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CPA REVIEW VOLUME 5



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)


Assets - Inventory LIFO

From CPA Review; Written by Steve Dowling on 2012-02-07

How does retail LIFO work?

In computing ending inventory, the mechanics of the retail method are basically followed. Beginning inventory is excluded, and both markups and markdowns are included in computing the cost to retail ratio. A decrease in inventory during the period is deducted from the most recently added layer and then subtracted from layers in the inverse order of addition. A retail price index is used in restating inventory.

What are the steps in dollar value LIFO?

Dollar value LIFO is an extension of the historical cost principle. This method aggregates dollars instead of units into homogeneous groupings. The method assumes that an inventory decrease came from the last year. The steps under dollar value LIFO are:
o Restate ending inventory in the current year into base dollars by applying a price index.
o Subtract the year zero inventory in base dollars from the current...(Read More)


Assets - Inventory Overview

From CPA Review; Written by Steve Dowling on 2012-02-06

How may inventory be valued?

Inventory may be valued at the lower of cost or market value. Specialized inventory methods may be used such as:
o Retail
o Retail lower of cost or market
o Retail LIFO
o Dollar value LIFO

Losses on purchase commitments should be recognized in the accounts. If ending inventory is overstated, cost of sales is understated, and net income is overstated. If beginning inventory is overstated, cost of sales is overstated, and net income is understated.

How does the lower of cost or market value method work?

Inventories are recorded at the lower of cost or market value for conservatism purposes applied on a total, category, or individual basis. If cost is below market value (replacement cost), cost is taken. If market value is below cost, we start with market value.
o Market value cannot exceed the ceiling which is net realizable value (selling price...(Read More)


Assets - Accounts Receivable

From CPA Review; Written by Steve Dowling on 2012-02-06

What is the difference between an assignment and factoring?

The assignment of accounts receivable typically requires the incurrence of a financing charge as well as interest expense on the note. At a particular date, the transferor's equity in the assigned receivables equals the difference between the accounts receivable assigned and the balance of the line ($5,000). When payments on the receivables are received, they are remitted by the company to the lending institution to reduce the liability. Assignment is on a nonnotification basis to customers. It is made with recourse, where the company has to make good for uncollectible customer accounts. In a factoring of accounts receivable, the receivables are in effect sold. Customers are typically notified. Factoring is usually done without recourse, where the risk of uncollectibility of the customer's account rests with the financing institution....(Read More)


Asset Valuation

From CPA Review; Written by Steve Dowling on 2012-02-06

What valuation is used for assets? Assets are recorded at the price paid plus related incidental costs (e.g., insurance, freight). If an asset is acquired for the incurrence of a liability, the asset is recorded at the present value (discounted value) of the payments.

If a machine was acquired in exchange for making ten $10,000 payments at an interest rate of 10 percent, the asset would be recorded at:
10,000 x 6.145 = 61,450 (using annuity table)

In an assignment of accounts receivable, the entries are:
Accounts Receivable Assigned 50,000
Accounts Receivable (50,000)

To designate specific accounts for assignment and collateralization for the loan.
Cash 45,000
Notes Payable (45,000)

To recognize a liability for the advance received from the lending institution.
Allowance for Bad Debts XX
Accounts Receivable Assigned (XX)

To write off an uncollectible assigned accounts...(Read More)





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