FAR 4

Question 1

Sales Discount

Answer 1

Contra Revenue Account

If gross method for A/R used and discount applicable, then debit discount

Question 2

Allowance Method & Recording Bad Debts & Write Offs

Answer 2

To record bad debt expense:

Dr. Bad Debt Expense
Cr. Allowance 4 Uncollectible Accounts

To Write off A/R:

Dr. Allowance 4 uncollectible accounts
Cr. A/R

Write off of bad debt has no effect on expenses

Question 3

Allowance Method: Accts Previously Written Off & Now Collected

Answer 3

Reestablish Account:

Dr. A/R
Cr. Allowance 4 Uncollectible accts

Record Cash Receipt:

Dr. Cash
Cr. A/R

• Bad debt not affected

Question 4

Lower of cost or market, term market

Answer 4

Generally means current replacement cost (whether by purchase or reproduction) provided the current replacement cost does not exceed net realizable value (market ceiling) or fall below net realizable value reduced by normal profit margin (market floor)

Question 5

Determining “market” in lower of cost or market

Answer 5

Ceiling = NRV - Selling price - costs to sell

Floor = NRV - normal profit

If “market” falls between this range, compare to cost and determine which is lower to come up with new basis.

Question 6

Accounts debited for purchases of inventory under both periodic and perpetual method

Answer 6

Periodic Method: Purchases

Perpetual Method: Inventory

Question 7

FIFO and Periodic/Perpetual Inventory System

Answer 7

Ending inventory and COGS are the same regardless of inventory system used.

Question 8

Rising Prices and Inventory System

Answer 8

FIFO - highest ending inventory, lowest COGS, highest net income :(

LIFO - lowest ending inventory, highest COGS, lowest net income

LIFO = Lowest

Question 9

If FIFO for calculation questions

Answer 9

User periodic method to calculate - faster method and same regardless if periodic or perpetual

Question 10

Various Average Inventory Methods

Answer 10

Weighted average - periodic method used

Moving average - required perpetual method to use

Question 11

LIFO

Answer 11

Last costs inventoried are the first costs transferred to COGS. Ending inventory includes oldest costs. Ending balance typically not approximate replacement cost.

If used for tax, must be used for GAAP

Question 12

Dollar Value LIFO - Price Index

Answer 12

End. Inv. at CY cost / Ending Inv. at base year cost

Question 13

Computing LIFO layer added in CY at dollar-value LIFO

Answer 13

LIFO layer at base year is multiplied by price index

Question 14

Fixed Assets - Revaluation Model under IFRS

Answer 14

Must be applied to all items in a class of fixed assets, not to individual fixed assets.

Losses- I/S unless reversal of earlier gain, if reversal, recognized in OCI and reduces revaluation surplus in AOCI

Gains- Revaluation surplus - OCI , reported in I/S to extent they reverse a previously recognized revaluation loss.

Impairment - reduce revaluation surplus to 0, further losses on I/S

Question 15

IFRS - Investment Property Measurement: Fair Value Model

Answer 15

Investment property reported on B/S at FV and is NOT depreciated.

Gains/Losses recognized in earnings

Question 16

Capitalizable Land Costs

Answer 16

Digging & filling
Razing - destroying, leveling, etc…
Deduct proceeds from sale of buildings, timber, etc…

DOES NOT INCLUDE EXCAVATION - that is building cost

Question 17

Composite Depreciation: Asset Retired/sold

Answer 17

If avg service life of a group of assets has not been reached when an asset is retired, the gain/loss that results is absorbed in accum. depreciation. Debit/Credit for difference between original cost and cash received.

Dr. Cash
Dr. Accum. Dep (Plug)
Cr. Asset Cost

Question 18

Determining average composite life for composite depreciation

Answer 18

Depreciable Cost/ Annual Depreciation

Question 19

Sum of Years Depreciation - Calculating Expense

Answer 19

Depreciable base (Cost-Salvage Value) multiplied by

Remaining life of asset (1st year total life) divided by

Sum of all years ex: 4 yrs = 1 +2+3+4 = 10

Question 20

Declining Balance Depreciation - Calculating Expense

Answer 20

Carrying Amount x Declining Balance Percentage

DBP = S/L % x declining balance %

• Asset cannot be depreciated below salvage value
• Salvage value not used when calculating dep. base

Question 21

Depletion Expense

Answer 21

1. Calculate Base
   a. purchase price
   b. prep costs
   c. restoration costs
   d. (salvage value)
2. Divide base by estimated recoverable to get RATE
3. Rate x Actual resources recovered

Question 22

PV of an Annuity Due

Answer 22

If ordinary annuity table used:

Factor for 1 less period and add 1.000

PV = Back (Move back in time and add)

Question 23

Calculating Avoidable Interest

Answer 23

1. Interest on construction note + interest on other borrowings for construction
2. Other borrowings = WWAE - construction note funds
3. Calculate WA interest on other borrowings and multiply by other borrowings used for construction
4. Add 1 & 3

Question 24

Calculating capitalized interest and interest expense with construction costs

Answer 24

Capitalized Interest: cannot exceed actual interest incurred. Capitalize avoidable interest

Interest Expense: difference between total interest and capitalized interest

Question 25

FV of Annuity Due

Answer 25

If using FV for ordinary annuity:

Add one period and decrease by 1.0 (forward 1 minus 1)

Question 26

IFRS - lower of cost or market

Answer 26

Simpler

Lower of NRV or cost

NRV = sale price - cost to sell

No ceiling/floor involved

Question 27

Fixed Assets - Improvements & Replacements

Answer 27

In replacement, carrying value of old asset known, remove it and recognize gain/loss

If unknown and asset life extended, debit accum dep for cost

If unknown and usefulness increased, capitalize cost of improvement/replacement to asset account

Question 28

Pass Key - interest capitalized when constructing FA

Answer 28

Lessor of:

• actual interest cost incurred
• computed capitalized interest (avoidable interest)

Question 29

Permanent Impairment on Fixed Asset

Answer 29

Book value reduced and loss is credited to accumulated depreciation.

New book value depreciated over useful life

Question 30

IFRS - Impairment of Fixed Asset

Answer 30

Carrying value > Recoverable Amount

Recoverable Amt = > of…..

• Asset’s FV (cost to sell) or..
• Assets value in use (PVFCF)

Don’t be fooled by using lesser of…