CPA FAR - F3

Question 1

For T-Bills, what is the criteria to be considered cash/cash equivalent?

Answer 1

Original maturity must be less than 90 days (3 months).

Question 2

Is cash from a bond sinking fund considered cash/cash equivalent?

Answer 2

No, this is because cash really means unrestricted cash. Restricted cash is not considered cash/cash equivalent.

Question 3

For checks outstanding, how does that affect the checkbook balance?

Answer 3

You must add back the checks outstanding amount to the checkbook.

Question 4

What is Factoring Receivables without Recourse?

Answer 4

A company selling their receivables to another company for money while also transferring the uncollectible accounts.

Question 5

What is the journal entry for the allowance method to write-off a specific amount?

Answer 5

Dr. Allowance
Cr. A/R

Question 6

Is the discount always applied on the maturity value?

Answer 6

Yes, the discount is always applied on the maturity value.

Question 7

How do you identify the principle market?

Answer 7

It is the market where the most volume is sold (using everyone’s volume, not just your own)

Question 8

How do you identify the most advantageous market?

Answer 8

It is the market when, with volumes being the same, gives the most price.

Question 9

How do you calculate COGS?

Answer 9

Beginning Inventory + Purchases - Ending Inventory

Question 10

How do you identify the cost in LCM (Lower Cost or Market)?

Answer 10

Pick the middle value between:
1. Replacement Cost
2. NRV (most you could get)
3. NRV - (SP * Profit Margin %)

Question 11

How do you identify the cost in LCNRV (Lower Cost or Net Realizable Value)?

Answer 11

Pick the lowest value between:
1. Cost as determined by FIFO/LIFO/WA (not replacement cost)
2. SP - cost to finish OR SP - cost to dispose

Question 12

When inventory is understated, what is COGS?

Answer 12

COGS is also understated.

Question 13

How do you calculate Inventory Turnover?

Answer 13

COGS / Average Inventory

Question 14

How do you calculate Weighted Average per Unit?

Answer 14

Total Cost of Purchases / Total Units of Purchases

Question 15

How do you calculate Weighted Average COGS?

Answer 15

Weighted Average per Unit * # of Units Sold

Question 16

Does the date of sale matter in LIFO Periodic?

Answer 16

No, even if the sale occurs before a purchase, we will use the last purchase (if LIFO) because this is all happening at the end of the period (think the end of year inventory count).

Question 17

When do you use the “30-day or 60-day forward” rates in a foreign transaction problem?

Answer 17

You use it when the company is entering a contract for SPECULATIVE PURPOSES, not when they are selling stuff.

Question 18

What is the time period leaseholder improvements are capitalized?

Answer 18

These improvements are capitalized over the LESS of:
1. Useful life of the improvement
2. Remaining term of the lease

Question 19

What costs go into the land’s value?

Answer 19

1. Getting the land ready for intended use (razing old buildings - salvage value)
2. Title insurance
3. Legal fees
4. SUBTRACT sale of salvaged materials
5. Taxes in Arrears

Question 20

How do you calculate Residual Income?

Answer 20

Operating Income - (Rate of Return % * Average Capital)

Question 21

Is revenue recognized for products expected to be returned?

Answer 21

No

Question 22

When is Dollar-Value LIFO the best inventory valuation method to use?

Answer 22

When raw materials are purchased evenly throughout the year.

Question 23

Is salvage value part of the double-declining balance depreciation method?

Answer 23

No, salvage value is not included in the double-declining balance depreciation method. Instead, the carrying value is subtracted by accumulated depreciation.

Question 24

Can you mark-up the value of a previously impaired asset?

Answer 24

No, you cannot mark-up value of a previously impaired asset (i.e., value went from 120 to 100 and then back up to 130, need to keep it at 100).

Question 25

How are “Held for Sale (HFS)” assets valued?

Answer 25

HFS assets are valued at LCNRV and are no longer depreciated.

Question 26

Where does impairment loss go once it is determined/realized?

Answer 26

The impairment loss amount on an asset is added into accumulated depreciation.

Question 27

What is a half-year conversion for depreciation?

Answer 27

When the question has half-year conversion, the first year will have half depreciation (i.e., half year) regardless of when it was bought/put in service.

Question 28

What is the recoverability test?

Answer 28

A recoverability test is used to determine if there is an impairment loss. The recoverability test looks at the (1) sum of undiscounted future cash flows and compares to the (2) carrying amount.

If the sum of undiscounted future cash flows is LESS than the carrying amount, then there is an impairment loss.

Note: the above equation is NOT how to calculate the impairment loss. This is only used to determine if an impairment loss exists.

Question 29

When should an asset be tested using the recoverability test?

Answer 29

A long-lived asset should be tested for recoverability when events or changes indicate that the carrying amount may not be recoverable.

Question 30

How do you calculate the impairment loss?

Answer 30

Carrying Amount - Fair Value Amount

Question 31

How do you calculate the Weighted Average for Periodic?

Answer 31

(Total Costs / Total Units) * Units Sold

Question 32

How do you determine the fair value for land?

Answer 32

The fair value of land is based on the highest and best use of the asset.

Question 33

How do you calculate the Double-Declining Balance Depreciation?

Answer 33

(Historical Cost - Accumulated Depreciation) * (2/# years)

Question 34

What types of legal fees do you capitalize when dealing with patents?

Answer 34

You only capitalize legal fees that successfully defended the patent.

Question 35

What types of legal fees do you expense when dealing with patents?

Answer 35

You only expense legal fees that unsuccessfully defend the patent.

Question 36

What are donated assets recorded at?

Answer 36

Donated assets are recorded at fair value.