F3 - Assets and Related Topics

Question 1

How do you determine impairment loss?

Answer 1

1. Perform Recevoerability Test: long-lived asset’s carrying amount exceeds its recoverable amount (undiscounted future cash flows).
2. Calculate Impairment Loss: Carrying Amount - FV less Costs to Sell

Question 2

Are you allowed to record a restoration of previously recognized impairment losses?

Answer 2

No, subsequent reversal of an impairment loss is prohibited, unless the asset is held for disposal.

Question 3

How should a company report bank account balances in their B/S if they have two separate banks?

Answer 3

The balances for various accounts within a single bank can be netted, and each bank must be accounted for separately when one of them has a negative position. Checking/operating and saving accounts within a bank are netted. If the overall bank’s balance is negative, it is reported as a liability.

Question 4

How are the proceeds of a note receivable discounted received from the bank?

Answer 4

The discount is always applied on the maturity value. Thus, take the maturity value less the discount %.
1) Face of note x stated rate = maturity value
2) MV x effective int. rate = Discount
3) MV - Discount = Proceeds from bank

MCQ-00059

Question 5

How do you calculate inventory at dollar-value LIFO?

Answer 5

1) Divide current year End. Inv. / Base-year End. Inv. = Price Index
2) Current year Base End. Inv. - Prior year Base End. Inv. = Increment layer
3) Increment layer x Price Index = DV LIFO increment layer
4) DV LIFO increment layer + Prior year Base End. Inv. = DV LIFO cost of current year

Question 6

How do you calculate weighted average method?

Answer 6

weighted average cost per unit = COG available for sale / Number of units available for sale

Units in ending inventory x weighted average cost per unit.

Question 7

What is the journal entry to record the credit loss adjustment (write-off) of a specific account using the CECL (current expected credit loss) method?

Answer 7

Decrease both AR and ABD:
Dr. ABD XX
Cr. AR XX

This has no effect on net income or total assets.

Question 8

Under CECL, what is the (net) affect on AR and ABD upon collection of a previously written account?

Answer 8

AR will have no effect. ABD will decrease.
JE 1) restore written-off acct.:
Dr. AR xx
ABD xx
JE 2) cash collection on acct.:
Cash xx
AR xx

Question 9

Calculate COGS if Sales are $600K and average markup on cost is 25%:

Answer 9

$600K / 1.25 = $480K

Because Inv. of $480K x 1.25 = $600K

Do not take $600k sales x .75%, only if gross profit % of sales.

Question 10

What happens to EI during rising prices under FIFO for perpetual vs. periodic?

Answer 10

They are both the same.