F4 M1 Flashcards
Payables and Accrued Liabilities
current liabilities
-recorded at settlement value
-indication of financial strength and solvency
gross method JE for purchase discount taken
Dr. AP
Cr. Cash
Cr. Purchase discount taken
net method JE for purchase discount not taken
Dr. AP
Dr. Purchase discount not taken
Cr. Cash
interest payable
-face value of debt * stated interest rate
-represents interest expense incurred but not paid
current obligations expected to be refinanced
-ST debt excluded from current liabilities and transferred to LT if company intends to refinance on long-term basis
-evidenced by:
1) actual refinancing prior to issuing F/S
2) a financing agreement from lender, who has resources to accomplish refinancing
disclosure of refinanced ST obligation and JE
-amt excluded from current liabilities and financing arrangement disclosed
Dr. Short-term Liability
Cr. Long-term liability
sales tax payable
-sales taxes collected on sales from customers that are payable by the company to the taxing authority
-sales taxes not an expense of collecting company
sales tax payable JE
Dr. Cash (sales + tax)
Cr. Sales
Cr. Sales tax payable
Payroll deductions for payroll JE
Dr. Salaries and wages expense
Cr. FICA taxes payable (7.65% of salaries)
Cr. Withholding taxes payable
Cr. Cash
employer’s tax expense JE
Dr. Payroll tax expense
Cr. FICA taxes payable (7.65% of salaries exp.)
Cr. Unemployment taxes payable (2% of salaries exp.)
calculating bonuses including taxes
1) Bonus = % net income (income - taxes)
2) Taxes = % taxes (income - bonus)
3) plug taxes formula in for taxes of bonus equation
4) Use PEMDAS
when can you accrue vacation or sick time?
1) if services of employees already rendered
2) the obligation vests (not contingent upon future service or can be carried forward)
3) payment of compensation probable
4) amt can be reasonably estimated
-if only first three met, disclosure to notes of F/S needed only
self-insurance claim accrual and payout
Dr. Claim expense
Cr. Unpaid claims liability
Dr. Unpaid claims liability
Cr. Cash
examples of exit and disposal activities
1) relocation costs
2) involuntary employee termination benefits
3) costs to terminate a contract that is not a lease
4) costs to consolidate facilities
when is a liability recognized for an exit and disposal activity?
1) obligation event occurred
2) event results in present obligation to transfer assets or provide services in future
3) entity has little or no discretion to avoid future transfer of assets or providing of services
-future operating losses expected as part of exit and disposal activities recognized in period incurred
liabilities of exit and disposal activities are measured at?
fair value
-liability can be adjusted for revisions of timing, estimated cash flows from exit or disposal activity
-revisions accounted for prospectively
costs associated with exit and disposal activity
-if related to discontinued operations, reported in discontinued operations
-if not related to discontinued operations, reported in continued operations
disclosures for exit and disposal activities
1) description of exit and disposal activity
2) amt expected to be incurred and cumulative incurred to date
3) each major cost associated with entity
4) line items in I/S of costs aggregated
5) fair value cannot be reasonably estimated, disclose reasons for it
asset retirement obligation
legal obligation to retire a tangible long-lived asset from acquisition, construction, development or normal operations of asset
Note: balance sheet approach used to recognize ARO
treatment of equity securities for refinancing ST debt
-if equity securities have been issued (after B/S date but before B/S issued), the ST obligation not included in owner’s equity and treated as LT debt
initial measurement of ARO
-fair value
-fair value = PV of future obligation
-if fair value cannot be estimated, only recognized when FV estimate can be made
asset retirement cost
amount capitalized asset that increases carrying amount of long-lived asset when a liability for an ARO recognized
journal entry for ARC
Dr. asset retirement cost
Cr. asset retirement obligation
accretion and depreciation
-after initial measurement, ARO liability adjusted for accretion expense due to passage of time
-ARC is depreciated
what is accretion expense?
-increase in ARO liability
-accretion expense added to ARO liability each period
-after accretion period ends, ARO liability reported on B/S should be equal to ARO paid
journal entry to record accretion expense
Dr. Accretion expense
Cr. ARO
ARO is recorded at a…
discounted amt
depreciation expense for ARC
-decreases ARC on B/S
-at end of accretion period, ARC should be fully depreciated
journal entry for depreciation of ARC
Dr. Depreciation expense
Cr. Accumulated depreciation
ARO formula
=cumulative accretion expense + cumulated depreciation expense
revisions to cash flow estimates
-estimated cash flows used to calculate discounted ARO liability reported on B/S
-upward revisions undiscounted cash flows are “new” liabilities use current discount rate
-downward revisions require removal of “old” liabilities and use historical (weighted average) rate
