FAR F1-F4 Flashcards
How should cash be recorded when all of the money is paid upfront before all services have been rendered by a company at year end? What is the correct Journal entry?
Dr Cash xxx
Cr Revenue xxx
Cr Deferred Revenue xxx
What is the effect of beginning inventory being understated on COGS available for sale and an ending inventory being overstated have on total COGS?
If beginning inventory is understated, cost of goods sold will be understated. When Ending inventory is overstated COGS has an inverse relation leading it to be understated.
So you would add the understated amount of beginning inventory to COGS and you would add the overstatement amount of ending merchandise inventory to COGS to get to the correct amount. At the same time you would reduce ending inventory by that amounts.
Beginning inventory + Purchase = Cost of goods available for sale - Ending Inventory = COGS
What is the equation for uncollectible Accounts?
Beginning balance + Uncollectible accounts expense (Bad Debt Expense) + Recovery of previous write-offs - Accounts written off = Ending Balance
What is the J/E to write off uncollectible accounts under the allowance method, and is there any effect on NI?
Dr Allowance for uncollectible ACCTS XXX
Cr A/R XXX
There is no effect on net income because of the J/E above.
How are costs allocated in quarterly (interim) financial statements when they benefit more than one quarter?
When a total cost (expense) has an effect on more than one quarter than that cost must be divided over the quarter or months left for that period and applied evenly in each interim financial statement.
If there is one or more cost benefit you divide them individually when the cost is incurred and add them together for a total expense for each quarter that they apply to.
How are leasehold improvements treated and depreciated over its useful life?
Leasehold improvements are capitalized and then depreciated (amortized) over the lesser of life of improvements or the remaining lease term.
When would you capitalize instead of expense modification costs to a product line?
When buildings or assets are getting work done to maintain their use this will be expensed, costs would be capitalized when there are “additions”, “increased benefit for several periods” and increases/ improves efficiency (reduces cost of production) of an asset”, and Modify the asset.
What are the three conditions that needs to be satisfied before a entity can capitalize interest?
- Interest cost is being incurred
- Expenditures for a qualifying asset have been made
- All necessary permits (licenses) have been filed to prepare the asset for its intended use
How do you adjust from the cash basis to the accrual-basis when given current assets and current liabilties?
Start with cash basis
1) Current assets increase: you Add the difference between the beginning and ending balances (ex: A/R +)
2) Current Assets decrease: you subtract the diff. btw beg. and end balances (ex: A/R -)
3) Current Liabilities decrease: you add the difference btw the beg. and end balances (Prepaid Exp -)
4) Current liabilities increase: you subtract the diff. btw the beg. and end balances (Prepaid Exp +)
Where is interest expense reported for cash basis and accrual basis?
Cash basis - cash flow statement
Accrual - Income Statement
How do you convert rent receivable from cash basis to accrual basis?
Beg Rent Receivable: xxx
Plus: Billings accrued xxx
Minus: Cash collections xxx
Minus: Write offs xxx
= End Rent receivables xxx
How do you calculate equity?
Equity = Capital stock + Retained earnings
Assets = L +E
What does the debt to equity ratio measure and what is the formula?
the lower the ratio is the better the companies position. This demonstrates the companies ability to pay off creditors and how much creditors own compared to how much the owners own.
= Total Liabilities/ Total Equity
What does the total debt ratio measure and what is the formula?
This ratio compares the total liabilities to the total assets of the company and evaluated how much debt and how much is assets
=Total liabilities/Total assets
What is the current ratio measure and what is the formula?
Measures the current assets of the company to the current liabilities of a company and measures how fast the company can pay off its short term debt.
Current assets/current liabilites
