Measurement, Vlauation, and Disclosure: Investments and Short Term Items

Question 1

Formula for Net Realizable Value (NRV) for current accounts receivable

Answer 1

Gross Accounts Receivable - Allowance for Doubtful Accounts = NRV of accounts receivable

Question 2

2 Methods for measuring bad debt expense

Answer 2

1) Percentage-of-Sales Method (Income Statement approach)
2) Percentage-of- receivables Method (Balance Sheet approach)

  Reports AR at NRV

Question 3

Journal entry for Write off of accounts receivable

Answer 3

Debit - Allowance for Doubtful Accounts

Credit - Accounts Receivable

Question 4

Journal entry for Payment on written off accounts receivable

Answer 4

Debit - Cash

Credit - Allowance for Doubtful Accounts

Question 5

Factoring Accounts Receivable without Recourse

Answer 5

1) The transferee assumes the risks and receives the rewards of collection.
2) The sale is final.
3) Receivable no longer reported on the seller’s books

Question 6

Factoring Accounts Receivable with Recourse

Answer 6

1) The transferee may be required to make payments to the transferee or buy back
2) The parties account for the transaction as a secured borrowing with a pledge of noncash collateral
3) Receivable remains on the seller’s books and it must recognize a liability for the amount of cash received

Question 7

Cost of purchased inventories include

Answer 7

1) The price paid/consideration (net of discounts, rebates)
2) Import duties and recoverable taxes
3) Handling, freight in, insurance and of costs of acquiring goods

Question 8

When are goods out on consignment recorded by the consignor?

Answer 8

When the goods are sold to third parties by the consignee

Consignee never records the goods as assets

Question 9

Goods Available for Sale Equation

Answer 9

Beginning Inventory + Purchases = Goods Available for Sale

Question 10

Which inventory method is measured at “Lower of cost of market or NRV”?

Answer 10

FIFO

Question 11

Which inventory method is measured at”Lower of cost or Market (LCM)?

Answer 11

LIFO

Question 12

Under IFRS what method are inventories measured at?

Answer 12

“Lower of cost or NRV”

IFRS does not permit FIFO

Question 13

Transactions of the Equity method are reported as:

Answer 13

Used when the investor has significant influence of 20%-50%

Recognized at cost

Net Income
Debit - Investment in company
Credit - Revenue / Share of company earnings

Net Loss
Debit - Loss / Share of company earnings
Credit - Investment in company

Dividends
(Return on investment not income)
Debit - Cash
Credit - Investment in company

Question 14

Held to Maturity Securities are recorded how when purchased?

Answer 14

When the holder has both the positive intent and the ability to hold the security until its maturity date

Reported at “Amortized Cost”

Debit - Held to Maturity Security
Credit - Cash

Question 15

Trading securities are reported how?

Answer 15

Bought and held primarily for sale in the near term

Reported at “Fair Value”
Debit - Trading Security
Credit - Cash