F4

Question 1

Treatment of property taxes payable

Answer 1

1. accrued prior to receipt of invoice and matched to year
2. recorded as payable upon receipt of invoiceand expensed in year of receipt (like cash-basis)

Question 2

Treatment of exit or disposal activity

Answer 2

record a loss

Question 3

Asset Retirement Obligation Steps/JE

Answer 3

1. record liability @ PV - Dr. ARC (+A), Cr. ARO (+L)
2. record accretion using exp. rate - Dr. acc exp, cr. ARO (+L)
3. record depreciation (initial PV/year) - Dr. dep. exp, cr. accumulated ARC
4. ARO decommissioned - Dr. ARO (-L), Dr. decom exp., cr. Cash

Question 4

When do you disclose a gain contingency?

Answer 4

if the probability is not remote

Question 5

If a contingency loss is estimated within an equally likely range, what amount of the loss should be accrued?

Answer 5

the lower estimate with disclosure of the possible higher loss

Question 6

treatment of a probably loss

Answer 6

if estimable, accrue loss that is most probable or lowest loss in a range of equally likely losses

Question 7

treatment of a reasonably possible loss

Answer 7

record in footnotes

Question 8

treatment of a remote loss

Answer 8

no recording (unless DOG guaruntee: debt of other, obligation of commerical bank, guaruntee of repurchase)

Question 9

Troubled debt restructuring discounting for modification of terms

Answer 9

debtor: no discounting for adj. (gain on difference of carrying amount - cash pmts)
creditor: discount for est. bad debt exp (PV of principal & new effective rate coupon subtracted from original = est. credit loss)

Question 10

operating lease statement of CF

Answer 10

operating CF: lease pmts, variable lease pmts, short-term lease payments
investing CF: preparing asset for use

Question 11

financing least statement of CF

Answer 11

operating CF: interest payments, variable/ST lease payments
financing CF: principal payments

Question 12

operating lease: lease expense

Answer 12

constant (calc int & plug amortization) but report as single expense on income statement

Question 13

What components will be included/excluded from lease payments?

Answer 13

R: req. fixed pmts
E: exercise option reasonably assure
P: purchase price at end of lease
O: only index or rate var. pmts (other changes expensed in period)
R: residual guaruntees likely to be owed
T: termination penalties reasonably assured

exclude:
Guaruntees of lessor debt by lessee
Other variable lease pmts

Question 14

classifying lease

Answer 14

Financing lease:
O: ownership transfer
W: written option to extend
N: NPV of lease pmts >90% FMV
E: economic life is 75%+ of remaining useful life
S: specialized with no alt. use

Operating lease: if no criteria met or ST

Question 15

serial vs debenture

Answer 15

Serial bonds are redeemed pro-rata over the life of the issue
Debenture bonds are unsecured bonds and would include both bonds under the “unsecured” caption

one bond can meet both criteria