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CPA REVIEW VOLUME 6



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)


Nonmonetary Transactions

From CPA Review; Written by Steve Dowling on 2012-02-13

How is an exchange of assets recorded?

Nonmonetary transactions covered under APB 29 deal primarily with exchanges or distributions of fixed assets. In an exchange of similar assets, the new asset received is recorded at the book value of the old asset plus the cash paid. Since book value of the old asset is the basis to charge the new asset, no gain is possible. However, a loss is possible, because in no case can the new asset exceed the fair market value of the new asset.
In an exchange of dissimilar assets (e.g., truck for machine), the new asset is recorded at the fair market value of the old asset plus the cash paid. Thus, a gain or loss may arise because the fair market value of the old asset will be different from the book value of the old asset. However, the new asset cannot be shown at more than its fair market value.
Fair market value in a nonmonetary exchange may be based...(Read More)


Capitalized Interest

From CPA Review; Written by Steve Dowling on 2012-02-13

When is interest expensed or capitalized?

Disclosure should be made of the interest capitalized and expensed. Interest incurred on borrowed funds is expensed. However, interest on borrowed money is capitalized to the asset account and then amortized in the following instances:

o Self-constructed assets for the entity's own use. To justify interest capitalization, a time period must exist for assets to be prepared for use.
o Assets purchased for the company's own use by arrangements mandating a down payment and/or progress payments.
o Assets for sale or lease constructed as discrete, individual projects (e.g., real estate development).

Interest is not capitalized for:
o Assets produced in large volume or on a repetitive basis
o Assets in use or ready for use
o Assets not in use and not being prepared for use

What interest rate is used?

Interest capitalized is based on...(Read More)


Depreciation

From CPA Review; Written by Steve Dowling on 2012-02-12

How do I calculate depreciation?

Fractional year depreciation is computing depreciation when the asset is acquired during the year. A proration is required.

How is depreciation calculated by group and composite methods?

Group and composite depreciation methods involve similar accounting. The group method is used for similar assets, while the composite method is used for dissimilar assets. Both methods are generally accepted. There is one accumulated depreciation account for the entire group.
Depreciation rate = Depreciation / Gross Cost

For a period:

Depreciation expense = Depreciation Rate x Gross Cost
Depreciable life = Depreciable Cost / Depreciation

When an asset is sold in the group, the entry is:
Cash (proceeds received) $100
Accumulated Depreciation (plug figure) $50
Fixed Asset (cost) ($150)

Note that upon sale...(Read More)


Fixed Assets

From CPA Review; Written by Steve Dowling on 2012-02-12

How are fixed assets recorded?

A fixed asset is recorded at its fair market value or the fair market value of the consideration given, whichever is more clearly evident.
o The cost of buying an asset includes all costs necessary to put that asset into existing use and location, including freight, insurance, taxes, installation, and breaking-in costs (e.g., instruction).
o Additions to an existing asset (e.g., garage attached to a house) are capitalized and depreciated over the shorter of the life of the addition or the life of the house. Rearrangement and reinstallation costs should be capitalized if they have future benefit. If not, they should be expensed. Obsolete fixed assets should be reclassified from property, plant, and equipment to other assets and shown at salvage value reflecting a loss.
o When two or more assets are bought for one price, cost is allocated to the assets...(Read More)





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