F5 - Liabilities Flashcards
What is the criteria for a company to account for vacation?
PTOO!
P = Payment is probable.
T = The amount can be reasonably estimated.
O = Obligation relating to EE’s rights to get PTO is related to Accrued PTO. (They need to pay me PTO if I’ve accrued it!)
O = Obligation relates to rights that vest (earned) or accumulate.
When can I exclude a ST liabilty from current liabilities? and moveit to non-current liabilities?
When the entity refinances the debt on a long term. Refinancing may happen after year end, but before the FS are issued. Remember! Subsequent Events!!!
What are the costs associated with exit or disposal activity?
ICE!
I = Involuntary employee termination benefits.
C = Costs to terminate a contract that is not a lease.
E = Employee relocation, consolidation of facilities, and others.
When do you recognize a liability related to an exit or disposal plan?
3 criteria!
- Obligating event has occured.
- The event results in a present obligation to transfer assets or to provide services in the future (Project Carolina, Daelim!)
- Entity can’t get out of transferring assets, or providing future services. (KRA-Daelim)
When do you recognize a bonus payable?
It must be recognized in the SERVICE YEAR EARNED!!!!!!! not the year paid!
How do you account for ARO?
- ARO is a liability (credit). ARC is an asset (debit).
- ARO is recorded at PV and it gets increased (credited) over the years to arrive at future value.
- ARO is credited against Accretion expense (debit).
- ARC is expensed (debited) via Depreciation Expense.
What is the ARO formula?
ARO = Accum Accretion Exp + Accum Depr Exp
What is something you can’t forget when working liabilities?
- Dates.
- Adjusting Interest Rates by month, by period, etc.
- Remember to separate liabilities by current and non-current portions.
What are the amounts that need to be considered for unemployment claims?
- Eligible wages (1st X of Total wages)
2. Estimated % of elegible wages.
How do you solve a question on interest expense?
- Always do the amortization schedule.
- Remember to adjust interest rate to applicable months. Interest rate in questions is always annual.
- Remember to consider maturity dates, payment dates.
- If interest is due at maturity, and is compound, it is added to the principal. Recalculate interest every period!
What is the basic bitch of deferred tax liabilities?
DTL are never CURRENT! Remember from WORK!
When do you record a contingent liability?
When they are probable and estimable. (Like Accrued Vacation/PTO).
If reasonably possible, then only disclosed, not recorded.
What amount do you accrue as a contigency?
- Lowest amount of possible range.
- Best reasonable estimate.
or - @FV (if acquisition is involved).
What if the contingent liability is probable, but can’t be estimated?
It is included in the notes to the FS, but not in the actual FS.
Remember! Always disclosed, sometimes accrued!
What happens when you have a contingency gain? (When the ball is on your side of the court!)
No gain is recognized until actually received (realized, settled).
What happens when I am awarded in a lawsuit, but appeal is still ongoing?
I don’t recognize any gain, even when I was awarded!
Logic: Appeal could change my gain!
What is my contingency liability when I sell a discounted note receivable?
W/ recourse = The full amount of the note receivable.
WO recourse = zero???????????
What is tricky about remote possibility?
Contingencies that are remotely possible are neither accrued nor disclosed BUT!!!!! Related Party Transactions must be disclosed.
How do you report a LT liability?
@ PV !!! Multiply by PV Factor!
***ST Liabilities @ Face Value!
What is reported as interest expense?
Imputed interest on non-bearing interest notes.
What is the formula of effective interest rate?
(Interest Rate% + Fees%) / (100% - Fees%)
What is the present value formula?
PV = Future Value * PV Factor
How do you calculate interest income from a LT note?
PV * Interest Rate. (See PV formula above)
