M3

Question 1

Cash equivalents mature in

Answer 1

90 days

Question 2

A/R is presented on the balance sheet at the

Answer 2

Net realizable value

Question 3

The preferred method for recording Sales and related receivables

Answer 3

Net method

Question 4

Trade discounts

Answer 4

1. Apply sequentially
2. Record receivables net of trade discount

Question 5

A/R write offs
Direct write off method

Answer 5

Used for tax - not GAAP

Question 6

A/R write offs
Allowance method (GAAP)

Answer 6

The ending balance in the allowance account must equal an amount determined by an analysis of the A/R schedule
D Allowance account
C A/R

Question 7

The allowance for uncollectible accounts is a

Answer 7

Contra asset

Question 8

Methods for determining
A/R write off

Answer 8

1. Percentage of ending A/R
2. Aging method

Question 9

Factoring with or without recourse

Answer 9

With- transferor retains risk of uncollectability

Without- is a sale of the liability to the assignee and they assume the risk

Question 10

Discounting notes receivables

Answer 10

With and without recourse

Question 11

Inventory - 4 types

Answer 11

Retail, raw materials, work-in-progress, and finished goods

Question 12

FOB shipping point
Whatever’s after the B fixes the last point of responsibility for the seller

Answer 12

Buyer takes control of the goods once the seller gives them to the common carrier for shipment

Question 13

FOB Destination

Answer 13

Seller retains control of the goods until the goods reach the buyers destination

Question 14

Inventory write down methods
(2)

Answer 14

1. Lower of cost or market method
2. Lower of cost or net realizable value

Question 15

Inventory recording
2 systems

Answer 15

Periodic inventory system
Perpetual inventory system

Question 16

Inventory tracking methods under GAAP (3)

Answer 16

1. First in, first out FIFO
2. Last in, first out LIFO
3. Weighted average aka Moving average

Question 17

Inventory with highest ending amounts in a period of rising prices

Answer 17

FIFO because it values inventory at most recent costs

Question 18

Inventory with lowest ending amounts and the lowest net income in a period of rising prices

Answer 18

LIFO - last in, highest cost stuff out first so low net amounts and low net income because the inventory was higher cost

Question 19

Donated fixed assets are recorded at

Answer 19

Fair value with a gain or revenue recognized equal to that value

Question 20

Basket purchase of land and buildings

Answer 20

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

Question 21

Methods of depreciation
3 main

Answer 21

Straight line
Sum of the years digits
Declining balance methods

Question 22

Units of completion method is similar to

Answer 22

Straight line depreciation

Question 23

Intangible assets

Answer 23

Long lived legal rights and competitive advantages
Patents, Copywrights, Trademarks, Goodwill

Question 24

Intangible assets are recorded at

Answer 24

Cost plus additional expenditures necessary to purchase

Question 25

R&D costs of internally developed intangible assets are

Answer 25

Expensed according to GAAP

Question 26

Intangible assets are reported at

Answer 26

Cost less amortization (finite life intangibles only) and impairment

Question 27

Identifiable intangibles with finite lives are recorded at

Answer 27

Amortized over the shorter of the estimated economic life and the legal life

Question 28

Goodwill and identifiable intangibles with indefinite lives are

Answer 28

Not amortized and subject to impairment testing

Question 29

Franchisee accounting

Answer 29

Record the initial fee at present value as an intangible asset on the balance sheet and amortize over the expected period of benefit

Question 30

Start up costs

Answer 30

Expense as incurred

Question 31

R&D expenses are

Answer 31

Expenses as incurred

Question 32

Computer software development

Answer 32

Expense costs during development until technological feasibility
Capitalize costs from technological feasibility until selling
Start expensing costs again after selling begins

Question 33

Bank balances - cash balances on the balance sheet

Answer 33

Same bank - balances can be netted together
Negative balances become liabilities

Question 34

Cash definition

Answer 34

Unrestricted, liquid, short term
90 days from maturity date

Question 35

Bond sinking funds

Answer 35

Funds are restricted so can’t be counted as cash or liquid

Question 36

Negative bank balances reported on the balance sheet as

Answer 36

Current liabilities

Question 37

Agricultural products and precious metals may be states at above cost using net selling price less the cost of disposal

Answer 37

Revenue is recognized at the time of production and not at the time of sale

Question 38

Current assets - converted in 1 yr
Natural debit balance

Answer 38

Cash, accounts receivable, inventory, marketable securities, stocks and bonds held as investments, prepaid expenses - AND construction in progress (aka costs in excess of Billings) even though these are longer than 1 yr