Complicated Journal Entries

Question 1

In a capital lease, the asset is taken off the books of the lessor, and depreciation if recorded by the lessee. TF

Answer 1

True

Question 2

What is the difference between a direct financing and a sales-type lease?

Answer 2

If the entry balances with a gain or a loss, it is a sales type lease. if not it is a direct financing lease.

Question 3

How do you compute the gain on a Sales Type Lease?

Answer 3

PV of Lease Payments - CV of the Asset given up

Question 4

When issuing a bond at a premium, is ‘premium on bonds payable’ credited or debited?

Answer 4

Credited

Question 5

When recording a payment on a bond payable, what would the journal entry look like?

Answer 5

dr. Interest Expense
dr. Bonds Payable
cr. Cash

Question 6

Bond carrying amount is added to / subtracted by which amount using the effective interest method?

Answer 6

Cash Paid - Interest expense = Amount to modify CV

Question 7

Bond Issuance costs are recorded as what?

Answer 7

A reduction of the liability (similar to a discount)

Question 8

Which journal transactions have multiple methods?

Answer 8

Convertible bonds, construction contracts, treasury stock acquisitions and sales, stock dividends, and partner admissions

Question 9

In convertible bond issuance, is the value of the conversion feature allocated in the total proceeds? YN

Answer 9

No.

dr. Cash
cr. Bonds Payable

Question 10

Dealing with convertible bonds, what is the key difference between the Book Value and Market Methods upon conversion?

Answer 10

BV method accounts for the converted stock at par with the remainder accounted for as APIC. *No gain or loss on BV method.

MV method accounts for the converted stock at par, the difference between par value and the market value going into “Contributed Capital”, and the Plug between the debits and credits being the G/L.

Question 11

How many different ways are there to account for bonds with detachable warrants?

Answer 11

One

Question 12

When bonds with detachable warrants are issued, how is the issuance recorded?

Answer 12

Dr. Cash received
Dr./Cr. Discount or Premium (Plug)
Cr. Detachable Warrants (allocated)
Cr. Bonds Payable (face amount)

The Discount or Premium is the difference between the face amount of the bonds payable and the amount allocated to the bonds in the issuance.

Question 13

When detachable warrants are exercised what are the effects?

Answer 13

dr. Cash for the value of the warrants x the exercise price
dr. Detachable stock warrants for the previous allocated amount
cr. Common Stock at par
cr. Contributed Capital (plug)

Question 14

Dealing with construction contracts, what is the key similarities between the Percentage of Completion and Completed Contract methods?

Answer 14

1. The initial journal entry sequence is identical

Question 15

What is the initial entry in both the percentage of completion and completed contract methods?

Answer 15

dr. CIP (cost incurred in Y1)
cr. Materials
dr. AR
cr. Billings
dr. Cash collections
cr. AR

Question 16

To recognize period profit under the percentage of completion method 3 accounts are used what are they?

Answer 16

dr. CIP (computed as Yx profit - profit previously recognized)
dr. Construction Expenses (given)
cr. Construction Revenue (plug)

Question 17

Completed contract using ? accounts in its closing entry, while percentage of completion uses?

Answer 17

4 accounts, 2 accounts

Question 18

With the percentage of completion closing entry what happens?

Answer 18

dr. Billings (for the total contract price, given)

cr. CIP (plug)

Question 19

With the completed contract closing entry what happens?

Answer 19

dr. Billings (for the total contract price, given)
dr. Construction Expenses (given)
cr. CIP (given = same as construction expenses)
cr. Construction Revenue (same as billings)

Question 20

What is the differences between acquiring treasury stock using the cost method vs. using the par value method?

Answer 20

Cost method, records treasury stock at cost paid for it.

Par value method, records treasury stock at par with the remainder accounted for as APIC - T/S

Question 21

Sales at a loss and sales at a gain are treated the same under the cost method of accouting for T/S? TF

Answer 21

False, if the sale at a loss dips below what was paid for it the excess comes out of Retained Earnings (After APIC is exhausted).

Question 22

The re issuance of T/S at a loss under the cost method looks like…

Answer 22

dr. Cash
dr. APIC T/S
dr. Retained Earnings (if at a loss and APIC is exhausted)
cr. T/S

*This is the ONLY treasury stock entry where Retained Earnings MAY come into play.

Question 23

Par Value T/S re issues under gain and loss situations involve the same accounts? TF

Answer 23

True.

dr. Cash
dr. /cr. APIC T/S
cr. T/S

Question 24

When accounting for a stock dividend what determines how its recorded?

Answer 24

Whether it is large (>20%) or small (normal >20%)

Question 25

Issuance of small stock dividends record a debit to retained earnings using the par value of the stock. TF

Answer 25

False, Market Value dr. Retained earnings (%div * mkt val) cr. C/S (%div * par value) cr. Contributed Capital (plug)

Question 26

Issuance of large stock dividends record the debit to retained earnings using the par value of the stock. TF

Answer 26

True dr. RE (%div * par value) cr. C/S (plug)

Question 27

Retained earnings is debited when stock dividends are issued. TF

Answer 27

True

Question 28

In a normal stock dividend issuance, retained earnings is debited for the fair market value of the stock issued. TF

Answer 28

True

Question 29

In a large stock dividend, retained earnings is debited for the market value of the stock issued. TF

Answer 29

False, par value

Question 30

When a stock option is granted what is the entry?

Answer 30

dr. Deferred compensation cr. APIC - Stock Options (FMV at date of grant) *if FMV unavailable, use intrinsic value (Stock price - Exercise Price)

Question 31

ONLY two accounts are credited during a business consolidation. What art they?

Answer 31

Investment, and Minority Interest

Question 32

When accounting for a business consolidation what is the acronym to remember?

Answer 32

CAR IN BIG Debit C- Common Stock A- APIC C/S R- Retained earnings Credit I- Investment N- NCI or Minority Interest Debit B- Balance Sheet Adj I- Inventory G- Goodwill

Question 33

Name the two methods of admitting a partner.

Answer 33

Bonus method, and goodwill method

Question 34

To determine the total bonus to allocate in the admission of a partner under the bonus method, what do you do?

Answer 34

New partners contribution - new partners capital = Total bonus to the existing partners. Bonus is then allocated.

Question 35

To determine the total goodwill to allocate in the admission of a partner under the goodwill method, what do you do?

Answer 35

New partners contribution / the new partners % = The implied value of the partnership Implied value of the partnership - Total existing capital (including new contribution) = Total goodwill to be allocated

Question 36

In recording a governments budget, what is the key account debited?

Answer 36

Estimated Revenues and Control

Question 37

In recording a governments budget, what the key account credited?

Answer 37

Approriations

Question 38

When recording revenue via taxes to be received during the year, what would the journal entry look like?

Answer 38

dr. Taxes Receivable cr. Allowance for Uncollectibles cr. Deferred Revs (Non current portion) cr. Revenues Control (current portion)

Question 39

When ordering goods and services in a government what journal entries take place?

Answer 39

Put the encumbrance on... dr. Encumbrances Control cr. Budgetary Fund Balance

Question 40

When receiving goods and services ordered by a government, what journal entries take place?

Answer 40

Two parts, 1. Remove the encumbrance, 2. record the liability dr. Budgetary Fund Balance cr. Encumbrances Control dr. Expenditures Control cr. Vouchers Payable

Question 41

When closing an encumbrance account what journal entries take place?

Answer 41

We are removing all encumbrances and putting whatever has not been used during the year back into the general fund. dr. Budgetary Fund balance (leftover) cr. Encumbrances (leftover) dr. Unassigned fund balance (same value as first JE) cr. Fund Balance - Assigned or Committed

Question 42

Reciprocal interfund transfers deal with what?

Answer 42

Governments buying goods or services from enterprise funds and transferring money.

Question 43

Reciprocal interfund transfers use the terms "other financing uses" and "other financing sources" in their journal entries. TF

Answer 43

False. Expenditures and Revenues

Question 44

Interfund transactions deal with what?

Answer 44

Government funds transferring money to other government funds.

Question 45

Interfund transfers use the terms "other financing uses" and "other financing sources" in their journal entries. TF

Answer 45

True

Question 46

In non monetary exchanges with commercial substance, the new asset received is recorded at FV. TF

Answer 46

True. FV that is given OR FV of asset given +/- cash paid.

Question 47

In non monetary exchanges without commercial substance, a loss situation is when...

Answer 47

The FMV of the asset given

Question 48

In a non monetary exchange without commercial substance loss situation the value of the new asset received is computed how?

Answer 48

Implied FV of old asset +/- any cash received

Question 49

In a non monetary exchange without commercial substance loss situation the value of asset given is computed how?

Answer 49

It is credited at cost.

Question 50

If FV of an acquired asset is not determinable in a NME is not determinable what is the treatment used to recognize the asset?

Answer 50

FV of asset given up +/- cash paid or received.

Question 51

A NME loss occurs when...

Answer 51

BV of asset giver up is greater than its fair value. All losses recognized in full and record the acquired asset at FV regardless of whether there is commercial substance or not.

Question 52

What is the treatment for a NME commercial substance gain?

Answer 52

Recognize in full, and record the acquired asset at FV.

Question 53

When there is no cash received on an non commercial substance NME transaction and a gain is apparent (FV of asset given > BV), how is the new asset recognized?

Answer 53

BV of asset given + cash paid. *No gain is recognized on non monetary NMES except for when cash is recieved

Question 54

If there is no commercial substance on an NME and cash IS received, record the asset received at FV - the unrecognized portion of the gain. TF

Answer 54

True

Question 55

If there is no commercial substance on an NME and cash IS received (in excess of 25% of the value in proportion to the total consideration) what is the accounting treatment.

Answer 55

Recognize the gain in full and record like an ordinary commercial substance transaction.

Question 56

How is Y1 CIP determined in a % of completion contract? Y2?

Answer 56

Costs incurred in Y1 / Total estimated costs = % of completion % of completion x Total Estimated profit = Estimated Profit to date. For Y2 onward... Estimated profit to date - Profit previously recognized = Profit in current period

Question 57

The re issuance of T/S at a gain under the cost method looks like...

Answer 57

dr. Cash (received) cr. APIC - T/S (cost) cr. T/S (leaving at original cost)