Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FAR > F3 > Flashcards

F3 Flashcards

1
Q

How are cash equivalents defined?

A

Short-term, highly liquid investments that are readily convertible to cash and so near their maturity when acquired by the entity (90 days or less from the date of purchase) that they present insignificant risk of changes in value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Examples of cash and cash equivalents

A
  • Coin and currency on hand (including petty cash)
  • Checking accounts
  • Savings accounts
  • Money market funds
  • Negotiable paper
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Examples of negotiable papers that are classified as cash and cash equivalents

A
  • Bank checks
  • Money orders
  • Traveler’s checks
  • Bank drafts
  • Commercial paper
  • Treasury bills
  • Certificate of deposit (having original maturity of 90 days or less)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How is restricted cash defined?

A

Cash that has been set aside for a specific purchase

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How is unrestricted cash defined?

A

Cash used for all current operations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

If the restriction of cash is associated with a current asset or current liability, how should it be classified?

A

Classify as a current asset but separate from unrestricted cash

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

If the restriction of cash is associated with a non-current asset or non-current liability, how should it be classified?

A

Classify as a non-current asset but separate from either the investment or other assets section

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What does a bank reconciliation explain?

A

The difference between the cash balance reported by the bank and the cash balance per the depositors records

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Examples of reasons why there would be a difference between cash balance reported by the bank and cash balance per the depositors records

A
  • Deposits in transit
  • Outstanding checks
  • Service charges
  • Bank collections
  • Errors
  • Non-sufficient funds (NSF)
  • Interest income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

If a company has cash and cash equivalents at 2 different banks, how are the balances treated?

A
  • They cannot be netted
  • Positive amount will be reported as cash and cash equivalents
  • Negative amount will be reported as a current liability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the process of factoring receivables?

A

When a company converts its receivables for cash by assigning them to a factor (ex: a bank) with or without recourse

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What does factoring receivables without recourse mean?

A

It is a sale of the receivables and the factor takes on all of the risk of uncollectible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What does factoring receivables with recourse mean?

A

It is a loan of the receivables and the owner retains risk of uncollectibles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When factoring receivables without recourse, does the face amount or the maturity amount of the note get discounted?

A

The maturity amount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What method of estimating bad debt focuses on the balance sheet and emphasizes the valuation of assets?

A

Aging of receivables (assets) - results in good matching of revenues and expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What methods of estimating bad debt focuses on the income statement?

A
  • Credit sales less returns and allowances
  • Gross sales
    Results in good matching of expenses and revenues
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

When the allowance method of recognizing uncollectible accounts is used, what would be the effect to the accounts receivable and allowance for uncollectible accounts be if there is an entry to write-off a specific account?

A

It would decrease both accounts receivable and allowance for collectible accounts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What does the “BASE” acronym stand for when determining uncollectible expense?

A

B - beginning balance
A - addition (written off accounts now collectible and uncollectible account expense)
S - subtraction (uncollectible accounts written off)
E - ending balance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is a pledge of accounts receivable?

A

A pledge of accounts receivable involves using the receivable as collateral for the a loan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What happens to receivables when they are pledged as collateral?

A

Nothing happens to the receivables, they remain on the books of the owner and a disclosure is made

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

When factoring receivables, how does the factor record purchase and fees?

A

The factor will record the gross amount of receivable purchases and records the fee as a gain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

COGS equation

A

Beginning balance
Plus: Purchases
Less: Ending balance
= COGS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

If beginning inventory is understated, what does that mean for purchases?

A

Purchases are overstated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

If ending inventory is overstated, what does that mean for COGS?

A

COGS is understated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Is ending inventory for periodic and perpetual methods different when using LIFO or FIFO?

A

LIFO

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

When does the buyer record inventory under FOB shipping point method?

A

When the carrier picks up the goods (shipped)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

When does the buyer record inventory under FOB destination point method?

A

When the goods are delivered

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

In a consignment agreement, who is the consignee and who is the cosigner?

A

Cosigner: the owner of the inventory that is being held
Consignee: the holder of the inventory

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Who records the inventory in a consignment agreement?

A

The cosigner

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

In a consignment agreement, when is revenue recognized?

A

When the goods are sold to a third party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

In a consignment agreement, when is freight cost of inventory expense?

A

When the inventory is sold to a third party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What cost method is applied to interim periods?

A

Lower of cost or market method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

When are permanent declines in the inventory market reflected?

A

In interim financial statements in the period incurred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What are inventoriable costs?

A

Any costs required to get inventory items in a state where they are ready to be sold
- Raw materials
- Direct labor costs
- Factory overhead

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Under the lower of cost or market method, what is the market ceiling?

A

Market ceiling = Net realizable value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Under the lower of cost or market method, how is the market floor calculated?

A

Market ceiling (NRV) - normal profit margin

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Under the lower of cost or market method, what is the market value?

A

The median of an inventory item’s replacement cost, market ceiling and market floor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

How is net realizable value (NRV) calulated?

A

NRV = Selling price - Cost to complete and dispose

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

What relationship does the numerator have in the calculation of a ratio?

A

Direct relationship
When numerator increase, so does ratio
When numerator decrease, so does ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What relationship does the denominator have in the calculation of a ratio?

A

Inverse relationship
When denominator increases, ratio decreases
When denominator decreases, ratio increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

In period of rising prices, does LIFO or FIFO result in lower ending inventory and higher COGS?

A

LIFO results in lowest ending inventory and highest COGS, resulting in lowest net income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Price index calculation

A

Ending inventory at current year cost/Ending inventory at base year cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

When the market value of inventory is less than the fixed price in a purchase commitment, what 3 things must happen to recognize the loss?

A
  1. Recognize loss at the time of the decline
  2. Recognize liability on balance sheet
  3. Describe the loss in footnotes
44
Q

What inventory method is required for the moving average method?

A

Perpetual - moving average method

45
Q

What inventory method is required for the weighted average method?

A

Periodic - weighted average method

46
Q

In a financing agreement, when will the seller book the transaction?

A

When the repurchase price is equal to or greater than the original sale price and the expected market value

47
Q

What costs increase the capitalization of land and equipment?

A

Costs that add value to make it usable
- Purchase price
- Legal fee
- Demolition of existing building on land
- Title insurance

48
Q

How to determine the amount of capitalized interest?

A

The lower of the computed capitalized interest and the actual interest incurred

49
Q

How are proceeds from the sale of an existing building or scrap treated when determining cost of the land?

A

Any proceeds from the sale of any existing building or scrap are deducted from the cost of the land

50
Q

How should interest incurred to acquire land be treated?

A

Expensed when incurred, not charged to the cost of the land

51
Q

How long are leasehold improvements capitalized and amortized?

A

The lesser of the life of the improvements and the remaining term of the lease

52
Q

Are debt issuance costs included in the cost of land?

A

No, debt issuance costs are presented on the balance sheet as a direct reduction to the carrying amount of the bond

53
Q

What are expenditures and how are they treated?

A

“Additions” or “benefit several periods” to “improve efficiency”
Expenditures are capitalized

54
Q

How are ordinary repairs treated?

A

They are expensed

55
Q

When does depreciation of equipment begin?

A

The installation date, after all equipment costs have been incurred

56
Q

When should the buyer record the purchase of equipment as a liabiltity?

A

When the legal title is passed to them

57
Q

How are refurbished costs treated?

A

They create a new asset so they must be capitalized

58
Q

If borrowings are not tied specifically to the construction of an asset, what interest rate is used?

A

The weighted average interest rate for other borrowings of the company

59
Q

If borrowings are tied specifically to the construction of an asset, what interest rate is used?

A

The rate of the borrowings tied to the construction of the asset should be used

60
Q

Avoidable interest

A
  • Computed capitalized interest
  • The interest that could have been avoided if funds were not borrowed to finance construction
61
Q

If avoidable interest does not exceed actual interest incurred, how is the amount of interest determined?

A

The entire avoidable interest is capitalized and the remaining interest is expensed

62
Q

If avoidable interest does exceed actual interest incurred, how is the amount of interest determined?

A

Interest on the excess is computer based on the interest rate for other borrowings of the company

63
Q

When does capitalization period begin?

A

When the asset has been made

64
Q

When does interest capitalization end?

A

When the asset is substantially complete and ready for intended use

65
Q

If given 200% declining balance for depreciation, how do you find the double declining percentage?

A

Multiply straight-line depreciation rate by 200%

66
Q

What depreciation method does not use salvage value and why?

A

Double declining method because there is always a remaining balance that is treated as the salvage value

67
Q

When is depletion used?

A

For natural resources

68
Q

How to find depletion base?

A

Cost of purchase
Add: development costs to prepare the land for extraction
Add: estimated restoration costs
Subtract: residual (salvage) value

69
Q

How is a subsequent reversal of an impairment loss treated under GAAP?

A

Subsequent reversal of an impairment loss is prohibited under GAAP unless the asset is held for disposal

70
Q

Straight-line depreciation formula

A

(Cost-salvage value)/Estimated useful life

71
Q

What happens when permanent impairment occurs?

A

The book value of the asset is reduced and a loss is recorded. The loss and the current year depreciation expense should be added to accumulated depreciation

72
Q

What does a half year convention mean?

A

In the first and last year, only 1/2 of the depreciation is recognized

73
Q

How does asset appreciation affect the depreciation calculation?

A

Under GAAP, asset appreciation does not affect the depreciation calculation

74
Q

Sum-of-the-years-digits depreciation expense formula

A

(Cost-salvage value) * (Remaining useful life/sum-of-they-years digits)

75
Q

Sum-of-the-years digits formula

A

N*(N+1)/2
Where N = estimated useful life

76
Q

Units-of-production depreciation formula

A

Rate per unit or hour * number of units produced or hours worked

77
Q

Rate per unit or hour formula for units-of -production depreciation

A

(Cost-Salvage value)/Estimated units or hours

78
Q

Declining balance depreciation formula

A

2(1/N)(Cost-accumulated depreciation)

79
Q

Unit depletion rate

A

Depletion base/estimated recoverable units

80
Q

Total depletion

A

Unit depletion rate*number of units extracted

81
Q

Where does the gain from sake of property and purchase of new property go on the income statement?

A

Under continuing operations in “other” revenues and gains

82
Q

When is an asset no longer depreciated?

A

When it is classified as held for sale

83
Q

If an asset is actively marketed for sale, how is it valued?

A

At the lower of its book value or net realizable value (fair value - cost to sell)

84
Q

When should a recoverability test occur for the carrying amount of fixed assets held for use or fixed assets to be disposed?

A

Whenever events or changes in circumstances indicate that the carrying amount may not be recoverable

85
Q

If undiscounted future net cash flows are less than the net carrying value, how is impairment recorded for an asset held for use?

A
  1. Write down the asset for the impairment loss (FV or PV future net cashflow - net carrying value)
  2. Depreciate new cost
  3. Restoration not permitted
86
Q

If undiscounted future net cash flows are greater than the net carrying value, how is impairment recorded?

A

No impairment loss recorded

87
Q

If undiscounted future net cash flows are less than the net carrying value, how is impairment recorded for an asset held for disposal?

A
  1. Write down the asset for the impairment loss (FV or PV future net cashflow - net carrying value)
  2. No depreciation is taken
  3. Restoration permitted
88
Q

How are costs of intangible assets no acquired from others treated?

A

Expensed when incurred because GAAP prohibits the capitalization of research and development

89
Q

What does it mean if an intangible asset has a finite life?

A

When it is possible to estimate the useful life of the asset

90
Q

What does it mean if an intangible asset has a definite life?

A

When it is not possible to estimate the useful life

91
Q

How are intangible assets amorized?

A

Straight line

92
Q

How is the gain of loss of an intangible asset determined?

A

Comparing the carrying value to the selling price

93
Q

How are finite life intangible assets recorded?

A

At cost less amortization and impairment

94
Q

How are definite life intangible assets recorded?

A

At cost less impairment

95
Q

What amount is used to compare to carrying value when determining if impairment of a finite intangible asset occurred?

A

Undiscounted future net cash flows

96
Q

What amount is subtracted from carrying amount in determining the amount of impairment of an intangible asset?

A

Fair value

97
Q

Where is impairment loss of an intangible asset recorded

A

As a component of continuing operations before income taxes

98
Q

What amount is used to compare to carrying value when determining if impairment of a definite intangible asset occurred?

A

Fair value

99
Q

How is purchased software recorded on the balance sheet?

A

As an intangible asset at its purchase price

100
Q

How are intangible assets amortized?

A

Over the shorter of the legal life or the economic life

101
Q

How are organizational costs treated?

A

They are expensed as they are incurred

102
Q

If the defense of a patent is successful, how are the legal costs treated?

A

The costs associated with the legal fees will be capitalized and treated as an asset

103
Q

If the defense of a patent is unsuccessful, how are the legal costs treated?

A

The legal fees will be recorded as an expense on the income statement

104
Q

How are acquired intangible assets recorded when cash is paid and property is transferred?

A

The acquired assets are recorded at the price paid for the asset and by the fair value of the property acquired

105
Q

If an intangible asset is renewed indefinitely, how is amortization determined?

A

No amortization expense if renewed indefinity

FAR (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions