F5 Flashcards
How to find sales tax amount when it is lumped together with the total sales revenue? (Formula)
Total Sales Revenue Credits/(1+Sales Tax Rate) = JUST Sales Revenue
Then take just the sales revenue and multiply by sales tax rate to get actual sales tax
Are Dividends in Arrears a Current Liability?
NO
What rate do we use to calculate accretion (aka. Interest) expense?
The credit-adjusted rate
How does maintenance expense and interest earned affect the escrow account?
Maintenance expense = decrease
Interest = increase
How do leftover vacation days and sick days work?
Vacation days are paid if accumulated or vested
Sick days are only paid if VESTED
How to recognize expense from deferred compensation?
If terms of deferred compensation > 1 year then evenly allocate the expense over the TERM PERIOD.
How to recognize a purchase discount journal entry?
CREDIT to add, DEBIT to remove
Difference between gross trade payable method and net method?
Gross method = only recognize purchase discount as it happens
Net Method = recognize from beginning, then remove if necessary
Which payroll taxes apply to both employees/employers and which applies only to employer?
FICA/MEDICARE = both have to pay
Unemployment tax = only employer pays
Journal entries for ARO problems
Also called, decommissioning liability under IFRS
1) Recognize ARO at FV (discounted CF)
ARC (Asset) XX
ARO (Liability) XX
2) Record accretion (interest) expense
Initial PV of ARO * Credit Adjusted Rate
Accretion Expense XX
ARO XX
3) Record Depreciation Expense
Initial PV of ARC/Depreciation rate
Depreciation Expense XX
Accumulated Depreciation XX
Total ARO expense is equal to ____ + ____?
Total Accumulated Depreciation + Total Accretion Expense
How does depreciation and accretion expense affect the ARO/ARC?
Depreciation = Decreases ARC
Accretion (Interest) = Increases the ARO (Liability!)
JE for ARO when you pay for disposal/dismantle
Remove the total cost of the ARO (total accretion +dep), remove cash/AP for cost of dismantle, recognize rest as expense.
ARO XX
Expense XX
Cash/AP XX
Basic rule for recording a contingent liability
Must be PROBABLE and be able to be REASONABLY ESTIMATED
If it is reasonably possible or remote, never record a JE, but need to disclose information for reasonably possible and in some instances for remote cases.
Rule for contingent gains
Contingent gains are not recorded until they are absolutely going to be actually earned
How to record warranty expenses?
1) Record the estimated TOTAL warranty liability for each year (total % of warranty exp *sales)
Warranty Expense XX
Warranty Liability XX
2) Record the ACTUAL warranty expenses for each year
Actual Warranty Exp XX
Inventory XX
Balance in liability account = Total estimated warranty exp - total actual warranty expenses
**PAY ATTENTION: IF PROBLEM ASKING FOR WARRANTY EXP or WARRANTY LIABILITY BALANCE!!
How to solve for coupon liability?
Estimated amount of coupons to be collected
- Amount actually collected
= Leftover liability amount * coupon value
How does change in the estimate of the warranty expense percentage affect future years?
Adjust for changes PROSPECTIVELY.
How to solve for PV of $1 and FV of $1? (AKA, 1 single lump sum payment)
FV = PV*(1+r)^n PV = FV/(1+r)^n OR If the problem gives you the PV and FV factors, simply multiply each one by the factor. FV = PV * FV factor PV = FV * PV factor
How to convert PV factor and FV factor interchangably?
Take 1/PV to get FV and vice versa
How to solve for PV of Ordinary Annuity and PV of Annuity Due?
PV of Ordinary Annuity = PV of PMT * PVOA Factor
PV of Annuity Due = PVOA Factor * (1+r)
0r PV of PMT * PVAD Factor
**IMPORTANT: PVOA of current period 2 + 1 = PV annuity due factor for 3 periods
PV AD for 3 periods = PVOA for 2 periods + 1
Imputed interest for notes payable problems
Even if the notes payable says zero interest, still need to amortize the interest evenly over the life of the note.
Regardless what type of problem, the total discount or premium is always the difference between the original FACE VALUE and the PV of the asset/note whatever. from there, figure out how much is amortized throughout the year.
Int exp XX
Discount XX
amortizing discount = increase CV
JE to record first-year payment of interest under effective interest rate method
Interest Expense XX
Notes Payable XX (principal paid)
Cash XX (Amt of set pmt)
How to solve for imputed interest
Problems where a note has no interest or unreasonable amount of interest, so we still have to record interest payments every year even though nothing paid. It is amortization problem, so interest added onto balance every year.
1) Record purchase of note at PV
Asset XX
Discount XX
Notes Payable XX (Full payment amount)
2) Record interest payment
Interest expense XX
Discount on Notes Payable XX
At year end, take Notes payable - total discount =carrying value
