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1

What is the Three-Month Rule for securities

Highly liquid securities with ORIGINAL maturity dates of three months or less are treated as cash.

2

Bad Debts - Direct Write-Off Method

- No entry for bad debts until customer actually defaults.
- At default, the customer's account is written off.
- Theoretically weak, matching issue
- Only allowed if bad debt expense is immaterial

3

Income Statement Approach

- Matching Concept
- Estimate of bad debt expense is based on the income statement
- Allowance account balance has no bearing on the amount of adjustment

4

3 types of Investments

- Held-to-Maturity
- Trading Securities
- Available-for-Sale Securities

5

What is Held-to-Maturity Securities

- Debt securities only
- Mgt has both intent and ability to hold the securities to maturity
- Classified on BS based on maturity date
- Carry on balance sheet at amortized cost

6

What is Trading Securities

- Equity or Debt securities held primarily for sale in the near term
- Classified on BS as current
- Carried on BS at FMV
- Unreal holding gains/losses belong on the income statement

7

What is Available-for-sale Securities

- Debt or Equity securities not classified as either HTM or Trading
- Debt is classified on BS by maturity date
- Equity securities are classified by mgt's intent
- Carried on BS at aggregate FMV
- Unreal G/L go directly to SH equity (other comprehensive income)

8

What is Derivatives

Investment that derives its value from something else (asset or liability)

9

What is Hedging

Strategy of investing in a derivative to counterbalance the potential loss from another security or transaction

10

What is Non-Hedge Derivatives

- Record on BS as asset or liability at FMV
- Report unrealized G/L on IS

11

What is Fair Value Hedge

Protects against potential loss from the change in an asset's or liabilities's FMV
- Record on BS as asset or liability at fair market value
- Report unrealized holding G/L on IS

12

What is Cash-Flow Hedge

Protects against potential loss from an asset's or liability's future cash flow
- Record on BS as asset or liability
- Unreal G/L depend on whether hedge is effective
- Effective cash flow hedges counterbalance losses elsewhere
- Ineffective cash flow hedges are reported on the IS

13

What is Weighted Average

The weighted average cost per unit must be calculated. The ending inventory valuation is equal to the number of units in ending inventory multiplied by the WA cost per unit. Likewise, the cost of goods sold for the period is equal to the number of units sold multiplied by the WA cost per unit.

14

Weighted Average Cost Per Unit =

Cost of Goods /
Number of Units

15

FIFO

Assumes ending inventory contains the most recently acquired units

16

LIFO

Assumes ending inventory contains the oldest inventory layers

17

How to Calculate Cost of Goods Sold

Beginning Inventory
+ Net Cost of Purchases
= Goods available for Sale
- Ending Inventory
=Cost of Goods Sold

18

How does dollar value LIFO work?

Inventory accounted for in layers. Base year layer accounted for in base year prices, while current year layer accounted for in current prices.

19

What are the three criteria for prior period adjustments?

(1) effect of the adjustment is material to income from continuing operations; (2) adjustment can be identified with a prior period; and (3) amount of the adjustment could not be estimated in prior periods

20

How do you calculate the PV of a bond?

PV of one dollar at yield rate times face value of bond add that to face value times stated rate times PV of ord annuity of $1.00 at yield rate

21

For long-term Construction type contracts when are losses Recognized

Losses are recognized Immediately When Discovered, regardless of the method used for revenue recognition

22

When Should the costs of developing computer software for resale, lease, or licensing be capitalized under U.S. GAAP

After Technological Feasibility has been established and before the product is released for sale

23

Goodwill is defined as

The Excess of the Fair Value of a Subsidiary over the Fair Value of the Subsidiary's Net Assets

24

What is the accounting treatment for Costs of Maintaining or developing Goodwill



These costs can not be capitalized, they must be expensed

25

What are the 5 conditions for Revenue Recognition When the Right of Return Exists

The Sales Price is Substantially Fixed at the time of sale

The Buyer Assumes All Risks of Loss

The Buyer has paid consideration

The Product sold is substantially complete

The Amount of Future Returns can be Reasonably Estimated

26

The four Criteria that Must be Met Before Revenue can be recognized includes

Persuasive Evidence of an Arrangement Exists(Contract)

Delivery has occurred or services have been rendered

The Price is Fixed and Determinable

Collection is Reasonably Assured

27

Common Revenue Recognition Criteria under IFRS Include

Revenues and costs can be Reliably Measured
It is Probable that Economic Benefits will flow to the entity

28

What are the Criteria for revenue recognition under GAAP

Earned and Realized or Realizable

29

State Two Types of Foreign Currency Transactions

Operating Transactions such as importing exporting borrowing lending or investing activities

Forward Exchange contracts, which are agreements to exchange two different currencies at a specific future date and at a specific rate

30

Where are Translation Adjustments reported in the financial statements

Translation Gains and Losses are reported in OCI and are treated as Unrealized Gains and Losses