FAR

On January 1, Year 1, XYZ Inc. purchased a call option contract on the stock of ABC Company that gives XYZ the right to purchase 1,000 shares of ABC Company stock at $50 per share anytime in the next 60 days. XYZ paid a premium of $1/share to enter into the option. XYZ exercised the option on February 6, Year 1, when the ABC stock is selling for $60 per share. Enter the appropriate amounts into the associated cells. what is the notional amount?

1000 shares of ABC stock the notional is what you use to calculate the gain or loss

PDX Corp acquired 100% of the outstanding common stock of Sea Corp in an acq. The cost of the acq exceeded the fair vale of the identifiable assets and liabilities. The general guidelines for assigning amounts to the inventories acquired provide for a) finisheg goods to be valued at estimated selling prices less both costs of disposal and a reasonable profit allowance b) raw materials to be valued at original cost c) finished goods to be valued at replacement cost d) wip to be valued at the estimated selling prices of finished goods, less both costs to complete and costs of disposal

A. the fair value of finished goods and merchandise inventory are based upon selling price less disposal costs and a reasonable profit allowance

How is an ARO initially measured?

At fair value (present value of future obligation) as an asset (asset retirement cost) and a liability (asset retirement obligation). discounted value of the lib increases the value of the asset

can there be a loss when an asset is transferred as part of a troubled debt restructuring agreement?

No, never a loss

if the fv of an available for sale security exceeds amortized cost, where is the effect reported

OCI

which of the following is not considered a derivative financial instrument? interest rate swaps stock index options currency futures bank certificates of deposit

a bank certificate of deposit is not a derivate financial instrument. Derivatives includes options,, futures, forwards, and swaps.

a derivative financial instrument is best described as

a contract that has its settlement value tied to an underlying notional amount

how is a note with recourse treated

a note endorsed with recourse means the endorser is liable if the maker of the note does not pay. This should be disclosed.

Name 5 examples of bond issuance costs.

accounting fees, legal fees, engraving and printing, underwriter's commissions, and promtion costs

a method of estimating uncollectible accounts that emphasizes asset valaution rather than income measurement is the allowance based on? gross sales direct write off aging the recs credit sales less returns and allowances

aging the recs. estimating bad debts on the aging analysis of ar balances focuses on the balance sheet and emphasizes the valuation of assets. It results in a good matching of rev and exp

purchase price or face value is same as

amortized cost, thus the expected credit loss is equal to the present value pf expected cash flows and amortized cost.

On October 31st year 1, the co purchased 1000 shares of equity securities at $50 per share. The fair value of the securities at year end is $75 per hare. Management intends to hold these securities until such time as proceeds from the sale are needed for operations, which is not expected to be in the near future. What is the classification?

an equity security includes ownership in another company's stock. $75000, noncurrent. Fv is a requirement, but note that it is an option for nootes receivable and notes payable. TRADING, AVAILABLE FOR SALE AND HELD TO MATURITY DESIGNATIONS ONLY EXIST WITH DEBT SECURITIES.. SO ANYTIME YOU SEE SHARES WERE PURCHASED, IT IS AN EQUITY SECUIRTY THAT NEEDS TO BE REPORTED AT FAIR VALUE!.

the determination of the value or settlement of a derivative involves a calculation which uses

an underlying and notional amount ie number of shares of stock (notional) times a price per share (underlying) would give the value or settlement amount of a derivative with those elements

the market price of a bond issued at premium is equal to the pv of its principal amount

and the pv of its future interest payments, at the market (effective) rate

serial bond maturity dates

are scheduled at various date

dividends received for less than 20% ownership are reported

as dividend income

how is interest payable calculated

based on the actual cash paid, which is based on the stated or coupon or contractual rate

how is interest expense calculated

based on the market rate or effective rate if there are bond issuance costs

how do you calculate lease expense in an operating lease when the payments fluctuate? for instance the total payments for each year are 1 36k 2 54k 3 72k 4 72k

because expense must be reported n a straight line basis, the average lease rate must be computed when lease rate fluctuate and reduced costs are given as incentives. So add your payment together, which in this case = $34000 and divide it by the term of the lease, 4 years, which is $58500 and divide it by 12 to get monthly lease expense, which is $4, 875

On October 1st year 1, Mild CO, a US company, purchased machinery from Grund, a German company, with payment due on April 1, year 2. If Mild's year 1 operating income included no foreign exchange transaction gain or loss then the transaction could have

been dominated in the US TRANSACTIONS ARE ON THE IS, TRANSLATIONS ARE ON OCI

for troubled debt restructuirng involving only a modification of terms, which of the following items specified by the new terms would be compared to the carrying amount of the debt to determine if the debtor should report a gain on restructuring?

carrying amount - total future cash payments

when an asset is transferred in a troubled debt restructuring agreement, how is the gain calculated?

carrying amount of lability less fair value of debt transferred

a 15 year bond was issued in year 1 at a discount. during year 11, a 10 yr bond was issued at face amount with the proceeds used to retire the 15 year bonds at its face amount. The net effect of tje year11 bond transactions was to increase long term libs by the excess of the 10 year bond's face amount over the 15 yr bond's...

carrying value because it is not shown as face value on the bs

how do you calculate the gain in a troubled debt restructuring?

carrying value of liability less fair value of asset transferred

what is the underlying concept governing the GAAP pertaining to recording gain contingencies?

conservatism = anticipate all losses but not gains

a county assessment for sewer lines

cost of land

what is the entry for the lessor at lease incpetion

debit lease receivable (payment amount * number of periods) and cr unearned rental income

How is a discount on a notes payable presented on the balance sheet?

direct reduction from the face amount of the note

for receivables and payables that do not exceed one year

do not impute interest; the note will be recorded at the face

no hedge designation derivatives (speculative) g/ls are reported where?

earnings

what value is assigned to detachable warrants

fair value

what amount are available for sale debt securities reported at?

fair value, held to maturity is amortized cost.

interest accrued is

from the last date interest was paid to the date of issuance

how to calculate total accretion expense

future estimated cost - pv of lib

A $100k government bond was purchased on july1, year 1 due two years from the bs date, when the cash will be used for expansion. The company paid face value for the bond and interest is payable annually on December 31st.What is the classification?

held to maturity, reported at $100k, and noncurrent. A debt security is any security representing a creditor relationship with an entity. The gov bond that the corp purchased is classified as htm becaus they intend to hold it until maturity and use it to pay for expansion. HTM securities are reported at amortized cost. Note: it is possible that the bonds would be classified as available for sale if they did not intend to hold it until maturity.

under remeasurement method, if assets, such as fixed assets and inventory were purchased, they are reported at the __________ as well as their corresponding expenses (depreciation and COGS)

historical cost

in a debt restructuring arrangement, what do you do with interest that is forgiven?

ignore it

how is goodwill treated under equity method?

ignored. Neither amortized or tested for impairment.

each year, the accretion expense will

increase because it needs to get to the estimated future cost of liability. Plus, when calculating the current year accretion, you add the prior year interest to the liability and multiply it by the interest rate

derivative instruments allow net settlements

instead of delivering actual shares, the writer can settle the contract by paying cash, as an example

the loss on the income statement for held to maturity

is equal to the full loss calculated by subtracting the difference between amortized cost and present value. You do not need to compare the difference between fair value and amortized cost; and none of the loss is reported in OCI

any change is the value of a liability after the property has been fully dperepciated

is recognized in profit or loss

redemption price

is the cash paid to redeem the bond. if less than cv of the bond, it is a gain (think of it as a settlement price)

what are term bonds

issued with a single fixed maturity rate

is there a gain or loss when a bond is redeemed

it is a gain if the cv is greater than the reacquisition price

how is accrued vacation liability recorded

it is what was not used during the year

what are examples of permanent differences?

municipal interest income/expense penalties, fines, bribes, kickbacks life insurance proceeds life insurance premiums when corp is the beneficiary nondeductible meals and entertainment dividends received deduction for corps excess percentage depletion over cost depletion

are investors impacted by bond issuance costs

no

does the lessor recognize interest income under an operating lease?

no because the entire payment received each period is reflected as rental income

how does a change in market value of investee's common stock affect the investor's reported net income?

no effect

what is the characteristic of a perfect hedge

no future gain/no losses

how are dividends not declared as of year end treate?

no impact because we follow the matching principle

When there is a written purchase option included in the cost of acqsiitoion of a lease, should it be subtracted when calculating depreciation expense?

no, but you would subtract salvage value

what are deferred tax liabilities?

noncurrent libs

sales tax payable

not an expense or revenue

When is sick pay accrued?

only if it vests

how to calculate depreciation for the lessor under operating lease

over economic life of the asset, do not compare to length of lease

real estate taxes in arrears are considered

part of the capitalized cost of land

when is a debtor relived of its obligation to the creditor?

paying the creditor or being released of the debt judicially or by the creditor considering debt as extinguished by placing cash in an irrevocable trust is not GAAP for extinguishment of debt

the market price of a bond issued at a ducount is the pv of its principal amount at he market effective rate of interest

plus the present value of all future interest paments at the market (effective) rate of interest

During year 2, colt co experienced financial difficulties and is likely to default on a $1 mil, 15%, 3year note dated January 1, year 1, payable to Cain Bank. On December 31 yr 2, the bank agreed to settle the note and unpaid year 2 interest of $150,000 for $820,000 cash payable on Jan 31, year 3. What is the amount of the gain, before income taxes from the debt restructuring?

principal is $1 mil interest accrued is $150,000 carrying value is $1,1,50,000 less settlement price of $820,000 equals $330,000

how is vacation expense recorded

recorded when earned regardless of whether it was not taken

how are liquidating dividends treated?

reduce the carrying amount of the investment account under both the fv and equity methods

$525000 is held in a sinking fund as required by the bond agreement, for principal repayment in 5 yrs. What is the classification of this?

restricted cash, as indicated by the bond agreement. $525000 on bs. noncurrent

what types of bonds in a particular issuance will not all mature on the same date?

serial bonds, because they are bonds that mature in installments

what types of bonds mature in installments?

serial, which are prenumbered bonds the issuer may call and redeem by serial number, usually in a series of annual installments

when a bond includes accrued interest

subtract it from the bond

a company from the UK uses British pounds in its normal ops, reports in European Union euros, and reported in the USD. The company is owned by a private equity firm in Japan. What is the company's functional currency?

the british pound the functional currency is the currency of the primary economic enviroment in which the entity operates generates, and expends cash , usually the local currency or the reporting currency

when sales tax is excluded, how do you calculate the sales?

the cash amount divided by 1+the tax rate. the difference is the tax payable

stated interest rate is what you use to find

the cash paid in the entry to record interest expense

accrued interest is calculated based on the time between

the date the last interest payment was due and the day the bond was issued

how do you calculate the proceeds on a note that was discounted after not being disocunted

the discount is calculated by taking the months remaining on the loan

when a loan receivable is impaired but foreclosure is not probable, which of the following may the creditor use to measure the impairment

the loan's observable market rate the fv of the collateral if the loan is collateral dependent However, if foreclosure is probable, impairment MUST be measured based on the fair value of the collateral

assuming that no direct costs are involved, what are the components of the lease receivable for a lessor involved in a direct financing lease? minimum lease payments plus executory costs minimum payments less executory costs minimum lease payments less residual value minimum lease payments plus residual value

the min lease payments plus residual value. This is because the lessor can expect to collect the residual value from the lessee at the culmination of the lease

Pier Co uses the installment sales method to recognize revenue. Customers pay the installment notes in 24 equal monthly amounts, which include 12% interest. What is an installment's note's receivable balance six months after the sale?

the present value of the remaining monthly payments discounted at 12%

how do you calculate the gain in sales type lease?

the present value of thepayments less the carrying cost of the asset

when the purchase price of a bond includes accrued interest, what amount do you use to calculate interest expense?

the purchase price less the accrued interest and multiply that by the effective rate

When calculating the accretion expense, which rate do you use?

the risk-adjusted rate remember you calculate it using the fv

how do you calculate the total interest paid over the life of the lease?

the sum of all your payments (make sure the periods is right) and subtract the lease liability, which was calculated with present value factors

For a troubled debt restructuring involving only a modification of terms, which of the following items specified by the new terms would be compared to the carrying amount of the debt to determine if the debtor should report a gain on restructuring?

the total future cash payments

note: remember to follow the matching principal

the unadjusted balance for a liability account is a distractor

In june, northan retailers sold refundable merchandise coupons, Northan received $10 for each coupon redeemable from July 1st to December 31 for merchandise with a retail price of $11. At june 30th, how should Northan record these coupon transactions? unearned revenues at the merchandise's retail price unearned revenues at the cash received amount

unearned rev at the cash received amount because it is more objective than the retail price of the merchandise for which it can be exchanged.

debenture bonds

unsecured bonds

under translation method, all income state accounts are reported at the ____ weight and all assets and libs are reported at ____. Equity accounts are reported at ___

weighted average, year end, historical cost

future amount of annuity in advance is

what you would use to calculate the future value for payments made at the beginning of the period.

when do you record an expected credit loss on an available for sale security?

when the amortized cost exceeds the present value and the fair value. The amount on the income statement will be the difference between amortized cost and the present value. The amount in OCI is the difference between fair value and amortized cost. Note, that even if there is a CECL because the amortized cost exceeds pv, there will not be a loss recorded if the fair value exceeds amortized cost. In this case, a gain will be recorded in OCI.

For held to maturity debt securities, when is a loss recorded?

when the amortized cost exceeds the pv of the principal and interest expected to be collected.

a bond can be classified as two types of bonds

yes, for example, it can be classified as serial and as a debenture

at issuance

you don't have to pay attention to dates....market price will include a full year of interest

On January 1, Year 1, XYZ Inc. purchased a call option contract on the stock of ABC Company that gives XYZ the right to purchase 1,000 shares of ABC Company stock at $50 per share anytime in the next 60 days. XYZ paid a premium of $1/share to enter into the option. XYZ exercised the option on February 6, Year 1, when the ABC stock is selling for $60 per share. Enter the appropriate amounts into the associated cells. what is the initial investment?

$1000

Cole co began construction on a building for its own use in Jan. Cole incurred $50000 on specific construction debt and $20k on other borrowings. Interest computed on the weighted average amount of accumulated expenditures was $40000. What amount shoul dbe capitalized?

$40k. total interest incurred equals the interest on the specific construction and other borrowing for a total of $70k. avoidable interest equals the interest on the weighted average amount. Capitalized equals the smaller of the the total interest incurred or the avoidable interest.

On January 1, Year 1, XYZ Inc. purchased a call option contract on the stock of ABC Company that gives XYZ the right to purchase 1,000 shares of ABC Company stock at $50 per share anytime in the next 60 days. XYZ paid a premium of $1/share to enter into the option. XYZ exercised the option on February 6, Year 1, when the ABC stock is selling for $60 per share. Enter the appropriate amounts into the associated cells. What is the underlying?

$50/share - what you are gambling on; the value of the stock

On January 1, Year 1, XYZ Inc. purchased a call option contract on the stock of ABC Company that gives XYZ the right to purchase 1,000 shares of ABC Company stock at $50 per share anytime in the next 60 days. XYZ paid a premium of $1/share to enter into the option. XYZ exercised the option on February 6, Year 1, when the ABC stock is selling for $60 per share. Enter the appropriate amounts into the associated cells. What is the settlement amount?

$50000

On January 1, Year 1, XYZ Inc. purchased a call option contract on the stock of ABC Company that gives XYZ the right to purchase 1,000 shares of ABC Company stock at $50 per share anytime in the next 60 days. XYZ paid a premium of $1/share to enter into the option. XYZ exercised the option on February 6, Year 1, when the ABC stock is selling for $60 per share. Enter the appropriate amounts into the associated cells. Which of the following are possible settlement options when the option is exercised on February 6, Year 1 (check all that apply)? 1. The option writer delivers 1,000 shares of ABC Company stock to XYZ and receives $50,000. 2. The option writer can pay $10,000 to XYZ to settle the contract. 3. The option writer has the option to pull out of the contract rather than incur a loss.

1 & 2