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CPA FAR > Liabilities > Flashcards

Liabilities Flashcards

1
Q

Definite liabilities

A

Due at balance sheet date, current and non interest baring

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2
Q

Contingent liabilities

A

May not be due at balance sheet date

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3
Q

Current liabilities

A

will be exchanged for current asset or new current liabilities.

liquidity will go down in the current year

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4
Q

Noncurrent

A

PV of all future cash flows

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5
Q

Bond Amortization table

A 
Date 
Int PD 
Int Exp  
Disc/amo 
Undisc/am  
Carry value
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6
Q

Journal Entries - Bond @ Disc

A

Debit Cash
Debit Bond Discount
Credit Bonds Payable

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7
Q

Journal Entries - Bond @ Premium

A

Debit Cash
Credit Bond Premium
Credit Bonds Payable

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8
Q

Journal entry for periodic interest bond @ disc

A

Debit Interest Expense
Credit Bond discount
Credit Cash

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9
Q

Journal for periodic int bond @ premium

A

Debit Interest Expense
Debit Bond premium
Credit Intrest Payable

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10
Q

Debenture bonds

A

unsecured bonds

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11
Q

Bond issue costs

A

legal, printing & promotional

capitalized as a non-current, deferred charge

Amortized over the life of the bond using SL method

Not netted against accrued interest

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12
Q

Net cash receipts on bond issuance

A

Total cash received plus accrued interest minus cost of issuance

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13
Q

Interest payable

A

Interest accrued since last pay date

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14
Q

Interest expense

A

Interest for entire period, include amortization or discount

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15
Q

Net cash receipts on bond issuance

A

Total cash received plus accrued interest minus cost of issuance

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16
Q

Convertible bonds book value method

A

transfer bond account balances to stock accounts - no gain or loss recorded

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17
Q

Convertible bonds market value method

A

At conversion - credit stock accounts for market value of stock or bonds. Close out bond account balances and record gain or loss to recognize the difference.

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18
Q

Warrants

A

1) Separate accrued interest fro proceeds
2) Allocate total bond price to bonds and warrants - before discount or premium
3) Record allocation of warrants in Owner’s Equity

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19
Q

Warrants issued with bonds impact on OE

A

Owners Equity is increased by the market value (or inferred market value) of the warrants

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20
Q

“In computing the gain or loss on the above bond retirement, the price paid for the bonds is compared to which of the following values?”

A

This question refers to the computation of the gain or loss.”In computing the gain or loss on the above bond retirement, the price paid for the bonds is compared to which of the following values?” This question refers to the computation of the gain or loss.

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21
Q

bond retirement questions,

A

you’re computing based on the time remaining on the bond. You may also need to do a fractional retirement.

22
Q

Bond retirement

A

The gain is the difference between (1) the net bond liability less the unamortized bond issue costs and (2) the amount paid to retire the bonds:

23
Q

Retire Bond with remaining unamortized premium at less than par

A

Gain

24
Q

Retire bond with remaining discount at less than par

A

Loss

25
Q

Retire bond with remaining unamortized premium at more than par

A

Loss

26
Q

Retire bond with remaining discount at more than par

A

Gain

27
Q

Bond Retirement Questions Steps

A

compute book value = par + unamortized premium/-remaining discount - remaining issue cost -
If it’s a fractional retirement - remember to only computer the book value for the portion retired, and only utilize premium/discount and issue cost for the portion retired. You’ll need to also utilize the remaining term.

28
Q

How do you calculate the loss on the early retirement of bonds?

A

Cash paid - book value +unamorized bond issue costs

29
Q

How do you calculate the gain on the early retirement of bonds?

A

Book value - cash paid - unamorized bond issue costs

30
Q

Journal entry for bond in early retirement

A

Debit Interest expense
Recognize remaining discount/premium
Recognize unamortized issue costs

31
Q

Given the interest rate, bond face value, market interest PV factor and initial interest PV factor - calculate the net bond liability for a given future year.

A

(Bond face value + remaining interest payments)*PV mkt interest = bond liability for given year

32
Q

Debt Restructuring - settlement debtor

A

carry value of assets - mkt value of assets = difference is gain or loss on disposal

mkt value of assets - carry value of debt = difference is gain or loss on restructuring

33
Q

Debt Restructuring - settlement creditor

A

carry value of investment - mkt value of investment = loss on restructure

34
Q

Debt Restructure - modification of terms type 1 (sum<BV)

A

debtor gain = bv - sum of restructure

No interest recognized from new loan - because debtor pays less in total for the entire loan

35
Q

Debt Restructure - modification of terms type 2 (sum>BV)

A

creditor records loan impairment, but debtor doesn’t recognize gain.

36
Q

Debt restructure problem solving steps

A

1) Cacl BV of debt
2) determine if type 1 or type 2
3) calc total payments and compare to book value
4) determine journal entries

37
Q

Debt Restructure - modification of terms type 2 (sum>BV)

A

Must compute new implied interest rate to determine if it is a TDR. If less than original, yes. No gain recognized. BV remains unchanged and the difference between BV and the agreed value is the interest for the term.

38
Q

Debt Restructure - modification of terms type 2 (sum>BV)

Journal Entries

A

Debit Note Payable
Debit Interest payable
Credit new notes payable

at year end
Interest Expense
Notes payable reduction
Credit cash for payment

next year
Cr Int expense
Cr Notes Payable
Db Cash

39
Q

Troubled Debt Restructuring

IFRS differences

A

Significant = (PV of New Debt) - (PV of Old debt) >= 10%

Insignificant = <10%

40
Q

TDR implied rate of interest calculation

A

BV = payment(PV of $1 for 3 years at i%)

solve for i and compare to given PV of $1 %

41
Q

Payroll J/E

A 
Db Salary Exp
Db Payroll Exp (see payroll exp)
   Cr Inc. Tax payable
   Cr FICA payable
   Cr. Medicare payable
   Cr. health ins payable
   Cr union dues payable
   Cr Cash (net pay)
42
Q

Payroll Exp J/E

A 
Db Payroll Exp
  Cr FICA tax payable
  Cr Medicare tax payabe
  Cr FUTA payable
  Cr SUTA payable
43
Q

Bonus Calc - Bonus after tax and bonus

A 
B = b%(Inc - T - B)
T = t%(Inc-B)
B = b% (Inc - (t%(Inc-B))-B)

Remember neg X neg = pos

44
Q

Bonsu Calc - Bons after tax before bonus

A 
B = b% (Inc-T)
T = t% (Inc-B)
B = b% (Inc - (t%(Inc-B)))
45
Q

Sales Tax J/E

A

Db Cash
Cr Sales
Cr Sales Tax payable

46
Q

Payroll liabilities

A

gross pay + fringe

47
Q

Net Pay

A

gross - inc. tax - FICA - med - health ins - union dues

48
Q

FICA and Medicare

A

Both EE and ER - same rate

49
Q

FUTA & SUTA

A

ER only

50
Q

FICA & Medicare liability calc notes

A

Since the firm must withhold it’s own FICA & Med plus the ees, both of these amounts are multiplied by 2 when calculating liability.

CPA FAR (20 decks)

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