F4 Flashcards
(42 cards)
How is the current ratio computed?
Current Assets / Current Liabilities
Define Working Capital
Current Assets - Current Liabilities
How is the quick ratio computed?
Cash + Net Recievables + ST Investments / Current Liabilities
Current Assets are defined as…
Those resources that are reasonably expected to be realized in cash, sold, or consumed prepaid items during the normal operating cycle of a business or one year, whichever is longer.
Current Liabilities are defined as…
Obgliations whose liquidations is reasonably expected to require the use of current assets or the creation of other current liabilities.
When can a short term obligation be included in noncurrent liabilities?
If the enterprise intends to refinance the debt on a long term basis and the intent is supported by the ability to do as evidenced by actual refinancing prior to issuance of the FS or existance of a noncancellable financing agreement from a lender having the financial resources to accomplish refinancing.
Define cash and cash equivalents.
Cash includes both currency and demand deposits with banks and or other financial institutions. Cash equivalents include short term highly liquid investments that are both readily convertible to cash and so near their maturity when acquired by the entity (90 days or less from date of purchase) that they represent insignificant risk of changes in value.
Name the two methods of accounting for uncollectible accounts.
Direct write off: DR. Bad Debt Expense CR. A/R
Weakness: Bad debts are not matched to sales and AR is overstated. NOT GAAP. Allowance Method: DR. Allowance for uncollectible accounts CR. A/R Strengths: matches bad debts with credit sales. Accounts receivable fairly stated. Required by GAAP.
Name three methods of estimating uncollectible accounts.
*Percentage of credit sales *Percentage of accounts receivable at year end *Aging of AR at YE
Using the allowance method give the two journal entries to provide for and then to write off an uncollectible account.
Provide for: DR. Bad Debt Expense CR. Allowance for uncollectible accounts.
Write Off: DR. Allowance for uncollectible accounts. CR. Accounts Receivable
What is the difference between factoring with recourse and without recourse?
With Recourse: The factor may return the accounts to the company if it proves to be uncollectible. Potential liability and risk of loss remains with the company. Without Recourse: The factor assumes the risk of loss if the account is uncollectible.
State the three conditions that must exist for control of a financial asset to be considered surrendered?
The transferred assets have been isolated from the transferor. The transferee has the right to pledge or exchange the assets. The transferor does not maintain control over transferred assets under a repurchase agreement.
If control of a financial asset is surrendered what is the accounting treatment of a transfer?
No Continuing involvement: Recorded as a sale with appropriate reduction in receivables and recognition of gain or loss.
Continuing Involvement: Assets for which there is no retained interest is recorded as a sale using the financial components approach. Assets for which there is a retained interest is carried ono books of transferror and allocated a BV based on relative value of all transferred assets at date of transfer.
In control of a financial asset is not surrendered what is the accounting treatment of the transfer?
Account for transfer as a secured borrowing with pledged collateral. Recognize the appropriate asset/liability amounts and interest revenue/expense amounts.
At what value should non-interest bearing promissory notes be recorded?
Present Value of future payments required by the note. The payments should be discounted at the market interest rate.
Notes receivable may be discounted with or without recourse - what is the difference?
Discounting with recourse - holder remains contingently liable.
Discounting without recourse - the holder assumes no further liability after discounting.
Describe the computational steps required in “discounting a note”
- Compute maturity value (remember to include interest to maturity) 2. Compute the “discount” (remember to use the maturity value)
- Get proceeds by subtracting discount from maturity value. 4. Compute interest income as a difference between proceeds and face of note.
When does the title to goods pass for each of the following? FOB destination, FOB shipping point COD, consigned goods
FOB Destination - when received by buyer
FOB Shipping Pt - when given to a common carrier
COD - When received and paid for by buyer
Consigned goods - When sold to a third party by consignee.
How is market calculated in the US GAAP LCM method?
Market generally means current replacement cost provided the current replacement cost does not exceed the market ceiling or fall below the market floor. Ceiling - NRV (estimated selling price minus completion and disposal costs) Floor - NRV - normal profit margin.
How is net realizable value calculated in the IFRS lower of cost or net realizable value method?
Net realizable value is the net selling price less completion and disposal costs.
Explain the difference between periodic and perpetual inventory methods.
Periodic - The quantity of inventory is determined only by physical count. Ending inventory is physically counted and priced. Weighted Avg Cost
Perpetual - Inventory is updated for each purchase and for each sale. Keeps a running total of inventory balance. uses moving avg cost flow method
Name several cost flow methods for inventory
Specific Identification / FIFO / LIFO (Unit & $ value), Averaging, WA(periodic), Moving Avg(Perpetual), Gross profit, retail, conventional retail, cost retail, fifo / cost, lifo / cost, dollar value lifo / cost.
Name several retail inventory methods
Conventional retail, cost retail, fifo / cost, lifo / cost, dollar value lifo / cost.
When are losses on firm purchase commitments recognized?
Losses are recognized in the period when the price decreases. DR. Estimated loss on purchase commitment. CR. Estimated liability on purchase commitment.
