CPA BAR cheat sheet

Contribution margin per unit = price − variable cost per unit; contribution margin ratio = CM per unit ÷ price.

Breakeven units = fixed costs ÷ CM per unit; breakeven dollars = fixed costs ÷ CM ratio.

Target profit in units = (fixed costs + target profit) ÷ CM per unit.

Margin of safety = (actual or budgeted sales − breakeven sales) ÷ actual or budgeted sales.

Operating leverage = contribution margin ÷ operating income; higher leverage magnifies profit volatility from sales changes.

Relevant costs are future costs that differ among alternatives; sunk costs and allocated fixed costs are excluded.

Special-order rule: accept if incremental revenue exceeds incremental costs and no qualitative constraint (idle capacity) is violated.

Make-or-buy rule: buy only if avoidable fixed costs plus purchase price are below internal variable cost per unit.

Net present value = present value of cash inflows − initial investment; accept projects with NPV > 0 and rank by NPV when mutually exclusive.

Revenue recognition five steps: identify contract, identify performance obligations, determine transaction price, allocate price, recognize when obligations are satisfied.

Variable consideration is included using expected value or most likely amount, constrained to amounts not probable of significant reversal.

Lessee records a right-of-use asset and lease liability at present value of lease payments; short-term (≤12 months) and low-value leases may be expensed.

Finance lease criteria include transfer of ownership, purchase option reasonably certain, term covering major part of asset life, or PV of payments substantially all of fair value.

Goodwill is tested for impairment annually at the reporting-unit level; impairment loss equals carrying amount in excess of fair value.

Inventory is measured at lower of cost or net realizable value under US GAAP (FIFO/average); LIFO uses lower of cost or market.

Deferred tax assets and liabilities arise from temporary differences between book and tax bases; DTAs require a valuation allowance if more likely than not unrealizable.

Under ASC 740, uncertain tax positions are recognized only if more likely than not to be sustained, measured at the largest amount more likely than not to be realized.

Stock-based compensation is measured at grant-date fair value and expensed over the requisite service (vesting) period.

Governmental funds use modified accrual: revenues recognized when measurable and available; expenditures when the liability is incurred.

Proprietary and fiduciary funds use full accrual and economic resources measurement focus.

Fund financial statements: governmental funds report balance sheet and statement of revenues, expenditures, and changes in fund balances.

Government-wide statements use full accrual and include government-wide statement of net position and statement of activities.

Major fund test: 10% of the total for its fund type (or 5% of governmental plus enterprise combined) and 5% of the combined total of all funds.

Capital assets and long-term debt are reported only in government-wide statements, not in governmental fund statements.

Modified approach: infrastructure may be reported at cost without depreciation if maintained at or above an established condition level.

GASB fund balance classifications: nonspendable, restricted, committed, assigned, and unassigned, in that order of constraint.

Encumbrances are commitments recorded in governmental funds and closed at year-end; outstanding encumbrances are reported as assigned or committed fund balance.