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Flashcards in MDS F2 Deck (15):

Add-subtract account for Accumulated Depr.

Beg. Accum. Depr.
Add: Depreciation expense
Less: Accum. depr on retirements/ sales
Ending Accum. Depr.


What is included in the cost of inventory or PPE?

The cost of buying the item
+ Getting it to where it needs to be
+ and getting it ready to use


Add-subtract formula for PPE

Beg. PPE
Add: Purchases
Less: Retirements/ sales
End. PPE


What are the criteria for a capital lease?
(hint: TOBPO75PV90)

a The lease transfers ownership of the property by the end of the lease term
b The lease contains a bargain purchase option
c The lease term is 75% or more of the estimated life of the leased property
d The present value of the minimum lease payments equal or exceeds 90% of the fair value of the leased property


Add-subtract formula for total asset

Beg. Total Assets
Add: Net Income
Add: Additional debt incurred
Subtract: Dividends declared
Subtract: Other adjustments directly to Retained Earnings
Ending Total Assets


Summarize a capital lease

Lessor Lessee
(Mortgage Co.) (Home Owner)

Balance Sheet Balance Sheet
Note Receivable Fixed Asset
Acc. Depreciation
Liab. - PV of Lease Paymt

Income Statement Income Statement
Interest Income Interest Expense
Depreciation Exp.


Summarize an operating lease

Lessor Lessee
(Landlord) (Tenant)

Balance Sheet Balance Sheet
Fixed Asset Prepaid Rent
Acc. Depreciation Rent Payable
Mortgage Liability
Rent Receivable
Rent collected in advance

Income Statement Income Statement
Lease Revenue (Rent) Lease Expense (Rent)
Depreciation Exp.
Interest Exp.


What are the solvency ratios?

a Working Capital = Current Assets - Current Liabilities
b Current Ratio = Current Assets/ Current Liab.
c Quick Ratio = (Cash + Mkt Securities + A/R)/ Current Liab.


When are compensated absences accrued?

a The employee has performed the services to which the vacation or sick pay is attributable
b The liability is vested or accumulated
c Payment is probable; and
d The amount can be reasonably estimated


What are lives of various intangible assets?

Intangible Asset Maximum Useful or Legal Life
Patents 20 yrs
Copyrights Life of creator + 70 yrs
Trademarks/ Indefinite - requires
Tradenames renewal every 20 yrs
Organiz. Costs Indefinite
Franchise Fees Contract Life
Purchased Goodwill Indefinite


Add-subtract account for Accts. Payable

Beg. A/P
Add: Credit Purchases
Less: Disbursements
End. A/P


How are contingent items accounted for?

a Remote Likelihood - Ignore.
Exception: Guarantees of debt should always be disclosed even in likelihood of default is remote
b Reasonably Possible Likelihood: Disclose in Footnote
c Probable Likelihood: Accrued if estimable and disclosed in footnote at either likely amount or low end of range


Why do bond sell at a premium?

The face rate of interest is greater than the effective rate of interest


How is the price of a bond determined?

Bond Selling Price =
PV of Face + PV of interest payments using effective rate of interest


Why do bonds sell at a discount?

The face rate of interest is less than the effective rate of interest