Week 2 Flashcards
When factoring or assigning receivables, what is the Factor’s (purchaser’s) Holdback account?
This accounts for the proceeds retained by the factor for estimated sales discounts, returns, and allowances. It is a receivable (current asset) on BS of seller.
How is a loan impairment recorded?
By reducing NBV of the receivable to PV of probable future cash flows, discounted at the original rate. The difference between BV and PV is recorded as an expense or loss.
What is a CGU (cash generating unit)?
The smallest group of assets that can be identified that generates cash flows independently of other assets.
What are the requirements that an asset meet to be classified as a plant asset?
The asset has physical substance, is currently used in operations, and is not held for investment purposes.
What entries are made when common stock is traded for services?
DR Expense or Asset
CR Common Stock @ Par
CR APIC for diff between par and FV at time of agreement
How are capitalized costs associated with software amortized?
Amortization used is the greater of SLN or (sales revenue from software for period)/total projected sales
How does amortization of Bond Discount or Premium affect the Statement of Cash Flows?
The amortization amount is a reconciling item. A discount would be added back to income as the amount increases interest expense without a cash flow effect.
When a non-interest bearing note is exchanged for equipment and additional contract terms (IE, future purchase commitments), what is the entry made to the seller/note holder?
DR Note Receivable XX
DR Deferred Charge XX (purch. commit.)
CR Discount XX
CR Cash XX
Who bears the shipping costs for an order that is FOB Shipping Point?
The purchaser is responsible for shipping when FOB Shipping is elected.
When reconciling cash basis revenue to accrual, how are write-offs in the current year treated?
Write-offs in the current year must be added to the $ revenue figure because the change in AR doesn’t account for written off amounts.
IE: Cash Basis Rev: 2,21M
+ Increase AR : 260K
+ CY W/O’s : 30K
= 2,5M Accrual Rev.
When a company that holds a NR transfers the account to a bank or other institution (also known as discounting), how is the discount and cash proceeds determined?
Original holder of NR performs 3 steps:
1: Accrue interest on NR prior to discount (this step is standard in NR process)
2. Add total interest to face value to determine maturity value
3. Deduct the discount for cash proceeds (this is performed by multiplying maturity value in Step 2 by the discount % offered by bank * time remaining to payment of NR)
How is Cost of Goods Manufactured determined when information is given for COGS and Finished Goods Inventory?
Beginning FG Inventory, less COGS + Ending FG = Cost of Goods Manufactured
What is the formula to determine Price Index for the Dollar Value LIFO inventory method?
EI @ CY Cost/EI @ Base Year Cost
When the Index is given, multiply the YE index by the LIFO layer at base year cost in order to determine the layer added.
What is the LIFO Reserve account and how is it used?
A contra inventory account used to reflect the difference between FIFO and LIFO valuation when a company uses one for internal reporting and another for financial statements. Commonly referred to as Revaluation to LIFO, and LIFO Allowance per AICPA’s discouragement of ‘reserve.’
How often is the weighted average determined under the Moving Average method of inventory valuation?
The weighted average of total inventory is calculated after each purchase.
