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CPA REVIEW VOLUME 3



The CPA Exam

From CPA Review; Written by Steve Dowling on 2012-01-15
The CPA Exam

The Uniform Certified Public Accountant Examination (Uniform CPA Exam) is the examination administered to people who wish to become Certified Public Accountants in the United States. The Uniform CPA Exam is developed and maintained by the American Institute of Certified Public Accountants (AICPA), and is administered by the National Association of State Boards of Accountancy (NASBA).

The sections have been reorganized as follows:

Auditing and Attestation – This section covers knowledge of planning the engagement, internal controls, obtaining and documenting information, reviewing engagements and evaluating information, and preparing communications.
Financial Accounting and Reporting – This section covers knowledge of concepts and standards for financial statements, typical items in financial statements, specific types of transactions and events, accounting and reporting for governmental...(Read More)


Research and Development Costs

From CPA Review; Written by Steve Dowling on 2012-02-01

How are research and development costs defined?

o Research is the testing done in search of a new product, service, process, or technique. Research can be aimed at deriving a material improvement to an existing product or process. Development is the translation of the research into a design for the new product or process. o Development may also result in material improvement in an existing product or process.

How are R&D costs accounted for?
Per FASB 2, research and development costs are expensed as incurred.

What are R&D costs?

R&D costs include:
o Salaries of personnel involved in R&D activities
o Rational allocation of indirect (general and administrative) costs

Note that R&D costs incurred under contract for others that are reimbursable are charged to a receivable account rather than expensed. Further, materials, equipment, and intangibles purchased from others that...(Read More)


Franchise Fee - Accounting Requirements

From CPA Review; Written by Steve Dowling on 2012-02-01

What accounting requirements exist?

o Unearned franchise fees are recorded at present value. Where a part of the initial fee constitutes a nonrefundable amount for services already performed, revenue should be accordingly recognized.
o The initial franchise fee is not typically allocated to specific franchisor services before all services are performed. This practice can only be done if actual transaction prices are available for individual services.
o If the franchisor sells equipment and inventory to the franchisee at no profit, a receivable and payable is recorded. No revenue or expense recognition is given.
o In the case of a repossessed franchise, refunded amounts to the franchisee reduce current revenue. If there is no refund, the franchisor books additional revenue for the consideration retained which was not previously recorded. In either situation, prospective accounting treatment...(Read More)


Revenue Recognition - Franchise Fees

From CPA Review; Written by Steve Dowling on 2012-02-01

Recognition of Franchise Fee Revenue by the Franchisor

When can franchise fees be recognized?

According to FASB 45, the franchisor can record revenue from the initial sale of the franchise only when all significant services and obligations applicable to the sale have been substantially performed. Substantial performance is indicated when:
o There is absence of intent to give cash refunds or relieve the accounts receivable due from the franchisee.
o Nothing material remains to be done by the franchisor.
o Initial services have been rendered.

The earliest date on which substantial performance can occur is the franchisees commencement of operations unless special circumstances can be shown to exist. In the case where it is probable that the franchisor will ultimately repurchase the franchise, the initial fee must be deferred and treated as a reduction of the repurchase price.

How...(Read More)


Revenue Recognition - Financing Arrangement

From CPA Review; Written by Steve Dowling on 2012-02-01

What is the definition of a financing arrangement?

Per FASB 49, the arrangement involving the sale and repurchase of inventory is, in substance, a financing arrangement. It mandates that the product financing arrangement be accounted for as a borrowing instead of a sale. In many cases, the product is stored on the company's (sponsor's) premises. Further, often the sponsor will guarantee the debt of the other entity. Typically, the sponsor eventually uses or sells most of the product in the financing arrangement. However, in some cases, the financing entity may sell small amounts of the product to other parties. The entity that gives financing to the sponsor is usually an existing creditor, nonbusiness entity, or trust. It is also possible that the finansor may have been established for the only purpose of providing financing for the sponsor.

Note that in all situations, the company...(Read More)





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