Payable and Accrued Liabilities

Question 1

What are costs associated with exist and disposal acitivities?

Answer 1

1- Cost to relocated employees
2- Benefit related to involuntary and (not voluntary) employee termination. Golden Hand Shake
3- Cost to terminate a contract that is not a capital lease.

Question 2

Are costs to terminate a capital lease an exit and disposal activities

Answer 2

NO - cost to terminate a lease that is not capital is an exit and disposal activity. Capital lease termination costs are accounted for separately from exit and disposal costs.

Question 3

Is the cost of retiring a fixed asset considered an exit and disposal cost?

Answer 3

No. It is not considered an exit and disposal cost.

Question 4

Are benefits related to involuntary employees termination?

Answer 4

Yes. Involuntary benefits related to voluntary employee termination are costs associated with exit and disposal activities.

Question 5

Are benefits related to voluntary employees termination?

Answer 5

No. Voluntary benefits related to voluntary employee termination are not exit and disposal activities.

Question 6

Is commitment to an exit plan is a liability

Answer 6

No

Question 7

In a question of compensated absnese, What are key notes to remember?

Answer 7

1- Sick pay days can’t be estimated so they are not reported, only vacation day liability is reported.
2- When they say there is an unadjusted balance of liability on Dec 31, and what amount needs to be reported on FS. The answer is the amount for the current period only. Unadjusted Balance is a Distractor.

Question 8

After the property is fully depreciated, how the change in decommissioning liability be recognized?

Answer 8

The change in liability is recognized in profit and loss

Question 9

Should the current portion of refinance loan (that converted short term note to long term note) that in due on Jan 15 Year 3 (one year and 15 days). be included in the Current Liabilities? Year End FS are for 31/12/Y1

Answer 9

No.

Question 10

What is ARO?

Answer 10

ARO stands for Asset retirement Obligation. That is a Present Value of Future lability. No Expense is recognized. The ARO will increase the value of the asset and depreciation expense will be recorded over the life of the asset which will include the expense related to ARP.

Question 11

If you have a note that pays principle and Interest, how would you report the liability on the BS?

Answer 11

It will be payment due in 12 months plus the accrued interest. Note: Not the interest you pay in 12 months.

Question 12

How ARO is recognized

Answer 12

An ARO qualifies for recognition when it meets the definition of a liability
1- Duty or Responsibility
2- Little or no Discretion to avoid
3- Obligation Event

Question 13

In ARO recognition, does the uncertainty about whether performance will be required defer the recognition of a retirement obligation?

Answer 13

No uncertainty about whether performance will be required to defer the recognition of a retirement obligation, rather the uncertainty is factored into the measurement of the fair value of the liability through the assignment of probabilities to cash flow

Question 14

What is Balance Sheet approach to measure the ARO?

Answer 14

An entity record an asset and liability on the balance sheet equal to the FAIR VALUE (PV) of the asset retirement obligation. FV is generally equal to PV. If reasonable estimate can’t be made then Asset and Liability is recognized when estimate could be made.

Question 15

Wha is JE for recording the ARC and ARO?

Answer 15

Asset retirement cost
Asset retirement Obligation

Accretion Expense
Asset retirement Obligation

Depreciation Expense
    Accumulated Depreciation (ARC)

Question 16

Pass key for ARO

Answer 16

Cumulative Accretion Expense
+ Add Cumulative Depreciation Expense
= Asset Retirement Obligation

Question 17

Explain ARO briefly

Answer 17

1- Mine is supposed to dismantle at the end of economic life of 4 years
2- The cost is 500,000 and PV of this cost is 341,505.
3- Set up a Asset ARC and Liability ARO.
4- Recognize Accretion expense at the rate of 10% and credit liability to increase ARO.
5- Asset ARC is depreciated against Accumulated Depreciation as credit that is ARC.
6- In last year if actual cost is more than estimated, expense as Mine Dismantling Expense.

Question 18

When Calculating the Current Liabilities, and Bond has payable of 300,00 is due within 12 months with a discount on bond payable. What do you add currently liabilities

Answer 18

Bond Payable Due within 12 months is Currently Liability. Discount is deducted not added into currently Liability.

Question 19

In Escrow What amounts are needed to pay attention?

Answer 19

1- Interest earned is added

2- Commission on interest expense is deducted

Question 20

Sales Tax Answer Key

Answer 20

1- Calculate the sales revenue if the sales tax is included in it and it will have a credit value
2- The debit Value will be shown as the sales tax paid
3- Add all the sales revenue and take out the sales tax from it. it is your sales revenue.
Real Entry Should have been
Cash 106
Sales revenue 100
Sales tax payable 6

Question 21

If you have written the checks on 29 Decemeber and mailed on Jan 05 next year. Could that amount be deducted from payables

Answer 21

No you can’t do that. If you have deducted that amount from Payables, Add back in.

Question 22

An important HINT about Sales Tax Question

Answer 22

Look for questions where it says that company records sales tax amount as revenue. There is a greater possibility that Credit amount of Sales revenue account are tax payment to IRS, as it might say that sales taxes paid are charged against sales revenue

Cash
Sales revenue

Sales revenue
Cash