Select Transactions (20-30%) Flashcards
What are the 3 types of leases? What is lease criteria for lessee for Finance lease classification?
ST, Operating, Finance.
Finance for Lessee if 2 extra steps apply:
1) PV of lease pymts+GRV exceed FMV,
2) Probable lessor will receive all lease pymts+GRV.
What is JE for ST lease (Lessee & Lessor)?
Lessee: DR Lease Exp, CR Cash/AP.
Lessor: DR Cash/AR, CR Lease Rev.
What happens when GRV is less at end of lease?
Lessee pays the lessor the difference (only when guaranteed)
How is GRV included in lessee’s lease obligation?
At the beginning of lease and at PV of GRV.
Example: Lease total is $100K, w/PV of $90K. GRV is $10K, w/PV of $9K.
JE: DR Leased Equip. $99K, CR Lease Obligation $99K.
What is JE for Operating lease (Lessee & Lessor)?
Lessee: DR ROU Asset, CR Lease Obligation
Lessor: *keeps asset on books & depreciates over lease term
How do you calculate the initial JE for Operating lease for lessee?
Annual lease pymts X applicable PV factor based on implicit interest rate (will be given).
Example: Leasing equip. 10 yrs, implicit rate 8%. FMV asset is $100K, w/useful life of 20 yrs. Annual lease pymts is $12K. PV factor annuity due for 10 yrs at 8% is 7.25.
12K X 7.25 = 87K (to capitalize)
DR ROU Asset 87K, CR Lease Liab 87K (to capitalize)
DR Lease Liab 12K, CR Cash 12K (first pymt)
87K - 12K = 75K X 8% = 6K (interest #1 at YE #1)
DR Lease Exp 12K, CR ROU Asset 6K, CR Lease Liab 6K
75K - 6K = 69K x 8% = 5,520 (interest #2 at YE #2)…
How do you calculate initial JE for Finance lease for lessee? How do you calculate first payment for Finance lease for lessee?
Similar to operating lease, calculate as annual lease pymt X PV factor based on # of years the lease lasts.
DR ROU Asset, CR Lease Liab (record lease liab)
DR Interest Exp, DR Lease Liab, CR Cash (first pymt)
How do you calculate the initial JE for Finance lease for lessor?
Doing reverse of lessee, take FV of equip. +/- GRV/NGRV and dividing by PV factor.
If PV of minimum lease pymts is > FMV at beginning of lease, then amount of leased asset & obligation will be equal to FV of leased asset.
How is PV of minimum lease pymts computed?
Using the lesser of implicit rate (if known) or the lessee’s incremental borrowing rate.
How are leases under IFRS classified?
all considered finance leases, unless under $5K, then operating lease.
How are leasehold improvements capitalized for leases?
Amortized over shorter of:
1) remaining lease term, or
2) useful life of improvement
What are the FS required for DBP Plans?
Performance up to Employer
- Statement of Net Assets Available for Benefits (as of end of plan year)
- Statement of Changes in Net Assets Available for Benefits (for plan year end)
- Information on actuarial PV of accumulated plan benefits
- Information regarding effects, of certain factors affecting Y-T-Y change in accumulated plan benefits
What are the 5 components of pension expense?
\+ service cost \+ interest cost - expected return on plan assets \+/- amortization of prior service cost \+/- amortization of net gain/loss
SC = what EEs earn in CY IC = PBO at BOY X Discount Rate ERoPA = BOY PA X Expected Rate of Return
What is the formula/calculation for PBO?
\+ Beg PBO \+ service cost \+ interest cost \+ prior service cost - prior service credit \+/- liability gain/loss = End PBO
Increase in PBO = PBO Loss
Decrease in PBS = PBO Gain
What are the FS required for DCP Plans?
Performance up to Employee
- Statement of Net Assets Available for Benefits (as of end of plan year)
- Statement of Changes in Net Assets Available for Benefits (for plan year end)
What is the difference between a DCP and a DBP Plan?
- annual ER contribution is defined
- performance is up to the EE
- much simpler to account for DCP than DBP, ER simply contributes set annual amount into investment account for EE held by 3rd party trustee.
What costs are included in R&D? How are R&D costs recorded?
Activities in the development phase.
Expensed.
At what phase are costs not considered R&D costs?
Commercial production phase.
Example: Quality control testing during commercial production phase.
How are R&D costs recorded under IFRS?
Research costs are expensed, development costs are capitalized.
At what phase can software costs be capitalized?
Costs related to software can be capitalized once software has reached technological feasibility.
At what phase is software before it reaches technological feasibility?
R&D stage - all costs are expensed (when software being built).
When software product is on the market & being sold, how are those costs recorded?
Capitalized costs will start being amortized.
Yearly rate: greater of:
1) ratio of software sales to expected total sales
2) SL method over economic life of software
* can switch between these 2 between years
How is software for internal-use only recorded?
Software that will not be sold commercially.
Amortized SL over its useful life.
How are transaction costs associated with a business combination recorded?
Expenses as incurred.
Includes: legal fees, audit fees, finder fees, etc.
What are the common types of derivatives?
- option contracts
- future contracts
- forward contracts
- swap contracts
How are derivatives recognized & measured?
Recognized as asset/liability. Measured at FV. Changes in FV result in G/L that is recognized in earnings.
What are some items you would use hedging for?
- commodity price fluctuation risk
- foreign exchange fluctuation risk
- interest rate fluctuation risk
- credit risk
What is formula for FV Hedge (FV Risk)?
Firm Commitment
- adj hedging instrument to FV at BS date
- adj hedged item to FV at BS date
- recognize G/L in current income from revaluing each
What is formula for CF Hedge (CF Risk)?
Forecasted Transaction
- determine change in PV of expected CF of hedged item
- recognize difference in FV of derivative up to amount of change in PV of expected CF in OCI. This is effective portion.
- amount different than the change in PV of expected CF in current income, is the ineffective portion.
In foreign currency transactions, what is the direct rate?
Domestic price of one unit of foreign currency.
1 Euro = $1.57, 1 Peso = $0.32
In foreign currency transactions, what is the indirect rate?
Foreign price of one unit of domestic currency.
$1 = 0.87 Euro, $1 = 3.2 Pesos
What is considered Functional Currency?
Currency of the primary economic environment that the business operates in.
- except when:
- local economy in hyperinflation (100%+ for 3 straight years)
- foreign operations could not operate without US entity’s operations, then reporting currency is also function currency
*Chilean company’s functional currency would be the Chilean peso.
What are the 2 types of foreign exchange contracts?
1) FX Exchange Contract: obligation to buy/sell a foreign currency.
2) FX Option Contract: gives right to buy/sell a foreign currency, but not obligation.
What are the 2 types of translating foreign financial statements?
- Translation:
- A/L translated using spot rate at BS date
- IS accts translated using WA rate using rate at date items was earned/incurred
- RE is computed, converted TB will not balance
- translation adjustment is made to balance TB, in OCI.
- Translation:
- Re-measurement:
- monetary A/L (AP, AR) translated using spot rate
- non-monetary A/L (F.A., ppd A, COGS, depr) translated using historical rates
- rev/exps translated using WA rate using as occurred evenly throughout year.
- re-measurement adjustment is made to balance TB, in continuing operations income.
- Re-measurement:
What is a reacquired right asset?
Asset recognized in a business combination that will require amount recognized to be amortized over future periods.
Right granted by an acquirer to acquiree prior to a business combination that is reacquired when the acquirer gains control of the acquiree or the asset in a business combination.
