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F5 Flashcards

1
Q

What are the requirements for leases to be classified as capital under GAAP?

A

OWNS: ownership transfer by end of lease term, written bargain purchase option, 90% fair value, 75% of estimated economic life

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2
Q

What are the IFRS criteria for classifying leases as financing?

A

OWESFACS: ownership, written bargain purchase option, major part of economic life, substantially all of fair value, fluctuation in fair value of residual, ability to continue lease, can cancel, specialized nature

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3
Q

When should recognition of gains be deferred for sale-leaseback transactions?

A

When seller-lessee retains the right to substantially all of remaining use of property

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4
Q

When are non-refundable operating leases recognized?

A

Deferred and recognized over the life of the lease

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5
Q

What do we do with the guaranteed residual at the beginning of a capital lease?

A

Include as part of minimum lease payments at present value

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6
Q

How are capital leases recorded?

A

Lesser of present value of minimum lease payments or fair market value of property

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7
Q

How is depreciation different for capital leases based on capital lease classification 0W vs. NS?

A

0W, depreciation based on asset life; NS, depreciation based on lease life

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8
Q

How are leasehold improvements treated?

A

Amortized over LESSER of remaining life of the lease or lease improvement

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9
Q

How does the seller lesses treat their amount of deferred gain?

A

> 90%, defer all gain; 10-90%, deferred gain to give-back; <10%, recognize all gain

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10
Q

What amount is capitalized for a capital lease?

A

Present value of minimum lease payments

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11
Q

What is the journal entry for a capital/finance lease?

A

Debit least asset, credit capital lease obligation

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12
Q

Under IFRS, what do we do with initial direct costs at least assets? What is the journal entry?

A

Add to leased asset at inception. Finance lease asset, credit finance lease obligation and cash

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13
Q

What do we do with profit from sale-leaseback transaction with IFRS financing lease?

A

Defer and amortize over lease term

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14
Q

What do we do with profit from straight line transaction with IFRS operating lease when sales price is equal, greater then, or less than fair value?

A

=, recognized immediately; >, fair value deferred and amortize; <, recognize immediately with exceptions

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15
Q

If title is transferred in a lease transaction, who incurs depreciation expense?

A

Lessee

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16
Q

What do lessors record with their lease receivable direct financing lease?

A

Minimum lease payments plus residual

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17
Q

In a sales type/finance lease, what is recognized as dealer/manufacturers profit?

A

Fair value of the leased asset - cost of the asset at inception

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18
Q

How do lessees treat leasehold improvements?

A

Depreciate/amortize over LESSER of the lease life or asset improvement life

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19
Q

If lease includes a bargain purchase option, how is it depreciated?

A

Over assets useful life instead of lease term

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20
Q

In a sales type lease, what is cost of goods sold equal to?

A

Historical cost of assets sold - PV of non-guaranteed residual value discounted over the life of the lease

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21
Q

How do we account for a lease bonus to the lessor in an operating lease?

A

Bonus originally recorded as deferred revenue and then amortized into income over the lease life

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22
Q

When capital lease includes a bargain purchase option, over what time period do we amortize the leased property?

A

Economic life of asset

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23
Q

How do we determine the market price of a bond?

A

PV of principal + PV of interest payments using market rate

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24
Q

How is the book value of bonds reallocated under the book value method of exchanging convertible bonds for stock?

A

Reallocated to par value and APIC accounts of common stock, increasing stockholders equity

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25
Q

At what amount are bonds payable reported at their issuance date?

A

Issuance price

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26
Q

Over what time period is bond interest expense recognized?

A

Entire period from bond issuance to fiscal year end

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27
Q

How would we record the journal entry for the issuance of bonds at a discount with the detachable stock warrants?

A

Debit: cash and discount; Credit: PIC - warrants and bonds payable

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28
Q

How are bond sinking funds accounted for?

A

Accounted for in their own account including investments + revenue - expenses

29
Q

How do bond issue proceeds affect stockholders equity?

A

Stockholders equity is increased by the value of warrants

30
Q

What do we do when a bond is purchased between interest rates?

A

Investor pays amount of accrued interest from previous months in total amount paid to seller

31
Q

How are stated interest and GAAP interest expense calculated?

A

Stated: amount stated on the bond (cash/face value); Interest expense is periodic interest rate (GAAP interest expense/carrying value at the beginning of period)

32
Q

The book value method is used to account for conversion of bonds to stock, how is stock issued recorded?

A

Carrying value of bonds (face value - discount)

33
Q

When the stated rate is less than the effective rate, what does this mean?

A

Interest expense is greater than cash payments made to bondholders

34
Q

What is the entry to issue bonds with a premium or discount?

A

Debit: cash Credit: premium and bonds payable; Debit: cash and discount Credit: bonds payable

35
Q

What type of bonds mature in installments?

A

Serial

36
Q

Under US GAAP, is a value assigned to the conversion feature when bonds are issued?

A

Nope, conversion feature cannot be sold or transferred separate from bonds themselves

37
Q

If a bond is initially recorded at premium and later a discount, what happened to interest rates?

A

They increased

38
Q

When debt is issued at a discount, what is the journal entry for amortization of the discount?

A

Debit: interest expense, Credit: amortization of bond discount and cash/interest payable

39
Q

Under IFRS, what do we do with convertible debt?

A

Equity component should be recognized upon issuance (= proceeds received - fair value of the bond liability)

40
Q

Purchasing a bond, what is the price?

A

The present value of the bonds expected net future cash flow’s discounted at the market rate of interest

41
Q

How is interest payable calculated?

A

Face value of the bond at beginning of period * contractual interest rate

42
Q

How is gain or loss on bond retirement calculated?

A

Bond at face value + unamortized premium - unamortized discount - cash paid

43
Q

Under US GAAP, how do we treat all costs associated with issuance of bonds?

A

Capitalize in amortize over the outstanding term of the bonds

44
Q

When warrants are exercised, what happens to stockholders equity?

A

Increase by cash received upon exercise of warrants

45
Q

What are debenture bonds?

A

Unsecured bonds

46
Q

When can sinking fund accounts be included with current assets?

A

When offsetting current liabilities

47
Q

With two separate transactions with one game and one loss, do we recognize separately or a net effect?

A

Separately

48
Q

What is the journal entry for conversion of bonds to stock?

A

Debit: bonds payable, Credit: unamortized discount, common stock at par value, and APIC (excess carrying value over par value)

49
Q

What do we do with bond premium?

A

Amortize over the life of the bond with amortized amounts decreasing interest expense each period

50
Q

How do we record rent expense and the interest component for an operating lease?

A

Lessee records operating lease rent expense on a straight-line basis and there is no interest component for operating leases

51
Q

How is profit or loss on a sale-leaseback classified as a capital lease treated?

A

Deferred and amortized in proportion to depreciation taken on leased back asset

52
Q

What does a lessor do with interest revenue from a sales type finance lease?

A

Recognize over period of lease using effective interest method

53
Q

How is capitalized equipment depreciated?

A

In accordance with the Lessee’s normal depreciation policy, not to exceed estimated useful life

54
Q

For a capital lease, what do we do with the minimum lease payments?

A

Allocate between principal and interest using rate inherent in the lease. Portion allocable to principal reduces remaining capital lease liability

55
Q

When we have operating leases with remaining lease terms over one year, what do we do?

A

Future minimum lease payments are required as of the last balance sheet date should be disclosed in aggregate and for each of the next five succeeding years

56
Q

How do we treat leasehold improvements?

A

Amortize over the lesser of the life of improvements for the remaining life of the lease

57
Q

How is the carrying amount of a bond payable affected by amortization of a discount or premium?

A

Increase; decrease

58
Q

How are term bonds issued?

A

Single fixed maturity date

59
Q

What do we include for long term borrowings and redeemable stock?

A

Disclosures with maturities and sinking fund requirements and redemption requirements for each of the next five years

60
Q

How do we calculate extraordinary gain or loss on early extinguishment of debt?

A

Face value of bonds retired - pro-rata unamortized bond issue costs - reacquisition price

61
Q

What do we do with discount or premium on sale of bonds?

A

Include in carrying value of bonds on the balance sheet

62
Q

Under GAAP book value method, what do we do when bonds are converted to common stock?

A

No gain or loss is recognized

63
Q

What is the journal entry converting bonds to common stock?

A

Debit: bonds payable, loss; Credit: common stock, APIC

64
Q

How are bond liabilities shown on the balance sheet?

A

Net of unamortized discount

65
Q

How is the bond issue price calculated?

A

Present value of future interest payments and present value of principal amount at the market interest rate

66
Q

What is the bond sinking fund used for?

A

Retiring bonds at future date and cash transferred to consider future revenue earned on investments made with sinking fund assets

67
Q

What do we do with bonds with detachable stock warrants?

A

Allocate amounts separately to debt and detachable warrants according to their relative fair market values at issue date –> detachable warrant amount is APIC

68
Q

When is a debtor relieved of its obligation to the creditor?

A

Paying the creditor or being released of debt judicially or by the creditor

69
Q

What are deposits into a bond sinking fund?

A

Asset to repay entire liability at maturity

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