How to

Gift card breakage,

1. Find breakage amount

2. Find redeemable amount: gift card sales - breakage amount

3. Find % redemption: redemptions / redeemable amount

4. Find breakage revenue: breakage amount * % redemption

Contingent liabilities

record the lowest amount of the lawsuit, and only if probable

assurance warranty

warranty expense is expensed immediately

expenses are tied to the liability

liability decreases when actual expenses are made, record additional warranty expense if actual expenses are more than the original liability

service type warranty

revenue is incurred over a set period

expenses are not tied to a liability

ARO

PV of ARO needs to be capitalized into the asset, once capitalized amortize by the interest rate each year

Trade notes payable,

accrue interest if past ye

Compensated absences,

accrue in salaries payable and tie to expense

if forfeited, multiply by %, and if wages increase than increase the expense

how to find PMT

pv / factor from table

Accrued interest (bond)

when sold between interest payment dates, one needs to account for interest payable, and tie it to the price of the bond itself

Amortization table

PMT	Interest	Amortization of Premium	Carrying Value
a fixed pmt	b cv * market rate/pmt per year	c pmt - interest	d previous cv - amortization

Bond redemption

cv - redemption price = gain/loss

Reclassification (long —> short)

when the bonds mature within a year

reverse bonds payable

with

current maturities of bonds payable

Reclassification (short —> long)

when the firm refinances debt that matures in a year into debt to mature beyond a year

reverse short term bonds payable

with

long term notes payable

Convertible bonds

reverse face value & discount/premium

with

common stock par & common stock APIC

does the bond payable account ever change in value when amortizing

no, premium/discount does

Changes in aoci journal entries

1. unrealized gain/loss

AOCI

2. unrealized gain/loss

FVA on investment

Equity components

contributed capital : value of all stock

retained earnings : gains/losses - dividends distributed

AOCI : unrealized gains/losses from non-primary income generators

Dividends

declaration : payable

payment : cash

are dividends a debit or credit

debit, since they lower equity

stock dividend formula

declaration / shares outstanding

< 20-25% small

> 20-25% large

stock dividend journal entries

dividends

common stock dividends distributable

*APIC - only for small

common stock - par

small stock dividend

need to record APIC excess of par

large stock dividend

dont need to record APIC excess of par

Stock splits

no change in book value of stock equity

stock outstanding * 2

price of stock / 2

Treasury stock transactions

record transactions relative to the basis

sold above basis → APIC

sold below basis → extinguish APIC, then balance w retained earnings

what is the basis for treasury stock transactions

value of stock when first transaction of treasury stock occurs

Issuance of common stock

common stock - par

common stock - apic

when issuing common stock, does the cost to issue matter

yes, taken from cash

Convertible common stock

preferred stock - par

preferred stock - apic

rebalance

common stock - par

common stock - apic

Trading investments

adjust to fair value at end of year using:

unrealized gain/loss - trading debt investment

FVA - trading debt investment

When sold, realize gain/loss to basis and reverse FVA AJE

2 journal entries required for trading investments

ye FVA

when sold

Available for sale investments,

amortize and record payments like HTM debt investments

@ ye do FVA using

FVA - available for sale debt investments

unrealized gain/loss - available for sale debt investments OCI

3 journal entries required for afs debt investments

amortization and pmt journal entry

FVA OCI journal entry

reversal of FVA OCI journal entry on sale

FVA account (temporary or permenant)

placeholder for all unrealized gains and losses

permanent account!

adjust accordingly to reflect the true balance @ ye

Held to maturity investments,

same rules as bond pricing/amortizing, but use cash, interest revenue, and HTM debt investments

instead of

premium and discount

Equity investments (no significant influence)

same rules as afs - debt investments but no amortization

Equity investments (significant influence)

investment in xxx

cash

income from investment

loss on investment

Fair value method (accounts)

FVA - FV option

unrealized gain/loss on equity investment - FV option

Book-tax income difference

taxable income * tax rate = income taxes payable

DTL = little tax

DTA = big tax

the difference in the year creates the dta/dtl and the balance in the JE creates the income tax expense

DTA

tax > book

DTL

tax < book

Warranty

book says now, tax says later

the warranty expense is only recognized in tax accounting when the work regarding the warranty has been completed

Valuation Allowance

income tax expense

valuation allowance of dta

dta * unrealizable %

Depreciation Difference

(book - tax) is what makes the income tax payable as well as DTA and DTL.

DTL and DTA reversed when positive

finance or operating (lessee)

any group 1 → finance

no group 1 → operating

finance or operating (lessor) any group 1

sales type financing

finance or operating (lessor) no group 1, but both group 2

direct financing

finance or operating (lessor) no group 1 or 2

operating

group 1 criteria

1. transfer

2. purchase option

3. 75% life

4. PV PMT = 90% of FMV

5. specialized

group 2 criteria

1. PV PMT = 90% of FMV

2. probable PMT collected

is there interest expense on the first year of a lease?

no, because no time has gone by to let interest accrue

Lease liability

= pv of all future payments, amortized to 0

Right of use assets

lease liability + initial indirect costs

how to amortize right of use assets?

straight line (amortization expense)

Options

set up table

1. FMV of options

2. % vesting

3. 2 / vesting period

4. 3 * year

5. subtract the prior years expenses

option exercise

convert the options into cash and balance with stock because the options got converted into stock

exercise price * shares

Liability

liability for stock based compensation account is used instead of APIC - stock options

Fair value option

set up table

1. FMV of options

2. % vesting

3. 2 / vesting period

4. 3 * year

5. subtract the prior years expenses

Share appreciation rights

replace apic - stock options with obligation sars

Restricted Stocks

1. dr - restricted stock and balance with equity

2. amortize restricted stock with compensation expense

golden rule of eps

always make sure you are weighting values if given dates

Basic EPS

(net income - preferred dividends)

---

weighted-average number of shares outstanding

Diluted EPS (convertible debt)

(net income - preferred dividends / weighted number of shares outstanding)

+

(interest expense*(1-tax rate) / convertible shares)

Diluted EPS (convertible preferred stock)

net income - preferred dividends + preferred dividends avoided on convertible stock

---

weighted number of shares outstanding + weighted shares on preferred stock conversion

Diluted EPS (options)

basic eps + ( 0 / options issued - (EP * options / MP) )

Weighted number of shares outstanding

stock issued * months in service

Sequencing

list eps from lowest to highest

lowest : most dilutive

highest : least dilutive

Operating cash flow (direct+indirect)

Investing cash flow

Financing cash flow