FAR Deck - 3 Flashcards
JE to record Credit Loss write off (Adjustment) under CECL model
Allowance for Credit Loss - DEBIT
Accounts Receivable - CREDIT.
Neither net income nor working capital is affected, as the net AR remains the same.
True or False:
The “principal” market is the market with the greatest volume of activity for the particular asset for which fair value is being determined.
TRUE!
True or False:
Bond liability is shown on the balance sheet Net of Unamortized discount
TRUE!
The long-term liabilities will increase by the difference between the carrying amount of the old 15-year bond and the face amount (issuing price) of the new 10-year bond.
If book basis of asset is greater than tax basis, resulting from different depreciation methods, a _______________ should be recognized for the tax effect of the difference.
DEFERRED TAX LIABILITY.
When to record Deferred Tax Liability and Deferred Tax Asset for the temporary differences?
DEFERRED TAX ASSET:
WHEN TAXABLE INCOME IS HIGHER THAN BOOKS INCOME.
This means higher taxes owed now and lower taxes in future as the temporary differences will reverse.
DEFERRED TAX LIABILITY:
WHEN TAXABLE INCOME IS LOWER THAN BOOKS INCOME.
This means Lower taxes owed now and higher taxes due in future as temporary differences reverses.
True or False:
The difference between book value and fair market value of the property dividend should be recorded as gain/loss on disposal of asset.
TRUE!
How depreciated property constructed on leased land is accounted?
Depreciable property constructed on leased land is depreciated over the life of the property or the term of the lease, whichever is shorter.
Under rising prices __________ method of inventory would help company to maximize the profits.
FIFO method. As COGS will be LOWER, Profit will be HIGHER.
LIFO will LOWER the Profits as COGS will be HIGHER. However if the strategy is to maximize tax deduction and reduce tax burden, LIFO should be use under rising prices.
Amortization of discount of a Note is reported as ____________ on the financial statements.
INTEREST EXPENSE.
Accrued Warranty costs results in ________________ as they are deductible for tax purposes when actual paid for.
DEFERRED TAX ASSET (DTA).
LOWER INCOME in BOOKS vs HIGHER INCOME for TAXES created DTA.
True or False:
A disadvantage of the periodic inventory system is that the cost of good sold amount used for financial reporting purposes includes both the cost of inventory sold and inventory shortages.
TRUE!
With a periodic inventory system, the quantity of inventory is determined only by physical count, usually at least annually.
DuPont Return on Asset formula
ROA = (Net Income / Sales) X (Sales / Avg Assets)
this can also be interpreted as
ROA = Net Margin X Asset Turnover
