F4

Question 0

How is the current ratio computed?

Answer 0

Current Assets / Current Liabilities

Question 1

Define Working Capital

Answer 1

Current Assets - Current Liabilities

Question 2

How is the quick ratio computed?

Answer 2

Cash + Net Recievables + ST Investments / Current Liabilities

Question 3

Current Assets are defined as…

Answer 3

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.

Question 4

Current Liabilities are defined as…

Answer 4

Obgliations whose liquidations is reasonably expected to require the use of current assets or the creation of other current liabilities.

Question 5

When can a short term obligation be included in noncurrent liabilities?

Answer 5

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.

Question 6

Define cash and cash equivalents.

Answer 6

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.

Question 7

Name the two methods of accounting for uncollectible accounts.

Answer 7

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.

Question 8

Name three methods of estimating uncollectible accounts.

Answer 8

*Percentage of credit sales *Percentage of accounts receivable at year end *Aging of AR at YE

Question 9

Using the allowance method give the two journal entries to provide for and then to write off an uncollectible account.

Answer 9

Provide for: DR. Bad Debt Expense CR. Allowance for uncollectible accounts.

Write Off: DR. Allowance for uncollectible accounts. CR. Accounts Receivable

Question 10

What is the difference between factoring with recourse and without recourse?

Answer 10

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.

Question 11

State the three conditions that must exist for control of a financial asset to be considered surrendered?

Answer 11

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.

Question 12

If control of a financial asset is surrendered what is the accounting treatment of a transfer?

Answer 12

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.

Question 13

In control of a financial asset is not surrendered what is the accounting treatment of the transfer?

Answer 13

Account for transfer as a secured borrowing with pledged collateral. Recognize the appropriate asset/liability amounts and interest revenue/expense amounts.

Question 14

At what value should non-interest bearing promissory notes be recorded?

Answer 14

Present Value of future payments required by the note. The payments should be discounted at the market interest rate.

Question 15

Notes receivable may be discounted with or without recourse - what is the difference?

Answer 15

Discounting with recourse - holder remains contingently liable.

Discounting without recourse - the holder assumes no further liability after discounting.

Question 16

Describe the computational steps required in “discounting a note”

Answer 16

1. Compute maturity value (remember to include interest to maturity) 2. Compute the “discount” (remember to use the maturity value)
2. Get proceeds by subtracting discount from maturity value. 4. Compute interest income as a difference between proceeds and face of note.

Question 17

When does the title to goods pass for each of the following? FOB destination, FOB shipping point COD, consigned goods

Answer 17

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.

Question 18

How is market calculated in the US GAAP LCM method?

Answer 18

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.

Question 19

How is net realizable value calculated in the IFRS lower of cost or net realizable value method?

Answer 19

Net realizable value is the net selling price less completion and disposal costs.

Question 20

Explain the difference between periodic and perpetual inventory methods.

Answer 20

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

Question 21

Name several cost flow methods for inventory

Answer 21

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.

Question 22

Name several retail inventory methods

Answer 22

Conventional retail, cost retail, fifo / cost, lifo / cost, dollar value lifo / cost.

Question 23

When are losses on firm purchase commitments recognized?

Answer 23

Losses are recognized in the period when the price decreases. DR. Estimated loss on purchase commitment. CR. Estimated liability on purchase commitment.

Question 24

Describe an inventory consignment arrangement. Also, how are the consigned goods carried on the parties’ balance sheets?

Answer 24

Consignor gives goods to the consignee for sale to third parties. Title to the goods remains with the consignor therefore the consigned items stay on the balance sheet of the consignor.

Question 25

During periods of rising prices the use of LIFO vs. FIFO has what effect on the valuation of ending inventory and reported net income? Which inventory method is prohibited under IFRS?

Answer 25

Both ending inventory and net income will be lower when LIFO is used during a period of rising prices. LIFO = lowest LIFO ia prohibited under IFRS.

Question 26

Give some examples of capitalizable costs for - acquistion of equipments - acquistion of buildings.

Answer 26

Equipment acquistion - Purchase Price + Liab assumed, freight-in, installation, testing, taxes less any cash discounts allowed.

Building acquisition - Purchase price + Liab, deffered maintenance, alterations, improvements, architect fees* ***If equipment or building is constructed by company capitalized cost could include construction period interesr

Question 27

How is fixed asset carrying value computed under US GAAP and IFRS

Answer 27

GAAP - Carrying value = Historical cost - AD - Impairment

IFRS - method above or revaluation model. revaluation model CV = FV - subsequent AD - subsequent impairment. revaluation gains = OCI revaluation losses = IS

Question 28

Describe the proper accounting for ordinary versus extraordinary repairs

Answer 28

Ordinary repairs are expensed as repair and maintenance. they do not increase the life or utility of asset. extraordinary repairs either increase the life or utility of asset. if the extraordinary repair increases the life of the asset it is recorded by reducing accumulated dep. if the extraordinary repair increases utility of asset, it is capitalized to the fixed asset account.

Question 29

Give examples of costs to be capitalized as land.

Answer 29

Acquisition price, closing costs such as broker fees, legal & escrow fees, title guarantee insurance. Any morgate liens or enucumbrances on the land which buyer assumes. Preparation costs such as surveying costs, leveling, tree removal, costs of razing a building less proceeds from sale of assets on land. excavating costs for building and cost of improvements with a definite life are not included in land.

Question 30

How is investment property defined and reported under IFRS?

Answer 30

Investment property - land and or building held to earn rental income or for capital appreciation is reported using one of two methods. Cost Model: Carrying Value = Historical cost - Accumulated dep
Fair Value Model: Reported at fair value and not depreciated Gains & Losses from fair value adjustments are reported on the IS.

Question 31

State two rules concerning capitalizing interest.

Answer 31

Only capitalize interest on money actually spent not on amount borrowed. The amount of capitalized interest is the lower of actual interest cost incurred or computed capitalized interest (avoidable interest)

Question 32

For capitalizing interest, whhen does the capitalization period begin?

Answer 32

Begins when three conditions are met: Expenditures for the asset have been made, Activities that are necessary to get the asset ready for its intended use are in progress, Interest cost is being incurred. Ends when the asset is substantially complete and ready for its intended use.

Question 33

Name the most common depreciation methods. Give the basic formula for calculating each method.

Answer 33

Straight Line : Cost - Salvage / Useful life
SYD: sum of years = n(n+1)/2(cost - salvage) x (years remaining) / (sum of year)
Double Declining balance - 2 x SL x Net book value of asset - do not use salvage value
Units of production = (Cost - Salvage) / Estimated hours x Actual hours for period.

Question 34

Explain the different approaches to depreciation under IFRS & US GAAP

Answer 34

Under IFRS, the depreciation method used should match the expected pattern of fixed asset consumption. (Not required under GAAP).
Under IFRS, component depreciation is required. Not Required under US GAAP.

Question 35

State the rules for computing depletion on natural resources. Remember it is REAL property.

Answer 35

Residual value (subtract) Extraction / Development cost. Anticipated Restoration cost Land Purchase Price

Question 36

What assets are subject to the impairment test?

Answer 36

Long lived assets specific identifiable intangibles and related goodwill to be held and used. Long lived assets and specific identifiable intangibles slated for disposal. Certain assets of a rate-regulated entity. Note: the test must be done at least annually.

Question 37

Describe the impairment test for recoverability under US GAAP.

Answer 37

If the sum of the undiscounted expected future cash flows is less than the carrying amount an impairment loss needs to be recognized.

Question 38

Name the two rules for performing impairment calculations under US GAAP

Answer 38

Determining impairment : use the undiscounted future net cash flows. an impairment loss exists if total undiscounted cash flows are less than the carrying value.

Amount of impairment: use the fair value of the asset: impairment loss = fair value - carrying value.

Question 39

How is impairment evaluated under IFRS?

Answer 39

Under IFRS, impairment exists if the carrying value of the fixed asset exceeds the higher of Fair Value - Costs to sell or Value in use (PV of FCF)

Question 40

How is the impairment loss reported in the financial statements?

Answer 40

As a component of income from continuing ops before income taxes. The carrying amount of the asset is reduced.

Question 41

Is restoration of impairment losses permitted under either US GAAP or IFRS?

Answer 41

US GAAP - Restoration (reversal of impairment losses) is permitted for assets held for sale. Restoration is prohibited for assets held for use.

IFRS - Restoration is always permitted.