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CPA > FAR5 > Flashcards

FAR5 Flashcards

1
Q

Ordinary Annuity (in arrears)

A

of payments is equal to the number of interest periods (start at end of year)

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2
Q

Annuity Due

A

of interest periods is one less than the number of payments (start at beg. of year)

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3
Q

Present Value of $1

A

Amount that must be invested now at a specific interest rate so that $1 can be paid or received in future
(capital lease buyout, bond principal payoff @ end of lease/term)

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4
Q

Future Value of $1

A

Compound interest (bank savings account)

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5
Q

Guaranteed residual value

A

An additional lease payment

Must be included in the calculation of the present value of the minimum lease payments

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6
Q

Annual rental revenue

A

= the total rental revenue from the lease allocated over the full life of the lease
(subtract out free rent first)

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7
Q

Initial direct costs, IFRS

A

(added) + the finance lease asset at lease inception

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8
Q

Amortization of leasehold improvements

A

Amortized over the life of the improvements or the remaining life of the lease, whichever is shorter

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9
Q

Sales-type lease, COGS relationship to historical cost

A

By definition, cost of goods sold will be less than the historical cost of the asset sold

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10
Q

Interest expense, recognized

A

For the entire period from bond issuance through the fiscal year end

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11
Q

Capital Lease, Lessee (GAAP)

A

Must meet just one condition to capitalize

  • Ownership transfers at end of lease
  • Written option for bargain purchase
  • Ninety (90%) percent of leased property FV is less than or equal to PV of lease payments
  • Seventy-five (75%) percent or more of asset economic life is being committed in lease term
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12
Q

Finance Lease, Lessee (IFRS)

A 
O - Ownership transfer
W - Written bargain purchase option
E - Major part of economic life
S - PV of lease payments substantially all of FV
F - Gains and losses from the fluctuation in FV
A - Ability to continue the lease
C - Lessee can cancel the lease
S - Specialized nature
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13
Q

Sales-Type/Direct Financing Type, Lessor (GAAP)

A

Meets all three conditions: (LUC)

L - Lessee owns the leased property
U - Uncertainties do not exist regarding any unreimbursable costs to be incurred by the lessor
C - Collectability of the lease payments is reasonably predictable

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14
Q

Sales-Type Lease Profits

A

Gain on Sale and Interest income

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15
Q

Direct Financing Lease Profits

A

Gain only Interest income

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16
Q

Capital (Finance) Lease, Capitalized Amount - Lessee (buyer)

A

Lesser of: (cost or market)
FV of the asset at the inception of the lease OR cost = PV of the minimum lease payments

Include: required payments, bargain purchase option, guaranteed residual value
Exclude: Executory costs, optional buyout

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17
Q

Recording the Lease, interest rate

A

Lessor of:
Implicit interest rate
OR incremental borrowing rate

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18
Q

Depreciation Method of the asset

A

Capitalized lease assets - salvage value
= Depreciable Basis/Period of benefit
= Depreciation Expense (per period)

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19
Q

Period of Benefit (Depreciable Life) GAAP

A

Ownership Transfer and Written Bargain
= estimated economic life of the asset

90% FV and 75% Life
= Lessee uses the lease term

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20
Q

Period of Benefit (Depreciable Life) IFRS

A

The depreciation period is the SHORTER of the lease term and the useful life of the asset

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21
Q

Lessee’s F/S Disclosures of Leases

A

Disclose everything (the more the better)

Capital Lease: future min. lease payments and for each of the next five years
Operating Lease: min. future rental payments in total, and for each of next five years

22
Q

Gross Investment, Lessor

A

Lease payment + unguaranteed residual value

23
Q

Net Investment, Lessor

A

Lease payment + unguaranteed residual value
= Gross investment x PV
= Net Investment (net principal)

24
Q

Unearned Interest Revenue, Lessor

A

Gross investment - net investment

= future interest

25
Q

COGS, Lessor

A

Cost of asset - PV unguaranteed residual value

= Net given up

26
Q

Sale-Leaseback

A

General Rule:
Over 90% = Loan (defer all gains and amortize)

10% - 90% = Defer up to PV of min leaseback payments or capitalized asset, gain in excess recognize immediately

0% - 10% = Recognize gain or loss immediately

27
Q

Real Economic Loss

A

Recognize immediately (FV is less than BV)

28
Q

Amortization of Deferred Gain

A

Capital leaseback = over asset life

Operating leaseback = over lease life

29
Q

Sublease Classification

A

If original lease is an operating lease then sublease is an operating lease

If original lease is an capital lease then either:
Due to ownership transfer or written bargain it is a capital lease

Due to 90% FV or 75% of life then operating lease

30
Q

Bonds’ carrying amount, Discount - YR2

A

Ending carrying amount of the bond is equal to the beginning carrying amount PLUS discount amortized during the current period.

31
Q

Convertible debt securities

A

An interest rate that is lower than nonconvertible debt, issuance price is allocated to bonds with no recognition of the conversion feature is because it is difficult to assign a specific value to

32
Q

Discount amortization

A

Will increase interest expense for the period so that interest expense > interest payment to bondholders

33
Q

Convertible debt under IFRS

A

An equity component should be recognized upon issuance equal to the difference between the proceeds received and the fair value of the bond liability

34
Q

Effective interest method of amortization is used for bonds issued at a premium, the amount of interest payable for an interest period is calculated

A

Face value of the bonds at the beginning of the period by the contractual interest rate

35
Q

Serial Bonds

A

Mature in installments, redeemed pro-rata over the life of the issue

36
Q

Debenture Bonds

A

Unsecured bonds

37
Q

Detachable Warrants

A

Bond is not surrendered upon conversion, only the warrants plus cash representing the exercise price of the warrants

38
Q

Term Bonds

A

A single fixed maturity date (entire principal is paid at the end of the term/period)

39
Q

Bonds issued at a Discount

A

Low interest rate: (debited on first JE)

stated/issued rate

40
Q

Bonds issued at a Premium

A

High interest rate: (credited on first JE)

stated/issued rate > market (effective) rate

41
Q

Unamortized Discount

A

Contra account to bonds payable, presented on B/S as a direct reduction from the face value of the bonds to arrive at the bond’s carrying value (SUBTRACT)

42
Q

Unamortized Premium

A

Presented on B.S as a direct addition to the face value of the bonds to arrive at the bond’s carrying value (ADD)

43
Q

Bond Issuance Costs

A

Presented on B/S as a direct reduction to the carrying amount of the bond

When bonds are issued, the bond proceeds are recorded net of the bond issuance costs

Amortized as interest expense over the life of the bond using the effective interest method

44
Q

Interest Expense, Straight Line Method

A

(face value x stated interest rate) - Premium amortization

(face value x stated interest rate) + Discount amortization and bond issuance cost amortization

45
Q

Interest Expense, Effective Interest Method

A

Carrying value at the beginning of the period x effective interest rate (I/S)

46
Q

Interest Paid, Effective Interest Method

A

B/S: Bond face x coupon rate

47
Q

Amortization, Effective Interest Method

A

Premium: Interest paid (I/S) + Interest expense
Discount: Interest expense (B/S) - Interest paid

48
Q

Bond Sinking Funds

A

Generally a non-current asset

current asset only to the extent that it offsets a current liability

49
Q

Convertible Bonds, Book Value method

A

No gain or loss is recognized, Bonds payable and related premium or discount is written off and common stock is credited (at par) and APIC is credited for the excess of the bond’s carrying value over the stock’s par value less any conversion costs

50
Q

Convertible Bonds, Market Value method

A

Non-GAAP, recognize gain or loss (I/S impact)

51
Q

Extinguishment of Debt (gain or loss)

A

(Gain) or loss = reacquisition price - net carrying amount

net carrying amount of the bond is the carrying value + unamortized premium OR - unamortized discount - unamortized bond issuance costs

CPA (11 decks)

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