Test 2
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
Help!
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| Why lease instead of buy? | show 🗑
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| show | both lessee (acquires right to use) and lessor
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| show | Does not; requires lease payments
However, SOME leases transfer all risks adn benefits of ownership (economic substance - purchase by lessee)
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| 1. Accg recognizes economic substance over legal form 2. Accg recognizes legal form over economic substance | show 🗑
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| show | Operating Lease. Otherwise, Capital Lease
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| What are the journal entries for each company if 1. ABC owns building 2. XYZ signs operating lease for building | show 🗑
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| show | Keeping asset and debt off B/S avoids adverse affects on debt ratios
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| MUST classify as capital lease if only ONE of the following is true: | show 🗑
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| Minimum Lease payments include: | show 🗑
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| show | ownership-type costss: maintenance, insurance, etc.
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| show | NO. Expensed by lessee.
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| show | Record the PV MIN. LEASE PYMTS (using lower of lessee's incremental borrowing rate or the implicit rate if the lease is known)
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| What do you record on the statement of cash flows and balance sheet when signing and recording a new capital lease? | show 🗑
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| How do you depreciate the asset if you essentially get ownership (through ownership transfer or bargain purchase option)? | show 🗑
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| show | Depreciate over life of LEASE
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| When you depreciate an asset, how is this recorded on the Balance Sheet and Income Statement? | show 🗑
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| show | Reduce Cash, Increase Interest Exp., and Reduce Lease Obligation
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| show | Decrease Leased Equip and Accum Deprec. Accts to zero.
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| What do you record after making payments on an operating lease? | show 🗑
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| What is the difference between expenses in an operating lease and a capital lease? | show 🗑
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| Why would Management want to avoid a capital lease as opposed to an operating lease? | show 🗑
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| If guaranteed Residual Value, then it (is/is not) part of minimum lease payments | show 🗑
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| show | Must give cash to make up the difference. Thus, reduce cash and increase a loss for this loss in value. (ex: worth only $2500, give $500 cash and decrease cash acounts and recognize loss)
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| show | ALL types of leases (operating and capital leases). General description of leases must be disclosed
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| Reasons to reduce Owner's Equity: | show 🗑
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| Why repurchase stock (stock buyback)? (6 things) | show 🗑
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| Methods of reducing equity: | show 🗑
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| What are some outlets to buyback stock? | show 🗑
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| show | When an investor may acquire a large block of stock and threaten a hostile takeover unless management buys out the "greenmailer" at a price premium.
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| Describe the Open Market method to buyback stock. | show 🗑
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| Describe the Fixed-Price Tender Offer method to buyback stock. | show 🗑
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| Describe the Dutch Auction Tender Offer method to buyback stock. | show 🗑
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| Describe the Targeted Block Repurchase method to buyback stock. | show 🗑
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| When you reduce equity through dividends, which accounts are affected and how? | show 🗑
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| When you reduce equity by liquidating dividends, which accounts are affected and how? | show 🗑
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| show | Cash decreases, PS & APIC decreases, RE decreases, total OE decreases (but no "loss")
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| Treasury stock (is/is not) an asset | show 🗑
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| show | increase APIC-TS
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| show | decrease RE
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| show | increase Cash, remove TS at COST, and adjust other OE accts as needed.
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| show | remove TS and remove CS and APIC based on original price. Adjust other OE accts as needed. No TOTAL change to OE, though.
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| If you retire CS and pay LESS than the original issue price, which accts are affected and how? | show 🗑
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| When you retire CS and pay MORE than the original issue price, which accts are affected and how? | show 🗑
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| show | 1. Debt levels too high2. Debt covenants are too restrictive3. Cheaper financing is now available
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| show | 1. Pay off at maturity2. Early Retirement through open market purchase, calling in callable debt, or inducing a conversion of debt to equity
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| show | Yes, but it is NOT recognized from a buyback of stock. Report as "Other Gain/Loss" on Income Statement unless qualifies as extraordinary
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| What do you record each year when you're trying to pay off at maturity? | show 🗑
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| show | Bond payable decreases by $1000, Cash decreases by $1000
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| show | reduces risk and increases financial flexibility
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| show | treat as debt
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| When you convert debt, how is the B/S affected? | show 🗑
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Created by:
Chelsealj
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