Expense costs until technological feasibility

Capitalize costs after technological feasibility up until sold over GREATER of % of revenue or straight line

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8
Q

What is the capitalization % of revenue & straight line formula?

A

% of Rev = Tot Cap. Amt. * (Curr. Gross Rev for period / Tot Proj. Gross Rev. for period)
Straight line: Totl. Cap. Amt * (1 / Est. Economic life)

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9
Q

How do you treat costs related to computer software to be used internally? What if you then decide to sell the software?

A

Expense costs before prelim.project state (NOT R&D)
Capitalize costs after prelim. project state using straight line
Cost recovery method applied

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10
Q

How are initial franchise fees recorded by the franchisor? Franchisee? When can revenue be earned?

A

Franchisor: unearned revenue (liability)
Franchisee: intangible asset & amortized over life Recognized fully when substantially complete (1st day of operations) even if not everything received

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11
Q

How are continuing franchise fees recorded by franchisor? Franchisee?

A

Franchisor: unearned revenue until earned
Franchisee: expense as incurred

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12
Q

How do you record & treat purchased intangible assets? Internally developed intangible asset?

A

record at cost & capitalize

expense cost when incurred (R&D NOT capitalized)

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13
Q

Give examples of R&D that are expensed. Which ones can be capitalized (GAAP)?

A

Expensed: trademarks, GW from advertising, cost of developing/maintaining/restoring GW
Capitalized: successful legal fees, registration/consulting fees, design costs, other direct costs to secure asset

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14
Q

How are intangible assets amortized? GW?

A

Indefinite lives are not amortized
Finite lives shorter of estimated life or remaining legal life (straight-line)
GW not amortized instead tested for impairment annually

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15
Q

How do you value an intangible asset (GAAP)?

A

GAAP Finite life: Cost - Impairment

GAAP Indefinite life: Cost - Amortization - Impairment

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16
Q

How do you value an intangible asset (IFRS)? How do you treat Gains & Losses?

A

IFRS Cost Model: Cost - Amortization - Impairment
IFRS Revaluation Model: FV on revaluation date - subsequent Amort. - subsequent impairment
Gains: reverse loss on IS then go to OCI
Loss: reverse gain on OCI then go to IS

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17
Q

Formulas for Impairment (GAAP)?

A

Finite Life (2 step):

1) Undiscounted CF - CV
2) FV or PV Discounted CF - CV

Indefinite Life (1 step):
1) FV -CV
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18
Q

What level do you report GW on? Formula for GW (GAAP)? How do you treat GW impairment?

A

Reporting-unit level
1) (For each reporting unit) FV unit - CV unit
2) (For each reporting units GW only) Implied FV GW - CV GW
Loss on IS that cannot write back up

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19
Q

Formulas for Impairment (IFRS)?

A

One step Method
1) Recoverable Amount - CV
Recov. Amt = GREATER of (FV - Costs to sell OR PVFCF)

20
Q

What level do you report GW on? Formula for GW (IFRS)? How do you treat GW impairment?

A

Cash generating level
1) Recoverable Amount - CV
Recov. Amt = GREATER of (FV - Costs to sell OR PVFCF)
Loss allocated to GW first then pro-rata to other assets

21
Q

Formula to convert from accrual to cash basis? Convert from cash to accrual basis?

A

1) Cash = Liability - Other Assets

2) Cash = -Liability + Other Assets

22
Q

When do you use completed contract method? % of completion method?

A

1) Difficult to estimate costs, collection not assured, many contracts in progress
2) Collection assured, profit can be estimated

23
Q

Formula/steps for % of completion method?

A

1) GP = Contract $ - Estimated total cost
2) % of Complete = Total est. costs to date / Total est. cost of contract
3) Profit to Date = Step 1 * Step 2
4) CY GP = PTD CY - PTD PY

24
Q

When do you use the installment sales method?

A

no reasonable basis for estimating collect-ability

25
Q

Installment method formula.

A

1) GP = Sale - COGS
2) GP% = GP / Sales Price
3) Earned GP = Cash Collect * GP%
4) Deferred GP = Receivable * GP%

26
Q

What is an exchange with commercial substance? What is an exchange lacking commercial substance?

A

1) change in future CF’s

2) no change in future CF’s or FV cannot be determined

27
Q

What approach is used for exchanges with commercial substance? How is G/L recognized?

A

Fair Value approach

G/L = FV (asset given up) - CV (asset given up)

28
Q

What approach is used for exchanges lacking commercial substance? How is G/L recognized?

A

Book value approach
Loss recognized
No boot received = NO gain
Boot is paid = NO gain
Boot received (< 25% of total consideration) = proportional gain
Boot received (>25% of total consideration) = recognize entire gain

29
Q

What is the carrying amount of replacement property in a involuntary conversion?

A

The carrying amount of the replacement property is equal to the FV of the consideration paid for it.

30
Q

Under current cost accounting, what is the amount inventory holding gain?

A

Holding gain on inventory is the excess of replacement cost at the balance sheet date over the original purchase price.

31
Q

Where should a company disclose information about the effect of changing prices in FS?

A

Supplementary information

32
Q

Which types of price measurements are related to the following adjustments: Inflation only, appreciation only, neither, both.

A

Inflation only - Historic cost/constant$
appreciation only - current cost/nominal $
neither - historic cost/nominal $
both - current cost/constant $

33
Q

Define monetary & non-monetary assets?

A

Monetary: fixed & Non-monetary: fluctuate

34
Q

When do you use the translation & re-measurement methods?

A

Translation: going from functional (local) to reporting currency
Re-measurement: the reporting currency is the functional currency.

35
Q

Steps for Re-measurement method? Where is the G/L reported?

A

1) B/S: monetary @ spot rate & non-monetary @ historical
2) I/S: @ weighted average & historical rate for b/s items
3) plug G/L so I/S fits into the RE plug
4) Income from Cont. Operations

36
Q

Steps for translation method? Where is the G/L reported?

A

1) I/S: @ weighted average
2) B/S: @ spot rate except C/S $ APIC @ historical; roll forward RE
3) Plug AOCI in Equity
4) Foreign translation in OCI

37
Q

How do you determine the basis of a asset acquired when it: lacks commercial substance? has commercial substance?

A

1) book value of the asset given up

2) FV of the asset given up (unless FV of asset received is easier to determine)

38
Q

Name the two statements required in personal FS?

A

Statement of Financial Condition

Statement of Changes in Net Worth

39
Q

Combined statements may be used in which circumstances?

A

1) companies owned by one individual
2) companies under common management
3) unconsolidated subsidiaries

40
Q

For non-monetary exchanges with commercial substance, when are gains & losses recognized?

A

Gains and losses are recognized immediately

41
Q

Where do you report gains/losses under the remeasurement method?

A

Continuing income on income statement

42
Q

How do you find the net current asset or a net current liability under the construction activity?

A

Cumulative cost
+ Cumulative GP recognized
- Cumulative billings
= negative (liability) positive (assets)

43
Q

How do you calculate the g/l on an involuntary conversion?

A

= NBV of asset + any cost associated with conversion

44
Q

G/L resulting from foreign currency transactions are accounted for?

A

Income from continuing operations

45
Q

Under the construction % of completion method, how do you recognize a CL/CA?

A 
CL = progress billings > actual costs + est. profit
CA = progress billings < actual costs + est. profit

cpa (35 decks)

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