CPA Exam - FAR with 100% correct answers

Cash Money that is FREE and CLEAR and available to be spend in current operations. Not Cash: Security deposits & bond sinking funds Three-Month Rule Highly liquid securities with ORIGINAL maturity dates of three months or less are treated as cash. Bad Debts - Direct Write-Off Method - 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 Income Statement Approach Balance Sheet Approach 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 Balance sheet reporting: Accounts Receivable Less: Allowance for bad debts = Net realizable value of A/R Balance Sheet Approach - 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 Reverse write-off entry. Collect as usual. Assigning Accounts Receivable - Assignment of A/R normally is done with recourse - Assignment usually is done without notification to customers Factoring Accounts Receivable - With or without recourse. Pledging A/R - Use receivables as security for a loan - Requires footnote disclosure Noninterest-Bearing Notes APB 21 requires interest to be inputed - When a note is made under customary trade terms and is due in less than one year, there is no requirement to impute interest to that note. Investments - Held-to-Maturity -