8/9 Flashcards
Day lease a new machine with the following pertinent info
Term 6 years, annual payment 50,000, Useful Life 8 years, Inremental borrowing rate 15%, Implicit interest rate 12%, PV of annuity 6 periods 12% 4.61, PV of annuity 6 periods 15%
The cost of the machine on Parr’s books is 375,000. Day should record a lease liability of
230,500
Finance lease at 6/8 = 75%
Payment x PV @ 12% = PV of Lease
50,000 x 4.61 = 230,500
Comma had outstanding: 25,000 common stock, 8,000 $20, 10% cumulative preferred stock, 3,000 $1,000 9% convertible bonds. Bonds are convertible into 30 shares of common stock. Net income was 200,000, no dividends declared, tax rate 30%.
What is Basic Earnings per share
Income available to common shareholders /
Weighted average number of common shares outstanding
200,000 - (8,000x20x.1) / 25,000 = 7.36
Oak leased equipment for its entire 9 year life. 50,000 annual payment with first payment due upon start. Oak paid 3,000 initial direct costs at lease inception. PV using implicit rate in the lease is 316,500. PV of lease payments using Oak’s incremental borrowing rate is 298,500. Oak accounts for the finance lease using the straight line method. What should Oak report as ROU asset on its December yr 2 BS?
284,000
Dr ROU Asset 319,500
Cr Lease Liab 316,500
Cr Cash 3,000
319,500 / 9 = 35,500
319.500 - 35,500 = 284,000
White started operations in Jan 1, yr 1 and recorded 400,000 in warranty expense during the year. Warranty expense was the only difference between the company’s pretax FS income and tax income of 900,000. White will be required to pay these warranties at a rate of 100,000 per year beginning in yr 2. Although White fully expects to earn in excess of 100,000 in yr 2 and 3, it believes it will incur a loss after yr 3. Tax rate is 25% in current and future periods. What will White record as its income tax expense in yr 1?
Tax expense per Tax return 900,000 x .25 = 225,000
Tax expense per FS 500,000 x .25 = 125,000
Unrealized Asset 100,000 x 2 years = 200,000 x .25 = 50,000
Dr Deferred Tax Asset 100,000
Dr Income Tax Expense (125,000+50,000) 175,000
Cr Deferred Tax Valuation Allowance 50,000
Cr Income Tax Payable 225,000
During the year Onal purchased 10,000 shares of its own stock at $7 per share. The stock was originally issued at $6. The firm sold 5,000 of the treasury stock for $10 per share. The firm uses the cost method to account for treasury stock. What amount should Onal report on its income statement for these transactions?
0
Gains and losses on treasury stock are never recorded on the income statement
Gains are recorded by increasing APIC - Treasury Stock
Losses are recorded by decreasing APIC - Treasury stock then RE
Cost method for treasury stock
Issued 10,000 shares $10 par, sold at $15
Buy back 200 shares at $20
Reissue 100 shares at $22
Issue
Dr Cash 150,000 (10,000x15)
Cr Common Stock 100,000 (10,000x10)
Cr APIC Common Stock 50,000 (10,000x5)
Buy Back
Dr Treasury Stock 4,000 (200x20)
Cr Cash 4,000 (200x20)
Reissue
Dr Cash 2200 (100x22)
Cr Treasury Stock 2000 (100x20)
Cr APIC Treasury Stock 200 (100x2)
Cost method for treasury stock
Issued 10,000 shares $10 par, sold at $15
Buy back 200 shares at $20
Reissue 100 shares at $13
Issue
Dr Cash 150,000 (10,000x15)
Cr Common Stock 100,000 (10,000x10)
Cr APIC Common Stock 50,000 (10,000x5)
Buy Back
Dr Treasury Stock 4,000 (200x20)
Cr Cash 4,000 (200x20)
Reissue
Dr Cash 1300 (100x13)
Dr Retained Earnings 700 (plug) - reduce APIC - TS before RE
Cr Treasury Stock 2000 (100x20)
Which of the following statements concerning impairment of FA under GAAP is true
- impairment losses are shown on the income statement net of tax
- the test for recoverability compares the present value of all expected future cash flows produced by the FA to its carrying value
- to determine the amount of any impairment loss, FV can be used.
To determine the amount of any impairment loss, FV can be used.
Which of the following should be disclosed in a summary of significant accounting policies?
- adequacy of pension plan assets in relation to vested benefits
- concentration of credit risk on financial instruments
- composition of plant assets
- basis of consolidation
Basis of consolidation.
Summary of significant accounting policies - measurement basis, accounting policies and methods, criteria and policies for basis of consolidation, depreciation methods, revenue recognition.
Adam Corp. uses US GAAP and had the following infrequent transactions during yr 1
- 190 gain on reacquisition and retirement of bonds.
- 260 gain on the disposal of a component business.
- 90 loss on abandonment of equipment
In its yr 1 income statement, what amount should Adam report income from continuing operations?
100
The 260 is part of discontinued operations
190 - 90 = 100
Which of the following should be included in general and administrative expenses
- interest
- advertising
Neither
Interest expense is a separate line item
Advertising is a selling expense
Barnaby Corp has a deferred tax asset that will expire over the next five years. Define the impact of each transaction on various accounts
- Deferred tax asset is deemed more likely than not, not to be realized
- Deferred tax asset will reverse however the company anticipates no taxable future income for the foreseeable future
- Income projections are more positive than previous estimates and the valuation allowance is adjusted
- Increase FS tax expense -
- Increase FS tax expense -
- Decrease valuation allowance -
An entity upon initial recognition of an asset retirement obligation should not take what of the following actions?
- capitalize the asset retirement cost at its undiscounted cash flow value
- capitalize the asset retirement cost by increasing the carrying amount of the related asset
- Measure the asset retirement cost at fair value
- Allocate asset retirement cost to expense over the useful life of the related asset
capitalize the asset retirement cost at its undiscounted cash flow value.
Which of the following statements regarding the lessor’s accounting under an operating lease is most accurate?
- any applicable impairment charges to the leased asset will be booked by the lessee
- a refundable security deposit is booked as a liability until refunded to the lessee
- depreciation is booked over the life of the lease
- income earned over the life of the lease is part interest and part principal
a refundable security deposit is booked as a liability until refunded to the lessee.
Park Co’s subsidiary maintains its accounting in euros. All of the subs offices are in Switzerland, its functional currency is the franc. Remeasurement resulted in a 7,600 gain and a translation gain of 8,100. What amount should Park report as a foreign exchange gain in its income statement?
7,600
Translation adjustments are not included in net income but are accumulated in OCI until disposed of.
Remeasuring foreign sub FS from local to functional is included in income from continuing operations of the parent.
