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Econ 136C
final financial intermediate accounting
12
Accounting
Undergraduate 4
09/11/2012

Additional Accounting Flashcards

 


 

Cards

Term
Explain how a lessor might adjust lease terms to generate an operating lease result. Indicate what (+)'s and (-)'s this result will generate?
Definition
no answer in key 
Term
In favor of Leasing
Definition
  1. Easy Out: New technology --->Only comitted little time
  2. If operating lease-no debt, ratios not worse
  3. only $ sales tax on lease term/ spread TVM
  4. Easy in - no down probably or easier for financing
Term
In Favor of Buying
Definition
  1. Probably a lower cost overall (PV of % compare to FMV)
  2. Lower monthly payments
  3. more choices on tax deduction
  4. no sales tax on interest
Term

Carryback Loss NOL

 

Definition

carried back 2 or carried foward 20 years. A company forgo the carry-back privleges and only go foward instead. The losses are difficult to transfer to another entity. 

Term

Why do deferred taxes seldom appear on many companies' financial statements?

 

What is the proper disclosure of a def tax asset which is not reasonably assured.

Definition
  • Def taxes assets netted against def tax liabilites
  • hopefully outweighed by the liability which indicates good tax planning since the liability is like an interest free loan from the government 
  • def tax asset generates no interest

If def tax asset is present, a valuation account is sometimes needed for conservatism: deductions cannot be used unless income is realized in future. The valuation allowance adds to full disclosure but comprimises matching.

 

Term
Explain why pro forma data is neccessary when a change in accounting principle occurs and not necessary when an error occurs. What about a change in estimate? Why?
Definition
  • When acct princ chnages prior fin date is not changed in the main body of the fin's b/c correct under GAAP
  • pro-forma footnote data used instead
  • to facilitate comparibility of the two fin stmts 
  • with errors prior fin stmts are restated (no footnotes) 
  • no restatments of footnotes for change in estimates because they are considered normal 
Term

Why does Lessor prefer Capital Lease?

Definition
  • They recognize GP now
  • changes from an asset to a recievable=more liquid
  • better ratios 
Term
Prospective Method
Definition
  • change to reasonable estimate errors
  • do not change prior years only current 
  • bad matching
  • no major disclosures
Term
Retrospective Method
Definition
  • due to error/unreasonable estimate
  • major disclousre: change all f/s current and past and footnote
  • good matching
  • tax effect always 

 

Term
Valuation Allowance 
Definition
  • set up to refelct conservatism (Fut tax rates that are not assured are removed from b/s)
  • Full disclosure (potential asset on bls but reduced by amt not assured.
  • bad matching (inc tax exp. is affected by adj.)
  • if the asset is used in future, the expense adj. must be reversed=further matching problems
Term
How are perm differences presented in the tax accounts on the fin statments?
Definition
They do NOT affect any of the tax accounts because they are non-taxable events
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