CPA EXAM - FAR QUESTIONS AND ANSWERS
100% CORRECT!!
, Cash - ANSWER Money that is FREE and CLEAR and available to be spend in current
operations.
Not Cash: - ANSWER Security deposits & bond sinking funds
Three-Month Rule - ANSWER Highly liquid securities with ORIGINAL maturity dates of
three months or less are treated as cash.
Bad Debts - Direct Write-Off Method - ANSWER - No entry for bad debts until customer
actually defaults.
- At default, the cutomer's account is written off.
- Theoretically weak, matching issue
- Only allowed if bad debt expense is immaterial
Bad Debts - Allowance Method - ANSWER Income Statement Approach
Balance Sheet Approach
Income Statement Approach - ANSWER - Matching Concept
- Estimate of bad debt expense is based on the income statement
- Allowance account balance has no bearing on the amount of adjustment
Balance sheet reporting: - ANSWER Accounts Receivable
Less: Allowance for bad debts
= Net realizable value of A/R
Balance Sheet Approach - ANSWER - Estimate of bad debt expense is based on the
balance sheet
- Period sales have no bearing on the amount of adjustment
Written-off account later collected - ANSWER Reverse write-off entry. Collect as usual.
Assigning Accounts Receivable - ANSWER - Assignment of A/R normally is done with
recourse
- Assignment usually is done without notification to customers
Factoring Accounts Receivable - ANSWER - With or without recourse.
100% CORRECT!!
, Cash - ANSWER Money that is FREE and CLEAR and available to be spend in current
operations.
Not Cash: - ANSWER Security deposits & bond sinking funds
Three-Month Rule - ANSWER Highly liquid securities with ORIGINAL maturity dates of
three months or less are treated as cash.
Bad Debts - Direct Write-Off Method - ANSWER - No entry for bad debts until customer
actually defaults.
- At default, the cutomer's account is written off.
- Theoretically weak, matching issue
- Only allowed if bad debt expense is immaterial
Bad Debts - Allowance Method - ANSWER Income Statement Approach
Balance Sheet Approach
Income Statement Approach - ANSWER - Matching Concept
- Estimate of bad debt expense is based on the income statement
- Allowance account balance has no bearing on the amount of adjustment
Balance sheet reporting: - ANSWER Accounts Receivable
Less: Allowance for bad debts
= Net realizable value of A/R
Balance Sheet Approach - ANSWER - Estimate of bad debt expense is based on the
balance sheet
- Period sales have no bearing on the amount of adjustment
Written-off account later collected - ANSWER Reverse write-off entry. Collect as usual.
Assigning Accounts Receivable - ANSWER - Assignment of A/R normally is done with
recourse
- Assignment usually is done without notification to customers
Factoring Accounts Receivable - ANSWER - With or without recourse.
