F3 Flashcards
List out the below categories for marketable securities:
Classification – BS – Reported – Unreal. G/L - CF
Classification – BS – Reported – Unreal. G/L - CF
• Trading – Current – FV – IS – Operating/investing
• AFS – Non-Current – FV – OCI – Investing
• HTM – Non-Current – Amortized Cost – N/A - Investing
List out the below categories for transfers b/w marketable securities:
From – To – Transfer Acct. For – Unrealized Holding G/L
From – To – Transfer Acct. For – Unrealized Holding G/L
• Trading – Anyother – FV – No adj./already in I/S
• Anyother – Trading – FV – Recognized in earnings
• HTM – AFS – FV – to OCI
• AFS – HTM – FV – Amortized G/L from OCI to I/S with any bond premium/discount amortization
What are the 3 most important characteristic of the “Cost” method? (Also known as AFS method and FV method)
1) “Investment in Investee” account NOT adjusted for investee earnings
2) “Investment in Investee” account is adjusted to FV
3) Cash dividends are reported as Dividend Income by Parent. (Reduce basis if exceeds)
When should you use the Equity method?
- When you own 20% - 50% or
* You have “ability to exercise significant influence”
What’s the BASE formula for “Equity Method” account balance?
Beginning “Investment in Investee” Balance
Add: Investor’s share of earnings (Income when earned, not taken out)(Included PD you own)
Substract: Investor’s share of dividends (not income) and Amortized FV > BV
Ending Balance
What’s the building block to remember when calculating differences between purchase price and NBV of Investee’s net assets?
Goodwill – Excess ^
FV x % (Amortize – Bank Service Charge) ^
NBV x % ^
What’s the key to step-by-step acquisition for Cost to Equity Method?
Apply the new method to old percentage in prior period. IFRS is prospective though.
What is the parent’s basis when acquiring a company under the acquisition method?
FV = Acquisition Price = Investment in Subsidiary
What is the acquisition method EJE? (CARINBIG)
CS Sub Elim
APIC Sub Elim
RE Sub Elim
Invest in Sub Elim
NCI Created (if not 100%)
BS of Sub adjusted to FV
Identifiable Intangible Assets of sub recorded at FV
Goodwill (or Gain) is requiredWhat does CAR do?
Eliminates Book Value of Sub’s Equity.
BV Assets – BV Liabilities = CAR(BV Equity)
What happens to the different costs incurred during a business acquisition?
- Direct out-of-pocket cost such as finder’s fee = EXPENSE
- Stock registration and issuance costs = DEBIT APIC of PARENT
- Indirect Costs: EXPENSE
- Bond Issue Costs are capitalized and amortized (Debit bond issue costs)
What is the NCI after the after the acquisition date?
Beg. NCI
Add NCI share income
Subtract NCI share of Dividends
Ending NCI
*NCI can get share of loss and have a negative balance
How is NCI and GW determined under the Full GW method and the Partial GW method?
Full GW:
NCI = FV of Sub x NCI %
GW = FV of Sub – FV of Sub’s net assets
Partial GW:
NCI = FV Sub’s Net Identifiable Assets x NCI %
GW = Acquisition Cost – (FV of Sub’s net assets x Own%)
The particular item is carried as asset when a sub acquired although it would normally be expensed.
In-Process R & D
- Expense “Continuing” R&D
- If success = Amortized IP R&D
- If Failure = impair/write off IP R&D
What are the step to determining GW for an acquisition?
Step 1: B – BS Adjusted to FV (Recalc Depr)
Step 2: I – Identifiable Intangible Assets to FV
- Amortized Finite Life (Subject to 2-step)
- Indefinite Life No Amort (1 –step)
Step 3: G – Goodwill (Test for impairment)
