FAR 5-7 Flashcards
How do you derive taxable income from pretax financial income?
Add/subtract permanent and temporary differences from pretax financial income
For there to be a gain on collection of a receivable, what should happen to the Yen exchangeable for $1?
Decrease
Explanation: Yen must be worth more dollars than on the transaction date; therefore, fewer yen must be equal to a dollar so the number of yen exchangeable into dollars decreased
What is the formula for basic earnings per share?
Net income less preferred dividends (current period)
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Weighted common shares outstanding
Statements required for defined benefit pension plans? For defined contribution pension plans?
Both: Stmt of Net Assets Available for Benefits & Stmt of Changes in Net Assets Available for Benefits
Benefit: Stmt of Accumulated Plan Benefits & Stmt of Changes in Accumulated Plan Benefits
Formula for determining gain on restructuring from modification of terms
Carrying amount of the debt - Total future cash payments = Gain
What are the 3 Debt restructuring formulas?
Debt forgiven - CV asset trans = total gain
Debt forgiven - FV asset = gain on restructuring
FV asset - CV asset = G/L on disposal
How are deferred tax liabilities and assets presented on the balance sheet?
All DTLs and DTAs are classified as non-current; they must also be netted and presented as one amount
How are detachable warrants treated?
They are valued at FV
If the FV is not known, the issuance price not allocated to bonds is allocated to the warrants (and vice versa)
What is the layout of the table used for bond amortization? Difference between straight-line and effective interest method?
Date - Beg CV - Int exp (CV x MKT) - Int pymt (FV x SR) - Amortization - End CV
Straight-line: amortization is used to derive interest expense (Amortization + Interest pymt = Interest expense)
Effective interest method: interest expense is used to derive amortization (Interest expense - Interest pymt = Amorization)
What is the layout of the table used for bond amortization? Difference between straight-line and effective interest method?
Date - Beg CV - Int exp (CV x MKT) - Int pymt (FV x SR) - Amortization - End CV
Straight-line: amortization is used to derive interest expense (Amortization + Interest pymt = Interest expense)
Effective interest method: interest expense is used to derive amortization (Interest expense - Interest pymt = Amorization)
What tax rate should be used for interim financial reporting?
The most current estimate of the annual effective tax rate should be used to determine the income tax provision for the current quarter
What is the journal entry to record the amortization of a bond discount?
Dr: Interest expense xx
Cr: Amortization of bond discount xx
Cash (or interest payable) xx
What is the journal entry to record the amortization of a bond premium?
Dr: Interest expense xx
Amort. of bond premium xx
Cr: Cash (or interest payable) xx
Where are G/L on extinguishment of debt recognized?
As income from continuing operations
What are examples of supplemental disclosures for the Statement of Cash Flows?
Indirect only: Interest; Income taxes
Both: Conversion of debt to equity; Schedule of noncash investing and financing activities
When the government is not obligated in any manner for special assessment debt, which fund should be used to report the debt service transactions?
When govt is not obligated for special assessment, it acts as a custodian of the resources; therefore, a CUSTODIAL fund should be used.
Bond liabilities are carried on the balance sheet net of -
Discount/premium and bond issuance costs
What do investing activities include?
Investing activities include acquisitions and sales of long-term assets or investment assets
Note: includes proceeds from sale of long-term assets; gains/losses from sale are reversed out of operating activities for the indirect method (-gains, +losses to NI)
When there is a written purchase option, over what period of time should the lessee amortize the lease?
The economic life of the asset
When the 75% or 90% criteria are met in a lease, over what period of time should the lease be amortized? (owNEs)
Term of the lease
Which interest rate is used to calculate ARO?
The credit adjusted interest rate
Describe how an ARO works.
An ARO is initially booked at present value as an asset and a liability.
Each period, depreciation expense is booked –> ARO (asset-down) & accretion expense is booked –> ARC (liability-up) such that when the ARO must be satisfied, there is no asset on the books anymore and the liability is represented at current costs.
How is a purchase of treasury stock classified in the Statement of Cash Flows?
As a financing activity
What will the reversal of a DTA result in? Was there a profit or loss for tax purposes when a DTA exists?
Deductible because a DTA represents future tax savings
