FAR Chapter 4 Liabilities Flashcards
For a notes receivable how to calculate the balance
Use the present value ordinary annuity multiply by the payment amount
What happens when a loan is in violation of the rights of a loan even if it’s long term asset?
It become a short term Loan and goes under current assets
What is a balloon note?
It’s a lump sum paid at the end of the loan term which makes it a long term asset
What is a customary trade term for a short term loan and how is it booked?
Customary trade term for a short term loan (less than a year) will be reason not to apply the imputed interest rate
If a lease increases does it cause the lease and interest expense (operating)
No bc it’s recording on a straight line basis
For lease payments which interest rate should be used
Use the interest rate that is specific to the lease the IMPLICIT , if not mentioned than use the incremental borrowing rate
What is the impact when dividends declared are liquidated vs non liquidated for fair value
NON liquidating:
Debit: Cash (Amount of Dividend Received)
Account Credit: Dividend Income (Amount of Dividend Received)Dividend -
Liquidating:Date: Recognition of Return of Capital from Equity Method Investment.
Account Debit: Cash (Amount of Dividend Received)
Account Credit: Investment in Equity Method Company (Amount of Dividend Received)
Explanation:In the non-liquidating scenario, the dividend received is treated as income and is recorded as such in the income statement.In the liquidating scenario, the dividend received is considered a return of capital, reducing the carrying value of the investment. Hence, it’s recorded as a reduction in the investment account rather than as income.
What are term bonds?
They have a single fixed maturity date the entire principle is to be paid at the end of the specific term
How to amortize a financie lease
If the leased asset transfers ownership at the end of the lease term then we would amortize the lease over its USEFUL life. If it does not, we use the lease term.
