FAR 1 & 2

Question 1

How to figure out interest rev when giving beg bal end bal of interest receivables, and interest collected for the year?

Answer 1

you take your ending bal add back collections then subject beg balance

Question 2

What is the ratio used to calculate income for a percentage of completion contract in the third year of a 5 year contract?

Answer 2

total cost to date/total estimated costs

Question 3

How to calculate deferred gross profit?

Answer 3

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)

Question 4

How to calculate the gross profit recognized for a % of completion project in second year?

Answer 4

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

Question 5

What are examples of a change in principle that are inseparable from a change in accounting estimate and how are they handled?

Answer 5

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

Question 6

How should first time adopters of IFRS recognize adjustments required to present opening IFRS statement of financial position?

Answer 6

adjustments to retained earnings or other category of equity

Question 7

What are differences between managerial to financial accounting?

Answer 7

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

Question 8

How much revenue to recognize on key member life insurance proceeds?

Answer 8

proceeds collected - the policy’s cash surrender value

key life insurance proceeds are not taxable - permanent difference

Question 9

How should managements plans that are believed to be effective in mitigating conditions causing substantial doubt to continue as going concern be disclosed?

Answer 9

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

Question 10

Under IFRS, when should disclosure of going concern be made?

Answer 10

when management is aware of material uncertainties

Question 11

What are required disclosures under IFRS, but not under GAAP?

Answer 11

statement of compliance
disclosure of judgments made

both disclose significant policies and estimates

Question 12

What are forms 3,4, and 5?

Answer 12

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

Question 13

What is form 10k? 11K? 20F?

Answer 13

10k- annual report of financials
11K- annual report of employee benefit plan
20F- annual report of non US registrant

Question 14

How to calculate total asset turnover?

Answer 14

net sales/avg total assets

Question 15

How to calculate quick ratio?

Answer 15

cash+net receivables+marketable securities/ current liabilities

Question 16

How are sales with the right of return reported?

Answer 16

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

Question 17

What is times interest earned? and how to calculate?

Answer 17

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

Question 18

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.

Answer 18

• change in accounting entity

- retrospectively, adjustment to retained earnings

Question 19

What are some examples of changes inn accounting principle? entity? estimate? error correction? and how are they handled?

Answer 19

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.

Question 20

How is a change from income tax method to full accrual method handled?

Answer 20

correction of error and restate prior financials

income tax method is non GAAP

Question 21

What is the sequence of JEs to record % of completion? At end of period what will balance sheet show?

Answer 21

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

Question 22

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?

Answer 22

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

Question 23

What is the sequence of JEs to record cost method?

Answer 23

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