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0-SFCPA-FAR > FS Accounts (30-40%) > Flashcards

FS Accounts (30-40%) Flashcards

1
Q

How are definite life intangibles recorded?

A

Capitalize (legal fees, etc.)

Amortized over useful life on SL method.
Impairment if BV > recoverable cost
Impairment loss = BV-FV

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2
Q

How are indefinite life intangibles recorded?

A

Capitalize.

NOT Amortized.
GW can be amortized for non-public companies SL over 10 years
Impairment loss = BV-FV

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3
Q

What are the goodwill re-evaluations & reversal rules?

A

Re-evaluation: GAAP-NOT allowed, IFRS-allowed in active market

Reversal: GAAP-NOT allowed, IFRS-loss is permitted

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4
Q

How is goodwill recognized (on a level basis)?

A

GAAP: reporting unit level

IFRS: cash-generating unit level

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5
Q

What are some examples of cash equivalents?

A
  • US treasury bills
  • Commercial paper
  • Money Market Funds
  • CD with maturity date less than 3 months from date of purchase
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6
Q

What is the direct write-off method for uncollectible AR?

A

Rarely used, doesnt conform to GAAP.

Written off to bad debt expense & AR is reduced.

DR bad debt expense, CR AR

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7
Q

What is the allowance method for uncollectible AR?

A

Contra account to AR (CR balance)

Allowance amount set for the year (estimate), and when bad debt is actually written off, the allowance is debited (lowered). To get allowance back up, it is credited-other side bad debt expense.

DR Allowance for doubtful accounts, CR AR

DR Bad Debt Expense, CR Allowance for doubtful accounts

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8
Q

What are the 2 approaches for estimating bad debt?

A
  • income statement approach: % of sales, directly calculates bad debt expense
  • balance sheet approach: % of AR, directly calculates ending balance of allowance account
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9
Q

What are the 3 criteria for determining if selling/factoring AR is a loan or a sale?

A
  • transferred receivables are not accessible by company or its creditors (control is given up)
  • transferee has right to sell/pledge the receivables
  • no agreement that lets company keep control of receivables

*if all 3 are met, sale, if any not met, loan

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10
Q

What are the 2 different ways to value inventory?

A

FIFO/ACM: LCNRV - Lower of Cost or NRV

LIFO: LCM - Lower of Cost or Market
(This is replacement cost subject to a ceiling & a floor, if replacement cost is in between both, then use replacement cost)

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11
Q

What is NRV?

A

Selling Price - Costs of Completion

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12
Q

What is considered the ceiling? What is considered the floor?

A

Ceiling: NRV

Floor: NRV - profit margin

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13
Q

When can inventory be written down?

A

When market price or NRV declines below cost (cost was originally lower than market or NRV)

DR Loss on Inv Write-Down, CR Inventory

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14
Q

How would you determine the amount of casualty loss on inventory?

A

Loss on inventory would be equal to amount of loss less any sales of damaged inventory & less any insurance proceeds.

ex: $50K inventory ruined, company able to sell damaged inventory for $5K & company received insurance proceeds of $30K, then loss company would recognize is $15K ($50K-5K-30K).

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15
Q

What is Specific Identification Inventory?

A

Each item has an individual cost-used with large items such as cars.

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16
Q

Using FIFO, when prices are rising…

A

COGS is lowest (less expenses)
Net Income is highest
Ending Inventory is highest (more inventory sitting)

*Costs the same under both perpetual & periodic system

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17
Q

Using LIFO, when prices are rising…

A

COGS is highest (more expenses)
Net Income is lowest
Ending Inventory is lowest (less inventory sitting)

*Costs differ under perpetual & periodic system, cost is assigned after each sale with perpetual

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18
Q

What is Dollar Value LIFO?

A

Uses LIFO pools to track inventory. Uses a conversion index to determine inventory value for the LIFO layer added in the current year.

(End Inv in CY/End Inv in Base Year, then use multiplier to convert CY prices to Base Year prices)

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19
Q

What is the Retail Inventory Method and what are the steps?

A

Used by Retailers to estimate the cost of ending inventory.

Steps:

1) calculate ending inventory at retail prices
2) calculate the cost to retail ratio
3) apply cost to retail ratio to ending inventory at retail prices to get ending inventory at cost

20
Q

What is the inventory equation that will help you determine inventory error results?

A 
\+ Beg Inv
\+ Purchases
= GAFS
- End Inv
= COGS
21
Q

What is FOB Destination? What is FOB Shipping Point?

A

FOB Destination: Ownership & risk does not change until inventory reaches its destination. Seller owns the inventory until it reaches the buyer (stays in sellers inventory until then).

FOB Shipping Point: Opposite-as soon as the inventory is shipped, buyer now owns it and will include in their inventory.

22
Q

What are items included & excluded from the cost of inventory?

A

Included:

  • purchase returns
  • freight-in (shipping costs to get inv to warehouse)
  • sales tax
  • insurance

Excluded:

  • freight-out (selling exp)
  • interest (financing)
23
Q

What costs are included in fixed assets instead of being expensed?

A
    • costs to get asset ready to use:
  • sales tax
  • testing costs
  • shipping costs
    • costs to extend asset’s useful life or increase productivity:
  • land surveying fees
  • raze an old building on land

*oil change would be expensed NOT capitalized

24
Q

What are the exceptions to carrying equity securities at FV?

A

Investments in equity securities carried at FV unless:

1) significant influence over the investee and equity method is used
2) investment will be consolidated and therefore eliminated
3) FV of investment cannot be readily determined. Investment would be recorded at cost and adjusted for any impairments.

25
Q

How are debt securities classified & carried?

A

1) Trading - intent to sell in the ST
2) HTM - ability & intent to carry until maturity (reported at amortized cost *includes brokerage/transfer fees, FV option can be elected) (unrealized G/Ls not tracked, interest income recognized in earnings)
3) AFS - no ability & intent, or do not plan to carry until maturity (reported at FV, if FV ends up > CV, unrealized gain in OCI)

26
Q

What is the Current Expected Credit Loss Model (CECL)?

A

Based on historical experience & business outlook of the investee operates, and forecasts related to the investee to come up with all expected credit losses on an investment (essentially, evaluating ability of investee to repay the debt & come up with amount the entity actually expects to receive of this debt investment)

Entity evaluates the HTM debt securities investment according to this model.

27
Q

What items are included in the cost of land?

A

+ purchase price
+ legal fees
+ demolition of old building on land
- sale of scrap of old building on land

28
Q

What items are included in the cost of building?

A

+ construction cost

+ architect fees

29
Q

How are bond issue costs reported? What are some examples of bond issue costs?

A

Deduction to the bond carrying cost on the BS.
Amortized over life of bond to interest expense.
- accounting fees
- legal fees
- printing fees
- underwriting fees

30
Q

How does electing the FV Option for bonds (or notes payable) work?

A
  • election can never be changed
  • can apply to one or several bonds
  • recorded at FV
  • amortization of premium/discount still applies
  • change in FV is recognized in earnings as unrealized G/L
  • increase in FV means a loss, company owes more
  • decrease in FV means a gain, company owes less
31
Q

What are the 2 methods for conversion of convertible bonds?

A
  • BV Method: transfer bond balances to stock accounts & no G/L is recorded
  • Market Value (MV) Method: stock accounts are credited for the MV of stock/bonds, bond accounts are closed for the MV, & a G/L is recorded for the difference
32
Q

How are stock right warrants (bonds with warrants) recorded?

A

When allocating value to the warrants, this is recorded in equity, not debt.

33
Q

What rate determines the actual cash payment of interest each period (notes payable/bonds)?

A
  • stated rate
  • coupon rate
  • face rate
34
Q

What rate is used when the note payable/bond is reported at PV?

A
  • effective rate
  • yield rate
  • market rate
35
Q

When is note payable/bond issued at a discount? When at a premium?

A
  • Discount: effective rate is higher than the stated rate (Contra account, amortized over life & discount increases liability)
  • Premium: effective rate is lower than the stated rate( Adjunct account, amortized over life & premium decreases liability)
36
Q

What would be the entry for “no par” stock?

A

DR Cash, CR Common Stock

*no APIC involved

37
Q

What are the 2 methods of accounting for treasury stock?

A
  • Cost method: Treasury stock and cash are reported at same amount
    • DR Treasury Stock, CR Cash
  • Par method: Treasury stock at par (DR) , original issue price to “contributed capital excess of par” (DR), Cash (CR), remainder is a DR or CR to “contributed capital from treasury stock.
38
Q

When are dividends in arrears recorded?

A

No liability is recorded until dividends are declared. Liabilities for dividends are recognized at the declaration date.

39
Q

What are liquidating dividends?

A

Dividends are a return OF capital, instead of a return ON capital

Closes out all RE, and then decreases shareholder capital accounts

40
Q

What is the order of dividend payments for allocation?

A

1) preferred receive any dividends in arrears
2) preferred receive CP dividend
3) common receive matching amount, equals preferred % X total par of common outstanding
4) preferred receive add’l % if any remain
5) common receive any remaining after that

41
Q

What are 2 things that can change prior year balances of RE?

A
  • cumulative effect of accounting principle change

- correction of an error that results in PP adjustment

42
Q

What items are included in the cost of equipment?

A
  • purchase price
  • freight
  • handling charges
  • insurance on machine while in transit
  • cost of special foundations
  • costs of assembling, installation and testing
43
Q

How are transportation costs and commissions recognized for consignment sales?

A

reduce earnings on consignment sales as expenses, do not affect total revenues

44
Q

How is the interest expense determined for effective interest method?

A

BV X market interest rate

45
Q

How is the interest income determined for a note receivable?

A

CV of note (PV) X imputed interest rate (going rate)

0-SFCPA-FAR (4 decks)

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