F4 Flashcards
How are factoring receivables without recourse treated?
Sales transaction because they transfer the risk of uncollectible accounts to the buyer
What is pledging/assigning receivables?
process of obtaining a loan using the receivables as collateral where company retains control of receivables
For factoring receivables without recourse, what are the requirements to be considered a sale? What if these requirements are not met?
- seller’s obligation for uncollectible accounts reasonably estimated
- seller surrenders control of future economic benefits to buyer
- seller not required to repurchase receivables, but may be required to replace
- considered loan if conditions are not ALL met
Under the allowance method of recognizing uncollectible accounts, what is the JE to record the write-off of an account?
DR: Allowance for Doubtful Accounts, CR: A/R
if a check is not disbursed by the end of the year, how should it be treated in determining the reconciliation balance?
Added back into the checkbook balance
What are cash equivalents?
investments with original maturities 3 months or less
how do we calculate adjusted cash balance?
unadjusted cash balance +/- bank errors +credit memos -service charges
What is factoring receivables?
process where a company converts its receivables to cash by assigning them to a factor with or without recourse
When can a ST obligation be excluded from current liabilities and included in non-current debts?
company has both intent and ability to refinance on a LT basis as shown by either actual financing before the F/S are issued or if a non-cancelable financing agreement exists from a lender who has financial resources to complete financing
Under the allowance method, when an account previously written off is subsequently collected, what are the journal entries to restore the previously written-off account and to record the cash collection?
Restore:
DR: A/R, CR: Allowance for Uncollectible Accounts
Record:
DR: Cash, CR: A/R
Differentiate between unrestricted and restricted cash
Restricted cash is cash set aside for a specific purpose or use, unrestricted cash is cash used for all current operations
What is working capital?
Current assets - current liabilities
What is the quick ratio?
(cash + net receivables + marketable securities) / current liabilities
What is the journal entry to write off a specific A/R under the allowance method?
Debit allowance for doubtful accounts, credit accounts receivable
How can we tell if payment is a non-current asset?
Transaction is expected to result in realization of cash in the future and cash will be realized at a time beyond the normal operating cycle of one year
What is market under lower of cost or market?
The middle value of replacement cost, net realizable value, and net realizable value - normal profit
How was inventory valued under IFRS?
Lower of cost or net realizable value
What type of inventory valuation will always result in the same dollar valuation ending in the toy regardless of whether periodic or perpetual is used?
FIFO
How is inventory valued under GAAP?
Lower of cost or market
What do we do with dollar-value LIFO?
Adjust inventory retail prices and ending inventory cost for price level changes
Which lower of cost or market real application is most conservative?
Separately, each item
What is the LIFO reserve?
Difference between inventory on LIFO method versus any other cost method
When a company’s goods are out on consignment, what does the consignor still own?
The selling price of the goods, not the marked up amount
What is net realizable value?
Selling price - cost of disposal
What is a disadvantage of the periodic inventory system?
COGS amount includes both cost of inventory sold and inventory shortages
What are the advantages of LIFO?
Lower tax liability, lower ending inventory
What are the advantages of FIFO when prices rise?
Lower COGS, maximize profits
How are shipping cost to obtain company goods associated with inventory valuation?
Allocated to COGS and inventory based on proportion of inventory to purchases
What do we do when current market value of inventory is less then the fixed purchase price in a purchase commitment?
Lost recognized at time of price decline, liability recognized on the balance sheet and description of losses must be described in the footnotes
FOB shipping point. FOB destination
Transfer ownership of goods when shipped, transfer ownership of goods when they arrive at the destination
How does the consignor treat their goods?
Includes them in ending inventory because they still retain title and risk of loss
Under IFRS, how are fixed assets valued?
Together as an entire class, not alone
What costs incurred in connection with a manufacturing machine can be capitalized?
Any cost to acquire and make ready a plant asset
How is the amount of capitalized interest calculated?
LOWER OF actual interest cost incurred or computed capitalized interest (avoidable interest)
What is included in the machines cost?
Cost reasonable and necessary to get the asset in the condition or location for its intended use
How do we account for repairs from damages to fixed assets?
Capitalize cost of repair and record a loss in the current period equal to the carrying amount of the damaged portion of fixed asset
How are interest costs on fixed assets treated before the construction period and interest costs with the routine manufacture of machinery treated?
Expense on the income statement in the period incurred
How do we account for interest costs incurred during the construction period of fixed assets?
Capitalize based on weighted average of accumulated expenditures as part of fixed assets cost
What types of interest costs on fixed assets are expensed?
Interest costs incurred before or after the construction period and intentional delays in construction
IFRS, how do we book an impairment?
Impairment first recorded by reducing any reevaluation surplus to zero and then reporting further impairment losses on the income statement
IFRS, what is investment property?
Land and buildings held by an entity to earn rentals for capital appreciation
When investment property is reported it cost less depreciation, what must be disclosed?
Fair value
When is the weighted average interest rate used to calculate capitalized interest on fixed assets?
If borrowings are not tied specifically to construction of asset
Machinery recorded at the transaction date?
Fair value
When is units of production depreciation most appropriate?
When assets service potential declines with use
How is the depreciable base calculated?
Costs - salvage value
What do we do with restoration costs in depletion?
Add to depletion base
What do we do when a permanent impairment has occurred?
Book value reduced with credit to accumulated depreciation
What is the U.S. GAAP impairment process for fixed assets?
Step 1: determine if they caring value is greater then the undiscounted future cash flow’s. If so, and impairment loss exists, step 2: fair value OR present value of future cash flows - net caring value is our impairment loss
What is the IFRS impairment process for fixed assets?
One step: fixed asset recoverable amount (greater of the value and use (present value of future cash flows) or net realizable value (fair value - cost to sell)) - carrying value. If negative, we record this amount as our impairment loss
Are US GAAP and IFRS’s views on subsequent reversal of impairment losses?
Prohibited under GAAP, permitted under IFRS
When should long-lived assets be tested for recoverability?
When changes in events or circumstances indicate its carrying amount may not be recoverable
Under US GAAP, when can long-lived assets that are impaired have their carrying value restored?
When held for disposal
What is the focus of the aging analysis of A/R balances?
Focuses on balance sheet and asset valuation resulting in good matching of revenue and expense
What is the entry to write off an uncollectible accounts under the allowance method?
Debit: Allowance for uncollectible accounts, Credit: Accounts Receivable –> no effect on net income (I/S) or working capital (B/S)
What is the entry to collect a previously written off balance?
Debit cash, credit allowance for doubtful accounts
Which GAAP costing methods best approximate current cost of goods sold and ending inventory?
LIFO for COGS, FIFO for EI
Which inventory method best reflects current costs and is more affected by changes in prices?
Perpetual
How long should the aggregate amount of payments to be made on unconditional purchase obligations be disclosed?
For five years following the latest balance sheet date
How was the index calculated in the dollar value LIFO method?
Ending inventory at current year cost / ending inventory at base year cost
Long-term debt that matures within one year should be classified as a ___________ unless __________ is going to happen with other than current assets
current liability, retirement
What is avoidable interest?
Interest that would not have been incurred if the project had not taken place
What is the relationship between interest capitalized and actual interest incurred?
Capitalized interest incurred (interest for all borrowings) cannot exceed actual interest incurred (avoidable interest)
How do we determine interest expense?
Difference between total interest and capitalized interest
What do we do with physical assets in the trader business having a useful life greater than one year?
Capitalize and depreciate
How do we treat ordinary repair and maintenance activities?
Expense at the time incurred
How do we account for intangible assets?
Capitalize and amortize over their useful life
How do we treat extraordinary repairs?
Capitalize if life is extended or efficiency is increased as a result
How are land improvements treated?
They are excluded from the cost of land because they are depreciable assets and land is not
How was interest during the construction period treated?
Capitalized
What do you capitalized cost of new machines include?
All costs necessary to acquire machine and get it to the location and condition for its intended use
