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Flashcards in F3 NoteCards Deck (35):
1

Held-to-maturity securities reported at what?

Amortized Cost

2

Available-for-sale securities reported at what?

Fair Value, with unrealized gains/losses (from cost to market) reported as a component of OCI

3

Trading securities reported at what?

Fair Value, with holding gains and losses (from one year to the next) included in earnings on the Income Statement

4

Trading Securities definition

-Can be debt or equity securities
-Bought and held principally for the purpose of selling them in the near term (current assets)

5

Available-For-Sale Securities definition

-Can be debt or equity securities-
-Doesn't meet the other two classifications (usually noncurrent assets)

6

Held-to-Maturity Securities definition

-Debt securities only
-Company has positive intent and ability to hold these securities to maturity

7

IFRS: Unrealized Gains/Losses Rule

-Unrealized gains/losses for all AFS securities reported as OCI
-Foreign Exchange gains/losses for AFS Equity securities reported as OCI
-Foreign Exchange gains/losses for AFS DEBT securities reported on I/S

8

2 exceptions to not reporting consolidated statements:

1- Subsidiary is in legal reorganization
2- Subsidiary is in bankrupt

9

When AFS security is determined to be impaired due to a permanent decline in fair value,

Asset must be written down to the lower fair value by recording a loss recognized in the earnings section of the income statement

10

A held-to-maturity bond is reported at what?

It's carrying value

11

3 Degrees of Control for Consolidation

1- No Significant Influence (0%-20%)- do not consolidate - cost method
2- Significant Influence (20%-50%)- do not consolidate - equity method
3- Control (<50%) - consolidate - cost or equity method

12

Dividend Income

Just cash received. If stock dividend granted, not included in dividend income. Stock dividend gets memo entry only

13

If a company owns less than 20% of stock and does not exercise significant influence, what method is used?

Cost Method

14

If a company owns less than 20% of stock but DOES exercise significant influence, what method is used?

Equity Method

15

Cost Method is also known as:

Fair Value Method or Available-for-Sale Method

16

Cost Method: carrying amount of the investments account stays the same from the date of acquisition unless:

1- Shares of stock in the investee are purchased/sold
2- There is an accumulated dividend in excess of accumulated earnings resulting in a return of capital (liquidating dividend)
3- Basis is adjusted to FV as required by marketable equity securities
4- Investee incurs losses that substantially reduce net worth

17

The "Investment in Investee" is NOT adjusted for:

Investee earnings

18

The "Investment in Investee" is adjusted to:

Fair Value

19

Cash dividends from the investee are reported as:

Income by the investor (parent)

20

Are stock dividends and stock splits considered income to the recipient?

No.

21

Criteria for using equity method

-Investor exerts significant influence over operating and financial policies of invested
OR
-Ownership of 20%-50% of investee's voting stock

22

Equity Method: investment originally recorded at:

Price paid to acquire the investment

23

Investment account is adjusted as:

Income is earned and dividends are paid

24

Equity Method not appropriate when:

-Bankruptcy
-Investment is temporary
-Lawsuit/complaint filed

25

Accounting Rules for Equity Method (BASE)

B- Beginning balance
A- Add: investor's share of investee's earnings (think bank interest)
S- Subtract: investor's share of investee's dividends (think bank withdrawals)
E- Ending balance

26

Asset Fair Value Difference is:

Difference between book value of equity method and fair value of equity method

27

Goodwill is calculated:

Difference between purchase price of investment and fair value of equity method
-Must be computed each time there is a transaction (or at least annually)
-Goodwill created in an investment under equity method is ignored (not amortized or tested)

28

How to account for Joint Ventures

Under both GAAP and IFRS, use the equity method

29

Changing from Cost to Equity Method

The investment account and RE account are adjusted retrospectively for the difference

30

What to do with excess fair value (for anything but land)

Multiply by % owned, and divide over it's useful life. Then deduct from income

31

Full Goodwill/FV/NBV Calculation

Goodwill = Excess
FV x % ownership
NBV x % ownership

Purchase price less % owned of fair value = goodwill

32

Preferred stock is accounted for using the:

Cost method

33

Calculation difference between cost and equity method

Cost Method- just multiply NI by ownership %
Equity Method- (NI- Dividends Paid) multiplied by ownership %

34

Cash Dividend under equity method:

Not reported as dividend revenue- just reduces investment account

35

NON-Voting Stock means use

Cost Method