F-5 Simulation Flashcards
How to calculate sales revenue & sales tax payable
- Divide sales revenue credits by (one plus sales tax %) to get sales revenue
- Multiply that by sales tax % to get sales tax collected
- Subtract sales tax collected by advance payments (sales revenue credits) to get sales tax payable
Note payable when you don’t record an interest expense
- Use the Retained Earnings formula
- If you don’t record interest expense then net income is too high and R/E is overstated and the opposite is true when you overstate the expense
Interest expense J/E for loans taken
Dr. Interest expense
Cr. Cash or payables
Tangible Net Worth
Stockholder’s equity minus intangibles
Steps for bond retirement
- Cash goes out the door so you’re crediting it
- Remove everything related to the bond which is the bond payable at face amount including unamortized portion
- Then see if you need a gain or a loss
Bond Retirement J/E
Dr. Bond Payable - Face amount Dr. Premium if premium* Dr. Loss if needed* Cr. Cash - Face value multiplied by decimal Cr. Discount if discount* Cr. Gain if needed* Cr. Unamortized costs
If bond is a premium and you’re calling at a premium
Don’t amortize, just remove the hole thing and the same goes for discounts?
If market value for bonds is less or more than stated value
- If market rate is less than you have a premium
2. If market rate is more then you have a discount
Issuing a bond journal entry
Cash - amount paid
Dr. Discount
Cr. Bonds Payable - face amount
Cr. Premium
Journal entry for bond interest
Dr. Interest expense - amount paid multiplied by market
Dr. Premium
Cr. Cash - face multiplied by stated
Cr. Discount
How to quickly determine of bond redemption will equal a gain or a loss
- If issued at a discount then redeemed at a premium then you have a loss, because you are paying a premium to buy something you issued at a discount
- If you issued at a premium and redeemed at a discount, then you have a gain because you are paying a discounted price for something you issued at a premium
Lessee operating lease journal entries
Initial entry
Dr. Asset - (minimum payment x annuity)
Cr. Lease liability
Subsequent entries Dr. Lease exp - annual payment Cr. Lease liability - Lease expense minus [PV of payments times interest rate] Dr. Cash Cr. Accumulated depreciation
Lessee finance lease journal entries
Initial entry
Dr. Asset - (minimum payment x annuity)
Cr. Lease liability
Subsequent entries
Dr Interest expense
Dr. Lease liability
Cr. Cash/lease payable
Dr. Amortization
Cr. Accumulated depreciation
How do you book an asset retirement obligation (ARO)?
Find the PV of the future cost
Dr. Asset Retirement Cost (ARC)
Cr. Asset Retirement Obligation (ARO)
How to calculate accretion expense
Just multiply accretion rate by the ARC
Dr. Accretion expense
Cr. Asset Retirement obligation
*we eventually want it to equal the original future value”
or ARO multiplied by credit-adjusted risk free interest rate
Depreciation for AROs
Just divide the carrying value by the number of years
Dr. Depreciation expense
Cr. Accumulated depreciation
How is a note payable presented on the balance sheet
Face amount less discount on liability itself at the imputed interest rate
Journal entry for issuing bond at Discount with interest payments
Issuer
Dr. Cash
Dr. Discount
Cr. Bond Payable
Dr. Bond interest expense - market
Cr. Discount on bond payable
Cr. Cash - face
Investor
Dr. Investment in bonds
Cr. Cash
Dr. Cash - face
Dr. Bond investment
Cr. Bond interest revenue - market
Journal entry of issuing bond at a premium with interest payments
Issuer
Dr. Cash
Cr. Premium
Cr. Bond payable
Dr. Bond interest expense - market
Dr. Premium
Cr. Cash - face
Investor
Dr. Investment in bonds
Cr. Cash
Dr. Cash - face
Cr. Investment in bonds
Cr. Bond interest revenue - market
Formula to back into bond coupon rate
Payment = Face value x [coupon/annual-semi-quarter]
What do lower market rates at issuance mean for bond discount?
Higher initial carrying value and amortization of the discount would have been lower
What do higher market rates at issuance mean for bond discount?
Lower initial carrying value and amortization would have been higher.
Changes in market rate of bond and its book value.
Change in market rate will not affect the CV of the bond but instead will affect the market value so if the market rate increases the market value of bond decreases in vice versa
