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16 Cards in this Set

  • Front
  • Back
Lease balance sheet and income statement accounting for capital leases vs. operating leases
capital- on balance sheet; record interest and depreciation

Operating- rent expense; not on balance sheet
Lessor balance sheet and income statement accounting for capital leases vs. operating leases
capital leases- take off balance sheet

Operating leases- rent revenue
Criteria to determine if a lease is capital or operating
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\
Characteristics of a derivative
3 requirements:

underlying- price or rate
notional amount- how many
net settlement- pay cash for undue services
Purpose of hedges
reduce risk with respect to underlying
Types of hedges and differences in accounting treatment and disclosure
cash flow hedge- one we talked about; goes to OCI

Fair value- foreign currency- goes to income statement and earnings
Characteristics and Accounting for Defined Benefit vs. Defined Contribution Plan
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
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
Period of time you have to work before you qualify for a pension
Residual Claimants
equity players get what is left
Rights of preferred shareholders
First claim to dividends, have right to previous year dividends before CS holders have right to present dividends, have priority in liquidation
retained Earnings Component
= cumulative earnings - cumulative dividends
Change in assets and liabilities that don't go to NI for available-for-sale securities
Stock Option accounting under intrinsic vs. fair value method
intrinsic method- keep expense off the income statement

fair value method- must do it on the income statement
Bonus plans
Debt Contracts
Income Smoothing
Pattern of Earnings Growth
Meeting Analysts' Forecasts
Methods of Earnings Smoothing
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