F5 Flashcards
Calculate current liability for the Note
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.
Sick/Vacation accrual
Vacation days accrued even if they ae not vest, Sick days accrued only if vest
If you see bearing interest compounded annually every year
(Note payable principle year 1+ accrued interest year 1) * interest rate
Depreciation related deferred tax liabilities
All deferred Tax liabilities classified as non-current liabilities
Calculate accretion expense for retired asset
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
TV costs $2K+sales tax 8%. Manager agrees to sell just for $2K what JE should be posted?
DR Cash $2K
CR Sales $1,852 ($2k/1.8 as sales tax incl in $2K
CR Sales Tax Payable $148
If you see debit balance in AP
AP balance was reduced by error. The prepayment s/b debited to prepaid expense
Vacation expense and vacation liability to be reported
Vacation expense= amount of vacation earned in the period regardless was it taken or not
Vacation liability=vacation earned but not taking
If checks were written/cut to the vendors on Dec 31 but mailed only in January
Un-mailed checks shoud be added back to AP
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
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
Accounts Payable Reconciliation:
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
Non interest bearing note
No interest accrued. Interest included in face value.
What is contingent liability for discounted with resource at 10% 1 year non interest bearing note
The contingent liability is maturity value
Which is required disclosure by IFRS but not GAAP
- Statement of compliance with all applicable principles
2. Disclosure of judgements maid in preparation of FS
Contingent liability.
Remote- disclose if DOG
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.
Estimated warranty liability.
Accrue warranty liability in year of sales of product even if warranty is for future years
IFRS Contingent liability. Use midpoint of the range. US GAAP-minimum.
Probable-greater than 50% more likely than not
Possible-may but probably not
FV and PV factors are inverses
FV=1/0.620925=1.6105
PV=1/1.61105
Note payable
If term doesn’t exceed 1 year- record FV
If more than 1 year -report PV
Current maturities of long term debt in BS
Amounts due and payable within 12 month of BS date
To calculate effective interest rate:
12% Int. Rate+0.5% Loan fee/(100%-0.5%Loan Fee)=12.563%
PV of $1
Use e.g. offer to buy equipment in 5 years for x price
Calculated for single CF
Bonds-PV principal
Leases-PV salvage value
Future value of $1
How much will I have in future if I invest Single CF now?
Difference b/w PV and FV is interest earned over time
PVOA (Present value of Ordinary Annuity)
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
PVAD
Payments in the beginning of the year
PVAD for 3 periods is same as PVOA for 3 periods - minus 1
FVOA
FV of savings (savings in multiple equal parts in each period)
Long-term Liabilities. Have maturity date.
Record at PV future cash outflows in OV
Note Payable lol
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
Bond Premium (deferred gain)-Future interest expense in income statement to be less than coupon paid. Unamortized premium.
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.
Bond discount deferred loss/Unamortized discount
Get 900 instead of 1000. We record loss little by little by amortizing over the life of the bond, make interest expense bigger.
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.
Use MARKET RATE for PV NOT stated coupon rate.
Under IFRS bond issuance cost reduce cash received and deducted from carryng value of Liabilities
DrCash $201
CR Premium ($6-bonds issuance cost $5)
CR Bond liabilities $200
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
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
Bond liability at date of issuance:
Cash received minus bond issuance cost
At the purchase date carrying amount of the bond is more than:
Cash paid to the seller-NO
Face amount of bond-NO
Debenture bonds
No collateral
Bond issued on discount
CV goes up, Interest expense goes up
Bond issued on premium
CV goes down, Interest expense goes down
Interest expense Effective Interest Method
CV Beginning * MKT Rate/2
MKT Rate dictates Interest Expense
If MKT Rate more than Coupon- Bond was issued at discount
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)
- Beginning CV*MKT Rate/2=Interest Expense
- Interest Payment Cash=Face*Coupon%/2
- Interest payment - Interest Expense=Amortization of Premium
- Beginning CV - minus Amortization of Premium
- Beginning CV 2nd year is less than Beginning CV 1st year
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)
- Beginning CV*MKT Rate/2=Interest Expense
- Interest Payment Cash=Face Value*Coupon%/2
- Interest Expense -minus Interest Payment=Amortization of Discount
- Ending Balance Bond with Discount=Beg CV+ Amortization of Discount
What amount was received from bond issuance if PV factors not given
Cash + plus accrued interest
What amount was received from bond issuance if PV factors not given, bond was dated April, but issued in July 1?
Cash + plus accrued interest for 3 months (facecoupon%)3/12
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?
Bond Payable 400,000*0.97. DO NOT include accrued interest. It’s not a part of the bond. ACCRUED INTEREST INCLUDED IN PRICE.
JE for Bond issued on Premium with accrued interest:
DR Cash (Price+Accrued Interest) $209,500
CR BP $200,000
CR Bond Premium $2000
CR Bond Interest Payable $7500
Retirement of Bond. Gain/Loss make JE to know
DR Face BP
CR unamortized portion of discount
CR Selling Price of the bond
Gain if need to add CR to Balance/DR-Loss
For Bonds
WHATCH DATE OF ISSUANCE AND DATE OF PAYMENT, WNEN INTEREST PAID
Calculate cash receipts from issuance Bond
Cash received+(accrued interest proportionally e.g.3/12) minus issuance cost
Type of Bond (Detachable warrants)
- Increase in stockholder’s equity=# of bonds*value of warrants on issuance
- What was the total increase in long term debt? Cash received minus amount allocated to warrants.
If bond issued at discount and strait line depreciation method was used instead of effective interest method
Caring amount of the bond would be overstated because amortized discount added to Beg CV would be more if calculated by strait line method
Net Carting Amount of the bond
Requisition price (Face* %paid)- -Carting value (Face+plus Unamortized premium or - minus Unamortized discount-minus Unamortized issuance cost)
Warranty cost incurred for the year
Warranty Expense=Sales*Cost Estimate Rate%
Liability for warranty costs incurred=Warranty Expense-Warranty Cost Incurred
Note issued July 1 at 12%. Company discounted note at 10% September 1.
Face10% discount %remaining months
What amount should be reported as interest income for the Note?
Face Value minus any nonrefundable issue costPV factor=CV of NoteMkt Rate
What amount of 5 years Notes Receivable due in more than 12 months should be reported?
(FV+FVcoupon rate%5 years)*PV factor
What amount is the value of Net Bond Payable?
- Calculate cash/SPrice received=Face*PV of 1$+PV of % PVOA
- Calculate interest Payment= Face*Coupon%
- Calculate Interest expense=Cash*Mkt rate
- Interest expense-Interest payment= Discount s/b added to Bond/ Premium deducted from bond
Types of lease
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
Include in Lease Payments
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
Bond premium amortization
C/P=Y
Interest payment=FaceCoupon Rate
Interest expense=Caring Value of bondheld rate
Payment-Expebse=Amortization
Calculate proceeds on sale of bond
Price = PV of Face value ($1)+ PV of annuity (Face*Coupon)
Watch dates. I’d semiannually , for n and i/2
JE to redeem the bond
Components of loss:
Unamortized discount, Unamortized issuance cost, Premium paid to redeem
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
Lease amortization/depreciation expense
Finance lease. Capitalized value of the lease (PV of payments)-Salvage value/Useful life
