Notes Leases and Bonds Flashcards
Credit risk req. Disclosures:
a. Supplemnt info to f/s
b. Notes to f/s
b. Notes to F/S
Write off Receivable
Dr Allow d/a
Cr A/R
Issuance of bonds
- Dr cash (face+accrued int-Bic)
- Dr bic
- Dr disct (plug)
- Cr B/P (face)
- Cr accrued int payable (face x stated rate x time since last int paid)
- Cr premium (plug)
- BV method convertible bond No g/l Gaap
Debt is being converted into Equity. Thus SE Increases
Same for MV method
Dr. B/P (face)
Dr. Premium
Cr. Bic
Cr C/S (par value)
Cr APIC (plug)
MV method convertible bond G/l Non gaap
Dr. B/P (face)
Dr. Premium
Dr. Loss (plug)
Cr. Bic
Cr C/S (par)
Cr. APIC (sh x mkt p p/sh)
Cr. gain (plug)
IFRS BIC
- ⬇ ️CV of bonds - Amortz thru effective int method
Bonds w detachable stock purchase warrants (2 securities)
Dr. cash 900
Dr. disct (calc) 80
Cr. B/P Face value: $800
Cr. APIC - warrants : paid $900 x 20% = $180
Report $800 vs record at CV $800-$20= $720
Capital or Finance (IFRS) lease:
TT BPO
75 lease term of useful life at inception
90 PV MLP (90 FMV of prop at inception)
If meet any 4, use TT/BPO
Depreciation for cap/finance lease TT and BPO 75 or 90
TT and BPO:
- Useful life,
- Salvage value or Fair Value of A at end of useful life
75 or 90: no ownership:
- Shorter of usful or legal life, and
- Ignore salvage value
Lease record at lowest of
1. FMV
2. PV of MLP:
- Annual pmt +
- BPO +
- Guaranteed residual value
Not: exec costs tax insurance
Dr expense and cr cash
Lease JE
Yr 1:
Dr lease asset
Cr lease liab
Dr. lease liab
Cr cash
Dr depreciation
Cr AD
Yr 2:
Dr lease liab
Dr int exp
Cr cash
Non operating lease
- Sales type
- Direct financing
- Sales type:
FV differs from cost
- profit/loss in period of sale, and
- int revenue earned over lease term using effective int method
CAFR sections
- Intro Letter of transmittal
- Financial
- Statistical
Sales lease type je or non-operating lease
Dr gross invest in lease receivable (face x pmt)
Cr. Deferred int. (PV of pmts- gross invt in lease rcvable)
Cr. Asset
Cr. Gain
Dr. cash
Cr lease pymt receivable
Dr deferred interest
Cr. Interest income
Sales involving real estate
Land lives forever
Sale-leaseback Sale asset and lease back
1. Record the gain or sale:
Dr cash
Cr asset
Cr Deferred gain
2. Defer the gain to rent exp or dep. Bec not really a gain: A. Cap lease:
Dr dep exp
Cr a/d
Dr. deferred gain
Cr exp
B. If op lease:
Dr rent exp
Cr cash
Dr deferred gain
Cr rent exp
Dr deferred gain
Cr dep exp (if cap lease)
Cr rent exp (if op lease)
Payroll taxes
Dr er wages- payroll expense
Dr er-payroll tax expense (fica + whldg)
Cr cash
Cr ee-payroll tax liability (fica7%+futa2%)x wage ex
Cr er+ee W/hldgs due to IRS (fedwhldg+7%wage exp)
Contingencies: Loss and Gains
- reasonably POSSIBLE
- PROBABLE + estimable
Gain contingencies:
-no accrue until realized, just disclose
Loss:
- Reasonably possible…. NO
- Probable: Yes
Subsequent events -type 1 -type 2
- type 1: existed at b/s: accrue and disclose
- type 2: did not exist at bs. No recog/accrue, only disclose
Refi from ST to LT
Gaap: intent and ability (before iss of bs)
IFRS: rollover at least 12 mos, and signed k
Contingency and provision
Gaap: same IFRS:
- contingency: disclose only
- provision: provide. Acrue/recognize
Debt restructuring: - concession - financial difficulties 3-ways:
- Transfer of property:
- Equity interest in debtor
- Modification of terms:
- Transfer of property
A. Debtor: diff betw fmv and bv, and fmv and cv
B. Creditor: records new asset at fmv and recog loss
Cv debt: 600
Fmv: 500
BV: 300
Debtor:
Dr np 600
Cr asset 300
Cr gain 100
Cr gain 200
Creditor:
Dr loss 100
Dr asset 500
Cr nr 300 …
- Equity interest in debtor is issued Equity is recorded as if issued for fmv.
Gain for diff betw cv of debt and fmv
Tfer equity Debtor:
Dr np 600
Cr cs 200
Cr apic 100
Cr gain 300
Creditor:
Dr invesmt stock 300
Dr asset 300
Cr nr 600
- Modification of terms Reduct of int rate, maturity, face amt and accrued int If future pmts vs obligation
If future pmts obligation: no g/l. Considered adj to i-rate
Deferred revenue:
- is a L until svc has been performed
- a deferred rev on the books of one co is an accrued exp on the books of another co
- a. Deferred rev are rev tt have been received before they have been earned. It is a L
Direct financing lease components
MLP + residual value
I. The seller-lessee has transferred substantially all the risks of ownership to buyer-lessor
the leaseback will be considered a minor leaseback.
The seller-lessee will report the sale as a separate transaction, recognizing any gain or loss
When seller-lessee retains the right to substantially all of the remaining use of the property, the sale and the leaseback are related transactions. Any gain on the sale is deferred and amortized over the term of the lease.
The amortization reduces rent expense if the leaseback is accounted for as an operating lease, or reduces amortization of the leased asset if accounted for as a capital lease.
Retirement of Bonds
Cr cash
Cr bic (unamortized)
Cr disct (unamortized)
Cr Gain (plug)
Dr B/P (face)
Dr premium (unamortz
Dr. Loss (plug)
