Complicated Journal Entries Flashcards
In a capital lease, the asset is taken off the books of the lessor, and depreciation if recorded by the lessee. TF
True
What is the difference between a direct financing and a sales-type lease?
If the entry balances with a gain or a loss, it is a sales type lease. if not it is a direct financing lease.
How do you compute the gain on a Sales Type Lease?
PV of Lease Payments - CV of the Asset given up
When issuing a bond at a premium, is ‘premium on bonds payable’ credited or debited?
Credited
When recording a payment on a bond payable, what would the journal entry look like?
dr. Interest Expense
dr. Bonds Payable
cr. Cash
Bond carrying amount is added to / subtracted by which amount using the effective interest method?
Cash Paid - Interest expense = Amount to modify CV
Bond Issuance costs are recorded as what?
A reduction of the liability (similar to a discount)
Which journal transactions have multiple methods?
Convertible bonds, construction contracts, treasury stock acquisitions and sales, stock dividends, and partner admissions
In convertible bond issuance, is the value of the conversion feature allocated in the total proceeds? YN
No.
dr. Cash
cr. Bonds Payable
Dealing with convertible bonds, what is the key difference between the Book Value and Market Methods upon conversion?
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.
How many different ways are there to account for bonds with detachable warrants?
One
When bonds with detachable warrants are issued, how is the issuance recorded?
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.
When detachable warrants are exercised what are the effects?
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)
Dealing with construction contracts, what is the key similarities between the Percentage of Completion and Completed Contract methods?
- The initial journal entry sequence is identical
What is the initial entry in both the percentage of completion and completed contract methods?
dr. CIP (cost incurred in Y1)
cr. Materials
dr. AR
cr. Billings
dr. Cash collections
cr. AR
To recognize period profit under the percentage of completion method 3 accounts are used what are they?
dr. CIP (computed as Yx profit - profit previously recognized)
dr. Construction Expenses (given)
cr. Construction Revenue (plug)
Completed contract using ? accounts in its closing entry, while percentage of completion uses?
4 accounts, 2 accounts
With the percentage of completion closing entry what happens?
dr. Billings (for the total contract price, given)
cr. CIP (plug)
With the completed contract closing entry what happens?
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)
What is the differences between acquiring treasury stock using the cost method vs. using the par value method?
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
Sales at a loss and sales at a gain are treated the same under the cost method of accouting for T/S? TF
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).
The re issuance of T/S at a loss under the cost method looks like…
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.