Term
| Explain how a lessor might adjust lease terms to generate an operating lease result. Indicate what (+)'s and (-)'s this result will generate? |
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Definition
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Term
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Definition
- Easy Out: New technology --->Only comitted little time
- If operating lease-no debt, ratios not worse
- only $ sales tax on lease term/ spread TVM
- Easy in - no down probably or easier for financing
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Term
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Definition
- Probably a lower cost overall (PV of % compare to FMV)
- Lower monthly payments
- more choices on tax deduction
- no sales tax on interest
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Term
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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. |
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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. |
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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.
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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? |
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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
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Term
Why does Lessor prefer Capital Lease? |
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Definition
- They recognize GP now
- changes from an asset to a recievable=more liquid
- better ratios
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Term
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Definition
- change to reasonable estimate errors
- do not change prior years only current
- bad matching
- no major disclosures
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Term
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Definition
- due to error/unreasonable estimate
- major disclousre: change all f/s current and past and footnote
- good matching
- tax effect always
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Term
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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
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Term
| How are perm differences presented in the tax accounts on the fin statments? |
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Definition
| They do NOT affect any of the tax accounts because they are non-taxable events |
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