Far Bisk Chap 7

Front 1

Does extinguishment of a debt cause a recognition of G or L?

Back 1

Yes. Diff btw the reacquisition price & the net carry amount of the extinguished debt.

Front 2

What two forms can a concession of a troubled debt restructuring be?

Back 2

1 Transfer of assets or an equity int in the debtor in satisfaction of the debt
2 Modification of the terms of the obligation, including a reduction of the int rate, extension of maturity date, etc.

Front 3

Does the debtor recognize a gain in a troubled debt restructuring?

Back 3

Yes, equal to the diff btw the carrying amount of the obligation and FV of the assets and/or equity int transferred to the creditor.

Ordinary Gain

Front 4

Two points to remember when there is a modification of terms in a Troubled Debt Restructuring, for the debtor's accounting are?

Back 4

1 Payments less than obligation - debtor reduces the carrying amt of the payable to the aggregate future cash payments.
2 Payments equal to or more than obligation - the aggregate payments under new terms are equal to or more than the obligation.

Front 5

What's the diff btw extinguishing debt & refunding it?

Back 5

Extinguishment - includes the reacquisition of debt securities
Refunding - achieving the reacquisition by the use of proceeds from issuing other securities.

Front 6

What's a TDR?

Back 6

Occurs when a creditor, for economic or legal reasons related to the debtors financial difficulties, grants a concession to the debtor that the creditor would not otherwise consider.

Front 7

Main diff btw Debt Restructuring & Troubled Debt Restructuring?

Back 7

In TDR, the creditor is granting the concession in order to protect as much of the investment as possible.

Front 8

Does the creditor recognize a loss in Troubled Debt Restructuring?

Back 8

Yes, equal to the diff btw the FV of the assets &/or equity received & the recorded amount of the receivable.

This loss, to the extent not offset against an allowance for uncollectibles or other valuation acct, will be recognized in full in the period the restructuring takes place.

Front 9

2 ways to handle a note when int rate is not stated or unreasonable?

Back 9

FV - FV of goods, property, svcs or at the amt that approxiamates the market value of the note, whichever is more clear, diff is prem or disc.
PV - in absense of above, apply PV to all future payments using an imputed int rate.

Front 10

How is an Asset Retirement Obligation reported on the B/S?

Back 10

A liability (NOT A CONTRA-ASSET) at FV in period in which it's incurred, if it is subject to reasonable estimation.

Front 11

Define refinancing?

Back 11

1 Replacing it with long-term obligations or equity securities.

2 Renewing, extending, or replacing it with short-term obligations for an uninterrupted period of time greater than 1 yr (or oper cycle) from the B/S date.

Front 12

Why do you capitalize an asset retirement cost by increasing the carrying value of the related long-lived asset by the same amount as the liability?

Back 12

They are not a seperate asset because there is no specific & separate future economic benefit that results from those costs.

Front 13

When dividends are declared, where are they reported on the B/S?

Back 13

When declared, cash & property dividends represent legal obligations due within one year & are reported as current liab.

Front 14

How is the current maturities of LT Debt handled?

Back 14

The portion of LT Debt due within the next fiscal period is classified as a current liab if payment is expected to require the use of current assets or the creation of other current liabilities.

Front 15

How is income tax liability handled?

Back 15

1 Payable - Inc Taxes Payable with the next period or oper cycle, whichever is longer, are classified as current liab.
2 Deferred taxes should be netted out in their current & noncurrent portions for balance sheet presentation.

Front 16

What do each of these letters mean in Bonus equations?
B BR I T TR

Back 16

Bonus
Bonus Rate
I = Inc b4 inc taxes & bonus
Tax
Tax Rate

Front 17

What are 5 examples of contingent liabilities?

Back 17

1 Obligations related to prod warranties
2 Obligations related to product coupons & premiums
3 Obligations related to product defects
4 Pending or Threatened Litigation
5 Actual or possible claims & assessments

Front 18

How do you handle a gain contingencie?

Back 18

Should be disclosed but not recognized as income.

**Be careful to avoid misleading implications as to the likelihood of realization.

Front 19

What 4 things are needed to accrue a liability for future employers compensation for future absences?

Back 19

1 Obligations for employee svcs ALREADY rendered
2 The obligation relates to employee rights that vest or accumulate
3 Payment of the compensation is probable
4 The amount can be reasonably determined.

**Note: If can't estimate (#4) must disclose**

Front 20

How is an Environmental Remediation Liability handled?

Back 20

Accrual of an ERL is req'd if info avail prior to issuance of the f/s indicates that it is PROBABLE that a liab has been incurred & amount of loss can be reasonably estimated.

Front 21

What does the classification of a contingent liability depend on?

Back 21

3 Categories
Probable - estimated loss should be accrued
Reasonably Possible - more than remote but less than probable. no accrual, but disclose
Remote- slight chance of occurring - don't do anything

Front 22

What's the distinction btw contingencies & other liabilities?

Back 22

The uncertainty as to the existence of the liab & NOT the uncertainty as to the amount of the liability.

Front 23

Define LT Liabilities & give 3 examples?

Back 23

LT Liab are all obligations not expected to be liquidated by the use of existing current assets or by the creation of current liab.
3 Examples: LT Notes Payable, Refinancing of short term obligations & Bonds Payable

Front 24

How do you account for postemployment benefits that do not meet the conditions for accrual?

Back 24

Should be accounted for as a probable or reasonably possible contingency.

Front 25

Identify 3 types of Asset Retirement Obligations?

Back 25

1 Dismantlement
2 Restoration
3 Abandonment

Front 26

To exclude from current liab, what 2 things must be met?

Back 26

1 Intention - entity must intend to refinance the obligation on a LT basis.
2 Ability - must have the ability to consummate the refinancing

Front 27

How is an imputed int rate determined?

Back 27

By considering the debtors credit standing, prevailing rates for similar debt, and rates at which the debtor can obtain funds.

Front 28

When is a note payable not recorded at its face amount?

Back 28

When the int rate is not stated or unreasonable.

Sometimes this happens when you issue notes for property, goods or svcs.

Front 29

How are product warranties & guarantees accounted for?

Back 29

Product guarantees and warranties create a liability for the seller from the date of the sale to the end of the warranty period.

Recording of the liab can take place either at the point of sale or at the end of the accounting period.

Front 30

What are compensated balances?
What are postemployment benefits?

Back 30

Comp balances - Vacations, occasional sick days & holidays.

Postemployment benefits - salary continuation, severance benefits, continuation of other fringe benefits such as insurance, job training and disability related benefits such as workers comp.

Front 31

How do you account for sales premiums?

Back 31

At the end of the accting period, an expense account should be debited and a liab credited for the cost of outstanding premiums expected to be redeemed in subsequent periods.

Front 32

How is a year-end adj of warranty liability made?

Back 32

At the end of the accting period, an estimate of the yr's warranty liab is made on past experience and current estimates.
Any diff btw the estimate and the actual amounts already charged to warranty expense is recorded.

Front 33

What are not applied as Comp Absences and Postemployment Benefits?

Back 33

Postemployment benefits provided through a pension or postretirement benefit plan, individual deferred compensation arrangements, or special contractual termination benefits.

Front 34

What are premiums in sales?

Back 34

In order to increase sales & promote certain products, companies may offer premiums to those customers who return boxtops, coupons, labels, wrappers, etc. as proof of purchase. The cost of these premiums represents an expense that should be matched against revenue from sales benefited.

Front 35

What are estimated liabilities?

Back 35

Liab whose amount is uncertain at the end of the accounting period. Derivative instruments that represent obligations that meet the definition of liabilities are measured at FV and reported as liabilities.

Front 36

What's the JE's for warranty expense liab?

Back 36

Warranty Exp
Est Warranty Liab
(at point of sale)

Est Warranty Liab
Cash or other asset
(to record actual warranty expenditures as incurred)

Front 37

What are the two formulas for bonuses based on profits?

Back 37

Bonus computed on NI after inc taxes but before deducting bonus:
a. B=Br(I-T)
b. T=Tr(I-B)

Bonus computed on NI after deducting both inc taxes and the bonus:
a. B=Br(I-T-B)
b. T=Tr(I-B)

Front 38

Bonus agreements based on profits falls into what two categories?

Back 38

1. Bonus is based on net inc after income taxes, but before deducting the bonus.
2. Bonus is based on net inc after deducting both inc taxes and the bonus.

Front 39

What is an accrued expense (liability)?

Back 39

An expense incurred but not yet paid in cash.

Front 40

Example of a deferred revenue?

Back 40

Rent collected in advance by a lessor in the last month of the accounting period, which is for the first month of the next period.