Module 9

Question 1

amounts owed to the company by customers who purchased good or services from the company, amounts owed by customers

Answer 1

Receivables/trade receivables

Question 2

When is a receivable recognized?

Answer 2

when revenue is recognized and the customer hasn’t paid

Question 3

Revenue is recognizable when collection is probable. Even when it is probable that a customer will pay, is their still risk?

Answer 3

Yes, in collectability

Question 4

How we account for the risk of uncollectability in AR?

Answer 4

Report at net realizable value

Question 5

How does GAAP require AR to be reported?

Answer 5

Report at net realizable value. Company will report a gross balance minus an allowance account (contra asset).

Question 6

What is common way to estimate credit loses?

Answer 6

incurred loss model, reflects losses that are probable, based on historical experience and typically a loss isn’t recognized until the account becomes overdue.*Under current GAAP, companies cannot look forward and based on current economic events make adjustments to their allowance.

Question 7

What was FASB/IASB’s proposal to the incurred loss model.

Answer 7

Current expected credit loss model (CECL)

Question 8

What was main change of CECL?

Answer 8

would require GAAP filers to use forward-looking information and to set the allowance equal to the expected credit losses over the life of the receivable

Question 9

sundry items, ram materials, work in process and finished good

Answer 9

What is included in inventory

Question 10

How is inventory recognized? And how is it shown on the BS?

Answer 10

Acquisition cost (if you didn’t manufacture them) + manufacturing costs, at the lower of cost or net realizable value

Question 11

The expected selling price - minus estimated completion and selling costs

Answer 11

net realizable value

Question 12

When costs are rising, cogs is lower, profit is higher, taxes are higher and inventory is higher.

Answer 12

FIFO

Question 13

when costs are rising, cogs is higher, profit is lower, taxes are lower and inventory is lower

Answer 13

LIFO, only US GAAP allows LIFO

Question 14

What do most companies use?

Answer 14

LIFO

Question 15

Does cost flow = physical flow?

Answer 15

no

Question 16

What is a holding gain?

Answer 16

With FIFO, If the first units purchased are always the first ones sold, then if costs are rising and therefore prices are rising, you will see a “holding gain” on what you sell just for holding inventory

Question 17

What is a LIFO reserve?

Answer 17

difference between what inventory would have been if they’ve reported it in FIFO and what it is because they reported it as LIFO

Question 18

if there is a decrease in physical inventory, a lot of old costs will be released and a holding gain will be embedded in gross profit. What is this?

Answer 18

LIFO liquidation

Question 19

What must you do if you have lifo liquidation?

Answer 19

supposed to be separately reported and discussed in the MDA

Question 20

What is the impact of producing more on cost per unit?

Answer 20

lower fixed cost per unit

Question 21

Four categories of long lived asses

Answer 21

tangible, leases, intangibles other than goodwill, goodwill

Question 22

what is the initial amount capitalized for a long lived asset?

Answer 22

all costs incurred to acquire the asset and make it ready for it’s intended use, includes avoidable interest + the fair value of any asset retirement obligations (AROs)

Question 23

When do we start depreciating an asset

Answer 23

when its ready for its intended use

Question 24

How are long lived and intangible asses capitalized?

Answer 24

Using the comprehensive cost model

Question 25

Working capital- common defintion

Answer 25

receivables + inventory -payables

Question 26

What does probable mean?

Answer 26

If its less than 75% chance

Question 27

contract asset

Answer 27

An entity’s right to payment for
goods and services already transferred to a
customer if that right to payment is conditional on
something other than the passage of time. For
example, an entity will recognize a contract asset
when it has fulfilled a performance obligation but
must perform other obligations before being entitled
to payment.

Question 28

Receivables (and contract assets) are reported at
their ______. This is done by reducing
the gross balance by an _____ account, which
is a _______.

Answer 28

net realizable value, allowance, contra-asset

Question 29

Inventory is shown on the balance sheet at the _______.

Answer 29

lower of cost or net

realizable value

Question 30

expected selling price

minus estimated completion and selling costs.

Answer 30

net realizable value

Question 31

What is the incentive for using lifo?

Answer 31

tax savings

Question 32

four types of long lived assets

Answer 32

tangible, leases, intangibles, goodwill

Question 33

an entity’s right to payment for goods and services already transferred to a customer if that right to payment is conditional on something other than the passage of time, for example, when a company has fulfilled a performance obligation but must perform other obligations before being entitles to payment

Answer 33

contract asset

Question 34

a right to payment that is unconditional except for the passage of time

Answer 34

receivable