FAR 1 & 2 Flashcards
How to figure out interest rev when giving beg bal end bal of interest receivables, and interest collected for the year?
you take your ending bal add back collections then subject beg balance
What is the ratio used to calculate income for a percentage of completion contract in the third year of a 5 year contract?
total cost to date/total estimated costs
How to calculate deferred gross profit?
first calculate the gross profit margin % (gain on sale) then multiply that by the amount of remaining receivable amount or sales ( meaning subtract the cash collected from total sales)
How to calculate the gross profit recognized for a % of completion project in second year?
contract price - total estimated cost to complete = GP
then find the GP % by total costs to date/total costs to complete, then you multiple the GP % to the GP, then you remove previously recognized gross profit from prior year. All losses reported immediately
What are examples of a change in principle that are inseparable from a change in accounting estimate and how are they handled?
examples include a change in inventory cost flow assumption TO LIFO
also, changes from direct recognition to installment method of accounts receivable
they will be treated a changes in estimates, handled prospectively
How should first time adopters of IFRS recognize adjustments required to present opening IFRS statement of financial position?
adjustments to retained earnings or other category of equity
What are differences between managerial to financial accounting?
managerial not required to follow gaap
financial is considered more precise
managerial has future focus, while financial has past
managerial has a timeliness focus, while financial has relevance
How much revenue to recognize on key member life insurance proceeds?
proceeds collected - the policy’s cash surrender value
key life insurance proceeds are not taxable - permanent difference
How should managements plans that are believed to be effective in mitigating conditions causing substantial doubt to continue as going concern be disclosed?
financial statements must be presented in going concern base of accounting with footnote disclosures explaining the original conditions that raised doubt, managements evaluation, and description of plans
-also going concern is based on being probable within one year of issuance of financial statements
Under IFRS, when should disclosure of going concern be made?
when management is aware of material uncertainties
What are required disclosures under IFRS, but not under GAAP?
statement of compliance
disclosure of judgments made
both disclose significant policies and estimates
What are forms 3,4, and 5?
required to be filed by directors, officers, or owners more than 10%
- not included in a set of financial statements
- dont have to be filed in XBRL financial statement exhibit
What is form 10k? 11K? 20F?
10k- annual report of financials
11K- annual report of employee benefit plan
20F- annual report of non US registrant
How to calculate total asset turnover?
net sales/avg total assets
How to calculate quick ratio?
cash+net receivables+marketable securities/ current liabilities
How are sales with the right of return reported?
all condition must be met to recognize income
- fixed sales price
- buyer assumes all risk
- buyer gives consideration
- product sold was substantially complete
- amount of future returns can be estimated
What is times interest earned? and how to calculate?
measures the ability of a company to cover interest charges. the greater the ability the less risk
income before interest and tax + interest exp/ interest exp
How do you handle a change in entity? For example a company acquires 100% of the outstanding stock of another company that it previously accounted for under the cost method.
- change in accounting entity
- retrospectively, adjustment to retained earnings
What are some examples of changes inn accounting principle? entity? estimate? error correction? and how are they handled?
accounting principle - any change in inventory method, except for TO LIFO, new FASB standard. handled retrospectively
accounting entity- change from equity to consolidation. handled retrospectively
accounting estimates- write offs of inventory, changes in useful lifes, judgments for lawsuits handled currently and prospectively
error correction- not reporting revenue or expense. handled to beg retained earnings.
How is a change from income tax method to full accrual method handled?
correction of error and restate prior financials
income tax method is non GAAP
What is the sequence of JEs to record % of completion? At end of period what will balance sheet show?
record cost incurred
dr construction in progress (for the current period costs)
cr cash or payable
record billings on contract
dr contracts receivable
cr progress billings (current period billings)
record payments received
dr cash (current cash received)
cr contracts receivable
record revenue/cost during construction period
dr construction exp (current period costs)
dr construction in progress (GP for the period)
cr revenue
Construction in progress (from both JE and total to date)
minus: progress billings to date
= Net construction in progress
Current Asset
What is the sequence of JEs to record completed completion? At end of period what will balance sheet show? What are the JEs at end of contract?
No gross profit can be booked until the contract is complete.
record costs incurred
dr construction in progess (current costs)
cr cash
record billings on contract
dr contracts receivable
cr progress billings (current period)
Record payments received
dr cash (current period)
cr contracts receivable
No 4th entry like % of completion. all zeros
Construction in progess
-progress billings
= current asset
Final entry
dr progress billings
cr revenue
dr construction exp
cr construction in progess
What is the sequence of JEs to record cost method?
No gross profit until contract is complete.
record sale
dr cost recovery receivable
cr inventory
cr deferred gross profit
record payments received
dr cash
cr cost recovery receivable
Final entries
record payments received
dr cash
cr cost recovery receivable
record gross profit
dr deferred gross profit
cr realized gross profit
