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CPA Exam – FAR. Top Exam Questions and answers. VERIFIED.
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CPA Exam – FAR. Top Exam Questions and answers. VERIFIED. Cash - -Money that is FREE and CLEAR and available to be spend in current operations. Not Cash: - -Security deposits & bond sinking funds Three-Month Rule - -Highly liquid securities with ORIGINAL maturity dates of three months ...

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  • August 10, 2023
  • 11
  • 2023/2024
  • Exam (elaborations)
  • Questions & answers

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  • cpa exam – far top exam questions and answers ve

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CPA Exam – FAR. Top Exam Questions
and answers. VERIFIED.

Cash - ✔✔-Money that is FREE and CLEAR and available to be spend in current operations.



Not Cash: - ✔✔-Security deposits & bond sinking funds



Three-Month Rule - ✔✔-Highly liquid securities with ORIGINAL maturity dates of three months or less
are treated as cash.



Bad Debts - Direct Write-Off Method - ✔✔-- No entry for bad debts until customer actually defaults.

- At default, the cutomer's account is written off.

- Theoretically weak, matching issue

- Only allowed if bad debt expense is immaterial



Bad Debts - Allowance Method - ✔✔-Income Statement Approach

Balance Sheet Approach



Income Statement Approach - ✔✔-- Matching Concept

- Estimate of bad debt expense is based on the income statement

- Allowance account balance has no bearing on the amount of adjustment



Balance sheet reporting: - ✔✔-Accounts Receivable

Less: Allowance for bad debts

= Net realizable value of A/R



Balance Sheet Approach - ✔✔-- Estimate of bad debt expense is based on the balance sheet

, - Period sales have no bearing on the amount of adjustment



Written-off account later collected - ✔✔-Reverse write-off entry. Collect as usual.



Assigning Accounts Receivable - ✔✔-- Assignment of A/R normally is done with recourse

- Assignment usually is done without notification to customers



Factoring Accounts Receivable - ✔✔-- With or without recourse.



Pledging A/R - ✔✔-- Use receivables as security for a loan

- Requires footnote disclosure



Noninterest-Bearing Notes - ✔✔-APB 21 requires interest to be inputed

- When a note is made under customary trade terms and is due in less than one year, there is no
requirement to impute interest to that note.



Investments - ✔✔-- Held-to-Maturity

- Trading Securities

- Available-for-Sale Securities



Held-to-Maturity Securities - ✔✔-- 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 - ✔✔-- 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

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