5 Flashcards
(18 cards)
When does a liquidating dividend occur?
When the investee pays more income than was earned during the period the investor owned the shares of the investee.
Describe the cost method:
The cost method is for an investment that DOES NOT give the investor significant influence. The dividends are recognized in income of the investor. The investment remains on the balance sheet at cost unless there is a permanent decline in value, or there is a liquidating dividend.
Under IFRS, are gains and losses on the changes in fair value of equity investments reported in the income statement or in other comprehensive income?
It can be either. If the investment is held for trading purposes, then the changes in fair value are reported in profit/loss.
If it’s NOT held for trading, the investor may elect to report changes in fair value through other comp. income.
What type of investments can be transferred between categories under IFRS?
Only debt. Equity securities are not allowed to be transferred between categories under IFRS. When investments are transferred, prior period statements must be restated for comparative purposes.
Under IFRS, if debt securities are held NOT as part of the business plan, what are they measured at?
Fair value.
Under IFRS, if debt securities are held as part of the business plan, what are they measured at?
Amortized cost.
Under the equity method for GAAP, what effect does the sub’s income and dividends have on the investor’s investment account?
The investor’s share of income increases the investment account, and dividends decrease the investment account. The investor’s share of income from the investee is also recognized as income for the investor.
Which form of business combination results in a NEW legal entity?
Consolidation. In consolidation, 2 or more existing entities are combined into one new legal entity.
In a merger, one pre-existing entity is combined into another pre-existing entity. In an acquisition, one entity acquires a controlling interest and both continue to exist as separate legal entities.
Accretion expense is essentially growth in the:
Asset retirement obligation.
Purchases of treasury stock do not affect retained earnings under the:
Cost method.
Return on equity is considered what kind of ratio?
A profitability ratio
What is the defensive-interval ratio and what type of ratio is it?
It is the ratio of quick assets to daily operating expenditures. It is a liquidity ratio.
Does the cost method or the fair value method require a reconciliation of the changes in carrying amounts between the beginning and end of a period?
They both require said reconciliation.
If a decline in inventory value is not considered temporary, the decline is recognized in the quarter in which the decline occurs. Later recoveries are:
Recognized as gains to the extent of the previous losses only.
A discount on a bond is essentially:
Extra interest expense.
Which regulation governs the form and content of financial statement disclosures?
Regulation S-X.
The notional amount in a derivative refers to:
The specified unit of measure. If you have an option to buy 100 shares, the notional amount is the 100 shares.
Where does a first time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?
In retained earnings.
