CPA FAR Becker Wk 5 Flashcards
Trade accounts payable
amounts owed for inventory and raw materials
can be recorded as purchase or as inventory
noninterest bearing = operating liability
record: gross method or net method
Trade accounts payable: record net method
record net of discount
if payment made after the discount period, a purchase discount lost account is debited
Trade accounts payable: record gross method
wait to record discount until it is actually taken
accrued liability
EX
DR Salary Expense
CR Salary payable
Current portion of LT debt
current obligations expected to be refinanced may be excluded from current liabilities and included NCL if evidenced by:
-actual refinancing prior to issuance of financial statements
-existence of a noncancelable financing agreement from a lender having the financial resources to accomplish the refinancing
Reclass:
DR ST Liability
CR LT Liability
payroll taxes
expense for employer
Ex
unemployment taxes and employer share of payroll taxes
liability is liquidated when amounts are remitted to the appropriate tax authority
payroll deductions
Not an expense for the employer
expense to employee
treated similar to sales tax payable = credited to payable account until remitted
Ex.
deductions for social security, Medicare, Income taxes withheld from employees out of gross pay from paychecks
Accrued vacation
vacation accruals are recorded in the year earned if all of the following conditions are met:
S- services have already been rendered by employees
O- obligation relates to rights that vest or accumulate
C- payment of the compensation is probable
R- amount is reasonably estimated
Exit or Disposal activities: liability for costs associated with an exit or disposal
Ex. closing location or downsizing
a liability must be recognized for the costs associated with an exit or disposal activity
-severance pay- involuntary employee termination benefits
-costs to terminate a contract that is not a lease
-Other costs:
–consolidating facilities
–relocating employees
–moving PP&E
Exit or Disposal activities: liability for costs associated with an exit or disposal (criteria)
a liability must be recognized for the costs associated with an exit or disposal activity-
Must meet all criteria:
-obligating event has occurred (notice or announcement)
-the event results in present obligation to transfer assets or to provide future services (severance pay or cost to relocate)
-entity has little to no discretion to avoid the future transfer of assets or providing services
Liability measurement
should be measured at fair value
liability must be adjusted in future periods b/c revisions to the timing of or estimated cash flows from the exit or disposal activity
Liability: Income statement presentation
revisions are accounted for prospectively (change in estimate)
costs assoc with an exit or disposal activity related to disc ops should be reported in disc ops, net of tax
costs assoc with an exit or disposal activity NOT related to disc ops should be reported in income from cont ops (nonoperating expense)
estimated future operating losses should not be recorded until they actually occur
Liability: disclosure
disclosure should be made in the notes to the financial statements:
in the period that the exit or disposal activity was initiated and
all subsequent periods until activity is completed
Exit or disposal activities: plan
-make a plan
-notify employees of termination
-termination benefits provided
-termination benefits defined and will be communicated to employees = obligating event
-liability recognized
Exit or disposal activities: Solutions
-severance pay
-obligation event: record loss/liability at fair value
-do not discount termination benefit b/c it is happening within a year
-book the loss in quarter announcement is made
-debit the loss, credit the liability
-disclose the exiting disposal activity
