Deck #11 (F5) Flashcards
What is the difference in the gross and net method of trade AP?
Net - recorded net of the discount initially
Gross - no discount
JE [Entity purchases $5k of inventory with 2/10 (net 45 days). Entity records under gross method and pays within discount period]
- Initially recording of the payable
- Once actually paid, 30 days later
- DR: Inventory $5k
CR: Accounts Payable $5k - DR: AP. $5k
CR: Cash $4.9k
CR: Discount $100
When can a ST obligation be excluded from current obligations and put into non current debt?
if entity plans to refinance (before issuance)
What are the two methods of accruing property taxes?
- property taxes payable may be accrued prior to the receipt of the invoice and matched in the year for which the invoice pertains
- PT may also be recorded as a payable upon the receipt of the invoice and expensed the year it is received (not invoice year)
JE (company sells $10k and collects 7% sales tax
DR: Cash $10,700
CR: Sales Revenue $10,000
CR: Sales Tax Payable $700
How are payroll deductions treated?
NOT expensed. It is credited to a payable account.
How are bonuses treated?
recorded to salaries and wages expense
3 criteria for liability recognition:
- obligating event occurred
- event results in present obligation
- entity has little or no discretion to avoid transfer of assets
how is a liability recorded?
fair value (usually discounted net present value)
what is an ARO? when does it qualify for recognition?
ARP - a legal obligation associated with the retirement of a tangible long lived asset that results from the acquisition or development of a long lived asset
When it meets the 3 liability recognition criteria
what is a contingency?
existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss that will ultimately be deterred when a future event occurs or fails to occur
What is important to remember about gain contingencies?
DO NOT RECORD WITH JE
Recognition and measurement of loss contingency
- probable
- reasonably possible
- remote
- record
- disclose
- ignore (general rule)
No disclosure is necessary for a remote loss contingency. However, disclosure should be made for guarantees such as:
DOG
debts, obligations, guarantees
what is the time value of money?
the use of money over a period of time
when is time value of money used?
leases pension, long term debt
what are the 6 types of present value concepts?
- PV of $1
- FV of #1
- PV of ordinary annuity
- FV of ordinary annuity
- PV of annuity due
- FV of annuity due
what is an annuity?
transactions that result in IDENTICAL lease payments at regular intervals. examples would be lease rentals or bond payments
difference between annuity due and ordinary annuity?
ordinary annuity = end each period
annuity due = begin each period
how do you calculate the present value of $1 what is it?
what is it - the amount that must be invested now at a specific rate to receive a dollar in the future
PV = FV / (1+r)^n n = number of period r = interest rate
what is the present value of $500k for 4 periods at 10%?
1.1x1.1x1.1x1.1=1.4641
500,000/1.4641
=$341,500
how do you calculate the future value of $1 and what is it?
what is it - the amount that would accumulate at a future point in time if you invested 1 dollar now
FV = PV/(1+r)^n
n=number of periods
r=interest rate
what is future value of $200k for 5 periods at 10%?
1.1x1.1x1.1x1.1x1.1 = 1.6105
200,000x1.6105
=322,100
how to calculate PV of ordinary annuity?
how to calculate PV of annuity due?
ordinary-
PV of ordinary annuity = annuity payment x present value of ordinary annuity
due-
PV of annuity due = PV of ordinary annuity x (1+r)
note: r is interest rate
