- When asked for the LT Debt - Is current portion of long term debt included? I always thought it was. SchweserPro didn’t. 2. When a firm sales receiveables the adjustment is to increase AR and Liab by the amount of the sale. But wouldn’t you have to adjust cash as well to account for the money received? I had a question wrong that asked what the effect on Assets was by selling receivables and it didn’t consider the cash.
- No
- you don’t have to tweak the cash… when you sold the receivables, you did get cash, but your adjustment is to add back the receivables (asset) but also add to liabilities the same amount. so what you’re doing is pretty much treating that cash you got like a loan. no need to touch cash, but you gots to call it what it is, more like a loan and you should treat it that way.
Seriously stop responding to my posts MGG.
is that a period? did you get yours? now you can join the estrogen thread! i might not be making a lick of sense on the receivables thing. i like to make up my own accounting rules and i clearly am not always balanced. but i want to say it’s something like that.
What about #1?
pinkster, you ask too much of me. 1 for 2 is about all i’m good for… should help the curve on exam day. i feel like sometimes on schweser i see them broken out separately, other times there’s just a line item for LT debt. maybe you’d assume it’s included unless they break it out, in which case I doubt it’d be in the LT debt part also (seems like it’d be double counting, no?) that’s about as good as i can do for you. i’m calling it a night. when you guys get your crazy party in chicago planned and you need some more ladies to balance out this dudefest you have in the works, i might just have to come out. love chicago, love drinking, love trying to answer your accounting questions and making myself realize that i have a boatload still to learn. back at it tomorrow with PM1 book 6 schweser. i posted a 70 on the Am which for me at this point in the game is pretty good- but my suck areas of quant and derivs weren’t there. i could be in for some abuse tomorrow morning. good luck with the rest of the night!
- LTD by definition has to be due in more than 1 year. The current portion is due sooner…so it isn’t long term.
The current portion of long term debt isn’t long term debt any more, so no, it shouldn’t be counted. Are you all square on no. 2? That was something that I didn’t get right away at Level I, so I asked John Harris about it. He didn’t give me any great insight, but after thinking about it I basically realized that the point of our adjustment is not to precisely reverse the effects of the transaction (the sale of receivables with recourse) – that would certainly imply that we should take the cash away that the firm received. The intention of the adjustment is to simply reflect the economic reality of the transaction. And the reality is that the firm has (more or less) just taken out a loan against it’s receivables until they are paid off. So we don’t take the proceeds (cash) away from the firm – we just put a liability on the balance sheet to reflect the “loan” they took out.
i took a stiff dose of nyquil about 30 minutes ago (for a cold, not a cheap high) so this probably doesn’t make any sense, but in a Stalla question I had to include the current portion of LT Debt when calculating the current ratio, so I always call the current portion of LT Debt a current liability, and therefore for #1, wouldn’t include it in LT Debt.
Bannisja - I think this is the start of a beautiful friendship. Sweet dreams! Chicago is going to rock to the beat of AFers.
What were the chances of all three of us posting a response in the same minute?
ilvino Wrote: ------------------------------------------------------- > i took a stiff dose of nyquil about 30 minutes ago > (for a cold, not a cheap high) so this probably > doesn’t make any sense, but in a Stalla question I > had to include the current portion of LT Debt when > calculating the current ratio, so I always call > the current portion of LT Debt a current > liability, and therefore for #1, wouldn’t include > it in LT Debt. Exactly. I recall having to use it. It really depends on how you look at it.
- for sure current portion of long term debt is current liability