FAR 5

Question 1

Five information classification sections of the statistical section of the CAFR:

Answer 1

Financial trends information, revenue capacity information, debt capacity information, demographic and economic information, and operating information.

Question 2

Three stages of activities involved in developing and installing internally generated computer software:

Answer 2

1. Preliminary project stage, 2.Application development stage, 3. Post-implementation/operation stage. Only the costs in stage 2 are capitalized.

Question 3

“Net method” journal entry for discounts not taken

Answer 3

DR: Cash (amount of cash receipts where discounts not taken), CR: A/R, Discounts not taken

Question 4

Describe “credit sales” method.

Answer 4

Credit sales method is when you estimate a percentage of credit sales that will be uncollectible. The resulting amount is the uncollectible accounts expense for a period.

Question 5

Accrued interest receivable:

Answer 5

The cash amount of interest due (based on contractual interest rate and face value).

Question 6

If a company pledges A/R to someone else:

Answer 6

The pledging company retains control of the A/R

Question 7

What does discounting notes receivable “with recourse” mean?

Answer 7

If the maker of the note fails to repay the N/R with the bank or financial institution, then the company discounting the N/R with recourse has to repay the note (creates a contingent liability for that company).

Question 8

How does a creditor recognize loan impairment?

Answer 8

The creditor recognizes the difference as an expense or loss at the original effective rate.

Question 9

When are the interest method and cost recovery method used?

Answer 9

Interest method is used to recognize interest revenue until the entire carrying value of the impaired note is collected. Then, cost recovery method will be used to recognize interest revenue beyond the carrying value.

Question 10

After being held for 40 days, a 120-day 12% interest-bearing note was discounted at a bank at 15%. What are proceeds received from the bank equal to?

Answer 10

Maturity value less the bank’s discount at the discount rate, 15% in this case.

Question 11

Under IFRS, inventory is carried at:

Answer 11

Lower of cost or net realizable value (NRV).

Question 12

What is net realizable value (NRV)?

Answer 12

NRV is the inventory cost minus the cost to complete or dispose of the inventory.

Question 13

A manufacturing company’s cost of goods sold is composed of:

Answer 13

Raw materials, direct labor, and factory overhead.

Question 14

Suppose Company A holds goods on consignment for Company B. Does Company A include these goods in A’s ending inventory?

Answer 14

No. Simply because they don’t belong to Company A.

Question 15

How do changes in raw materials and in finished goods affect cost of goods sold?

Answer 15

Decrease in raw materials adds to COGS; increase in finished goods deducts from COGS.

Question 16

How does inventory lower of cost or market (LCM) work?

Answer 16

First figure out the NRV and NRV less normal profit margin figures. Second, figure out the replacement cost. Market is the middle of the above three figures. Inventory will be the lower of the original cost and the market figures.

Question 17

FIFO retail method:

Answer 17

First, figure out the cost to retail ratio: Purchases cost/(Purchases retail + net markups). Second, figure out ending inventory retail: beginning inventory retail + purchases retail + net markups - net markdowns - sales revenue). Last, multiply the cost to retail ratio by the ending inventory retail to compute ending inventory at cost.

Question 18

Are intangible assets recorded at fair value or at cost?

Answer 18

Cost

Question 19

Cash surrender value:

Answer 19

The difference between the total premiums paid and the total amount charged to insurance expense.

Question 20

Once the lowest level of identifiable cash flows is identified for a division or unit, the next step to test impairment is:

Answer 20

To perform a recoverability test on the carrying amount of the division’s or unit’s assets.