F3 - Assets & Related Topics Flashcards
TO CALCULATE BAD DEBT EXPENSE
Beg Allowance for Doubtful Accts
ADD: Bad Debt Exp: “X”
MINUS: Accts Written Off:
= ENDING Allowance for Doubtful Accts
Solve
JE for Write-Off Using the Allowance Method
DR: Allowance for Doubtful Accts
CR: A/R
Bad Debt Exp as a Plug Figure
Beg Allowance + Bad Debt Exp - Accts Written Off + Accts Recovered = Ending Allowance
Then Solve for Bad Debt Exp as an unknown or any X
Net Sales Rev with Returns Allowance
Net Sales = Total Sales - (Total Sales X Estimated Return Rate )
Ignore any prior period returns
To focus on the expected returns from the current period’s sales only
Required Ending Allowance is typically determined based on %’s of receivables deemed uncollectible using methods like the aging receivables method
You may have to subtract the Net Receivables from the aging receivables method from the ending A/R
PLEDGING Receivables
Using receivables as collateral w/o transferring ownership or creating a separate receivables acct.
JE
DR: Cash
CR: Notes Pyable
AR continue to show on BS
No impact to AR since they are not sold or assigned
Assignment Agreement
Can immediately start collecting from the specified receivable bc lender has legal right to them
Pledging Agreement
Lender may have to take additional legal steps to enforce their claim on the receivables
Factoring w/o Recourse means
The buyer assumes the risk of uncollectible accounts
Records the full value as asset
The selling CO has no further obligation and is released from any responsibility if customer doesn’t pay
The Seller records a loss if the cash received is less than the BV of the receivables and removes it from its balance sheet
Factoring w/Recourse
Seller still has retained responsibility for any receivables that are not collected
Must reimburse the factor if Customers don’t pay.
Seller records a recourse liability and a larger loss on sale due to this obligation
SELLER
DR CASH
DR Loss on Sale Receivable (charge + recourse liability amount)
CR Acct Rec
CR Recourse Liab
Secured Borrowing, Pledging, and Assignment
All these use receivables as collateral - The Seller/CO retains control & Collection Responsibility
Record JE for Buyer
Factoring w/o Recourse
How to figure the Cash paid:
Trade Receivables - the Charge
DR Accts Rec
DR Credit Loss Exp
CR Cash
CR Allowance for Credit Loss
CR Gain on Factoring
CECL
AKA
CURRENT EXPECTED CREDIT LOSS
When used, the entry to record the adjustment
Decreases BOTH A/R & Allowance for Credit Losses
(Write-Off)
FOB Shipping Point
Ownership transfers to buyer when goods leave the seller’s location
Buyer is responsible for goods during transit
In Buyers Inventory when it ships
FOB Destination
Ownership transfers to buyer when it gets there
Seller retains ownership while in transit
Not in Buyers Inventory until received
Dollar-Value LIFO
Firm applies a price index to the LIFO inventory layers added
When the price index is greater than 1.0, dollar-value LIFO will be greater than the comparable base-year amounts
Permanent declines in inventory market value
should be reflected in interim FS in the period incurred
Dollar-value LIFO most likely gives the lowest ending inventory when product lines are subject to specific price increases.
When prices increase - LIFO will normally result in the lowest ending inventory because items “last-in” (at higher prices) are expensed to cost of goods sold, while the items “first-in” (at lower prices) make up the ending inventory.
Dollar value LIFO will most likely help create a lower ending inventory because with the changing variety of products, new or substitute items can be used in the same pricing group rather than become a new group priced at a newer high price.
LIMITS ON CAPITALIZED INTEREST
Amount of capitalized interest cannot exceed the total interest incurred on loans used to finance the construction.
Additionally, Once the construction is complete, int incurred after the completion date is expensed rather than capitalized
Capitalize Interest
During the period was in progress
This is when Interest can be capitalized
Expense Ordinary Repairs BUT Capitalize Expenditures
That are:
“ADDITIONS”
“BENEFIT SEVERAL PERIODS”
“IMPROVE EFFICIENCY’
Freight Out
Should be included in Consigned Inventory
since consignor holds title to inventory and sends it out to the ONE WHO SELLS IT
Know the Diff between
Most Advantageous Market & Principal Market
Most Advantageous - Best Price for the asset or liability
Principal Market - Sells the most for the asset or liability
DOLLAR-VALUE LIFO
BASE YR COST X PRICE INDEX = DOLLAR-VALUE METHOD
Capitalize Interest ON ASSETS
Cannot capitalize interest on ordinary inventory production
BUT
Can capitalize interest on Special Order Goods on hand for sale to customers
NRV + Net Realizable Value
Selling Price - Costs to complete
Market Floor is
NRV - (selling price X PM)
Calculate Impairment Loss
Test for Impairment = Carrying amount = Original Cost - Accum dep
Compare amount to undiscounted future cash flows
If Carrying amount is bigger than undiscounted future cash flows then it is impaired
Then Calculate to get the Impairment Loss
Carrying amount - Fair Value
The cost of a Trademark
is Amortized over its economic life
Gain Contingencies
NOT reported as revenue until realized
