F6 - F7 Flashcards
When should the lessee amortize the leased property over the ECONOMIC life of the asset?
- when there is a written purchase option
- when the lessee takes ownership of the asset at the end of the lease term
*note: do NOT include the purchase option in the depreciable base when calculating depreciation expense
How should you treat lease expenses that need to incorporate discounts or fluctuations each year (for incentives)?
add up the lease expense each year and divide by the number of years (take the average)
How to calculate depreciation expense for leases:
for the lessee: PV of minimum lease payments / lease term
for the lessor: cost of asset / useful life
How to calculate interest revenue over the entire life of the lease?
total cash flows - PV of cash flows
*in other words, (annual payment x # of years) - (annual payment x PV factor)
When would you start recognizing lease expenses?
on the commencement date (when the underlying asset is made available for the lessee to use)
How to calculate the gain/loss that the lessor would make:
PV of minimum lease payments OR cash selling price
- CV
= gain/loss
How much gain/loss should you record for foreign exchange transactions?
the difference between the previous date and the most recent date (NOT the full netted amount from the exchange date to the collection date)
*if they ask about the gain/loss at year-end, it’s the difference between the exchange/transaction date and year-end
*if they ask about the gain/loss subsequent to year-end (collection date), it’s the difference between year-end and the collection date
How do you calculate current income tax expense?
- taxable income x tax rate
- step #1 - permanent differences - DTA + DTL
How to calculate the amount of a DTA and/or DTL:
multiply the difference between taxable income and pre-tax book income by the tax rate
How to calculate estimated tax liability:
income tax expense - estimated tax payments
should you subtract or add excess tax depreciation (when arriving to current tax expense/liability)?
subtract
How to calculate the effective tax rate?
(taxable income x tax rate) / pre-tax income = ETR
How to treat municipal bond income and life insurance premiums:
- subtract municipal bond income (b/c it’s not taxable income)
- add life insurance premiums (b/c they’re not deductible)
increases in prepaid insurance and rent receivables cause an increase in ____?
DTL
How to treat DTAs and DTLs to get to taxable income:
add DTLs and subtract DTAs
When preparing interim financial statements, income tax expense is estimated each quarter using the ETR expected to apply to the ______.
entire year
Are warranty accruals considered a DTA or DTL?
DTA - deduction
What accounts are affected by treasury stock prices when compared to their costs?
debit APIC - TS first and then RE (if necessary) if the T-stock price is less than it’s cost (to reduce)
credit APIC if the T-stock price exceeds it’s cost (to increase)
*although these are acting like gains and losses, they aren’t called gains and losses in the JEs or on the income statement
What does appropriation of RE mean and how do you know what amount to record?
def: setting aside/restricting RE for a specific purpose
when the purpose of appropriated RE has been achieved, it’s restored to unappropriated RE
*note: this does not affect the income statement
An unconditional redemption feature on common stock must be reported as a ______.
liability
book value per share
stockholder’s equity - preferred stock / common shares outstanding
*common shares outstanding = common shares issued - treasury shares
Registration costs are a direct reduction of ______.
APIC
How to solve for a liquidating dividend:
total cash dividend declared
- less retained earnings
-decreases RE
-decreases APIC
How to account for treasury stock purchases and distributions:
T-stock purchases - increases shares outstanding (add)
T-stock distributions - decreases shares outstanding (subtract)
