CPA EXAM – FAR COMPLETE SOLUTIONS
1.Cash: Money that is FREE and CLEAR and available to be spend in
current operations.
2.Not Cash:: Security deposits & bond sinking funds
3.Three-Month Rule: Highly liquid securities with ORIGINAL maturity
dates of three months or less are treated as cash.
4.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
5.Bad Debts - Allowance Method: Income Statement
Approach Balance Sheet Approach
6.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 adjustmen
7.Balance sheet reporting:: Accounts
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, Receivable Less: Allowance for bad debts
= Net realizable value of A/R
8.Balance Sheet Approach: - Estimate of bad debt expense is based
on the balance sheet
- Period sales have no bearing on the amount of adjustment
9.Written-off account later collected: Reverse write-off entry. Collect as
usual.
10.Assigning Accounts Receivable: - Assignment of A/R normally is
done with recourse
- Assignment usually is done without notification to customers
11.Factoring Accounts Receivable: - With or without recourse.
12.Pledging A/R: - Use receivables as security for a loan
- Requires footnote disclosure
13.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.
14.Investments: - Held-to-Maturity
- Trading Securities
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1.Cash: Money that is FREE and CLEAR and available to be spend in
current operations.
2.Not Cash:: Security deposits & bond sinking funds
3.Three-Month Rule: Highly liquid securities with ORIGINAL maturity
dates of three months or less are treated as cash.
4.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
5.Bad Debts - Allowance Method: Income Statement
Approach Balance Sheet Approach
6.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 adjustmen
7.Balance sheet reporting:: Accounts
1/
13
, Receivable Less: Allowance for bad debts
= Net realizable value of A/R
8.Balance Sheet Approach: - Estimate of bad debt expense is based
on the balance sheet
- Period sales have no bearing on the amount of adjustment
9.Written-off account later collected: Reverse write-off entry. Collect as
usual.
10.Assigning Accounts Receivable: - Assignment of A/R normally is
done with recourse
- Assignment usually is done without notification to customers
11.Factoring Accounts Receivable: - With or without recourse.
12.Pledging A/R: - Use receivables as security for a loan
- Requires footnote disclosure
13.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.
14.Investments: - Held-to-Maturity
- Trading Securities
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