FS Accounts Flashcards
During the year, Hauser Co. wrote off a customer’s account receivable. Hauser used the allowance method for uncollectable accounts. What impact would the write-off have on net income and total assets?
When the allowance method of accounting for bad debts is applied, the accounts that will be eventually written off are in both the accounts receivable and the allowance account balances. When the account is written off, it is taken out of both at the same time, and the bad debt expense had already been taken as an estimated expense when the sale was made. The write-off lowers accounts receivable with a credit, and the allowance account with a debit of the same amount. The write-off entry does not affect expenses, and leaves the net realizable amount of accounts receivable the same.
Rate of Return on Assets Formula
Net income / Avg Assets
When debt is issued at a discount, interest expense over the term of debt equals the cash interest paid
Plus Discount
Serial Bonds
Set of related Bonds issued at the same time but which mature at intervals over time
Debt to Equity Ratio
Total Liabilities / Total SE
The discount resulting from the determination of a note payable’s present value should be reported on the balance sheet as:
a direct reduction from the face amount of the note.
Calculating Interest Revenue
- Annual Lease payment = FV of equip / PV factor
- Total lease amt collected = annual lease payment X # of years
- Interest Revenue earned = Lease amount collected - FV of equip
How are derivatives valued
at FV
How to record an initial liability of ARO
DR: CV of the related asset
CR: Legal liability
Enterprises often carry life insurance policies on the lives of key officers and employees. If the enterprise is the beneficiary, the cash surrender value of the policy is an asset of the enterprise. The amount to be charged to expense is:
the amount of such premiums paid less the increase in cash surrender value during the period.
Special-Purpose fund
Enterprises will sometimes set aside cash for special purposes, such as a sinking fund for the retirement of bonds. Some of these funds are placed under the control of an external trustee, whereas others are managed by internal personnel.
Interest cost included in the net pension cost recognized by an employer sponsoring a defined benefit pension plan represents the:
increase in the projected benefit obligation due to the passage of time.
On which of the following dates is a public entity required to measure the cost of employee services in exchange for an award of equity interests, based on the fair market value of the award?
Date of grant
3 Characteristics of a derivative instrument:
- Underlying or notional amount
- Little or no initial net investment
- Terms requires or permits net settlement
Cash Surrender Value of Life Insurance
Enterprises often carry life insurance policies on the lives of key officers and employees. If the enterprise is the beneficiary, the cash surrender value of the policy is an asset of the enterprise. The amount to be charged to expense is the amount of such premiums paid less the increase in cash surrender value during the period. For example, if Company X pays an annual premium of $3,000 on a policy covering its president, the entry during a year when the cash surrender value increased by $600 would be:
DR: Insurance Expense $2,400
DR:Cash Surrender Value 600
CR: Cash $3,000
