FAR Questions Flashcards
Under IFRS, a financial instrument is calculated at AMORTIZED cost if:
- Entity’s business model is to hold the asset to collect scheduled cash flows, and
- Those cash flows consist exclusively of principal and interest payments
** All other instruments are reported at FAIR VALUE (not amortized cost)
FASB amends the Accounting Standards Codification by issuing ____
Accounting Standards Updates
Fair value characteristics are: (MOST)
- Market-based measure
- Orderly transaction at a specific measurement date
- Sale of asset or transfer of liability (i.e., exit price)
- Three levels of input called the fair value hierarchy
(FASB) (Fair value hierarchy for eligible assets/liabilities)
Level 1:
Are there _______ (quoted prices) in active markets for IDENTICAL items? If yes, then use Level 1
Level 2:
Are there observable inputs (other than Level 1 inputs) for _____ items? If yes, then use Level 2
Level 3:
Use ______ inputs that reflect assumptions to determine fair value
Observable inputs; similar; unobservable
Representational faithfulness consists of: (FNC)
- Free from errors
- Neutral
- Complete
Relevance helps to maximize the _______ of financial statements.
predictive value
____ and ______ are the most liquid current assets.
Cash; cash equivalents
Cash and cash equivalents consist of: (CSMN)
- Checking
- Savings
- Money market accounts
- Negotiable paper (e.g., bank checks)
Compensating balances are _______ that a ____ may require of a borrower
restricted deposits; lender
Legally restricted compensating balances are recorded either as ____ or _____
current asset (besides cash); long-term asset
Informally restricted compensating balances are reported as ____
cash
Restricted cash is subject to _____ and is NOT available for _____ in an entity’s current operations
limitations; general use
Because its use is limited, _______ must be presented SEPARATELY from cash
restricted cash
Cash items that are restricted as to _____ or ____ must be disclosed SEPARATELY
withdrawal; usage
The times interest earned ratio measures the _____
ratio of the entity’s income that would be available to pay interest to the actual amount of interest incurred.
** Income before interest and taxes / Amount of interest
GAAP requires _______ model to be used when accounting for credit losses (i.e., bad debt)
Rather than reducing A/R directly, expected credit losses accumulate in the ____ contra account.
current expected credit loss (CECL)
allowance for credit
The CECL model requires A/R to be _____ during the period during which the account becomes _____ (matching principle).
uncollectible; written off
An overdrawn bank account is reflected on the balance sheet based on whether ______
there are other accounts at the same bank
All accounts held at the ______ are netted and reported as either current assets/liabilities
Accounts held in ______ CANNOT be netted
same bank
different banks
When determining sales under CASH BASIS accounting, set up a T account for A/R and solve for the _____ collected.
A/R is increased for _____ and _______.
A/R is decreased for ______ and _____
cash
credit sales; reinstatement of accounts
collections from customers; write-offs
Current assets are future economic benefits that will be used/converted into cash within _____ or ______ (whichever is longer).
Any portion of a current asset that is reserved for long-term purposes (e.g., cash reserved for a bond sinking fund) will be classified as ____.
1 year; operating cycle
long-term
Examples of “current assets”: (CRTIP)
- Cash
- Receivables
- Temporary investments (trading securities)
- Inventory
- Prepaid expenses
Selling inventory on A/R results in decrease to ____, and increase of _____ (NOT current liabilities)
inventory; accounts receivable
(Period of inflation) Purchasing power of:
- Monetary asset:____
- Monetary liability:____
- Nonmonetary items: _____
- Loss
- Gain
- N/A
(Period of deflation) Purchasing power of:
- Monetary asset:____
- Monetary liability:____
- Nonmonetary items: _____
- Gain
- Loss
- N/A
To present effects of changing prices (i.e., inflation/deflation),, only ____ may affect purchasing power.
Monetary items (fixed in dollar amount; does not vary with changing prices)
Current cost of inventory, when measured in CONSTANT dollars, does not account for _____.
When measured in NOMINAL dollars, it includes effects of _______.
inflation
Total assets = ______
Assets - Asset contra accounts (e.g., accumulated depreciation, allowance for credit losses) +/- Asset valuation accounts (e.g., AFS-unrealized losses/gains)
Holding gain/loss on inventory = ______
Difference between replacement cost and purchase price
