F5M1 Flashcards
liabilities
probable future sacrifices
liabilities are either classified as
current or non current
identify and describe the two types of ways to account for liabilities
gross and net
gross without regard to discount
net considers the discount
int he net method of recording liabilities, describe the treatment
net considers the discount
if the discount is not taken, then a purchase discount loss is debited
Basic JE for accrued expenses
Dr. Expense
Cr. Liability
Current obligations
Liabilities that are due within 1 year
When can you account for refinancing liability
- when the refinancing happens
OR
- there is a non cancelable financing agreement
JE for refinancing debt
DR: short term liability
CR: long term liability
Two methods of accruing for property taxes
accrued prior to receipt or upon the recipt of invoice
Sales Tax JE
Cash
CR: revenue
CR: sales tax payable
If they only give the cash amount, you divide by 1+ interest rate
Treatment of employer’s share of payroll tax
accrued as an expense
DR: payroll tax expense
Treatment of employee’s share of payroll tax
DR: SWB expense
CR: FICA
CR: withholding
CR: cash
Treatment of bonus
recorded to SWB expense
Treatment of accrued vacation
recorded in year earned if
- already rendered to employee
- relates to rights that vest
- resonably estimated and probable
do not recognize liability for sick days
JE accrued vacation treatment
the amount is recorded concurrent with their salary
you will incur additional expense if their salary has risen since they accrued vacation
What is included in exit and disposal costs
Termination benefits (severance)
Costs to terminate the contract (unless it is a lease)
Relo costs
Criteria for liability recognition
obligating event has occured
present obligation to transfer assets
entity has little or no discretion to avoid
WHEN THEY ANNOUCE IT
How are liabilities measureed
@ FV
discount of CF/NVB
Income statement presentation of liabilities
- loss on continuing operations
2. loss in discontinued operations ( if major strategic shift)
Disclosure of liabilities
description of activity
amount expected to be incurred
reconciliation of liabilituy balance
if the FV cannot be estimated, be able to explain why
ARO definition
asset retirement obligation
liability
retirement of long lived assets
ARO when to recognize
when responsibility arises
little or no discretion to avoid
obligating event (legal, contractual, or oral obligation)
ARO measurement
present value of future obligation
liability
ARC
asset retirement cost
asset
capitalized
JE for ARO
Dr: ARC
CR: ARO
Subsequent measurement of ARO/ARC
ARO accretion (interest)
ARC depreciation
Accretion expense
growth of liability over time from PV to face amount
JE accretion expense
DR: accretion expense
CR: ARO
Depreciation expense ARC
decreases ARC until the value is 0
JE depreciation ARC
Dr: depreciation expense
CR: ARC
Formula for total ARO
cumulative accretion expense (interest) + cumulative depreciation (principal) = ARO
Revisions to CF estimates
upward revisions are ‘new’ liabilities - use current rate
downward revisions are ‘old’ liabilities - use old rate
When is sick pay accrued
only when vested
When you record ARO/ARC, what interest rate do you use
risk free rate that reflects credit standing
