Deck 6 Flashcards
For purposes of consolidating financial interests, a majority voting interest is deemed to be what?
Greater than 50% of the directly or indirectly owned outstanding voting shares of another entity.
A majority voting interest is achieved when control over an investee is established or more than 50 percent of the voting stock of the investee has been acquired.
If a stock split happens after year end (in year 2) is it still applied to the CY weighted average common stock outstanding calc?
It depends when it happens. If it happens between dec 31st and the date the financials are issued (usually in feb or march) then yes, you apply the split to the Year 1 calculation. if it happens after the FS are issued then no, it is not applied.
Are things like employee termination and lease termination losses included as part of discontinued operations?
Yes, The net loss from discontinued operations will include the gain from the sale of the division, the operating loss, the employee termination benefits and the cost to terminate the operating lease. Exit and disposal costs related to discontinued operations are reported in discontinued operations on the income statement.
If a company records prior service cost to amend its overfunded pension plan, what affect will it have on the financial statements?
Decrease accumulated OCI
Changes in the funded status of a pension plan due to plan amendment must be reported in other comprehensive income in the period incurred. Therefore, at December 31, Spacer will record prior service cost as a debit to other comprehensive income, which will decrease Spacer’s accumulated other comprehensive income balance at December 31:
OCI XXX
Pension benefit asset XXX
What do you do with the amortization of equipment whose FV is greater than CV in an acquisition? (Equity method)
When there is a 30% acquisition and there is a piece of equipment that has FV greater than CV of 100,000 with a useful life remaining of 5 years. How does this affect the investment account and the the income statements.
You would multiply the amount over CV by the % owned and then divide that by the useful life.
100,000 * .3 = 30,000/5 = 6,000
This 6,000 then decreases the investment account and the income statement by that amount each year for 5 years.
When a stock dividend of 10% is given to a company that already owns 30%, what is the new percent of ownership?
30%
A stock dividend is given to everyone so it doesnt change the ownership.
If you have an investment in an entity for 30% and an investment in another company for 80%, are both company’s investment amounts reported on the financial statements?
No
The 80% one is consolidated and eliminated. Only the equity method investment (30%) would be recorded on the financials in the investment account.
You would also only record the goodwill and non controlling interest from the 80% company as well since it is being consolidated. Since the company doesnt have a controlling interest in the 30% company, it is not reported for that 30% company.
What is the underlying and notional amount of a derivative?
Underlying = rate agreed to to purchase or sell the the items at (for example $1 for 100 items, the $1 is the underlying)
Notional amount = in the example above, the notional amount is the 100 items. the items moving from one company to another.
Which of the following is not considered a primary risk associated with financial derivatives?
Market Risk
Credit Risk
Liquidity Risk
Volatility Risk
Volatility Risk
Volatility risk is not a primary risk associated with the use of financial derivative transactions. In fact, derivative hedges are used to reduce a company’s earnings volatility or to offset anticipated losses.
Choice “1” is incorrect. Market risk is the risk that a company will incur a loss on a given derivative transaction. It is a primary risk associated with the use of financial derivatives.
Choice “2” is incorrect. Credit risk is the risk that a counterparty will not perform or honor the terms of the contract (i.e. payment of net settlement amount). It is a primary risk associated with derivative transactions.
Choice “3” is incorrect. Liquidity risk is the risk that a party to a derivative transaction cannot unwind the position in a timely manner (i.e., unwinding a swap transaction). Liquidity risk is a primary risk of financial instruments, including derivatives.
Are claims against a shipper for goods lost in transit before year end considered part of AR?
YES - addition to AR
When calculating goodwill impairment for IFRS you are looking for the FV - Costs to sell and the PV of the future cash flows. Would you take the greater or lesser of these two amounts to calculate impairment?
GREATER
When calculating amortization on leased equipment, would you reduce the base amount by the salvage value, or FV of the equipment at the end of the lease?
yes, the FV at the end of the lease is considered salvage value and you do subtract that from the base.
How would you calculate the accumulated OCI for a pension?
Prior service cost is 200,000 at the beginning of the year and the remaining service life of the company’s employees was 20 years
=200,000 - 10,000(200,000/10 years) = 190,000
The unrecognized prior service cost should be reported in accumulated other comprehensive income until recognized as a component of net periodic pension cost through amortization.
Company K has an actuarial gain associated with its overfunded pension plan due to a reduction in the estimated life expectancy of its employees. Under IFRS, where will the gain appear?
OCI
IS
In OCI, to remain there in future years
An actuarial gain, under IFRS, will be booked to other comprehensive income and remain there in future years.
If there is hail damage that is common and the company has a loss as a result, would this be recorded in the FS and disclosed?
Only record the loss in continuing operations, No disclosure is necessary since it is a common occurrence.
