Deck 7 Flashcards
Two components to expense for software costs:
1) Amortization expense; 2) impairment loss, if any
When service contracts are sold, the entire proceeds are reported as what kind of revenue?
Deferred revenue
How does an increase in accounts receivable using cash basis affect accrual basis net income?
Accrual basis income will be higher
How does an increase in accounts payable using cash basis affect accrual basis net income?
Accrual basis income will be lower
Sales commission payable =
commission accrual - fixed salary
The franchisor should report revenue from initial franchisee fees when:
All material conditions have been “substantially performed”
When are revaluation losses recored?
Other comprehensive income
Goodwill is recognized in the balance sheet when:
Goodwill has been created in the purchase of a business
Gross profit on income statement (installment method) =
cash collections * gross profit rate
Deferred gross profit =
gross profit rate * ending installment receivable
Installment receivable =
installment sales - amount collected per year
gross profit on income statement (cost recovery method)
Cash collections - cost of sales (profit is not recognized until all costs have been recovered)
Permanent impairment of securities (other than temporary)
Write down to FV and record as a realize loss in earnings
Temporary impairment of securities
Record in OCI
Journal entry for the sale of trading security
Dr. Cash; Cr. Trading security and Realized gain on Trading security
Trading securities
Securities that will be sold in a year…FV with unrealized gains/losses recorded on income statement
Available for sale securities
Securities that don’t classify as trading or held to maturity…FV with unrealized gains/losses recorded in OCI
Held to maturity securities
Securities that will be held until maturity….amortized cost
When do you use the equity method?
20-50% ownership (Significant influence, no control); do not consolidate)
When do you use the acquisition method?
> 50% ownership )Significant influence and control); consolidate
