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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
At what amount are bonds payable reported at their issuance date?
Issuance price
26
Over what time period is bond interest expense recognized?
Entire period from bond issuance to fiscal year end
27
How would we record the journal entry for the issuance of bonds at a discount with the detachable stock warrants?
Debit: cash and discount; Credit: PIC - warrants and bonds payable
28
How are bond sinking funds accounted for?
Accounted for in their own account including investments + revenue - expenses
29
How do bond issue proceeds affect stockholders equity?
Stockholders equity is increased by the value of warrants
30
What do we do when a bond is purchased between interest rates?
Investor pays amount of accrued interest from previous months in total amount paid to seller
31
How are stated interest and GAAP interest expense calculated?
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
The book value method is used to account for conversion of bonds to stock, how is stock issued recorded?
Carrying value of bonds (face value - discount)
33
When the stated rate is less than the effective rate, what does this mean?
Interest expense is greater than cash payments made to bondholders
34
What is the entry to issue bonds with a premium or discount?
Debit: cash Credit: premium and bonds payable; Debit: cash and discount Credit: bonds payable
35
What type of bonds mature in installments?
Serial
36
Under US GAAP, is a value assigned to the conversion feature when bonds are issued?
Nope, conversion feature cannot be sold or transferred separate from bonds themselves
37
If a bond is initially recorded at premium and later a discount, what happened to interest rates?
They increased
38
When debt is issued at a discount, what is the journal entry for amortization of the discount?
Debit: interest expense, Credit: amortization of bond discount and cash/interest payable
39
Under IFRS, what do we do with convertible debt?
Equity component should be recognized upon issuance (= proceeds received - fair value of the bond liability)
40
Purchasing a bond, what is the price?
The present value of the bonds expected net future cash flow's discounted at the market rate of interest
41
How is interest payable calculated?
Face value of the bond at beginning of period * contractual interest rate
42
How is gain or loss on bond retirement calculated?
Bond at face value + unamortized premium - unamortized discount - cash paid
43
Under US GAAP, how do we treat all costs associated with issuance of bonds?
Capitalize in amortize over the outstanding term of the bonds
44
When warrants are exercised, what happens to stockholders equity?
Increase by cash received upon exercise of warrants
45
What are debenture bonds?
Unsecured bonds
46
When can sinking fund accounts be included with current assets?
When offsetting current liabilities
47
With two separate transactions with one game and one loss, do we recognize separately or a net effect?
Separately
48
What is the journal entry for conversion of bonds to stock?
Debit: bonds payable, Credit: unamortized discount, common stock at par value, and APIC (excess carrying value over par value)
49
What do we do with bond premium?
Amortize over the life of the bond with amortized amounts decreasing interest expense each period
50
How do we record rent expense and the interest component for an operating lease?
Lessee records operating lease rent expense on a straight-line basis and there is no interest component for operating leases
51
How is profit or loss on a sale-leaseback classified as a capital lease treated?
Deferred and amortized in proportion to depreciation taken on leased back asset
52
What does a lessor do with interest revenue from a sales type finance lease?
Recognize over period of lease using effective interest method
53
How is capitalized equipment depreciated?
In accordance with the Lessee's normal depreciation policy, not to exceed estimated useful life
54
For a capital lease, what do we do with the minimum lease payments?
Allocate between principal and interest using rate inherent in the lease. Portion allocable to principal reduces remaining capital lease liability
55
When we have operating leases with remaining lease terms over one year, what do we do?
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
How do we treat leasehold improvements?
Amortize over the lesser of the life of improvements for the remaining life of the lease
57
How is the carrying amount of a bond payable affected by amortization of a discount or premium?
Increase; decrease
58
How are term bonds issued?
Single fixed maturity date
59
What do we include for long term borrowings and redeemable stock?
Disclosures with maturities and sinking fund requirements and redemption requirements for each of the next five years
60
How do we calculate extraordinary gain or loss on early extinguishment of debt?
Face value of bonds retired - pro-rata unamortized bond issue costs - reacquisition price
61
What do we do with discount or premium on sale of bonds?
Include in carrying value of bonds on the balance sheet
62
Under GAAP book value method, what do we do when bonds are converted to common stock?
No gain or loss is recognized
63
What is the journal entry converting bonds to common stock?
Debit: bonds payable, loss; Credit: common stock, APIC
64
How are bond liabilities shown on the balance sheet?
Net of unamortized discount
65
How is the bond issue price calculated?
Present value of future interest payments and present value of principal amount at the market interest rate
66
What is the bond sinking fund used for?
Retiring bonds at future date and cash transferred to consider future revenue earned on investments made with sinking fund assets
67
What do we do with bonds with detachable stock warrants?
Allocate amounts separately to debt and detachable warrants according to their relative fair market values at issue date --> detachable warrant amount is APIC
68
When is a debtor relieved of its obligation to the creditor?
Paying the creditor or being released of debt judicially or by the creditor
69
What are deposits into a bond sinking fund?
Asset to repay entire liability at maturity

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