F3 Flashcards
If you cut a check, but don’t mail it, is it still your cash?
Yes.
A company had two bank accounts:
1 = $500,000 balance 2 = ($250,000)
What should the entity report as cash on it’s balance sheet?
$500,000. The negative cash amount in account 2 should be reported as a current liability.
What is the gross method of A/R? What do the entries consist of?
Record A/R w/o consideration of a discount being taken advantage of. If the discount is later taken advantage of, adjust to contra revenue Sales Discounts.
What is the net method of A/R? What do the entries consist of?
Takes into account the discount being taken advantage of by a customer when initially recording A/R on a sale. If the customer does not end up taking advantage of the discount, use the revenue acct “Sales discounts not taken”
How are receivables valued on the balance sheet?
At NRV.
A/r
Allowance
=Net
Which of the following methods is GAAP compliant?
a. ) Direct write off method
b. ) Allowance method
Allowance method.
What would be the JE to record a write off for a specific receivable? (allowance method)
DR: Allowance
CR: A/R
What would be the JE to record to collect A/R previously written off?
DR: A/R
CR: Allowance
DR: Cash
CR: A/R
What does it mean to pledge A/R?
Have your A/R take collateral for something.
Ex: Loan from BofA, pledging receivables in case you can’t pay back loan.
What does it mean to factor receivables?
What does it mean to have recourse? Or not have recourse?
Sell receivables for cash.
Recourse means you could still be responsible and held at risk for the receivables you sold, non-recourse you have no risk once you factor.
What is the JE to record write off for a specific receivable? (direct write off method)
DR: Bad Debt Exp
CR: A/R
Explain FOB shipping point
Seller transfers ownership of the merchandise once it leaves their shipping dock.
Who pays for shipping cost in FOB shipping point?
The buyer, since the goods are technically transferred to the seller as soon as they leave the sellers dock.
Explain FOB destination
Seller transfers ownership of goods as soon as they reach the destination (sellers dock)
Who pays for shipping costs in FOB destination?
The seller, since the goods are still in their possession as they are being shipped.
In consignment transactions, who is the consignor? Who is the consignee?
The consignor is the person who’s merchandise is being sold, the consignee is the person selling it for them collecting a fee.
In both GAAP & IFRS, can you reverse inventory writedowns?
GAAP = NEVER IFRS = LIMITED TO PREVIOUS WRITE DOWN
Which inventory system, period or perpetual, uses the purchases account and why?
Periodic inventory systems use a purchases account to account for all additions to inventory during the year. At the end of the year, a physical inventory is done to determine the COGS:
Beg. Inv.
+Purchases
(Ending Inventory)
=COGS
When purchasing inventory in a perpetual system, what is the JE?
DR: Inventory
CR: A/P or Cash
When selling inventory in a perpetual system, what is the JE?
DR: COGS
CR Inventory
DR: A/R or Cash
CR: Revenue
When selling inventory in a periodic system, what is the JE?
DR: A/R or Cash
CR: Revenue
Which inventory cost flow method does IFRS not allow?
LIFO
Why would an entity want to do a FIFO cost flow method for inventory?
Higher & healthier financial ratios. Lower COGS which leads to higher net income. Higher inventory on balance sheet bc selling off old cheap items first, and what is left in inventory is the more expensive ones.
How do you find the weighted average of inventory? What method needs to be used?
Periodic method must be used.
$ COGAF / # of units AFS = $ per unit
$ per unit X units at physical inventory = $ End. Inv.
How do you find the moving average of inventory? What method needs to be used?
Perpetual system must be used. (info wouldn’t be available for periodic)
How do you go about calcualting a moving average for inventory?
Must calculate a weighted average after each purchase. (need to see example). Pg 11 lecture in F3 M3.
Why would an entity want to do a LIFO cost flow method for inventory?
Lower net income = lower taxes to pay. Since your COGS includes the highest priced items, it will be larger - reducing your NI.
How do you find the price index needed to find Dollar Value LIFO?
Current Year Ending Inv. / Base Year Ending Inv.
Then take price index and multiply by inventory added in that period (revalue)
WHAT A MESS - NEED TO REVIEW AND MASTER.
Are excavation costs part of land costs to capitalize?
NO, part of the building cost.
Are costs to raze a building on the land part of the land costs?
YES.
What amount of interest can be capitalized during construction?
The amount of interest on $ spent, borrowed, and during the term of construction, not just borrowed.
How do you calculate depreciation for sum-of-the-years-digits?
(cost-salvage) * (remaining life/sum of years)
Sum of years for 5 yr life = (1+2+3+4+5= 15)
Which depreciation method ignores salvage value?
Double Declining Balance.
How would you find depreciation exp for the CY under units-of-production?
(Cost-Salvage) / Estimated Units Life
Rate per unit * Units used in Current period = depreciation exp.
What is the calculation to depreciate using double declining balance?
2/Useful Life * NBV of Asset @ beg. of period
What are some differences when it comes to depreciation between IFRS & GAAP?
Under IFRS, depreciation method used should reflect the expected pattern of fixed asset consumption (just like inventory).
Under GAAP, use whichever method you want but stay consistent (just like inventory)