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Financial final

Terms in this set (56)

How to do indirect vs direct method
Indirect you start with net income.
Indirect method line item titles
Less increase in accounts receivable
Direct method line item titles
Cash collected from customers (Change in AR+sales)

Cash paid for inventory (change in AP + change in inventory + COGS)
Line items in investing
Plus sale of pp&e
Less purchase of pp&e
Line items in financing
Less decrease in notes payable

Less cash paid in dividends
Difference in pension asset goes to
Cash from operating activities
Difference in bonds payable if no bonds are issued goes to
Cash from operating activities (amortization of premium or discounts)
2 steps for PPE on cash flows
1) find out the amount of cash received for a sale of PPE and write it down in cash flows.

2) make the PPE equal in terms of depreciation. Find the PRE-net amount of this year's PPE and the net amount of last year's PPE and find the difference, taking into account historical cost of equipment sold off the books.

OR

2) View Net Equipment as a hybrid of Equipment and Acc Depreciation and whatever entries you would make in each of those accounts during THIS period, then make them.
Title for investing cash flows
Cash used in investing activities
Title for financing cash flows
Cash used in financing activities
THE cash flow line item
Change in cash
4 line titles immediately following THE cash flow line item
Beginning cash balance
Ending cash balance

Cash paid for interest
Cash received for tax refund
2 things you report below statement of cash flows
Cash paid for interest
Cash paid for tax
Cash paid for interest you have to account for
Difference in bonds payable if no bonds are issued
What to do in % of completion if you realize you're going to be dealing with an unprofitable contract?
Calculate Revenue Normally
- Expense (YOU HAVE TO SOLVE FOR)
= Gross Profit (The total estimated loss of the contract)
Cash =
Interest Expense =
Stated Rate * Face Value
Market Rate * Carrying Value
Carrying Value of Bond =
Bond payable +/- premium/discount
If it's a premium on the bond, then as you amortize, the interest expense should be
Decreasing
If it's a discount on the bond, then as you amortize, the interest expense should be
Increasing
As you amortize you do what to the bond payable
If it's a premium you subtract and if it's a discount you add.
Effective amortization =
Not straight line
Zero coupon bonds =
No payments
Effective rate =
Market rate
How to account for warrants
Allocate - best if you use a separate journal entry
How to account for convertible bonds
Don't allocate, just ignore
An actuarial change affects what accounts on the pension worksheet
OCI gains/losses & PBO
Prior Service Cost affects what accounts on the pension worksheet?
Pension Expense & OCI
How to administer a corridor on pensions
1) take 10% of the larger of PBO or FV Pension Fund.

2) if unrecognized gains/losses are > #1 value then continue , if not there's no amortization

3) (full amount of unrecognized gains:/losses - #1 value) DIVIDED BY average remaining employee service life

4) only for this year. You reevaluate for next year
What accounts does the amortization of deferred losses/gains affect?
Pension expense and OCI
Interested incurred on funds borrowed to finance self-construction can be capitalized if the following 4 conditions are met:
1) projects are discrete
2) costs are separately accumulated
3) construction covers an extended period of time
4) construction costs are substantial
What is maximum capitalization?
Total of all actual interest incurred during the period.
What does maximum capitalization mean?
...
When capitalizing interest, what interest rate is used?
1) for debt incurred specifically for the project: the actual rate

2) for debts in general and not specific to the project, use the weighted average
If the construction period covers more than one fiscal period, what happens to capitalized interest?
In addition to accounting the interest for Y2's expenditures...

You also continue to account for the same interest you did in Y1 according to the same rates as in Y1.

Finally, you account for the interest on the capitalized interest you calculated in Y1 and you do so based on the weighted average rate.
How to find the weighted average percentage
Take amount of interest payable for the period from each general loan and sum it. Then divide that sum by the sum of the total general loans.
How to find the amount of interest to capitalize?
For the each expenditure in the period times it by the respective month ratio, and then by the interest rate (once the expenditures cross the threshold for the loan specific to construction then use the weighted average interest rate).

Ensure the capitalized interest isn't > max interest capitalization
Journal entry for capitalizing interest
Debit CIP for capitalized interest amount
Debit Interest Expense for the difference.
Credit Cash for the max interest capitalization
Total cost of construction =
Total expenditures + total capitalized interest
When do you capitalize R&D costs?
Never before you hit technological feasibility.

IFRS: All R&D after hitting technological feasibility.

US GAAP: Only software R&D after hitting technological feasibility.
What about when you purchase an ongoing R&D project from another company?
You capitalize it as an intangible asset and any additional expenses are recorded as expenses.
Calculating the last year for business licenses
1) last year's after tax revenue X (1+ this year's growth rate)
DIVIDED BY
(discount rate - growth rate)

2) find PV of #1 using the previous year's N value for years
Goodwill is limited to what kinds of transactions?
Business transactions only (not simple sale transactions)
Recording impairment for

a) intangible assets that are amortized:

b) Intangible assets that are not amortized
a) Same as the two-step test used for tangible assets

b) Simple one-step method comparison of the book value to the fair value
Goodwill impairment
...
Calculating the book value under an indefinite useful life assumption
Original cost.

That's it you don't take any amortization or depreciation expense out.
Estimate the FAIR VALUE of an asset with an indefinite useful life
annual future cash flow
DIVIDED BY
the discount rate
What if the amount of capitalized interest is > than the maximum interest cap?
You attribute the entire maximum interest cap to CIP. So you have no interest expense.
Doesn't roll over from year to year.
Net Assets
Assets - Liabilities
If the fair value of net assets < the book value of net assets, what do we do goodwill?
Compute implied goodwill and make the necessary journal entry.

Book value of net assets
- Goodwill
+/- current adjustments to fair value
= X

Fair value of net asset
- X
= Implied Goodwill

Goodwill
- implied goodwill
= Loss
In an exchange of similar assets, when do you recognize a loss
ALWAYS.
4 types of exchanges and whether you recognize gains
1) commercial substance (recognize gains)

2) no commercial substance & no money received - (don't recognize gains)

3) no commercial substance & $ received {<25% of FV} - (only recognize gain if you receive cash and it will be a PARTIAL GAIN: (cash/total FV received) * indicated gain

4) no commercial substance & $ received {>=25% of FV} - (recognize gains)
4 Journal Entry Steps for Exchange of Similar Assets
1) Take old PPE off the books
2) Record cash given or received
3) Solve for indicated gain or loss, referencing the chart
4) Put new PPE on books
What goes on a pension worksheet
...
When you exercise a detachable warrant, what do you do with the bond payable?
Nothing it's separate (detachable) from it
Where do gains from a bond go?
RE
If you're trying to find the market rate someone used in impairments of an asset, what do you do with the residual (salvage) value?
You enter it as the FV
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