FAR26 Flashcards
What do you do when in Q1 you expected effective tax rate was 15% but then changed to 25% f rtes raider of the year
- You use the new rate for Q2 and then you go back to Q1 and add in new tax that was not captured in Q1
example:
Q1 - 10,000 15% tax - $1,500 Tax expense
Q2 - 20,000 new expected tax is now 25%. Tax expense for Q2 = 5,000
Plus: 10,000 * 25% = 25,000
25,000 - 1,500 = 1,000
5,000 + 1,000 = 6,000 the amount of recognized tax expense in quarter 2
What do you do with a planned volume variance that occurs in one interim period that is expected to be absorbed in a future interim period wishing the same year
- You do NOT recognize it
- It is deferred in the period in which is occurs regardless of whether it is favorable or unfavorable
- Only the period in which it is absorbed if affected
What are the rules on IFRS and interim Financial Statements
1 - they do NOT require interim F/S
2 -If you choose to present them they MUSt have a minimum of 4 condensed F/S and selected notes
3- Statement of Financial position, profit and loss and OCI, Changes in equity, Cash flows
Is a statistical section required as part of the CAFRS?
No - the basic F/S should include:
- Gov. wide (statement of net position and statement of activities)
- Fund Financial statements
- Notes
No statistical section is mentioned and therefore is not required
what is the difference between an exchange transaction and non-exchange transaction for government units
Exchange transactions - this is the
n
goods or services of equal value are exchanged
Non-exchange transactions - this is when the government receives or gives WITHOUT directly giving or receiving anything of equal value
What are considered revenues for government funds
those derived from taxes, assessments, fines and activities of the government unit
funds from issuing debt are considered financing sources
funds from operating transfers from otters funds are also considered financing sources
What is the difference between Debt vs. Equity Instruments:
1) Convertible Debt
2) Bonds with detachable Warrants
3) Issuing Shares with a Fixed Dollar amount
4) Issuing a fixed number of shares
- Some Instruments have both debt and equity features - you need to understand certain characteristics to help clarify what they are on the balance sheet
1) Convertible Debt - DEBT debt that you can covert to stocks at a later time (it is classified as debt until the conversion takes place) When settled with cash - it REMAINS classified as debt
2) Bonds with Detachable Warrants - The proceeds from the issuance are allocated to: - The fair value of the warrants without the debt (PIC - Paid in capital)
- The fair value of the debt instrument DEBT(classify as debt)
3) issuing Shares worth a fixed dollar amount - DEBT if you issue shares worth a fixed dollar amount in the future - this is debt - You are essentially agreeing to pay a certain price in the future for the transaction - this is debt
4) Issuing a fixed number of Shares - EQUITY
If the market rate is greater than the stated rate:
This is a bond at a discount
If the market rate is LESS than the stated rate:
This is a bond at a premium
How is bond interest expense reported for the year
It is reported on the basis of the amount of time the bonds were outstanding during the year
This is regardless of how or when interest is paid:
Bonds issued on 6/1/X1 by 12/31/X1:
- Bonds outstanding for 7 months
- Interest expense for 7 months
What are serial bonds
- They require periodic principle payments
examples:
-9.374 unsecured registered bonds (25K maturing annually beginning in 20X7)
-10% commodity backed bonds (50K maturing annually in 20X8)
They have staggered maturity dates
What are debenture bonds
Debenture bonds - are unsecured bonds
Example:
- 9.374 unsecured registered bonds (25K maturing annually beginning in 20X7)
- 11.5% convertible bonds
What is the amount of Interest payable on a bond
It is the amount that the company will have to pay in cash as a result of time elapsed since the previous interest payment
Face amount * Stated rate * portion of year since most recent interest payment
What happens when you issue one bond to retire another bond:
A 15-year bond was issued in 20X0 at a discount. During 20X10, a 10-year bond was issued at face amount with the proceeds used to retire the 15-year bond at its face amount. The net effect of the 20X10 bond transactions was to increase long-term liabilities by the excess of the 10-year bond’s face amount over the 15-year bonds
They are reported as if they are two separate transactions:
-The 15 year bond would be a loss:
carrying value, net of discounts, = lower than face value
- therefore long-term liabilities will decrease by the carrying value of the 15 year bond
The issue of the 10 year bond at face will increase long-term liability for that amount
JE:
dr. Old - Bonds Payable (face) xxxx
dr. loss on retirement of bonds (before tax) xxxx
cr. Bonds Payable (new at face) xxxx
cr. Discount on Bonds Payable (old) xxxx
the net effect is an increase in long-term liabilities by an amount equal to the loss
or
the difference between the carrying value of the old bonds and the face value
How are Bond issue costs reported (BIC)
These are reported on the balance sheet as a deduction to the bond carrying amount
- They are amortized over the life of the bond to interest expense
- They include accounting fees, legal fees, printing fees, Underwriting fees, promotion costs, engraving
