Far 5 Flashcards

1
Q

What is the formula for completed contract method?

A

Contract price - (Cost incurred +Estimated cost to complete) = Gross profit

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2
Q

When would a current liability arise using the percentage of completion method?

A

Only occurs when progress billings is greater than costs and the estimated earnings.

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3
Q

What makes up Faithful representation?

A

Neutrality, freedom from error, and completeness

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4
Q

what makes up Relevance?

A

Predictive value, confirming value and materiality

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5
Q

What is the market approach?

A

uses matrix model and looks at the fair value of market transactions that use identical or comparable assets or liabilities to measure fair value

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6
Q

What is the cost approach?

A

Uses current replacement costs to measure Fair Value of assets

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7
Q

What is the income approach?

A

Converts future amounts that includes cash flows or earnings, to one single discounted amount to measure Fair Value.

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8
Q

How do you find the end balance of an escrow liability account?

A

Beg Balance

Add Deposits ( X * # of months)

Sub total

minus: Payments ((year pmts/4 quarters) * pmts made)

=Ending Balance

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9
Q

How do you calculate reporting sufficient for reporting segments?

A

After applying the 10% to total combined sales if the aggregated segments do not add up to 75% of total external sales only

Then take a reporting segment that was not added initially and take the segment with the highest income for external sales and do that until the reporting segments are at least at or greater than 75%

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10
Q

What is needed to reconcile bank statement only?

A

Beg balance + deposits in transit - Outstanding Checks

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11
Q

How do you reconcile bank account to book and or General Ledger?

A

Must be given book or G/L balance and service charges, NSF checks, credit memos (customer collections via wire transfer), interest income, and errors made by the company is what is included

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12
Q

For the Direct method what is the formula to solve for “Cash payments for Purchases”?

A

Cost of Goods Sold

  • Decrease in Inventory/ +Increase in Inventory
  • Increase In A/P / + Decrease in A/P

=Cash payments for purchases

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13
Q

What are the two entries needed when collecting on an account previously written of using the Allowance method?

A

Dr A/R

Cr AFDA

Dr Cash

Cr A/R

ADFA increases

A/R is not effected

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14
Q

What is the % of receivables method and what is the J/E used to adjust the account at year end?

A

You take a given % and multiply it against total A/R for the year and then add or subtract it against the related allowance account balance

Dr Bad Debt Expense

Cr Allowance for uncollectible accounts

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15
Q

what happens to the allowance account when writing off an account under the allowance method?

A

The allowance would decrease when a specific uncollectible account is written off

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16
Q

What is the journal entry for the Direct write off method and what accounts do they effect?

A

Dr Bad Debt expense

Cr A/R

Direct write off reduces net income and working capital

17
Q

How are estimates handled?

A

Prospectively, with no cumulative adjustment made and no separate line item presentation on any F/S

If material change is being made disclose in footnotes

18
Q

How would you handle a change in accounting principles?

A

You would adjust retained earnings after (after tax) and also adjust all prior periods retrospectively. retained earnings would show if the accounting principle was always used.

19
Q

When cash (boot) is received for an exchange of assets that lack commercial substance, what is recognized?

A

This is an exception to the rule and the measurement is not based on fair value, since boot is received and a minor part of total consideration, a proportional amount of gain is recognized.

20
Q

If the exchange of nonmonetary assets that lack commercial substance and boot is paid an a loss occurs, what amount of the loss is recognized?

A

All realized losses are fully recognized in accordance with the principle of conservatism.

A % of a loss is never recognized, always the full amount.

21
Q

What must equal in nonmonetary transactions?

A

Fair value given must equal fair value received. Also, losses on nonmonetary transactions must be recognized in full.

22
Q

How are nonmonetary exchanges that have commercial substance recorded?

A

recorded using fair value

any resulting gains or losses are recognized in the F/S

Must be a change in both parties cash flow earnings.

23
Q

How do you calculate gain for nonmonetary transactions that result in a commercial substance?

A

Gain = FV asset given - BV asset given

24
Q

How do you calculate basis of New property in a nonmonetary exchange that has commercial substance?

A

FMV of asset given up - BV of asset given up = Gain or Loss

Basis of new property = BV of asset given up +/- Gain or loss + cash paid or - Cash received

25
Q

What is the Journal Entry to record a non-monetary exchange when cash is paid?

A

Dr Asset (new truck) xxx
Dr Accumulated Depreciation (Asset given up - reversal entry) xxx
Cr Asset (old truck) xxx
Cr Cash (paid for new truck) xxx

26
Q

What are two things that need to be satisfied in order to have commercial substance?

A
  1. The risk, timing, and amount of the expected future cash flows from the asset transferred differs significantly from the risk, timing, and amount of the expected future cash flows from the asset received
  2. asset received differs significantly (in relation to the fair value of the assets exchanged) from asset transferred
27
Q

How are involuntary conversions recognized?

A

Always recognized during the period it happened in,

(NBV) Recorded value of the building + Removal and clean-up cost = total loss on fire

28
Q

When a nonmonetary exchange lacks commercial substance how do you value the exchanged asset?

A

Basis of asset received should equal to the basis of the asset given up and no gain or loss is recognized if no boot is received

If boot is received (New Machine FV + Cash received) - Carrying value of old machine

29
Q

What classifies as a monetary exchange?

A

When boot exceeds 25% of total consideration (Cash given + FV of the asset)

30
Q

What are common modifications of modified cash basis financial statements?

A

Recording Long term liabilities, accrual of income taxes, and capitalization of inventory