FAR (4th Deck) Flashcards
(50 cards)
The lessee should recognize amounts probable of being owed under a residual value guarantee as a component of lease payments
Lessee
On the commencement date of the lease.
What are some examples of Enterprise funds?
State and Local Government Concepts
Laws and Reg where cost of services are recovered through Fees and Charges
If you had a significant loss from a flood that doesnt happen very often but it occurred after the F/S data and before the F/S was publised what type of subsequent even is it?
Subsequent Event
It is a type 2 event, not recognized in the same period and also because it is material is should be disclosed.
Under cost method, when is RE reduce as a result of a sale of treasury stock?
Equity
When the reissued price is less than cost, APIC is first reduced and then any remaining amount should be taking from RE. (As a reduction)
Equity
On the declaration date (January 15), TWO things happen simultaneously:
- The company recognizes the property dividend at fair value ($25,000)
- They must also recognize any gain/loss by comparing: Fair value on declaration date ($25,000) vs Original cost ($20,000). This results in a $5,000 gain
Then these two amounts net together to determine the final impact on Retained Earnings:
- Property dividend: -$25,000
- Gain recognition: +$5,000
- Net reduction to RE: $20,000
Important: The fair values on February 1 ($26,000) and February 15 ($24,000) don’t matter - we only care about the fair value on the declaration date (January 15).
“What’s the difference between small and large stock dividends? (Include % cutoff and valuation method)”
Equity
Small Stock Dividend:
- Less than 20-25% of outstanding shares
- Recorded at FAIR VALUE
Large Stock Dividend:
- Greater than 20-25% of outstanding shares
- Recorded at PAR VALUE”
On May 18, Year 2, Sol Corp.’s board of directors declared a 10% stock dividend. On the same date, the market price of Sol’s 3,000 outstanding shares of $2 par value common stock was $9 per share. The stock dividend was distributed on July 21, Year 2, when the stock’s market price was $10 per share. What amount should Sol credit to additional paid-in capital for this stock dividend?
Equity
Small Stk Div declared (< 20%) are recorded at date of declaration for the FV. Also, used to determine the APIC (FV - Par)
Jones Co. had 50,000 shares of $5 par value common stock outstanding at January 1. On August 1, Jones declared a 5% stock dividend followed by a two-for-one stock split on September 1. What amount should Jones report as common shares outstanding at December 31?
Equity
In this scenario, the 5% stock dividend and the 2-for-1 stock split are treated as if they had occurred at the beginning of year.
- The August stock dividend results in 2,500 (50,000 × 5%) additional shares issued as outstanding shares as of January 1 for a total of 52,500 (50,000 + 2,500).
- The September 2-for-1 stock split doubles the number of shares outstanding as of January 1, August 1, and December 31 to 105,000 (52,500 × 2) shares.
Equity
So in order to answer this question, it may look overwhelming however, if you know how to calc. for APIC or if you had understand (in Excerpt) that Treas. Stk is recorded at cost.
So you determine the APIC by ($50-36) x 3000 shrs = $42,000
Tres Stk = $36 x 3,000 = $108,000
Ole Corp. declared and paid a liquidating dividend of $100,000. This distribution resulted in a decrease in Ole’s
Equity
**APIC Only! **
RE is not affected because once RE is $0, the remaining goes to APIC when dividend declared exceeds RE Total Amount.
Remember: Liquidating Dividend is when RE hits 0 so you have to take from APIC
Which partner has the largest capital?
- Algee contributed cash of $50,000.
- Belger contributed property with a $36,000 carrying amount, a $40,000 original cost, and $80,000 fair value. The partnership accepted responsibility for the $35,000 mortgage attached to the property.
- Ceda contributed equipment with a $30,000 carrying amount, a $75,000 original cost, and $55,000 fair value.
Equity
Equity
Understand that when the exercise price is > PAR it will always be an APIC increase, but RE are not affected.
At December 31, Year 1 and Year 2, Carr Corp. had 4,000 shares outstanding of $100 par value 6% cumulative preferred stock and 20,000 shares of $10 par value common stock. At December 31, Year 1, dividends in arrears on the preferred stock were $12,000. Cash dividends declared in Year 2 totaled $44,000. Of the $44,000, what amounts were payable to each class of stock?
Order of Dividends payment
Understand that when PS Div are not paid in the previous year, it is considered div in arrears and must be paid first.
It states that 44k is payable, so out of the 44k 12k is in arrears, so the PS that is owed is actually 36,000 because we know that current month (4k x $100 x 6% = 24k + 12k = 36k)
CS is 8 because that is the other remaining payable amount of 44k - 26k PS = 8k CS payable.
Equity
On July 1, Year 1, Cove Corp., a closely held corporation, issued 6% bonds with a maturity value of $60,000, together with 1,000 shares of its $5 par value common stock, for a combined cash amount of $110,000. The market value of Cove’s stock cannot be ascertained. If the bonds were issued separately, they would have sold for $40,000 on an 8% yield to maturity basis. What amount should Cove report for additional paid-in capital on the issuance of the stock?
This is a very good question to help you understand how to solve for APIC when the market value is not given.
When shares of Treasury stock are reissue/purchase/retired what happens to outstanding shares?
Equity
- Purchase Outstanding shares are reduced.
- Retired shares decreases outstanding shares.
- Sold, Outstanding shares are increased.
Authorized shares are N/A. No Effect or Changes.
Liquidating Dividends Facts
Equity
- Decreases RE, if > RE then decrease to 0 automatically
- Decreases APIC for anything > RE
- RE cannot be negative so anything < 0 past RE would be taken out of APIC.
Equity
What is purpose Quasi Reorganization?
Equity
A quasi-reorganization should not result in a write-up of net assets (eg, equity) and retained earnings must be zeroed out. Once the quasi-reorganization receives shareholder approval, readjustments are made.
- Generally, assets and liabilities are revalued to fair value, if required.
- The deficit in retained earnings is eliminated. (RE is negative, so you bringing it back down to zero) You do this by adjustment towards APIC.
- Paid-in capital (ie, par value and/or APIC) is adjusted, but not below zero.
Book Value Per Common Share
Equity
What is a Deferred Tax Liability?
Accounting for Income Tax
When future taxable income is more that the current taxable income amount. (aka, they took more expenses in the current year for tax purpose, therefore there will be more tax for the future)
Ex:
* You have an lower tax amt in current year due to increased in depreciation year 1. But in year 2, we would have a higher future Tax Income.
According to current generally accepted accounting principles, justification for the method of determining periodic deferred tax expense is based on the concept of
Accounting for Income Tax
Recognition of assets and liabilities.
What example is being shown based on the below excerpt? (to understand)
In its first four years of operations ending December 31, Year 4, Alder, Inc.’s depreciation for income tax purposes exceeded its depreciation for financial statement purposes by $145,000. This temporary difference was expected to reverse in Year 5, Year 6, and Year 7. The enacted tax rate is 30% for Year 4, and 35% for future years. Alder had no other temporary differences. In its December 31, Year 4, balance sheet, how should Alder report the deferred tax effect of this difference?
Accounting for Income Tax
There is definitely a deferred tax liability. Since more Tax Depreciation was taken in year 4, there would be more taxes in future years.
145,000 x 35% = 50,750.
On June 30, Year 1, Ank Corp. prepaid a $19,000 premium on an annual insurance policy. The premium payment was a tax-deductible expense in Ank’s Year 1 cash basis tax return. The accrual basis income statement will report a $9,500 insurance expense in Year 1 and Year 2.
Ank’s income tax rate is 30% in Year 1 and 25% thereafter. In Ank’s December 31, Year 1, balance sheet, what amount related to the insurance should be reported as a deferred income tax liability?
Accounting for Income Tax
24% x $9500 = $2,375
How do you find currentfederal income tax liability?
Determine taxable income x Current Enacted Tax Rate = Current tax Exp/Liab.
Less: Any Tax Prepayments
= Current Tax Liability
Taxable Inc = Pretax Inc - Permanent differences - Temp. Diff.
Permenant differences include:
