F3 Flashcards
Balance Per Bank Statement
+ Deposits in transit
+ Cash on hand
- Outstanding Checks
+/- Errors
Balance Per Books
\+ Interest earned \+ Notes collected - Service charges - NSF checks \+/- Errors
Examples of restricted cash
- cash contractually restricted because of arrangements with a credit institution (compensating balance)
- cash restricted my management and is reported current or long term asset
A/R sales discounts with the gross method journal entries
Day of sale
Dr. A/R - whole amount
Cr. Sales
Payment received in discount period
Dr. Cash - net discount
Dr. Discounts
Cr A/R - whole amount
Payment not received within discount period
Dr. Cash - whole amount
Cr. A/R
A/R sales discount with the net method journal entires
Day of Sale
Dr. A/R - discounted amount
Cr. Sales
Payment Received in Discount period
Dr. Cash - discounted amount
Cr. A/R
Payment not received in discount period
Dr. Cash - whole amount
Cr. A/R - net amount
Cr. Discount
Direct write off J/Es
J/E when account is written off
Dr. Bad debt expense
Cr. A/R
J/E when account written off is recovered
Dr. Cash
Cr. Uncollectible amounts recovered
Journal entry do record allowance for A/R under the allowance method
Dr. Bad Debts
Cr. Allowance
Allowance method J/Es
Write off
Dr. Allowance
Cr. A/R
Collection Dr. A/R Cr. Allowance Dr. Cash Cr. A/R
Factoring without recourse
Sale is final
Dr. Cash
Dr. Due from factor - fees
Dr. Loss
Cr. A/R
Rules for factoring with recourse to be considered a sale
- seller’s obligation can be reasonably estimated
- seller surrenders future benefits to buyer
- seller can’t re required to repurchase receivables but may be required to replace them
All conditions need to be met
Note receivable discounting
- To calculate maturity value multiply rate by face value and add to face value
- Calculate bank discount my multiplying discount rate by maturity value and then subtract from maturity value to see amount paid by bank
- interest income is step 2 minus original face value
Due from factor
Accounts for sales discounts, sales returns, and sales allowances
Recourse liability
Accounts for probable uncollectible accounts
Inventory and installment sales
If uncollectible debt can’t be estimated then it part of seller’s inventory, but if it can then it counts as a sale
Journal entry for write down
Dr. Inventory loss
Cr. Inventory
Where is lower of cost or net realizable value used
Questions with IFRS and with FIFO
Disclosing loses
Large losses are disclosed in financial statements while small declines in value or included in COGS
Journal entry for sales under periodic and perpetual
Periodic
Dr. Cash
Cr. Sales
COGS recorded at year end
Perpetual Dr. Cash Cr. Sales Dr. COGS Cr. Inventory
Journal entry for purchases for periodic versus perpetual
Periodic
Dr. Purchases
Cr. Cash
Perpetual
Dr. Inventory
Cr. Cash
Inventory Margins
Sales - Cost = Margin
100 - 80 = 20
Margin on Sales: 20/100 = 20%
Margin on Cost: 20/80 = 25%
Dollar Value Conversion Index
Ending inventory in current year dollars divided by Ending inventory in base year dollars
Dollar Value Inventory Steps
- ) Multiply ending inventory by (1 divided by index)
- ) Find the difference between that number at beginning inventory
- ) Multiply the difference by the price index
- ) Add that to beginning inventory
Firm Commitments
If contract price exceeds market price then you have a loss in the decline of price.
Dr. Loss on purchase commitment
Cr. Liability on purchase commitment
Lower of cost or net realizable value question that give profit margin at at %
Multiply the % by the original selling price, not selling price minus estimated cost to sell
Donated fixed assets
Recorded at FV along with incidental costs incurred
Dr. Fixed Asset(FV)
Cr. Gain on nonreciprocal transfer
Accounting for improvements and replacements
- If CV of old asset is known, remove it and record any gain or loss.
- If he FV of old asset is unknown debit accumulated depreciation and credit cash or A/P at cost
- Usefulness of assets increases then capitalize it to asset account
Average Accumulated Expenditures - Weighted Average
- A firm begins construction on January 1 by making a $40,000 construction payment to a contractor. On July 1, another $40,000 payment is made.
- AAE = $40,000 + $40,000(6/12) = $60,000.
Average Accumulated Expenditures - Simple Average
- Assume small discrete payments made throughout the year for $180,000 were paid
- AAE = Average of beginning & ending costs (0 + 180,000)/2 = 90,000
Interest to be capitalized with weighted average
- ) Find Average Accumulated Expenditures(AAE)
- )Add up all the debt outstanding
- )Multiply each debt instrument by interest rate and add up
- )Divide sum of interest by sum of debt outstanding & then multiply by AAE
Interest to be capitalized with specific method
- ) Find Average Accumulated Expenditures(AAE)
- )Add up all the debt outstanding not related to construction
- )Multiply each debt instrument not related to construction by interest rate and add up
- )Divide sum of interest by sum of debt outstanding
- )Multiply construction portion by interest rate
- )Subtract construction portion from AAE then multiply that number by nonconstruction rate
- )Add construction and nonconstruction totals
Units of Productions
Cost minus salvage value divided by estimated units or hours equals rate per unit or hour
Commercial substance meaning
The assets exchanged are different and this is the easy one to calculate
No Commercial Substance meaning
The assets are the same and this is the more complicated one
Fixed asset condemnation rules
Gain or loss is the difference between proceeds from the sale and the carrying amount of fixed assets sold or converted
Nonmonetary exchange rules
- If there is gain, but cash is paid then no gain is recognized and new asset is sum of the asset given up plus cash paid
- If cash is received and there is a loss the record the loss
25% rule
- 1st determine potential gain by comparing BV of asset being given up to its FV(either given or FV of asset received plus cash)
- Divide cash received by consideration received(cash plus FV of asset received) and see if its greater of less than 25%
- Either recognize whole gain or portion less than 25%
Computer Software costs
Annual deprecation is the greater of straight line or % of revenue
Total capitalized amount times (Current gross revenue divided by total gross revenue)
Asset Impairment
If CV of asset is greater than undiscounted future cash flows then you have an impairment; and the impairment is the difference between the CV and the FV
What type of asset should recoverability test be performed on
Asset with a DEFINITE useful life not an indefinite useful life
