F4 Flashcards
(98 cards)
1
Q
Trading securities
Type of asset, where cash flow, how measured?
A
Current asset
Cash flow from continuing ops
Fair value - all gain / loss to IS
2
Q
Redeemable Preferred Stock
A
Debt - debt rules
Has maturity date
No voting rights
3
Q
Available for sale securities
Type of asset, where cash flow, how measured?
A
Cash flow from investing Fair value (unrealized gains / losses to OCI
4
Q
Held to maturity debt securities
Type of asset, where cash flow, how measured?
A
Debt only Amortized cost (not fair value)
5
Q
Requirements for held to maturity
A
INTENT and ABILITY to hold the securities to maturity
6
Q
Debt securities reported at fair value are classified as
A
Either trading securities or available for sale
7
Q
Offset account for unrealized gains and losses JE for fair value adjustments of financial instruments
A
Valuation account (fair market adjustment) Contra asset
8
Q
Is retained earnings affected by recognizing an unrealized loss on AFS securities?
A
No - does not effect retained earnings. Effects OCI and comprehensive income
9
Q
If AFS is permanently impaired, where is the loss recognized?
A
IS - NOT OCI
10
Q
Requirements for transferring between categories of securities
A
Must be justified
11
Q
If a trading security is non-current, where does it appear on the cash flow?
A
Investing
12
Q
If a trading security is current where does it appear on the cash flow?
A
Operating
13
Q
What happens to unrealized gain / loss when transferring from trading securities to another category?
A
Unrealized gain / loss in earnings shall NOT be reversed
14
Q
What happens to unrealized gain / loss when transferring to trading securities?
A
Recognize in Earnings
15
Q
What happens to unrealized gain / loss when transferring from AFS to HTM?
A
Unrealized holding gain will be amortized over the remaining life of the security (like discount / premium)
16
Q
Interest income cash flow category
A
Operating
17
Q
Permanent impaired HTM, where does loss go?
A
Mark to FMV and loss goes to IS
18
Q
Does permanently impaired loss ever hit OCI?
A
Never - b/c this is a realized loss
19
Q
Can you have significant influence if you don’t have voting rights?
A
No
20
Q
Non public trading securities are valued at
A
Cost less impairment
Private means hard to judge FV
21
Q
Liquidating JE for investor
A
Cash
Investment in investee
22
Q
What is a liquidating dividend?
A
Dividend is greater than what the company has in retained earnings. The excess is liquidating
23
Q
Fair value through net income
A
Trading security rules for equity investments
24
Q
Required disclosures for investments in debt securities
A
Fair value (HTM / AFS)
Unrealized gains and losses
Amortized Cost
25
Market risk
Sensitivity to overall macroeconomic conditions
Encouraged disclosure - not mandatory
26
Credit risk concentrations
Mandatory disclosure
Risk of loss from party nonperformance
27
How to calculate realized gain / loss on AFS debt security
Original cost - selling price = gain (loss)
| Reverse OCI
28
FVTNI
Fair value through net income (trading security rules by named differently to keep equity separate)
29
Can Equity be avail. For sale?
No
30
IFRS difference in equity instruments gains / losses (investor)
Equity instruments can be valued as AFS (FVOCI)
31
Practability exception to fair value reporting
Not practical to report at fair value
32
What is required to disclose for financial instruments that have elected the practicability exception?
Carrying amount
| Impairment
33
Can trading securities be impaired under GAAP or IFRS?
No - changes in fair value already recognized in NI
34
IFRS reclassification of investor securities difference from GAAP
Recognize gain / loss in earnings no matter the classification and remeasure at fair value
35
IFRS impairment difference for investor securities
AFS -> loss to OCI
36
JE for Dividends received (no significant control)
Cash
| Dividend income
37
Where does unrealized gain and loss go for trading securities?
IS
38
Where does unrealized gain and loss go for AFS?
OCI
39
Where does unrealized gain / loss go for HTM?
Not measured
40
Reclassification from AFS to HTM - what happens unrealized holding gain / loss?
Adjustment of yield in manner consistent to amortization of premium or discount
41
What most likely would cause a decline in bond's market value?
Interest rate increase
42
Items excluded from fair value reporting options
a. Leases
b. Pension benefit assets / liabilities
c. Investments in subsidiaries
43
Equity method is not appropriate even when investor owns 20 - 50% when
```
Bankruptcy in sub
Invest in sub temporary
Lawsuit or complaint filed
Standstill agreement
No significant influence
```
44
How are Earnings and Dividends recorded for investments under the equity method?
a. Earnings increased investment
| b. Dividends decrease investment - they are NOT income
45
Income from investment equity method account is what account (revenue side)
Equity in investee income
46
Equity in investee income is calculated how
Preferred stock dividends + share of earnings available to common stock (net income reduced by preferred dividends)
47
If impairment is temporary, how recorded?
Only permanent impairment is recorded
48
Transition from fair value method to equity method for equity investment
Add to investment and account prospectively
49
If significant influence is acquired in an investment of investee on Dec 31st, how should income from investee be calculated?
Investment from investee would be calculated as ( 0/12 * % owned * investee Earnings ) b/c the control was acquired on the last day of the year and only Earnings after that date (prospective) will be income
50
Under the equity method, when is goodwill obtained from an investment tested for impairment?
It isn't. The entire investment is tested for impairment
51
Significant doubt exists in the parent's ability to control the subsidiary when
Bankruptcy
Legal reorganization
Severe foreign restrictions
52
IFRS VIE
SPE
| Special purpose entity
53
Under IFRS when does an entity consolidate a SPE?
When the entity has CONTROL
54
Does a sub's partial ownership of. Parent company affect the decision to consolidate?
No
55
Record company acquisition based on fair market value of common stock at announcement date or closing date?
Closing date
56
Business combination costs are
Direct out of pocket costs are Expensed
57
Stock registration and issuance costs are
Debit APIC
Direct reduction of the value of stock issued
58
Contingent consideration JE for acquisition of sub
Invest in Sub
Contingent Liability
Add to invest in sub and record as contingent Liability
59
Do preferred Dividends increase income or decrease investment under equity method?
Preferred Dividends increase income under the equity method
60
CAR IN BIG
CS, APIC, RE
Invest in sub, NCI
BS FV, Intangible FV over carrying
Goodwill
61
How is FV of finished goods calculated?
Estimated selling prices less costs of disposal and a reasonable profit allowance
62
Is replacement cost an appropriate measure of fair value for raw materials inventory?
Yes
63
Can NCI have a neg. balance in consolidation?
Yes, if there is sufficient loss in sub
64
What is the partial method of goodwill?
Preferred method of calculation of NCI under IFRS - Fair value of net assets * ownership %
65
In process R + D in business combinations
A capitalized intangible asset. Example you buy a cancer research company b/c of the potential for a cure.
Expense any R&D after acquisition and amortize if research is successful, otherwise impair
66
Private company goodwill accounting alternative
Amortize goodwill and some intangibles are forgone in favor of goodwill such as customer related intangibles and non-competes
Amortized over MAX 10 years
67
Do the partial and full goodwill methods differ when the parent owns 100% of the sub?
No
68
In the partial goodwill method in consolidation, how much goodwill does NCI get?
None
69
When an entity switches from equity method to consolidation method, how is gain / loss calculated?
FIRST The equity method investment must be adjusted to fair value - this results in a gain or loss. Then goodwill is calculated
70
When acquiring a company that already has in process R + D on the books and the fair value of that intangible is higher than CV, what do you record as the value for in process R + D?
The fair value
71
How should Dividends paid by sub be reported on consolidated financials when ownership interest is less than 100%?
Fully eliminate against investment in sub and NCI accounts
72
Amount of unrealized company profit eliminated is...
The difference between consolidated inventory and sub + parent inventory and consolidated inventory
73
If a sub buys parent stock, what is the gain / loss on transaction?
No gain / loss - it's recorded as treasury stock
74
The amount of Depr. Expense on equipment sold through intercompany is decreased by
1 / x * gain
where x is the useful life left when the intercompany sale took place
75
If a parent owns x% of a sub and the sub acquires the parent's bonds, what is the % of gain the parent recognizes as gain on extinguishment of debt?
100%
76
If a parent owns x% of a sub and the parent acquires the sub's bonds, what is the % of gain the parent recognizes as gain on extinguishment of debt?
x% b/c it's the sub's bonds, NCI will recognize 1 - (x / 100) of the gain
77
When subs declare Dividends, what amount will be reported on parent's consolidated financials?
The NCI portion only
78
Formula for finding cost from markup and sales
Sales / (1 + markup %) = cost
79
Does markup = gross profit %?
No!
80
Is NCI part of parent's equity?
Yes!
81
Tricky part of consolidating sub net income
Only include sub revenues and expenses AFTER date of acquisition
82
Net cash spent or received in an acquisition must be reported where in the statement of cash flows?
Investing section
83
Financing section needs to report what if NCI exists on consolidated financials
Dividends paid by sub to NCI
84
JE to adjust sub's intercompany note payable unrealized loss
No entry necessary because will be eliminated in consolidation
85
Goal of intercompany elimination for transfer of fixed asset
* Eliminate gain on sale
* Eliminate differences in carrying price and AD
* Eliminate excess Depr exp
86
If you own 95% of a company how much income do you recognize from sub in your own income?
95%, 5% will go to NCI instead of closing to your RE
87
When consolidating parent and sub, do you use fair value or book value?
Fair value of sub's assets at ACQUISITION DATE and book value of parent's (can't mark up fixed assets under GAAP)
88
How to calculate ending NCI in equity?
Acquisition price / % ownership - acquisition price = beg NCI + NCI share of sub NI
89
Cash Generating Unit
IFRS or GAAP term?
IFRS
90
When is there possible impairment?
FV < BV
91
Goodwill should be tested for value impairment at what level under GAAP
Reporting unit
92
Goodwill should be tested for value impairment at what level under IFRS
Cash generating unit
93
If both an asset group and goodwill have to be tested for impairment, which should be tested first?
Asset group. Fair value of identifiable assets have to be determined before FV of unidentifiable assets can be determined
94
Implied goodwill
Excess of fair value over identifiable net assets and the max goodwill allowed
Excess of book value over implied goodwill is equal to the goodwill impairment
95
Carrying value exceeds fair value means
There may be impairment
96
Fair value exceeds carrying value means
There is no impairment
97
Equity method goodwill impairment vs consolidation when tested?
Consolidation - yearly
| Equity method - goodwill is NOT tested for impairment, instead entire investment tested for impairment
98
When liquidating a partnership - advances from partners are
A. cashed out
B. Offset with their capital balances (increase)
B. Right to offset. Increases capital balances
