FAR 3

Question 1

Direct write off Method

Answer 1

• Not GAAP
• account is written off and bad debt is recognized when the account becomes uncollectible
• debit BD exp and credit AR

Question 2

Percentage of Sales Method

Answer 2

-A percentage of sales is debited to bad debt expense and credited to allowance for doubtful accounts

Question 3

Percentage of AR Method

Answer 3

• Uncollectible accounts may also be estimated as a certain percentage of AR
• The difference between the unadjusted balance and the desired ending balance is debited or credited to the bad debt exp account.

Question 4

Lower of Cost & Market

Answer 4

When utility of item is no longer as great as their cost, and loss on sale is expected. Item is valued at lower of its cost or market price.

Question 5

Periodic INV

Answer 5

quantity of inventory is determined by one physical count.

Beg INV+Purchases= Cost of Goods AFS-EI=COGS

Question 6

Cost Model

Answer 6

Cost Model carrying value= Historical cost-accum dep- impairment

Question 7

Capitalizing vs. Expensing for fixed assets

Answer 7

Improvements or additions are typically capitalized while repairs and other costs are expensed unless they increase the useful life of the asset.

Question 8

Sum of Years Digits Dep

Answer 8

(purchase price- salvage value) * (useful life/sum of years)

-purchase price- salvage value stays constant throughout calculation year to year

Question 9

Double Declining Balance

Answer 9

-First divide 100% by useful life then multiply by two
(100%/4=25%*2=50% (if useful life was 4 years)
-Stop calculating dep in year that depreciable cost falls below salvage value.

Question 10

Units of production

Answer 10

1. (Cost-salvage value)/(estimated units or hours)=rate

2. (rate)*(# of units produced or hours worked)=dep

Question 11

Depletion Calc

Answer 11

1. Unit depletion rate= (depletion base/est recoverable unit)
2. Total depletion= Unit depletion * # of units extracted

Question 12

Commercial substance transaction

Answer 12

Gains and losses are always recognized. G/L is difference between FV and BV.

Question 13

Transaction that lacks commercial substance

Answer 13

• No boot=no gain
• boot is paid=no gain
• recognize partial gain if boot received is less than 25% of the total consideration
• recognize full gain if boot received is more than 25% of total consideration.
• all losses should be recognized

Question 14

Accounting for Research and Development costs

Answer 14

Should be expensed with two exceptions

1. R&D costs undertaken on the behalf of others
2. Materials, equipment, and facilities that have alternative future uses

Question 15

Accounting for software development costs

Answer 15

• expense costs until technological feasibility

- capitalize costs after technological feasibility

Question 16

Impairment Test

Answer 16

if undiscounted cash flows are less than carrying value there is an impairment loss.

Question 17

Impairment Loss calc

Answer 17

FV or PV of future net cash flows- carrying value

Question 18

Bank Reconciliation

Answer 18

• Deposits in Transit: Balance for book will be higher than Bank
• Outstanding Checks: Higher balance per bank than book
• Service charges: Balance per books is overstated until the service charges are subtracted
• Bank collections: Book balance will be understated
• Non-sufficient funds (NSF): Book balance will be overstated.
• Interest Income: Book balance is understated.

Question 19

R&D Expensing Exceptions

Answer 19

1) if materials, equipment, or facilities developed have alternative future uses
2) research and development costs are undertaken on behalf of others under a contractual agreement