Matching (Rev & Exp), Foreign Curr. Acc't, and other F/S presentations

Question 1

Revenue should be recognized when realized (cash) or realizable (A/R). What are the requirements of these?

Answer 1

All 4 of the following should be met:

1. persuasive evidence of an arragement exists
2. delivery has occured or services rendered
3. price is fixed and determinable
4. collection is reasonably assured

Question 2

Under Accrual accounting, it recognizes revenue when it is earned and expenses when the obligation is incurred. What is the difference btwn deferrals and accruals?

Answer 2

Deferrals of revenues and expenses occur when cash has changed hands but is not recognizable for F/S purposes (i.e. liability or a prepaid expense). Accruals occur when an asset or liability has been recognized or incurred but not yet paid.

Question 3

JE for collection and recognizing unearned revenue:

Answer 3

Cash XXX
Unearned Rev XXX

Unearned Rev XXX
Earned Rev XXX

Question 4

Rev when Right to Return Exists, what criteria must be met in order to be recognizable?

Answer 4

All must be met!

1. sales price substantially fixed
2. buyer assumes all risk of loss
3. buyer paid consideration
4. product sold substantially complete
5. future returns reasonable estimated

Question 5

How are the intial franchise fee and continuing franchise fees accounted for?

Answer 5

Initial - Capitalize

Continuing- Expense

Question 6

When can the Franshisor report revenue?

Answer 6

Earned revenue for the franchisor has been earned when all material conditions have been substantially performed.

1. No obligation to refund any payment
2. intial services required have been performed
3. all other conditions met
   * generally not until 1st day of ops for franchisee

Question 7

What type of good will can be capitalized?

Answer 7

Only purchased!

Question 8

Diff between R&D with GAAP and IFRS.

Answer 8

GAAP prohibits capitalization. IFRS must expense research but may capitalize developmental.

Question 9

Revaluation Gain (Loss) are recorded where:

Answer 9

Loss on income stmnt unless reverses a previously rec. gain, then it goes to AOCI. Gain on AOCI unless reverses previously rec. loss, then it goes on income stmnt to extent reverses loss.

Question 10

What is the amortization of capitalized software?

Answer 10

The greater of:
% of Rev= Total Cap amt X Curr. Gr Rev for pd/Total proj. Gr Rev
or
S/L= Total Cap amt X 1/Est. of Economic life

Question 11

True or False: Completed Contracted method is prohibited from IFRS.

Answer 11

True. Only the percentage to completion method is allowed in IFRS.

Question 12

What are the steps for computing GP in the % of completion method?

Answer 12

1- Contract Price- Est. Total Cost = GP
2- Total cost to date/total est. cost of contract= % of completion
3- 1x2= profit to date (PTD)- cumulative GP
4- PTD @ current FYE - PTD beg period= Curr. YTD GP

Question 13

Earned GP formula:

Deferred GP formula:

Answer 13

Earned = Cash Collections X GP%
Deffered= Installement Rcv'd x GP%

Sales - CGS = GP
GP/Sales price = GP%

Question 14

What is the most conservative method of revenue recognition and why?

Answer 14

Cost Recovery Method. Because no profit is realized until all costs have been recovered, the cost recovery method is the most conservative method of revenue recognition.

Question 15

Name some monetary and non-monetary items.

Answer 15

Monetary: Cash, A/R, N/R, A/P, N/P, B/P

Non-monetary: PPE, C/S, P/S, Deferred charges/credits

Question 16

Purchasing Power Gains and Losses:

Holding Monetary Assets/ Liabilities during a period of deflation/inflation results in?

Answer 16

Asset- Gains during deflation, Losses during inflation

Liabilities- Losses during deflation, Gains during inflation

Question 17

For personal financial statements, how should items be recorded on the B/S?

Answer 17

At fair value

Question 18

What is required in a set of personal f/s?

Answer 18

Statement of financial condition (B/S @FMV), Statement of changes in net worth (optional).
No Income statement or cash flows