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7 Cards in this Set
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Leases Operating Leases (for lessee) dr. Rent expenses ----cr, cash Operating leases (for lessor) dr. cash ----cr lease income Financing Leases dr. Asset under financing lease ----cr. lease liability |
Criteria to be a finance lease (at least 1 of 4) - Transfer of title - Lease term vs economic life (the lease term must be at least 75% of the assets economic value) - Present value (PV) of minimum lease payments (MLP)*vs fair value (PV at 90% of fair value) - Specialized asset (if the asset is specially made for the needs of the lessee) *MLP calculated by taking lease payments multiplying by the number of terms plus residual value (if determined) |
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Earnings per share (EPS) WAOS - Weighted average ordinary shares. Contingently issuable shares - are ordinary shares that are issuable for little or no cash, upon the satisfaction of specific conditions in a contingent share agreement. Stock dividend - a dividend payable by issue of shares of the company's own common stock |
example of WAOS w/ bonus shares (stock split & stock dividend) - a corp has 5,000 c/s outstanding on 01 Jan, beginning of fiscal year -on 31 Mar, the conversion privilege on convertible bonds is exercised by the bond holders, resulting in an additional 2,400 shares being issued - on 01 Sept, the shares are split 2-for-1 -on 01 Oct, an additional 3,00 shares are issued for cash.
WAOS calculation: 01 Jan - 31 Mar (pre-split) 5,000 x 2 x 3/12 2,500 01 Apr - 31 Aug (pre-split) 7,400 x 2 x 5/12 6,167 01 Sept - 30 Sept 14,800 x 1/12 1,233 01 Oct - 31 Dec 17,800 x 3/12 4,450 WAOS 14,350
**Note** that if there is a stock split then you must go back in the year and split all the shares outstanding |
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1. Capital structure: Common shares, no-par, outstanding on 01 January 90,000 shares Common shares, issued 01 May for cash 6,000 shares Preferred shares, no-par, $1.20 (cumulative, nonconvertible) outstanding on 01 January 5,000 shares
2. Earnings data for the year ending 31 December: Net earnings from continuing operations $147,000 Discontinued operations, net of tax 30,000 Net earnings and comprehensive income $177,000 |
Basic EPS calculation (Net income - preferred dividends) / WAOS
EARNINGS: Net earnings from continuing operations $147,000 Less preferred dividend entitlement: (5,000 shares x $1.20) (6,000) Earnings available to continuing operations $141,000 Net earnings $177,000 Less preferred dividend entitlement: (5,000 shares x $1.20) (6,000) Earnings available to common net earnings $171,000 Shares outstanding 90,000 x 12/12 = 90,000 6,000 x 8/12 = 4,000 Weighted average = 94,000 Basic EPS: Earnings from continuing operations $141,000/94,000 = $1.50 Discontinued operations 30,000/94,000 = 0.32 Net earnings $171,000/94,000 = $1.82 |
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Operating Lease journal entries payment in advance (lessee) dr prepaid rent expense cr cash dr rent expense cr prepaid rent expense *note In an operating lease, maintenance expenses are included in the lease payment to record prepaid (lessor) dr cash cr deferred rent income dr deferred rent income cr rent income **note no depreciation to lessor unless otherwise stated dr. Depreciation expense cr. Accumulated depreciation - equipment on lease |
Sales & Leasebacks start with sale of asset dr cash dr accumulated depreciation - building ----cr building ----cr gain/loss on sale of building to record the lease dr building under financing lease ----cr lease liability to record interest at year end dr interest expense ----cr lease liability (expensing int goes back in the Lease liability) to record depreciation (for lessor only) dr Depreciation expense ----cr Accumulated depreciation - building (or asset) |
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Defined benefit obligation of a pension plan is measured as the present value of expected future payments resulting from employee service in current and prior periods. Pension plan assets are the assets held in a separate long term employee benefit fund. This must be a separate legal entity. The sole purpose of the fund must be to pay employee benefits and the assets must not be available to pay other liabilities of the employer, even if the employer is bankrupt. |
Defined Benefit plan Pension Accounting - 3 Elements 1. Service cost - the total of current service cost, any past service cost and any gain or loss on plan settlement. The amount is expensed. 2. Net interest on the Net Defined Benefit Liability - is multiplied by the discount rate and the resulting expense is included in earnings. If the plan is over-funded, the net status is an asset and this is a revenue item. 3. Remeasurement of the net defined benefit liability, whether cased by actuarial gains or losses, a difference between plan assets' earnings and the discount rate applied in item 2. This amount Is recorded in other comprehensive income and accumulated other comprehensive income. |
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First Element of Defined Benefit Plan Pension Service cost: 1. Current service cost $601,900 2.Past Service cost (negative) (356,000) $245,000
Entries to record service cost Pension expense 245,900 Accrued pension liability 245,900 To record the contribution to the fund: Accrued pension liability 450,000 Cash 450,000 |
Second Element of Defined Benefit Plan Pension Net interest Defined benefit obligation, beginning of the year $ 5,215,000 Pension plan assets, fair value, beginning of the year 4,810,000 Net defined benefit liability 405.000 Net interest, at 5% $ 20,250 The components are: Interest on the obligation of $260,750 (5,215,000x5%) & Expected earnings of $240,500 (4,810,000x5%)
To record interest: Pension expense (or interest expense) 20,250 Accrued pension liability 20,250
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Pension plans could alternatively be base on: Flat benefit per year of service; Career average pay, an average of the employees earnings over career; Best year's earnings; An average of the last three (or five) years earnings. Based on annual pension plan equal 2% of years $100,000 salary for 35 years of service Annual pension annuity = $100,000 x 2% x 35 years = $70,000 Flat benefit of a life annuity of $1,000 for every year of service, regardless of salary, in which case the annual pension is: Annual pension annuity =$1,000 x 35 years = $35,000 |
Defined contribution pension plan does not define specific benefits to be paid at employees' retirement. Rather, it specifies the periodic amount that the employer must pay into the pension fund. The employees receive whatever benefits can be paid from the pension fund; the accumulated balance of contributions and earnings. The plan has variable benefits and defined contributions Defined benefit plan specifies the amount of benefits to be received by employees after retirement. Employers must fund this amount over time. The plan has fixed benefits and variable contributions. Employers find defined contribution plans attractive because the plan has fixed benefits and variable contributions Contributory pension plan - The employees make contributions to the plan as well as the employer Non-contributory pension plan - The employer pays all of the contributions needed to pay for future benefits |
