F3

Question 1

Factoring

Answer 1

selling A/R

Question 2

Factoring with recourse

Answer 2

factor (buyer) may return the account to the company if it subsequently requires a credit loss adjustment; liability & risk of loss remains with company

Question 3

Factoring with recourse JE

Answer 3

Two treatments:
1. sale (if seller’s obligation for uncollectible accounts can be estimated, surrenders control of future benefits, seller isn’t req. to repurchase but may replace A/R)
2. borrowing (with receivables as collateral)

Question 4

Factoring without recourse

Answer 4

factor (buyer) assumes the risk of loss if the account requires a credit loss adjustment (write-off)

Question 5

Factoring without recourse JE

Answer 5

Dr. cash, due from factor (factor’s margin), loss on sale of receivable, accounts receivable)
Cr. Accounts receivable

Question 6

Discounting

Answer 6

selling N/R

Question 7

At what value should non-interest bearing promissory notes be recorded?

Answer 7

At PV of future payments required, discounted at the market interest rate

Question 8

discounting N/P with recourse

Answer 8

holder remains contingently liable

Question 9

discounting w/o recourse

Answer 9

holder assumes no further liability after discounting

Question 10

tx for N/R with recourse

Answer 10

reported on BS with corresponding contra-account (N/R discounted) OR removed from BS with contingent liability disclosed in footnotes

Question 11

tx for N/R without recourse

Answer 11

removed from BS

Question 12

Cash recon items for book balance

Answer 12

B- bank collections +
I- interest income+
N- NSF -
S- service charges -
(&errors) +/-

Question 13

Cash recon for bank balance

Answer 13

D- deposits in transit +
O- outstanding checks -

Question 14

Cash rec procedure

Answer 14

Adj. book (true balance), adj. bank to match

Question 15

Restricted cash

Answer 15

set aside for a specific use or purpose (ST or LT); disclosed in footnotes

Question 16

Check dating

Answer 16

checks date past but not mailed = add back
checks postdated = not included

Question 17

Pledging A/R & tx

Answer 17

use A/R as collateral; no JE, footnote disclosure

Question 18

How is notes receivable recorded?

Answer 18

present value = fv - unearned interest

Question 19

Trade discounts vs. sales discounts

Answer 19

trade = quantity
sales = prompt payment w/in terms

Question 20

Trade discounts

Answer 20

offered for bulk buying
stated as percentage
applied one at a time
recorded using net method (not gross method)

Question 21

Shipping terms and when title is transferred

Answer 21

FOB destination: seller retains inventory until goods are received
FOB shipping point: buyer gets title when goods are given to a common carrier

Question 22

Goods and materials to be included in inventory

Answer 22

Goods in transit: depends on shipping terms
Wrong goods: seller’s inventory (breach of contract)
Consignment: included in conignor’s inventory (title passes directly from consignor to 3rd party)
Public warehouse: included in inventory (warehouse receipt)
Sales with mandatory buyback: included in seller’s inventory
Installment sale: if bad debt est. = include buyer’s inventory; if bad debt can’t be est. = include in seller’s inventory

Question 23

Valuation of inventory

Answer 23

generally at cost (including freight-in less discounts)

Question 24

Departures from cost basis for inventory

Answer 24

precious metals and farm products = NRV (selling price - cost to sell)

Question 25

Lower of cost and NRV

Answer 25

used for FIFO and weighted average ## Footnote NRV = selling price - cost to sell

Question 26

Lower of cost or market | inventory methods and procedure

Answer 26

LIFO or retail inventory market = middle value of market ceiling, floor, and replacement cost ## Footnote market ceiling = NRV market floor = NRV - normal profit margin replacement cost = cost to repurchase/reproduce

Question 27

Journal entry to write-down inventory and reporting

Answer 27

Dr. inventory loss; Cr. inventory booked immediately (lg = disclosed; sm = increase COGS) ## Footnote cannot be reversed; must also disclose change in measurement method

Question 28

# Inventory systems periodic inventory JE

Answer 28

Purchases: Dr. Purchases, Cr. cash or A/P Sales: Dr. Cash or A/R, Cr. Sales

Question 29

# Inventory systems perpetual inventory JE

Answer 29

Purchases: Dr. Inventory, Cr. cash or A/P Sales: Dr. Cash or A/R, Cr. Sales; Dr. COGS, Cr. Inventory

Question 30

Inventory cost flow assumptions

Answer 30

FIFO, LIFO, specific identification, weighted average, moving average, dollar value LIFO

Question 31

FIFO

Answer 31

* sell old, inventory new * EI/COG = same in perpetual or periodic system * use lower of cost or NRV for valuation

Question 32

Weighted average

Answer 32

* periodic only * avg. cost per unit = total inventory costs available / total # units available * homogeneous units

Question 33

Moving average

Answer 33

* perpetual * compute weighted average after each purchase

Question 34

LIFO

Answer 34

* sell new, inventory old * conformity rule: if used for taxes must also be used for books * better at matching rev & exp * different EI and COGS for periodic and perpetual * use lower of cost or market for valuation

Question 35

Dollar-value LIFO

Answer 35

price index = ending inventory @ current year cost / ending inventory @ base year cost

Question 36

The gross profit method is used for

Answer 36

interim FS as part of periodic inventory system (valued @ retail)

Question 37

Firm purchase commitments

Answer 37

used to try to combat rising future prices; if market value drops, loss must be recognized if it is probable and reasonably estimable ## Footnote Dr, estimated losses on purchase commitment; cr. estimated liability on purchase commitment

Question 38

During a period of rising prices, effect of LIFO vs. FIFO

Answer 38

ending inventory and net income will be lower with LIFO & rising prices (LIFO = LOWEST)

Question 39

JE for donated PP&E

Answer 39

Dr. fixed asset (@FMV) Cr. gain ## Footnote gain goes on income statement

Question 40

Land purchased for building construction include all costs up to

Answer 40

excavation (purchase price, legal fees, drain swamp, site development, removing old business etc.) Subtract proceeds from resources sold from land ## Footnote digging foundation (start of building--> capitalized

Question 41

Basket purchase

Answer 41

allocate cost between land & building based on the ratio of appraised values ## Footnote separated because the building will be depreciated but the land will not

Question 42

PP&E: AIR = Capitalized

Answer 42

additions improvements replacement

Question 43

Tx for replacements if old asset's carrying value is known vs. unknown

Answer 43

KNOWN: remove old carrying value and recognize G/L UNKNOWN: debit AD for for improvement, credit cash or A/P

Question 44

How are debt issuance costs presented on the BS?

Answer 44

Debt issuance costs are presented on the balance sheet as a direct reduction to the carrying amount of the bond and should not be included in the cost of the land.

Question 45

How to value assets that are purchased requiring fixed payments extending beyond one year

Answer 45

the assets should be valued at the present value of all future payments.

Question 46

Amount of capitalized interest on a construction project is the lower of:

Answer 46

actual interest cost incurred or computer capitalized interest (avoidable interest)

Question 47

avoidable interest calculation

Answer 47

weighted average accumulated expenditures mult. by interest rate on borrowings (excess costs are multiplied by weighted average interest rate for other company debt)

Question 48

Valuation of intangibles

Answer 48

finite life: cost - amortization - impairment indefinite life: cost - impairment crypto: fair value each reporting period (with G/L in current NI)

Question 49

Impairment test and amount for finite life intangible assets/reporting

Answer 49

determining impairment: use undiscounted future net cash flows amount of impairment: use fair value reported as loss in income from cont. op. (unless related to disc. op.)

Question 50

impairment test for indefinite life intagible assets

Answer 50

Fair value - net carrying value ## Footnote because future cash flows cannot be estimated

Question 51

Purchased software

Answer 51

recorded as intangible asset at cost; amortized over shorter of legal or economic life

Question 52

Cloud computing arrangement

Answer 52

1. prelim project phase: expense 2. application development phase: expense (training, maintenance, support); capitalize (software, coding, testing fees) 3. post implementation phase: expense --> test for impairment using two-step process for finite life intangibles

Question 53

Franchise accounting

Answer 53

initial fee: capitalize and amortize continuing fees: expense

Question 54

present value of a liability

Answer 54

face value/future value-present value of future cash flows(discount: contra-liability)

Question 55

Composite life

Answer 55

total depreciable cost/annual depreciation

Question 56

Three required conditions that must be present for an entity to begin capitalizing interest.

Answer 56

1. Interest cost is being incurred. 2. All necessary permits (licenses) have been filed to prepare the asset for its intended use. 3. Expenditures for a qualifying asset have been made.