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FAR > F5 - Liabilities > Flashcards

F5 - Liabilities Flashcards

1
Q

When computing compound interest make sure to:

A

Multiply by fraction of year affected (10/12)

then:

Subtract that amount from face value to calculate next year’s interest.

Add together amounts to get accrued liability at YE

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2
Q

A/P Adjustments at YE:

A

Reverse debit balances and checks that were mailed post YE

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3
Q

Getting to sales revenue and sales tax payable:

A

= cr Sales Revenue / (Sales tax rate +1)
=Revenue Recognized

Difference between Revenue Recognized and the total Cr to sales revenue is tax

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4
Q

Compensation Expense Adjustments:

A

Add back forgotten salary accrual and bonuses accruals (even if amount isn’t paid until the next year) to get to adjusted compensation expense for YE

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5
Q

Long term debt retirement:

A

Long term debt that matures in less than one year should be included in current liabilities unless it is to be retired with “other than current assets” (stock issuance)

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6
Q

Subsequent (to YE) stock issuance to retire debt

A

If the amount is known the transaction should be included in the financial statements as a sub event

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7
Q

Debt/stock issuance to retire debt/loan (prior to issuance of F/S)

A

If the liability was refinanced/retired with long-term debt/stock before the issuance of the F/S, than it should be included in the F/S as long-term.

Refinanced after, note in the financials

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8
Q

Short term that is to be refinanced with long-term debt is treated how when it comes to paying it off?

A

If you pay-off a portion of it prior to the issuance of the F/S, that amount would be considered a current liability however, the remaining amount will be considered a long-term liability on the F/S

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9
Q

Calculating ARO:

A

Beg ARO + PV of new ARO + Accretion Expense - ARO settled during the period

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10
Q

Calculating ARO Accretion Expense:

A

Risk (Credit) Adjusted Rate * Beg ARO

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11
Q

Decommissioning of a liability: IFRS

A

Once the liability is adjusted, the adjustment flows to a profit/loss

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12
Q

Upon Recognition of an ARO a company shouldn’t do what?

A

Capitalize the asset at its un-discounted cash flow amount

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13
Q

Calculating Escrow liabilities:

A 
Beg Balance 
\+Receipts During the year
-Real Estate Taxes Paid
\+Interest Earned
-Maintenance Fee Charged
=Balance at YE
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14
Q

Interest Payments:

A

Calculate interest on “outstanding balance” of loan and multiply that by the amount of interest to be paid in cash.
Example:
Payments made on March 1st
(interest % * o/s balance) x (10/12 of year)

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15
Q

Deferred Compensation dependent on a service period:

A

The compensation should be expensed over the period of time the service is to be rendered.

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16
Q

How is revenue recognized when service contracts are sold?

A

Deferred Revenue (services rendered evenly throughout the year, (1/2) would be recognized and half deferred)

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17
Q

When companies sale coupons how is that revenue recognized?

A

As unearned until the coupon is redeemed

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18
Q

Stamp Redemption Calculation:

A

Beg Redemption Liability Balance
+Redemption Costs of CY (% of stamps to be redeemed)
-Stamps Redeemed in prior years
=Balance at YE

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19
Q

Reasonably Possible vs Probable Loss Contingencies

A

Reasonably possible: only footnote disclosure is necessary

Probable: footnote and accrual (increases both expenses (loss) and liabilities

Gains:

Probable and Reasonably possible: disclosed not recognized until gain is realized (money collected)

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20
Q

PV and FV calculation:

A

PV = FV * (PV Factor)
so..
FV = (PV / PV Factor)

21
Q

Wanting to accumulate a certain amount by a certain time in the future:

A

= (Total amount to accumulate / Future annuity in advance factor)

= Annual amount to deposit to accumulate desired amount

22
Q

Note on calculating interest:

A

Always divide by period of the year interest is to be paid/earned

23
Q

Bonds/Notes due within one year rule:

A

Are considered “non-current” if the issuer has the intent and ability to with a new issuance of long-term debt (separate disclosure of refinancing in FS is required)

24
Q

Transactions between suppliers and customers that are for services provided in less than a year (involving a note payable)

A

Payable is recorded at face value (no need in PV)

25
Q

Calculating Total Interest Revenue

A

+ All payments
- PV of note
= Interest revenue

26
Q

Non-interest bearing notes are reported at what?

A

PV of future cash flows

Example:

Contest winnings would be a non-interest bearing note

27
Q

NOTE!!!!!

A

ALWAYS LOOK AT THE PORTION OF THE YEAR O/S WHEN CALCULATING

28
Q

Note on imputed interest:

A

Imputed interest on non-interest bearing note is “expensed” immediately

29
Q

Calculating interest on non-interest bearing notes:

A

Calculate interest after getting PV this will equal your interest revenue

30
Q

Remember Amortization tables:

A

Payment =
(FV * (Interest*(12/12)) ) = Interest Paid
difference between this and total payment

= Reduction in principal amount

Use new principal amount to calculate interest going forward

-Total Payment

=New Reduction in principal amount

31
Q

Interest Expense on Bonds Calculation:

A

(GAAP Interest Expense/Carrying Value at the Beginning of the period)

= Periodic Interest Rate

32
Q

JE for recording Bond issuance:

A

dr Cash xxx (Discounted amount)
dr Discount xxx
cr Bond Payable xxx (Face value)

33
Q

Different Types of Bonds:

A

Debenture: unsecured corporate bonds

Serial Bonds: bonds paid in installments (mature annually)

Term: bonds that have a single fixed maturity date

Bond sinking fund: a fund companies pay into to insure they have enough money to pay the bond when it matures

34
Q

IFRS Bond Issuance:

A

Bond issuance costs are subtracted from the face value of the bond at issuance (included in the bond discount amount in JE)

35
Q

Issuance Costs and GAAP:

A

All costs associated with the issuance of bonds should be capitalized and amortized over the life of the bond

36
Q

When calculating bond PV:

A

Get PV of Face Value using PV of $1
Get PV of Interest Payment using PV of Anuity of $1

Add together to get total PV

37
Q

Bond Premium not being amortized causes what?

A

Overstatement of Interest Expense (because the amortized amounts decrease interest expense each year) with overstatement of an expense, this also leads to NI being understated - SE being understated

38
Q

Income Statement vs Balance Sheet Affect for Bond Issuance:

A

Bond issued at discount:
Amount * Yield rate = Interest Expense (I/S)
FV * Bond % = Interest Payable (B/S)
(I/E - I/P = Amount to add to Discounted Bond
amount at issuance - this is what is recorded as the
bond payable)

39
Q

Note: Bond Issuance and Accrued Interest

A

Make sure to add Accrue Interest from prior periods to Bond Face value when calculating Bond Payable

40
Q

Note: Interest Rates and Yield Rates

A

Use yield rate when considering PV factors to use (only use interest rate to calculate interest on bond)

41
Q

IFRS: Convertible Debt

A

Requires there be a debt and equity portion 9

debt = bond) and (equity = conversion feature

42
Q

Effective Interest Method and Discounts:

A

Ending carrying amount of the bond is = (Beg Carrying amount + Amortized Discount for that period)

43
Q

When discounts/premiums are amortized on a bond/note what happens to interest expense?

A

Discounts: Increases interest expense
Premiums: Decreases interest expense

44
Q

**Calculating Interest Expense:

A

1 =(Discounted Value(Carrying Value) * Yield Rate
=Interest Expense

2 =Face Value * Bond %
=Interest Payment

(1-2) = Amortization to add to Carrying Value (subtract from premium amount)

45
Q

Carrying value of bond on the B/S with premiums/discounts

A

Balance of liability on the B/S is =

FV +Amortized Premium (over time carrying amount decreases)

FV -Amortized Discount (over time carrying amount increases)

-this amortization cause the carrying value to reach the face value

46
Q

Debt be distinguished:

A

Can’t be distinguished until:

  1. paid
  2. released by creditor
47
Q

Debt restructuring (asset transfers):

A

When an asset is transferred a gain/loss is recorded at:

Liability - (FV of asset transferred) = gain/loss on Restructuring

FMV of asset - NBV of asset = gain/loss disposal

48
Q

Debt restructuring: What is compared to the carrying value of the liability to determine if the debtor should report a gain/loss?

A

Total future cash payments

49
Q

Calculating loss on disposal of land for debt restructuring:

A 
\+ Original cost of the land:
   Cash Paid
   N/P 
- FMV of land transferred to bank
  Original N/P Amount
  -Principal Payments (net of interest accrued on it)

=Gain/Loss on Land

FAR (10 decks)

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