F4

Question 1

Describe the steps to “discount a note”

Answer 1

1) Compute maturity value (includes interest to maturity)
2) Compute “Discount” (Use Maturity Value)
3) Get proceeds by Maturity Value – Discount
4) Compute Interest Income by Proceeds - Face of Note

Question 2

Name 3 methods of estimating uncollectible accounts.

Answer 2

1) % of Sales
2) % of AR at year end
3) Aging of Receivables at Year End

Question 3

Explain the difference between periodic and perpetual inventory methods.

Answer 3

Periodic:
- Quantity of inventory determined by physical count
- Ending inventory is physically counted and priced
Perpetual:
- Inventory updated for each purchase and sale
- Keeps a running total of inventory

Question 4

Name the most common depreciation methods and give the formulas.

Answer 4

SL: (Cost – SV)/Life

Sum-of-the-years’ Digits:
Sum of Years = n(n+1)/2
(Cost – Salvage) x (years remaining/sum of years)

Double-Declining Balance:
(2/n) x NBV of asset

Units of Productions:
(Cost – SV)/Estimated Hours x Actual Hours

Question 5

What are the JE that provide for and write off allowance for uncollectible accounts?

Answer 5

Provide For:
Bad Debt Expense
     Allowance for Uncollectible
Write Off:
Allowance for Uncollectible
      Accounts Receivable

Question 6

What are the two rules to remember concerning capitalized interest?

Answer 6

Rule 1: Only capitalized Interest on money spent, not total borrowed.
Rule 2: The amount of capitalized interest is the lower of:
1) Actual interest cost incurred, or
2) Computed capitalized interest (avoidable interest)

Question 7

How is inventory at Dollar value LIFO calculated?

Answer 7

Price Index = Ending Inv at CY Cost / Ending Inv at Base Year cost
Ending Inv Dollar Value LIFO = (Layer x Price Index) + Beg. Inv at Dollar Value LIFO

Question 8

When are losses on Firm Purchase Commitments booked?

Answer 8

Book estimated loss now (DR: Loss – CR: Est Liab.) on I/S