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59 Cards in this Set
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Working Capital
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Current assets - Current liabilities |
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Current ratio |
current assets/current liabs |
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Quick ratio |
(cash + net receivables + ST investments)/current liabs |
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Current assets |
those resources that are reasonably expected to be realized in cash, sold, or consumed (prepaid items) during the normal op cycle of a business or 1 yr, whichever is longer |
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Current liabs |
Obligations whose liquidation is reasonably expected to require the use of current assets or the creation of other current liabs |
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When can a short-term obligation be included in noncurrent liabs? |
If the enterprise intends to refinance the debt on a long-term basis & the intent is supported by the ability to do so as evidenced by: -actual refinancing prior to the issuance of the FS -Existence of a noncancelable financing agreement from a lender having the financial resources to accomplish the refinancing |
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Cash |
includes both currency & demand deposits w/ banks &/or other financial institutions |
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Cash equivalents |
includes short-term, highly liquid investments that are both readily convertible to cash & so near their maturity when acquired by the entity (90 days or less from date of purchase) that they rep insignificant changes in value
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Direct Write-Off method for uncollectible accts |
Dr. Bad debt expense Cr. A/R weaknesses: bad debts are not matched to sales & A/R are overstated. Not GAAP |
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Allowance Method for uncollectible accts |
To provide for: Dr Bad debt exp Cr Allowance for uncollectible accts To write off: Dr Allowance for uncollectible accts Cr A/R strengths: matches bad debts w credit sales. A/R fairly stated. Required by GAAP. |
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Methods for estimating uncollectible accts |
-% of creidt sales -% of A/R at YE -Aging of A/R at YE |
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Factoring w/ recourse |
factor may return the acct to the co if it proves to be uncollectible. Potential liab & risk of loss remains w/ the co |
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Factoring w/out recourse |
factor assumes the risk of loss if the acct is uncollectible
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Control of a financial asset is considered surrendered if... |
1. the transferred assets have been isolated from the transferor 2. the transferee has the right to pledge or exchange the assets; and 3. the transferor does not maintain control over transferred assets under a repurchase agreement |
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Accounting for transfer if control of a financial asset is surrendered |
No Continuing Involvement: recorded as a sale w/ appropriate reduction in receivables & recognition of any gain or loss Continuing Involvement: -No retained interest-->recorded as a sale using the financial-components approach -Yes retained interest-->carried on the books of transferor & allocate BV based on relative value of all transferred assets at the date of transfer |
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Accounting for transfer if control of a financial asset is NOT surrendered |
-Account for as a secured borrowing w/ pledged collateral
-Recognize the appropriate asset/liab amounts & interest rev/exp amounts |
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At what value should non-interest bearing promissory notes be recorded? |
PV of all future payments req'd by the note. The payments should be discounted at the market interest rate |
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Discounting notes receivable WITH recourse |
the holder remains contingently liable |
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Discounting notes receivable WITHOUT recourse |
the holder assumes no future liab after discounting
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"discounting a note" |
1. compute maturity value (remember to include interest to maturity) 2. Compute the "discount" (remember to use maturity value) 3. Get proceeds by subtracting discount from maturity value 4. Compute interest income as diff b/w proceeds & face of note |
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For FOB destination, title passes... |
when rec'd by buyer |
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For FOB shipping point, title passes... |
when given to a common carrier
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For COD, title passes... |
when rec'd & paid for by buyer
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For consigned goods, title passes |
when sold to a 3rd party by consignee
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"market" for US GAAP LCM method |
generally means current replacement cost, provided the current replacement cost does not exceed the market ceiling or fall below the market floor. -Ceiling: NRV (estimated net selling price less completion & disposal costs) -Floor: NRV minus normal profit margin |
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NRV for IFRS lower-of-cost-or-NRV method |
net selling price less completion & disposal costs |
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period inventory method |
-the qty of inventory is determined only by physical count -end inventory is physically counted & priced |
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perpetual inventory method |
-inventory is updated for each purchase & for each sale -keeps a running total of inventory balances. |
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Cost flow methods for inventory |
Specific identification FIFO LIFO (unit & dollar value) Averaging WA (associated w periodic) Moving avg (associated w perpetual) Gross profit Retail Conventional retail Cost retail FIFO/Cost LIFO/Cost Dollar value LIFO/Cost |
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Retail inventory methods |
-Conventional retail -Cost retail -FIFO/Cost -LIFO/Cost -Dollar value LIFO/Cost |
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When are losses on firm purchase commitments recognized? |
in the period when the price declines. |
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JE for loss on firm purchase commitment |
Dr Estimated loss on purchase commitments Cr Estimated liability on purchase commitment |
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Consignment arrangement |
Consignor gives goods to consignee for sale to 3rd parties. |
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how are the consigned goods carried on the parties' B/S?
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Title to goods remains w the consignor; therefore the consigned items stay on B/S of the consignor
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During periods of rising prices, which method results in lower ending inventory & NI? LIFO or FIFO? |
LIFO (Note: prohibited under IFRS) |
LIFO=lowest
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Capitalizable costs for acquisition of equipment |
purchase price, freight-in, installation, testing, taxes, less any cash discounts allowed.* *If equipment or building is constructed by co, capitalized cost could include construction period interest |
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Capitalizable costs for acquisition of building |
purchase price, deferred maintenance, alterations, improvements, architect's fees.* *If equipment or building is constructed by co, capitalized cost could include construction period interest |
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Fixed-asset carrying value under US GAAP |
carrying value=historical cost - accum deprec - impairment |
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Fixed-asset carrying value under IFRS |
Carrying value= historical cost - accum deprec - impairment OR Revaluation model: carrying value=FV on revaluation date - subsequent accum deprec - subsequent impairment -Revaluation gains are reported in OCI -Revaluation losses are reported on I/S |
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ordinary repairs |
expensed as repair & maint. They do NOT increase the life or utility of the asset. |
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extraordinary repairs |
they either increase the life or utility of the asset. If it...
increases the life of the asset-->reduce accum deprec. increases the utility of the asset-->capitalize to the fixed asset acct. |
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Costs to be capitalized as land
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-acquisition price
-closing costs, such as real estate broker commissions, legal fees, escrow fees, title guarantee insurance -any mortgages, liens, or encumbrances on the land which the buyer assumes -preparation costs, such as surveying costs, leveling costs, tree removal -cost of razing an existing building, in getting land into condition for intended use -improvements w indefinite life -Less: proceeds from sale of assets on land Note: excavating costs for a building & cost of improvements w a definite life are not included in land |
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Investment property under IFRS |
land &/or buildings held to earn rental income or for capital appreciation. Reported using one of 2 models: 1. Cost model: carrying value = historical cost - accum deprec 2. FV model: reported at FV & not depreciated. Gains & losses from FV adjs are reported on the I/S |
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Rules concerning capitalizing interest |
-Only capitalize interest on money actually spent, not on amount borrowed -The amount of capitalized interest is the lower of: -actual interest cost incurred, or -computed capitalized interest (avoidable interest) |
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For capitalizing interest, when does the capitalization period begin? |
when 3 conditions are met: -expenditures for the assets have been made -activities that are necessary to get the asset ready for its intended use are in progress -interest cost is being incurred Ends when the asset is substantially complete & ready for its intended use |
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SL depreciation |
(cost - salvage) / useful life |
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Sum-of-the-Yrs' Digits depreciation
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(cost - salvage) x (yrs remaining) / (sum of yrs) sum of years = n(n+1)/2 |
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Double-Declining Balance depreciation
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2 x SL rate x NBV of asset* *no deduction for salvage to determine depreciable base. Depreciate down to salvage value |
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Units of Production depreciation
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(cost - salvage) / estimated hours x actual hours for period
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Depreciation under IFRS |
Depreciation method used should match the expected pattern of fixed asset consumption. Component depreciation is required |
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Depreciation under US GAAP |
Depreciation method DOES NOT NEED TO MATCH the expected pattern of fixed asset consumption. Component depreciation is NOT required. |
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Depletion on natural resources |
[(Residual value (subtract) + Extraction/development cost + Anticipated restoration cost + Land purchase price) / estimated recoverable units] x units extracted |
"REAL property" |
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Assets subject to the impairment test |
-Long-lived asset, specific identifiable intangibles, & related goodwill to be held & used -Long-lived assets & specific identifiable intangibles held for disposal -Certain assets of a rate-regulated entity Note: the test must be done at least annually |
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Impairment test for recoverability under US GAAP
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If the sum of the UNDISCOUNTED expected FCFs is less than the carrying amount, an impairment loss needs to be recognized |
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Impairment under US GAAP |
impairment loss exists if total undiscounted CFs are less than carrying value Impairment loss = FV - carrying value |
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Impairment under IFRS |
impairment exists if the carrying value of the fixed asset exceeds the higher of: FV - cost to sell OR value in use (PV of FCF) |
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Reporting impairment loss in the FS |
as a component of income from continuing ops before income taxes the carrying amount of the asset is reduced. |
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Restoration of impairment losses under US GAAP |
Permitted for assets held for sale. Prohibited for assets held for use. |
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Restoration of impairment losses under IFRS |
Always permitted
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