Financial Statement Accounts

Question 0

Define maker

Answer 0

A debtor who has borrow funds or purchases an asset and provided a note to the original creditor.

Question 1

Describe a transaction without recourse

Answer 1

Transferor is not responsible for nonpayment in the part of the maker of the receivable.

Question 2

What is the IFRS focus regarding sales or secure borrowing?

Answer 2

Whether the transferor has transferred the rights to receive the cash flows from the receivable and whether substantially all the risk and rewards of ownership were transferred.

Question 3

Describe a transaction with recourse.

Answer 3

The transferor is responsible for nonpayment in the part of the original maker of the receivable.

Question 4

In the transfer of receivables, if the 3 conditions for a sale are not met, what happens?

Answer 4

The receivable remains in the books of the transferor, and the transferor records a Kia unity related to the borrowing transaction

Question 5

With respect to the transfer of receivable, what are the 3 conditions of a sale?

Answer 5

1) the transferred assets have been isolated from the transferor, even in bankruptcy
2) the transferee is free to pledge or exchange the assets
3) the transferor does not maintain effective control over the transferred assets through either an agreement that allows and requires the transferor to repurchase the assets or one which requires the transferor to return specific assets

Question 6

Who bears the cost of bad debts when factoring without recourse?

Answer 6

The factor (transferee) bears the cost of uncollectible accounts, but the seller (transferor) bears the cost of sales adjustments

Question 7

Who bears the costs of bad debts when factoring with recourse?

Answer 7

The seller (transferor) bears the cost of bad debts as well as the cost of sales adjustments

Question 8

Define factoring

Answer 8

The transferor (original creditor) transfers the receivables to a factor (transferee, financial institution) immediately as a normal part of business.

Question 9

List the methods through which interest revenue is recognized after a write-down has occurred.

Answer 9

Interest and cost recovery methods

Question 10

When does loan impairment occur?

Answer 10

When the creditor believes the loan payments actually to be received have a lower fair value than under the original agreement.

Question 11

When a receivable is impaired, what should it be written down to?

Answer 11

The PV of the future cash flows expected to be collected using original effective interest rate for the loan or market value if more determinable.

Question 12

What is the accounting treatment for loan impairments?

Answer 12

Receivable should be written down to:

1) PV of future cash flows using original effective interest rate, or
2) mkt value, if it can be determined.

Question 13

How is the loss on an impairment accomplished?

Answer 13

DR: bad debt expense

CR: a contra receivable account

Question 14

What is the calculation for determining COGS?

Answer 14

Beginning inventory
+net purchases (gross+trans in-returns-discounts)
- ending inventory
= COGS

Question 15

List the differences between moving & weighted average cost flow assumptions.

Answer 15

– moving average computes a new weighted average cost per unit after each purchase of inventory

– moving average results in lower COGS during period of rising prices

Question 16

Weighted average cost per unit formula

Answer 16

COGS / # of units available for sale

Question 17

LIFO in periods of rising prices

Answer 17

• • lower NI
• • lower ending inventory
• • highest COGS

Question 18

FIFO in periods of rising prices

Answer 18

• • lowest COGS
• • highest NI
• • highest ending inventory

Question 19

Differences between periodic & perpetual applications of LIFO

Answer 19

• • in perpetual, each sale is costed with most recent purchase
• • perpetual results In a lower COGS in a period of rising prices

Question 20

List the cost flow assumptions of a perpetual inventory system

Answer 20

• • specific identification
• • moving average
• • FIFO
• • LIFO

Question 21

Define “base-year dollars”

Answer 21

Price level for the pool at the beginning of the year Dollar Valued (DV) LIFO adopted.

Question 22

Formula to get to ending dollar value LIFO

Answer 22

Ending DV LIFO = beginning DV LIFO + (increase @ base year dollars)(conversion index)

Question 23

List the methods of recording Lower of Cost or Market

Answer 23

Direct method

Allowance method

Question 24

How is holding cost reported under the direct method?

Answer 24

Any holding loss related to inventory is simply included in COGS

Question 25

How does the retail inventory method establish the LCM valuation for ending inventory?

Answer 25

By excluding net markdowns from the cost-to-retail ratio

Question 26

In year one of an inventory error, if purchases are understated, what is the impact on retained earnings?

Answer 26

RE is overstated

Question 27

If an inventory error is discovered in year two, where is the difference recorded?

Answer 27

Beginning retained earnings

Question 28

List the basic inventory equation.

Answer 28

Beginning inventory
+ net purchases
= ending inventory
+ COGS

Question 29

List the components s of capitalize costs to self constructed assets.

Answer 29

Labor
Material
Overhead
Interest cost

Question 30

What is the general rule for capitalizing expenditures?

Answer 30

Capitalize all expenditures necessary to bring the plant asset to its intended condition and location

Question 31

List the limitation of recorded value of self-constructed assets.

Answer 31

Market value at completion.

Question 32

List the considerations that must be given when electing to expense or capitalize an item.

Answer 32

Estimated time benefit

Materiality

Question 33

How is the cash equivalent price in the issuance of securities determined?

Answer 33

In FV of asset required or of securities issued, whichever can be most clearly determined.

Question 34

How are donated items recorded?

Answer 34

FMV

Question 35

List the interest capitalization formula

Answer 35

Interest rate x average accumulated expenditures

Question 36

What conditions must exist to capitalize interest?

Answer 36

1) qualifying expenditures have been made
2) construction it proceeding
3) interest cost is being incurred

Question 37

What interest rates should be used to determine capitalized interest?

Answer 37

Average interest rate during period
Or
Specific interest rate applicable to construction debt

Question 38

List the 2 step process involved in computing capitalized interest

Answer 38

1) compute average accumulated expenditures

2) apply the appropriate interest rate(s)

Question 39

If the proceeds from a specific construction loan are not fully used for financing construction until well into the construction phase, how is the interest handled?

Answer 39

The interest revenue is reported separately with no effect on interest capitalized

Question 40

If Avg Accumulated Expenditures > total interest-bearing debt, why is there no interest expense?

Answer 40

All debt could have been avoided if construction had not take place.

All interest is capitalized.

Question 41

If Avg Accumulated Expenditures < total interest-bearing debt, what is interest expense for the period?

Answer 41

The difference between total interest cost and the amount of interest capitalize

Question 42

Where should the amount of interest paid be disclosed?

Answer 42

In the statement of cash flows, as either part of the statement, as a supplemental schedule or in a footnote.

Question 43

What is the formula for the service hours method of depreciation?

Answer 43

(Cost - salvage/total service hours) x hours used

Question 44

What’s the formula for the units of output method of depreciation?

Answer 44

(Cost - salvage/total units) x units produced

Question 45

Under IFRS what 2 methods can be used to adjust accum depr?

Answer 45

The proportional and reset methods

Question 46

What happens during the reset method?

Answer 46

Accum depr is reset to zero by closing it to the building account, and then the building is adjusted for the revaluation