TROUBLED FAR Flashcards
(16 cards)
What are installment sales?
Installment sale is when a company sells something now, but the customer pays over time.
Book: the entire sale = revenue
Tax: only the cash collected is taxed
Is DRD a permanent difference or a temporary difference?
DRD = permanent
If ownership is <20%, DRD = 50%
Ownership between 20-80%, DRD = 65%
Ownership > 80%, DRD = 100%
How do startup costs differ for book and tax purposes?
Book: startup costs expensed immediately
Tax: startup costs capitalized and amortized over time
Where is franchise operation revenue located in the financial statements?
Income from continuing operations
It is unrelated to intangible assets
What are criteria for classifying a crypto asset as an indefinite-lived intangible asset?
Crypto asset represent a digital value or right. The value or right of a digital asset is created or resides on a distributed ledger. These assets are classified as indefinite-lived intangible assets when criteria are met.
It doesn’t provide the asset holder with enforceable rights or claims to an underlying good.
How are contingent liabilities and gains from lawsuits recorded and disclosed on the balance sheet and in the footnotes?
Write for each of the situations:
- Probable loss
- Possible loss
- Probable gain
Probable loss: recorded on the balance sheet at the lowest amount in the estimated range. Full range and case disclosed in the footnotes.
Possible loss: not recorded on the balance sheet; disclosed in footnotes.
Probable gain: not recorded on the balance sheet; disclosed in the footnotes.
Which of the following is false about computing capitalized interest cost?
A. Weighted average interest rate is applied to excess expenditures beyond specific borrowings.
B. Capitalized interest cannot exceed interest cost incurred during the period.
C. Capitalized interest is based on the average accumulated expenditures.
D. Interest income from unused loan funds can offset capitalized interest.
FALSE - Interest income from the unused portion of a construction loan cannot be used to offset capitalized interest.
According to accounting rules, only interest expense, not interest income, is considered when capitalizing interest. Capitalized interest is based on interest incurred, not net interest (interest expense minus income).
At the inception of a finance lease, how should the residual value expected to be owed by the lessee at the end of the lease be recorded?
A. At its future value
B. At its present value
C. At its full dollar amount
D. Excluded from the lease liability
✅ B. At its present value
📘 Key Concept:
The expected residual value payment is treated like an additional lease payment and must be included in the initial lease liability at present value.
Does it differ between when loss/gain are recognized between: revenue recognized over time vs. revenue recognized point-in-time?
No - it doesn’t differ. Losses are recognized when they are in known.
What are the criteria for bill-and-hold arrangement, that all must be met?
- There must be an substantive reason for the arrangement (e.g., the customer requested the arrangement because it doesn’t have space for the product)
- The product has been separately identified as belonging to the customer
- The product is currently ready for transfer to the customer
- The entity cannot use the product or direct it to another customer
When is a contract modification treated as a new contract under revenue recognition rules?
A contract modification is treated as a new contract if:
(1) the scope increases due to the addition of distinct goods or services
(2) the contract price increases by an amount that reflects the stand-alone selling prices of the added goods or services
What is a performance obligation in the revenue recognition process?
A performance obligation is a promise to transfer a good or service to a customer.
It can be:
(1) Distinct good/service (or bundle), or
(2) Series of substantially the same goods/services transferred in the same manner
How are discounts allocated across performance obligations in a contract?
Discounts in a contract are allocated proportionally across all performance obligations based on their stand-alone selling prices
When is revenue and loss recognized for point-in-time contracts?
Revenue is recognized when the contract is complete.
Expected losses are recognized immediately in full, as soon as they are identified - not deferred until completion.
If a seller has an obligation or right to repurchase an asset, the transaction may not qualify as a sale and may instead be treated as a financing arrangement. This happens when two criteria are met:
(1) Repurchase price is equal or more than original selling price,
(2) Repurchase price is also more than expected market value at the time of repurchase
Are legal fees part of the purchase price of the stock?
Yes
