F3 - Deck 1 Flashcards
What are the differences between factoring receivables without recourse, assigning receivables, and pledging receivables?
Factoring receivables without recourse is a sales transaction that transfers the risk of uncollectible accounts to the buyer. Assigning receivables is obtaining a loan by transferring the right to cash collected on receivables. Factoring with recourse leaves the risk with the seller. Pledging receivables is obtaining a loan using the receivables as collateral.
Bank Note calculation:
1) Face of note * Interest rate on note
2) 1. plus face note
3) 2. * discount (% * months)
4) 3. minus 2. is proceeds from bank
What are the implications of different methods for estimating bad debts?
- Aging the receivables focuses on asset valuation and matches revenue with expense well.
- The specific write-off method overstates receivables and matches revenue with expense poorly.
- Estimating bad debts based on sales emphasizes the income statement and matches revenue with expense well.
What is the effect of writing off a specific account using the allowance method on accounts receivable, the allowance for uncollectible accounts, and net income?
- When using the allowance method, writing off a specific account decreases both accounts receivable and the allowance for uncollectible accounts.
- The allowance decreases, but net income is not affected by the write-off.
How does the ‘allowance for bad debt’ account change with different transactions under the allowance method?
Under the allowance method: Writing off a specific account decreases the ‘allowance for bad debt’. When a written-off account becomes collectible, the allowance increases (DR-AR, CR-Allowance). Recording a provision for bad debts also increases the allowance (DR-Provision, CR-Allowance). Collecting a previously written-off account increases the allowance (DR-Cash, CR-Allowance).
How are proceeds calculated when discounting an interest-bearing note receivable at a bank?
The proceeds from discounting an interest-bearing note receivable at a bank equal the maturity value less the discount at the bank’s discount rate. The maturity value (not face value) is used, and the discount is applied at the discount rate (15%), not the note rate (12%).
What does pledging accounts receivable entail and what are the accounting implications?
Pledging accounts receivable involves using them as collateral for a loan. The receivables stay on the company’s books, and the company continues to service them. Upon receiving cash proceeds, a credit to notes payable is recorded. Pledging requires only note disclosure.
Report - Lower of cost or market:
Cost = Unfinished Inventory Cost
Market =
1. Sales Value - Inventory cost to complete
2. 1) - (Salve Value * Profit Margin %)
3. 2) will be the market floor
*Take the lower of cost/market
Net realizable value, calculation?
NRV = Selling price - Costs to complete and sell
Which inventory costing method results in the lowest inventory turnover ratio in an inflationary environment?
In an inflationary environment, FIFO results in the lowest inventory turnover ratio because it leads to a lower COGS figure and a higher average inventory valuation, assuming constant inventory quantities. LIFO, conversely, results in a higher inventory turnover ratio due to a higher COGS and a lower average inventory valuation. The weighted average and moving average methods result in turnover ratios between those of FIFO and LIFO.
Calculation of Weighted Average COGS:
To calculate weighted average cost of goods sold, the total cost of beginning and purchased inventory is divided by the total number of units of beginning and purchased inventory to derive a cost per unit. The cost per unit is applied to the number of units sold to produce cost of goods sold.
Calculation of Moving Average Method COGS:
- Add all the total dollar amount of inventory before the sale occurs (Beg and Purchase)
- Add total units of Sale and further purchases (if applicable).
- Divided 1. / 2. This will get the $ per unit
- Time 3. to the units sold for COGS amount.
Calculation of LIFO method COGS:
Onion of LIFO removal.
1. Total units sold, remove from previous purchases.
2. Keep pilling until units equal sold, time by dollar amount.
3. Sum for total COGS
How do different inventory methods affect financial statements in an inflationary period?
LIFO results in the lowest ending inventory and net income, minimizing taxes. FIFO leads to the lowest cost of goods sold and highest net income, increasing taxes. Specific identification’s impact depends on which items are sold. Weighted average results in cost of goods sold between LIFO and FIFO, with a moderate tax impact.
Calculation of Dollar-Value LIFO:
- PY amount divided by 1 + % increase
- Minus 1. from PY amount, change
- Take 2. time % increase
- Add 3. to PY amount for dollar-value LIFO
