Ch 14-15 Exam

Question 0

Sales tax acct

Answer 0

Cash
Revenue
Sales tax payable

Tax payable
Cash

Question 1

Int exp

Answer 1

Int exp
Int payable

Int pay
Cash

Question 2

Gain contingencies

Answer 2

Not recorded in accordance with conservative pranciple

Question 3

Warranty acct

Answer 3

Contingency

War exp
Warranty liability

Record actual expenses:
Est war liability
Labor exp
Materials exp

Question 4

Normal balance of a discount

Answer 4

Debit

Question 5

Normal balance of a loss

Answer 5

Debit

Question 7

Lease criteria for capitalization

Answer 7

1. Non cancellable
2. A. Ownership transfers
   b. BPO exists
   c. Lease term is 75 percent of life of the asset
   d. Present value of all the minimum payments is at least 90 percent of fair value of property

Additional for lessor

1. Collectibility of payments is prob
2. No surprise costs

Question 7

Operating lease entries LESSOR

Answer 7

Payment dates:

Cash
Unearned Rent Revenue

End of the year:

Unearned Rent Revenue
Rent Revenue

Depreciation Exp
Accumulated Depreciation

Question 8

Capital lease lessor trans

Answer 8

L/R
Inventory

Cash
LR
Int revenue

Question 10

Sales type lease entries lessor

Answer 10

LR
COGS
Sales
Inventory

Cash
Lease receivable

Question 11

Operating lease lessee

Answer 11

1. Payment dates:

Prepaid rent
Cash

2. End of each year

Rent Exp
Prepaid Rent

Question 11

What do we amortize?

Answer 11

Assets.

Capitalizing something means making it an asset on the balance sheet rather than an expense on the income statement.

Question 12

Fair value adjustment entries

Answer 12

Loss
Fair value adjustment

The adjusted number is on the balance sheet. The loss will show up in comprehensive income

Question 13

What are qualifications for a contingency to be disclosed/accrued?

Answer 13

1. Probability of it happening
2. Estimability.

Always disclose unless it is remote that it will happen. Accrue also if you can estimate the loss.

Question 15

In lease payments, do I use the incremental borrowing rate or the implicit?

Answer 15

If both are known, use the lower of the two.

If only one is known, use that.

Question 16

What is special about 1st period of leases?

Answer 16

No interest. NO HAY!

Question 17

On a finance lease, who depreciates the cost (capitalizes)?

Answer 17

The lessee

Question 18

What is a BPO?

Answer 18

The lessee has the option to purchase the leased asset for a specific amount at the ended of the lease.

Question 19

When there is a guaranteed residual value, we have to find the residual value. What are the 7 items?

Answer 19

N= Number of years
I= lower of implicit rate and borrowing rate/# periods in a year
PMT=0
FV= Guaranteed residual Amount
PV= LO QUE BUSCAMOS

THEN….
Take price minus PV to get the New PV

PV=NEW PV
FV=0
PMT=LO QUE BUSCAMOS
Everything else the same

Question 20

To calculate the present value of the minimum lease payments

Answer 20

Present value of periodic lease Payments
+ guaranteed residual value
=present value of minimum lease payments

Question 21

What happens if the lessee returns an item with a fair value lower than that of the guaranteed residual value?

Answer 21

It is at the lessee’s expense. Must create a loss account
Such as:
Loss on residual value guarantee

Question 22

Who has the asset in the operating lease?

Who has the asset in the capital lease?

Answer 22

Lessor

Lessee