F4 Flashcards
What amount should be included in the current liability section
Accounts payable
The bond payable, less the discount, because it will be paid in the next operating period.
All deferred tax liabilities are classified as non-current.
A short-term obligation is excluded from current liabilities and included in noncurrent debt if
the company intends to refinance it on a long-term basis and the intent is supported by either the existence of a noncancelable financing agreement or an actual refinancing prior to the issuance of the financial statements. As both of these conditions have been met, the note should be reported as a long-term liability on the December 31, Year 1, balance sheet.
Employees compensation for future absences should be accrued if:
The employees’ right to receive compensation is attributable to services already rendered.
The liability relates to vested or accumulated rights.
Payment is probable.
The amount can be reasonably estimated.
An entity, upon initial recognition of an asset retirement obligation, should take which of the following actions?
A. Measure the asset retirement cost at fair value (discounted value).
B. Capitalize the asset retirement cost by increasing the carrying amount of the related asset.
C. Allocate asset retirement cost to expense over the useful life of the related asset.
deferred compensation arrangement
At the beginning of Year 1, a company hired an executive whose contract included the promise of payment of $100,000 in each of Years 6, 7, and 8, if the executive is employed at the end of Year 5. How should the compensation expense associated with this contract be recorded?
If the terms of a deferred compensation arrangement attribute all or a portion of expected future benefits to a period of service greater than one year (which is the case in this problem, because the period of service required is five years), the cost of benefits should be recognized over that required period of service. Thus, the total $300,000 benefit would be expensed over five years at $60,000 per year ($300,000 / 5 = $60,000).
accrued for vacation pay
The company accrues vacation expense only for the months during the year where the vacation has been earned
Which of the following is a cost associated with exit and disposal activities?
Costs to relocate employee
costs to terminate a contract that is not a capital lease
benefits related to involuntary employee termination (severance pay)
Consolidating facilities
Relocating employees
Moving PP&E
An asset retirement obligation (ARO) exists
when an asset is constructed and there are legal requirements to incur removal-type costs related to the constructed asset.
an asset retirement obligation will be recorded as a liability when the asset is put into service. The reported liability is the present value of the future obligation, which is the estimated fair value of the liability
No expense is recognized initially. The ARO will increase the value of the asset and depreciation expense will be recorded over the life of the asset, which will include the expense related to the ARO.
A company recorded a decommissioning liability and recognized the amount recorded as part of the cost of the related property. After the property was fully depreciated, the decommissioning liability was reviewed and adjusted. How should this change in the decommissioning liability be recognized?
Any change in the value of the liability after the property has been fully depreciated will be recognized in profit or loss.
should be booked as a profit/loss on the income statement rather than going into other comprehensive income on the balance sheet.
when the liability is reviewed and adjusted rather than only at settlement.
Accretion expense
is the increase in the ARO liability due to the passage of time. Accretion expense is beginning asset retirement obligation times the appropriate accretion rate, in this case the credit-adjusted rate.
Gain contingencies should be disclosed
in the notes unless the likelihood of the gain being realized is remote. The full range of possible settlements should be disclosed.
The actual settlement was not determined until after the financial statements were issued.
Gain contingencies are not recognized until realized.
A contingent liability
that is probable and estimable must be recognized.
If all amounts within a range of values are equally likely, then the lowest amount in the range is the measurement amount.
Only footnote disclosure is required for a “reasonably possible” (not “probable”) loss.
probable but cannot be reasonably estimated should be disclosed in the financial statements but not recorded as an adjustment in the financial statements.
In a business combination, the investment is valued
at the fair value of the consideration given or the fair value of the consideration received, whichever is more clearly evident. In this example, the rules related to contingencies are relevant, as well. If a lawsuit settlement is probable and can be reasonably estimated, then it must be accrued as a contingency.
Revenue cannot be recognized until
the merchandise is traded for the coupons and the related expense is incurred and “matched.”
Warranty expense
is calculated as a percentage of sales. Any change in the estimate of the percentage is recorded prospectively, from the current year forward.
