For both of these reasons contingent liabilities are

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contingencies at their nominal value. For both of these reasons, contingent liabilities are likely smaller under U.S. GAAP. IFRS offers more disclosure of liabilities and accruals. For each IFRS provision (the term used for accrued liabilities and expenses), the company must reconcile the opening and closing carry- ing amounts, describe any additional provision for the period, and explain any reversals for the period. Reconciliation is less prevalent under U.S. GAAP (required for example for allowance
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Module 7 I LiabilityRecognitionand NonownerFinancing 7-28 for doubtful accounts, warranty accruals, restructuring accruals). Recall that an over-accrual in one period shifts income to a subsequent period when the accrual is reversed. This increased zransparency under IFRS might make it easier to spot earnings management. L.S. GAAP classifies convertible debt as a liability. Under IFRS, convertible debt is split into '0 parts: debt and equity (reflecting the option to convert). The amount assigned to each part "- based on fair values when the debt is issued. So, for equivalent convertible debt outstand- ing, IFRS balance sheets show a smaller amount for the debt portion. ODULE-END REVIEW On January 1, assume that Sprint Nextel Corporation issues $300,000 of IS-year, 10% bonds payable ror $351,876, yielding an effective semiannual interest rate of 4%. Interest is payable semiannually on June 30 and December 31. (1) Show computations to confirm the issue price of $351,876, and (2) com- tete Sprint's financial statement effects template for (a) bond issuance, (b) semiannual interest payment d premium amortization on June 30 of the first year, and (c) semiannual interest payment and premium amortization on December 31 of the first year. The solution is on page 7-47. PEN DIX 7A: Compound Interest appendix explains the concepts of present and future value, which are useful for our analysis purposes. sent Value Concepts you rather receive a dollar now or a dollar one year from now? Most people would answer, a dollar now. " 'on tells us that a dollar received now is more valuable than the same amount received sometime in the future. reasons exist for choosing the dollar now, the most obvious of which concerns risk. Because the future is :.:::::na·in, any number of events can prevent us from receiving the dollar a year from now. To avoid this risk, we the earlier date. Another reason is that the dollar received now could be invested. That is, one year from "we would have the dollar and the interest earned on that dollar. ent Value of a Single Amount and interest factors yield the following generalizations: (1) the right to receive an amount of money now, its nt value, is worth more than the right to receive the same amount later, its future value; (2) the longer we wait to receive an amount, the less attractive the receipt is; (3) the greater the interest rate the greater the t we will receive in the future. (Putting 2 and 3 together we see that the difference between the present value amount and its future value is a function of both interest rate and time, that is, Principal X Interest Rate X ): and (4) the more risk associated with any situation, the higher the interest rate.
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