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Acct 3021 > Final Exam > Flashcards

Final Exam Flashcards

1
Q

Which type of lease does a lessor not record interest revenue?

A

Operating lease

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2
Q

Capitalized amount for a Finance/Sales type lease =

A

Annual payments x PV Annuity Due

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3
Q

Gross Profit =

A

Sales Price - COGS

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4
Q

Direct Financing Lease

A

when lessor relinquishes control of asset to lessee, but a third party is involved in the residual value guarantee.

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5
Q

Sale Leaseback

A

Company sells an asset to another entity, and then leases that asset from the new owner.

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6
Q

In a Sales-Type lease, the gross profit will be the same whether __________.

A

the residual value is guaranteed or ungauranteed

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7
Q

If Expected RV > Guaranteed RV ;

A

Lessee should NOT include guaranteed RV in the lease liability computation

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8
Q

If Expected RV < Guaranteed RV :

A

the difference should be included in the lease liability computation

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9
Q

In a Sales-Type lease, initial direct costs are ________.

A

expensed in the year of incurrence

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10
Q

In an Operating lease, initial direct costs are ________.

A

amortized as expenses over life of the lease term

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11
Q

What is the short-term lease exception?

A

If under 12 months, the LESSEE lease payments may be expensed as incurred.

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12
Q

The new standard for lease accounting will affect a company’s _______.

A

profitability and solvency

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13
Q

Both Operating and Financing leases use ______ assets.

A

right-of-use

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14
Q

A lease executory cost example would be ______.

A

property taxes, property insurance

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15
Q

What is the Cumulative Effect?

A

Difference in PY’s net income OR retained earnings between the new accounting method and prior method.

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16
Q

What is Depreciation Charge?

A

Book Value / Remaining Service Life

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17
Q

What is a change in accounting principle?

A

from one GAAP to another GAAP (avg cost to FIFO)

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18
Q

Accounting errors are treated as ______.

A

prior period adjustments

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19
Q

Does a change in depreciation method have a cumulative effect?

A

No; because it is prospective not retrospective.

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20
Q

How to retrospectively report cumulative effect change in accounting principle:

A

On Retained Earnings Statement as adjustment to beginning balance of earliest year presented.

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21
Q

What makes the retrospective approach impractical?

A
  1. Cannot determine effects of retrospective application
  2. Requires assumptions on management’s intent in prior period
  3. Requires significant estimates that cannot be objectively verified
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22
Q

When the retrospective approach is impractical, what approach should be used instead?

A

Prospective approach

23
Q

A change in accounting estimate is accounted for in what periods?

A

Current and future

24
Q

If it is impossible to determine if a change is a change in principle or estimate, consider the change a ________.

A

Estimate; as prospective approach is more conservative

25
Q

Why do companies prefer certain accounting methods?

A

Bonus payments, political costs, smooth earnings, capital structure

26
Q

Inventory errors are ______ errors.

A

counterbalancing

27
Q

On the Statement of Cash Flows, after all reconciling items, each line for a BS account should ______.

A

foot across

28
Q

Bad debt expense is a ______ charge.

A

non-cash

29
Q

On the statement of Cash Flows, items should be reported _____, not netted against each other.

A

gross

30
Q

Statement of Cash Flows has two sections:

A

Balance sheet effects and cash effects

31
Q

Nonconvertible debenture bonds usually have ____ interest rates than convertible debenture bonds.

A

higher

32
Q

_________ should be classified as equity because the issuer has no obligation to pay divs or repurchase stock.

A

Nonredeemable common shares

33
Q

Convertible bonds are classified as _______, and convertible preferred stock is classified as _______.

A

liabilities, equity

34
Q

if the exercise price of the option/warrant is ______ than the market price, dilution occurs.

A

lower

35
Q

Basic EPS =

A

(Net Income - Preferred Dividends) / Weighted Avg Common Shares Outstanding

36
Q

Diluted EPS =

A

Basic EPS - Impact of convertibles - impact of options, warrants, and other dilutive securities

37
Q

Projected Benefit Obligation

A

PV of vested AND nonvested benefits accrued to date, based on employees’ future salary levels.

38
Q

Settlement Rate

A

Interest rate -> interest expense accrues each year on the projected benefit obligation.

39
Q

Which would be least likely to change stockholders’ equity; Sale of Treasury Stock above cost, expiration of stock rights, or sale of common stock below par.

A

Expiration of stock rights

40
Q

Treasury stock is a _________ account.

A

contra-equity

41
Q

The difference between the Projected Benefit Obligation and the FV of Plan Assets is the _________.

A

pension asset / liability

42
Q

Bargain Purchase Option

A

Lesse to purchase leased property for price substantially lower than expected future fair value.

43
Q

When are leases capitalized by the Lessor?

A

When the penalty for nonperformance is substantial, and its unlikely to avoid severe penalty for failure.

44
Q

The implicit interest rate is used to calculate the ___________ to determine if lease is Finance or Operating.

A

PV of lease payments

45
Q

Executory Cost vs Initial Direct Costs

A

Executory costs are normal expenses associated owning asset (taxes, insurance), while initial direct costs are exclusive to the acquisition of the lease (fees, commissions).

46
Q

What is a Captive Leasing company and what are their advantages?

A

Ford, Boeing, etc; product knowledge, lease flexibility, POS

47
Q

Lessee - advantages of leasing

A

Fixed rate financing, protection against obsolescence, less costly, flexibility

48
Q

Lessor - advantages of leasing

A

Profitable interest margins, stimulate sales, tax benefits

49
Q

What leases are exempt from Capitalization?

A

Leases with term of 12 months or less

50
Q

Lease liability or Capitalized Amount formula

A

PV of lease payments less PV of guaranteed residual value

51
Q

Direct Effect of a change in accounting principle

A

retrospectively applied, inventory adjustment from different method, asset impairment

52
Q

_____ effects do not change prior period amounts.

A

Indirect

53
Q

Principal-agent relationship uses gross or net revenue recognition?

A

net

Acct 3021 (2 decks)

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