Select Financial Statement Accounts

Question 1

Cash and cash equivalent

Answer 1

Cash and Cash equivalent golden rule is that it should be readily available and unrestricted or available with 3 months

Question 2

Allowance method to record bad debt expense

Answer 2

JE to record bad debt expense when the allowance method is used is

Dr bad debt expense and
Cr Allowance for bad debt

Question 3

Allowance for uncollectible

Answer 3

This amount is not deducted from AR when calculating cash basis sales

Question 4

Cash basis sales and accrual basis sales

Answer 4

Beginning AR + Sales - write offs - cash collection = AR ending

Question 5

Current expected credit Loss

Answer 5

Means to adjust historical uncollectible percentage for forecasted losses. Measured every year at balance sheet date.

Question 6

CECL

Answer 6

Must be estimated over the life of the receivable even when likelihood of credit loss is remote.

Question 7

Clues for allowance on AR method.

Answer 7

Look at the question and if asked for the adjustments or the end balance. The adjustments is the expense

Question 8

Gross Margin estimate of inventory

Answer 8

Beginning Inv + Purchase= Ending inventory + COGS

Question 9

Gross profit % of estimated COGS

Answer 9

Net sale - estimated gross profits.
Net sale= $50000, Gross profits rate= 30%. GP COGS is $2800000

Question 10

Impairment loss

Answer 10

The recorded impairment loss is calculated as the difference between the assets FV and it’s CV.

Question 11

Composite and group asset depreciation rules

Answer 11

Composite depreciation do not record gain or loss.

Question 12

Investment - Stock dividend

Answer 12

Under any method used for an investment in common Stock, the investor records a Stock dividend only as a memorandum entry to increase the number of shares

Question 13

Stock dividend rule

Answer 13

-It’s not revenue
- Its recorded only as a memorandum entry
Under any method, it’s not recorded as in the account as a receipt

Question 14

Dividend from investment

Answer 14

A dividend never increases the investment account under any accounting method

Question 15

AFS security

Answer 15

Interest income goes to net income/earnings
Change in FV of investment goes to OCI.

Question 16

Trading debt securities

Answer 16

Valued at FV and changes in FV goes to net income as unrealized gains or losses until sold. Interest income goes to earnings too.

Question 17

AFS assessed for impairment

Answer 17

When FV is less than CV, record a loss in OCI and assess for impairment

Question 18

Credit loss on AFS

Answer 18

When the loss is due to credit loss ie entity specific, and the security will be sold before recovery of loss, the loss goes income statement.
D

Question 19

Discount and Premium amortization.

Answer 19

For premium, add the unamortized amount to the cost of the investment to have the BS balance.
Or deduct the amortized amount from the CV to have the yr end number. The opposite for discount amortization

Question 20

Stock splits and Stock Dividend

Answer 20

Adjust the per share price and not the CV of the investment. Stock dividend and Stock Split are not income but additional ownership of the investee

Question 21

What is a liquidating dividend

Answer 21

The amount in excess of the Retained earning is the liquidating dividend.