FAR 2

Question 1

What four criteria must be met in order to recognize revenue under GAAP?

Answer 1

1. Persuasive evidence of an arrangement
2. Delivery has occurred or services have been rendered
3. The price is fixed and determinable; and
4. Collection is reasonably assured.

Question 2

True or False: Revenue is typically recognized on the date of sale.

Answer 2

True

Question 3

Explain Multiple Element Arrangements

Answer 3

When a sales contract multiple products or services, the fair value of the contract must be allocated to the separate contract elements.

Question 4

Deferred Credits are:

Answer 4

Used when cash is received before revenue is earned

Question 5

True or False: Expenses should be recognized according to the matching principal

Answer 5

True

Question 6

How is an accrued asset recorded?

Answer 6

Debit: Accounts Receivable
Credit: Accrued Revenue

Question 7

How is an accrued liability recorded?

Answer 7

Debit: Accrued Expense
Credit: Accrued Liability (Accounts Payable)

Question 8

How is an estimated liability reported?

Answer 8

Debit: Accrued Expense
Credit: Accrued liability

Question 9

What is an expired cost?

Answer 9

costs that expire during the period and have no future benefit. These hit the income statement.

Question 10

What is an unexpired cost?

Answer 10

Represent fixed assets and inventory. These stay on the balance sheet for now and are capitalized.

Question 11

How is a prepaid expense recorded?

Answer 11

Debit: Prepaid Expense
Credit Cash:

These hit the balance sheet only.

Question 12

How is a deferred credit recorded?

Answer 12

Debit: Cash
Credit: Unearned/deferred revenue

This only affects the balance sheet.

Question 13

How is a royalty received in advance recorded?

Answer 13

Debit: Cash
Credit: Unearned royalty

Question 14

How is do you record the entry for recognizing a prepaid royalty revenue?

Answer 14

Debit: Unearned Royalty
Credit: Earn Royalty

Question 15

What are the five intangible assets that are commonly tested on the CPA Exam?

Answer 15

Patents
Copyrights
franchises
trademarks
Goodwill

Question 16

What is the rule concerning amortization of patents

Answer 16

A patent is amortized over the shorter of its estimated life or remaining legal life.

Question 17

True or False: Goodwill can be amortized

Answer 17

False

Question 18

Explain the difference between IFRS and GAAP concerning the recording of intangible assets.

Answer 18

Under GAAP intangible assets are recorded at Cost but under IFRS, intangible assets can be recorded at either cost or under the revaluation model.

Question 19

Under IFRS, what is the revaluation model?

Answer 19

A model that is used for initally valuing intangible assets at cost but revaluing those assets to fairvalue.

Question 20

Describe the impairment test(s) for intangible assets with (a) a finite life and (b) and infinite life.

Answer 20

Finite Life: Two step test:
Undiscounted net cash flows
Fair Value

Infinite Life: One step test:
Fair Value

Question 21

Describe Goodwill Impairment

Answer 21

Goodwill impairment is calculated at a reporting unit level. Impairment exists when the carrying amount of the reporting unit goodwill exceeds its fair value.

Question 22

The Completed Contract Method is recognized by:

Answer 22

GAAP (only)

Question 23

Installment sales are recorded under what method?

Answer 23

Cash Method

Question 24

Percentage of Completion sales are recorded under what method?

Answer 24

Accrual Method

Question 25

What is the formula for Gross Profit?

Answer 25

Sales - Cost of Goods Sold (COGS)

Question 26

What is the formula for Gross Profit Percentage?

Answer 26

Gross Profit/Sales Price

Question 27

What is the formula for Earned gross profit?

Answer 27

Cash Collections X Gross profit percentage or Cash Collections X Gross Profit/Sales Price

Question 28

True or False: Deferred Gross Profit is a contra asset.

Answer 28

True

Question 29

What is the formula for deferred gross profit?

Answer 29

Installment receivable X gross profit percentage or installment receivable X Gross Profit/Sales Price

Question 30

What is meant by having commercial substance?

Answer 30

That there is a change in cash flow.

Question 31

List the debits and credits "framework" for a non monetary transaction:

Answer 31

``` Debit: New Asset (at Fair Value) Debit: Accumulated depreciation of asset given up Debit: Cash Recevied Debit: Loss (if applicable) Credit: Old asset at cost Credit: Cash Given Credit Gain (if applicable) ```

Question 32

Define Historical Cost

Answer 32

The actual exchange value in the dollars at that time an asset was aquired or a liability was assumed

Question 33

Define Current Cost

Answer 33

The cost that would be incurred at the present time, the replacement cost. Use the recoverable amount if lower.

Question 34

Define Nominal Dollars

Answer 34

Unadjusted for changes in purchasing power

Question 35

Define Constant Dollars

Answer 35

Dollars restated based on calculations of CPI ratios

Question 36

What is the difference between Monetary and non-monetary

Answer 36

Monetary assets and liabilities are fixed or denominated in dollars regardless of changes in specific prices or the general price level. Non monetary assets and liabilities fluctuate in value with inflation and deflation.

Question 37

List the typical monetary balance sheet items

Answer 37

``` Cash Bonds A/R and N/R Long Term receivables A/P and N/P Accrued Expenses Bonds payable ```

Question 38

List the typical non monetary balance sheet items

Answer 38

``` Marketable common stock Inventory Investment in subsidiary PP&E Intangible assets Deferred charges and credits Preferred Stock Common Stock ```

Question 39

The Current Exchange Rate is the year end or ____ rate

Answer 39

Spot

Question 40

Define Forward Exchange Rate

Answer 40

the exchange rate existing now for exchanging two currencies at a specific future date.

Question 41

List the nine topic areas in the FASB codification and their section number (ex: 100's 200s' etc)

Answer 41

``` 100's General Principals 200's Presentation 300's Assets 400's Liabilities 500's Equity 600's Revenue 700's Expenses 800's Broad Transactions 900's Industry ```