F5 - Liabilities Flashcards
When computing compound interest make sure to:
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
A/P Adjustments at YE:
Reverse debit balances and checks that were mailed post YE
Getting to sales revenue and sales tax payable:
= cr Sales Revenue / (Sales tax rate +1)
=Revenue Recognized
Difference between Revenue Recognized and the total Cr to sales revenue is tax
Compensation Expense Adjustments:
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
Long term debt retirement:
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)
Subsequent (to YE) stock issuance to retire debt
If the amount is known the transaction should be included in the financial statements as a sub event
Debt/stock issuance to retire debt/loan (prior to issuance of F/S)
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
Short term that is to be refinanced with long-term debt is treated how when it comes to paying it off?
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
Calculating ARO:
Beg ARO + PV of new ARO + Accretion Expense - ARO settled during the period
Calculating ARO Accretion Expense:
Risk (Credit) Adjusted Rate * Beg ARO
Decommissioning of a liability: IFRS
Once the liability is adjusted, the adjustment flows to a profit/loss
Upon Recognition of an ARO a company shouldn’t do what?
Capitalize the asset at its un-discounted cash flow amount
Calculating Escrow liabilities:
Beg Balance \+Receipts During the year -Real Estate Taxes Paid \+Interest Earned -Maintenance Fee Charged =Balance at YE
Interest Payments:
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)
Deferred Compensation dependent on a service period:
The compensation should be expensed over the period of time the service is to be rendered.
How is revenue recognized when service contracts are sold?
Deferred Revenue (services rendered evenly throughout the year, (1/2) would be recognized and half deferred)
When companies sale coupons how is that revenue recognized?
As unearned until the coupon is redeemed
Stamp Redemption Calculation:
Beg Redemption Liability Balance
+Redemption Costs of CY (% of stamps to be redeemed)
-Stamps Redeemed in prior years
=Balance at YE
Reasonably Possible vs Probable Loss Contingencies
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)
PV and FV calculation:
PV = FV * (PV Factor)
so..
FV = (PV / PV Factor)
Wanting to accumulate a certain amount by a certain time in the future:
= (Total amount to accumulate / Future annuity in advance factor)
= Annual amount to deposit to accumulate desired amount
Note on calculating interest:
Always divide by period of the year interest is to be paid/earned
Bonds/Notes due within one year rule:
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)
Transactions between suppliers and customers that are for services provided in less than a year (involving a note payable)
Payable is recorded at face value (no need in PV)
