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CPA > FAR4 > Flashcards

FAR4 Flashcards

1
Q

Current Assets

A

Those resources that are reasonably expected to be realized in cash, sold, or consumed (prepaid items) during the normal operating cycle of a business or one year (whichever or longer)

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2
Q

Cash surrender value of life insurance

A

Can be either current or non-current asset depending on intent. If the policy owner intents to surrender the policy for its cash surrender value during the normal operating cycle it will be a current asset

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3
Q

Current Liabilities

A

Are obligations expected to be required to cover expenditures within the year

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4
Q

Refinanced Short-Term Obligations

A

A short-term obligation may be excluded from current liabilities and included in noncurrent debt if = intent and ability to refinance long term (can’t under IFRS - must wait)

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5
Q

Cash and Cash Equivalents

A

Original maturity of 90 days or less

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6
Q

Cash and Cash Equivalents vs. not for Compensating Balances

A

yes - if not legally restricted

no - if legally restricted

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7
Q

Bank Reconciliation, per Bank

A

(+) Deposits in Transit

(-) Outstanding Checks

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8
Q

Bank Reconciliation, per Books

A

(+) Bank Collections, Interest Income

-) Service Charges, Non-sufficient Funds (NSF

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9
Q

Accounts Receivable

A

Beginning Balance
(+) Credit Sales
(-) written off, convert to note, cash collected
= Ending Balance (NRV)

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10
Q

Gross Method Discounts

A

Records a sale without regard to the discount.

Payment received within the discount period, a DR: sale discount account (contra revenue)

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11
Q

Net Method Discounts

A

Records sales and A/R net of the discount.

Payment received after the discount period, a CR: sales discount NOT taken account (rev)

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12
Q

Trade Discounts

A

Sales revenue and A/R are recorded net of trade discounts. Applied sequentially

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13
Q

Direct Write-Off Method

A

Not GAAP, used for tax purposes (does not properly match the bad debt expenses with revenue)

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14
Q

Allowance Method

A

Normal credit balance:

Beginning Balance (credit)
Add (credit): current year BDE
Subtract (debit): write offs
Ending Balance (credit)

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15
Q

Allowance Method - % of Sales

A

I/S approach - emphasizes matching

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16
Q

Allowance Method - % of A/R

A

B/S approach - the amount of estimated allowance calculated is the ending balance that should be in the AFDA on the b/s

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17
Q

Allowance Method - Aging of A/R

A

Emphasizes asset valuation NRV

Balances by due date x Estimated % uncollectible = Estimated Uncollectible Account

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18
Q

Write-off of a Specific A/R

A

DR: AFDA (decrease)
CR: A/R (decrease)
I/S no effect and B/S affect in form, not on books - no change

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19
Q

Restore account previously written off

A

DR: A/R
CR: Allowance for uncollectible accounts

No changes in current assets, only in form
DR: Cash
CR: A/R (decrease)

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20
Q

Pledging (assignment)

A

Footnote - uses existing A/R as collateral but retains title to the receivables
DR: Cash
CR: Notes Payable

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21
Q

Factoring - Without Recourse

A 
True Sale and transfer risk to buyer
DR: Cash
DR: Due from factor (security)
DR: Loss on sale of receivables
CR:    Accounts Receivable
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22
Q

Factoring - With Recourse

A

Sale: factor has an option to re-sell any uncollectible receivable back to the seller
- uncollectible accounts reasonably estimated
Loan (A/R as collateral): Footnote

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23
Q

F.O.B. Shipping Point

A

Title passes to the buyer when the seller delivers the goods to a common carrier. Included in inventory upon shipment

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24
Q

F.O.B. Destination

A

Title passes to the buyer when the buyer receives the goods from the common carrier

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25
Q

Sale with a Right to Return

A

Cannot be estimated - no sale, should be included in seller’s inventory

Can be estimated - record sale with an allowance for estimated returns

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26
Q

Consigned Goods

A

The seller should include the goods in its inventory (+ shipment costs) until sold to 3rd party buyer where a sale is recognized then

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27
Q

Valuation of Inventory

A

at cost

Exception: selling price

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28
Q

LIFO or Retail Inventory Method

A

Either Lower of Cost of Market (LCM)

29
Q

IFRS and FIFO, Weighted avg, etc. Inventory (not LIFO or Retail)

A

Measured at Lower of Cost and Net Realizable Value (NRV)

30
Q

Write down of Inventory

A

Reflected in decreased COGS = increased Profit

If material, then the loss should be identified separately in the I/S

31
Q

Reversal of Inventory Write-Downs

A

GAAP - prohibited

IFRS - allowed to the extent of the original write down

32
Q

Lower of Cost or Market (LCM) - GAAP only

A

Market Value = middle value between Replacement Cost, Market Ceiling, and Market Floor

33
Q

Market Ceiling or NRV

A

Net selling price - costs to complete = NRV

34
Q

Market Floor

A

Market Ceiling (NRV) - normal profit margin

35
Q

JE to record the write-down to a separate account

A

Inventory loss due to decline in market value

Inventory

36
Q

Disclosure of losses

A

Losses both substantial and unusual from LCM is disclosed in the income from continued operations in the I/S and identified separately

37
Q

Periodic Inventory Method

A 
Beginning Inventory
\+ Purchases
= COGAFS
- Ending Inventory
= COGS

Valued at end of the period

38
Q

Perpetual Inventory System

A

Updated for each purchase and each sale as they occur

39
Q

FIFO

A

First In, First Out
Prices rising = decrease COGS = increase Profit
Ending inventory and COGS are the same under both periodic and perpetual

40
Q

Weighted Average Method

A

Usually periodic: total costs of inventory available / the total # of units of inventory available

41
Q

Moving Average Method

A

Perpetual: computes the weighted average cost after each purchase

42
Q

LIFO

A

Last In, First Out: (not permitted under IFRS)

Prices rising = increase COGS = decrease Profit

43
Q

LIFO conformity Rule

A

Used for tax purposes, but then must also use for GAAP Financial Statements

44
Q

Dollar-value LIFO

A

Measured in Dollars and adjusted for changing price levels: either Internally computed Price Index: EI at c/y cost / EI at base yr cost
OR Price Index is supplied

45
Q

Cost of a machine

A

Include all costs that are reasonable and necessary to get the asset in the condition or location for its intended use

46
Q

Capitalized interest

A

Lesser of the total interest incurred

or the avoidable interest

47
Q

Machine costs capitalized

A

Any cost incurred to acquire and make ready a plant asset is capitalized

48
Q

Excavation costs

A

Treated as part of the cost of the building

49
Q

Capitalized Interest costs

A

Borrowed funds (not used) = expense

Borrowed funds (weighted average of accumulated expense) = capitalize during and expense after construction

Excess (above amount borrowed) expenditures (weighted average interest rate) = capitalize during and expense after construction

50
Q

Investment Property, IFRS

A

Defined as land and buildings held to earn rentals or for capital appreciation

51
Q

Estimated restoration costs

A

Added to the depletable base of the natural resource.

In this way, the amount of depletion charged to expense over the life of the mining operation will include the restoration costs

52
Q

Long-Lived Asset is Impaired

A

Undiscounted expected future cash flows

53
Q

Impairment loss, IFRS

A

Fair value less costs to sell - Carrying value

54
Q

Subsequent Reversal of an Impairment Ioss

A

Prohibited under U.S. GAAP.

Impairment loss is permitted under IFRS.

55
Q

Valuation of Fixed Assets (GAAP and IFRS)

A

Historical Cost or purchase price

cost model CV = historical cost - A/D - impairment

56
Q

Donated Fixed Assets

A

Fixed Asset (FMV) xx
Gain on nonreciprocal transfer xx
Unusual and infrequent

57
Q

Valuation of Fixed Assets (IFRS)

A

Revaluation model carrying value = FV at revaluation date - subsequent A/D - subsequent impairment

Revaluations made frequent;
When fixed assets reported at FV, historical costs equivalent must be disclosed

58
Q

Revaluation Model

A

Revaluation Losses - I/S
Revaluation Gains - OCI
Impairment = OCI decreases to zero then loss in I/S

59
Q

Cost of Equipment

A

Capitalize: Additions (increase quantity/increase usefulness) and Extraordinary repair (increases usefulness)

Expense: ordinary repair

Reduce A/D: Improvements, repairs, and extraordinary repairs that increase life

60
Q

Cost of Land

A

All costs incurred up to excavation (digging = building)

61
Q

Cost of Building

A

Excavation going forward

62
Q

“Backet purchase” of land and building

A

Allocate the purchase price based on the ratio of appraised value of individual items

63
Q

Straight-line Depreciation

A

Cost - Salvage Value/Estimated useful life

*service potential declines with time

64
Q

Sum-of-the-Years Depreciation

A

S = N x (N + 1)/2 n = estimated useful life

cost - salvage value) x (remaining life of asset/sum of the years digits

65
Q

Double-Declining Balance Depreciation

A

2 x 1/N x (cost - accumulated depreciation)

  • ignores salvage value, but maximum accumulated depreciation = cost - salvage value
  • asset subject to rapid obsolescence
66
Q

Units of Production Depreciation

A

Cost - Salvage Value/Estimated units of hours
= Rate per unit or hour
Rate per unit x # of units produced
= Depreciation Expense (variable cost)

*service potential declines with use

67
Q

Depletion Base

A

Cost to purchase the property - Estimated net residual value remaining after all resources have been removed from the property

68
Q

Calculate Depletion

A

Unit Depletion (depletion base/est. recoverable units) x units extracted

COGS Depletion = unit depletion x units sold

CPA (11 decks)

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