What is a accretion expense and how to calculate the credit adjusted interest rate used for ARO
accretion expense is the increase in the ARO liability due to the passage of time.
Beg ARO * credit risk adjusted rate
What are the key journal entries under the allowance method for bad debts?
Estimate bad debts (at year-end):
Dr Bad Debt Expense
Cr Allowance for Doubtful Accounts (contra-asset on balance sheet)
Write off a specific uncollectible account:
Dr Allowance for Doubtful Accounts
Cr Accounts Receivable
If a previously written-off account is collected:
Dr Accounts Receivable
Cr Allowance for Doubtful Accounts
Then, Dr Cash
Cr Accounts Receivable
Formula for Gain or loss in troubled debt restructuring
= CV of new debt (given)- FV of asset transferred
What is disclosed separately on the statement of cash flow
- Non cash investing and financing activities
- Cash PAID for interest ( due to differences in expenses)
- Cash PAID for income taxes
- Issuance of common stock at FV
In income taxes what is the difference between tax expense and estimated tax liability
Income tax expense is the current amount owed
(Taxable income * current tax rate)(you do not subtract permanent differences again)
you subtract that to the amount of
tax payments at he beginning of the year and you get your tax liability
So could be the same!
What approach do correction of errors require in the financial statements
Restatement approach
(Cash to accrual) you restate prior financials to reflect what the financials would have been if the error had never occurred. Or beg RE
Gross AR amount
Beg balance+credit sales-collections-write offs-sales returns
In a consolidated financial, how would the sub adjust the depreciation expense on a gain of sale from the parent in the consolidated financials
Gain on sale / subs depreciations life
How are warranty cost allocated in a transaction where the warranty is a separate performance obligation
Contract price is allocated based on relative standalone selling prices
How to calculate stock holders equity for a consolidated balance sheets which has non controlling interest
Parents equity + (non controlling interest value + net income from non controlling interest- dividends)
Non controlling interest value = (acquired price /%of ownership )- acquired price
How inter company bond transactions affect RE
If a parent pays a premium to buy subs bonds, this means the group losses money on extinguishing the debt early, reducing RE
(Because you over pay to retire debt) loss
Parent buys bonds at discount , the group gains money by extinguishing debt early, increasing RE
(You save money retiring debt) gain
When stocks are issued together as a package how do you allocate the proceeds (preferred & common)
You allocate then based on the relative FV of each class of stock
Calculate each FMV then percentage
Then allocate actual proceeds by the percentages
When you buy several assets together for one lump sum price how do you assign their respective values
You allocate the total cost (including additional costs life appraisal fees) to each assets bas on their FV
Each asset FV/total FV
Percentage * total cost
Gross margin when given sales, purchases, inventories, sales commisions
=sales - cogs (beg inv + purchases - end)
Relfects pricing strategy and production efficiency by measuring profit after cost of goods sold
Netincome /sales
Gross (sales-cogs/sales)
Operating acivities NFP
Current assets-liabilities}netincome
Cash received in good faith advance
Un restricted promises
Dividend income
Interest expense
Interest income
(With out donor restrictions)
Financing activities NFP
Non current liabilities
Net assets
Principle payments***
Long term capital purpose for crypto assets that are highly liquid
(Normally with donor restrictions)
Money received for construction
cash inflows from contributions restricted for acquiring or improving long-lived assets
Cash contributions restricted by the donor for long-term purpose (These contributions are similar in nature to a loan from a bank for a long-lived asset.)
Investing activity NFP
Purchase of non current assets
Purchase of equity securities
Proceeds from sale of long lived assets or insurance proceeds (capitalized or not)
(Museum and its collections)
How to calculate deferred income tax expense for single and multiple years reversing
When its multiple year reversing you divide the current year temporary difference by the different tax rates
With single you multiply the current temporary difference by the rate it reverses completely
What is the rule for anything prepaid (current asset)
The minimum operating cycle for purposes of reporting a “prepaid” current asset is one year
Deposits are not current assets since they represent a liability to the customer
When will a seller book a transaction as a financing arrangment
When the purchase price is equal to or greater than the original sales price and the expected market value
Because if the purchase price is higher than market value the buyer has an incentive to sell back to the seller (like a loan)
If the repurchase price is lower than the original sale price or the expected market value, then it’s more like a real sale, not financing.
How are warranty recognized in revenue when separate and non separate
If the warranty could be sold separately, then you would allocate part of the contract price to the warranty and recognize warranty revenue over time
Dr cash
Cr unearned
Then
Dr unearned
Cr revenue
If no separate sales revenue is recognized at the point of sale related to that sale
Formula on the modifications of terms in troubled debt restructuring
Modification of terms
Gain = CV debt before restructuring - un discounted total future cash payments after restructuring
What does un discounted and discounted mean in future cash flows
Undiscounted = sum of future payments, no time value adjustment
Discounted = present value of future payments, adjusted for time value of money
To start capitalizng interest what three conditions must be met
Interest cost is being incurred — The company must actually be paying interest on debt.
Expenditures for the qualifying asset have been made — The company must have spent money on the asset’s construction or acquisition.
Activities necessary to prepare the asset for its intended use are in progress this includes having all necessary permits or licenses filed and construction underway.
Simply borrwing funds is not enought, if it hasn’t been used for expenditures
