Day 21 Flashcards
Define: Fair Value Option
Follow same rules as trading securities
Unrealized gains and losses are reported in earnings
Fair Value Option is irrevocable and is applied to individual financial instruments
Financial instruments NOT eligible for Fair Value = investment in subsidiaries, pension benefit assets/liabilities, and Leases
MCQ-04143
ABC Inc purchased bonds at a discount on the open market and intends to hold them until maturity. How should they be accounted for?
Bond held to maturity are classified as Held-To-Maturity Securities and AMORTIZED
MCQ-00266
When the market value of an investment in debt
securities in which the company has a positive
intent and ability to hold to maturity exceeds its
carrying amount, how should each of the following
assets be reported at the end of the year?
- Long-term marketable debt securities
- Short-term marketable debt securities
Carrying Amount for both
MCQ-00281
When are bonds less attractive to investors?
When interest rates increase
MCQ-00454
Consolidated FS are typically prepared when one company has controlling interest in another, unless:
- Bankruptcy
- The subsidiary operates under severe foreign currency exchange restrictions, controls, or other governmental restrictions
MCQ-00283
When a parent-subsidiary relationship exists, consolidated FS are prepared in recognition of the accounting concept:
Economic Entity
MCQ-00284
ABC, Inc., a manufacturing company, owns 75% of the common stock of XYZ, Inc., an investment company. XYZ owns 60% of the common stock of EFG, Inc., an insurance company. In ABC’s consolidated financial statements, should consolidation accounting or equity method accounting be used for XYZ and EFG?
Consolidate both
Rule: in a vertical chain, where parent company owns more than 50% of subsidiary company and the subsidiary owns more than 50% of a third company = CONSOLIDATE
MCQ-00388
ABC Inc owns 80% of a non-US company, when would they not report consolidated FS?
The government of the foreign country has imposed severe sanctions and controls on US majority owned companies
MCQ-15858
How do you determine the primary beneficiary of a Variable Interest Entity (VIE)?
- Has power to direct activities
- Absorbs the VIE’s losses
- Received the expected VIE’s residual returns
MCQ-06466
When does an entity have insufficient equity investment at risk?
When the Entity’s equity investment at risk is less than the equity investment at risk of similar non-VIE entities
MCQ-06468
A business combination was accounted for as an acquisition. What expenses should be included:
- Finder fees
- Consultant fees
Note: Registration fees for equity securities issued decrease APIC
MCQ-00389
How are inventories acquired in an acquisition accounted for?
FMV
Finished Goods to be valued at estimated selling prices, less both costs of disposal and a reasonable profit allowance
MCQ-00422
A business combination was accounted for as an acquisition, direct costs of the combination should be:
Deducted in determining net income of the combined corporation for the period in which the costs were incurred
MCQ-00420
How should Acquisition Costs be accounted for in a business transaction?
Missy be expensed as incurred in the current period
MCQ-08250
ABC Inc acquired 60% XYZ Inc common stock for $800k. ABC plans to relocate XYZ headquarters and it estimates it’s costs to be $240k. What is the acquisition cost?
$800k
Acquisition cost of stock doesn’t include relocation costs
MCQ-08485
