FAR Unit 5

When should warranty costs be recognized?

At the point of sale, the warranty costs are probable, estimable and must be recognized

Bond liability is shown on the balance sheet as what?

net of unamortized cost

All deferred tax liabilities are classified as what?

non-current liabilities

Bonds or notes due with one year are shown as ___ and must be ____ if the issuer has the intent and ability to refinance with a new issuance of long term debt

noncurrent and separately disclosed

Trade notes and accounts receivable with customary trade terms ___ exceeding one year may be recorded at face amount.

not

Noninterest bearing notes payable are reported at the...

present value of future cash flows

A non-interest bearing note should be recorded at its present value calculated using prevailing market rate, then should be to find interest on the note what is used?

the market interest rate times the PV of the note

Carrying amount - ___ = gain

total future cash payments

the present value of annuity due of $1

used to calculate the value today of a series of equal future amounts at the beginning of the period (annuities)

The present value of ordinary annuity of $1

used to calculate the value today of a series of equal future amounts at the end of the period (annuities)

Vacation expense is recorded to reflect the amount of vacation earned for a given period, regardless ...?

whether it was taken or not

When are financial instruments considered liabilites?

Financial instruments in the form of shares that are mandatorily redeemable and represent an unconditional obligation of the issuer to satisfy the obligation by transferring assets at a specified date are presented as liabilities and not equity according to U.S. GAAP.

A troubled debt restructuring exists when a creditor does what?

Grants a concession to a debtor that it would otherwise not consider for economic or legal reasons

When exchanging land with carrying amount and FV for to relieve a payable with a higher carrying amount then both, what happens?

In a troubled debt restructuring, if the debtor achieves full settlement of the debt by transferring assets having a fair market value that is less than the amount of the debt, a gain is recognized for the difference between the carrying value of the payable at the date of transfer and the fair market value of the asset at the date of the transfer.

What is generally included and left out of accrued compensated absences?

Includes vacation pay but not sick pay

If maturity date is less than one year, how is imputed interest rate calculated

It is not calculated, as its just the face amount of the note

When asking for amount of bonds payable net discount on issuance date, what does it amount to?

It would be the issue price since bond payable less discount credited is the issue price

serial bonds

are pre-numbered bonds that the issuer may call and redeem a portion by serial number and issued with scheduled maturities at different dates

When purchasing a note with required eight future payments and the first payment is made on the date of the issuance, how is it recorded?

at the PV of $1 at 7 periods. You take the 8 times the note amount to get the face value the subtract the first payment to get the new face amount at 7 periods

interest expense =

carrying value at beginning of period * effective periodic interest rate

The unearned revenue of redeemable merchandise coupons should be recorded at?

coupon sales price or cash received amount

debenture bonds

Bonds that are unsecured (i.e., not backed by any collateral such as equipment).

A liability is recognized for exit or disposal activities when?

1. An obligating event has occurred 2. The event results in a present obligation to transfer assets or to provide services in the future 3. The entity has little or no discretion to avoid the future transfer of assets providing of services

Employee's compensation rule:

1. Services have already been rendered 2. The obligation relates to vested or accumulated rights 3. The amount can be reasonably estimated 4. Payment is probable

Imputed interest on a non-interest bearing note receivable, will result in the recognition of what?

A discount

When a loan is impaired and foreclosure is not probable, the creditor may measure impairment based on?

A loan's observable market price or the FV of the collateral if the loan is collateral dependent

Upon initial recognition of an ARO, how should we capitalize the ARC?

Capitalize the asset retirement cost by increasing the carrying amount of the related asset

If equity securities have been issued to pay off short term liability, what do account do we credit once we debit short term liability to reduce it?

Long term liability not common stock or securities

Are periodic interest payments and/or collateral generally associated with accounts payable?

No and No. A liability that is associated with interest should be classified as accrued liability or debt

The likelihood of a loss is reasonably possible during a lawsuit, should it be recognize?

No, but the amount must be disclosed in the notes.

How do we calculate the loss on disposal of land?

Original cost of land less FMV land transferred upon default (note less principal payments made)

A debtor is relieved of its obligation to the creditor only by?

Paying the creditor or being released of the debt judicially or by the creditor

Matching Principle (Expense Recognition)

Prescribes expenses to be reported in the same period as the revenues that were earned as a result of the expenses.

If a company incurs a $3.5 mil loss before FS statements are released but has a $500,000 deductible, what amount is recognized in Yr 1 FS statement?

The loss of 3.5 because the insurance proceeds would be treated as a gain contingency and not recorded until received

Vacation pay and sick pay accrue when?

Vacation pay accrues when it is vested or accum and sick pay accrues when it is vested

You have a note payable that is due in four months from year-end Dec 31, Yr 1, and expect to sell 100,000 shares to retire the debt a few days before it is due. Can we take some of the current asset off based on the ability to sell our shares at market price?

Yes, say market price when sold was $15 you can take off 1,500,000

what bond issuance costs should be amortized over the outstanding term of the bond?

all costs associated with the issuance of the bond

Accrued interest payable minus interest expense or vice versa gets you what?

amortization for the period

stated interest

amount stated on the bond divided first cash payment

term bonds

bonds that all mature at the same time

Interest payable on a bond is calculated by how?

by taking the face value of the bond at the beginning of the period and multiplying this amount by the contractual or stated rate

Bond issuance costs are calculated how?

deducted from the carrying value of the liability and included in the debit entry to bond discount upon issuance

"guarantee-type" remote loss contingencies require...

disclosure

When warrants are detachable from bonds, the issue price of the bonds and warrants together should be allocated based on what?

each components fair value

Trade notes and receivables with customary trade terms not exceeding one year are recorded at?

face amount

The market value of a bond issued at discount (or premium) is the present value of two cash flows, which include?

he present value of the principal amount plus the present value of interest payments both at effective market rate

Imputed interest on non-interest bearing note is recorded as?

interest expense

Interest expense on a bond payable is the combination of what?

interest paid and the amortization of either the discount or premium of the bond

Any change in the value of the decommissioning liability after the property has been fully depreciated will be?

recognized in profit or loss

If a company refinances its short term liability prior to issuance of F/S, what must happen?

record it as a long term liability

How should a contingent liability be recorded if it is probable but not reasonably estimated?

should be disclosed only in the notes

When calculating for accrued interest on a bond that is issued two months after its start date, what would you do?

take face-value times stated interest rate then, divided by semi-annually or quarterly if necessary, times the two months that interest has already been expensed

Discount or premium on the sale of bonds as well as the bond issuance costs are included in?, as well as the bond issuance costs,

the carrying value of the bond

If the terms of a deferred compensation arrangement attribute all or a portion of expected future benefits to a period of service greater than one year, what should happen?

the cost of benefits should be recognized over that required period of service

bond will sell at a premium when?

the coupon rate is greater than the effective rate

When assets are transferred in troubled debt restructuring, the asset is adjusted to fair value and how is gain or loss recorded?

the difference between the debt and fair value of the asset transferred

The correct presentation to show a note payable in exchange for services rendered that has a FV below the note payable is through?

the face amount less a discount on the liability itself at the imputed interest rate

accretion expense

the increase in an asset retirement obligation due to the passage of time that accrues as an operating expense.

In the event only a range of the loss is known, what amount is recorded?

the minimum amount of the range

If the there is a range of probable losses what should be the recorded loss?

the minimum amount of the range if all are equally reasonably estimated

What reduces the liability owed in a notes payable?

the principal

The bond issue price is determined by calculating the

the sum of the present values of the maturity value and interest payment annuity

the present value of $1

the value today of $1 to be received or paid at some future date, given a specified interest rate