Cash correct answers Money that is FREE and CLEAR and available to be spend in current operations.
Not Cash: correct answers Security deposits & bond sinking funds
Three-Month Rule correct answers Highly liquid securities with ORIGINAL maturity dates of three months or less are treated as cas...
cash correct answers money that is free and clear and available to be spend in current operations
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CPA Exam (correct answers)
Cash correct answers Money that is FREE and CLEAR and available to be spend in
current operations.
Not Cash: correct answers Security deposits & bond sinking funds
Three-Month Rule correct answers Highly liquid securities with ORIGINAL maturity
dates of three months or less are treated as cash.
Bad Debts - Direct Write-Off Method correct answers - No entry for bad debts until
customer actually defaults.
- At default, the cutomer's account is written off.
- Theoretically weak, matching issue
- Only allowed if bad debt expense is immaterial
Bad Debts - Allowance Method correct answers Income Statement Approach
Balance Sheet Approach
Income Statement Approach correct answers - Matching Concept
- Estimate of bad debt expense is based on the income statement
- Allowance account balance has no bearing on the amount of adjustment
Balance sheet reporting: correct answers Accounts Receivable
Less: Allowance for bad debts
= Net realizable value of A/R
Balance Sheet Approach correct answers - Estimate of bad debt expense is based on
the balance sheet
- Period sales have no bearing on the amount of adjustment
Written-off account later collected correct answers Reverse write-off entry. Collect as
usual.
Assigning Accounts Receivable correct answers - Assignment of A/R normally is done
with recourse
- Assignment usually is done without notification to customers
Factoring Accounts Receivable correct answers - With or without recourse.
Pledging A/R correct answers - Use receivables as security for a loan
- Requires footnote disclosure
Noninterest-Bearing Notes correct answers APB 21 requires interest to be inputed
- When a note is made under customary trade terms and is due in less than one year,
there is no requirement to impute interest to that note.
Held-to-Maturity Securities correct answers - Debt securities only
- Mgt has both intent and ability to hold the securities to maturity
- Classified on BS based on maturity date
- Carry on balance sheet at amortized cost
Trading Securities correct answers - Equity or Debt securities held primarily for sale in
the near term
- Classified on BS as current
- Carried on BS at FMV
- Unreal holding gains/losses belong on the income statement
Available-for-sale Securities correct answers - Debt or Equity securities not classified as
either HTM or Trading
- Debt is classified on BS by maturity date
- Equity securities are classified by mgt's intent
- Carried on BS at aggregate FMV
- Unreal G/L go directly to SH equity (other comprehensive income)
Derivatives correct answers Investment that derives its value from something else
(asset or liability)
Hedging correct answers Strategy of investing in a derivative to counteralance the
potential loss from another security or transaction
Non-Hedge Derivatives correct answers - Record on BS as asset or liability at FMV
- Report unrealized G/L on IS
Fair Value Hedge correct answers Protects against potential loss from the change in an
asset's or liabilities's FMV
- Record on BS as asset or liability at fair market value
- Report unrealized holding G/L on IS
Cash-Flow Hedge correct answers Protects against potential loss from an asset's or
liability's future cash flow
- Record on BS as asset or liability
- Unreal G/L depend on whether hedge is effective
- Effective cash flow hedges counterbalance losses elsewhere
- Ineffective cash flow hedges are reported on the IS
Foreign currency hedges accounted for as FV hedges correct answers - Foreign
currency denominated firm commitment hedge
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