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FAR MC > F6 > Flashcards

F6 Flashcards

1
Q

Lessor

A

Owner

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2
Q

Lessee

A

Renter

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3
Q

Leasehold Improvement

A

Something permanently affixed to rental property that reverts to the lessor when lease is finished

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4
Q

Lease Bonus

A

Prepayment for future expenses (down payment on rent) amortized using the strait-line method over the life of the lease

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5
Q

Rent kicker

A

Premium rent payment, like a % of sales

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6
Q

Refundable security deposit account (lessee)

A

Refundable deposits

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7
Q

Nonrefundable security deposit account (lessee)

A

Prepaid expense

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8
Q

Refundable security deposit account (lessor)

A

Liability

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9
Q

Nonrefundable security deposit account (lessor)

A

Unearned revenue

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10
Q

Lease bonus (lessor account)

A

Unearned revenue amortized strait line over the life of the lease

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11
Q

Who recognizes depreciation under an operating lease?

A

Lessor

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12
Q

When does rent income begin to be recognized?

A

When the lease period begins, even if the first months of the lease the rent is waived

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13
Q

Rent Kicker is a ____ expense

A

Period

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14
Q

Operating Lease does not require what transactions?

A

Does NOT require the following for the lessee: Depreciation, asset, interest expense,

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15
Q

What is deferred rent expense?

A

The accumulated difference between rent expense and rent payable - confusing terminology. Does NOT increase rent expense (which will stay the same throughout the life of the lease)

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16
Q

For an operating lease, what do you need to calculate lessee lease expense?

A

(Total lease cost / months of lease) + depreciation of leasehold improvements + amortization of lease bonus + lease kicker if applicable

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17
Q

Is the rent kicker disclosed in the notes of the lease?

A

No - only the minimum required lease payments are disclosed

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18
Q

What are the first two things you must answer on a lease MC question?

A

Is it a capital lease or an operating lease?

Am I dealing with the lessee or the lessor?

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19
Q

IFRS calls a capital lease a ___ lease

A

Financing

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20
Q

Two types of capital leases in the US

A

Sales-type and direct financing lease

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21
Q

Capital vs operating lease concept difference

A

Capital lease is treated as a sale on credit

Lessee records asset / liab / Depr / interest

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22
Q

Type types of capital lease methods for lessor

A

Sales-type and direct financing

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23
Q

OWNS

A

If meets one of these four conditions, it’s a capital lease

Ownership transfers at lease end
Written bargain purchase option
Ninety percent rule
Seventy-Five Percent Rule

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24
Q

Ninety percent rule (lease)

A

PV of lease payments is >= 90% of fair value of leased property

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25
Q

75% rule (lease)

A

If lease term is >= 75 % of useful life, capital lease

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26
Q

N and S tests of OWNS cannot be used if a lease begins within the last ___ of the original estimated economic life of leased property

A

25%

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27
Q

Which test in OWNS takes the longest to calculate?

A

90% test

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28
Q

Is it possible for the lessee to classify a lease as a capital lease while the lessor classifies the SAME lease as an operating lease?

A

Yes! But ONLY in GAAP

IFRS, lessor copies lessee

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29
Q

Two additional criteria that a lessor must meet to classify a lease as a capital lease

A

No uncertainties exist regarding unreimbursable costs and

collectibility of the lease payments is reasonably predictable

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30
Q

LUC (lease)

A

Lessee “owns” the property (meets one of OWNS)

Uncertainties do NOT exist regarding unreimbursable costs to be incurred by lessor

Collectibility of the lease payments is reasonably predictable

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31
Q

IFRS difference from GAAP on capital leases (whether to capital lease or operating lease)

A

Lessor accounting follows the lessee accounting - if capital lease for lessee, then capital lease for lessor

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32
Q

Sales type lease accounting treatement

A

Profit
Income on note

FV > CV

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33
Q

Direct financing lease

A

No profit, just interest income

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34
Q

FV of a lease

A

The selling price (unless indicated otherwise)

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35
Q

Copy cat rule (IFRS)

A

If lessee meets criteria of capital lease, lessor accounts the same way

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36
Q

A capital lease is recorded by lessee as the lesser of

A

Fair value at lease inception
- or -
Present value of minimum lease payments

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37
Q

What is included in the PV of the minimum lease payments?

A
  1. Required payments (annuity)
  2. Bargain Purchase Option
  3. Guaranteed Residual Value
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38
Q

Exclude from PV of minimum lease payments:

A

Executory costs (insurance, maintenance, taxes)

Optional Buyout (Not required and Not a bargain)

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39
Q

IFRS difference when calculating PV of minimum lease payments

A

IFRS includes INITIAL direct costs

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40
Q

Executory costs

A

Insurance, maintenance, taxes

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41
Q

Optional buyout is neither a

A

Bargain purchase nor required

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42
Q

If the O or W in OWNS is satisfied, what period to depreciate over?

A

Asset useful life

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43
Q

If the O and the W are NOT satisfied, but the N and the S are, what period to depreciate over?

A

Lease life

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44
Q

Will lease asset and lease obligation always have the same balance?

A

No. They will amortize at different rates as the depreciation rate will be different than the effective interest rate

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45
Q

When is principal reduced?

A

On payment. Not when interest is accrued.

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46
Q

If there is an annuity due what is the first thing you need to think

A

First payment is a direct reduction to the principal

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47
Q

Any time there is a profit on sale for a capital lease, lessor records as a

A

Sales type lease

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48
Q

Unearned interest income for a sales type lease is what kind of account?

A

Special account:

Contra-lease Receivable

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49
Q

Lessor gross payment calculation

A

Sum of the lease payments (undiscounted cash flows) + unguaranteed residual value

LUG

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50
Q

Lessor records AR of sales type lease at

A

Gross Receivable (undiscounted cash flows)

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51
Q

The unearned interest revenue is calculated at

A

[ Minimum lease payments + Unguaranteed residual value ] * PV

LUG * PV

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52
Q

Sales type lease JE

A 
AR (gross)
        Unearned Income
        Sales
Cost of Goods Sold
       Inventory
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53
Q

What do the minimum lease payments include?

A

Periodic lease payments
Bargain purchase option -or-
Guaranteed residual value

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54
Q

Will there ever be a bargain purchase option AND a guaranteed residual value?

A

No - mutually exclusive

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55
Q

How many JEs for a sales type lease and a direct financing lease?

A

Sales type = 2

Direct financing = 1

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56
Q

Direct Financing Lease JE

A

Lease Receivable
Unearned Interest Revenue
Asset

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57
Q

What is the carrying amount of the Receivable for a direct financing lease at signing date?

A

Cost of the asset sold

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58
Q

Carrying amount of Receivable for direct financing lease vs sales type lease at signing date

A

Direct financing lease - cost of asset

Sales-type lease - sale price

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59
Q

What are the three lessers do lessee accounting?

A

Depreciation: lesser of the lease life or the asset life (operating)

Interest Rate: lesser of the implicitrate or the borrower’s rate (capital)

Initial carrying value: lesser of FV or PV of min lease pmts (capital)

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60
Q

With the PV factor and the PV, how do you solve for annual pmts?

A

PV / PV factor for annuity = annual pmts

Algebra

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61
Q

Lessor - PV of lease Receivable is equal to the

A

FV of asset if profit

CV of asset if no profit

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62
Q

Difference between interest expense and interest payment for bonds is broken down between

A

Cash paid and amortization of discount / premium

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63
Q

Difference between cash paid for a note and interest expense is

A

Reduction in principle

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64
Q

Are taxes used in calculating the PV of minimum lease pmts?

A

No

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65
Q

In a capital lease, the interest revenue recognized by the lessor changes over time how?

A

Over time the carrying value of the lease goes down and therefore the interest revenue goes down along with it

Think about it: as principal balance goes down, interest expense / income decreases

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66
Q

If the fair value at the end of the lease term is double the cost of a purchase option, is that abnormal purchase option or a bargain purchase option

A

FV > purchase option = bargain

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67
Q

The PV of the minimum lease payments is equal to the FV of the asset, do we classify as operating or capital lease?

A

Capital

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68
Q

For the lessee, does principal reduction of the leased asset affect the carrying value of the asset?

A

No, only depreciation expense

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69
Q

CV of lease asset and lease obligation affected by the following

A

Asset: depreciation expense
Liability: principal payment

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70
Q

Lessee keeps in current liabilities for their capital lease the

A

Amount of principle to be REDUCED in the next year

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71
Q

Is residual amount to be paid by a third party included in the PV of the min lease pmts by the lessor?

A

No!

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72
Q

The fair value at the end of the lease should be used to calculate what?

A

Salvage value for calculating depreciation

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73
Q

COGS for a sales-type capital lease lessor side is equal to the

A

Cost of asset LESS PV of unguaranteed residual value

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74
Q

What are the first three things you must determine for a lease problem?

A
  1. Lessor or lessee?
  2. Operating or Capital?
  3. OA or AD?
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75
Q

IFRS, PV of minimum lease pmts includes

A

Initial direct costs

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76
Q

PV factor for an ordinary annuity can also be used for an annuity due to find

A

PV of min lease pmts LESS the first immediate pmt

So you can find the PV of min lease payments by:

PV of AD for n payments = PV of OA for n - 1 payments + first payment

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77
Q

PV of min. Lease pmts = 10% of FV means lease is ____

A

Operating

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78
Q

Does the 10-90 rule apply to IFRS?

A

No, unique to US GAAP

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79
Q

Artificial loss

A

Sales Price < Fair Value

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80
Q

Real Economic Loss

A

FV < BV

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81
Q

In a sales-leaseback if you are satisfying the S test, you are probably also satisfying the

A

N test, which means defer all gain

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82
Q

A sales-leaseback without PV factors, look at the

A

Term

> 80%? - probably defer all

<10% - recognize all immediately

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83
Q

For sales-leaseback, when to recognize a loss?

A

Immediately UNLESS

Sales Price < Fair value, then defer loss

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84
Q

Sales-leaseback, long term lease, PV of min lease pmt >= 90% of the FV

What to do with gain?

A

Defer all

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85
Q

Sales-leaseback, short term lease, PV of min lease pmt <= 10% of the FV

What to do with gain?

A

Fully recognize

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86
Q

10 to 90 Rule

A

For sales-leaseback, when PV of min lease pmts > 10% of FV and < 90% of FV, defer up to PV of min lease pmts and recognize any excess

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87
Q

Capital leaseback, life over which to amortize gain

A

Proportion to amortization of leased asset

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88
Q

Operating leaseback, life over which to amortize gain

A

Proportion to the gross rental expense over the life of the lease

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89
Q

Steps for Sales Leaseback

A

Step 1: Math - find gain or loss

Step 2: apply the rules

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90
Q

IFRS sales leaseback

A

Capital leaseback - defer

Operating leaseback - recognize unless SP > FV, in which case defer

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91
Q

Deferred gain from a sales-leaseback is put in what kind of account?

A

Asset valuation allowance

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92
Q

OFFS

A

Options, Forward, Futures, and Swaps

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93
Q

Of the OFFS, which has the cash outflow for initial investment?

A

Options, the others do not require any cash outlay at the start

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94
Q

Underlying

A

What we are gambling on that will change in value?

Interest rate
Security
Commodity
Foreign exchange rate, etc.

95
Q

Buy a call, you hope Price goes which direction?

A

Up

96
Q

Buy a put, hope price goes which direction?

A

Down

97
Q

Strike price

A

Exercise price

98
Q

Call option

A

Option holder can BUY from the seller at a predetermined price (strike price) during a specified period of time

“It’s your call”

99
Q

Put option

A

Holder has the right to SELL the option writer at the strike price during the specified period

“Put” someone else up to

100
Q

What derivatives have no initial costs?

A

Forwards, Futures, and Swaps

101
Q

What is the difference between futures and forwards

A

Futures - Public
Forwards - Private

Futures has ‘u’s in it like public has a ‘u’

102
Q

Derivative instruments are measured at

A

Fair value

103
Q

Fair value hedge

A

Hedge against the risk that the FV of an asset you have’s fair value will decrease

104
Q

What is a long position?

A

Agreement to buy the underlying at the strike price

105
Q

What is a short position?

A

Agreement to sell the underlying at the strike price

106
Q

How do you “win” on a long position?

A

If price goes up, you get to buy less than FV, thus saving money

107
Q

How do you “win” on a short?

A

If price goes down, you get to sell higher than FV

108
Q

How do you win on a swap?

A

You hope what you receive is greater than the value of what you have to pay

109
Q

Spot price

A

Price of underlying at measurement date

110
Q

Fair value hedge - risk

A

You are worried about the change in value of an asset or liability

111
Q

Cash flow hedge - risk

A

Worried about the change in actual cash in or out

112
Q

When will the gain in AOCI be recognized in Earnings?

A

When the inventory associated with the hedge is sold to customers (matching principle).

The gain from the hedge offsets the cost of inventory and thus is recognized when the cost of inventory hits the income statement

113
Q

What kind of account is a cash flow hedge or a fair value hedge

A

Similar to an estimated / actual loss contingency

Either a Receivable (if winner) -or-
a liability (if loser)
114
Q

Where do Hedges typically appear on cash flow statement?

A

Same category as whatever is being hedged

115
Q

Speculation

A

Derivatives that aren’t a hedge, but are a TS, AFS, or HTM investment

116
Q

Fair value hedge implies what?

A

Already have asset or liability on the books

117
Q

A fair value hedged must be specifically identified to a

A

Hedged asset / liability / or unrecognized firm commitment

118
Q

Sell side derivative is called a

A

Put / short

119
Q

Buy side of the derivative is called the

A

Call option

Long

120
Q

How to make money on a swap

A

Hope what you receive is greater than what you will pay

121
Q

Cash flow hedges can be associated with a / an

A

Asset, liability, or forecasted transaction

122
Q

An option contract is measured at fair value via

A

Difference in time value of the option plus difference in market value of the underlying

Do NOT ignore the time value of the option

123
Q

If calculating a gain or loss on a forward contract use

A

Use the change in the forward rate to determine gain or loss b/c this is calculated based on the spot rate

124
Q

Historical Exchange Rate

A

Used for Equity accounts

125
Q

Weighted average exchange rate

A

Used for IS accounts

And

Inventory acquired evenly throughout the year

126
Q

Functional currency

A
  1. Use that country’s currency
  2. Self contained (do own banking)
  3. Not hyperinflationary
127
Q

Hyperinflationary

A

Exchange rate doubled in last 3 years

128
Q

Remeasurement gain / loss

A

Income statement

129
Q

Translation gain / loss

A

Balance sheet - AOCI

Cumulative translation adjustment

130
Q

Monetary item

A

Fixed - immune to changes in price like AR

131
Q

Nonmonetary

A

Fluctuate

132
Q

A/D - monetary or nonmonetary?

A

Contra accounts use same category as their parent account

133
Q

Dysfunctional

A

Hyperinflationary or dependent on parent or in general doing something crazy (books not in functional current etc.)

134
Q

Remeasurement steps

A
  1. Convert BS - find RE plug

2. Convert IS - currency exchange is plug for net income

135
Q

For remeasurement, expenses related to balance sheet items like the following use what exchange rate?

Depr / Fixed assets
COGS / inventory
Amortization / bonds & intangibles

A

Historical rate

136
Q

Remeasurement BS exchange rates

A

Monetary - spot rate

Non-monetary - historical

137
Q

Remeasurement and Translation income statement exchange rates

A

Weighted average

  • Except remeasurement uses historical for BS related expense accounts. Translation does not
138
Q

Translation steps

A
  1. Income statement
  2. Balance sheet

More logical - we do it backwards for remeasurement because remeasurement is dysfunctional and kuhrazy!

139
Q

Translation b/s exchange rates

A

Assets and liabilities - spot

Equity - historical

140
Q

Does translation have an impact on income?

A

No

141
Q

What account does translation adjustment DR or CR?

A

Cumulative Translation Adjustment and OCI

142
Q

IFRS hyperinflation rules

A

Restated for effects of inflation then converted to reporting currency

143
Q

For a payable if exchange rate goes up - gain or loss?

A

Loss

144
Q

Are bonds monetary or nonmonetary?

A

Monetary

145
Q

Are fixed assets monetary or nonmonetary?

A

Nonmonetary / they fluctuate in value

146
Q

Inventory - monetary or non-monetary?

A

Non-monetary, value depends on FV

147
Q

When are foreign currency transactions adjusted?

A

Mark to market each period and recognize gain or loss

148
Q

Functional currency definition

A

Environment subsidiary primarily generates and expends cash

149
Q

Stockholders equity contra account example

A

Cumulative foreign exchange translation loss

150
Q

For remeasurment, marketable securities should use what rate?

A

Spot rate. This is because marketable securities are carried at FV, not carried at HC

151
Q

Remeasurement Income Statement exchange rate exception

A

COGS will be historical if inventory is historical

152
Q

For remeasurement, what balance sheet accounts use the historical rate?

A

Non-monetary items carried at cost

153
Q

A balance arising from the translation or remeasurement of a sub’s foreign currency financials is reported in the consolidated income when the sub’s functional currency is the

A

Reporting currency

154
Q

When picking the exchange rates to record a gain or loss for foreign currency TRANSACTION, which to pick?

A

DELIVERY DATE - not PO date

And

Payment date

(Or year end and payment date)

155
Q

1 dollar = x foreign currency

Convert foreign currency to dollars

A

N / X

Since the exchange rate is in the denominator, if the dollar to foreign rate increases, the value gets smaller

If the dollar to foreign rate increases, the value gets larger

156
Q

Calculate value of Receivable from spot rate

A

Receivable * spot rate

157
Q

Current Liability on tax return =

A

Tax return * current tax rate

158
Q

Deferred tax liability is calculated how?

A

Temporary differences * Future enacted tax rate

+ deferred liability

  • deferred asset
159
Q

Investment interest expense is deductible up to

A

Only up to investment income

160
Q

Tax exempt interest

A

Municipal, state

161
Q

Permanent differences between tax net income and financials (7 examples)

A
  • Tax exempt interest
  • Life insurance proceeds on officers key main policy
  • Life insurance premiums when corporation is the beneficiary
  • Certain penalties, bribes, kickbacks
  • Nondeductible portion of meal and entertainment expense
  • Dividends-received deduction for corporations
  • Excess percentage over cost depletion
162
Q

Installment sales vs % Completion method differences

A

Recognize revenue as paid
vs
recognize revenue as earned (Accrual)

163
Q

Tax expense is solved for how?

A

Owe now + owe later

164
Q

Revenue / gains to be included in tax later

A

Deferred tax liability

165
Q

Revenue / gains included in tax in advance of financials

A

Deferred tax asset (prepaid tax)

166
Q

Expenses / losses to be included in tax later

A

Deferred tax asset

Like having a future credit in your pocket for overpayment

167
Q

Expenses or losses included in tax in advance of financials

A

Deferred tax liability

Like an accrued expense or a credit taken in advance on a payment. Will have to debit memo (owe) later

168
Q

How are taxes owed on permanent differences paid

A

Paid now - never paid later

169
Q

How the cpa exam likes to trick you with deferred tax

A

They will provide incorrect calculations - be careful!

170
Q

Examples of revenue / gains on financials, but not YET on taxes

A

Installment sales
Contractors accounting (% completion)
Equity in investee incomes

171
Q

Examples of revenue / gains on tax, but NOT yet on Financials

A 
Unearned rent (IRS calls "prepaid")
Unearned interest
Unearned royalties
172
Q

Examples of expenses / losses taken in ADVANCE on taxes, but not yet on financials

A

Depreciation expense
Amortization of franchise
Prepaid expenses (cash basis for tax)

173
Q

Examples of expenses / losses on financials, but NOT yet on taxes

A

Bad debt expense
Estimated liability / warranty expense
Start up Expense

174
Q

Deferred Tax Liability =

A

Owe later

Future taxable income > future (now) net income

175
Q

Deferred tax asset

A

IOU - gift card

Future net income > now (future) taxable income

176
Q

Valuation allowances and IFRS

Deferred Tax Asset

A

Not permitted

177
Q

Valuation allowances and GAAP

Deferred Tax Liability

A

If more likely than not (50% rule) that part or all of deferred tax asset will not be realized (no net income in future)

Valuation allowance is recognized to lower asset value

178
Q

What line items must be shown on IS for taxes

A

Taxes owed now (current)

Taxes owed later (deferred)

179
Q

Why would we pay taxes on revenue that hasn’t hit the income statement?

A

Unearned revenue for financial accounting purposes - but not for tax purposes

180
Q

Why would we use expenses / losses now on taxes that haven’t hit in the income statement?

A

Prepaid expenses are cash basis for tax purposes, also sometimes amortization / depreciation is accelerated for tax purposes

181
Q

Why would we have a deduction owed to us later on taxes?

A

Taxes doesn’t allow you to take bad debt expense until write off or warranty expense until warranty cost occurs

182
Q

Why would we owe taxes later on revenue or gains on our financials?

A

Some revenue we can recognize now, but can’t recognize yet for taxes:

Installment sales
% completion method for contracts
Equity in investee income

183
Q

Valuation allowance for deferred tax asset JE

A 
Tax benefit (deferred)
        Deferred Tax Asset Valuation Allowance
184
Q

When calculating effect of temporary differences, what is the starting point?

A

Income before tax related differences for both tax and financials. Permanent differences are not “tax owed later”. Temporary are

185
Q

Two types of differences between pretax GAAP financial income and taxable income

A

Permanent and temporary differences

186
Q

Name of GAAP income tax expense approach

A

Asset and liability approach

187
Q

Estimated tax payments made previously on MCQ - what to do with them?

A

Reduces current tax liability but has NO effect on current tax expense

188
Q

Justification for the method of determining periodic deferred tax expense is based on the concept of

A

Recognition of assets and liabilities

189
Q

If entity reports deferred tax asset, did they make a profit or loss?

A

Profit because if there was a loss, a full valuation account would be recorded against it

This is b/c a current net operating loss is evidence that more likely than not the company will NOT have income to offset with the future tax deductions

190
Q

Make sure when calculating tax benefit or expense to

A

Apply the tax rate

191
Q

Private company accounting alternative for swaps

A

Record the swap as if you received the interest rate you wanted in the first place

192
Q

Current Tax Expense where DTA beg and end balance are given

A

The delta is the taxes from temporary differences for that year

DTA = tax benefit and thus subtracted

193
Q

Are DTA and DTL pretax or post tax

A

Post tax amounts

194
Q

Valuation allowances change of estimate is realized where on income statement

A

Income from operations

195
Q

What is the primary objective of accounting for income taxes?

A

Recognize the amount of deferred tax liabilities and deferred tax assets reported for future tax consequences

196
Q

What column headers do you need to calculate income tax expense?

A 
Taxable income (owe now)
Temporary differences (owe later)
Pretax income (not used for calculation)
197
Q

Uncertain tax positions

A

Aggressive tax positions

198
Q

Test before reflecting any tax benefit on entity’s financials

A

More likely than not test (50% test)

199
Q

What tax rate to use for temporary differences?

A

Enacted rate in effect when temporary difference reverses itself

NOT anticipated
NOT proposed
NOT unsigned

200
Q

Operating losses

A

Create deferred tax benefit (savings - reduces tax expense)

201
Q

How long can operating losses be carried back and forward?

A

2 back and 20 forward

“Hindsight is 20/20” 2 x 20

202
Q

Are there valuation allowances for operating loss carrybacks?

A

No, tax refund

Tax refund Receivable
Tax benefit

203
Q

When a DTA is realized, what happens to total tax expense

A

It INCREASES

Tax Expense (current)    
       DTA

It is an offset

204
Q

When a DTL is realized, what happens to total tax expense?

A

It DECREASES, it’s a tax benefit

DTL
Tax Benefit

It is an offset

205
Q

At the end of Q2 what tax rate is used for income tax provision?

A

Effective tax rate expected to be applicable for the full year at the end of the second quarter

206
Q

How to determine interim income tax provision?

A

JTD income * estimated effective tax rate for the year less other quarters income tax expense

207
Q

Can a DTA and a DTL be created in the same year?

A

No, they are netted together

208
Q

How does a loss carry forward affect net income?

A

In general it won’t because any tax benefit from the loss is immediately negated by the valuation account. This is b/c a net operating loss usually satisfies the 50% more likely than not test that there be no income to offset with the carry forward

209
Q

What regarding deferred taxes do NOT have to be disclosed?

A

Permanent differences

210
Q

Be very careful of what in deferred tax questions?

A

Are they asking for the CURRENT or the DEFERRED tax?

211
Q

Operating vs Capital lease impact on cash flow statement

A 
Operating = all in operating area
Capital = principle in investing area

Capital lease has higher cash flows in operating area by the amount of the principle paid

212
Q

Higher cash flows means

A

Either more inflows or less outflows

213
Q

When a valuation account is created, what is the debited account?

Deferred tax asset

A

Tax expense

214
Q

Permanent difference for dividends received deduction

A

Ownership
0-19% - 70% exclusion
20-80% - 80% exclusion
>80% - 100% exclusion

215
Q

A landlord collects rents in advance. Rents are taxable in the period of receipt.

How is the timing difference accounted for?

A

Deferred Tax Asset

216
Q

Royalty revenue received temporary tax difference account

A

Deferred tax asset

Prepaid - unearned revenue

217
Q

If the tax rate goes up in year 2, how does that effect temporary differences in year 1

A

It may increase the temporary differences depending on the enacted tax rate that they were recorded with. If the tax rate is greater than the enacted rate, than a change in estimate is required and an increase in their balances would be necessitated

218
Q

Underlying is the

A

Thing you are selling…but in one sim it was the Exercise / strike price!!

219
Q

What is the notional amount?

A

The amount / units that can be purchased or can / will be sold at the strike price

220
Q

If a cash flow hedge results in a loss, does it hit earnings or OCI?

A

Effectiveness != guaranteed gain

So a loss WOULD be recorded to OCI as long as long as it was effective (you are just the loser even if you made a decent bet)

221
Q

How is the impact of a hedge reported in earnings?

A

Netted against the hedged item

Report net impact

222
Q

JE for the settlement of a cash flow hedge

A

Cash

Cash Flow Hedge

223
Q

When does the gain or loss from a cash flow hedge get recognized?

A

In the period of the loss / gain of the hedged item

OCI
Gain in cash flow Hedge
AR - hedged item
Sales

224
Q

What is the journal entry for an unrealized gain on a cash flow hedge?

A

Cash Flow Hedge

OCI

225
Q

If you SELL a put option, what is your max gain?

A

Any premium on the put option because the buyer will not exercise the option if FV dips below the strike price

226
Q

If you sell a put option, how to calc loss?

A

Loss netted with premium

227
Q

IFRS vs GAAP difference, pension on BS

A

Plan asset cannot exceed present value of future economic benefits

-and-

IFRS does not specify if current or non-current

228
Q

APBO

A

Accumulated postretirement benefit obligation

PBO equivalent for postretirement benefits

229
Q

EPBO

A

Expected Postretirement Benefit Obligation

230
Q

APBO vs EPBO

A

EPBO = APBO + PV of expected future benefits that have NOT yet vested

231
Q

Differences in SIR AGE between pension and post retirement benefits

A

Only in existing transition obligation

Two options

  1. Expense immediately -or-
  2. Accrue over GREATER of 20 years or remaining service period
232
Q

Funded status for APBO calc

A

FV of plan assets less APBO

233
Q

When a gain or loss for a pension plan is recorded to AOCI, when does it affect PBO?

A

Immediately. The amortization of the gain / loss does NOT affect the PBO. Amortization adjusts the cost on the IS only.

FAR MC (10 decks)

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