F3 ASSETS AND RELATED TOPICS

Question 1

DEFINE CASH AND CASH EQUIVALENTS

Answer 1

SHORT-TERM HIGHLY LIQUID INVESTMENTS THAT ARE CONVERTIBLE TO CASH. (THE SECURITIES HAVE TO BE LESS THAN 90-DAYS TO PURCHASE).

Question 2

NAME TWO METHODS OF ACCOUNTING FOR THE WRITE-OFF OF UNCOLLECTIBLE ACCOUNTS

Answer 2

ALLOWANCE

DIRECT WRITE OFF

Question 3

NAME TWO METHODS FOR ESTIMATING UNCOLLECTIBLE ACCOUNTS

Answer 3

PERCENTAGE OF ACCOUNTS RECEIVABLE AT YEAR-END

AGING OF ACCOUNTS RECEIVABLE AT YEAR-END

Question 4

WHAT IS THE DIFFERENCE BETWEEN FACTORING WITH RECOURSE AND WITHOUT RECOURSE?

Answer 4

WITH RECOURSE
THE FACTOR MAY RETURN THE ACCOUNT TO THE COMPANY IF IT PROVES TO BE UNCOLLECTIBLE. POTENTIAL LIABILITY AND RISK OF LOSS REMAINS WITH THE COMPANY.

WITHOUT RECOURSE
THE FACTOR ASSUMES THE RISK OF LOSS IF THE ACCOUNT IS UNCOLLECTIBLE.

Question 5

AT WHAT VALUE SHOULD NON-INTEREST-BEARING PROMISSORY NOTES BE RECORDED?

Answer 5

AT THE PRESENT FALUVE OF ALL FUTURE PAYMENTS. THE DISCOUNT SHOULD BE AT THE MARKET RATE.

Question 6

DESCRIBE THE COMPUTATIONAL STEPS REQUIRED IN “DISCOUNTING A NOTE”

Answer 6

1. COMPUTE MATURITY VALUE (REMEMBER TO INCLUDE INTEREST TO MATURITY).
2. COMPUTE THE “DISCOUNT” (REMEMBER TO USE MATURITY VALUE).
3. GET PROCEEDS BY SUBTRACTING DISCOUNT FROM MATURITY VALUE.
4. COMPUTE INTEREST INCOME AS THE DIFFERENCE BETWEEN PROCEEDS AND THE FACE OF THE NOTE.

Question 7

WHEN DOES THE TITLE TO GOODS PASS FOR EACH OF THE FOLLOWING?

FOB DESTINATION
FOB SHIPPING POINT
CONSIGNED GOODS

Answer 7

FOB DESTINATION -WHEN RECEIVED BY THE BUYER
FOB SHIPPING POINT - WHEN GIVEN TO A COMMON CARRIER
CONSIGNED GOODS - WHEN SOLD TO A THRID PARYT BY CONSIGNEE.

Question 8

HOW IS NET REALIZABLE VALUE CALCULATED IN THE LOWER OF COST AND NET REALIZABLE VALUE METHOD?

Answer 8

NET REALIZABLE VALUE IS THE NET SELLING PRICE LESS COMPLETION AND DISPOSAL COSTS.

Question 9

UNDER U.S GAAP, HOW IS MARKET CALCULATED IN THE LOWER OF COST OR MARKET METHOD?

Answer 9

IN THE LOWER OF COCT OR MARKET METHOD GENERALL MEANS CURRENT REPLACEMENT COST, PROVEDED THE CURRENT REPLACEMENT COST DOES NOT EXCEED THE MARKET CEILING OR FALL BELOW THE FLOOR.

CEILING- NET REALIZABLE VALUE (SELLING PRICE + COMPLETION- DISP. FEE)
FLOOR- NET REALIZABLE VALUE MINUS NORMAL PROFIT MARGIN

Question 10

EXPLAIN THE DIFFERENCE BETWEEN PERIODIC AND PERPETUAL

Answer 10

PERIODIC- ENDING INVENTORY IS PHYSICALLY COUNTED AND PRICED.

PERPETUAL= INVENTORY IS UPDATED FOR EACH PURCHASE AND FOR EACH SALE.

Question 11

NAME SEVERAL COST FLOW METHODS FOR INVENTORY?

Answer 11

SPECIFIC IDENTIFICATION
FIFO
LIFO
AVERAGE -1 WEIGHTED AVERAGE (PERIODIC)
                 - 2 MOVING AVERAGE (PERPETUAL)

Question 12

DURING PERIODS OF RISING PRICES, THE USE OF LIFO VERSUS FIFO HAS WHAT EFFECT ON THE VALUATION OF ENDING INVENTORY AND REPORTED NET INCOME?

Answer 12

BOTH ENDING INVENTORY AND NET INCOME WILL BE LOWR WHEN LIFO IS USED DURING A PERIOD OF RISING PRICES

LIFO = LOWEST

Question 13

HOW IS FIXED-ASSET CARRYING VALUE COMPUTED UNDER U.S. GAAP?

Answer 13

CARRY VALUE = HISTORICAL COST - ACCUMULATED DEPRECIATION - IMPAIRMENT

Question 14

GIVE EXAMPLES OF COSTS TO BE CAPITALIZED AS LAND

Answer 14

ACQUISITION PRICE
CLOSING COSTS, SUCH AS REAL ESTATE BROKER COMMISSIONS, LEGAL FEES
ANY MORTGAGE LLIENS THAT BUYERS ASSUMES
PREPARATION COSTS (SURVEY, LEVELING TREE REMOVAL)
COST OF RAZING AN EXISTING BUILDING FOR INTENDED USE
LESS: PROCEEDS FROM SALE OF ASSETS ON LAND.

NOTE: EXCAVATING COSTS FOR BUILDING AND COST OF IMPROVEMENTS WITH A DEFINITE LIFE ARE NOT INCLUDED IN LAND.

Question 15

DESCRIBE THE PROPER ACCOUNTING FOR ORDINARY VERSUS EXTRAORDINARY REPAIRS:

Answer 15

ORDINARY DO NOT INCREASE THE LIFE OR UTILITY OF THE ASSETS

EXTRAORDINARY REPAIRS EITHER INCREASE THE LIFE OR UTILITY OF THE ASSET.

IF THE EXTRAORDINARY REPAIR INCREASES THE LIFE OF THE ASSET, IT IS RECOREDED BY REDUCING ACCUMULATED DEPRECATION.

IF THE EXTRAORDINARY REPAIR INCREASES THE UTILITY OF THE ASSET, IT IS CAPITALIZED TO THE FIXED ASSET ACCOUNT.

Question 16

STATE TWO RULES CONCERNING CAPITALIZING INTEREST

Answer 16

1. ONLY CAPITALIZE INTERES ON MONEY ACTUALLY SPENT, NOT ON AMOUNT BORROWED.
2. THE AMOUNT OF CAPITALIED INTEREST IS THE LOWER OF:
   ACTUAL INTEREST COST INCURRED
   COMPUTED CAPITALIZED INTEREST (AVOIDABLE INTEREST)

Question 17

FOR CAPITALIZING INTEREST, WHEN DOES THE CAPITALIZATION PERIOD BEGIN?

Answer 17

IT BEGINS WHEN THREE CONDITIONS ARE MET:
1. EXPENDITURES FOR THE ASSET HAVE BEEN MADE.
2. ACTIVITIES THAT ARE NECESSARY TO GET THE ASSET READY FOR ITS INTENDED USE ARE IN PROGRESS.
3. INTEREST COST IS BEING INCURRED.
ENDS WHEN THE ASSET IS SUBSTANTIALLY COMPLETE AND READY FOR ITS INTENDED USE.

Question 18

NAME THE COMMON DEPRECIATION METHODS. GIVE THE BASIC FORMULA FOR CALCULATING EACH MTHOD.

Answer 18

STRAIGHT-LINE
(COST-SALVAGE)/ USEFUL LIFE

SUM-OF-THE-YEARS/ DIGITS
(COST-SALVAGE) X (YEARS REMAINING) / (SUM OF YEARS)

DOUBLE-DECLINING BALANCE
2 * STRAIGHT-LINE RATE * NET BOOK VALUE OF ASSET

UNITS OF PRODUCTION
(COST-SALVAGE)/ ESTIMATED HOURSE X ACTUAL HOURS FOR PERIOD

Question 19

STATE THE RULES FOR COMPUTING DEPLETION ON NATURAL SOURCES.

Answer 19

ACRONOMY “REAL”

RESIDUAL VALUE (SUBRACT)
EXTRACTION/ DEVELOPMENT COST
ANTICIPATED RESTORATION COST
LAND PURCHASE PRICE

(COST OF LAND + EXTRACTION DEV. COSTS + ANTICIPATED RESTORATION COSTS - RESIDUAL VALUE) / ESTIMATED RECOVERABLE UNITS * UNITS EXTRACTED = DEPLETION

Question 20

WHEN WILL AN ASSET EXCHANGE HAVE COMMERCIAL SUBSTANCE UNDER US GAAP?

Answer 20

AN ASSET EXCHANGE GENERALLY HAS COMMERCIAL SUBSTANCE WHEN THE ENTITY EXPECTS A CHANGE IN FUTRUE CASH FLOWS AS A RESULT OF THE EXCHANGE AND THAT EXPECTED CHANGE IS MATERIAL RELATIVE TO THE FV OF THE ASSETS EXCHANGED.

Question 21

HOW ARE GAINS/LOSSES ON NON-MONETARY EXCHANGES RECOGNIZED UNDER U.S. GAAP?

Answer 21

EXCHANGE HAS COMMERCIAL SUBSTANCE - ALWAYS RECOGNIZE GAINS AND LOSSES ON THE EXCHANGE EQUAL TO THE DIFFERENCE BETWEEN FV OF WHAT IS GIVEN UP AND THE CARRYING VALUE OF WHAT IS GIVING UP.

SEE ATTACHMENTS

Question 22

HOW ARE PURCHASED INTANGIBLE ASSETS AND INTERNALLY DEVELOPED INTANGIBLE ASSETS RECORDED UNDER U.S. GAAP?

Answer 22

PURCHASED INTANGIBLE ASSETS:
RECORDED AT COST, INCLUDING LEGAL AND REGISTRATION FEES.

INTERNALLY DEVELOPED INTANGIBLE ASSETS:
LEGAL FEES, COSTS OF SUCCESSFUL DEFENSE, REGISTRATION FEES, CONSULTING FEES, AND DESIGN FEE CAN BE CAPITALIZED.
MOST RESEARCH AND DEVELOPMENT COSTS MUST BE EXPENSED.

Question 23

WHAT IS THE MAXIMUM PERIOD OVER WHICH AN IDENTIFIABLE INTANGIBLE ASSET (NOT GOODWILL) SHOULD BE AMORTIZED?

Answer 23

THE SHORTER OF:
ITS ESTIMATED USEFUL ECONOMIC LIFE OR
ITS REMAINING LEGAL LIFE

(AS IN A COPYRIGHT, FRANCHISE, OR PATENT).

Question 24

HOW ARE INTANGIBLE ASSETS REPORTED UNDER U.S. GAAP?

Answer 24

REPORTED AT COST LESS AMORTIZATION (FINITE LIFE INTANGIBLES ONLY) AND IMPAIRMENT.

Question 25

HOW SHOULD THE CONTRACTUAL AMOUNTS OF FUTURE SERVICES TO BE PERFORMED UNDER A FRANCHISE AGREEMENT BE ACCOUNTED FOR BY THE FRANCHISEE?

Answer 25

THEY SHOULD BE RECORED AT THEIR PRESENT VALUE AS AN INTANGIBLE ASSET.

Question 26

DEFINE START-UP COSTS. WHAT IS THE ACCOUNTING TREATMENT OF START-UP COSTS?

Answer 26

COSTS INCURRED FOR ONE-TIME ACTIVITIES TO START A NEW OPERATION. START-UP COSTS INCLUDE COSTS INCURRED IN THE FORMATION OF A CORPORATION.

START-UP COSTS ARE EXPENSED IN THE PERIOD INCURRED.

Question 27

WHAT IS THE PROPER TREATMENT OF RESEARCH AND DEVELOPMENT COSTS UNDER U.S. GAAP?

Answer 27

RESEARCH AND DEVELOPMENT COSTS SHOULD BE EXPENSED AS INCURRED UNLESS AND EXPENDITURE IS FOR CAPITAL ASSETS THAT HAVE ALTERNATIVE FUTURE USES, OR FOR RESEARCH AND DEVELOPMENT UNDERTAKEN ON BEHALF OF OTHERS UNDER A CONTRACTUAL ARRANGEMENT.

Question 28

LIST SOME ITEMS NOT CONSIDERED RESEARCH AND DEVELOPMENT COSTS.

Answer 28

ROUTINE PERIODIC DESIGN CHANGES
MARKETING RESEARCH
QUALITY CONTROL TESTING
REFORMULATION OF A CHEMICAL COMPOUND

Question 29

WHEN SHOULD TH COSTS OF DEVELOPING COMPUTER SOFTWARE FOR RESALE, LEASE, OR LICENSING BE CAPITALIZED UNDER U.S. GAAP?

Answer 29

AFTER TECHNOLOGICAL FEASIBILITY AHS BEEN ESTABLISHED AND BEFORE THE PRODUCT IS RELEASED FOR SALE.

Question 30

HOW SHOULD THE COSTS OF CAPITALIZED COMPUTER SOFTWARE DEVELOPED FOR RESALE BE AMORTIZED UNDER U.S. GAAP?

Answer 30

ANNUAL AMORTIZATION IS THE GREATER OF:

PRECENT OF REVENUE METHOD: (TOTAL CAP. COST) * (CURRENT GROSS REV. FOR PERIOD / TOTAL PROJECTED GROSS REVENUE FOR PRODUCT)

STRAIGHT-LINE: (TOTAL CAPITALIZED AMOUNT) * (1/ ESTIMATE OF ECONOMIC LIFE).

Question 31

OUTLINE THE TREATMENT OF COMPUTER SOFTWARE DEVELOPED INTERNALLY OR OBTAINED FOR INTERNAL USE ONLY UNDER U.S. GAAP.

Answer 31

• EXPENSE COSTS INCURRED IN THE PRELIMINARY PROJECT STATE AND COSTS INCURRED IN TRAINING AND MAINTENANCE.
• CAPITALIZE COSTS INCURRED AFTER PRELIMINARY PROJECT STATE AND FOR UPGRADES AND ENHANCEMENTS.
• CAPITALIZED COSTS SHOULD BE AMORTIZED ON A STRAIGHT-LINE BASIS.

Question 32

WHAT IS THE TEST OF RECOVERABILITY FOR THE IMPAIRMENT OF INTANGIBLE ASSETS OTHER THAN GOODWILL UNDER U.S. GAAP?

Answer 32

FINITE LIFE:
IF UNDERCOUNTED FUTURE CASH FLOWS EXPECTED FROM USE OF ASSET AND EVENTUAL DISPOSAL IS LESS THAN THE CARRYING VALUE, RECOGNIZE LOSS ON IMPAIRMENT.

INDEFINITE LIFE:
IF FAIR VALUE IS LESS THAN CARRYING VALUE, RECOGNIZE LOSS ON IMPAIRMENT.

Question 33

WHAT IS THE CALCULATION FOR IMPAIRMENT LOSSES FOR PROPERTY, PLANT, AND EQUIPMENT UNDER U.S. GAAP?

Answer 33

THE AMOUNT BY WHICH THE CARRYING AMOUNT EXCEEDS THE FAIR VALUE OF THE ASSET.

Question 34

WHAT ASSETS ARE SUBJECT TO THE IMPAIRMENT TEST?

Answer 34

INTANGIBLES (INCLUDING GOODWILL) AND FIXED ASSETS TO BE HELD AND USED.
INTANGIBLES (INCLUDING GOODWILL) AND FIEXED ASSETS SLATED FOR DISPOSAL.
NOTE: THE TEST MUST BE DONE AT LEASTE ANNUALLY.

Question 35

DESCRIBE THE IMPAIRMENT TEST FOR RECOVERABILITY UNDER U.S. GAAP.

Answer 35

IF THE SUM OF THE UNDISCOUNTED EXPECTED FUTURE CASH FLOWS IS LESS THAN THE CARRYING AMOUNT, AN IMPAIRMENT LOSS NEEDS TO BE RECOGNIZED.

Question 36

HOW IS THE IMPAIRMENT LOSS REPORTED IN THE FINANCIAL STATEMENTS?

Answer 36

AS A COMPONENT OF INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES.

THE CARRYING AMOUNT OF THE ASSET IS REDUCED.

Question 37

IS RESTORATION OF IMPAIRMENT LOSSES PERMITTED UNDER U.S. GAAP?

Answer 37

RESTORATION (REVERSAL OF IMPAIRMENT LOSSES) IS PERMITTED FOR ASSETS HELD FOR SALE. RESTORATION IS PROHIBITED FOR ASSETS HELD FOR USE.

Question 38

NAME THE TWO RULES FOR PERFORMING IMPAIRMENT CALCULATIONS UNDER U.S. GAAP.

Answer 38

DETERMINING IMPAIRMENT: USE THE UNDISCOUNTED FUTURE NET CASH FLOWS. AN IMPAIRMENT LOSS EXISTS IF TOTAL UNDISCOUNTED CASH FLOWS ARE LESS THAN THE CARRYING VALUE.

AMOUNT OF IMPAIRMENT:
USE THE FAIR VALUE OF ASSET:
IMPAIRMENT LASS = FAIR VALUE - CARRYING VALUE