FAR 4.1

Question 1

Is fair value measurement an option for assets/liabilities under leases?

Answer 1

is not an option for capital leases

Question 2

Equity method dividends

how are dividends from the investee recorded?

Answer 2

common stock div’s recorded by investor as a reduction to the investment, it’s NOT recorded against earnings

Preferred stock is recorded in Income

under the fair value method, receipt of dividend is recorded as income and doe NOT affect the investment

Question 3

Does change in market value of investee’s common stock affect income under the equity method?

Answer 3

no

Question 4

IFRS partial GW method

NCI = ?

Answer 4

NCI = FV of subs net assets x NCI %

Question 5

IFRS partial GW method

NCI = ?

Answer 5

NCI = FV of subs net assets x NCI %

Question 6

IFRS partial GW method

GW = ?

Answer 6

Parent = FV of subs net assets x Parents %

Question 7

Intercompany transactions

Amount of gain Parent should report from a transaction where Sub buys shares of Parent?

Answer 7

No gain reported. It is treated as treasury stock

Question 8

Intercompany

Subs depreciation expense should be eliminated by how much?

Answer 8

by the amount of the expense that has been overstated. if the sub was now using 3 yr depreciation, then it would be reduced by 33%, but remember that the amount of depreciation expense should still include the original amount

Question 9

Intercompany

unrealized profit to be recognized for current assets, purchase raw materials 240k, subs gross profit on sale to Parent 40k, Parent had 60k inventory?

Answer 9

48 x (60/240) = 12k gross profit to be eliminated from inventory

Question 10

Intercompany Sales and COGS JE for elimination

W sold inventory with a cost of 40k to T at 140% of cost, or 56k, set up the JE?

Answer 10

dr. Intercompany revenue - W 56k
cr. Intercompany COGS - W 40k
cr. COGS - T 16k

Question 11

Intercompany - How much Inventory included on combined BS?

Intercompany inventory profit on shipments 50k, inventory acquired from outside parties B 175k, L-250k, Inventory acquired from L-60k (intercompany)

Answer 11

Inventory from outside parties 175k + 250k = 425k
Intercompany inventory = 60k
*Less unrealized profit on intercompany invetory = (15k)

Total 470k

*Gross margin% 50k (inventory profit)/200k (Banks shipments from Lamm for the year) = 25%

Question 12

Intercompany sales JE - eliminating

Intercompany sales - 800k
Merchandise was sold at a 25% markup from COST
Sub held 200k of inventory from P

Answer 12

Dr. Interco Revenue Sub 800k
Cr. Interco COGS sub 640k
Cr. COGS - P 120k
Cr. Inventory - P 40k

cost x 1.25 = 800k
cost = 140k

160k x 25% = 40k eliminated from ending inventory
160k x 75% = 120k eliminated from COGS

Question 13

Consolidated F/S

Because P & S are required to consolidate if over 50%, how much of S’s liabilities should be included?

Answer 13

remove any intercompany liabilities, but include 100% of the remaining liabilities, NOT just the % of S ownership amount