25

Question 1

if coupon rate and market rate at issuance is closer, is the amount of amortization lower?

Answer 1

yes, it is lower

• farther apart rates means higher amort.

Question 2

who does a callable bond provide an option for?

Answer 2

the issuer, not bondholder

*a puttable bond provides option to bondholder

Question 3

is calling a bond more attractive when interest rates move lower?

Answer 3

yes

Question 4

what does an in-substance defeasance do?

Answer 4

it “freezes” the pmt of “P”+int, but does not extinguish the liability

Question 5

how is total accretion exp calc’d?

Answer 5

total est cost - total dep (ARO)

Question 6

how does YE accretion exp and DE affect ARC and ARO?

Answer 6

accretion exp increases ARO and DE decreases ARC

Question 7

in a non-monetary exch that lacks comm. subs, how is the asset valued?

Answer 7

it is valued at CV given up

Question 8

which item is included in both retail inv and cost method calculations?

Answer 8

purchase returns

Question 9

what is statutory consol. and merger?

Answer 9

• statutory consol = merging of 2 co’s into entirely new co.

* statutory merger = merging of 2 co’s into 1

Question 10

an entity must classify as a liability a fin. instrument at inception when:

Answer 10

(both)
*embodies an obl. to repurch the issuer’s equity shares

*(may) req’s issuer to settle obl. by transferring assets

Question 11

impaired HFS is valued as:

Answer 11

lower of NRV or CV

Question 12

what are the 3 classes of freestanding fin. instruments?

Answer 12

(1) mandatorily redeemable fin. instruments
(2) obl’s to repurch the issuer’s equity sh’s by transferring assets
(3) certain obl’s to issue a variable number of sh’s

Question 13

is troubleshooting considered R+D costs?

Answer 13

no, it isn’t

Question 14

what is the treatment of a nonrefundable lease bonus paid by lessee on signing an op. lease?

Answer 14

recog. income over life of lease

Question 15

how are leasehold improvements amort’d?

Answer 15

over the lesser of the remaining life or life of improvement

• if renewal option is uncertain, do not factor it in for amort.
• *if certain, add add’l life and if still lower, then use the new life

Question 16

how is rent exp. for the year calc’d with free/reduced rent part of the lease package?

Answer 16

*monthly rent to be paid * rent pmts = total rent to be paid

** total rent to be paid / months in lease = monthly rent exp

***monthly rent exp * months in CY = rent exp for CY

Question 17

what is the rule for op. leases for lessee in regards to increase in annual pmt’s?

Answer 17

• lessees should recog. op. leases as rent exp. using SL even if using another basis
• there is no int. component in op leases

Question 18

what is the req’d disclosure for op. leases?

Answer 18

(for terms 1+ years)
they must disclose the future min. lease pmt’s for 5Y’s and the aggregate of min lease pmt’s

(for all other op leases)

• schedule of total rent exp
• all discl’s need to disclose rent kicker, terms of renewal, restrictions, etc.

Question 19

how is income for lessor calc’d?

Answer 19

monthly rents + bonus amort - DE = income

Question 20

how is int rev calc’d in a direct financing lease?

Answer 20

total CF’s- PV CF’s = int rev