FAR 2 Flashcards
What four criteria must be met in order to recognize revenue under GAAP?
- Persuasive evidence of an arrangement
- Delivery has occurred or services have been rendered
- The price is fixed and determinable; and
- Collection is reasonably assured.
True or False: Revenue is typically recognized on the date of sale.
True
Explain Multiple Element Arrangements
When a sales contract multiple products or services, the fair value of the contract must be allocated to the separate contract elements.
Deferred Credits are:
Used when cash is received before revenue is earned
True or False: Expenses should be recognized according to the matching principal
True
How is an accrued asset recorded?
Debit: Accounts Receivable
Credit: Accrued Revenue
How is an accrued liability recorded?
Debit: Accrued Expense
Credit: Accrued Liability (Accounts Payable)
How is an estimated liability reported?
Debit: Accrued Expense
Credit: Accrued liability
What is an expired cost?
costs that expire during the period and have no future benefit. These hit the income statement.
What is an unexpired cost?
Represent fixed assets and inventory. These stay on the balance sheet for now and are capitalized.
How is a prepaid expense recorded?
Debit: Prepaid Expense
Credit Cash:
These hit the balance sheet only.
How is a deferred credit recorded?
Debit: Cash
Credit: Unearned/deferred revenue
This only affects the balance sheet.
How is a royalty received in advance recorded?
Debit: Cash
Credit: Unearned royalty
How is do you record the entry for recognizing a prepaid royalty revenue?
Debit: Unearned Royalty
Credit: Earn Royalty
What are the five intangible assets that are commonly tested on the CPA Exam?
Patents Copyrights franchises trademarks Goodwill
What is the rule concerning amortization of patents
A patent is amortized over the shorter of its estimated life or remaining legal life.
True or False: Goodwill can be amortized
False
Explain the difference between IFRS and GAAP concerning the recording of intangible assets.
Under GAAP intangible assets are recorded at Cost but under IFRS, intangible assets can be recorded at either cost or under the revaluation model.
Under IFRS, what is the revaluation model?
A model that is used for initally valuing intangible assets at cost but revaluing those assets to fairvalue.
Describe the impairment test(s) for intangible assets with (a) a finite life and (b) and infinite life.
Finite Life: Two step test:
Undiscounted net cash flows
Fair Value
Infinite Life: One step test:
Fair Value
Describe Goodwill Impairment
Goodwill impairment is calculated at a reporting unit level. Impairment exists when the carrying amount of the reporting unit goodwill exceeds its fair value.
The Completed Contract Method is recognized by:
GAAP (only)
Installment sales are recorded under what method?
Cash Method
Percentage of Completion sales are recorded under what method?
Accrual Method
What is the formula for Gross Profit?
Sales - Cost of Goods Sold (COGS)
What is the formula for Gross Profit Percentage?
Gross Profit/Sales Price
What is the formula for Earned gross profit?
Cash Collections X Gross profit percentage or Cash Collections X Gross Profit/Sales Price
True or False: Deferred Gross Profit is a contra asset.
True
What is the formula for deferred gross profit?
Installment receivable X gross profit percentage or installment receivable X Gross Profit/Sales Price
What is meant by having commercial substance?
That there is a change in cash flow.
List the debits and credits “framework” for a non monetary transaction:
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)
Define Historical Cost
The actual exchange value in the dollars at that time an asset was aquired or a liability was assumed
Define Current Cost
The cost that would be incurred at the present time, the replacement cost. Use the recoverable amount if lower.
Define Nominal Dollars
Unadjusted for changes in purchasing power
Define Constant Dollars
Dollars restated based on calculations of CPI ratios
What is the difference between Monetary and non-monetary
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.
List the typical monetary balance sheet items
Cash Bonds A/R and N/R Long Term receivables A/P and N/P Accrued Expenses Bonds payable
List the typical non monetary balance sheet items
Marketable common stock Inventory Investment in subsidiary PP&E Intangible assets Deferred charges and credits Preferred Stock Common Stock
The Current Exchange Rate is the year end or ____ rate
Spot
Define Forward Exchange Rate
the exchange rate existing now for exchanging two currencies at a specific future date.
List the nine topic areas in the FASB codification and their section number (ex: 100’s 200s’ etc)
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
