Exam (elaborations)
CPA EXAM – FAR QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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CPA EXAM – FAR QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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CPA EXAM – FAR QUESTIONS ANDANSWERS WITH SOLUTIONS 2024
Cash - ANSWER Money that is FREE and CLEAR and available to be spend in current operations.
Not Cash: - ANSWER Security deposits & bond sinking funds
Three-Month Rule - ANSWER Highly liquid securities with ORIGINAL maturity dates of three months or
less are treated as cash.
Bad Debts - Direct Write-Off Method - ANSWER - No entry for bad debts until customer actually defaults.
- At default, the cutomer's account is written off.
- Theoretically weak, matching issue
- Only allowed if bad debt expense is immaterial
Bad Debts - Allowance Method - ANSWER Income Statement Approach
Balance Sheet Approach
Income Statement Approach - ANSWER - Matching Concept
- Estimate of bad debt expense is based on the income statement
- Allowance account balance has no bearing on the amount of adjustment
Balance sheet reporting: - ANSWER Accounts Receivable
Less: Allowance for bad debts
= Net realizable value of A/R
Balance Sheet Approach - ANSWER - Estimate of bad debt expense is based on the balance sheet
- Period sales have no bearing on the amount of adjustment
, Written-off account later collected - ANSWER Reverse write-off entry. Collect as usual.
Assigning Accounts Receivable - ANSWER - Assignment of A/R normally is done with recourse
- Assignment usually is done without notification to customers
Factoring Accounts Receivable - ANSWER - With or without recourse.
Pledging A/R - ANSWER - Use receivables as security for a loan
- Requires footnote disclosure
Noninterest-Bearing Notes - ANSWER APB 21 requires interest to be inputed
- When a note is made under customary trade terms and is due in less than one year, there is no
requirement to impute interest to that note.
Investments - ANSWER - Held-to-Maturity
- Trading Securities
- Available-for-Sale Securities
Held-to-Maturity Securities - ANSWER - 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 - ANSWER - 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 - ANSWER - Debt or Equity securities not classified as either HTM or Trading
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