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Flashcards in Test 2 Deck (45):
1

What do you associate an interest swap with

Think of a loan from a bank, you pay interest to them and also are involved with a counter party

2

How would you set up an interest swap table

Rate
Floating Rate
1. Fixed PMT (Rate x Prin.)
2. -Floating PMT (Floating Rate x Prin)
3. =net increased receipts
NPV(floating rate x future cash pmts) =#
Principle - # = Gain/loss on FMV

3

What are the JE's for interest rate swaps

Issuance: D: Cash C: NP
Interest: D: Interest Expense C: Cash (#1)
AND
D: Interest Exp C: Cash (#3)
FV Adjustments:
D: NP C: Holding Gain
AND
D: Holding Loss C: Interest Rate Swap

4

What do you do after the first year of an interest rate swap

same steps but the FV will be based off an updated value and the new floating rate

5

What're the two steps to finding impairment of PPE,finite life Intangibles

1. Sum of undiscounted cash flows < Book value means there is an impairment. If not met, there is nothing
2. Do BV-FV

6

How do you go about impairment under IFRS

You just compare BV to the higher of the PV or (FV-cost to sell)
aka
BV-(Higher of PV OR FV- Costs to sell)

7

How do you find impairment of an indefinite life intangible

One step: BV-Estimated FV

8

Goodwill is only recognized for impairment when you buy what portion of a company

the whole damn thing

9

How do you find impairment for goodwill

First is FV less than BV? if so....
Impairment= BV - Implied value of goodwill

10

What does simple capital structure mean

doesnt have potential shares, either has commons stock or non-convertible preferred stock

11

complex capital structure means

they have at least one convertible share option

12

Stock splits and stock dividends do what

can change the # of shares outstanding because they are RETROACTIVE (apply as if they were there all year)

13

Basic EPS equation

(Net income-pref. div.) / Weighted #(MULTIPLY BY MONTHS) of shares outstanding

14

Incremental shares equation (what to add to the denominator of diluted)

Assumed shares x ((Market price per share - Excersised price per share) / Market price per share))

15

Dealign with Diluted, how do you go about doing the impact and what do you do with that number

Divide:
1. Principle x rate ($120,000 bond x 8.3%)=Interest
Interest * (1-tax rate)
BY:
2. Shares Completed ($120,000/$100 per share)*split of 6 per share

That gives you impact. Rank from lowest from highest. Starting with lowest, add 1 and 2 to the numerator and denominator of EPS equation to find Diluted EPS

16

Dilutive convertible bonds affect both the numerator and the denominator in computing diluted
EPS.

True

17

Basic earnings per share ignores:

All potential common shares.

18

When several types of potential common shares exist, the one that enters the computation of
diluted EPS first is the one with the:

Lowest incremental effect.

19

Which of the following results in increasing basic earnings per share?

purchasing treasury stock

20

Equation for dilutive EPS

Principle x rate (100,000. 5% bond)=Interest
Interest *(1-taxrate)=Interest costs added to numerator

Denomiator: Add the result of multiplying bonds by # of shares it converts into

21

When a companys only potential common shares are convertible bonds:

Diluted EPS will be the same whether or not the bonds are converted.

22

When we take into account the dilutive effect of stock options, rights, and warrants in the
calculation of EPS, the method used is called the:

Treasury Stock Method

23

All other things equal, what is the effect on earnings per share when a corporation acquires
shares of its own stock on the open market?

Increase

24

Even if it says the preferred dividends weren't paid or declared do you stilll subtract from the numerator?

Heck YES!

25

It's a finance lease for the lessor if one of the following of

BOSAMPS is followed
B-BPO
O-Ownership Transfer
S A-Substancially All (90%) of assets fair value
M P- Major Part (75%) of the economic life
S- Specialized in nature

26

If it doesn't follow BOSAMPS what is it

Operating Lease

27

If it doesnt fall under Financing or operating it is

Either Sales type with/without profit

28

Lessee (Current User) Entries (Finance Lease)

Acquisiton: D: ROUA C: Lease Pay.
First Pay: D: LP C: Cash
Second: D: LP D: Int. Exp C: Cash
Amortize: D: Amort Exp C: Right of Use Asset
etc...

29

If its an operating lease what changes on the Lessor Side of things

They record a credit to Deferred Rent rev in the initial entry and then record rent revenue and depreciation as time goes on

30

Components of AnnualPension Expense

SIR AGE

31

What is SIR AGE

Service Cost for the Year
+Interest on liability
-Return on assets
+Amortization of prior service cost
+/-: Gain/Loss
=Expense

32

JE Operating Lease for the Lessor

1/1: D: Cash C: Def. Rent Rev.
12/31: D: Def. Rent Rev. C: Rent Rev
D: Cash C: Rent rev
D: Dep Exp.. C: A/D

33

JE Operating lease for the lessee

1/1 D: ROUA C: LP
D: LP C: Cash
12/31:
D: LP
D: Int Exp
C: Cash

D: Amort Exp C: ROUA

34

Long term contract under revenue recognition over time: how do you find the Revenue and the Gross Profit

First Find the % complete: Cost incurred during the year (add the cost incurred during for each following year) / First Year cost incurred + Estimated costs to complete as of year end...Each time you go through this, add the most recent estimated cost to complete figure. But do not include the initial estimate amount

Multiply this % by the actual total contract price... This number is your revenue.

IF first year subtract the costs incurred to get gross profit
IF NOT first year, Subtract the revenue by the cumulative revenue and then subtract that by the year's cost incurred.

35

Journal Entries for Long term contracts

Initial: D: Construction in progress C: Various Accounts
Billings: D: AR C: Billings on contract
Collection: D: Cash C: AR
Gross profit:D: Construction in progress(GP) D: Cost of construction(Current year cost) C: Revenue

36

What account is construction in process? What does it lppk like on the BS

Its a current asset (inventory)
Less: Billings
If billing are more than the construction in progress it creates a liability

37

When do you record a gain/loss in respects to interest rate swaps

Record a Gain first and then a holding loss if Floating>Fixed
Record a loss first and then a gain if Fixed>FLoating

38

How do you deal with premiums or discounts with respect to diluted EPS/impact

For Premium and discount: (what it was sold for - face value)/life being amortized
Take that number and if PREMIUM SUBTRACT, IF DISCOUNT ADD to the first step and then multiply by (1-tax rate)

39

If a project doesnt qualify for revenue recognition over time what do you do

the revenue and costs will be recognized in the last year (lets say 2020) so you would add up all the costs incurred during the year, report the revenue of the contract(can't exceed stated price) and would plug for construction in progress.

40

What increases PBO?

Service Cost, Interest Cost,

41

What increases Plan assets

Contributions and return on plan assets

42

Amortization decreases what aspect of pension

OCI PSC

43

Preferred dividends are subtracted from earnings when computing basic earnings per share
whether or not the dividends are declared or paid if the preferred stock is:

Cumulative

44

For an opperating lease, how do you find amoritzation

take the years interest payment and subtract it from the Cash paid

45

FOr a finance lease how do you find amoritzation

straight line basis of its life