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31 Cards in this Set
- Front
- Back
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Why is goodwill included on F/S?
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It shows the difference between cash and market value of assets acquired.
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Is goodwill amortizable?
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No
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When does goodwill decrease?
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Impairment
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How is the Ciena case an example of Big Bath?
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Probably already have a loss for the year and make worse with impairment.
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How does Ciena go against their policies?
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They write off goodwill at the quarter when they have an annual policy.
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What are two ways to measure Long-lived assets on the B/S?
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1) Expected benefit
2) Economic sacrifice |
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Using the expected benefit approach, what is the difference between Asset and Expense?
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A: Capital expenditure - probable future econ. benefit
Exp: Revenue expenditure - no probable future benefit |
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Changing oil and changing engine: capitalized cost or expense?
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Oil: regular maintenance - expense
Engine: special improvement - cap (If never change oil and forced to change engine, expense) |
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Capitalization criteria: 4 ways the asset may be improved - UCEO
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1) Extends the asset’s Useful life
2) Increases its productive Capacity (e.g. attainable production units) 3) Increases its production Efficiency (e.g., fewer raw materials) 4) Or, increases the asset’s Other economic benefits |
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How can ROA become distorted (i.e. falsely increased)?
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Depreciation decreases the asset base while returns remain the same.
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What is capitalization of interest?
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The process of deferring interest as an asset instead of as an expense
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When can interest be capitalized?
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1) Self-constructed (entity makes its own asset)
2) Fixed asset (not inventory) |
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What must intangible assets do to be so-classified?
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Convey future benefits to their owners
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How are acquired intangible assets accounted for?
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1) Record asset at arm's length transaction price
2) Amortize ("depreciation") over its expected life |
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When does accounting for intangible assets become difficult?
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When they are developed internally (ie self-developed) instead of purchased
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What are the 4 methods of depreciation?
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1) Straight-line = (C-R)/L
2) Double-declining balance = 2(SL rate)(BV@beg. of period) 3) Sum-of-the-years' digits = (yrs left in L/sum of yrs)(C-R) 4) Units of production = (Units in period/total est. units)(C-R) |
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Why is R&D not classified as an asset?
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Future benefit is very uncertain
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When is almost all R&D expensed?
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As incurred
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How are the 2 stages of software development expensed?
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Research: as incurred
Development: capitalized & amortized |
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What determines the difference between research and development?
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Technological feasibility
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How are "purchased in process" R&D treated?
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immediately written off (no alternative future use)
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When should an impairment occur?
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When undiscounted future cash flows < BV
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Journal entries for bonds issued at par
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1) Recording bonds
DR Cash CR Bonds payable 2) Interest accrual DR Interest expense CR Accrued interest payable 3) Interest payment DR Accrued interest payable CR Cash |
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Journal entries for bonds issued at discount
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1) Recording bonds
DR Cash DR Bond discount CR Bonds payable - par 2) Interest expense DR Interest expense CR Accrued interest payable CR Bond discount |
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Journal entries for bonds issued at premium
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1) Recording bonds
DR Cash CR Bond premium CR Bonds payable - par 2) Interest expense DR Interest expense DR Bond premium CR Accrued interest payable |
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Journal entries for retirement
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1) Issuing new debt
DR Cash CR Bonds payable 2) Retiring old debt DR Bonds payable CR Cash CR Gain on debt extinguishment |
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Journal entries for debt-for-debt swaps
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Recording swaps:
DR Bonds payable (old) CR Bonds payable (new) CR Gain on debt extinguishment |
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Journal entries for debt-for-equity swaps
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Recording the swaps:
DR Bonds payable CR Common stock CR Gain on debt extinguishment |
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Journal entries for off-B/S debt
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DR Cash or A/R
CR Assets DR Assets CR Debt payable (off B/S?) |
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What are 2 main off-B/S liabilities?
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1) Pensions
-assumptions: How do we know they are valid? 2) Healthcare -benefits with retirement |
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What is the effective interest method? (P11-11)
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-Amortizes a bond discount or premium on the basis of the market interest rate
-effective rate=market rate at issue date -Bond Discount Amortized increases b/c BV increases -Use: DR I/E CR Cash CR Discount |
