Roger Chapters 11-14

Question 1

What is the purpose of a direct financing lease?

Answer 1

Lease that is used only to earn interest. Like selling something just to get interest off of it.

Question 2

What is a Type II subsequent event?

Answer 2

Event where the conditions of the event did NOT exist before balance sheet date. Ex: Fire that destroys warehouse

Disclose but do not recognize

Question 3

How do you calculate the accrued liability for warranty cost?

Answer 3

Sum of total expected %s / and multiply by total revenue collected

Expense estimates over the whole period

Question 4

What journal entry does the lessee make when they pay for their lease?

Answer 4

• lease expense
• lease liability
  
  • cash
    * right of use asset

Question 5

When can you refinance from a ST to a LT basis under IFRS?

Answer 5

If the entity has entered into an agreement to refinance on a LT basis

Question 6

What is a Type I subsequent event?

Answer 6

Event where conditions of the event existed before balance sheet date. Ex: Settlement of a litigation for difference amount other than accrued amount

Recognize (adjust) financial statements.

Question 7

When do we get a deferred tax asset?

Answer 7

When book expense > tax expense, book income < tax income

Question 8

What is the journal entry to record the lease and asset for a lessee at the start?

Answer 8

• right of use asset

* lease liability

Question 9

When can a compensated absence be booked?

Answer 9

If it is probable, estimable, the services have been rendered, and it can be accumulated or vested

Question 10

When can you refinance a payable from a ST to LT basis?

Answer 10

If you have the intent and ability to do it (firm agreement and creditor lets you)

Question 11

What tax rate do we use when finding deferred tax assets/liabilities for GAAP?

Answer 11

Enacted tax rate

Question 12

What is the equation to get pension expense?

Answer 12

+ Service cost
+/- Prior service cost
+ Interest cost
+/- Deferred Gain (unrecogized pension g/l)
+/- Excess amortization on deferred g/l
- actual Return on Plan assets
+/- Amortization of existing net obligation or net asset implemented

Question 13

What life is used to depreciate a finance lease?

Answer 13

The shorter of legal or useful life UNLESS you have a purchase option. Then you use useful life.

Question 14

How do you recognized a sale-leaseback transaction that is a loan-type?

Answer 14

Account for as a LOAN if you have at least one of the finance criteria (SPoT 75-90)

initial JE

• cash
  
  • note payable

2nd year

• interest expense
• note payable
  
  • cash

Question 15

When are you required to book vacation days? Sick days?

Answer 15

Must book if vacation days accumulate or vest

Must book sick days if the days vest. Optional if they accumulate only.

Question 16

What steps do you take to determine the estimated liability for unreedemed coupons?

Answer 16

1. Determine total face value of coupons issued
2. Add the handling fee %
3. Multiply by % of coupons expected to be reedemed
4. Subtract payments already made to merchants

Question 17

What is the corridor equation for excess amortization of a deferred g/l for pensions?

Answer 17

[Beg deferred amount - 10%(higher of beg PBO or beg FVPA)]

If this number is bigger than the deferred number we need to amortize the excess over the average remaining service life

Question 18

How are leasehold improvements accounted for?

Answer 18

They are amortized over the shorter of the lease life or useful life

Question 19

When do you accrue AND disclose a loss contingency?

Answer 19

If it is probable and estimable

Question 20

What tax rates can we use when finding deferred tax assets/liabilities for IFRS?

Answer 20

Substantially enacted tax rate or enacted tax rate

Question 21

When do we get a deferred tax liability?

Answer 21

When book expense < tax expense, book income > tax income

Question 22

What is a provision under IFRS?

Answer 22

Liability that is uncertain in timing or amount. It is accrued and disclosed.

3 conditions

1. Entity has present obligation as result of past event
2. Probable that an outflow of resources is required
3. Obligation can be reasonably estimated

Question 23

When can an uncertain tax position benefit be recorded?

Answer 23

If there is a more-likely-than-not chance (>50% cumulative chance)

When this threshold is met, record at the amount that is the LARGEST and over the 50% cumulative change

Question 24

What is a contingency under IFRS?

Answer 24

Liability that is not probable or estimable

Question 25

How do you recognize the exercise price of a purchase option reasonably certain to be exercised?

Answer 25

Treat as a lump sum payment at the end of the non-cancellable lease term

Question 26

How are uneven rental payments recognized by the lessor?

Answer 26

Recognized uniformly

Total cash payments for the lease/# of years`

Question 27

How are initial direct costs treated for a sales-type lease?

Answer 27

Expensed immediately if there is selling profit. Deferred over the lease term is there is no selling profit.

Question 28

What is the equation to get change in PBO?

Answer 28

Beg PBO
\+ service cost
\+ interest cost
\+/- prior service cost
\+/- actuarial g/l
- benefits paid out
----------------------------------
Ending PBO

Question 29

When can you not use “major part” or “substantially all” criteria to determine if a lease is a finance lease?

Answer 29

If the asset is in the last 25% of its useful life

Question 30

How do you recognized a sale-leaseback transaction that is an operating lease?

Answer 30

Account as SALE of asset and then lease again. Has none of the finance criteria.

At “sale”

• Cash
• A/D
  
  • Equipment (at cost)
  • gain on sale-leaseback (PLUG

Question 31

What are the criteria for determining a finance lease?

Answer 31

Specialized nature
Purchase Option resonably certain to exercise
Transfer of title
75% of total useful life (“major part”)
90% of asset’s value (“substantially all”)

Question 32

What is the initial journal entry for a sales-type lease without profit?

Answer 32

• lease receivable

* equipment

Question 33

When do you disclose or accrue a gain contingency?

Answer 33

Disclose if it is probable and estimable. NEVER accrue.

Question 34

What is the initial journal entry for a sales-type with profit lease?

Answer 34

• lease receivable
  * equipment
  * gain on sale