F-1 simulations Flashcards

1
Q

Questions you need to ask yourself when the customer asks you to hold on to product - contract revenue recognition

A
  1. Is there a real reason for arrangement like customer’s warehouse is too full to take new inventory?
  2. Can you separately identify the transaction?
  3. Is the product ready to be transferred now?
  4. Is it possible or have they given the stuff to another company to use?

If everything checks out then its revenue

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2
Q

How to figure out standalone pricing for contract revenue

A
  1. Find the actual sales price
  2. Find the structure for the contract and the % of each part of the contract
  3. Allocate pricing accordingly
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3
Q

How do you account for something like a maintenance fee in contract that stretches over time for contract revenue

A

Record unearned revenue and recognize it as revenue over the passage of time

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4
Q

How to account for repurchase agreements for contract revenue

A

-You don’t record a sale until the repurchase agreement lapses and is considered a financial liability
Dr. Cash
Cr. Financial liability

-Once repurchase agreement lapses you record revenue
Dr. Financial liability
Cr. Revenue

-Journal entry if you do repurchase
Dr. Financial liability
Cr. Cash

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5
Q

How to journalize refund liability

A

-For the initial sale
Dr. Cash
Cr. Revenue
Cr. Refund liability

-When shit starts getting refunded
Dr. Refund liability
Cr. Cash

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6
Q

How to account for impairment gain or loss for discontinued operations

A

Happens in the year we call asset held for sale and it is the difference between net book value and what we think we can sell it for

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7
Q

Income tax benefit for discontinued operations

A

Total gain or loss or loss multiplied by the tax rate and if you had a loss then record a positive income tax benefit and if it’s a gain then you record a negative

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8
Q

Gain or loss on disposals when there is a fee

A

Reduce the fee from the selling price and compare that to what we booked the asset for to come up with a gain or loss

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9
Q

Accounting for percentage of completion

A
  1. Contract price minus estimated total cost equals gross profit (Don’t include amount paid in cash)
  2. % of completion is total cost to date divided by total estimated cost of contract
  3. Multiply step 1 by step 2 for gross profit earned
  4. Current year gross profit is profit to date minus previous year profit to date
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10
Q

Percentage of completion journal entries

A

Costs incurred
Dr. Construction in progress
Cr. Cash or A/P

Billings on contract
Dr. Contracts receivable
Cr. Progress billings

Payments received
Dr. Cash
Cr. Contracts receivable

Revenue & Cost
Dr. Construction expense - costs incurred
Dr. Construction in progress - profit for year
Cr. Revenue

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11
Q

Completed contract journal entries

A

First year is same as percentage of completion except there is no “revenue & cost” entry

Last year
Dr. Construction in progress - sales price
Cr. Revenue

Dr. Construction expense - costs incurred
Cr. Construction in progress

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12
Q

How to record amount on balance sheet for construction

A
  1. Percentage of completion is construction in progress & expense minus progress billings
  2. Completed contract is construction in progress minus progress billings
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13
Q

How to account for an error adjustment

A

Book correction to earliest retained earnings possible and account in error

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14
Q

Changing to LIFO from other accounting principles

A

It’s technically a change in account principle, but because of the of the LIFO layers it is impractical to go back so it is prospectively applied

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15
Q

How to account for an error correction that spans multiple years like failure to record depreciation

A

The earliest period goes to retained earnings and the current year would be the account in question and the combined amount would go to the offset account

Example Depreciation
Dr. Retained earnings
Dr. Depreciation expense
Cr. Accumulated depreciation

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16
Q

How to account for change in accounting entity

A

Affects the current year only so have to go back to the beginning of the year; and does not affect prior years

17
Q

ASC 606 Revenue recognition policies for contracts

A

Revenue is recognized when customer obtains control of promised goods or services

18
Q

Should you use the beginning inventory or ending inventory for accounting to change in accounting principle

A

Since it is a change in principle it should be beginning inventory