FAR 6

Question 1

OWNES

Answer 1

• Ownership transfer to lessee of asset
• Written purchase option exists that is likely to be used
• PV of min lease pmts is at least 90% of FV
• Lease term is at least 75% of economic life of asset
• specialized asset that will not have alt use for lessor

Question 2

Lease Journal Entries Operating Lease (lessee)

Answer 2

• Operating Lease: (initial entry)
  1. ROU Asset XX
  Lease Liab XX

2. Lease exp XX
   Lease liab XX
   Cash XX
   Accum Amort (ROU) XX

Question 3

Lease Journal Entries Sales/Financing Lease (lessee)

Answer 3

• S/F Lease: (initial entry)
  1. ROU Asset XX
  Lease Liab XX

2. Int exp XX
   Lease Liab XX
   Cash XX

3. Amort exp   XX
       Accum amort (ROU)    XX

Question 4

Fair value hedge

Answer 4

• designated as a hedge to the exposures to changes in FV of a recognized asset or liab
• Change in FV is included in current earnings as an offset to the gain/loss from the change in FV of the hedged item.
• “firm commitment”

Question 5

Cash flow hedge

Answer 5

• designated as hedging the exposure to variability in expected future cash flows of a particular risk.
• Effective portion is included in OCI until hedge transaction impacts earnings.
• Ineffective portion is included in current earnings

Question 6

Foreign currency hedges

Answer 6

• FV and cash function the same as above
• Net investment: gains and losses from changes in FV of foreign currency entered into a hedge a net investment in a foreign op. Included in OCI as translation adjustment.

Question 7

Spot rate

Answer 7

a spot rate is the interest rate on a loan beginning immediately

Question 8

Forward rate

Answer 8

the forward market rate is the exchange rate existing now for exchanging two currencies at a future date.

Question 9

Foreign currency translation & remeasurement

Answer 9

• Translation: restatement of financials from the functional currency (primary currency of region where they spend cash) to the reporting currency. G/L go to OCI
• Remeasurement: restatement of foreign financials from foreign currency to the entity’s functional currency. G/L used as a NI plug to balance RE.

Question 10

DTA

Answer 10

If amount in book is greater than tax return temporarily

Question 11

DTL

Answer 11

If amount of tax return Is greater than on book temporarily