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FAR CPA Exam > FAR 3 - Assets and Related Topics > Flashcards

FAR 3 - Assets and Related Topics Flashcards

1
Q

Restricted Cash

A

Cash that has been set aside for a specific use or purpose

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2
Q

Bank Rec: things to adjust on the bank balance

A

+Deposits in Transit

-Outstanding Checks

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3
Q

Bank Rec: things to adjust on the book balance

A 
-Service charges
\+Bank collections
\+/- Errors
-Non-sufficient Funds (NSF)
\+Interest Income
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4
Q

Reconciliation of Cash Receipts and Disbursements

A

Four-column reconciliation. Object is to reconcile any differences between the amount the depositor has recorded as cash receipts and the amount the bank has recorded as deposits

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5
Q

Cash in money market account

A

Considered cash/cash equivalent on balance sheet

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6
Q

Accounts Receivable T account

A 
(Debit normal balance)
Beg balance 
\+Credit Sales 
-Write offs
-accounts converted to a note
-cash collected
=Ending balance
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7
Q

AR with sales (speed) discount methods (2/10 n/30)

A

1) Gross Method - book full sale, take out out discount if payment is made within the discount period
2) Net Method - Book sale assuming the discount will be taken, credit “sales discounts not taken” as revenue if payment not received within the discount period
* See page F3-11 for example

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8
Q

Methods to estimating uncollectible AR

A

1) Direct Method - NOT GAAP. Bad debt is recognized when the account become uncollectible
2) Allowance Method - a percentage of AR is estimated to be uncollectible each period - better satisfies the matching principle

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9
Q

Allowance for Doubtful Accounts T account

A 
(Credit normal balance)
Beg balance
\+Recoveries
\+CY Bad Debt Expense
-Write offs
=Ending balance
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10
Q

Allowance Method methods

A

1) Percentage of AR at year end

2) Aging of Receivable method - % uncollectible based on age outstanding

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11
Q

Entry to Write off AR

A

Dr ADA
Cr AR

*To restore previously written off account just flip entry

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12
Q

Pledging

A

The process of using existing AR as collateral for a loan. **Requires footnote disclosure only

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13
Q

Factoring AR

A

1) Without Recourse - seller is not liable for any AR not collected. Sale is final
2) With Recourse - has an option to re-sell any uncollectible receivables back to the seller (Booked as sale or disclosed as pledge)

JE:
Dr   Cash
Dr   Due from factor (factor security, will get back if AR is received by factor)
Dr   Loss on sale of receivable
Cr              AR
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14
Q

Discounting (factoring) a note at a bank

A

1) Calculate maturity value (P + interest)
2) Calculate the bank discount on the payoff value at maturity (bank discount rate x time remaining x MATURITY value)
3) Compute amount paid by bank (maturity value - banks discount or Step 1 - Step 2)

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15
Q

FOB Shipping Point

A

Title passes when goods are given to carrier (ex. UPS). Buyer pays shipping which is added to cost of inventory (aka CAPITALIZE)

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16
Q

FOB Destination

A

Title passes when the buyer receivers the goods from the carrier. Shipping is a selling expense to the seller

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17
Q

Consigned Goods

A

The consignor retains title of goods even though they are not in their possession. Included in consignors inventory

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18
Q

NRV

A

Selling price - Costs of Completion

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19
Q

Market Value

A

Middle value of replacement cost, market ceiling and market floor

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20
Q

Market Ceiling

A

NRV

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21
Q

Market Floor

A

NRV - Normal profit

22
Q

When to use lower of cost and NRV

A

FIFO / WA

23
Q

When to use lower of cost and market

A

LIFO / Retail Method

24
Q

COGS Formula for Periodic Inventory

A 
Beg inventory
\+Purchase
=Cost of goods available for sale
-Ending inventory (physical count)
=Costs of good sold
25
Q

Periodic vs Perpetual System differences

A

Periodic

1) 1 JE at time of sale ( Cash / Sales)
2) Purchases are recorded by debiting purchases
3) Used for weighted average method

Perpetual

1) 2 JE at time of sale (Cash / Sales, COGS / Inventory)
2) Debit inventory when purchases are made
3) Used for moving average method

26
Q

FIFO periodic vs perpetual

A

Will result in SAME ending inventory and cost of goods sold (LIFO will NOT)

27
Q

Theory of FIFO vs LIFO

A

In a period of rising prices FIFO will result in lower COGS, higher inventory and higher NI. LIFO will result in higher COGS, lower inventory and lower NI. LIFO is better for tax purposes. Also matches expenses and revenues better.

28
Q

Dollar-Value LIFO Price Index

A

End. Inv. at current year cost / End. Inv. at base year costs (C/B)
**Multiply BASE YEAR by index to get your dollar-value LIFO amount

29
Q

COGS percentage

A

1 - gross profit percentage. Multiply by Sales to get COGS

30
Q

Land Improvements

A

Capitalize!

Fences, Water systems, Landscaping

31
Q

Land Costs vs Building Costs

A

All costs up to excavation for the new building are land costs. Proceeds from sale of existing building reduce LAND COSTS.

Land cost: filling in a hole or leveling
Building cost: digging a hole for the foundation

32
Q

Equipment Repairs

A
  • Ordinary repairs should be expensed as repair and maintenance
  • Extraordinary repairs should be capitalized
33
Q

Rules about capitalized interest

A

1) Only capitalize interest on money actually spent (accumulated expenditures), not total amount borrowed
2) The amount of capitalized interest is the lower of actual interest cost and computed capitalized interest
3) Capitalize during construction period (after expenditures for the asset have been made - building decision made)
4) Disclose Interest cap and capitalized interest in financials

34
Q

Sum of the Years Digits Depreciation

A

(Cost - Salvage) x Remaining life / Sum of the years digits

SUM digits = n(n+1)/2

*This method front loads depreciation in the early years

35
Q

Double declining balance depreciation

A

2 x 1/N x (Cost - accumulated depreciation)

*Only method that ignores salvage value in annual calculation. Salvage value is used as the limitation to total depreciation

36
Q

Depletion

A

Unit depletion rate x Number of units extracted

*Unit depletion rate = Depletion base / Estimated recoverable units

**Depletion base = Cost to purchase property + development costs to prepare for extraction + Restoration costs - residual value
(R E A L)

37
Q

Commercial Substance

A

Future cash flows change as a result of the nonmonetary transaction. Gains and Losses are always recognized in full

38
Q

Nonmonetary transaction fair value assumption

A

The fair value of assets given up is assumed to be equal to the fair value of assets received, including any cash given or received in the transaction aka
Fair value given = fair value received

39
Q

How to find G/L in nonmonetary transaction

A

FAIR VALUE of asset given (old) - BOOK VALUE of asset given (old) [BV = Cost - AD]

40
Q

Exchanges Lacking Commercial Substance

A

4 possibilities of how to handle:

1) No cash is received = no gain recognized
2) Cash is paid = no gain (if less than 25%)
3) Cash is received = proportion of gain recognized (if less than 25%)
4) Cash is 25% or more of total consideration = gains and losses are recognized in full

  • Total consideration = FV of asset giving cash
  • The new machine value on the books is always a plug figure
41
Q

Internally developed intangible assets

A

Expensed, except successful legal defense, registration or consulting fees or design costs

42
Q

Patent amortization

A

Amortized over the shorter of its estimated life or remaining legal life

43
Q

Franchise Fees

A

Initial fee - intangible asset and amortize

Continuing fees - expense as incurred

44
Q

R&D Costs

A

EXPENSED, except

1) tangible assets that have alternative future uses (capitalize and depreciate)
2) R&D costs taken on behalf of others under contractual agreement (inventory)

45
Q

Items not considered R&D

A

1) Routine periodic design changes
2) Marketing research
3) Quality control testing

46
Q

Software Development Costs

A

Expense until technological feasibility (upon completion of a detailed program design), capitalize until the product is released for sale

*amortize by the greater of percentage of revenue (like step 2 in percentage of completion) and straight line

47
Q

Impairment of Intangible Assets (other than Goodwill)

A

Two step process:

1) Compare carrying amount to the sum of undiscounted cash flows
2) If carrying amount > undiscounted cash flows, impairment has occurred. Impairment loss is equal to fair value (or discounted cash flows) - carrying value
* If indefinite life, skip step 1

48
Q

Where do you report an impairment loss

A

Continuing operations before income taxes, unless the impairment loss is related to discontinued operations

49
Q

Impairment of assets held for use

A

Fair value - carrying value

1) Amortize/Depreciate new cost
2) Restoration not permitted

50
Q

Impairment of assets held for disposal

A

Fair value - carrying value + cost of disposal

1) No amortization/depreciation taken
2) Restoration permitted

FAR CPA Exam (9 decks)

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