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F4 Flashcards

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1
Q

Concentration of Credit Risk - Disclosure

A

Disclose in the note to the FS

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2
Q

Marketable debt securities classified as TRADING

A

Reported at FV, w/ holding gains and losses included in earnings

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3
Q

Unrealized G/L - AFS Debt Securities

A
  • Recognized in OCI

- No unrealized holding gains/losses included in earnings

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4
Q

Held-to-Maturity Securities - Valuation

A

Valued at amortized costs

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5
Q

Reclassification - Transfers of Securities from one group to another

A

Accounts for at FV

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6
Q

Reclassification - From Trading Category - Gains/Losses

A
  • unrealized gains/losses are already recognized in earnings and should not be reversed
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7
Q

Reclassification - To Trading Category - G/L

A
  • unrealized gains/loss at the date of the transfer is recognized in earnings immediately
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8
Q

Dividend Revenue - FV Method

A

Revenue recognized to the extent of the cumulative earnings since acquisition and return of capital beyond that point

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9
Q

Reclassification - HTM Transferred to AFS - Gains/Losses

A
  • unrealized holding gains/loss at the date of the transfer is reported in OCI
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10
Q

Reclassification - AFS to HTM

A
  • unrealized holding gains/loss is already reported in OCI

- Gain/loss amortized over the remaining life of the security

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11
Q

Disclosures - Market Risk & Concentration of Credit Risk

A

Market Risk - encouraged but not required

Credit Risk - disclosure required

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12
Q

Leases - FV Method

A

Not eligible for FV method

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13
Q

Dividend Income - Formula - FV Method

A

of shares x Dividend per share

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14
Q

Financial Instruments - Dividends

A

Both carrying amount and FV are required to be disclosed

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15
Q

CECL Model - AFS Debt Securities

A

IF AFS debt security has a FV below amortized costs the asset is written down to the lower FV and recorded on the IS

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16
Q

Trading Debt Securities - Reporting

A

Reported at FV w/ unrealized gains/losses included in earnings

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17
Q

AFS - Unrealized gains/losses - Reporting

A
  • Reported in OCI net of income

- NOT on income statement

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18
Q

Brokerage Commissions and Taxes

A
  • Included in gain/loss calculation
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19
Q

FV Option Calculation

A 
Purchase price
(FV)
= Gain/loss
\+ Dividends received
= Income/loss
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20
Q

CECL Model - HTM Debt Securities - Losses

A

Losses are recorded when the amortized cost is more than PV

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21
Q

Equity Method

A
  • used to account for investments if significant influence can be exercised by the investor or the investee
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22
Q

Significant Influence

A
  • exercised by a company that owns 20% to 50% of voting stock of another investee company
    have significant influence over the operating and financial policies of the investee
    use equity method when presenting the investment in the investee
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23
Q

Equity Method Not Used

A
  • bankruptcy - sub
  • temporary investment
  • lawsuit is filed
  • standstill agreement
  • another small group has majority ownership
  • investor can’t get proper fin. info
  • investor can’t get representation
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24
Q

Equity Method - Initial Recording

A
  • Investment is originally recorded at the price paid to acquire the investment
  • Income increased investment acct.
  • Dividend decreases investment acct.
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25
JE to record investment at cost - Equity Method
Investment in Investee $XXX | Cash $XXX
26
JE to record increase in the investment by the investor's share of earnings of the investee
Investment in investee $XXX | Equity in earning/Investment Income $XXX
27
JE to record decrease in the investment by the investor's share of cash dividends from the investee
Cash $XXX | Investment in Investee $XXX
28
Investment in Investee CS and PS
IF investee owns both CS and PS significant influence test is usually met by the amt of CS owned
29
Equity Method Impairment
Impairment loss is recognized when two conditions occur: 1. FV < CV of the investment 2. Decline is not permanent
30
Ownership % below 20% but significant influence exists
use equity method
31
Significant Influence
cannot be exercised by non-voting stock Ex. company owns 40% non voting stock *they would use FV method & not equity method
32
Consolidate Exceptions
- sub is in legal reorganization | - bankruptcy
33
Goodwill created in investment account - Equity Method
- NOT tested for impairment or amortized
34
Acquisition Price Exceeds FV of net assets acquired
Assets & liabilities. presented at FV
35
Liquidating Dividends - Equity Method & FV Method
Decrease the carrying amount of the investment acct.
36
Dividends Received - Equity Method
Decrease investments on the BS
37
Voting Interest Model
consolidatedFS are prepared when a parent-sub relationship has formed
38
Parent Status
Control is established or 50% ownership of voting stock
39
Controlling Interest
parent prepares and will consolidate all over 50% subsidiaries
40
Noncontrolling Interest
- may have stand-alone FS | - report in consolidated equity
41
Variable Interest Entities (VIEs)
does not have equity investors w/ voting rights
42
Primary Beneficiary
required to consolidate VIE
43
Economic Entity
Accounting concept used to prepare consolidated FS when a parent sub relationship exists
44
Costs to complete a business combination - expenses NOT amortized
- Legal fees | - Due diligence costs
45
Acquisition costs
- expenses as incurred in the current period
46
CAR Formula
Assets - liabilities = Equity Asset - liabilities = NBV Assets - liabilities = CAR
47
NCI Calculation - BS
FV of sub x NCI %
48
NCI Calculation - IS
subsidiary net income x Controlling int. % = NCI net income
49
Identifiable Intangible Assets - Amortized
1. Finite useful life | 2. Infinite useful life
50
Finite Useful Life
- amortized to residual value over expected useful life | - two - step impairment test
51
Indefinite useful life
- do not amortize | - one-step impairment test
52
FV of sub
Acquisition cost + NCI @ FV
53
Acquisition Accounting - CARINBIG JE
``` C - Dr. CS - sub A - Dr. APIC - sub R - Dr. RE - sub I - Cr. Investment in sun N - Cr. Non-controlling Interest B - Dr. BS adjustments to FV I - Dr. Identifiable intangible assets to FV G - Dr. Goodwill ```
54
Bargain Purchase - Recognition - Acquisition
Recognized as a gain in earnings @ acquisition date
55
Effect of Paying dividends on RE & NCI
- No effect dividends | - Decreases NCI
56
Inter-company Transactions - BS
- Eliminate all intercompnay transactions on the BS
57
Intercompany WP elimination entry - Inventory
``` Dr. Re Dr. Intercompany sales Cr. Intercompany COGS Cr. COGS Cr. Ending Inventory ```
58
Intercompany WP Elimination JE - Bonds
Dr. Bonds payable Dr. Premium (or Cr. discount) Cr. Investment in affiliate bonds Cr. Gain on extinguishment (or Dr. Loss)
59
Intercompany WP Elimination JE - land
Dr. Intercompany gain on sale of land | Cr. Land
60
Intercompany WP Elimination JE - Depreciable Assets
Dr. Intercompnay gain on sale of machinery Cr. Machinery Cr. Acc. Dep.
61
Intercompany transactions - consolidation
All intracompany transactions should be eliminated upon consolidation
62
Consolidated Cash Flow for NP
Beg. parent NP Acquisition date sub. NP (Ending consolidate NP) = Cash outflow
63
Acquisition Method - RE
- 100% of the sub. equity accounts are eliminated at consolidation
64
Acquisition Method - SE
100% of the sub. shareholder's equity (including CS) as of the date of acquisition is eliminated in consolidation
65
Net Income of Newly acquired sub.
only included in consolidated net income from the date of acquisition
66
Liabilities - Consolidated FS
Parent company reported sub. liabilities on consolidated FS, if parent owns 50% or more of sub
67
Subsidiary Assets - Acquisition Method
100% of the FV of the subsidiaries assets are recognized adding them to the BV of the parent's assets
68
Goodwill impairment Testing
goodwill should be tested for impairment at the reporting unit level
69
Goodwill impairment Testing - Timing
Tested for impairment at least annually at the same time each year
70
Goodwill impairment test
CV of entity (FV of entity) = Impairment loss *impairment loss cannot exceed amount of goodwill already reported

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