FAR 4

Question 0

What is the Current Ratio?

Answer 0

Current Assets / Current Liabilities

Question 1

What is working capital?

Answer 1

Current Assets - Current Liabilities

Question 2

What is the Quick Ratio?

Answer 2

(Cash + Net Receivables + Marketable Securities) / Current Liabilities

Question 3

What is the difference between the Gross method and the Net method for discounts?

Answer 3

Gross method - record sales without regard to any discounts.

Net method - record sales net of any discounts./

Question 4

What are the different methods of writing off bad debt?

Answer 4

1 - Direct Write-off Method (not GAAP)
2 - Allowance Method
a - Percentage of Sales
b - Percentage of A/R at year-end
c - Aging of Receivables Method

Question 5

How is notes receivable valued on the balance sheet?

Answer 5

Face value less any unearned interest and finance charges.

Question 6

How do you discount a notes receivable? Bank purchased it at a discount.

Answer 6

A - Calculate the maturity value by adding the interest to the face value. (at the date of sale) hint: factor % by term of NR in years.
B - Calculate bank discount on the payoff at maturity. A x discount % = B
C - Determine the amount paid by the bank. A-B=C
D - Calculate the interest income. C-Face Value of NR=D

Question 7

What are the 4 types of inventory/

Answer 7

1 - Retail
2 - Raw Materials
3 - Work in Process (WIP)
4 - Finished Goods

Question 8

What is FOB (Free on Board) Shipping Point?

Answer 8

It is when title passes to the buyer when the seller delivers the good to a common carrier. Inventory is included in the buyer’s inventory upon shipment. Buyer pays the shipping - Freight In.

Question 9

bWhat is FOB (Free on Board) Destination?

Answer 9

It is when title passes to the buyer when the buyer receives the goods from the common carrier. Seller pays the shipping costs. Freight Out.

Question 10

In regards to inventory. What does the term “market” in the phase ‘lower of cost or market” mean?

Answer 10

It means current replacement cost, provided the current replacement cost does not exceed net realizable value or fall below net realizable value reduced by normal profit margin.

Question 11

How is the ceiling calculated when determining lower of cost or market for inventory

Answer 11

Selling Price - Cost to complete = Net realizable value.

Question 12

How do you calculate the floor when valuing inventory?

Answer 12

Net realizable value - Profit

Question 13

What are the two types of inventory systems?

Answer 13

Periodic and Perpetual.

Question 14

What is the effect on COGS and Net Income under a period of rising prices when using the FIFO method of inventory?

Answer 14

You get the highest level of ending inventory, the lowest cost of goods sold, and the highest net income.

Question 15

How do you calculate the weighted average method of inventory?

Answer 15

Total cost of inventory available (inc beg inventory) / total number of units of inventory (inc beg inventory)

Question 16

What is the effects on the financials during periods of rising prices under the LIFO method of inventory?

Answer 16

Lowest ending inventory, highest COGS, and lowest net income. Key: Lifo - Lowest

Question 17

How do you calculate Internally Computed Price Index?

Answer 17

Price Index =
Ending inventory at current year cost /
Ending inventory a base year cost

Question 18

How are fixed assets calculated under the Revaluation Method? (IFRS)

Answer 18

FV at revaluation date - subsequent accumulated depreciation-subsequent impairment.

Question 19

How is the revaluation of fixed assets reported on the financials? (IFRS)

Answer 19

Revaluation Losses - On the income statement
Revaluation Gains - Not on the income statement but in OCI
Impairment - Reduce any OCI first and the remainder goes to the income statement.

Question 20

How do you calculate the depletion base for land?

Answer 20

Residual Value (Subtract)
Extraction/Developmental Costs+
Anticipated Restoration +
Land Purchase Price
(REAL)