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CPA FAR Updated
Why do treasury stock transactions usually bypass gains and losses even when the shares are retired?
Reacquiring, reissuing, or retiring a company's own shares is an owner-equity transaction rather than a performance transaction.
How should a company record treasury shares reissued below their cost when APIC from treasury stock is available?
The company debits cash for the proceeds, debits APIC from treasury stock for the shortfall up to the available APIC balance, and credits treasury stock for the shares' recorded cost.
What is APIC from treasury stock used for under the cost method?
APIC from treasury stock accumulates credits from treasury shares reissued above cost. It can later absorb shortfalls when treasury shares are reissued below cost.
If a company reissues treasury stock above its cost, does the excess increase net income?
No. Under the cost method, the company removes treasury stock at its recorded cost and credits the excess proceeds to APIC from treasury stock.
How do I use normal balances when the answer choices are all journal entries?
Ignore the option wording at first and classify the accounts yourself. Then compare your expected direction with each option.
When does cash received from a customer become unearned revenue instead of revenue?
Cash received before the company has performed the promised service is generally recorded as a liability. Revenue is recognized as the performance obligation is satisfied.
How should I interpret a bank debit memo when recording the company's journal entry?
Read the bank memo from the company's perspective. A bank debit memo means the bank reduced the customer's deposit balance, so the company's cash decreased.
Why should I identify accounts before doing the math in a CPA transaction question?
The account classification tells you what the number means. A cash receipt could be revenue, unearned revenue, a loan, owner investment, or collection of a receivable.
Are consolidation elimination entries posted to the parent or subsidiary books?
No. Consolidation elimination entries are worksheet entries used to prepare consolidated financial statements. They are not posted to the parent company's general ledger or the subsidiary's general ledger. That is why a parent can keep its investment account on its own books while the consolidation worksheet eliminates the investment against the subsidiary's equity. The standalone books and consolidated reporting worksheet serve different purposes.
Why can my consolidation journal entry balance but still be wrong?
A consolidation entry can balance mechanically while still using the wrong accounts or the wrong reporting layer. For an acquisition date elimination, you need to remove the parent's investment and the subsidiary's acquisition date equity, recognize fair value adjustments, recognize any goodwill, and include noncontrolling interest if the parent owns less than 100%. If you force the debits and credits to balance but omit the fair value adjustment or noncontrolling interest, the entry may look tidy while producing the wrong consolidated statements. Balance is necessary, but it is not enough. The entry also has to eliminate the right relationship.
What should I check first in a FAR revenue recognition simulation?
Start with performance, not cash. Ask whether the company has transferred the goods or performed the service by the reporting date. If cash arrived before performance, the credit is usually unearned revenue or a contract liability. If performance happened before billing or collection, revenue may be recognized with a receivable or contract asset depending on the facts. The entry follows the timing:
How do I tell an adjusting entry from a consolidation elimination on FAR simulations?
Ask which reporting layer the entry belongs to. An adjusting entry updates one company's own books for accrual timing, such as unearned revenue becoming earned, wages incurred but unpaid, or prepaid costs being used. A consolidation elimination exists only on the consolidated worksheet. It removes parent subsidiary balances, intercompany balances, or the parent's investment in the subsidiary. If the entry would be posted to a standalone general ledger, think adjusting entry. If it only makes the parent and subsidiary look like one reporting entity, think elimination.
How should I approach a bank reconciliation TBS?
Read every exhibit first and tag each item before calculating. Use four tags: bank timing item, bank error, book side bank activity, and company error. Then build the adjusted bank balance and adjusted book balance separately. After the balances tie, identify which book side items require adjusting entries. This process prevents the common simulation mistake of using the right number on the wrong side.
How do I handle bank errors in a reconciliation?
Bank errors adjust the bank side because the bank statement is wrong, not the company's books. If the bank incorrectly charged the company's account, add the amount back to the bank statement balance. If the bank incorrectly credited the company's account, subtract the amount from the bank statement balance. The goal is to correct the bank statement to what it should have shown. Do not record a journal entry for a pure bank error unless the company's books also contain an error.
Which bank reconciliation items adjust the books?
Items adjust the books when the bank has recorded something that the company has not recorded yet, or when the company recorded something incorrectly. Common book side items include bank service charges, interest income, NSF checks, electronic collections, automatic loan payments, and company errors. These usually require journal entries because the cash ledger is wrong or incomplete. Deposits in transit and outstanding checks usually do not adjust the books because the company already recorded them.
Why does my bank reconciliation not tie?
A bank reconciliation usually fails to tie because one item is on the wrong side, omitted, or corrected in the wrong direction. Start by separating the bank side from the book side. Deposits in transit, outstanding checks, and bank errors adjust the bank statement balance. Bank service charges, NSF checks, interest earned, automatic bank transactions, and company recording errors adjust the book balance. If the adjusted bank balance and adjusted book balance do not agree, do not force the answer. Reclassify each item and check whether it requires a journal entry.
How do you distinguish special revenue, debt service, and capital projects funds?
author: AcadiFi Team Answer: Look at the purpose of the resources. A special revenue fund accounts for restricted or committed revenue sources used for specified operating purposes. A debt service fund accumulates resources to pay principal and inter
How do bond proceeds appear in governmental fund financial statements?
author: AcadiFi Team Answer: In a governmental fund, long-term bond proceeds are commonly reported as an other financing source because the fund received current financial resources. The governmental fund does not report the full long-term bond payab
Why are capital asset purchases treated differently in governmental funds?
author: AcadiFi Team Answer: Governmental funds focus on current financial resources, so a capital asset purchase is generally reported as an expenditure in the fund statements. The fund statement is showing that financial resources were used during
Which governmental funds use modified accrual accounting?
author: AcadiFi Team Answer: The governmental funds use the current financial resources measurement focus and modified accrual basis. The five governmental fund types are the general fund, special revenue funds, debt service funds, capital projects f
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