Becker - FAR F3 Flashcards

Current Expected Credit Loss (CECL) Method

Estimates expected credit losses over the life of accounts receivable and records an allowance for credit losses (a contra-asset) to reduce accounts receivable to its net realizable value

DR Credit Loss Expense

CR Allowance for Credit Losses

When estimating losses under the CECL Method, what is the correct journal entry?

DR Allowance for Credit Losses

CR Accounts Receivable

When a specific account is written off under the CECL Method, what is the correct journal entry?

Net Realizable Value (NRV)

The amount a company expects to actually collect from its accounts receivable after accounting for estimated credit losses; In other words, it is the gross accounts receivable balance minus the allowance for credit losses

Credit Loss Expense

This is the expense recorded on the income statement; It represents the estimated amount of accounts receivable that the company expects won't be collected (i.e., bad debts)

Allowance for Credit Losses

This is a contra-asset account on the balance sheet; It reduces the total accounts receivable balance to show the net realizable value (the amount the company realistically expects to collect)

Dollar-Value LIFO

A method that measures inventory in terms of total dollar value rather than physical units, adjusting for price changes using a price index

Ending Inventory at Current Year Cost / Price Index

How do you calculate the ending inventory at base year for Dollar-Value LIFO? (Step 1)

Ending Inventory at Current Year Cost / Ending Inventory at Base Year Cost

How do you calculate the price index for Dollar-Value LIFO? (Step 1)

Ending Inventory at Base Year Cost - Beginning Inventory at Base Year Cost

How do you calculate the increase without inflation (base year) for Dollar-Value LIFO? (Step 2)

(Increase Without Inflation - Base Year Increase) * Price Index

How do you calculate the Dollar-Value LIFO inventory layer? (Step 3)

Beginning Inventory at Dollar-Value LIFO + LIFO Layer

How do you calculate the ending dollar value inventory for Dollar-Value LIFO? (Step 4)

FIFO

Which U.S. GAAP inventory costing method would a company that wishes to maximize profits in a period of rising prices use?

Weighted Average Accumulated Expenditures

Represents the average amount of money tied up in construction over time, weighted by how long each amount was outstanding during the construction period

Recoverability Test

Determines whether an asset is impaired;
Compares the carrying value (CV) of the asset to the undiscounted future cash flows expected from using and disposing of the asset

Undiscounted Future Cash Flows

The total cash inflows expected from an asset over its remaining useful life, without adjusting for the time value of money

Yes

If an asset’s carrying value is greater than undiscounted future cash flows, does it pass the recoverability test for impairment?

No

If an asset’s carrying value is less than undiscounted future cash flows, does it pass the recoverability test for impairment?

Carrying Value - Fair Value

How do you calculate Impairment Loss?

No Effect, No Effect

During the year, Hauser Co. recognized credit loss adjustments (write-offs) for a customer's account receivable. Hauser used the current expected credit loss (CECL) method. What impact would the credit loss adjustment have on net income? Total assets?

With Recourse

The factor (buyer of the receivables) can return any uncollectible receivables back to the original seller. This means the seller retains the risk of credit losses.

Without Recourse

The sale is final, and the factor assumes all the risk of credit losses. The factor cannot demand the seller to buy back uncollectible receivables. This means the seller transfers the risk of loss to the factor, and the transaction is treated as a true sale.

C

In January, Stitch, Inc. adopted the dollar-value LIFO method of inventory valuation. At adoption, inventory was valued at $50,000. During the year, inventory increased $30,000 using base-year prices, and prices increased 10%. The designated market value of Stitch's inventory exceeded its cost at year end. What amount of inventory should Stitch report in its year-end balance sheet?

A. $80,000

B. $88,000

C. $83,000

D. $85,000

D

A firm’s ending inventory balance was overstated by $1,000. Which of the following statements is correct according to a periodic inventory system?

A. The gross margin was understated by $1,000.

B. The cost of goods sold was overstated by $1,000.

C. The cost of goods available for sale was overstated by $1,000.

D. The retained earnings were overstated by $1,000.

Understated, Understated

Garson Co. recorded goods in transit purchased F.O.B. shipping point at year end as purchases. The goods were excluded from ending inventory. What effect does the omission have on Garson's assets and retained earnings at year end?