Review of FAR 5-7 Flashcards
What types of costs are associated with exit and disposal activities
cost to terminate contracts that arent capital leases
costs to consolidate facilities
costs to relocate employees
Can you tell me what is meant by an asset retirement obligation (ARO)
a legal obligation associated with the retirement of a tangible long lived asset that results from acquisition, construction, or normal operations
How is an ARO accounted for in periods of initial measurement
ARO liability is adjusted (increased) for accretion expense and then the ACO asset is depreciated (decreases)..these amounts are added together
When do you actually record a contingent liability? how do you record/disclose if it is probable, reasonably likely, and remote
when the loss is both probable AND reasonably estimated (minimum in-range amount) you record and disclose it
you just disclose it when it is only reasonably possible
and when its remote you dont disclose it (unless its a guarantee)
What is the interest (effective rate) method of amortizing Bond premiums and discounts Method (US GAAP / IFRS) as well as finding the interest expense
Premium(discount) amortized = (carrying value x effective rate) - ( Face value x stated rate)
Interest expense = carrying value x effective rate
What is the common entry for Asset Retirement obligation (ARO) ? what do you value it at
Dr: Asset retirement cost (ARC asset)
Cr: Asset retirement obligation (ARO Liability)
Value at Fair Value (present value)
What would make you have to recognize an ARO, when is it recorded
duty or responsibility
little or no discretion to avoid
or obligating event
Think like “ this building has asbestos, you have to get a new roof”
its recorded when met
if you have a gain contingency do you record a JE??
NOOO
How do you find the yield to maturity
Coupon / price –> C/P
What account are bond issue costs included in
the discount account
What is the equation for the effective interest method to find the interest expense? What is the equation to find interest paid? how do you use those two answers to get the amount of amortization
Interest Expense: Carrying value at beginning of period x Effective (market) rate
Interest Paid: face value x interest rate
Amortization: Bond interest expense - bond interest paid
How do you handle bond issue costs under IFRS?
they decrease the carrying amount of the bond,
If the coupon (stated) and the market rate are the same do you find the PV and all that shit
NOOOO
HOW DO YOU FIND THE BOND PRICE
1: take the face amount and multiply it by the coupon (stated) rate and divide by number of periods (if applicable) this gives us one of our interest payments
2: take the face amount of the bond and mulitply it by the PV factor of $1 for the MARKET interest rate (notice the periods and rate are changed if paid more than annual)
3: take the interest payment and multiply it by te PV market rate of an annuity (notice periods and such)
ADD THE ANSWERS TOGETHER AND YOU GET BOND PRICE
How do you find the amount of amortization for a premium under the effective interest method?
Difference between the cash interest paid and the interest expense
cash interest paid = Face amount of bond x stated rate
Interest expense = carrying value x market rate
What is the definition of carrying value for a bond
Its the Face amount - unamortized discounts + unamortized premiums - unamortized selling costs
How do you find the straight line amortization amount for a bond, whats the equation
(Premium or discount + Bond issue cost) / # of periods outstanding
How do you find interest expense not under the effective interest method
(Face amount x Stated Rate) - Premium amortization + Discount amortization
Show me the formula to get the ending Projected Benefit Obligation (PBO), the PBO is the Pension Plan Liability
Beg PBO \+Service Cost \+Interest Cost \+Prior Service cost from current period \+Actuarial losses incurred in the current period -Actuarial gains incurred in current period -Benefits paid to retirees =Ending PBO
show me the formula to get the ending Fair Value of Plan Assets
(CAB)
Beginning Fair Value of Plan Assets \+Contributions \+Actual return on plan assets -Benefit payment =Ending Fv of plan assets
What makes up the Net Periodic Pension cost under GAAP: SIR AGE
This is also called the pension expense
Service Cost Interest Cost (Return on plan assets) Amortization of prior service cost (Gains) and losses Expense/amortization of transition obligation
How do you amortize unrecognized gains and losses to net periodic pension cost under GAAP (corridor approach) THIS IS THE G OF SIR AGE
Under the Corridor approach: Unrecognized G/L LESS: the greater of 10% of PBO or BeginningMarket Related Value =EXCESS DIVIDED By: avg. remaining service life =Amortization of unrecognized G/L
How do you calculate funded status of a pension under GAAP?
Fair Value of Plan Assets
LESS: PBO
= Funded Status
Under GAAP What FS is fund status report on? How does the value change its classification?
Balance Sheet
If OVERFUNDED (Fv of Plan assets > PBO) then its a noncurrent asset If UNDERFUNDED (Fv of Plan Assets < PBO) then it is either a current or non current liability depending on extent that it is payable in 12 months
What are the four criteria for recognizing post-employment benefits and compensation for future absences
Employees services have already been rendered
Rights vest or accumulate
Payment of the compensation is probable
Amount can be reasonably estimated
Can you summarize the cost method of treasury stock
recorded, carried, and reissued at reacquisition cost for all entries.
any gain goes to APIC-Treasury Stock
any loss goes against any previously recorded APIC, then any excess comes out of RE
its reported as a deduction from total Stockholders Equity.
Can you summarize the par value (legal) method of treasury stock
Recorded at PAR value during all the entries with cost of stock in excess flowing as a reduction in APIC-treasury Stock and then from retained earnings
Go into detail regarding the three dates relating to cash dividends: Declaration date, Date of Record, and Date of payment
Declaration Date: Becomes a liability and reduces Retained earnings
Date of Record: NO JE, memo entry only
Date of Payment: Actually paid
What are small stock dividends recorded at, and what % are associated with them? Same questions but what about large stock?
Small stock dividends (<20-25%) are carried at Fair Value
While Large Stock Dividends (>20-25%) are carried at par value
How do you record the initial entry of pension expense, what about when it is funded?
Initial entry: DR: Pension Compensation Expense DR: Pension Cost CR: Pension benefit obligation -current CR: OCI
Funding/contribution:
DR: Pension benefit obligation
CR: Cash
How do you determine the interest cost ( the I in SIR AGE)
Beginning period PBO x Discount Rate = Interest Cost
What are the JE’s for recognizing prior service cost and pension losses? what about the entry when it is amortized
Prior Service cost and pension losses:
DR: Pension benefit asset
CR: OCI
Amort:
Dr: OCI
CR: Net periodic Pension Cost
What are the JE’s for recognizing pension gains? what about the entry when it is amortized
Pension Gains:
DR:OCI
CR: Pension benefit asset
Amort:
DR: Net periodic Pension Cost
Cr: OCI
how do you calculate Book Value Per Common Share
Common Shareholders Equity / Common Shares outstanding
How do you calculate Common Shareholders Equity (equation multi step)
Total Shareholders Equity
LESS: Outstanding Preferred Stock
-Cumulative preferred dividends in arrears
=common shareholders equity
What is the equation to find retained earnings
Net Income/loss -Dividends \+/- prior period adjustments \+/- Accounting changes reported retrospectively =RE
Do stock splits require a journal entry? and is the book value of C/S changed?
NOOO
What type of lease classifications are applicable to lessees
lessees will treat the lease as either an operating or finance lease
What type of lease classifications are applicable to lessors
Lessors will treat a lease as either operating, sales-type, or direct financing lease.
What is the criteria for determining whether a lease is Finance Lease for the Lessee and a sales-type lease for the lessor
if one of the following is met: OWNES
Ownership transfer at end of lease term
Written option to purchase the option
Net present value of all lease ayments is equal to or substancially exceeds assets FV (90%)
Economic life remaining on asset is made up by a major part of the lease term (75%)
Specialized asset which indicates it will not have an alternate use after the lease ends
What happens if none of OWNES is met? how would the lessee classify it
It’s an operating lease for the lessee
What happens if none of OWNES is met? Before calling it an operating lease the LESSOR would have to do this other test…
if none of OWNES is met, We go to the PC rule.
Where both the Present value of the sum of payments and guaranteed residual payments is = to or exceeds the assets Fair Value AND the Collection of lease payments is probable…THEN it’s considered a Direct Financing Lease
BUT IF only one/none of those is prevalent then its an operating lease
What is the date when the lease begins
the commencement date
What components will be included and excluded from lease payments
REPORT N GO
Lessee lease payments include: REPORT Required contractual fixed payment Exercise option Purchase price at end of lease Only indexed or rate variable payments Residual guarantees likely to be owned Termination penalites
Lessee lease may or may not include (at lessee option): N
Nonlease components
Lessee lease payments specifically exclude: GO
Guarantess of lessor debt by lessee
Other variable lease payments
What rate is used to calculate the present value of minimum lease payments, if this first rate isnt known, what other rate do you use?
the implicit rate, if it is not known, use the incremental borrowing rate
Can you list a couple initial Direct Costs that are included or excluded in the valuation of a Right-Of-Use Asset
Any direct costs that are incurred as a result of the execution of the lease is INCLUDED
Any direct costs incurred prior to signing the lease are EXCLUDED
Go ahead and list the initial and subsequent journal entries recorded by the LESSEE when the lease qualifies as an operating lease
Initial:
DR: ROU Asset
CR: Lease Liability
Subsequent:
DR: Lease Expense
CR: Cash/Lease Liability
DR: Lease Liability
CR: Accumulated Amortization - ROU asset
Go ahead and list the initial and subsequent journal entries recorded by the LESSEE when the lease qualifies as an Finance lease
Initial:
DR: ROU Asset
CR: Lease Liability
Subsequent:
DR: Interest Expense
DR: Lease Liability
CR: Cash/Lease Payable
DR: Amortization Expense
CR: Accumulated Amortization - ROU asset
Can you identify a few ways in which the sales-type leases are different from direct finance leases
in a sales-type lease, the lessee gains control of the asset and the lessor will remove the asset from its books and recognize a profit or loss.
Whereas, in a direct finance lease, the lessee does not gain control of the asset. The lessor will remove it from the books but will instead recognize a net investment in the lease
Go ahead and list the initial and subsequent journal entries recorded by the LESSOR when the lease qualifies as an OPERATING lease
DR: Cash
CR: Rental Income
DR: Depreciation Expense
CR: Acc. Depr.
When is the translation method used? When is the remeasurement method used?
Translation method is used to restate the FS denominated in the functional currency to the reporting currency.
Remeasurement method is used when ‘dysfunctional’ currency is used by the sub.
Can you identify the exchange rate to be used when translating different components of the BS and IS? As in Assets & liabilities, Common Stock and APIC, and Revenue and Expenses
Assets and Liabilities: Current Exchange Rate
Common Stock and APIC: Historical rate
Revenue and expenses: Weighted Average exchange rate
What financial statement includes translation
OCI, they are treated as unrealized gains and losses
Give 5 examples of permanent differences.
Premiums and/or proceeds on key-officer life insurance when entity is owner and beneficiary
Tax-exempt interest on municipal bonds
nondeductible portion of meals and entertainment
fines/expenses for breaking the law
Dividend Received Deduction
Give 5 examples of temporary differences.
Deprecation (Financial vs. MACRS)
Gross profit on long term construction (% complete vs. completed contract)
Estimated Warranty Costs
Gross profit on installment sale (accrual vs. Cash)
BDE using the allowance method vs. actual BDE
How do you find the DTA or DTL?
its the difference between the ITE (Financial Statements) and the ITP (Taxable amount) using the enacted rate.
Or you can multiply the enacted rate by the amount of temporary differences.
What would be the JE for the inception of a sales type lease for the lessor
DR: Lease Receivable
CR: Fixed Asset
CR: Gain (or debit loss)
What would be the JE for the inception of a Direct Financing Lease for the lessor
DR: Lease Receivable
DR: Residual Asset (PV at implicit rate)
CR: Fixed Asset
When thinking about how much the Payment amount, interest and amortization amount is for a lease..what equation can you use to find the carrying amount of the ROUA at a point in time
You have the total lease liability (carrying value of ROUA)
do the Payment (lease expense) - Interest (implicit rate x lease liability) = Amortization
The amortization is how much the ROUA is decreased
What is the total tax expense equation (ITE)
Current Liability (ITP) - Deferred Asset
What is the total tax expense equation (ITP)
Tax return amount x current tax rate
What has to be greater than what to give rise to a DTL
Future Tax Accounting Income GREATER THAN Future Financial Accounting Income
What has to be greater than what to give rise to a DTA
Future Tax Accounting Income is LESS THAN Future Financial Accounting Income
What account do you use if it is more likely than not (>50%) that part of or all of the DTA will not be realized? is this method allowed under IFRS
The Valuation Allowance Account is used (contra account)
NOT ALLOWED UNDER IFRS
What is the initial entry for a deferred tax asset
DR: DTA
DR: ITE-Current
CR: Income tax Payable
CR: Income tax benefit-deferred
What is the initial entry for a deferred tax Liability
DR: ITE-Current
DR: ITE-Deferred
CR: Income Taxes Currently Payable
CR: DTL
What is the easy equation to find the income tax expense-current portion (ITE)
Taxable income (Financial statement) x Tax rate
So when making an amortization table think from left to right it goes how?
Lease Liability, Total Lease Expense, Interest Expense, Amortization Expense and Carrying Amount of Asset.
How do you find the Return on plan assets (R OF SIR AGE)
Beg FV of plan assets x Expected Rate of Return
How do you find the Amortization of prior service cost (A IN SIR AGE)
Beginning unrecognized prior service cost / average remaining service life
Liquidating Dividends impacts APIC and Retained Earnings how?
Decreases both Retained Earnings & APIC
