F3 - Assets and Related Topics Flashcards
CPA-04487: Core Properties, Inc. holds the following working capital items as of December 31, Year 1:
- Bank drafts in the amount of $9,000 from a German customer.
- $10,000 six-month Treasury bill maturing February 15th, Year 2.
- $20,000 one-year certificate of deposit maturing on January 15th, Year 2.
Core includes in cash equivalents all possible items. On Core’s December 31, Year 1 balance sheet, cash and cash equivalents is:
Answer: (D) $9,000
The Treasury Bill and the CD have ORIGINAL MATURITIES greater than 90 days.
CPA-00059: Roth Inc. received from a customer a one-year, $500,000 note bearing annual interest of 8%. After holding the note for six months, Roth discounted the note at a Regional Bank at an effective interest rate of 10%. What amount of cash did Roth receive from the bank?
Answer: (A) $513,000
Step 1- Face Value x Interest Rate on the Note = Interest on Note at Maturity
Step 2- Face Value + Interest on Note at Maturity = Maturity Value
Step 3- Maturity Value x bank effective interest rate (disc.) x allocated time for discount period = Cash proceeds from Bank
CPA-00269: Bee Co. uses the direct write-off method to account for uncollectible accounts receivable. During the accounting period, Bee’s cash collection from customers equal sales adjusted for the addition or deduction of the following amounts:
Accounts Written Off: (Deduction or Addition)
Increase in A/R Balance: (Deduction or Addition)
Answer: Deduction - Deduction
During an accounting period, cash collections from customers would equal sales adjusted by deducting “accounts receivable written off” and deducting the “increase in the accounts receivable balance.”
CPA-00307: On June 1, Pitt Corp. sold merchandise with a list price of $5,000 to Burr on account. Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made FOB shipping point. Pitt prepaid $200 of delivery costs for Burr as an accommodation. On June 12, Pitt received from Burr a remittance in full payment amounting to:
Answer: (B) $2,944
Cost of merch sold: $5,000 Trade Disc @ 30%: x 30% Trade disc amount = $1,500 Balance $3,500 Trade Disc @ 20%: x 20% Trade disc amount = $700 Balance $2,800 Cash disc @ 2% x 2% Cash disc amount = $56 Balance $2,744 Loan delivery cost + 200 Expected remittance = $2,944
CPA-05437: Red Co. had $3,000,000 in A/R recorded on the books. Red wanted to convert the $3 million in receivables to cash in a more timely manner than waiting the 45 days for payment as indicated on its invoices. Which of the following would alter the timing of Red’s cash flows for the $3 million in receivables already recorded on the books?
Answer: (C) Factor the receivables outstanding.
Factoring receivables is the process by which a company converts their receivables to cash by assigning them to a factor, either with or without recourse.
Discounting is the process of converting notes receivable, NOT accounts receivable, to cash.
CPA-08258: A shoe retailer allows customers to return shoes 90 days of purchase. The company estimates that 5% of sales will be returned within the 90 day period. During the month, the company has sales of $200,000 and returns of sales made in prior months of $5,000. What amount should the company record as net sales revenue for new sales made during the month?
Answer: (B) $190,000
The company should record net sales revenue for new sales made during the month as $190,000 which represents $200,000 less the estimated allowance for sales returns associated with the new sales of $10,000 (5% x $200,000).
CPA-06394: In an exchange of dissimilar assets under IFRS, an entity received equipment with a FV equal to the carrying amount of the other asset given up. The entity also paid cash. As a result of the exchange, the entity recognized:
Answer: (C) A loss equal to the cash paid.
Under IFRS, exchanges of dissimilar assets are regarded as exchanges that generate revenue and so all gains and losses are recognized. In this problem, the entity gave up cash and an asset for equipment with a fair value equal to the carrying value of the asset given up. The following JE can illustrate the problem, assuming that the FV of the new equipment is $10,000 and the amount of cash given up was $1,500:
Equipment received $10,000
Loss on the exchange 1,500
Cash paid $1,500
Asset given 10,000
CPA-08541: A transaction was reported as a nonmonetary exchange of assets. Under which if the following circumstances should the exchange be measured based on the reported amount of the nonmonetary asset surrendered?
Answer: (A) when the exchange lacks commercial substance.
When a transaction involving a nonmonetary exchange lacks commercial substance, the reported amount of the nonmonetary asset surrendered is used to record the newly acquired asset. If the transaction has commercial substance, the fair value approach is used.
CPA-04478: Harbor Company acquired an interest in the common stock of I-Bar Corporation in exchange for $15,000 cash and computer equipment with a book value of $60,000 and a FMV of $50,000. As a result of this transaction, Harbor should record an investment in I-bar at:
Answer: (D) $65,000
In an asset exchange having commercial substance (IFRS - an exchange of dissimilar assets), gains and losses are recognized in their entirety based on the difference between their FMV of the asset given up and their net book value. The basis of the property acquired is equal to the fair market value of the property given up (book value plus gain or minus loss) plus cash paid or minus cash received.
CPA- 00294: Generally which US GAAP inventory costing method approximates most closely the current cost for each of the following?
Cost of Goods Sold (FIFO, LIFO) Ending Inventory (FIFO, LIFO)
Answer: COGS = LIFO , Ending Inventory = FIFO
COGS - Under US GAAP, LIFO most closely approximates the current cost for cost of goods sold because inventory “last-in” (most recently purchased) is the “first-out” (expensed currently).
Ending Inventory - FIFO most closely approximates the current cost for ending inventory because inventory “first-in” (oldest purchased) is the “first-out” (expensed currently) and the most recent purchases remain in ending inventory.
CPA-05238: Which of the following conditions must exist in order for an impairment loss to be recognized in under U.S. GAAP?
I. The carrying amount of the long-lived asset is less than fair value.
II. The carrying amount of the long-lived asset is not recoverable.
Answer: Option II only.
