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16 Cards in this Set
- Front
- Back
Lease balance sheet and income statement accounting for capital leases vs. operating leases
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capital- on balance sheet; record interest and depreciation
Operating- rent expense; not on balance sheet |
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Lessor balance sheet and income statement accounting for capital leases vs. operating leases
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capital leases- take off balance sheet
Operating leases- rent revenue |
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Criteria to determine if a lease is capital or operating
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Must meet one of the four:
transfer of ownership from lessor to lessee Lease contains a bargain purchase option lease period is 75% or more of assets useful life The PV of the minimum lease payments required under the lease is 90% or more ofo the asset's fair market value\ |
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Characteristics of a derivative
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3 requirements:
underlying- price or rate notional amount- how many net settlement- pay cash for undue services |
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Purpose of hedges
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reduce risk with respect to underlying
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Types of hedges and differences in accounting treatment and disclosure
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cash flow hedge- one we talked about; goes to OCI
Fair value- foreign currency- goes to income statement and earnings |
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Characteristics and Accounting for Defined Benefit vs. Defined Contribution Plan
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DCF- 401k, money set aside
DBF- contract to pay a certain dollar amount upon retirement; takes into account the number of years the employee has worked for the firm |
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PBO vs. ABO
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PBO- PV of the pension benefits that the employees have earned and that the employer expects to pay in the future; the greater the discount rate the smaller the PBO
ABO- smaller measure of the pension liability, computed without taking into account expected future salary increases |
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Vesting
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Period of time you have to work before you qualify for a pension
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Residual Claimants
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equity players get what is left
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Rights of preferred shareholders
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First claim to dividends, have right to previous year dividends before CS holders have right to present dividends, have priority in liquidation
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retained Earnings Component
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= cumulative earnings - cumulative dividends
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OCI
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Change in assets and liabilities that don't go to NI for available-for-sale securities
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Stock Option accounting under intrinsic vs. fair value method
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intrinsic method- keep expense off the income statement
fair value method- must do it on the income statement |
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Incentives
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Bonus plans
Debt Contracts Income Smoothing Pattern of Earnings Growth Meeting Analysts' Forecasts |
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Methods of Earnings Smoothing
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Valuation Allowances - either reduce the amount of reported assets or increase reported liabilities; most prevalent; based solely on management estimates, their balances change every year
Accounting Method Choice Accounting Estimates- useful lives, salvage values real Economic Decisions- reduce R and D |