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63 Cards in this Set
- Front
- Back
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Financially what does recording Bad Debts Exp do?
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Decreases NI, Net A/R, current assets & working capital.
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What's the PV of a note issued for cash?
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It's equal to the cash proceeds received.
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What are two parts of factoring?
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1 With recourse
2 Without recourse |
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How do you record non-int bearing notes or "other" notes?
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At PV or value of the property, good or service exchanged, whichever is more clearly determinable.
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What is a non-int bearing note?
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Interest is included in the face amount.
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How do you record a note that is exchanged for cash & promise to provide merchandise at a discount?
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AT PV. The diff btw the FV & cash payments is recognized as interest revenue over the contract life and is recorded as part of the cost of the related merchandise.
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What are the 3 methods of measuring impairment?
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1 PV Method - PV of future principal & int cash inflows.
2 Market Price Method - loans observable mkt price 3 FV of collateral method - FV of collateral pledged, if the loan is collateral dependent, if foreclosure use this method. |
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Where are changes in FV reported for Trading Securities?
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Current Inc
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What kind of equity securities are usually treated using the cost method?
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Trading & AFS
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How are all securities initially recorded?
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At Cost
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What is a financial instrument?
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Cash, evidence of an ownership interest in an entity or contract that does both: obligation & right
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How are dividends received accounted for in Trading or AFS Securities?
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In current income
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Where are changes in FV reported for AFS securities?
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OCI
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When a company owns stk in another corp, what are the 3 methods to account for the investment?
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1. Cost
2. Equity 3. Consolidated |
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When disposing an equity method investment should you recognize a G or L?
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Yes. Diff btw the carrying amount of the investment and its sale price.
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When changing from equity method to cost method, whats the cost basis?
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Carrying amount of the investment at the date of the change.
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When is the only time a loss in value of an equity method investment should be recognized?
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If other than temporary
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HTM are what kind of securities?
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Debt
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What is a liquidating dividend?
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Dividend distributions in excess of earnings subsequent to acquisition.
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A valuation allowance account is used for unrealized holding G/L's for what kind of securities?
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Trading or AFS
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When are realized G/L's recognized under the cost method?
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Upon disposal to the extent that the proceeds received differ from the carrying amount of the investment.
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What's the JE for dividend declared under the equity method?
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Dr Receivable
Cr Investment |
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Do you have to allocate the carrying amt of an investment when stk rights are received?
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Yes. Btw the investment and the rights. Based on the ratio of the market value of the stk & the market value of the rights.
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Do you ever adjust the investment acct for earnings or dividend distributions under the cost method?
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No. except for liquidatiing dividend
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What's the JE for recognizing share of income under the equity method?
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Dr. Investments
Cr. Inv Inc |
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Do changes in the market value of the investees stk affect the investment under the equity method?
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No
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Is the equity or cost method more consistent with accrual accounting?
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Equity
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In lump sum purchases, how various securities priced?
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Relative to their FV's.
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Is accrued interest part of the cost of debt securities?
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No
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Are HTM securities adjusted for unrealized holding G & L's?
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No. But FV must be disclosed!!
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What's the credit side of a JE to record the FV increase in an AFS security and where is it on the I/S?
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Unrealized holding gain & its in OCI
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How is a decline in FV that is other than temporary accounted for under AFS or HTM?
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Write the investment down to FV & a realized loss is recognized in current earnings.
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When changing from the cost method to the equity method do you adjust prior periods?
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Yes
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If a partial disposal of an Equity Method investment makes it less than 20%, should you stop accruing your share of the investee income?
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Yes. Change in the method of accounting must be made to the cost method.
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Trading & AFS Securities can be either what type?
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Equity or Debt
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How are HTM securities reported?
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Amortized cost
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If you transfer a security from the trading category should any previously recognized unrealized holding G or L be reversed?
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No
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what's the credit side of a JE to record the FV increase in a Trading Security and where is it on the I/S?
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Unrealized holding gain & it's in current income.
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What is the account called that holds adjustments in FV for Trading & AFS securities?
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Market Adjustment Account
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How are debt securities initially recorded?
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At cost
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When determining the G or L on a security sale, do we care about market adjustments or previously recognized unrealized losses or recoveries?
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No
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What are reclassification adjustments when selling securities?
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They are made to avoid double counting in regular income G or L's realized previously included in OCI as unrealized G or L's.
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How are changes in FV of non-hedge derivatives reported?
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G or L's in earnings.
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What are derivatives on the f/s?
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A or L, FV is used to measure them.
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What's the main diff btw Trading & AFS for accounting purposes?
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Change in FV is either recorded in income or OCI.
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What are the 2 methods of estimating uncollectible receivables?
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1 Percentage of sales method.
2 Percentage of outstanding receivables method. |
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Why are derivatives assets or liabilities?
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Because they are rights & obligations.
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When you sell a debt or equity security what is the realized G or L?
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Difference between the net proceeds & the cost or unamortized cost of the security . NOT FV!!!!
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Can Trading, AFS or HTM all be considered debt securities?
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Yes
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What is hedging?
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A risk management strategy to protect against the possibility of loss, such as from price fluctuations.
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What's a notional amount?
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A number of currency units, shares, bushels, pounds or other units.
sometimes called a face amount in some contracts. |
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Who is responsible for shipping charges when shipped FOB shipping point?
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The Buyer
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Example of a trade discount?
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Trade Disc = 20%, 10%
List Price $100 $100-20%($100)=$80 $80-10%($80)=$72 |
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Why does a reinstatement of a written of A/R cause an in & out of A/R entry? 2 JE's
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Reinstatement
AR Allowance Payment Cash AR |
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Who is responsible for shipping charges when shipped FOB destination?
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The Seller
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Describe the 3 types of Hedging Derivatives?
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1 FV Hedge - a hedge of the exposure to changes in FV of an A or L, or an unrecognized firm commitment.
2 CF Hedge - " " variable cash flows on an existing, recognized A or L. 3 Foreign Currency Hedge |
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How are unrealized G or L's from changes in FV of hedge derivatives accounted for?
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Depends on which of the following 3:
1 FV Hedge - reported in earnings 2 Cash Flow Hedge - effective portion reported in OCI, ineffective portions reported in earnings 3 Hedge of a Net Inv in Foreign Operation - same as 2 |
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What's a derivative instrument?
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Has 3 Characteristics
a. Underlying & Notional Amount or Payment Provision b. Zero or small investment c. Net Settlement |
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When you transfer a security into the trading category, what should you do with any unrealized holding G or L?
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Recognize in earnings immediately!
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If a debt security is transferred from AFS to HTM, what should you do with any unrealized holding G or L?
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Report in OCI account & amortize over the security's remaining life.
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What are net proceeds received from a sale?
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Gross selling price of the security less brokerage commissions & taxes.
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When you transfer debt security from HTM to AFS, what should you do with any unrealized holding G or L?
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Recognize in OCI
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What's an underlying?
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It's a specified int rate, security price, commodity price, foreign exchange rate, index of prices or rates or other variable.
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