F5 Flashcards
When recording Accounts Payable, what’s the difference between the net method and gross method?
Net Method: purchases and AP are recorded at NET of discount. If payment is made within the discount window, there is no adjustment, but if you pay after the discount period is up, your discount is gone and you debit purchase discount loss
Under the Gross method your record purchases without regarding dicounts and so when you pay within the dicount period, credit purchase discount
What types of costs are associated with exit and disposal activities
cost to terminate contracts that arent capital leases
costs to consolidate facilities
costs to relocate employees
Can you tell me what is meant by an asset retirement obligation (ARO)
a legal obligation associated with the retirement of a tangible long lived asset that results from acqusition, construction, or normal operations
How is an ARO valued intitially
at Fair value (present value of future obligations)
How is an ARO accoutned for in periods of initial measurement
ARO liability is adjusted for accretion expense and the ACOasset is then depreciated
What are the three ranges of likelihood that a future event will confirm a contingent liability
Probable
Reasonably Likely
Remote
When do you actually record a contingent liability? how do you record/disclose if it is probable, reasonably likely, and remote
when the loss is both probable AND reasonably estimated (minimum in-range amount) you record and disclose it
you just disclose it when it is only reasonably possible
and when its remote you dont disclose it (unless its a guarantee)
Can you tell me the difference between an ordinary annuity and an annuity due
Ordinary annuities are due at the end of each period
While Annuity Due are DUE NOW at the beginning of the period
At what value are notes payables recorded on the financial statements
at present value at the date of issuance
When would you not use the present value valuation of a note payable and instead use the effective interest method
if the note is non interest bearing or the interest rate is unreasonable
what is the effective interest method
method where each payment on a note is divided between an interest component and a principal component as though the note had a constant effective stated rate of interest
When is a bond issued at a discount, what about a premium
issued at a discount when the coupon/stated rate is less than the the market/effective rate
its a premium when the bond interest rate is greater than the market rate
What is the prefferred method of accounting for bond issuance costs under GAAP and IFRS
you deduct the carrying amount of the liability and amortized using the effective interest method
What is the straight line method of amoritizing Bond premiums and discounts (GAAP only)
Premium (discount) / # of periods outstanding
What is the interest (effective rate) method of amoritizing Bond premiums and discounts Method (US GAAP / IFRS)
Premium(discount) amortized = (carrying value x effecive rate) - ( Face value x stated rate)
Interest expense = (face value x stated rate) + discount amortized - premium amortized = carrying value x effective rate
What are the four types of restructuring involving debts
transfer of assets
transfer of equity interest
modification of terms
combination of the above three
how is a gain (loss) measured in a troubled debt restructuring involving a transfer of assets
restate the assets transferred to fair value and recognize a gain/loss in ordinay income
recognize a gain for the difference between the fair value of the assets transferred and the carrying amount of debt forgiven
how does the creditor record the loss incurred on a modification of terms
Dr: Bad Debt Expense
Cr: Allowance for credit loss
When is a liability considered extinguished
if either:
debtor pays the creditor and is relieved of obligations
or
debtor is legally released from being the primary obligor
