Term
| Off-balance sheet financing means... |
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Definition
either assets, liabilities or both are kept off the balance sheet.
Can affect ROE, Net Ops Profit Margin, and Asset Turnover Ratios. |
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Term
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Definition
- Require Less Equity Investment
- Flexible terms
- Asset stays off the balance sheet
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Term
| GAAP identifies 2 types of Leases: |
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Definition
- Operating: No asset/liability on balance sheet, Recorded as Rent Expense
- Capital: Asset/Liability reported on the Balance Sheet, Asset is depreciated, Liability is amortized like a mortgage, Payments are seperated into interest expense and prinicipal repayment.
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Term
| In an Operating Lease Transaction, you... |
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Definition
Reduce Cash
Reduce Retained Earnings as "Rent Expense"
For the Same Amount |
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Term
| In a Capatalize Lease Transaction, you... |
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Definition
- Create a liability equal to the present value of the lease payments
- Create an asset for an equal amount
- Depreciate that asset over the lease term
- Treat the lease payments as payments on the loan
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Term
| What are the main differences between Capital and Operating Leases? |
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Definition
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Term
| In early years, reported expense is higher for a ___________ lease than a ________ operating lease; but lower in later years. |
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Definition
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Term
| For leases, the Net Income effect depends on whether the lease is in its________ or ________. |
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Definition
Early years, or later years.
(If we assume on average a lease is in its mid-life, then the net income effect is negligable.) |
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Term
| Rental Expense for Operating Leases should.... |
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Definition
| approximate the interest + depreciate expense that the firm would report if the lease was classified as Capital. |
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Term
| Under the midlife assumption, the ROA (Return on Avg. Total Assets) is _______ for the Capatilized Lease than the Operating Lease. |
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Definition
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Term
| For comparing companies, we transfer the Operating Leases into Capital Lease Terms. |
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Definition
| See Class 10 Slides 37 for transaction, and previous slides for more info... |
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Term
| Application of Capatilization of Operating Leases |
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Definition
See Slides 39-43 for illustration
**NEED TO KNOW THIS FOR EXAM! |
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Term
| Projected Benefit Obligation Format: |
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Definition
PBO, beg
+ Service Cost
+ Interest Cost
+/- Actuarial gain/loss
- Benefits paid to employees
PBO, Ending |
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Term
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Definition
Pension Plan Assets, beg
+ Return on Plan Assets
+ Company Contributions
- Benefits Paid
Pension Plan Assets, Ending |
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Term
| What 3 factors impact pensions: |
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Definition
- Passage of Time
- Return on Assets
- Service Cost
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Term
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Definition
| Avg. Present Value of Obligations * Interest Rate |
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Term
| Overfunded or underfunded plans show up on the balance sheet as.... |
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Definition
| Net Asset, or Net Liability |
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Term
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Definition
| Avg. Market Value of Assets * Rate of Return |
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Term
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Definition
Interest Cost
+ Service Cost
- Expected Return on Assets
+ Amortization of deferred amounts
(actuarial gains/losses^^) |
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Term
| The Pension Expense amount shows up on the... |
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Definition
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Term
| Accumulated Other Comprehensive income = |
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Definition
The difference between
Actual return on Assets
-and-
Expected Return on Assets |
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