F5 Flashcards
2 methods of accruing property taxes
- Accrue prior to receipt of tax invoice and match in year expense occurs
- Record as payable upon invoice receipt and expense in year of receipt
Exit and Disposal Activities
Involuntary employee termination benefits
Costs to terminate a contract that is NOT a capital lease
Costs to relocate employees
Costs to consolidate facilities
Asset Retirement Obligation Measurement
Initial: Record an asset increase and a liability in the discounted FV of cost based on risk free rate.
Each year, record a debit to expense and credit to liability to bring estimated cost to undiscounted amount.
At the end of the life of the property, any change in cost obligation is recognized as profit or loss.
Compensated Sick and Pay Recognition requirements
- Obligation is based on services already rendered by employees
- Obligation relates to rights that vest or accumulate
- Payment of compensation is probable
- Amount can be reasonably estimated.
“Reasonably Possible” Loss Disclosures
Should include nature of contingency and either estimate of the possible loss or statement that it cannot be estimated.
Loss disclosures that must be made even if remote
Debts of others guaranteed
Obligations of commercial banks under letters of credit
Guarantees to repurchase sold receivables
Related party transactions
Future value formula
Present value x (1+r)^n
PV of annuity due calculation
For annuity due of n periods:
PV of ordinary annuity x (1+r)
For annuity due of (n+1) periods:
PV of ordinary annuity for n periods + 1
Financial instruments that MUST be classified as liabilities
Shares that must be redeemed by the buyer (Ex. preferred stock)
Instruments with obligation to repurchase shares by transferring assets
Instruments with obligation to issue a variable number of shares
Types of Payables that do not require imputing market rate of interest
Short term notes Payables paid in other forms besides cash Security deposits Government determined interest rate Parent - Subsidiary transactions
Bond Indenture
Document that describes contract between issuers and bond holders
Stated interest rate vs Effective rate
Stated/Nominal/Coupon- Interest to be paid to investors in cash
Market/Effective- Rate of interest earned by the bondholder
2 types of Convertible bonds
Nondetachable Warrants- The bond itself must be converted into stock
Detachable Warrants- Bond is not surrendered upon conversion, only warrants are surrendered seperately
Market rate vs Effective Interest rate
Market rate is used to determine present value factors.
Effective interest rate is used to calculate interest expense for the period. Disclosed in the footnotes.
Effective rate includes any bond issuance costs, market rate does not.
Straight line method of Bond Amortization
Period amortization= Premium/discount + Bond issuance cost / # of periods bond is outstanding
Constant amortization and interest expense, effective rate changes
