Notes Leases and Bonds

Question 1

Credit risk req. Disclosures:

a. Supplemnt info to f/s
b. Notes to f/s

Answer 1

b. Notes to F/S

Question 2

Write off Receivable

Answer 2

Dr Allow d/a

Cr A/R

Question 3

Issuance of bonds

Answer 3

3. Dr cash (face+accrued int-Bic)
4. Dr bic
5. Dr disct (plug)
6. Cr B/P (face)
7. Cr accrued int payable (face x stated rate x time since last int paid)
8. Cr premium (plug)

Question 4

1. BV method convertible bond No g/l Gaap

Debt is being converted into Equity. Thus SE Increases

Same for MV method

Answer 4

Dr. B/P (face)

Dr. Premium

Cr. Bic

Cr C/S (par value)

Cr APIC (plug)

Question 5

MV method convertible bond G/l Non gaap

Answer 5

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)

Question 6

IFRS BIC

Answer 6

• ⬇ ️CV of bonds - Amortz thru effective int method

Question 7

Bonds w detachable stock purchase warrants (2 securities)

Answer 7

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

Question 8

Capital or Finance (IFRS) lease:

Answer 8

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

Question 9

Depreciation for cap/finance lease TT and BPO 75 or 90

Answer 9

TT and BPO:

1. Useful life,
2. Salvage value or Fair Value of A at end of useful life

75 or 90: no ownership:

1. Shorter of usful or legal life, and
2. Ignore salvage value

Question 10

Lease record at lowest of

Answer 10

1. FMV

2. PV of MLP:

1. Annual pmt +
2. BPO +
3. Guaranteed residual value

Not: exec costs tax insurance

Dr expense and cr cash

Question 11

Lease JE

Answer 11

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

Question 12

Non operating lease

1. Sales type
2. Direct financing

Answer 12

1. Sales type:

FV differs from cost

• profit/loss in period of sale, and
• int revenue earned over lease term using effective int method

Question 13

CAFR sections

Answer 13

1. Intro Letter of transmittal
2. Financial
3. Statistical

Question 14

Sales lease type je or non-operating lease

Answer 14

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

Question 15

Sales involving real estate

Answer 15

Land lives forever

Question 16

Sale-leaseback Sale asset and lease back

Answer 16

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)

Question 17

Payroll taxes

Answer 17

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)

Question 18

Contingencies: Loss and Gains

• reasonably POSSIBLE
• PROBABLE + estimable

Answer 18

Gain contingencies:

-no accrue until realized, just disclose

Loss:

• Reasonably possible…. NO
• Probable: Yes

Question 19

Subsequent events -type 1 -type 2

Answer 19

• type 1: existed at b/s: accrue and disclose
• type 2: did not exist at bs. No recog/accrue, only disclose

Question 20

Refi from ST to LT

Answer 20

Gaap: intent and ability (before iss of bs)

IFRS: rollover at least 12 mos, and signed k

Question 21

Contingency and provision

Answer 21

Gaap: same IFRS:

• contingency: disclose only
• provision: provide. Acrue/recognize

Question 22

Debt restructuring: - concession - financial difficulties 3-ways:

Answer 22

1. Transfer of property:
2. Equity interest in debtor
3. Modification of terms:

Question 23

1. Transfer of property

A. Debtor: diff betw fmv and bv, and fmv and cv

B. Creditor: records new asset at fmv and recog loss

Answer 23

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 …

Question 24

2. Equity interest in debtor is issued Equity is recorded as if issued for fmv.

Gain for diff betw cv of debt and fmv

Answer 24

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

Question 25

3. Modification of terms Reduct of int rate, maturity, face amt and accrued int If future pmts vs obligation

Answer 25

If future pmts obligation: no g/l. Considered adj to i-rate

Question 26

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

Answer 26

• a. Deferred rev are rev tt have been received before they have been earned. It is a L

Question 27

Direct financing lease components

Answer 27

MLP + residual value

Question 28

I. The seller-lessee has transferred substantially all the risks of ownership to buyer-lessor

Answer 28

the leaseback will be considered a minor leaseback.

The seller-lessee will report the sale as a separate transaction, recognizing any gain or loss

Question 29

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.

Answer 29

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.

Question 30

Retirement of Bonds

Answer 30

Cr cash

Cr bic (unamortized)

Cr disct (unamortized)

Cr Gain (plug)

Dr B/P (face)

Dr premium (unamortz

Dr. Loss (plug)