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ACCT 343 > CHP 13 - Current Liabilities > Flashcards

CHP 13 - Current Liabilities Flashcards

1
Q

CHP 13 - Long Term Financial Liabilities

  • calculator @end period,0
  • -pmt, -fv
  • pv=fv when stated rat = market rate @par, meaning no discount nor premium
  • face value = maturity value
A
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2
Q

QUIZ 2

A
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3
Q

ASPE liability recognized/recorded when? (4)

A
  1. past event
  2. cant avoid
  3. transfer assets/goods/services
  4. invoice received
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4
Q

Liability recorded first and then ?

A
  1. first @fair value = cost (pv=fv)

2. then record @amortized cost

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5
Q

2 groups of liabilities (2)

A
  1. Financial = settle using cash

2. non financial = example unearned revenues = service not cash

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6
Q

Uncertain Liability (6)

A
  1. Provisions (IFRS) = probable
  2. Contingent (ASPE) = more likely then not
  3. Asset retirement obligation (ARO) = ASPE
  4. Decommissioning Provisions = IFRS
  5. Warranties
  6. Coupons
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7
Q

2 types of warranties (2)

A
  1. Assurance = warranty based on % of sales

2. Service = warranty coverage separate from product

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8
Q

2 Methods of Amortization (2)

A
  1. IFRS = only effective interest rate method

2. ASPE = eff interest rate method (change through years) and straight-line (stays same through years)

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9
Q

Discount vs Premium

A
  1. Discount = Stated rate < Market Rate

2. Premium = Stated rate > Market Rate

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10
Q

Example (ARO, ASPE vs IFRS, PV calculations and journal entry begin year and end year)

A
  1. PV calculations

PV@begin (n, i/y, pmt=0, -fv = ARO, 0)
PV @end (n-1,i/y,pmt =0, -fv=ARO ,0)

  1. Journal entry interest payment

ASPE
Dr Accretion Expense (pv*int rate)
Cr ARO

IFRS
Dr Int expense (pv*int rate)
Cr Provision

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11
Q

Example (Amortized cost model, interest-bearing, pv equal to fv, buy inventory, value of note, PV calculations, Journal entry)

A
  1. PV calculations (pv=fv, and mkt rate = stated rate)

PV (market rate, n, pmt = note *stated rate, fv = note, 0) = FV

  1. Journal entry (pv = fv)

Dr Interest Expense (pmt)
Cr Cash

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12
Q

Example (Amortized cost model, non interest-bearing, pv not equal to fv, buy inventory, value of note, PV calculations, Journal entry)

A
  1. PV calculations

PV (n, market rate, -pmt = note*int rate, -fv = note, 0)

  1. Journal entry note issued

Dr Inventory (pv)
Cr Discount on note payable (plug)
Cr Note payable (fv)

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13
Q

Example (Straight-line vs effective interest rate formula and journal entry)

A
  1. Straight-line (ASPE)

= discount on note payable/n

  1. Effective interest rate (IFRS and ASPE )

Effective int rate year 1= (fv - discount on note payable)*mkt rate

Effective int rate year 2 = (fv - discount on note payable + eff interest year 1)* mkt rate

  1. Same journal entry titles

Dr Interest Expense
Cr Discount

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14
Q

Example (Amortized cost model, interest-bearing, semi-annual, PV calculations, Journal entries interest payments)

A
  1. PV calculations

PV (market rate/2, n2, -pmt=notestated rate/2, -fv = note, 0)

  1. Record interest payment June

Dr Interest Expense (pv * market rate/2)
Dr Discount note payable (plug)
Cr Cash (pmt)

  1. Record interest payment December

Dr Interest Expense (pv + discount on note payable of june) * (mkt rate/2)
Dr Discount note payable (plug)
Cr Cash (pmt)

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15
Q

Example (Interest-bearing vs non-interest-bearing note, (pv = fv) and (mkt rate = stated rate), issued Oct 1, inventory value, maturity value, prorate, PV calculations and Journal entries, balance sheet)

A
  1. Interest-bearing note (no discounts/premiums)
    1) PV Calculation

(n, market rate, -pmt = maturity*stated rate, -fv = maturity,0)

2) Journal entries

Oct 1/1
Dr Inventory (pv)
Cr Note Payable

Dec 31/1 (x =3/12 oct 1 –> dec 31)
Dr Interest Expense (pv * interest * x/12)
Cr Interest Payable

Oct 1/2 
Dr Int payable (same as dec 31/1) 
Dr (pv * mkt rate) - int expense of dec 31/1
Dr (pv) 
Cr Cash (plug)

3) B/S (pv + interest expense dec 31/1)
2. Interest-bearing note (with discount since pv not equal to fv as pmt = 0)
1) PV calculations

PV (market rate, n, pmt = 0, -fv = maturity value, 0)

2) Journal entries

Oct 1/1

Dr Inventory (inventory value)
Dr Discount on Note Payable (plug)
Cr Note Payable (maturity value)

Dec 31/1

Dr Interest Expense (inventory value* interest * x/12)
Cr Discount on Note payable

Oct 1/2

Dr Interest Expense (inventory value *mkt rate) - interest expense dec 31/1
Cr Discount on note Payable

Dr Note payable (maturity value)
Cr Cash

3) B/S = fv - interest expense oct 1/2

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16
Q

Example (Note payable, stated rate, maturity amount, interest payable at maturity, principal at maturity, issued October 1, 20X1, prorate, due 1 year later (n=1), stated rate < mkt rate = discount)

A
  1. PV calculations

PV (n, mkt rate, -pmt = maturity*stated rate, -fv = maturity, 0)

  1. Journal entries

Oct 1/1

Dr Cash (pv)   
Dr Discount (plug) 
Cr Notes payable (fv)

Dec 31/1 (x=3/12 oct1 –> dec31)

Dr Interest Expense (plug)
Cr Discount (discount #1 * x/12)
Cr Interest Payable (pmt * x/12)

Oct 1/2 (x= 9/12 dec31–> oct1)

Dr Notes payable (fv)
Dr Interest Expense (pmt * x/12)
Dr Interest Expense (same discount dec31/1)
Dr Interest Payable (same int pay dec31/1)
Cr Discount (discount oct1/1 *x/12)
Cr Cash (plug)

17
Q

Example (Note payable, stated rate, maturity amount, interest payable at maturity, principal at maturity, issued October 1, 20X1, prorate, due 1 year later (n=1), stated rate > mkt rate = premium)

A
  1. PV calculations (same but mkt rate lower)
  2. Journal entries

Oct 1/1

Dr Cash (pv)
Cr Premium on note payable (plug)
Cr Notes payable (fv)

Dec 31/1

Dr Interest Expense (pv * mkt rate * x/12)
Dr Premium (premium oct1/1 * x/12)
Cr Interest payable (pmt * x/12)

Oct 1/2

Dr Interest Expense (pv * mkt rate * x/12)
Dr Note payable (fv)
Dr Interest Payable (same as int expense dec 31/1)
Dr Premium on note payable (premium oct 1/1)
Cr Cash (fv + (fv x stated rate))

18
Q

Example (loan, amortization table, B/S amounts @begin year payments and @end year payments)

A
  1. Table
  • Open = loan amount
  • PMT = payment (usually given in question)
  • Interest = pmt * int rate
  • Princip = pmt - interest
  • Ending = open - principal
  1. B/S End Begin
    Interest Payable (int) 0 per#1
    Current Portion (principal) per #2 per #1
    Non-Current (ending) per #2 per #1

period 2 :

19
Q

Example (loan, calculate pmt, principal borrowed, interest of loan, amortization table, balance sheet)

A
  1. Pmt (n, interest, -pv= principal borrowed, fv=0,0)
  2. B/S

Current = Interest Payable + Current portion

Non-current = ending - principal

20
Q

Example (Goods and Services Tax, Purchase price, selling price, Journal entries)

A
  1. Journal entries

Dr Inventory (purchase price)
Dr GST payable or receivable (purchase price x gst)
Cr AP or cash (plug)

Dr AR or cash (plug)
Dr GST payable or receivable (sell price x gst)
Cr Sales (sell price)

Dr GST payable (gst sell - gst purchase)
Cr Cash

21
Q

Example (Estimated Property taxes, However, Receive Tax assessment until, Pay the property tax for entire year, Records adjusting entries each, Journal entries)

A
  1. Journal entry

Dr Property Tax expense (property tax expense year/12)
Cr Property Tax Payable

Until date:

Dr Property Tax Payable (prev prop tax expense * #months)
Dr Prepaid Property taxes (plug)
Cr Cash (actual paid tax assess)

22
Q

Example (Employee Related Liabilities, Contributions, CPP, EI, gross pay, employee pay, income tax, Journal entries)

must pay 1.4 times the employees’ contribution amount to EI

A
  1. Journal entries
    1) Paycheque
Dr Wage expense (total gross pay)
Cr CPP payable (CPP)
Cr EI payable (EI)
Cr Employee income taxes withheld payable (inc tax)
Cr Cash (actual employees pay)

2) Employer contributions

Dr Benefits expense (plug)
Cr CPP payable (same CPP)
Cr EI payable (EI begin x 1.4)

3) Withholdings

Dr CPP payable (add 2 CPP j.e.)
Dr EI payable (add 2 EI j.e.)
Dr Employee income tax payable (same)
Cr Cash (plug)

23
Q

Example (ASPE, IFRS, clean up a well site 20X1, ARO, Oil and gas properties account, Effect of the ARC (asset retirement cost) deplete by, in 20X1, the ARO at end 20X10 will increase by, ARO interest rate, Journal entries)

A
  1. Journal Entries

Jan 1/1

Dr Oil and gas properties (pv)
Cr. Asset retirement obligations

Dec 31/1

Dr Depletion (fv expect to pay + (ARC x pv))
              Cr Accumulated Depletion

Dr Accretion Expense (rate x pv)
Cr Asset retirement obligations

Dr Oil and gas properties (pv2 x ARC)
Cr Asset retirement obligations

  1. Accretion 20X2

ARO rate x (pv1+accretion expense + oil and gas properties 2)

  1. If IFRS

Last journal entry of Dec 31/1

Dr Inventory (asset retirement obligation #2 x ARC)
Dr COGS (plug)
Cr Asset retirement obligations (same asset retir obl #2)
24
Q

Example (date of wrongful doing, date of Lawsuit, date of likely damages, ASPE vs IFRS, date court settlement, certain damage to be paid range, court date/ awarded by judge)

A
  1. ASPE
    1) Nothing to do on date of wrongful doing
    2) Date of lawsuit - note disclosure
    3) Certain Range of damages = book lower amount
    4) Award date = Awarded amount - lower amount booked
  2. IFRS
    1) Nothing to do on date of wrongful doing
    2) Date of lawsuit - note disclosure
    3) Certain Range of damages = weighted average
    4) Award date = Awarded amount - weighted average
  • if no legal merit then do nothing
  • record gain only when receive money
25
Q

Example (Assurance warranty = embedded)

A
  1. Journal entries
    1) Repair work

Dr Warranty Liability (warranty coverage amount)
Cr Cash

2) Warranty expense for the year

Dr Warranty Expense (sales x %sales)
Cr Warranty Liability

3) 20X2 no warranty coverage but warranty work done cost

Dr Warranty Liability (warranty done cost)
Cr Cash

  • closing it out so warranty liability = 0
    Dr Warranty Liability (balance warranty liab at year end - warranty done cost)
    Cr Warranty Expense
26
Q

Example (Service Warranty)

A
  • when warranty sold record Cr Unearned revenue
  • Warranty Revenue
  • expense in all years actual repair costs done
27
Q

Example (Coupons, stickers, COGS, sales, unearned revenue, gross profit, ASPE vs IFRS, premium or coupon liability/expense,

ACCT 343 (7 decks)

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