M4 Pillars

Question 1

What do Balloons represent

Answer 1

Represent a long term liability - the whole note is due at one date

Question 2

How do you calc bonus when it is taken “After deducting bonus”

Answer 2

Take eligible income and bonus and subtract the bonus by that amount (That is new eligible income) Than take the new amount and calc the bonus percentage.

Question 3

How do you calc sales tax payable?

Answer 3

If store is paying for sales tax we take the sales of 2k and divide it the rate. (2,000/1.08) Which will give the sales tax and the difference is the sales revenue.

Question 4

What is vacation expense reported as?

Answer 4

Reported as both the accrued amount and the amount that is expensed.

Question 5

How do you recognize contingent liabilities?

Answer 5

These are recognized evenly over the life of the contingency

Question 6

How do you recognize a change in value of for a property after it is depreciated?

Answer 6

Change in value is depreciated as G/L

Question 7

What is the warranty expense?

Answer 7

is the sale amount (x) the estimate. Thats it

Question 8

What is accrued interest?

Answer 8

Based on principle left of the loan dont forget to take into consideration

Question 9

Subsequent events hierarchy

Answer 9

Remote: no accrue or disclosure
Reasonably possible: no accrue BUT DISCLOSE
Possible: Accrue AND disclose

Question 10

What happens when we factor WITH recourse

Answer 10

We DISCLOSE a contingent liability for the face amount

Question 11

Liabilities that are due WITHIN 1 year can still be classified as long term IF

Answer 11

They have the intent and ability to refinance. It must be done after the balance sheet date but before issuance of the F/S.

Question 12

What is the interest receivable on a note?

Answer 12

Difference between balance sheet amount and income statement amount. (Amortization)

Question 12

How do notes receivable appear on the balance sheet?

Answer 12

They appear as the PV of an ordinary annuity at the market rate

Question 13

How do we report notes payable as of balance sheet amount?

Answer 13

When reporting notes payable back out interest

Question 14

When do we use PV factor of future annuity?

Answer 14

For payments made in advance and for future deposits.

Question 15

How do we report bond sinking funds?

Answer 15

Disclosed in the footnotes

Question 16

What amount do we report as notes payable after a payment

Answer 16

1) use note table
When using the note table if there is a discount on the note we have to reduce the face amount by the discount than back out the interest to get the note as of year end.
2) balance sheet presentation always shows notes - discounts

Question 17

How do you calc compounding interest on a note

Answer 17

Year 1 loan (x) rate = interest
Take interest from Y1 and add it to the loan amount than (x) the rate.

Question 18

What are the proceeds of a bond?

Answer 18

Figure out what discount or prem is. Than we take accrued interest which is the balance sheet amount and the rate.

Question 19

What DIS-qualifies as debt extinguishment?

Answer 19

Placing it into a trust.

Question 20

What is the G/L on bond debt

Answer 20

Bond at balance sheet +/- prem or discount = CV of bond. Take the CV (-) cash paid to retire is the G/L on retirement

Question 21

Operating lease rules:

Answer 21

Shall record an operating lease on a straight line basis
Payment known at commencement is ehat is used
Interest and lease is recorded together

Question 22

What happens when there are free months on a lease

Answer 22

Take the months in payment multiply by amount = what is paid
Take what is paid divide by total ALL lease months

Question 23

How are leasehold improvements considered with leases?

Answer 23

Take the leasehold improvement, straight line it over the life of the improvement.
That is what is amortized.
Add the amortization (+) current monthly lease expense.

Question 24

Finance lease rules

Answer 24

OWNS
Ownership transfer

Written purchase option that is reasonable certain to exercise

PV of lease payments is 90% of FV of property

Lease term is 75% of the assets useful life

Specialized asset

Question 25

PV of an ordinary annuity is what

Answer 25

Year end payments

Question 26

PV of annuity is what

Answer 26

beg year payments

Question 27

IF title is passed at end of lease how do we amortize the lease?

Answer 27

By the assets useful life
If no title transfer than we dep/amor using the lease term.