Fin acct 2 exam 2

How to calculate PBO

beginning

service cost

interest (at actuary’s discount rate)

amortized prior service cost

Loss (gain) ***inverse!

(benefits paid)

How to calculate Plan Assets

beginning

ACTUAL return

contributions

(benefits paid)

ending

Pension expense calculation

service cost

interest cost

(expected return of assets)

amortization of prior cost

amortization of gains or losses

Pension expense journal entry

Dr. Pension Expense Plug

Dr. Pension Assets expected return

Cr. PBO service cost + interest

Cr. Amortization— OCI calculate

How are PBO and Plan Assets recorded

as a net liability or net asset

OCI elements of Pension plans

gains or loss by revision, and amortization or prior service. OCI is shareholders equity

Record payment of benefits

Dr. PBO

Cr. Plan Assets

Record contribution to plan assets

Dr. Plan Assets

cr. Cash

To record Prior service cost

Dr. Prior Service Cost — OCI

Cr. PBO

To record gain on revision of PBO

Dr. Plan Asset

Cr. gain — OCI

Record loss on revision of PBO

Dr. Loss — OCI

Cr. PBO

Defined Contribution Accounting

Dr. Pension Expense

Cr. Cash

When to record a deferred tax asset

You have prepaid taxes. Your taxable income is greater than your income statement income. Happens with warranty expense, as the book recognizes the expense now, but for tax purposes, you deduct when paid.

When to record a deferred tax liability

In a scenario where your book income > taxable income. You have deferred payment of taxes that you recognize in the current year.

Finance/Sales-Type leases

essentially installment notes

1. transfer of ownership

2. lease term is for major part of economic life

3. PV of total lease payments > FV of asset

4. will have no use after lease

Purchase with a finance lease + interest journalized

Dr. Right-of-use equipment PV of pmts

Cr. Lease payable

Dr.Interest expense (%*outstanding balance of lease payable)

Dr. Lease payable plug

Cr. cash fixed

For leases, the first payment at the beginning of the period has no ___

interest expense

Sales-type lease initial recording

Dr. Lease receivable PV of amts

Cr. Equipment

How to amortize the right of use asset by lessee

Amortize over lease period/useful life — whichever is relevant

Dr. amortization expense

Cr. Right of use asset

Sales Type Lease with Selling Profit

Dr. Lease receivable

Dr. COGS

Cr. Equipment

Cr. Revenue

How to account for operating leases

Lessee:

Dr. Right of use asset

Cr. lease payable

Lessor:

no derecognition of asset or revenue

Lessee:

Dr. Payable

Dr. Interest expense

Cr. cash

Lessor:

first pmt at start of lease:

Dr. Cash

Cr. deferred lease revenue

second:

Dr. Cash

Dr. Deferred lease revenue

Cr. Deferred lease revenue

Cr. Lease revenue

also depreciate

In an operating lease, does the lessee have to amortize?

yes. amortize right of use asset by you Dr. to lease payable

Operating leases under 12 months

record like rent. no deferred lease revenue or