MDS F1

Question 1

What is the most authoritative source of GAAP?

Answer 1

The FASB GAAP Codification

Question 2

What financial accounting concepts relate to Faithful Representation (fka “reliability”)?

Answer 2

FCN
Free From Error (fka “verifiability”)
Complete (fka “representative faithfulness”)
Neutrality

Question 3

What financial accounting concepts relate to relevance?

Answer 3

Predictive
Confirmatory (fka “feedback value”)
Timeliness/ Materiality

Question 4

What goes inside the footnote of significant accounting policies?

Answer 4

The methods used and policies followed in applying GAAP. The results of the methods, and other matters are included in other footnotes or the body of the financial statements.

Question 5

What are the cost method rules for investments?

Answer 5

Non-influential, Up to 20% Ownership

1 Record the investment at cost
2 Dividends are recognized as revenue
3 Liquidation may reduce the investment account

Question 6

Summarize marketable securities classified as held-to-maturity securities.

Answer 6

Held-to-maturity securities are…
1 Debt securities where it is the intent and ability to hold until maturity
2 Carried at Amortized Cost
3 Unrealized G/L - Not Applicable

Question 7

What are the equity method rules for investments?

Answer 7

Influential, 20-50% Ownership

1 Record the investment at cost
2 Record in the investment account parents share of sub’s income as revenue
3 Dividends reduce the investment account
4 Amortized increase in FMV of assets in the investment account

Question 8

Summarize marketable securities classified as trading securities.

Answer 8

Trading securities are…
1 Equity or debt securities that are being sold in the near term
2 Carried at Fair Value
3 Unrealized gain/ losses carried on the income statement

Question 9

Summarize marketable securities classified as available for sale securities.

Answer 9

Available for sale securities are…
1 Debt or equity securities that do not fit the other two categories
2 Carried at Fair Value
3 Unrealized gains/ losses in OCI

Question 10

What are the steps to discount a note?

Answer 10

I. Face (principal) x interest rate x time = interest on the note
II. Face (principal) + interest on note = maturity value
III. Maturity value x bank interest x bank time = bank fee or discount (interest)
IV. Maturity value - bank fee or discount = proceeds for discounting

Question 11

What are the journal entries for bad debt expense and allowance for doubtful accounts?

Answer 11

Bad Debt Expense
Allowance for Doubtful Accounts
Recorded in year of sale

Allowance for Doubtful Accts
       Accounts Receivable
Recorded in year specific account is written off
Accounts Rec.
      Allowance for Doubtful Accts
Cash
      Accounts Rec.
Collection of previously written off account

Question 12

Add-Subtract Formula for Accounts Receivable

Answer 12

Beg. A/R
Plus Credit Sales
        Previously written off accounts that collected
Subtotal Total Receivables
Less Accounts collected in cash
        Accounts actually written off
Equal Ending A/R

Question 13

What are the steps for LCM for inventory?

Answer 13

1 Calculate the ceiling (Selling price minus disposal costs)
2 Calculate the floor (Ceiling minus normal profit)
3 Replacement cost (given)
Select the median value for market value and compare to cost to determine the lower cost or market will become the B/S amount for inventory