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FAR MC > F5 > Flashcards

F5 Flashcards

1
Q

AP gross method account (DR or CR balance) and when recorded

A

Record discount when taken

Purchase discounts - CR balance

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2
Q

AP net method acct (DR or CR balance) and when recorded

A

Purchase discounts NOT taken, DR balance

Recorded when NOT taken

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3
Q

How can current debt be reclassified as non-current?

A

Company must have INTENT and ABILITY to refinance evidenced by:

Subsequent event (actually refinancing after BS date -or-
Non-cancelable financing Arrangement
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4
Q

Sales Tax are NOT a what?

A

They are NOT an expense

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5
Q

What two methods are allowed for property taxes?

A

Expense when bill received or accrue

Doesn’t matter as long as consistent

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6
Q

How to calculate bonus?

A 
Bonus = R (NI - taxes)
Taxes = Tax_Rate * (NI - bonus)

Combine formulas and algebra

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7
Q

If vacation time carries over and is paid at X2 salary, when does the difference is salary expenses hit?

A

When paid:

Vacation Payable X1 rate
Salaries Expense (Plug)
Cash

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8
Q

Accrual of sick pay benefits IFRS vs GAAP

A

IFRS: as services rendered
GAAP: vested amounts

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9
Q

What is asset Retirement obligation under IFRS?

A

Decommissioning Liability

Required to be estimated at best estimate of expenditure, US GAAP requires initial measurement @ FV

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10
Q

Exit and disposal activities

A

Cost of involuntary EE termination (closing a branch / region / facility)

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11
Q

Is commitment to an exit plan enough to recognize a liability for exit and disposal costs?

A

No - not by itself

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12
Q

Unmarked checks at year end - effect on AP

A

AP should be increased if the checks aren’t mailed until AFTER the bs date

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13
Q

Should a Liability that requires the periodic payment of interest or secured by collateral be classified as a AP?

A

No, the former is an accrued Liability or debt and the latter is classified as a loan payable

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14
Q

If stock was issued to retire debt as a subsequent event, should it be recorded?

A

Move the current debt to non-current since it is being retired with equity INSTEAD of current assets

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15
Q

A deferred tax liability expected to reverse within 90 days is current - true of false

A

Non-current always

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16
Q

After the property is fully depreciated any change in the asset Retirement obligation will be recognized where?

A

Profit and loss

Same for IFRS and GAAP

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17
Q

Is there any difference between GAAP and IFRS for asset Retirement obligations?

A

Nothing material, just different verbage

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18
Q

Should the subsequent event of dividends declared be accrued for?

A

No - dividends payable are recorded when declared and are NOT accrued

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19
Q

What kind of cost is a cost to relocate EEs after closing down a location?

A

Exit and disposal cost

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20
Q

10% maintenance fee based on interest earned =

A

10% * interest earned

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21
Q

When to accrue vacation?

A
  1. Services already rendered
  2. The obligation relates to vested OR accumulated rights
  3. The amount can be reasonably estimated
  4. And payment probable
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22
Q

Should sick pay accrue?

A

Only if vested (rare)

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23
Q

If the terms of the deferred compensation arrangement attribute or a portion of expected future benefits to a period greater than one year, when should the related cost hit?

A

Over the period of REQUIRED service - expense to contingent years

CPA-08506

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24
Q

Contingencies - w/ range of equally likely amounts what to record?

GAAP

A

Minimum amount so you don’t have a cookie jar for later

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25
Q

Contingencies - w/ range of equally likely amounts what to record?

IFRS

A

Midpoint

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26
Q

GAAP vs IFRS probable

A

IFRS - more likely than not (>50%)

GAAP - likely (>75%)

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27
Q

When to record gain contingency?

A

Don’t.

Disclose in notes if highly probable

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28
Q

When to record loss contingency?

A

Probable and reasonably estimatable

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29
Q

Should a loss contingency be recorded if reasonably possible?

A

NO - disclose in the notes

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30
Q

General rule if the loss chance is remote

A

Ignore

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31
Q

Disclosures required for recorded loss contingency

A

Nature and range

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32
Q

What about a probable potential loss contingency?

A

If reasonably estimatable, record

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33
Q

Should general or unspecified biz risk be recorded such as risk of fire, flood, strikes, or war?

A

No

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34
Q

DOG

A

DOG - guarantee type remote loss contingencies that ARE disclosed

Debts of others guaranteed

Obligations of commercial banks under standby letters of credit

Guarantees to repurchase that have been sold or assigned (like AR / assets)

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35
Q

Is appropriation of retained earnings a substitute for an accrual?

A

NO!

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36
Q

Appropriation of RE

A

RE set aside in stockholders equity section for loss contingency

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37
Q

Premium (sales)

A

Offers to customers to stimulate sales offered in return for coupons / box tops / labels

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38
Q

When are warranty and premium cost charged?

A

In the period of the sale (matching)

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39
Q

In service contracts, how to calculate deferred revenue?

A

Defer 100% of revenue first and then subtract as work is completed

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40
Q

Disclose

A

Notes

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41
Q

Evenly throughout the year

A

Total for the year / 2

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42
Q

Stamp redemption

A

Ignore revenue.

Revenue is recognized whether redeemed or unredeemed.

Redemption cost must be accrued at sale time (business counts on stamps being unredeemed / unused)

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43
Q

Reasonably possible

A

Disclose in notes

Do NOT accrue

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44
Q

For contingent Liability, is record insurance deductible or full exposure?

A

Full exposure. Any proceeds from insurance company is treated as a gain.

Rule of conservatism

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45
Q

Ordinary Annuity

A

End of each period

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46
Q

Annuity due

A

Beg. Each period

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47
Q

What is the difference between future value and present value?

A

Amount of interest earned over period

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48
Q

Given a future value factor, how to find present value?

A

1 / FV

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49
Q

Given a present value factor, how to find future value

A

1 / PV

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50
Q

Multiple identical payments due at end of period

A

Ordinary annuity

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51
Q

Leases are typically what kind of problems

A

Annuity Due

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52
Q

Convert ordinary annuity factor to annuity due factor

A

( PV of ordinary due for n - 1 periods ) + 1

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53
Q

Convert Annuity due to ordinary annuity

A

( Annuity due factor for n + 1 periods ) - 1

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54
Q

Dividends vs interest

A

Dividends aren’t legally required, they are declared at discretion of the board

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55
Q

Imputed interest NOT required when

A
  1. short term loan
  2. Paid in property or services
  3. Represent security deposits
  4. Interest rate determined by the gov.
  5. Related loan
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56
Q

Must interest be recorded if there is only one lump sum payment to settle a loan?

A

Yes! B/c this is accrual accounting

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57
Q

Discount on loan liability

A

Deferred interest

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58
Q

Amortizing discount

A

Recording deferred interest over life of the loan

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59
Q

Effective interest method

A

Each payment is allocated to interest and principle at constant effective stated rate

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60
Q

Effective rate in effective interest method aka

A

Market rate

61
Q

Required disclosures for note payable

A
  1. Description of note
  2. Effective interest rate
  3. Face amount
62
Q

Multiple payments for loan

A

Annuity

63
Q

If nothing is stated about when the payments are due for an annuity assume

A

Ordinary annuity

64
Q

Interest expense of note Receivable is calculated by (effective interest method)

A

= Carrying value * effective interest rate

65
Q

What is the carrying value of a note Receivable?

A

Face less discount

66
Q

How to calculate principle reduced on payment?

A

Payment less interest expense

67
Q

How to find future value from PV factor

A

1/PV or amount / PV

68
Q

Difference between interest Receivable and interest income

A

Amortization of unearned interest (discount)

69
Q

Term note

A

A note that matures in a term of x years

70
Q

A discount resulting from the determination of a note s PV should be reported on the BS as a

A

Direct reduction from the face amount of the note

71
Q

How to calculate the total interest revenue earned by Leaf over the life of a note?

A

Total payments received over life of note less PV of note when first recorded

72
Q

How are loan origination fees accounted for?

A

Deferred and recognized over the life of the loan as interest in earned (amortization of discount)

73
Q

Annuity due is recorded on recording date by

A

PV netted against first payment

74
Q

Proceeds from discounting a note to a bank

A

( Face amount + Interest over life of the loan ) * months remaining / 12 * bank’s interest rate

75
Q

Is pension cost interest interest expense?

A

No

76
Q

When a note is issued after the note date, what account will increase? (investor side)

A

Interest Receivable

77
Q

How to solve for present value of note

A

Amount due at maturity (face + interest) x present value factor

78
Q

A note payable with a stated rated and a loan origination fee yields an effective interest rate of

A

More than the sum of both the rate and origination fee % of loan

79
Q

Should cash consideration issued with a note for equipment be combined to determine recorded value?

A

Yes

80
Q

The difference between the undiscounted cash flows and the PV is what?

A

Discount. This will be amortized

81
Q

Difference between carrying value of note in X1 and X2 when no principal is paid is (if there is a difference, there is a discount)

A

The discount (unearned interest) amortized (carrying value increased by the earned interest)

82
Q

Yield is calculated by

A

Coupon rate over principle

83
Q

If coupon rate = market rate is there a discount or premium?

A

No

84
Q

What is the present value of a note for cash at the market rate?

A

Do not consider present value for notes for cash at the market rate. Record at face value

85
Q

With a note payable - when is there a discount?

A

Only with imputed interest

86
Q

Bond indenture

A

Contract

87
Q

Stated rate

A

Interest to be paid to investors in cash

88
Q

Coupon rate

A

Interest to be paid to investors in cash

89
Q

Nominal rate

A

Interest to be paid to investors in cash

90
Q

Market Rate

A

Interest expense

Yield

91
Q

Yield

A

Market rate

92
Q

Market rate higher than stated rate

A

Discount

93
Q

Market rate lower than stated rate

A

Premium

94
Q

Issuing corporation for bonds is the

A

Borrower

95
Q

The bondholder is an

A

Investor

96
Q

Debentures

A

Unsecured bonds (no collateral)

97
Q

Convertible bonds - No detachable warrants

A

Convertible bond itself must turned in to convert to capital stock

98
Q

Convertible bonds - detachable warrants

A

Bond is NOT surrendered upon conversion, only the warrants plus cash representing the strike price of the warrants

99
Q

Zero coupon bonds - is there interest expense?

A

Yes. Interest paid in balloon payment with principal on maturity date

100
Q

Zero coupon bond

A

No periodic payments until maturity

101
Q

Bonds are issued in denominations of

A

$1000

102
Q

When coupon = market rate, Issuance price is equal to

A

Principal

PV of principal + PV of interest pmts = issuance price

103
Q

When interest expense > coupon interest paid

A

Bonds issued at a discount

104
Q

Does the bondholder record a premium or discount in their JE on purchase?

A

No, only issuer of bond

105
Q

How do we recognize loss on bonds sold at a discount?

A

Amortized as increased interest exp over coupon cash payments over life of the bond

106
Q

Amortization of discount / premium is the difference between

A

coupon paid and the interest expense

107
Q

Initial carrying value or bond must always equal

A

The cash proceeds

108
Q

Bond issuance costs are accounted for how?

A

Direct reduction to the carrying value of the bond, similar to discounts

Amortized over life of the bond

109
Q

Maturity value

A

face amount + all the interest to be paid

110
Q

JE for bond issuance costs

A

Decrease cash received and increase discount for bond issuance costs

111
Q

More cash is paid than CV for a bond

A

Cash paid to the seller b/c accrued interest is included in the cash

112
Q

When does the effective interest rate (which determines interest expense) differ from market rate?

A

When there are on issuance costs

113
Q

Bond issuance costs incurred before the bond issuance date are recorded as

A

Deferred cost and reversed when issued

114
Q

Issued at Discount

A

Loss

115
Q

Issued at Premium

A

Gain

116
Q

How does the bond carrying value go up (or down) over time

A

Amortization of discount or premium

117
Q

Amortization of discount or premium on bonds is calculated by

A

(Interest expense - interest payable)

118
Q

Do unamortized bond issuance costs affect the carrying value of the bond?

A

Yes - unamortized bond issuance costs are subtracted from the bond’s face amount along with discounts (and premium is added)

119
Q

Are serial bonds and debentures mutually exclusive?

A

No, they can be both

120
Q

Does amortization of discount / premium begin before bonds are sold?

A

No

121
Q

How long is the amortization period?

A

From SALE date until maturity date, not from origin date

122
Q

Is strait line interest method for amortization allowed under GAAP?

A

Not GAAP, but allowed if the results are NOT materially different from effective interest method

123
Q

How can you remember how many FS are required under IFRS vs GAAP?

A

IFRS has more BS

124
Q

Is strait line method allowed under IFRS?

A

No

125
Q

If there is a premium or discount, how much revenue does the investor recognize for interest?

A

Cash received less the amortized discount / plus the premium

126
Q

Does bondholder interest revenue equal borrower interest expense?

A

Yes - unless there are bond issuance costs (in which case the difference will be the amortization of the bond issuance costs)

127
Q

Interest expense will not equal interest payable when

A

There is amortization of discount or premium

128
Q

Objective of troubled debt restructuring

A

Maximize recovery of investment

129
Q

First step when settling debt with asset

A

Recognize gain / loss on disposal before recognizing gain on restructuring of debt

130
Q

Is there ever a loss on restructuring debt? (Borrower side)

A

No

131
Q

For the lender, loss on restructuring debt account name when debt is settled with an asset or equity

A

Allowance for credit losses

132
Q

Modification of term impairment JE

A

Bad debt expense

Allowance for credit losses

133
Q

How is impairment of a debt investment measured when there is a modification of terms?

A

Impairment measured based on the loan’s present value of expected future cash flows discounted at the loan’s HISTORICAL rate

134
Q

When there is a modification of terms for the debtor, when is there no gain?

A

Future payments exceed the carrying amount. Do NOT adjust carrying value of the note

135
Q

Refundable bonds

A

Allow an existing bond to be retired and replaced with one of a lower interest rate

136
Q

In substance defeasance is NOT

A

Extinguishment

137
Q

Does placing cash in an irrevocable trust count as extinguishment of a bond?

A

No

138
Q

Does market value matter when determine gain / loss on extinguishment of debt?

A

No - irrelevant

139
Q

Gain on troubled debt restructuring modification of terms is calculated by

A

Carrying value - ( Total undiscounted future cash payments )

140
Q

If foreclosure of loan is not probable, how can investor measure impairment with the practical expedient alternative

A

Observable market price -or-

Fair value of the collateral if loan is collateral dependent

141
Q

Does restructuring debt result in a net gain of stockholders equity?

A

If there is a gain on troubled debt restructuring - yes!

142
Q

Interest earned on escrow liability, does it increase liability or decrease?

A

All money received by escrow is a liability and expected to be paid.

So interest earned INCREASES liability. It’s an inflow of money to be remitted for the purpose of the escrow.

143
Q

If there is an unadjusted balance for accrued vacation of $10K and there are 50 days outstanding at $100 a day at year end, what should ending accd vacation be?

A

50 x 100 = 5000

Unadjusted total is distractor info

144
Q

PV of 3% note with annual interest payable at maturity for 5 years and a market rate of 10% is recorded at

A 
PV of face at 10% plus
PV of (3% interest * face * 10 years) @ 10%
145
Q

Effective interest method interest expense is calculated by

A

CV * effective interest rate

146
Q

Why is a note issued for cash recorded at proceeds value instead of present value?

A

Items for CASH are treated special on the financials

147
Q

Bond with a discount, does the difference between interest paid and interest expense get bigger or smaller each period?

A

Bigger because the CV increases which increases interest expense while interest paid remains constant

148
Q

Lower market rates relative to the coupon rate result in what for the carrying value and the amortization?

A

Would result in either something closer to the coupon rate or at a premium, which raises the carrying value. This would lower the interest expense relative to the coupon as the yield rate gets lower and lower. Eventually a premium results in interest expense lower than interest payable

149
Q

Change in market rate impact on book value of the bonds or interest expense

A

No impact: it the market place value of the bonds will decrease as interest rates rise because fixed coupon bonds will be less attractive than stocks

FAR MC (10 decks)

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