FAR 10 Flashcards
What can cause increase in deferred tax liability?
Any situation where income for tax purposes in a future year exceeds income for accounting purposes. For example, increase in prepaid assets or increase in receivables. Also, in completed contract method situations, where all profit for a completed contract (tax purposes) is finally recognized, but income was already recognized for accounting purposes.
Changes in the fair value of contingent consideration transferred in a business combination resulting form occurrences after the acquisition date should be recognized as a gain or loss in the current income when the contingent consideration is classified as:
An asset or liability.
In an acquisition, how are consulting fees and registration and issuance costs treated?
Consulting fees are expensed in the period incurred. Registration and issuance costs are deducted from the additional paid-in capital derived from the issuance of stock.
Under IFRS, in a business combination, are contingent assets recognized?
No.
What is the amount of interest paid in a period on a bond?
The face value of the bond times the contractual interest rate.
How do bond amortizations work?
Amortization of bond discount increases carrying value; amortization of bond premium decreases carrying value. This is basically a reconciliation over time of carrying value to face value.
What is interest expense on a bond?
Bond carrying value times the yield rate (a.k.a. effective rate) over a period.
Which bonds do not all mature at the same time?
Serial bonds.
If a bond is issued with a stated interest rate that is less than the effective (yield) rate at issuance and issued at an interest payment date, interest expense is:
Greater than cash payment to bondholders (bond is issued at discount), and vice versa is bond is issued at a premium.
When a bond is purchased, the present value of the bond’s expected net future cash flows discounted at the market rate of interest is the:
Bond price.
How do costs to issue a bond affect the bond liability?
They reduce the liability.
How can financial liabilities be reported under IFRS?
At amortized cost or at the fair value through profit or loss (FVTPL)
In a type II (sum of new flows > book value of debt), is gain recognized by the debtor?
No.
When restructured flows exceed carrying value of the note:
A new interest rate has to be computed. Take the face value and divide it by the new payment amount; then find the factor of the product of this to find the new interest rate.
When collectibility is reasonably assured, the excess of the subscription price over the stated value of no-par common stock subscribed should be recorded as:
Additional paid-in capital when the subscription is recorded.
Is income affected by treasury stock transactions?
No. Owner’s equity (treasury stock and APIC) accounts are affected.
Do liquidating dividends effect retained earnings?
No. Liquidiating dividends are a return of capital; part of the permanent capital is being liquidated. Earnings is not the source of this type of dividend.
How are stock dividends treated?
Small stock dividends (less than 25%) are capitalized at the fair value of stock issued and retained earnings is reduced (debited) by the market value of the shares issued; Large stock dividends (more than 25%) are capitalized at the par value of stock issued and retained earnings are debited for the par value of the stock issued.
Order that dividends are allocated:
- Preferred: Dividends in arrears, 2. Preferred: Current period dividends, 3. Common: Matching amount = preferred percentage X total par of common outstanding, 4. Preferred: Additional percentage, 5. Common: Remainder
Diluted EPS equation:
*Basic EPS portion of equation in parentheses. Numerator: (Net income - PS dividends) +/- Adjustment to NI for assumed conversion of PCS. Denominator: (Weighted average of CS O/S) + Shares from assumed conversion of PCS.
