acct 327 exam 2
4 uses for bank reconciliations
(1) to determine whether the bank account and the company's cash balance are in agreement after taking into account unrecorded items, (2) to isolate recording errors and other problems in the bank's records or the company's recording system, (3) to establish the correct ending cash balance, and (4) to supply information for adjusting entries
The FV-NI method applies to which 2 things:
(1) trading securities and (2) debt investments accounted for using the fair value option
Most companies use __ year as the time period for classifying items as current or long-term because either the operating cycle is less than that time period or the length of the operating cycle is difficult to measure reliably.
1
4 categories of restricted cash and compensating balances
1. Cash held as collateral, cash held by a third party, and escrow accounts 2. Dividend funds and payroll funds 3. Bond sinking fund: Cash accumulated in a fund to pay toward bond retirement 4. Legally restricted deposits at a lender's institution (compensating balance)
2 key question to ask when adjusting the historical cost loss rate to an expected credit loss rate:
1. Do the historical loss rates reflect current and reasonable and supportable forecasts? 2. Does the historical loss rate for the current category reflect the risk of loss in the future, even though amounts are not overdue at this time
4 categories of cash equivalents
1. US Treasury obligations, short-term T-bills. 2. Commercial paper: (short-term unsecured notes issued by large corporations). 3. Money market funds: (certain mutual funds with investments in cash equivalents). 4. Certificates of deposit.
4 categories of cash:
1. coins, currency, 2. petty cash funds, 3. deposits with financial institutions, 4. cashier's checks, certified checks, and money orders.
3 journal entry events when factoring AR
1. credit sale 2. sell AR to 3rd party and receive cash 3. pay cash
4 journal entry events for pledging/assigning AR
1. credit sale 2. take out a loan using AR as collateral 3. collect cash: AR xx Cash xx Cash xx NP xx 4. repay loan: Cash xx A/R xx NP xx Int exp xx Cash xx
how to account for certain activities using the FMV method of equity securities 1. purchase 2. dividend receipt 3. mark to market 4. sale
1. investment xx cash xx 2. cash xx dividend revenue xx 3. same as acct for TS bonds 4. cash xx investment xx plug for realized G/L xx
how to account for certain activities using the equity method of equity securities 1. purchase 2. dividend receipt 3. net income of other company 4. mark to market 5. sale
1. investment xx cash xx 2. cash xx investment xx 3. investment xx investment rev xx 4. NONE 5. cash xx investment xx plug for realized G/L xx
if there is <20% ownership, 1. assume: 2. accounting treatment:
1. no significant influence 2. FMV method
if there is >50% ownership, 1. assume: 2. accounting treatment:
1. unrestricted control-controlling interest 2. consolidated financial statements
companies can choose to present their AR in 2 ways:
1.without presenting anticipated discounts (gross method) 2. netting out anticipated discounts on sale (net method)
What does 2/10, n/30 mean?
2% discount if paid within 10 days, otherwise net amount due within 30 days
It is generally presumed that an investor with an ownership interest of less than ___% of the voting stock of the investee does not have significant influence over the investee.
20
why do we not write-off the SFVA account at sale
A journal entry can only contain a realized gain/loss or an unrealized gain/loss; not both. The sale JE involves a realized gain and SFVA accounts can only be changed by unrealized gains or losses. Generally companies will still own other securities that share this contra-account and the changes will wash out when those securities are marked-to-market.
__________ ________ method is relevant only if a security is actually held to maturity
Amortized cost
A company can elect to formally transfer restricted retained earnings into a separate account-- _________ ________ __________. This is identified separately in the SHE section of the balance sheet.
Appropriated Retained Earnings
accounting equation
Assets = Liabilities + Stockholders Equity
roll forward formula for CV
CVnew = CVold +int - cash
how is deposit in transit determined
Compare the company's record of deposits with the deposits listed in the bank statement. Deposits late in the period reflected on the book but not on the bank balance are added to the bank balance.
what gets added to balance per bank
Deposits in transit, outstanding checks, errors
how do you calculate PMT for non-interest bearing annuities
FcV/n
Subsequent measurement of _____ securities ignores changes in the fair value of the securities. Therefore, no adjustment is made to the carrying value of the security over the life of the investment for changes in fair value.
HTM
balance sheet presentation of equity investments using the FMV method
Investment +/- SFVA --------------------------- Net Investment
bond sinking fund is what account
LT investment
cash surrender value-life insurance is what account
LT investment
land investment is what account
LT investment
lease obligation is what account
LT liabilities
______ __________ __________, which is gross AR less the ADA, is an estimate of the net realizable value of the receivables or the amount expected to be collected. After an allowance is established, specific accounts are later written off.
Net accounts receivable
Certain debt investments are measured at fair value with adjustments reflected in other comprehensive income: FV-_____
OCI
____________ are supported by sales invoices or other documents rather than by formal written promises, and they include amounts expected to be collected either during the year following the balance sheet date or within the company's operating cycle, whichever is longer.
Receivables
The ________ account enables the accounting system to maintain a record of the amortized cost of the investment and the net amount of increase or decrease in carrying value recognized over time for trading securities.
SFVA
2 journal entries to record an estimate of future returns
Sales returns xx Refund liability xx Invenory-estimated returns xx COGS xx
Under the ________ method, an adjustment to the ADA is recorded as an adjusting entry at period-end as a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.
allowance
There are 2 types of annuity according to the timing of the payments:
an ordinary annuity and an annuity due
Debt investments that are not classified as trading securities or held-to-maturity securities are classified as:
available-for-sale securities (AFS)
Common examples of non-current liabilities:
bonds payable, long-term notes payable, pension liabilities, other long-term liabilities
inventory is what account
current asset
The equivalent interest rate is called the _______ rate or the annual yield.
effective
an amount later than the starting point of an investment
future value
Debt investments accounted for at amortized cost
held-to-maturity securities
Liabilities are classified and generally reported based on time to _______
maturity
for equity method of equity securities, do you adjust equity securities to fmv
no
The equity method is sometimes called the _________________________ method because it results in the same effect on earnings and retained earnings that would result from consolidating the financial statements of the investor and investee, but does so without combining both companies' financial statements, as in complete consolidation.
one-line consolidation
an amount earlier than the end-point of an investment
present value
goods purchased for use in the manufacture of inventory
raw material
manufacturers have 3 categories of inventory:
raw material, work-in-process inventory, finished goods
At the point of revenue recognition, if credit is extended in the place of cash, a ________ is recorded.
receivable
Cash restricted for a particular purpose and not available for general use including legal restrictions and voluntary management restrictions.
restricted cash
Cash restricted for a particular purpose that is not available for general use.
restricted cash
A company's accumulated net earnings, less dividends paid out, since the company's inception.
retained earnings
In a ______, the owner derecognizes the receivables and records a gain or loss because the receivables are no longer an asset.
sale
journal entry for a credit return
sales R&A xx accounts receivable xx
price reductions made to encourage customers to keep merchandise not meeting their preferences or having minor damage
sales allowances
journal entry when sales discounts and returns are received for AR from factoring without recourse
sales discount (or return) xx receivable from factor xx
Companies sometimes offer a cash discount, also called _______ __________, for payment received within a designated period.
sales discounts
To obtain cash, companies frequently sell accounts receivable or use them as collateral for loans (also referred to as _________ ____________). The company providing the cash is usually a finance company or bank.
secured borrowings
The bond's _______ ________ is equal to the present value of the periodic cash interest payments (annuity) plus the present value of the return of principal.
selling price
what gets added to balance per book
service charges, NSF checks, error corrections
When the note term is 1 year or less, the note is classified as _________. Otherwise, the note is classified as long-term.
short-term
what is the TI-84 shortcut to find the interest for the 1st compounding period
sigma int (1,1)
Ic
stated rate
totals on the balance sheet illustrate that what is in balance
the accounting equation
If the dollar amount at the end of an investment period (FV) is known, the amount of money needed at the start of the investment period (present value) can be determined, as long as which 2 things are known?
the interest rate and number of interest compounding periods
There are 2 approaches in computing PV in order to estimate the fair value of an asset or liability:
the traditional approach and the expected cash flows approach
what does year to date mean
the year up to the date given
By adjusting trading securities to fair value on the reporting dates instead of waiting until the asset is sold, financial statement users have more ________ information to assess the performance of the company's investment strategies.
timely
generally reflects active and frequent buying and selling with the objective of generating profits on short-term changes in price.
trading
Debt securities that are bought and held primarily to be sold in the near term
trading securities
The objective of providing more homogenous groupings of accounts is to provide more _______ info to financial statement users.
useful
The seller has surrendered control if each of the following 3 conditions are met:
1. Receivables have been isolated from the seller 2. Buyer has the right to pledge or exchange the receivables 3. Seller is not obligated to repurchase receivables from the buyer of receivables.
journal to reclassify AR with pledging/assigning
AR Assigned xx AR xx
Which account? IOUs
ar
which account? travel advances to be paid and collected through employees' salaries
ar
the financial statement that shows the balances of individual accounts making up assets, liabilities, and stockholders' equity at a specific point in time
balance sheet
In the statement of ______ _______, cash inflows from investing activities include receipts from the sale of debt securities of other entities and cash outflows from investing activities include payments to acquire debt securities of other entities.
cash flows
2 methods for writing off uncollectible A/R
direct write off and allowance
what could the market rate also be referred to as
effective rate or yield
Selling (or ________) receivables transfers ownership of the receivables to the factor (buyer of the receivables).
factoring
Debt and equity securities are ______ assets
financial
In cases where compensating balance arrangements exist but are not agreements which _______ restrict the use of cash amounts shown on the balance sheet, describe in the notes to financial statements these arrangements and the amount involved, if determinable.
legally
Owner of the asset
lessor
journal entry if/when ABC collects cash from customers for AR from factoring without recourse
no entry made
t or f: HTM investments are not reported net of SFVA
true
t or f: Restricted cash items, including compensating balances, are typically reported separately from cash and cash equivalents.
true
t or f: Return privileges are frequently part of a comprehensive marketing program aimed to maintain competitiveness.
true
t or f: Revenue is only recognized with a declaration of a dividend. Cash is debited and dividend revenue is credited.
true
t or f: SFVA can be an asset or a contra-asset
true
t or f: Since the TS investments are actively managed and expected to be bought and sold continually, the inclusion of unrealized gains or losses in income reflects the economic consequences of TS investments in a timely manner.
true
t or f: Some transactions of a company result in items that are not classified as cash or cash equivalents, although they are related to cash. For example, a company may advance cash to employees for travel or other business expenses. Such an amount would not be considered cash for classification purposes but would be considered a current asset (typically a prepaid expense). Or, a company may receive checks from customers that are postdated for a later time. Such checks would not be available for immediate deposit so should be classified as accounts receivable.
true
t or f: T-bills are very stable and risk free
true
t or f: The amount of current liabilities is due in a year or the normal operating cycle.
true
t or f: when solving a problem with a portfolio of stocks, we should consolidate each investment into one investment account
true
what are the 2 sets of journal entries to record the sale of bond investments intra-period
1) bring interest up to date: int rec xx int rev xx investment xx 2) record sale: cash xx int rec xx investment xx gain xx
2 Steps to a bank reconciliation
1. Reconciling items to the bank balance 2. Reconciling items to the book balance:
Although cash disbursement controls are tailored to each company's needs, certain common procedures apply:
1. Separate the responsibilities for cash disbursement documentation, check writing, check signing, check mailing, and record keeping 2. Except for internal cash funds (petty cash), make all cash disbursements by check 3. Develop tight controls and authorization procedures over the check authorization and signing procedures 4. Require adequate documentation and verification for checks or electronic payments 5. Supervise all cash disbursements and record-keeping functions
The following minimum procedures apply in most cash receipt situations:
1. Separate the responsibilities for handling cash, for recording cash transactions, and for reconciling cash balances. This separation reduces the possibility of theft and of concealment through false recording. 2. Assign cash-handling and cash-recording responsibilities to different persons to ensure an uninterrupted flow of cash from receipt to deposit. This control requires immediate counting, immediate recording, and timely deposit of all cash received. 3. Maintain close supervision of all cash-handling and cash-recording functions. This control includes both routine and surprise cash counts, internal audits, and daily reports of cash receipts, payments, and balances.
4 examples where a company may not be able to exercise significant influence even though they own more than 20% interest:
1. opposition by the investee challenges the investor's ability to exercise influence 2. the investor and investee sign an agreement under which the investor surrenders significant rights as a stockholder 3. majority ownership of the investee is concentrated among a small group of stockholders who operate the company without regard to the views of the investor 4. the investor is unsuccessful in attempts to obtain representation on the investee's board of directors
there are 3 different methods for obtaining cash from AR before customers pay
1. pledging/assigning 2. factoring with recourse 3. factoring without recourse
2 steps to bank reconciliation
1. reconciling items to the bank balance 2. reconciling items to the book balance
if there is 20%-50% ownership, 1. assume: 2. accounting treatment:
1. significant influence 2. Equity method
3 conditions to see if factoring of AR is a sales transaction vs a secured borrowing
1. the transferred assets have been isolated from the transferor 2. the transferees have obtained the right to pledge or exchange either the transferred assets or beneficial interests in the transferred assets 3. the transferor does not maintain effective control over the transferred assets through an agreement to repurchase or redeem them before their maturity
The _____ step in accounting for investments is to determine the method to account for debt and equity securities, which will have a direct impact on both recording of transactions and financial statement presentation. Determining which method to use to account for debt investments requires an analysis of both the intent and the ability of the investor to trade or hold the securities until maturity. In the case of equity securities, extent of influence or control over the investee is important.
2nd
Generally, only investments with original maturities of ___ months or less qualify under cash equivalents
3
syntax for FV of an annuity due in excel
=FV(RATE,NPER,PMT,PV,TYPE). '1' is required for TYPE.
syntax for FV of an ordinary annuity in excel
=FV(RATE,NPER,PMT,PV,TYPE). No entry is required for TYPE.
syntax for PV of an annuity due in excel
=PV(RATE,NPER,PMT,FV,TYPE). '1' is required for TYPE.
syntax for PV of an ordinary annuity in excel
=PV(RATE,NPER,PMT,FV,TYPE). No entry is required for TYPE.
The _____ account is analyzed and adjusted at reporting dates through an adjusting journal entry to report net accounts receivable at the amount that the company expects to collect.
ADA
when a company is confident that hey will not receive cash for a receivable, they should write off the receivable in its amount with the associated _____ entry.
ADA
journal entry to write off an account receivable
ADA xx AR xx
At the time of sale of ____ securities, the company records a realized gain or loss included in other income in the income statement. The realized gain or loss is the difference between the cash received upon sale of the security and the amortized cost of the investment. Also, the corresponding fair value adjustment in AOCI is eliminated at the time of sale or as part of a period-end adjustment. Disclosure of the amount reclassified out of AOCI and into net income is required for financial reporting. The amount of the reclassification adjustment from AOCI to net income must equal the realized gain or loss on the sale.
AFS
Instead of recognizing investments at amortized cost, the amortized cost amount is adjusted to fair value. The resulting unrealized gain or loss is recognized in other comprehensive income. The FV-OCI method applies to ________ securities.
AFS
Investments in _____ investments are often made for purposes other than profiting from increases in security prices, such as being part of a risk management strategy. The investments and the liabilities of the investor interact to reduce the exposure of the investor to interest rate risk. Including in earnings only the unrealized gain or loss on the investment and not that on the related liabilities may result in misleading information in the financial statements about the impact of economic events on the overall financial condition of the company. Therefore, to avoid volatility to earnings, the gain or loss is instead included in AOCI, a separate component of SHE.
AFS
The _____ category includes debt securities expected to be held for an unspecified period of time, such as those that might be sold to meet liquidity needs or to implement a company's risk management program.
AFS
5 examples of SHE
APIC, treasury stock, retained earnings, AOCI, common stock
journal entry when collecting on a previously written-off account
AR xx ADA xx Cash xx AR xx
2 journal entries for sale of merchandise on account
AR xx Sales rev xx COGS xx Inventory xx
journal entry for nsf checks
AR xx cash xx
bad debt expense journal entry
Bad Debt Expense xx Allowance for Doubtful Accounts xx
________ ________ are useful in that they provide information on a company's liquidity, financial flexibility, and solvency.
Balance sheets
_______ ___________ are used (1) to determine whether the bank account and the company's cash balance are in agreement after taking into account unrecorded items, (2) to isolate recording errors and other problems in the bank's records or the company's recording system, (3) to establish the correct ending cash balance, and (4) to supply information for adjusting entries.
Bank reconciliations
what is the formula for the shortcut method
CVnew= CVold + Int - Cash
_______ _________ are used to increase sales, to encourage early payment by a customer, and to increase the likelihood of collection.
Cash discounts
journal entry to record collections with pledging/assigning
Cash xx Sales discount xx Sales returns xx A/R Assigned xx
journal entry to record loan proceeds with pledging/assigning
Cash xx Service charge expense xx Note Payable xx
journal entry to record collections with pledging/assigning when you collect an amount except for _____ you wrote off as uncollectible
Cash xx (plug) ADA xx AR Assigned xx
The ______ _______ _______ ______ Model (CECL model) is required for the accounting for expected losses on financial statements measured at amortized cost beginning in 2020 (with optional adoption in 2019) based on a recently passed accounting standard.
Current Expected Credit Loss
obligations expected to be liquidated using current assets or refinanced by other short-term liabilities.
Current liabilities
The purposes for making equity method investments generally differ from those of fair value method securities, and the difference in accounting methods reflects this fact. ________ ________ investments tend to be long-term and to establish relationships between the investor and the investee.
Equity method
what valuation do available for sale securities use
FMV
what valuation do trading securities use
FMV
Recognize at fair value with adjustment affecting NI.
FMV-NI
3 methods to account for equity securities:
FMV-NI, Equity method, consolidation
Recognize at fair value with adjustment affecting OCI
FMV-OCI
PV of an ordinary annuity formula:
FV/((1+rate)^nper-2) + FV/((1+rate)^nper-1) + FV/((1+rate)^nper-0)
PV of an annuity due formula:
FV/((1+rate)^nper-3) + FV/((1+rate)^nper-2) + FV/((1+rate)^nper-1)
PV of a single amount formula:
FV/(1+rate)^nper
2 journal entries for recovery a previously written-off account receivable
First, the company must reverse the write-off and reinstate the customer's account. Next, the collection of the newly reinstated account is recorded. Both write-offs and recoveries are recognized as they occur.
The _____ classification is determined at acquisition, where a company has both the positive intent and ability to hold an investment to its maturity date. This implies that the investor (1) intends to hold the security until maturity, and (2) does not anticipate a need to sell the security before its maturity date to access cash for reasons such as liquidity needs or interest rate changes.
HTM
pension liability is what account
LT liabilities
warranty obligation is what account
LT liabilities
To record cash shortage:
Miscellaneous expenses xx Cash xx
for a reasonable rate annuity, what is the journal entry to record service revenue ALWAYS
NR xx (FcV) Service Revenue xx (PV)
what does this describe? A $300 check from a customer, which was not supported by sufficient funds in their checking account, was returned to West by the bank. West had deposited the check, increased cash, and decreased accounts receivable, but the bank was unable to credit their account.
NSF check
When a company prepares a consolidated balance sheet, the company allocates consolidated net assets to itself (the parent) and to other investors (non-controlling interest). __________ _______ is the interest (less than 50% ownership) in the net assets of the subsidiaries not owned by the parent company.
Non-controlling interest
_______ ___________ provide (1) extended payment terms, (2) more security than sales invoices and other commercial trade documents, (3) a formal basis for charging interest, and (4) negotiability (ability to transfer ownership).
Notes receivable
items that are depreciable, items that are subject to depletion, and items that are recorded at cost would be accounted for as
PP&E
capitalized lease is what account
PPE
factory is what account
PPE
leasehold improvement is what account
PPE
natural resource is what account
PPE
trademark is what account
PPE
To calculate the purchase price of the bond, calculate the ___ in the TVM solver.
PV
To record the purchase of the bond investment, record a debit to investment in HTM securities and a credit to cash for the amount of the ___ of the bond.
PV
FV of an annuity due formula:
PV x (1+RATE)^(nper) + PV x (1+RATE)^(nper-1) + PV x (1+RATE)^(nper-2)
FV of an Ordinary Annuity Formula
PV x (1+RATE)^(nper-1) + PV x (1+RATE)^(nper-2) + PV x (1+RATE)^(nper-3)
FV of a single amount formula:
PV x (1+RATE)^nper
The amount of estimated returns is recorded as a debit to ______ ________, a contra revenue account, and a credit to Refund Liability as the sales value. In a 2nd entry, an asset called Inventory-Estimated Returns is debited and Cost of goods sold is credited at the cost of inventory expected to be returned.
Sales Returns
2 entries to record return of merchandise
Sales returns xx Cash (or AR) xx Inventory xx COGS xx
Instead of directly adjusting the investment account to fair value, an investor may create a valuation account, the _________ _______ _______ _________ (SFVA) account. This balance sheet account is debited for holding gains and credited for holding losses.
Securities Fair Value Adjustment
____________ is another way that companies can convert receivables more quickly into cash. Here, assets (such as trade receivables or credit card receivables) are pooled together to form a portfolio. The portfolio is typically transferred to a securitization entity, commonly a trust. Interests in the securitization entity are then sold to investors or the portfolio is used as collateral for debt issuances. Just as in our previous discussions, the seller must determine whether the transfer to the securitization entity represents a sale or a secured borrowing.
Securitization
Internal controls for cash should:
Separate custody of and accounting for cash, Account for all cash transactions, Maintain only the minimum cash balance needed, Provide for periodic test counts of cash balances, Permit reconciliation of ledger and bank cash-account balances, Achieve an adequate return on idle cash balances, Result in the physical control of cash
____________ ____ ________ is an important internal control attribute and applies to personnel involved in reconciling bank accounts. For example, a person having responsibility for the bank reconciliation, cash disbursements, and accounting for cash could write and deliberately fail to record an unauthorized check. When the canceled check is returned, outstanding checks could be understated by the amount of the check, in turn overstating the correct cash balance by the amount of the check. The cash account would appear reconciled. Someone other than the cashier should prepare the bank reconciliation.
Separation of duties
The accounting standards provide the following considerations in measuring the allowance:
The loss on receivables should reflect expected credit losses expected to be incurred over the entire time that the receivable is expected to be outstanding. In other words, any risk of loss should be considered, even if the company is exposed to losses on the receivable only in the latter part of the receivables' life. The CECL model requires companies to analyze available information that is relevant in estimating the collections on receivables as long as the information is reasonably available with additional costs and efforts that do not exceed the benefits to the financial statement users. Information can include internal and external information to the company, qualitative and quantitative information, information related to a specific customer, or to the broader environment. Companies should consider past events such as incurred losses on collections but should also consider current conditions and forecasted information, such as changes in economic conditions that affect collections (a future event that could affect a major customer's ability to make payments on account that would indicate collectibility issues, even if they've paid in the past). Start by looking at historical trends, but the standards require companies to adjust the historical information to reflect current information and reasonable and supportable forecasts of the future. Items to consider in updating historical info for current conditions: customer's financial condition, credit rating, credit score; customers ability to make payments; nature and volume of receivables; volume and severity of past due amounts; entity's credit policies and procedures; quality of the company's credit review system; experience, ability, and depth of management; and environmental factors including market conditions Receivables with similar risk are pooled together when estimating collectibility of accounts. If a receivable does not share the risk of a pool, it should be evaluated separately. One way to pool receivables is based upon past due dates. An aging of AR schedule categorizes the individual receivables by age or the extent to which the accounts are past due. The ADA is estimated by taking each age category and multiplying by an expected credit loss rate for that category. The reasoning behind this method is that the older accounts are less likely to be collected, thus a higher loss rate is applied to older accounts. Other ways that receivables could be pooled are by credit ratings or industry The accounting standards require the estimate of a credit loss to reflect risk of loss, even if remote. There would not be an accrual recorded for an ADA when historical experience adjusted for current conditions and reasonable and supportable forecasts provides an expectation that nonpayment of the receivable balance is zero. If nonpayment is even remote, an allowance is required. It would be challenging for a company to establish a zero-loss expectation for a receivable; thus, a situation where no allowance is recorded would be rare.
which account? cash restricted for future plant expansion a. <=12 months until use b. >12 months until use
a. ST investments b. LT investments
which account? Money market fund a. with check cashing privilege b. without check cashing privilege
a. cash equivalent b. ST investments
which account? T-bills: a. <= 90 day orig maturity b. >90 day
a. cash equivalent b. ST investments
which account? negative balance in bank a. it is the only account you have at the bank b. there is another account with a positive balance at the bank
a. current liability b. net together in cash balance
The ________ ________ of the classified balance sheet where assets are displayed on the left side of the page and liabilities and stockholders equity are displayed on the right side of the page.
account format
Obligations related to the acquisition of inventories, supplies, and services used in the production and sale of goods or service
accounts payable
Common examples of current liabilities:
accounts payable (trade payables), short-term notes payable, current maturities of long-term debt, callable obligations, deferred revenue, and accrued liabilities
Typically, __________ ________ or _________ _________ (short-term) are listed first, although there is no prescribed ordering of current liabilities.
accounts payable, notes payable
Results from the satisfaction of performance obligations incurred during a company's normal course of business through an informal credit agreement.
accounts receivable (trade receivable)
results from the satisfaction of obligations incurred during a company's normal course of business through an informal credit agreement.
accounts receivable or trade receivable
Incurred but unpaid expenses for items such as salaries, payroll taxes, interest, taxes, and utilities.
accrued liabilities
The accumulation of revenues, expenses, gains, and losses included in comprehensive income but not in net income.
accumulated other comprehensive income
HTM investments are initially measured at ________ _____, which is equal to the price paid for the security. Any incidental costs related to this such as brokerage fees and transfer costs are added to this.
acquisition cost
If write-offs (net of recoveries) is any amount above the _________, the ADA account would have an unadjusted ending debit balance. This will impact the journal entry required at the next reporting date to adjust the allowance to the desired ending balance.
allowance
Under the CECL model, companies use the _______ method to estimate and recognize expected losses on receivables.
allowance
which write off method is allowed under GAAP
allowance
A contra account to accounts receivable and is used because the identity of specific uncollectible accounts is unknown at the time of the adjusting entry.
allowance for doubtful accounts
To calculate interest revenue, one can use an _________ table.
amortization
amount at which an investment is acquired, adjusted for amortization of a premium or a discount
amortized cost
what valuation do held to maturity securities use
amortized cost (same as CV for notes)
approach where we record the security at its amortized cost or carrying value, regardless of market priice
amortized cost approach
Recognize at amortized cost. Ignore adjustment to fair value.
amortized cost method
3 methods to account for debt securities:
amortized cost, FMV-NI, FMV-OCI
Quoted interest rates are ______ interest rates unless otherwise stated.
annual
A series of uniform payments (sometimes called rents) occurring at uniform intervals over a specified investment time frame.
annuity
With an ______ ____, payments occur at the beginning of each interest compounding period
annuity due
Which account? NSF checks
ar
which account? postdated checks from customers
ar
required journal entry for bank rec NSF checks
ar xx cash xx
The inputs to excel functions are called ______, or variables.
arguments
When receivables are _________, a formal promissory note often allows the assignee to seek payment directly from the receivable proceeds if the loan is not paid when due. The loan proceeds are typically less than the face value of the receivable assigned to compensate for sales adjustments and to give the assignee a margin of protection. The assignee charges a service fee and interest on the unpaid balance each month. The loan balance is reported among the borrower's other liabilities.
assigned
what is the TI-84 shortcut to find the balance after 1st compounding period
bal(1)
The _______ _______ equation highlights that funds are raised from creditors (liabilities) or from owners (stockholders' equity) to acquire the entity's assets
balance sheet
also known as the statement of financial position
balance sheet
2 methods for estimating bad debt under the allowance method
balance sheet and income statement
A debt security issued by companies and governmental units to secure large amounts of capital on a long-term basis. In return for capital, the issuing company formally agrees to pay periodic cash interest based upon a stated interest rate during the term and to return the principal at the end of the term. While cash interest payments are based on the stated interest rate, the market or effective rate changes.
bond
bonds payable are reported net of:
bond discounts and premiums
If the market rate is less than the stated rate of the bonds, the bonds will sell at a premium. This means that the issuer of the bonds would be unwilling to sell the bonds for the face value when the market rate for debt securities of similar risk is less than the stated rate at which the bonds will pay interest to the investor. Pricing the bonds to yield a lower market rate results in a selling price that exceeds the face value. Regardless of the price paid for the bonds, the company will receive the face value of the bonds upon maturity. The excess of the price paid over the face value of the bonds is the ______ _______. Over the term of the bond, the premium is amortized, reducing interest revenue and the amortized coast of the bond by each period's amortization amount.
bond premium
Debt security issued to secure large amounts of capital on a long-term basis
bonds payable
In a _________, the receivables remain on the owner's books because they are still owned, and a liability is recorded to reflect the owner's obligation to repay the amount borrowed.
borrowing
Obligations due on demand under the contract provisions in effect at the balance sheet date
callable obligations
The ________ ______ of TS is the net of its amortized cost and the Securities Fair Value Adjustment account.
carrying value
total assets on the balance sheet for the note receivable (includes discounts or premiums)
carrying value
Currency on hand and demand deposits with banks or other financial institutions. Includes other kinds of accounts that have the general characteristics of demand deposits in that the customer may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty.
cash
To record an investment purchase, debit investment and credit ____
cash
items immediately available to pay obligations such as cash on hand, cash in the bank, money orders, cashier's checks, and certified checks
cash
what 3 things get adjusted on the bank balance but do not require adjusting entries
cash (undeposited), deposits in transit, outstanding checks
For an item to qualify as _____ _________, there needs to be an insignificant risk of a change in the asset's value due to changes in interest rates.
cash equivalent
which account? commercial paper with 60 day original maturity
cash equivalent
Short-term (maturity of 3 mos or less), highly liquid investments in securities readily convertible into known amounts of cash with low risk of loss
cash equivalents
Short-term, highly liquid investments that have both of the following characteristics: (a) readily convertible to known amounts of cash and (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
cash equivalents
In the statement of _____ ______, the reconciliation of cash includes the change during a period in the total of (1) cash, (2) cash equivalents, and (3) amounts generally described as restricted cash or restricted cash equivalents. When these amounts are presented in more than 1 line item on the balance sheet, disclosure is required to reconcile amounts between the 2 financial statements.
cash flows
total cash balance includes which 3 things
cash on hand, cash in the bank, and cash equivalents
This is the amount by which the cash balance to this point in the reconciliation exceeds the correct cash balance. Such a small amount is written off. If a shortage occurs regularly, if the difference is larger, or if West suspects theft, further investigation is warranted.
cash shortage
journal entry for payment under the gross method (if payment is NOT received within the discount period)
cash xx AR xx
journal entry for payment under the net method (if payment is received within the discount period)
cash xx AR xx
journal entry for payment under the net method (if payment is NOT received within the discount period)
cash xx AR xx sales discounts not taken xx
for FMV method of equity securities, what is the JE for declaration of dividends
cash xx div revenue xx
for equity method of equity securities, what is the JE for declaration of dividends
cash xx inv in stock xx
required journal entry for bank rec collection by bank
cash xx note rec xx int rev xx
journal entry for final settlement of receivable from factor for AR from factoring without recourse
cash xx receivable from factor xx
journal entry to record interest revenue for unreasonable, lump-sum notes
cash xx discount on NR xx interest revenue xx
journal entry for sale of AR from factoring without recourse
cash xx loss on sale xx receivable from factor xx AR xx
journal entry for sale of AR from factoring with recourse
cash xx receivable from factor xx loss on sale xx AR xx recourse obligation xx
journal entry for payment under the gross method (if payment is received within the discount period)
cash xx sales discount xx AR xx
for a reasonable rate annuity, what is the journal entry to record interest revenue
cash xx (pmt) Int Rev xx N/R xx
journal entry for interest revenue of a bond
cash xx (pmt) int rev xx investment xx
for a reasonable rate annuity, what is the journal entry at maturity
cash xx (pmt) int revenue xx (plug) N/R xx (write-off)
journal entry to record interest revenue for a reasonable rate lump sum note
cash xx (pmt) interest revenue xx (pmt)
journal entry to record interest revenue for non-interest bearing annuities
cash xx (pmt) note receivable xx (pmt) disc NR xx (int rev) int revenue xx
journal entry to record at maturity for non-interest bearing annuities
cash xx (pmt) note receivable xx (write-off) disc NR xx (write-off) int revenue xx (plug)
journal entry at maturity for unreasonable, lump-sum notes
cash xx (prin + int cash pmt) discount xx (write-off) note receivable xx (prin) int revenue xx (plug)
journal entry at maturity for a reasonable rate lump sum note
cash xx (prin + int) int revenue xx note receivable xx (principle)
journal entry at maturity for non-interest bearing lump sum notes
cash xx (prin) discount xx (write-off) N/R xx (prin) Int Rev xx (plug)
Common example of current asset accounts:
cash, cash equivalents, restricted cash, short-term investments, accounts receivable, non-trade receivables, inventories, prepaid expenses
what 3 things are considered cash equivalents if they are short-term, highly liquid debt securities with an original maturity of less than or equal to 90 days. if their original maturity is >90 days, they are included in short-term investments.
certificate of deposit, t-bill, commercial paper
The market rate fluctuates with investors' expectations and is based upon many factors including:
changes in risks, market conditions, etc
balance sheet which: 1. Presents balances in asset, liability, and equity accounts 2. Classifies assets and liabilities as current and noncurrent 3. Allows for determination of a company's working capital
classifed balance sheet
balance sheet that is organized into 3 categories that combine permanent accounts of comparable nature and function.
classified balance sheet
5 things that could need to be reconciled to the book balance
collections by bank, recording errors, NSF checks, bank service charges, cash shortages
what 5 things are reconciled to the book balance
collections by the bank, reading errors, NSF checks, bank service charges, cash shortages
common examples of cash equivalents
commercial paper, money market funds, and US treasury bills
par value of the issued or outstanding common stock of the company
common stock
Minimum cash balance required by a lender to be maintained at the financial institution of the lender, which may be legally restricted for use
compensating balances
Results from earning interest on an initial investment (principal) plus earning interest on interest. It includes interest on previously computed and recorded interest.
compound interest
A company (parent) prepares financial statements where it combines its own activities with those of 1 or more additional companies (subsidiaries) in which it has more than 50%, but less than 100% ownership interest. This combined balance sheet is a ______________ _________ ________.
consolidated balance sheet
(advanced accounting courses) Financial statements of the investor and investee are consolidated for reporting purposes
consolidation
If an investor has a __________ interest, the financial statements of the investor and investee are consolidated and treated as one economic entity.
controlling
Examples of Debt Securities
corporate bonds, US govt bonds, municiple bonds
When ________ is extended, some amount of uncollectible receivables is inevitable. Companies try to develop a credit policy not too conservative or liberal. Past records of payment and the financial condition and income of customers are key inputs to the credit-granting decision.
credit
Trading securities are generally classified as ___________ assets on a classified balance sheet.
current
AFS securities is what account
current asset
prepaid rent is what account
current asset
trading security is what account
current asset
Cash and other assets or resources commonly identified as those that are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business.
current assets
Cash available for current operations and cash equivalents (short term, highly liquid investments) are classified as _______ _______ on the balance sheet.
current assets
Assets are generally grouped into 2 categories:
current assets and noncurrent assets
Dividend payable is what account
current liability
Portion of long-term debt that is due within the next year, and is expected to be paid with current assets or will result in the creation of other current liabilities
current maturities of long-term debt
US Treasury securities, Municipal securities, Corporate bonds, Securitized debt investments, Convertible debt, and Commercial paper are all examples of ______ securties
debt
2 types of investment
debt securities (bonds) and equity securities (stocks)
Any security representing a creditor relationship with an entity
debt security
The 1st step in accounting for investments in securities is to determine whether an investment is a ______ security or _______ security.
debt, equity
Occurs when an annuity stream is delayed (payments begin after a certain number of periods after the date of the initial agreement).
deferred annuity
Cash is received in exchange for a company's obligation to transfer goods or services in the future including obligations under revenue contracts and certain lease contracts.
deferred revenue
Employers pay an amount to eligible employees during their retirement period as specified by the pension agreement. The benefit is earned through an employee's service to the company.
defined benefit plans
These are deposits made too late to the close of the bank's monthly closing date to be reflected in the bank statement.
deposits in transit
An adjusting entry is required when the fair value of depreciable assets of the investee exceeds the book value of depreciable assets of the investee. The excess of fair value over book value would result in additional __________ expense that would result in a decrease to the investment account of the investor. In other words, simply recording a proportionate share of the investee's net income captures only depreciation on the book value of depreciable assets. In a similar way, an adjusting entry for additional amortization expense would be required for intangible assets for the excess of fair value over carrying value.
depreciation
To record _________ on the fair value of assets, an adjustment is required for the excess of fair value over book value. (If the investment purchase were made in the middle of the year, the depreciation expense would be prorated to correspond with the holding period). No adjustments are necessary for items such as land and goodwill that are not depreciated.
depreciation
When specific accounts are determined to be uncollectible, they are removed from accounts receivable (___________) and that part of the allowance is no longer needed, so ADA is debited and AR is credited.
derecognizied
Under the _______ ___________ method, when uncollectible accounts are not probable or estimable or are immaterial, no adjustment to income or receivables ia made until specific accounts are considered uncollectible. In other words, no ADA is ever established. If a specific amount is uncollectible, BDE is debited and AR is credited.
direct write-off
A ________ decreases the carrying value of a note receivable.
discount
Amount equal to the excess of a bond investment's face value over its present value. It reduces the investment account to its amortized cost and represents deferred interest revenue that will be recognized over the term of the bond investment.
discount
If the company elects not to use a separate account for the _______, the entry to record interest revenue includes a debit to cash, a debit to investment in HTM securities, and a credit to interest revenue. At maturity, the amortized cost will be equal to the face value of the HTM investment, so a debit to cash and a credit to investment in HTM securities is recorded to derecognize the bond investment. If the bonds are retired before maturity, a debit is recorded to cash for the amount received. A credit is recorded to take off the investment in HTM securities at their amortized cost (CV). Then, either a loss is debited or a gain is credited.
discount
When a bond sells at a price less than the stated value. Occurs when market price is greater than the stated interest rate
discount
journal entry to record interest revenue for non-interest bearing lump sum notes
discount on NR xx interest revenue xx
Contra account equal to the excess of the face value of a note over its present value.
discount on note receivable
However, under the effective interest method, interest revenue increases each period for a bond acquired at a _______ and decreases each period for a bond acquired at a ________ due to the corresponding changes in the amortized cost of the bond investments.
discount, premium
If the face value of the bond investment is greater than the present value, a _______ is recorded. If the face value of the bond is less than the present value, a _______ is recorded.
discount, premium
A mathematical process for reducing a FV to PV.
discounting
Just as we saw with accounts receivable, a company may sell a note receivable to a factor such as a financial institution, or otherwise use of a note receivable as collateral for a loan, in order to obtain immediate access to cash. A sale of a note to a factor is called __________. The factor charges a finance fee for the transaction.
discounting
The ________ ________ method is used to amortize the bond discount to interest expense over the life of the bond. With this method, interest expense is determined by multiplying the effective rate of interest by the carrying value of the bond at the beginning of the interest period. Interest expense increases each period because interest expense fluctuates with the increasing bond carrying value. The cash interest paid each period is calculated by multiplying the face amount of the bond by the stated interest rate for the period. The difference between the market rate interest amount and the cash interest amount is used to adjust the bond book value each period until the bond reaches its face amount.
effective interest
The amount of interest revenue to be recognized over the life of the bond is typically determined using the ______ _______ method.
effective interest
Method of amortization where the price of a bond is determined based on the PV of both the principal paid at maturity and the periodic cash interest payments made over the bond term.
effective interest method
If the market rate is greater than the stated rate of the bond, the bond will sell at a discount. This means the investor is expecting a higher rate of return than the stated rate, based upon expected returns on investments of similar risks. Thus, the investor who is not satisfied with the periodic cash interest receipts on the bond will counter by paying a lower price for the bond in order to _________ yield a higher rate of return. Regardless of the price paid up front for the bond, the investor will receive face value of the bond upon maturity.
effectively
Common stock, preferred stock, other capital stock, stock options, warrants, and stock rights are are all examples of _________ securities
equity
Conceptually, the ________ method treats the accounts of the investee as if they were condensed into one balance sheet item and one income statement item and then merged into the investor at the proportion owned by the investor.
equity
If the investor has significant influence, the investment is accounted for under the _______ method.
equity
The ______ method is appropriate if the investor's relationship with the investee is strong, while having less than a controlling interest. Influence tends to be greater as the investor's ownership in the investee increases.
equity
The _______ method differs from FV-NI in that an investor's proportionate share of the investee's income is recognized in the investor's net income and dividends are recorded as a return of the investor's investment.
equity
Under the ______ method, if an investment were purchased during the year, the entry to record the proportionate share of income would be prorated for the holding period of the investment. The entry to record dividends the investee is entitled to would only include dividends declared during the holding period.
equity
Unlike FV-NI that recognizes dividends as income, the _______ method requires the investor to recognize in income a proportionate share of the investee's income, and to recognize dividends as a reduction of the carrying value of the investment. This is because an investor with significant influence can control the timing and amount of dividends. Because of this, dividends are not considered an objective measure of income related to the investee.
equity
which accounts are listed last in stockholders' equity due to the fact that they change the most
equity accounts used to report accumulated earnings
Recognize at cost, adjusted for investor's share of net income and dividends
equity method
for which method of equity securities? To record the investment purchase, an investment is debited and cash is debited. To record investment income, investment is debited and investment income is credited. To record the receipt of dividends, cash is debited and investment is credited. To record an adjustment for additional depreciation expense, investment income is debited and investment in stock is credited
equity method
Any security representing an ownership interest in an entity or the right to acquire or dispose of an ownership interest in an entity at fixed or determinable prices
equity securities
A material discrepancy between estimated and actual R&A is treated as a change in accounting __________ and can affect future estimates.
estimate
An approach which incorporates a range of potential cash flows and assigns probabilities to cash flow amounts within the range. The risk here is applied directly to the cash flows allowing accountants to recognize uncertainties in groups of cash flows. This is appropriate for situations where payments are estimated and not contractual.
expected cash flows approach
Amount due at a note's maturity date
face value
Contractual cash flow receivable at a bond's maturity date
face value
FcV
face value
The _____ _____ option is an election that may be applied to debt securities that would otherwise be recognized at amortized cost or where unrealized gains or losses are reflected in other comprehensive income.
fair value
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
fair value
Under the _____ _____ option, an investment is adjusted to fair value through net income each reporting period (FV-NI). However, the fair value option must be selected on the purchase date of the asset, applied to each investment individually, and the decision is generally irrevocable. The fair value option may be applied to any security accounted for under the equity method. Recall when an asset is measured at FV-NI, the investment is adjusted to fair value at report dates and the unrealized gain or loss is recognized in net income. For recording purposes, a company may measure the investment directly as FV-NI or account for the investment under the equity method and record a fair value adjustment in net income at reporting dates.
fair value
Companies can elect to value more items at fair value by electing the ______ _______ __________
fair value option
t or f: Because an investor must have the intent and ability to hold the HTM security for its entire life, a sale before maturity should be rare. However, due to unforeseen events an investor may NOT decide to sell an HTM security before the maturity date.
false, they can
manufactured goods held for sale
finished goods inventory
approach where we use the market value of the security as the asset's ending balance on the balance sheet
fmv approach
If a sale of the HTM debt security occurs near enough to its maturity date such that interest rate risk is substantially eliminated, or the sale occurs after substantial collection on the principal, the security is considered to be held the __________ for purposes of classification.
full-term
Both the gross and net methods are used in practice, but the ______ method is more frequently seen. Both methods result in identical financial statements.
gross
Under the ______ method, when cash discounts are offered, the receivable and sale are recorded at the gross amount. A company records sales discounts only if the customer pays within the discount period. Revenue is adjusted if the customer pays in the discount period.
gross
Under the _______ method, a company records an adjusting entry at period-end to reduce accounts receivable and revenue by the cash discounts expected to be executed in the next period on sales extending from the current period.
gross
method which records the sale and the AR at the same amount, regardless of anticipated future discounts. assumes no discounts will be taken.
gross method
Companies can record cash discounts under the ______ method or ____ method. Both of these methods report revenue net of discounts actually taken, but the composition of the revenue accounts, and period-end adjusting entries, vary.
gross, net
3 limitations of balance sheets
historical cost, estimations, and omissions
A company can receive a note in exchange for property, goods, or services. The note receivable is initially measured using either (a) the fair value of the goods or services provided or the fair value of the note, whichever is more clearly determinable, or (b) the present value of the note discounted at the market rate, also called the ________ _______ _______ (if the fair value of the goods or services or the note cannot be determined). In these cases, the company records the note receivable at its face value and records either a discount on the NR or a premium on the NR for the difference between the note's face value and the initial measurement of the note. A discount (premium) is amortized over the life of the note as an increase (decrease) to interest revenue.
imputed interest rate
Trading securities are adjusted to fair value through the _______ _________. The total unrealized holding gain (or loss) is the difference between the amortized cost and fair value of an investment- unrealized because the asset has not been sold.
income statement
how should we order our amortization table
int rev cash cv change carrying value
Assets that lack physical substance
intangible assets
The cost of using money over time
interest
The recognition during a reporting period of a borrower's cost for using resources
interest expense
journal entry to remit interest to the lender with pledging/assigning
interest expense xx note payable xx cash xx
If a security is sold between _________ ________ dates, the company (investor) would pay both the purchase price of the security and the interest accrued from the most recent interest payment date to the purchase date. Then, on the next interest payment date, the company (investor) receives interest for the latest full interest period.
interest payment
A discount (premium) is amortized over the life of the bond investment as an increase (decrease) to _______ ________.
interest revenue
How ______ _______ is recognized over a bond term varies depending on (1) whether a company accounts for the investment using the effective interest method or the straight-line interest method and (2) whether the bond was acquired at a premium or a discount.
interest revenue
The recognition during a reporting period of a lender's return for loaning resources.
interest revenue
Note requiring periodic cash interest receipts based on terms of the note.
interest-bearing note
why do companies perform bank/cash reconciliations
internal controls
for equity method of equity securities, what is the JE for recognizing the proportionate share of net income
inv in stock xx inv income xx
Consists of goods owned by a business and held either for use in the manufacture of products or as products awaiting sale.
inventories
In cases where a note is exchanged for _______ or items that a company normally sells, the company recognizes sales revenue (and cogs) upon receipt of the note.
inventory
In computing changes in the fair value of trading securities, more than one security may be analyzed as part of an _______ _______
investment portfolio
examples of long term investments
investments in equity or debt of another company, investments in unconsolidated subsidiaries, funds set aside for LT future use, cash surrender value of life insurance policies carried by a company, and long-term investments in tangible assets
The difference between the PV and the _______ _____ of a bond is amortized over the life of the bond.
issuance price
the borrower can also be referred to as the _______
issuer
Compound interest periods of _______ than one year yield even more interest.
less
entity who is leasing the asset
lessee
Within the 2 asset categories, it is common for assets to be classified and presented in decreasing order of _________ (meaning convertibility into cash).
liquidity
common examples of non-current assets:
long term investments, PPE, intangible assets and goodwill, other assets
examples of 'other assets'
long term prepaid expenses, idle fixed assets, deferred tax assets, long term receivables, and non-current assets held for resale
Long-term assets not used directly in the operations of a company
long-term investments
An obligation that does not require the use of current assets for payment (or the incurrence of another liability) during the next reporting year (or operating cycle if longer). The amount is due after one year or the normal operating cycle if longer than one year.
long-term liability
Formal written promises to pay an amount due after the following year, typically associated with interest charges
long-term notes payable
assets which are not completely used up in a single operating cycle and that management plans to retain beyond the year from the balance sheet date or the operating cycle if it is longer.
longterm assets
A _________ amount is a single amount
lump-sum
A bond's _______ ______ is the rate that discounts the bond's cash interest payments and principal to the bond's current selling price.
market rate
Im
market rate
Interest rate on a similar investment in the market involving similar risk and where the issuer has a similar crediting rating, Stated as an annual rate.
market rate
Rate on a similar bond investment in the market involving similar risk and where the issuer has a similar crediting rating. Stated as an annual percentage.
market rate
The ________ ________ changes in the bond's risk, driven by economic, industry, and company conditions.
market rate
Merchandisers have 1 category of inventory:
merchandise inventory
required journal entry for bank rec cash shortages
misc exp xx cash xx
required journal entry for bank rec service charges
misc exp xx cash xx
the JE to record bank service charges
misc exp xx cash xx
Under the ____ method, a company records an adjusting entry at period-end to increase accounts receivable and revenue by the cash discounts expected to be forfeited in the next period on sales extending from the current period.
net
Under the ____ method, when cash discounts are offered, the receivable and sale are recorded at the net amount (gross invoice price less available for cash discount). A company records sales discount forfeitures only if the customer fails to pay within the discount period. Revenue is adjusted if the customer fails to pay in the discount period.
net
(ch 4) Unrealized gains or losses determined when adjusting assets or liabilities to fair value at reporting dates are recognized in _____ _______
net income
Certain debt investments are measured at fair value with adjustments reflected in net income. Instead of recognizing investments at amortized cost, the amortized cost amount is adjusted to fair value. The resulting gain or loss is recognized in ____ _______
net income
Under the fair value option, an investment is adjusted to fair value through ___ ______ each reporting period
net income
When the investor has insignificant influence over the investee and the fair value of the investment is readily determinable, the equity investment is measured at fair value with adjustments recognized in ______ ________
net income
method which records the sale and the AR, with the amount of the anticipated future discount netted from AR. assumes all discounts will be taken.
net method
accounts receivable are recognized at _____ _________ ________, which means net of any expected credit losses.
net realizable value
journal entry if/when ABC collects cash from customers fo AR from factoring with recourse
no entry
The amount of a company's net assets owned by outside investors in one of a company's subsidiaries that is not part of its controlling interest.
non-controlling interest
In cases where a note is exchanged for a ___________ item, the company would record a gain or loss on sale for the difference between the carrying value of the item and the initial measurement of the note.
non-inventory
A ___________ arrangement generally constitutes an ordinary sale of receivables because the factor has no recourse against the seller of the receivables for uncollectible accounts. Control over the receivables generally passes to the factor. The factor typically assumes legal title to the receivables, and bears the cost of uncollectible accounts, and collection responsibilities. However, any adjustments or defects in the receivables (sales discounts, returns, and allowances) are typically the responsibility of the seller because these represent preexisting conditions. Upon sale, the receivables are removed from the seller's books, cash is debited, and a finance fee is recognized immediately as a loss on sale. The factor might hold back an amount to cover probable sales adjustments. This amount is recorded as a receivable on the seller's books.
non-recourse
__________ receivables arise from many other sources, such as from tax refunds, loans made to officers, contracts, investees, finance receivables, installment notes, sale of assets, and advances to employees.
non-trade
Amounts owed to a company from sources such as tax refunds, contracts, investees, finance receivables, installment notes, sale of assets, and advances to employees.
non-trade receivables
In the ______________ asset section, certain types of long-term debt investments are recognized at fair value.
noncurrent
Restricted cash is classified as a current asset if reasonably expected to be used during the normal operating cycle of the business. Otherwise, restricted cash is classified as a ___________ asset.
noncurrent
for FMV method of equity securities, what is the JE for recognizing the proportionate share of net income
none
Note requiring no periodic cash interest receipts (stated rate=0). Instead, all amounts are received at maturity.
noninterest-bearing note
A written promise to receive specified amounts on specific payment dates.
note receivable
LT 'other assets' example
note receivable
journal entry to record service revenue for unreasonable, lump-sum notes
note receivable xx service revenue xx discount on NR xx
journal entry to record service revenue for a reasonable rate lump sum note
note receivable xx (FcV) service revenue xx (FcV)
journal entry to record service revenue for non-interest bearing annuities
note receivable xx (FcV) service revenue xx (PV of note) disc on NR xx (plug)
journal entry to record service revenue for non-interest bearing lump sum notes
note receivable xx (FcV) service revenue xx (pv) discount NR xx (pv)
Receivables, with a maturity date within the following year, supported by formal contractual agreements
notes receivable
Cash inflows and outflows resulting from trading securities specifically bought and sold for the purpose of generating profits on short-term differences in market prices are presented as __________ activities in the cash flow statement.
operating
For investments accounted for under the equity method, the difference between investment income and dividends received is an adjustment to net income in the _________ section of the statement of cash flows under the indirect method. Inputs in determining fair value and other required fair value disclosures are also required.
operating
In the statement of cash flows, receipts from the sale of equity investments and payments to acquire equity investments are classified as either investing or operating, depending on the company's purpose in acquiring the investment. If a company is engaged in active buying and selling of equity securities with the purpose of generating trading profits in the short term, cash flows are classified as __________ _________. Otherwise, the cash flows are classified as investing activities.
operating activities
The average time intervening between the acquisition of materials or services and the final cash realization.
operating cycle
With an _______ _______, the payments occur at the end of each interest compounding period.
ordinary annuity
Assets not easily included under alternative asset classifications are labeled as
other assets
Companies invest in securities of _______ ________ (especially in securities representing ownership interests) to develop a beneficial intercompany relationship that will increase the profitability of the investing company, both directly and indirectly.
other companies
The change in the unrealized gain or loss for trading securities for the period is included in the determination of earnings in the income statement and is classified as ______ _______
other income
Obligations such as long-term lease liabilities and deferred tax liabilities are classified as: ____________________. These also include certain contingencies or obligations dependent upon a future event such as the settlement of a legal matter or future warranty claim.
other long-term liabilities
This amount is determined by comparing checks written with checks cleared. Checks recorded by the company but not reflected in the bank balance are subtracted from the bank balance.
outstanding checks
In determining the appropriate accounting for equity investments, the extent of ________ _______ is a critical factor.
ownership interest
which accounts are listed first in stockholders' equity due to the fact that they change the least
paid in capital
reports the value of assets received by the company above the par of the capital stock given in exchange
paid-in capital in excess of par
typical stockholders equity accounts include:
paid-in capital, retained earnings, accumulated other comprehensive income, treasury stock, and non-controlling interests
(contributed capital) includes common stock, preferred stock, and paid-in capital in excess of par
paid-in-capital
examples of intangible assets
patents, trademarks, copyrights, franchises, and goodwill
The term ________ is used in the definition of annuities because it includes annuity amounts that take the form of either cash payments into an annuity type of investment or cash withdrawals from an annuity type of investment.
payments
Long-term net obligation to provide future benefits attributed to employee services rendered to date
pension liabilities
Stockholders equity items are classified and presented in order of ________
permanence
Long-term tangible assets and other noncurrent assets used in continuing operations that are not held for resale
plant property and equipment
An entity wishing to borrow money may use accounts receivable as collateral. In this case the entity may either _______ the receivables or assign specific accounts receivable to a lender (assignee). In both cases, the entity usually retains title to the receivables, continues to receive payments from customers, bears collection costs and the risk of bad debts, and agrees to use any cash collected from customers to pay for the loan.
pledge
par value of the issued or outstanding preferred stock of the company
preferred stock
A ________ increases the carrying value of a note receivable.
premium
Amount equal to the excess of the present value of a bond investment over its face value. It increases the investment account to its amortized cost and represents a reduction of interest revenue that will be recognized over the term of the bond investment
premium
If the company chooses not to use a separate account for the ______, the entry to record interest revenue includes a debit to cash and a credit to both the investment in HTM securities and interest revenue. The financial statements would include the value of the investment in 'assets' and the interest revenue earned in 'other revenues and gains.' At the end of the investment's life, it will have been amortized completely and the amortized cost of the investment will equal the investments face value. Cash will be debited and the investment in HTM securities will be debited for the face value.
premium
If the market rate<stated rate, bond sells at a
premium
Adjunct account equal to the excess of the present value of a note over its face value.
premium on note receivable
Cash outlays made in advance of receipt of services such as for rent and advertising services
prepaid expenses
which account? postage stamps
prepaid expenses (could be office supplies)
Today's money has a future value equal to its _______ (face amount) plus whatever interest can be earned over the period of time it could be invested.
principal
Justification for the different accounting treatment of unrealized holding gains or losses arising from trading securities and available-for-sale securities centers on the different _________ of the investments
purposes
Selling _________ or using receivables to obtain cash loans effectively shortens the operating cycle, hastens the return of cash to productive purposes, and alleviates short-run cash-flow problems. The costs of these arrangements include initial fees and interest on loans collateralized by the receivables. Certain risks might be retained by the company, including bearing the cost of bad debts, cash discounts, and sales returns and allowances.
receivables
the lender can also be referred to as the __________
recipient
Banks prepare monthly statements showing beginning and ending balances and transactions occurring during the month. Because differences are likely to exist between the bank balance and the company's cash balance per the accounting records, a monthly __________ is essential.
reconciliation
The __________ process begins with the two cash balances (bank and book) and lists the differences between those balances and the true ending cash balance.
reconciliation
Items are entered to reconcile the company's cash ledger account to the correct cash balance. These are amounts the company did not know at the end of the period. Each of these items requires an adjusting journal entry to correct the cash balance.
reconciling items to the book balance
When receivables are factored with recourse, the seller bears the risk and cost of bad debts. The finance company has recourse against the seller in the event of default by the original customer. The value of the recourse is estimated as a _________ __________.
recourse liability
journal entry if customers dont pay ABX by XYZ for AR from factoring with recourse
recourse obligation xx cash xx
After a customer's account is written off, the customer might decide to pay all or part of the balance owed (to improve their credit standing). This unexpected collection of an account previously written off is called a ________ and requires 2 journal entries.
recovery
The ________ ________ of the classified balance sheet lists assets followed by liabilities and stockholders equity
report format
unacceptable merchandise taken back.
sales returns
In _______ ______ _______, the factor can collect amounts from the seller if the customer (original debtor) fails to pay.
sales with recourse
In ________ _______ ________, the factor assumes the risk of collection losses. The fee is higher under non-recourse arrangements because more risk is transferred.
sales without recourse
Companies often have cash available that is not presently needed. Rather than allowing that cash to remain in a non earning account, they find temporary investments where they can earn a return. These investments are typically low risk and can be easily converted into cash. They often include:
securities of federal, state, and local government agencies but can also include securities of other companies.
A share, participation, or interest that is (1) represented by an instrument or is registered, (2) commonly recognized or dealt with on exchanges or markets, and (3) either one of a class or is divisible.
security
Debt or equity investments where the company has the intent and ability to sell within the next year (or operating cycle, if longer).
short-term investments
Short-term, liquid investments (marketable securities such as money market funds or treasury bills) that do not qualify as cash equivalents would be classified on the balance sheet as ____________ __________
short-term investments.
Formal written promises to pay a principal amount, typically associated with interest charges
short-term notes payable
what is the TI-84 shortcut to find the amortization for the 1st compounding period
sigma prn(1,1)
If the investor holds between 20% and 50% of the voting stock of the investee, the investor is presumed to have _________ _________ over the investee.
significant influence
With _______ ________, interest is earned on the principal balance only.
simple interest
The __________ rate is fixed based upon the bond agreement and therefore does not fluctuate based upon market conditions.
stated
Interest rate used to determine the cash interest receipts which can be 0% if no cash interest receipts are required. Stated as an annual rate.
stated rate
Rate used to determine the cash interest receipts on a bond investment. Stated as an annual percentage of face value.
stated rate
The _____________ interest method can be used if the results are not materially different from the results using the effective interest method. Here, instead of computing the discount (premium) amortization as a function of the carrying value of the bonds, the discount (premium) is amortized evenly over the bond life. In other words, the total discount (premium) is divided and amortized equally over the term of the bonds.
straight-line
An approach where the risk in future cash flows is reflected in the interest rate used to discount the cash flows. The rate can be set without a formal assessment of the uncertainty of individual cash flows. The higher the risks, the higher the interest rate.
traditional approach
Agreements to ______ accounts receivable are made on a nonrecourse or recourse basis.
transfer
Capital stock that has been issued and then reacquired by the company, but not retired.
treasury stock
t or f: (equity securities) To adjust FVA at year-end: recording the sale of equity securities includes a debit to cash and a credit to investment in stock and gain on sale of investment. To adjust FVA, unrealized gain or loss is debited and FVA is credited.
true
t or f: (for AFS securities)- To adjust FVA at year end, cash is debited and investment in AFS and gain are credited. To adjust the FVA account, unrealized gain or loss is debited and FVA is credited. While the gain on sale is fully recognized in net income, there is no cumulative effect on AOCI as shown below.
true
t or f: A company can group together accounts that relate to certain functions of the company such as investing or financing, or group together assets valued similarly (fair value or amortized cost).
true
t or f: A company estimates sales returns based upon prior experiences and changes expected in the future such as favorable changes in economic conditions.
true
t or f: A debit in the SFVA account is added to the investment account whereas a credit in the SFVA account is subtracted from the investment account.
true
t or f: A portion of RE can be restricted for specific purposes; a restriction is typically indicated in notes to financial statements
true
t or f: A requirement from a lender that a compensating balance be maintained increases the effective cost of borrowing.
true
t or f: A sale of an HTM security due to unforeseen circumstances is not inconsistent with the original classification of HTM. However, if a company sells an HTM security before maturity, without the justification of a major unforeseen event, the early sale may call into question the company's intention to hold to maturity. In this case, the investor may be required to reclassify ALL debt securities as either trading or available for sale.
true
t or f: AFS investments are classified as short-term or long-term depending upon the intention and ability of the investor to sell the investment within the next year (or operating cycle).
true
t or f: Adjustments to the ADA are considered changes in estimate and are accounted for prospectively.
true
t or f: After choosing the PV function in Excel, we enter values for the arguments: interest rate, number of periods, and future value. The syntax of the PV function is =PV(RATE,NPER,PMT,FV)
true
t or f: After entering values in Excel for each argument, the function will return the fair value. After selecting the future value (FV) function in Excel, enter the known arguments. The syntax (layout of the function and its related arguments) of the future value function in Excel is =FV(RATE,NPER,PMT,PV). When we enter a PV as a negative number, Excel reports a FV amount as a positive number.
true
t or f: Also unlike FV-NI, changes in the fair value of equity method investments are ignored. However, if the investment is considered impaired, an impairment loss may need to be recognized.
true
t or f: Although there is no financial statement impact for changes in FV, the aggregate fair value of an HTM investment and any unrecognized holding gain (loss) are disclosed in the notes accompanying the financial statements. If the investment is considered impaired, a loss may need to be recognized
true
t or f: Amortized cost is equal to the cost of the bond if the bond is purchased at par. If the bond is purchased at a discount (premium), the discount (premium) is amortized as an adjustment to interest revenue. This means that the amortized cost of the bond changes over time.
true
t or f: An arrangement involving receivables is accounted for as a sale only if the seller surrenders control over the receivables.
true
t or f: An investment is recognized on the balance sheet as current or non-current depending upon when the investment is expected to be sold. Unrealized gains and losses on equity securities held at a reporting date must be disclosed.
true
t or f: An investment is recognized on the balance sheet as current or noncurrent depending upon when the investment matures or is expected to be sold. The investment amounts in the categories of HTM, TS, and AFS may be presented separately on the face of the balance sheet or in a note accompanying the financial statements.
true
t or f: As accounts are collected and removed from a category, the proportion represented by uncollectible accounts increases.
true
t or f: As an alternative approach to estimating NRV of AR, a company may adjust the ADA account based upon a bad debt loss rate applied to credit sales. First, a bad debt loss rate is estimated based upon the relation between actual bad debt losses and net credit sales. Next, the rate is multiplied by the current period's credit sales to arrive at the adjustment to bad debt expense and the ADA account. This method may only be used to estimate NRV if the result in the net value of the receivable does not differ materially from NRV of the receivables calculated under the allowance method.
true
t or f: As in the case for debt securities, the fair value of equity securities changes. Companies may adjust the carrying value of equity securities daily or at reporting dates. Regardless of the procedure, all equity securities must be reflected at fair value at the reporting date and any resulting unrealized gains or losses are recognized in net income. For any securities sold during the period, the net effect on the income statement for the reporting period reflects any change in fair value from the last report date to the date of sale.
true
t or f: At each balance sheet date, all securities held with insignificant influence are reported at fair value. The difference between fair value and original cost is recorded in the FVA account. To adjust investment to fair value, a debit is recorded to FVA for equity securities and a credit is recorded to unrealized gain or loss. The investment in equity securities is recorded as an asset. The dividend revenue and unrealized holding gain are recorded in other revenues and gains.
true
t or f: Based on facts and circumstances, an investor owning less than 20% could have significant influence and an investor owning 20% or more of the voting shares may not have significant influence over the investee.
true
t or f: Because a sale on account could be considered a 30 or 45 day loan, there is a financing component to a sale on account. Sellers initiating a revenue contract with transfer within one year do not have to recognize a financing component. This means short-term AR are typically recorded at the full amount that the seller expects to receive (not adjusted to PV).
true
t or f: Cash and cash equivalents are often combined into one line item on the balance sheet
true
t or f: Companies can elect to apply the fair value option method to eligible financial assets and financial liabilities. The fair value option is applied to each individual asset or liability generally at the date of purchase or origination and this election is generally not revocable.
true
t or f: Companies may adjust the investment to fair value daily or simply at reporting dates. Regardless of the company's procedure to adjust its trading profile to fair value, all TS investments must be reflected at fair value at the reporting date and any resulting unrealized gains or losses are recognized in net income.
true
t or f: Companies must establish a policy on which particular short-term, highly liquid investments are reported as cash equivalents on the balance sheet.
true
t or f: Compensating balances that are not legally restricted can be combined with cash.
true
t or f: Depending on the length of the restriction and the ultimate intended use of cash, restricted cash can be reported as current or noncurrent.
true
t or f: Discount on a note receivable represents deferred interest revenue that will be recognized over the term of the note.
true
t or f: During the following period, the company would continue to record actual returns and then adjust the estimate for sales returns at the end of the period. A sales allowance is accounted for similarly, but without the entries showing an inventory impact because the inventory remains with the buyer.
true
t or f: Evidence shows that a little under 50% of cash discounts typically are forfeited. This means that neither method is markedly more reflective of practice than the other. Further, with the typical short collection periods on receivables, the likelihood of any material difference in financial statement accounts arising between the methods at any point in time is low.
true
t or f: For any TS sold during the period, the net effect on the income statement for the period reflects any change in fair value from the last report to the date of sale.
true
t or f: For common stock, the number of authorized shares is reported either on the face of the balance sheet or in the notes, while the number of shares issued and outstanding are recognized on the face of the balance sheet or in a note.
true
t or f: For discounting, he bank charges interest on the maturity value a full 8 months before that value is reached, effectively raising the interest cost to Wyoming. Wyoming records the following entries to discount the note. First, Wyoming accrued interest revenue through the date of the discounting. Next, Wyoming records the discounting of the note. To accrue interest revenue on august 1st, interest receivable is debited and interest revenue is credited. To record discounting of the note, debit cash and loss on sale of note receivable, while crediting note receivable and interest receivable. After august 1, the note is no longer an asset of Wyoming and is removed from its books. Two factors contribute to the loss: the note was transferred relatively early in its term, and the bank charged a higher interest rate. If the note had been held longer before it was discounted, the total interest charged by the bank would have been reduced, thus increasing the proceeds.
true
t or f: Historical loss rates would be reasonable for estimating credit losses because (1) the composition of the current receivables is of the similar risk and characteristics of the historical receivables, and (2) a reasonable forecast supports the continued use of the loss rates.
true
t or f: If a note were exchanged solely for cash and no other services, promises or merchandise, the cash value is considered the present value of the note, even if the interest rate is unreasonable or unrealistic. In other words, the amount of cash exchanged is equal to the carrying value of the note at the inception of the note. This means that a discount (premium) on note receivable will be recorded if the face value of the note is greater than (less than) the amount of cash exchanged. A discount (premium) is amortized over the life of the note as an increase (decrease) in interest revenue.
true
t or f: If the seller of receivables retains a beneficial interest (right to receive cash flows from the receivables), the buyer might be unable to sell the assets, implying that control has not been completely relinquished by the seller.
true
t or f: In estimating the pension obligation, employers must estimate the eventual retirement payments to employees and discount the payments to the present.
true
t or f: In the absence of an observable price for HTM securities, the acquisition cost may be measured as the present value of the cash principal and interest expected to be collected based upon the stated rate, discounted at the market rate in effect at the time of acquisition.
true
t or f: In the case of a bond investment (debt security), if present value and face value do not differ materially, the bond investment is recognized at face value.
true
t or f: In the notes to the financial statements, the following items should be disclosed where applicable: amortized cost and maturity dates, aggregate fair value, allowance for credit losses, gross realized and unrealized holding gains and losses, change in net unrealized holding gains and losses, info about contractual maturities of securities, impairment disclosures, inputs in determining fair value and other required fair value disclosures.
true
t or f: Lease or Buy decisions use TVM calculations
true
t or f: Loan payments are calculated using the time value of money concept.
true
t or f: Management judgement is required in estimating interest rates in many cases, estimating future payments, estimating the number of periods, and determining whether to use the traditional approach or the expected cash flow approach when determining PV when there are risks in the cash flows.
true
t or f: Many people have suggested using an account such as Allowance for Sales Returns (contra AR) instead of Refund Liability if the sales amount for the return is associated with outstanding AR
true
t or f: NSF checks go back into accounts receivable
true
t or f: Non-trade receivables are generally reported separately from trade receivables.
true
t or f: Not all investments that qualify are required to be treated as cash equivalents. An entity shall establish a policy concerning which short-term, highly liquid investments that satisfy the definition of cash equivalents are treated as cash equivalents.
true
t or f: Notes receivables often arise from revenue contracts with extended payment terms but can also arise from other transactions such as the sale of equipment or a loan to another entity.
true
t or f: Only after the sale of an AFS investment is the change in fair value reflected in the income statement.
true
t or f: Premiums on notes receivables represent a reduction of interest revenue that will be recognized over the term of the note.
true
t or f: Restricted cash is combined with cash and cash equivalents for cash flow purposes.
true
t or f: The FASB has not specifically defined restricted cash in the Codification, However, disclosures on the nature of the restrictions on cash and cash equivalents provide insight into the availability of amounts on the balance sheet and about the sources and useless of restricted cash and restricted cash equivalents during a reporting period.
true
t or f: The PV of cash expected to be collected equals the note's face value when the stated rate is equal to the market rate. Here, the company measures the note receivable at its face value (equal to the cash exchanged) and accrues interest over the term of the note.
true
t or f: The PV of payments does not equal the bond investment's face value when the stated rate does not equal the market rate.
true
t or f: The accounts receivable balance will remain unchanged while the allowance is reinstated. The allowance must be reinstated to properly reflect managements' overall estimate of the uncollectible amount.
true
t or f: The adjusting entry to establish the allowance recognized the estimated economic effect of future uncollectible accounts. This means that write-offs of specific accounts do not further reduce total assets or income unless they exceed the estimate.
true
t or f: The balance sheet is regularly closed on the last day of each reporting period, but it can be constructed at any point in time.
true
t or f: The current liability section is listed first, followed by the noncurrent liability section.
true
t or f: The key financial reporting issue is whether an arrangement involving receivables is a sale or a borrowing transaction
true
t or f: The recognition of an allowance under the CECL model is required even if the chance of a write-off is remote. Therefore, unless there is a zero-loss expectation, the allowance method would be used under GAAP. However, for tax purposes, the direct write-off method is the primary method used.
true
t or f: The recourse obligation, by itself, does not prevent the seller from recording the transfer of receivables as a sale. Nor does an option held by the seller to repurchase the receivables necessarily require recording the arrangement as a loan. If the arrangement does not qualify as a sale, it would be recorded as a secured borrowing.
true
t or f: The shorter the compounding period, the greater the accumulated interest.
true
t or f: Time value of money ignores changes in inflation or in what a dollar can purchase due to changing prices- instead, it focuses on the growth in dollars due to investing.
true
t or f: Under both the gross and net methods, the total amount of revenue recognized is identical. It is the composition of the revenue that differs.
true
t or f: Unless otherwise stated, all annuities are assumed to be ordinary annuities.
true
t or f: Unless the bank made an error, the majority of the reconciling items to the bank balances are due to timing. This means that, given more time, the items would not be different between book and bank. Thus, no adjusting entries are required
true
t or f: Unless the bank made an error, the majority of the reconciling items to the bank balances are due to timing. This means that, given more time, the items would not be different between book and bank. Thus, no adjusting entries are required.
true
t or f: We determine the FV of an annuity using a single interest rate.
true
t or f: When a trading security is purchased outside of an interest payment date, the purchaser would accrue interest revenue from the last interest payment date to the purchase date. They would debit investment in TS and interest receivable, while crediting cash. At year end, they would debit cash, while crediting interest receivable and interest revenue. To adjust the bond investment to fair value, debit unrealized gain or loss and credit fair value adjustment.
true
t or f: When interest periods of less than one year are used, the annual interest rate given must be converted to an equivalent rate for the time period specified for compounding purposes.
true
t or f: When more than one bank account exists, each is reconciled separately with an individual subsidiary cash ledger account. The sum of the correct ending subsidiary cash ledger balances then equals the cash balance for reporting purposes.
true
t or f: When using straight-line interest method, in each period, the amount of cash paid will be the same. Interest revenue will also be the same each period of the bonds term. Thus, each year the discount amortization is the same as well. To record the receipt of interest and amortization of the discount, the company will debit cash and investment in HTM securities, while crediting interest revenue (if the company does not recognize a separate discount account). If there were a premium rather than a discount, the company would debit cash, while crediting investment in HTM securities and interest revenue.
true
t or f: While a company should record an estimate for sales returns with each sale and adjust the transaction price accordingly, companies would typically estimate sales returns at a report date for practical reasons and record an adjusting entry for estimated returns.
true
t or f: While the fair value option is not applicable for TS, the accounting treatment under the fair value option is similar to that of TS securities.
true
t or f: With insignificant influence, the investment is initially recorded at its purchase price plus other incidental costs, such as brokerage fees, excise taxes, and other transfer costs incurred as part of the purchase. Subsequently, the investment is recognized at fair value and any unrealized holding gains and losses are recognized in net income (FV-NI).
true
t or f: Write-off entries effect neither income nor the net amount of accounts receivable outstanding. Instead, it is the culmination of the process that began with the adjusting entry to estimate bad debt expense. The write-off entry changes only the components of net accounts receivable, not the net amount.
true
t or f: a bank can make more money when buying without recourse if all the customers pay their accounts
true
t or f: a cash refund due from the IFRS is a receivable
true
t or f: adjusting journal entries are required to correct the cash balance for the book
true
t or f: all notes in pledging/assigning problems will be reasonable rate
true
t or f: as bond prices rise, yield drops
true
t or f: book reconciliations require adjusting journal entries. cash is the plug in these entries.
true
t or f: cash equivalents are reported as cash or a separate current asset
true
t or f: cash payments reduce N/R and the discount reduction is the same as interest revenue
true
t or f: changes in the market value of the investment are ignored under the equity method
true
t or f: commercial paper is very stable and nearly risk-free
true
t or f: companies generally record a net bond investment rather than record separate accounts for discounts or premiums.
true
t or f: compensating balances are reported as a separate current or noncurrent asset from cash if legally restricted; otherwise reported withcassh
true
t or f: correcting negative bank balances (overdrafts) depends on if there are off-setting balances at the same bank
true
t or f: dividends are treated as extra income under the FMV method
true
t or f: each item reconciled to the book balance requires an adjusting journal entry
true
t or f: for AFS securities, if the company held other investments in AFS securities at year end, an adjustment would be required to FVA at year end.
true
t or f: for AFS, MTM entries are recorded as OCI
true
t or f: for ALL reasonable rate notes- ic=im FcV=PV=CV
true
t or f: for TS and AFS, SFVA adjustments will have the same effect on SHE, but not net income
true
t or f: for TS, AFS, and HTM securities, interest revenue impacts net income
true
t or f: for TS, AFS, and HTM securities, when selling, you should: bring interest up to date, remove at cost, record realized gains/losses if required as net income
true
t or f: for TS, MTM entries are recorded as net income
true
t or f: for a reasonable-rate annuity, you should always solve for pmt with tvm solver
true
t or f: for all annuity notes, FV=0
true
t or f: for all lump-sum type notes, FV=FcV
true
t or f: for annuity reasonable rate notes- CV at the end=0=FV PMT= principal + interest
true
t or f: for lump-sum reasonable rate notes- Interest revenue=cash pmt CV doesn't change CV at end of the note=FcV
true
t or f: for non-interest bearing annuities, you calculate the PMT through division and then calculate PV with TVM solver
true
t or f: for non-interest bearing notes, Ic=0, so there is no cash pmt
true
t or f: for non-interest bearing notes- ic=0 (ic<im, so there is a discount) no cash goes towards interest interest is embedded in the FcV
true
t or f: for the equity method of measuring equity securities, if the decline is judged to be other than temporary, the individual security is written down. and the amount of the write-down is accounted for as a realized loss
true
t or f: for trading securities- To adjust FVA at year-end, a company debits cash for the amount received, credits the investment in TS for book value, and either debits loss or credits gain. To eliminate the FVA balance, FVA is debited and unrealized gain or loss is credited.
true
t or f: for unreasonable rate notes- ic>im=premium ic<im=discount interest revenue or expense will not equal the cash payment associated with the annuity. it will change each period.
true
t or f: for unreasonable rate, lump sum notes, you should calculate the cash pmt first then solve for pv with tvm solver
true
t or f: for unreasonable rate, lump sum notes, you will either amortize a discount or premium
true
t or f: how we account for debt securities depends on their classification, which depends on the intentions of management
true
t or f: how we account for equity investment depends on how much influence the investor firm can exert over the investee firm
true
t or f: if a company you invest in with significant influence has a loss, investment loss is debited and investment is credited. if losses are so high that the investment account eventually becomes zero, you should discontinue using equity method but track the losses. if later the company becomes profitable, you should use equity method after unrecognized losses have been covered by positive income
true
t or f: if given purchase price of a bond, you can calculate the effective interest rate
true
t or f: if not told otherwise, assume that principal is paid at maturity and interest is paid each compounding period
true
t or f: if there are cumulative rounding errors, you should prioritize the discount and take off its balance
true
t or f: if you buy a 1 year CD, T-bill, or commercial paper with an maturity left of <90 days, it is considered cash equivalent
true
t or f: if you have a negative cash balance in a bank account at a bank where you have another account, you show it as a subtraction from the cash balance. if it is the only account at the bank, you would show it as a current liability
true
t or f: in equity method, carrying value of the investment is adjusted for the results of the investee's operations. the income or loss is later realized either through dividend distributions or when the security is sold
true
t or f: in year 2 of bank reconciliations, the DIT and outstanding checks need to be added to the book balance, as they are already reflected in the bank balance due to timing
true
t or f: interest earned that was collected by the bank needs to be added to the book balance for bank reconciliations
true
t or f: investments in stock can never be a cash equivalent
true
t or f: no MTM entry is required for HTM securities
true
t or f: non-interest bearing annuity notes amortize the note receivable AND discount
true
t or f: non-interest bearing lump sum notes amortize the discount
true
t or f: non-interest bearing lump-sum notes will have the largest discounts
true
t or f: non-interest bearing notes ALWAYS contain a discount
true
t or f: nothing goes on OCI for equity securities
true
t or f: nothing is categorized as TS, HTM, or AFS or equity securities
true
t or f: payment is FcV x Ic
true
t or f: postage stamps are not cash or cash equivalents
true
t or f: postdated checks are a receivable
true
t or f: reasonable rate notes will never have a premium or discount
true
t or f: reasonable rate, annuity notes amortize note receivable
true
t or f: reasonable rate, lump sum notes have no amortization
true
t or f: restricted cash is reported as a separate current or noncurrent asset from cash.
true
t or f: short-term investments can be treated as cash equivalents or short-term investments. it has to do with original maturity (3 mos. or less is a cash equivalent)
true
t or f: some restricted cash is not an investment and must be segregated from cash as 'restricted cash'
true
t or f: the 2nd debit in collections of AR assigned could be ADA, sales discounts, or sales returns.
true
t or f: the balance ending balance in OCI should be equal to the ending balance in SFVA
true
t or f: the balance sheet method calculation results in the ending balance of the ADA account
true
t or f: the bank usually lowers the fee if a company sells with recourse
true
t or f: the company with the intent of factoring their receivables will transfer the AR details to the purchasing company; the purchaser will follow up with customers to collect payment
true
t or f: the factoring company will keep the AR on their books if it is classified as secured borrowing and book as a NP instead
true
t or f: the factoring company will write off the AR from their books if it is classified as a sale (with and without recourse)
true
t or f: the fair value option election must be selected on the purchase date of the asset, applied to each investment individually, and the decision is generally irrevocable. The company must include a disclosure on the fair value option election.
true
t or f: the income statement method calculation results in the amount of the bad debt expense journal entry
true
t or f: the investment account for bonds includes the discount or premium
true
t or f: the journal entry for receipt of interest for debt securities purchased at a premium is the same for all 3 types
true
t or f: the journal entry for receipt of interest for debt securities purchased at discount is the same for all 3 types
true
t or f: the journal entry for receipt of interest for debt securities purchased at par is the same for all 3 types
true
t or f: the journal entry for the purchase of a debt security is the same for all 3 types
true
t or f: the journal entry for the purchase of an equity security is the same under both the FMV and equity methods
true
t or f: time value of money measures opportunity cost
true
t or f: treasury stock is shown as a deduction in SHE.
true
t or f: we have to solve for SFVA first before recording the unrealized gain/loss adjusting entry
true
t or f: we should round PMT to the nearest dollar when using it as an input
true
t or f: we will only discuss lump sum unreasonable rate notes in this class
true
t or f: when pledging/assigning problems, if it says they collected an amount 'less' cash discounts, cash will be the plug
true
t or f: when pledging/assigning problems, if it says they collected an amount 'plus' cash discounts, AR assigned will be the plug
true
t or f: with AR assigned, you can never credit cash for more than is due on a note payable. if you pay off the note and still have AR assigned left, you should reverse your A/R and ADA entry.
true
t or f: with pledging/assigning AR, the company who intends to assign their receivables will leave AR on their books and collect the cash from their customers. At the time of assignment they will also book a regular NP. The company promises to pay the lender for the NP with the cash received from AR in the future. They will disclose of the agreement in their financial statements.
true
t or f: writing off accounts receivable under the allowance method does not adjust revenue or the asset account
true
t or f: you should always prorate the investee's net income for the fraction of the year owned under equity method
true
t or f: you should never prorate the investee's dividends for the fraction of the year owned under equity method
true
t or. f: cash down payments are included in service revenue
true
This is the cash held by the company but not deposited at month end. This amount, usually representing undeposited checks, is added to the bank balance.
undeposited cash
3 things that should be reconciled to the bank balance
undeposited cash, deposits in transit, outstanding checks
which conceptual framework item supports SFVA
valuation principle; FMV is more relevant
Cash discounts are considered ________ consideration because the company is uncertain as to whether the customer will provide payment within the discount period.
variable
Sales returns and allowances are forms of _______ consideration. The seller is uncertain of the amount of returns or allowances that will be extended to the customer, thus making the eventual transaction price uncertain at the time revenue is recognized. The transaction price is described as the amount of consideration that the company is expected to be entitled to.
variable
when a company factors ________ recourse, bad debts are paid by the transferror to the transferee
with
when a company factors ________ recourse, bad debts are not paid by the transferor
without
inventory items requiring further processing
work-in-process inventory
The amount of _________ _______ provides useful information to financial statement users on the company's ability to pay short term obligations when they become due.
working capital
With current assets and current liabilities identified on a classified balance sheet, _______ ________ (current assets-current liabilities) is readily determinable.
working capital
When the company establishes an allowance, it is unclear which specific allowance would ultimately be determined to be uncollectible. A ________ of a specific account would not typically occur unless the company has exhausted all methods of collections.
write-off
If a company purchases bonds and classified it as HTM, but later decides to account for the HTM investment using the fair value option, an adjusting entry is recorded at _____ _____. Fair Value adjustment-FVO is debited and unrealized gain/loss-income is credited.
year end
for FMV method of equity securities, do you adjust equity securities to fmv
yes
