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CPA Prep > FAR 2 > Flashcards

FAR 2 Flashcards

1
Q

What four criteria must be met in order to recognize revenue under GAAP?

A
  1. Persuasive evidence of an arrangement
  2. Delivery has occurred or services have been rendered
  3. The price is fixed and determinable; and
  4. Collection is reasonably assured.
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2
Q

True or False: Revenue is typically recognized on the date of sale.

A

True

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3
Q

Explain Multiple Element Arrangements

A

When a sales contract multiple products or services, the fair value of the contract must be allocated to the separate contract elements.

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4
Q

Deferred Credits are:

A

Used when cash is received before revenue is earned

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5
Q

True or False: Expenses should be recognized according to the matching principal

A

True

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6
Q

How is an accrued asset recorded?

A

Debit: Accounts Receivable
Credit: Accrued Revenue

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7
Q

How is an accrued liability recorded?

A

Debit: Accrued Expense
Credit: Accrued Liability (Accounts Payable)

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8
Q

How is an estimated liability reported?

A

Debit: Accrued Expense
Credit: Accrued liability

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9
Q

What is an expired cost?

A

costs that expire during the period and have no future benefit. These hit the income statement.

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10
Q

What is an unexpired cost?

A

Represent fixed assets and inventory. These stay on the balance sheet for now and are capitalized.

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11
Q

How is a prepaid expense recorded?

A

Debit: Prepaid Expense
Credit Cash:

These hit the balance sheet only.

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12
Q

How is a deferred credit recorded?

A

Debit: Cash
Credit: Unearned/deferred revenue

This only affects the balance sheet.

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13
Q

How is a royalty received in advance recorded?

A

Debit: Cash
Credit: Unearned royalty

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14
Q

How is do you record the entry for recognizing a prepaid royalty revenue?

A

Debit: Unearned Royalty
Credit: Earn Royalty

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15
Q

What are the five intangible assets that are commonly tested on the CPA Exam?

A 
Patents
Copyrights
franchises
trademarks
Goodwill
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16
Q

What is the rule concerning amortization of patents

A

A patent is amortized over the shorter of its estimated life or remaining legal life.

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17
Q

True or False: Goodwill can be amortized

A

False

18
Q

Explain the difference between IFRS and GAAP concerning the recording of intangible assets.

A

Under GAAP intangible assets are recorded at Cost but under IFRS, intangible assets can be recorded at either cost or under the revaluation model.

19
Q

Under IFRS, what is the revaluation model?

A

A model that is used for initally valuing intangible assets at cost but revaluing those assets to fairvalue.

20
Q

Describe the impairment test(s) for intangible assets with (a) a finite life and (b) and infinite life.

A

Finite Life: Two step test:
Undiscounted net cash flows
Fair Value

Infinite Life: One step test:
Fair Value

21
Q

Describe Goodwill Impairment

A

Goodwill impairment is calculated at a reporting unit level. Impairment exists when the carrying amount of the reporting unit goodwill exceeds its fair value.

22
Q

The Completed Contract Method is recognized by:

A

GAAP (only)

23
Q

Installment sales are recorded under what method?

A

Cash Method

24
Q

Percentage of Completion sales are recorded under what method?

A

Accrual Method

25
Q

What is the formula for Gross Profit?

A

Sales - Cost of Goods Sold (COGS)

26
Q

What is the formula for Gross Profit Percentage?

A

Gross Profit/Sales Price

27
Q

What is the formula for Earned gross profit?

A

Cash Collections X Gross profit percentage or Cash Collections X Gross Profit/Sales Price

28
Q

True or False: Deferred Gross Profit is a contra asset.

A

True

29
Q

What is the formula for deferred gross profit?

A

Installment receivable X gross profit percentage or installment receivable X Gross Profit/Sales Price

30
Q

What is meant by having commercial substance?

A

That there is a change in cash flow.

31
Q

List the debits and credits “framework” for a non monetary transaction:

A 
Debit: New Asset (at Fair Value)
Debit: Accumulated depreciation of asset given up
Debit: Cash Recevied
Debit: Loss (if applicable)
Credit: Old asset at cost
Credit: Cash Given
Credit Gain (if applicable)
32
Q

Define Historical Cost

A

The actual exchange value in the dollars at that time an asset was aquired or a liability was assumed

33
Q

Define Current Cost

A

The cost that would be incurred at the present time, the replacement cost. Use the recoverable amount if lower.

34
Q

Define Nominal Dollars

A

Unadjusted for changes in purchasing power

35
Q

Define Constant Dollars

A

Dollars restated based on calculations of CPI ratios

36
Q

What is the difference between Monetary and non-monetary

A

Monetary assets and liabilities are fixed or denominated in dollars regardless of changes in specific prices or the general price level. Non monetary assets and liabilities fluctuate in value with inflation and deflation.

37
Q

List the typical monetary balance sheet items

A 
Cash
Bonds
A/R and N/R
Long Term receivables
A/P and N/P
Accrued Expenses
Bonds payable
38
Q

List the typical non monetary balance sheet items

A 
Marketable common stock
Inventory
Investment in subsidiary 
PP&E
Intangible assets
Deferred charges and credits
Preferred Stock
Common Stock
39
Q

The Current Exchange Rate is the year end or ____ rate

A

Spot

40
Q

Define Forward Exchange Rate

A

the exchange rate existing now for exchanging two currencies at a specific future date.

41
Q

List the nine topic areas in the FASB codification and their section number (ex: 100’s 200s’ etc)

A 
100's General Principals
200's Presentation
300's Assets
400's Liabilities
500's Equity
600's Revenue
700's Expenses
800's Broad Transactions
900's Industry

CPA Prep (10 decks)

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