FAR Deck #1

Question 1

How is an asset accounted for in a Non-Monetary exchange with Commercial Substance?

Answer 1

Use the FV of the asset given up or received, whichever is more evident at time of exchange.

Question 2

Bond discount vs Bond premium

Answer 2

Discount = Stated Interest Rate < Market or Effective Rate
Premium = State Interest Rate > Market or Effective Rate

Question 3

What is the formula for interest expense and Interest payment for bonds?

Answer 3

Interest Expense = CV x Effective Interest Rate
Interest Payment = FV x Coupon Rate (usu same amort each period - straight line)

Question 4

What is the calculation for a CECL for Held to Maturity and Available for Sale?

Answer 4

HTM: PV-Amortized Cost (reported on IS)
AVS: First calculate G/L from the change in FMV - Amortized Cost. If Loss > ECL (PV-Amortized Cost) goes on IS, but any loss more than the ECL goes on OCI (Unrealized loss)

Question 5

How do you compute the Dollar Value LIFO inventory method?

Answer 5

Need estimate in change levels to calculate
Inventory is measured in $ and adjusted based on price index.
Price Index = CY cost ending inventory/Base Year cost ending inventory
Layer of base year cost X Price Index

Cy / I = B —> 1st L x I = Results
Cy / I = B —> 1st L - B = 2nd L —> (2nd L x I) + 1st L = Results

Question 6

Steps to record Debt Restructuring?

Answer 6

1) Recognize G/L on asset transferred - Asset is adjusted to FV (ordinary gain/loss recorded)
2) Recognize G/L on restructuring debt = Debt - FV of asset transferred

Question 7

What is the OWNES criteria for finance leases?

Answer 7

1) Ownership transfer
2) Written option to purchase
3) NPV >= 90%
4) Lease Term >=75% of Economic life
5) Equipment is Specialized

Question 8

What is used to calculate depreciation in a Finance Lease when a bargain purchase option is reasonably certain to exercise?

Answer 8

“Useful Life” of the asset rather than the lease period will be used to calculate depreciation

Question 9

What is recognized by the Lessor in a “Sales-Type Lease of an asset?”

Answer 9

FV - Cost is recognized as a gain or loss by the Lessor.
1) Derecognize the asset
2) Book the G/L
3) Book a Lease Receivable as payments are collected

Question 10

How is interest revenue recorded in a Sales-Type lease by the Lessor?

Answer 10

Selling price minus initial payments = First year balance. First year balance X interest rate (divide if period is in the middle of the year) = Interest revenue for the year

Question 11

What is the amortization calculation for Operating Lease?

Answer 11

Lease Expense (Straight-line) - Interest Expense (% x Asset) = Amortization of ROU Asset (book to reduce Asset and Liability)

ROU and Liability are reduced by the same amount

Question 12

What is the amortization calculation for Finance Lease?

Answer 12

Lease Expense = Interest Expense (% x Asset) + Amortization of ROU Asset (Asset/years of lease).

Lease Liability is reduced by Lease Expense (Straight-line) - Interest Expense.
ROU (accumulated amort) is reduced by Amortization of ROU Asset

Question 13

What is the JE for the Lessor in an operating lease?

Answer 13

DB Lease Receivable (total payments received)
CR Unearned Lease Rental Income
DB Cash (when 1st payment is received)
DB Unearned Lease Rental Income
DB Depreciation Expense (via original asset cost/ life)
CR Rental Income
CR Accumulated Depreciation
CR Lease Receivable

Question 14

What is the JE for the Leasee in an operating lease when first cash payment is recorded?

Answer 14

CR Cash (when 1st payment is received)
CR Amortization of ROU Asset
DB Lease Liability
DB Lease Expense

Question 15

How is the partnership bonus calculated under the Bonus Method?

Answer 15

“B” for Balance of existing partnership drives capital allocation
Total equity of new partnership = existing partnership balances + investment of new partner
New partnership % x Total equity of new partnership = NBV
Existing partners are credited if new partner pays > NBV
New partner is credited if new partner pays < NBV

Question 16

How is the partnership bonus calculated under the GW Method?

Answer 16

“G” for “Going in investment” drives capital allocation
The new partners contribution is multiplied by the partners ratio to create an implied value. GW is calculated by subtracting the implied value minus total partners capital accounts. The GW is then allocated to existing partners balance based on their % share. (Ex. Take total net assets divide by partners and if one partner is short, that difference would be GW to his contributing capital)

Question 17

How do you calculate the “reporting sufficiency” test?

Answer 17

The “reporting sufficiency” test requires that all reportable segments (looking at external sales only) have at least 75% of the total external sales of the entire entity. If below threshold after adding up all segments from the “size” test, then select next highest reportable segment to add.

Question 18

What are the key criteria for Relevance (Qualitative Characteristics that are useful)

Answer 18

Passing Confirms Money = PCM = Predictive, Confirmatory, Materiality

Question 19

Units of production Depreciation?

Answer 19

Cost-SV / Est hours or units = RATE
Rate x # of units produced (or hours worked) = Depreciation Expense

Question 20

Sum of Year’s Digits Depreciation?

Answer 20

Remaining life of asset / sum of years digits x (Cost - SV)