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FAR > F5 > Flashcards

F5 Flashcards

1
Q

Calculate current liability for the Note

A

Pay attention on dates, e.g. Note borrowed October 1. Principal and interest paid once a year in September. Current liability = Principal paid next year + interest payable for the 3 month before current year end.

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2
Q

Sick/Vacation accrual

A

Vacation days accrued even if they ae not vest, Sick days accrued only if vest

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3
Q

If you see bearing interest compounded annually every year

A

(Note payable principle year 1+ accrued interest year 1) * interest rate

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4
Q

Depreciation related deferred tax liabilities

A

All deferred Tax liabilities classified as non-current liabilities

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5
Q

Calculate accretion expense for retired asset

A

Accretion expense-increase in ARO (Asset retirement obligation) liability due to the passage of the time= Beginning ARO*credit adjusted rate

Total accretion expense for all years=FV of ARO - PV of ARO

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6
Q

TV costs $2K+sales tax 8%. Manager agrees to sell just for $2K what JE should be posted?

A

DR Cash $2K
CR Sales $1,852 ($2k/1.8 as sales tax incl in $2K
CR Sales Tax Payable $148

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7
Q

If you see debit balance in AP

A

AP balance was reduced by error. The prepayment s/b debited to prepaid expense

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8
Q

Vacation expense and vacation liability to be reported

A

Vacation expense= amount of vacation earned in the period regardless was it taken or not
Vacation liability=vacation earned but not taking

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9
Q

If checks were written/cut to the vendors on Dec 31 but mailed only in January

A

Un-mailed checks shoud be added back to AP

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10
Q

ARO JE. Asset Cost $600K, 10 years, dismantle cost in 10 year -$75K, PV of Dismantle cost $45k, Interest rate 6%.
Real Dismantle cost $80K

A

1)DR Asset $600k / CR Cash $600k
2) Capitalize ARO: DR Asset/Asset Retirement Cost PV $45k/ CR $45k ARO
3)Asset Depreciation expense for 1 year:
DR Depreciation Expense $600/10 years / CR Accumulated Depreciation
4) Dismantle cost depreciation: DR $45/10 years /CR Accumulated Depreciation
5) Year 1 DR Interest Expense $456% for 1 year $2.5K /CR ARO $2.5K
6) Year 2 Interest expense: ($45K plus+$2.5)6%…….Till ARO achieve $75K in year 10. Caring value of ARO increase each year
7) DR ARO $75K , Dismantle Expense/Loss on ARO settlement 5K/ CR Cash $80K

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11
Q

Accounts Payable Reconciliation:

A

Add to AP balance: - Invoice was not included to AP and balance was not paid

Remove from AP balance:-Invoice included in AP balance and paid.

No Adjustment needed:

  • Invoice not included in AP balance but was paid
  • Invoice was included in AP balance but was not paid
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12
Q

Non interest bearing note

A

No interest accrued. Interest included in face value.

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13
Q

What is contingent liability for discounted with resource at 10% 1 year non interest bearing note

A

The contingent liability is maturity value

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14
Q

Which is required disclosure by IFRS but not GAAP

A
  1. Statement of compliance with all applicable principles

2. Disclosure of judgements maid in preparation of FS

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15
Q

Contingent liability.

Remote- disclose if DOG

A

Accrue loss-only probable with reasonable amount. Reasonable possible with amount- disclose only.
Disclose Gain amount and nature-if probable or reasonable possible and can be estimated.

If favorable judgement was awarded, but offered but offer settlement out of the court was maid at the same date but it was not accepted yet- Just disclosure in the notes.

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16
Q

Estimated warranty liability.

A

Accrue warranty liability in year of sales of product even if warranty is for future years

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17
Q

IFRS Contingent liability. Use midpoint of the range. US GAAP-minimum.

A

Probable-greater than 50% more likely than not

Possible-may but probably not

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18
Q

FV and PV factors are inverses

A

FV=1/0.620925=1.6105

PV=1/1.61105

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19
Q

Note payable

A

If term doesn’t exceed 1 year- record FV

If more than 1 year -report PV

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20
Q

Current maturities of long term debt in BS

A

Amounts due and payable within 12 month of BS date

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21
Q

To calculate effective interest rate:

A

12% Int. Rate+0.5% Loan fee/(100%-0.5%Loan Fee)=12.563%

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22
Q

PV of $1

Use e.g. offer to buy equipment in 5 years for x price

A

Calculated for single CF
Bonds-PV principal
Leases-PV salvage value

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23
Q

Future value of $1

A

How much will I have in future if I invest Single CF now?

Difference b/w PV and FV is interest earned over time

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24
Q

PVOA (Present value of Ordinary Annuity)

A

Identical periodic End period payments to be made in future
FV factor=1/PV factor
PV factor=1/FV factor

e.g. PV of coupon payment, PV of 10 year end lease payments

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25
Q

PVAD

Payments in the beginning of the year

A

PVAD for 3 periods is same as PVOA for 3 periods - minus 1

26
Q

FVOA

A

FV of savings (savings in multiple equal parts in each period)

27
Q

Long-term Liabilities. Have maturity date.

A

Record at PV future cash outflows in OV

28
Q

Note Payable lol

A

Recorded at PV at issuance date (e.g equipment). Calculating discount required.
Payments* # of payments= Gross NP
Gross NP minus PV=Discount (deferred interest expense). It’s contra asset account. Amortized over time.

Interest expense recorded even if cash not paid.

DR Interest Expense
DR Note Payable
CR Cash

29
Q

Bond Premium (deferred gain)-Future interest expense in income statement to be less than coupon paid. Unamortized premium.

A

Issued 1000 bond. You borrowed 1000 bond, but you got 1050, due to matching principal its amortized by life of a bond by causing future interest expense less, so gain according to matching principal applied to IS during the life of the bond.

30
Q

Bond discount deferred loss/Unamortized discount

A

Get 900 instead of 1000. We record loss little by little by amortizing over the life of the bond, make interest expense bigger.

31
Q

Bond Selling Price= PV of principle+PV of % payments=

PV of $1 (principal)+ PV of OA for % payments. Always use MARKET RATE for PV NOT stated coupon rate.

A

Use MARKET RATE for PV NOT stated coupon rate.

32
Q

Under IFRS bond issuance cost reduce cash received and deducted from carryng value of Liabilities

A

DrCash $201
CR Premium ($6-bonds issuance cost $5)
CR Bond liabilities $200

33
Q

Bond issue price. Par $1MM, five-year, 10% bonds, market interest rate was 8%.interest payments to be made on June 30 and December 31 of each year

A

Compound periods:10=5y2semiannually
Compound periods interest MKT4%=8%/2
Payment amount principle=face 1MPV factor. PV $0.67M
Payment amount 1 PVOA interest=$1M* Coupon10%/2*PV factor

34
Q

Bond liability at date of issuance:

A

Cash received minus bond issuance cost

35
Q

At the purchase date carrying amount of the bond is more than:

A

Cash paid to the seller-NO

Face amount of bond-NO

36
Q

Debenture bonds

A

No collateral

37
Q

Bond issued on discount

A

CV goes up, Interest expense goes up

38
Q

Bond issued on premium

A

CV goes down, Interest expense goes down

39
Q

Interest expense Effective Interest Method

A

CV Beginning * MKT Rate/2
MKT Rate dictates Interest Expense
If MKT Rate more than Coupon- Bond was issued at discount

40
Q

Effective interest Amortization Premium for 1 year:

DR Interest Expense (lower each year)
DR Premium on Bond Payable (more each year to zero out in the last year as it was CR)
CR Cash (Constant Coupon)

A
  1. Beginning CV*MKT Rate/2=Interest Expense
  2. Interest Payment Cash=Face*Coupon%/2
  3. Interest payment - Interest Expense=Amortization of Premium
  4. Beginning CV - minus Amortization of Premium
  5. Beginning CV 2nd year is less than Beginning CV 1st year
41
Q

Effective interest Amortization Discount for 1 year:

DR Interest Expense (more each year)
CR Discount on Bond Payable (more each year to zero out in the last year as it was DR)
CR Cash (Constant Coupon)

A
  1. Beginning CV*MKT Rate/2=Interest Expense
  2. Interest Payment Cash=Face Value*Coupon%/2
  3. Interest Expense -minus Interest Payment=Amortization of Discount
  4. Ending Balance Bond with Discount=Beg CV+ Amortization of Discount
42
Q

What amount was received from bond issuance if PV factors not given

A

Cash + plus accrued interest

43
Q

What amount was received from bond issuance if PV factors not given, bond was dated April, but issued in July 1?

A

Cash + plus accrued interest for 3 months (facecoupon%)3/12

44
Q

What amount to report as bond payable net of discount if bond dated October year 1 but issued January Year 2 at $400,000,8%, at 0.97 plus accrued interest $8000?

A

Bond Payable 400,000*0.97. DO NOT include accrued interest. It’s not a part of the bond. ACCRUED INTEREST INCLUDED IN PRICE.

45
Q

JE for Bond issued on Premium with accrued interest:

A

DR Cash (Price+Accrued Interest) $209,500
CR BP $200,000
CR Bond Premium $2000
CR Bond Interest Payable $7500

46
Q

Retirement of Bond. Gain/Loss make JE to know

A

DR Face BP
CR unamortized portion of discount
CR Selling Price of the bond
Gain if need to add CR to Balance/DR-Loss

47
Q

For Bonds

A

WHATCH DATE OF ISSUANCE AND DATE OF PAYMENT, WNEN INTEREST PAID

48
Q

Calculate cash receipts from issuance Bond

A

Cash received+(accrued interest proportionally e.g.3/12) minus issuance cost

49
Q

Type of Bond (Detachable warrants)

A
  • Increase in stockholder’s equity=# of bonds*value of warrants on issuance
  • What was the total increase in long term debt? Cash received minus amount allocated to warrants.
50
Q

If bond issued at discount and strait line depreciation method was used instead of effective interest method

A

Caring amount of the bond would be overstated because amortized discount added to Beg CV would be more if calculated by strait line method

51
Q

Net Carting Amount of the bond

A 
Requisition price (Face* %paid)-
-Carting value (Face+plus Unamortized premium or - minus Unamortized discount-minus Unamortized issuance cost)
52
Q

Warranty cost incurred for the year

A

Warranty Expense=Sales*Cost Estimate Rate%

Liability for warranty costs incurred=Warranty Expense-Warranty Cost Incurred

53
Q

Note issued July 1 at 12%. Company discounted note at 10% September 1.

A

Face10% discount %remaining months

54
Q

What amount should be reported as interest income for the Note?

A

Face Value minus any nonrefundable issue costPV factor=CV of NoteMkt Rate

55
Q

What amount of 5 years Notes Receivable due in more than 12 months should be reported?

A

(FV+FVcoupon rate%5 years)*PV factor

56
Q

What amount is the value of Net Bond Payable?

A
  1. Calculate cash/SPrice received=Face*PV of 1$+PV of % PVOA
  2. Calculate interest Payment= Face*Coupon%
  3. Calculate Interest expense=Cash*Mkt rate
  4. Interest expense-Interest payment= Discount s/b added to Bond/ Premium deducted from bond
57
Q

Types of lease

A

Capital finance lease:
Lessee- any of OWNES met
Lessor-any of OWNES met-Sales Type finance lease
Lease-if non OWNES MET BUT 2 OF pc met-Direct finance lease
If nothing from above met-OPERARING

58
Q

Include in Lease Payments

A

Include
1.Required fixed payments
2.Exercise price of option reasonable assured
3.Pirce at the end of lease
4. Only indexed or rate variable payments
5. Residual guarantees likely to be owed
6.Termination penalties reasonable assured
May exclude:
Nonlease components (maintenance)
Not included
Guarantees, Variable payments e.g. based on use of leased equipment

59
Q

Bond premium amortization

A

C/P=Y
Interest payment=FaceCoupon Rate
Interest expense=Caring Value of bondheld rate
Payment-Expebse=Amortization

60
Q

Calculate proceeds on sale of bond

A

Price = PV of Face value ($1)+ PV of annuity (Face*Coupon)

Watch dates. I’d semiannually , for n and i/2

61
Q

JE to redeem the bond

Components of loss:
Unamortized discount, Unamortized issuance cost, Premium paid to redeem

A

DR Face value of bond $1,000
DR Loss on dept extinguishment $73 (plug)
CR Cash $1,030
CR Unamortized discount on Bonds Payable $28
CR Unamortized bond issuance cost $15

62
Q

Lease amortization/depreciation expense

A

Finance lease. Capitalized value of the lease (PV of payments)-Salvage value/Useful life

FAR (12 decks)

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