FAR 3 Flashcards
What is a bond classified as when the contract rate is greater than the market rate?
What is the Journal entry for the issuance of this type of bond?
When the contract rate % is greater than the market rate %, the bond is Sold at a premium
Market rate % < State Rate %
Dr Cash 103,000
Cr bond payable 100,000
Cr Premium on bonds payable 3,000
How is the effective interest method used for calculating bonds?
Take market rate % and either divide it by 2 for semi-annually or use the whole percentage for annual payments
How do you set up columns for the amortization of bonds? Be careful for semi-annual must divide percentages by 2.
1st column) Date of issuance
2nd) Beginning NCV = premium or discount + Face value of the bond
3) Effective interest rate = Market rate (constant over life of bond)
4) Interest expense = NCV * Effective interest rate %
5) Interest PMT = Face * Coupon (stated rate) - stays constant
6) Amortization: Interest pmt - Interest expense - subtract for premium add for discount
7) End NCV = BEG. NCV - Amort.
What is the J/E to record payment of an interest premium on a Bond that has been issued?
Dr Bond Interest Expense (I/S)
Dr Premium on bonds payable (B/S)
Cr Cash
How is goodwill recorded on the balance sheet and how often does it need to be tested for impairment?
Recorded at histroical cost at the date of acqusition and tested annually.
How are cash and cash equivalent recorded and what accounts can make up for cash and cash equivalents?
Certificates of deposits ad treasurey bills that mature in 90 days or less, cash, payroll bank accounts, operating bank accounts
Measured at fair value
- What is the Journal entry for a repurchase agreement, is it recorded as a sale initially?
- What happens when the repurchase agreement option lapses and customer does not excercise the option to buy?
No, not a sale initially.
Financial liability recorded when repurchase price > original price paid by customer
- Dr Cash
Cr Financial liability - postpone recognition - Dr Financial liability
Cr Sales Revenue
If option price would have been recognized:
Dr Financial liaiblity
Dr Interest Expense (repurchase price - Original price paid by customer)
Cr Cash
How is a known historical refund liability recorded by a company, is it treated like revenue?
How do you record expected returned items?
No, a refund liability is not treated like Revenue. A Refund liability is credited for expected amount and remainder goes to earned revenue.
Dr Cash
Cr Refund liability
Cr Sales Revenue
Dr Refund liability
Cr Cash
How do you calculate differences in Journal entries when you are given income tax expense: $40, income tax payable: 70 and Valuation allowance: $90
Dr Income tax expense 40
DR DTA 120
Cr Income tax payable 70
Cr Valutation allowance 90
Solve for the difference of 120 which turned into a DR to DTA - change in deffered amounts
Than divide the 120/ tax rate to find the temporary difference
If a Jornal entry has the following: Income tax expense = 300 and tax payable: 210. How do you find the change in deffered amounts and total temporary difference?
Dr Interest Expense 300
Cr Income tax payable 300 (210 + missing 90)
Deffered amount = 90
Total temporary difference = 90/ tax rate
What is a swap derivative? What makes a cash flow hedge?
Swapping interest rates, pay a fixed rate out and receive a variable rate in
Deals with interest cash flow that will happen sometime down the road, since it is fixed and not variable it is cash flow
Cash flow hedge, hedges against a specific cash flow
reported in OCI
What makes a fair value hedge?
What does it hedge against?
A change in value of assets or liablities, more so to fair value. Not postponed, recognized in period it happened. Effects earnings
It hedges against one specific things fair value
When dealing with translation losses for foreign currency hedge of a net investment in a foreign operation, where does it hit?
This is a hedging item against the whole entire investment
OCI - because of foreign currency translation adjustment
For consolidation of a company what does the Numonic CAR IN BIG stand for? - Eliminates investment in Sub
Dr Common Stock
Dr APIC
Dr Retained Earnings
Cr Investment in Sub
NCI
Dr Balance sheet adjusted to Fair value (increase or decrease PPE to Fair value)
Intangibles
Dr Goodwill (Fair value of Net Assets (A-L) - Investment in Sub)
What is the J/E for impairment of good will?
What is the eliminating entry for intercompany dividends?
Dr Impairment expense
Cr Goodwill
Dr Dividend income from Sub
Cr Dividends paid
Stay aware of the difference between balance sheet and income statement eliminations.
Examples: Dividends paid (I/S)
Intercompany payable attached to intercompany receivables (B/S)
How do you treat provisions for uncollectible accounts?
You add the provisions to the beginning balance when solving for adjustment. You subtract estimated uncollectible accounts by ending balance before adjustment.
Provisions + Adjustment = uncollectible account expense
In a single step income statement where is purchase discounts recorded?
COGS - Sales revenue will be the only line item for Total sales
For remeasurement of of foreign currency financial statement to function currency what items will be remeasured using historical exchange rates?
Only for balance sheet accounts carried at “cost” (Most non-monetary items)
What kind of account is cumulative foreign exchange translation loss?
What is the J/E?
A stockholders’ equity contra account - part of AOCI
DR AOCI - contra account because it reduced equity
Cr Cumulative foreign exchange transaction loss
What is a concentration credit risk? Are concentration market risks required to be disclosed?
a risk that the other party of the contract will not perform all of the terms of the contract agreed upon. -Disclose in notes
ex: significant number of its unsecured trade A/R are with companies that operate in the same industry
No, concentration market risks do not require disclosure.
What do you reduce from the sale proceeds of stock?
Brokerage commissions and taxes
What is the J/E for par (legal) method for issuing and buying stock? 50,000 share issued @ 18 Per Share with a Par = $10. Repurchase of 15K shares @ $17 a share and Reissuance of all 15K shares @ $23? What is the value of APIC - C/S?
Issuance: Dr Cash 900,000
Cr C/S 500,000
Cr APIC - C/S 400,000
Repurchase: Dr T/S (15K$10) $150,000
Dr APIC - C/S (15K * $8) $120,000
Cr Cash (15,000 * $17) 255,000
Cr APIC - T/S (15,000$1) 15,000
Reissuance @ $23
Dr Cash (15,000$23) 345,000
Cr T/s (15,000$10) 150,000
Cr-C/S (15,000*$13) 195,000
APIC - C/S = $495,000
What can a permanent difference effect? What kind of permanent difference is Tax penalties paid to tax authorities?
Difference effects book income or taxable income but cannot impact both at the same time
Reduced as expense in book income
what rate is used to translate all assets and liabilities from the function currency to the reporting currency?
The current rate, the exchange rate in effect at the balance sheet date
What level is goodwill tested at for impariment?
Each reporting unit level, compare carrying amount to FV of the reporting unit. Loss is capped out at the amount of goodwill currently recorded on the books.
Where are unrealized gains and losses on derivatives with no hedge designation (speculative) and fair value hedge derivatives reported?
Net Income or current earnings
Shore Co. records its transactions in U.S. dollars. A sale of goods resulted in a receivable
denominated in Japanese yen, and a purchase of goods resulted in a payable
denominated in euros. Shore recorded a foreign exchange gain on collection of the
receivable and an exchange loss on settlement of the payable. The exchange rates are
expressed as so many units of foreign currency to one dollar. Did the number of foreign
currency units exchangeable for a dollar increase or decrease between the contract
and settlement dates?
Choice “D” is correct. Decrease, Decrease.
Approach: Set up assumed values for transactions and test for appropriate gain or loss.
Receivable
Denominated in yen. Assume transaction is for 1,000 yen. On settlement date, there is a
foreign exchange gain on the receipt of 1,000 yen. In order for there to be a gain, the
1,000 yen must be worth more dollars than on the transaction date. Therefore fewer yen
must be equal to a dollar (for there to be more dollars), so the number of yen
exchangeable into dollars decreased.
Payable
Denominated in euros. Assume transaction is for 2,000 euros on settlement date, there
is a foreign exchange loss on the payment of 2,000 euros. For there to be a loss, it must
take more dollars to buy the same euros. Therefore, the number of euros exchangeable
into dollars must have decreased.
When a loss occurs in two years for Percentage of completion, do you carry over the accumulated cost incurred and than reduce income loss from previous year to get to loss for current year?
Yes, you take contract price less the accumulated cost incurred through end of the year and take income loss from previous year and add it to the loss to recognize loss in current year.
What is the equation for the Adjusted cash balance for Reconciling cash?
Adjusted cash balance = Unadjusted cash balance +/- bank errors + credit memos - service charges
