F4 - Liabilities Flashcards
When are gain contingencies recognized?
Gain contingencies are only recognized once realized. The gain contingency is disclosed in the footnotes only, and is recognized once the settlement is actually settled.
Is a reasonably possible loss (liability) recognized in the F/S?
No, only a probable and estimable loss is recognized in the F/S.
Reasonably possible is only disclosed in the footnotes.
What is the exception of a remote contingency being disclosed in the F/S footnotes?
The only time a remote contingency is disclosed in a footnote is if it is a “guarantee-type” remote loss contingency (e.g., loan guarantee). This requires disclosing the amount of the loss and its nature.
What is unique about par value bonds?
There is no premium or discount to amortize.
The (effective) market rate at issuance is equal to the (stated) coupon rate on the bond.
Interest expense will equal interest payable because (int. exp. = int. pay. + amort.) there is no premium or discount to amortize.
How is the bond issue price computed?
= sum of PV of future principal payments + PV of future periodic interest payments
Use the prevailing market rate’s PV factor
How do you determine to total proceeds of a bond issued at the time of sale when the bond is dated two months before the date of sale, and the intered is paid quarterly?
In this scenario, you would calculate the bond FV as usual, then calculate the interest payable as usual, then calculate the Bond proceeds after discount/premium, then determine the months of interest accrued (2/3) and multiply that by the interest payable. Lastly, add the bond proceeds after discount/premium and the accrued interest (not the amortization) to get the total proceeds of the bond issued at the time of sale.
How does a lease qualify as a finance lease?
At least one criteria below must be met in OWNES:
O - ownership transfers to the lessee at the end of the lease term
W - written purchase option the lessee is reasonably certain to exercise
N - net present value equals or exceeds substantially (90%) of all the FV of asset
E - economic life must be a major part (75%) of the remaining economic life of the asset
S - specialized asset such that it will not have an expected, alternative usee to lessor
a
When does the asset in a finance lease get depreciated over the term of the lease instead of the asset?
Whenever the finance lease does not meet the ownership transfer or written purchase option criteria.
How do you calculate the future amount when presented with a present value investment and discounted interest rate?
Remember the PV formula.
Present value = future amount x present value factor
Now solve for future amount.
Future amount = PV / PV factor
Calculate totla ARO expense.
Total ARO expense = Depreciation expense of asset retirement cost + Accretion expense of ARO
Depreciation expense = ARO / number of years
Accretion expense = ARO x accretion % rate
