F4

Question 1

DEBT SECURITIES HTM

Answer 1

Ignore any change in value. In BS on amortized cost. No sales. No unrealized gain/loss. If it’s impaired-calculate ECL (expected credit loss)= PV of principal and interest you ae going to receive minus amortized cost. If loss from impairment: DR Credit loss (IS, RE,E)/ CR Allowance for credit losses (BS Asset decline).

Question 2

DEBT SECURITIES AFS. Unrealized gain//loss go directly o Equity (as a part of OCI)

Answer 2

UNSOLD:

1. If FV goes up: DR Valuation account (FV adj )/Unrealized gain on AFS. AOCI increased.
2. Impairment: DR Credit loss goes to IS (Cost - FV +any losses in OCI) CR Allowance for credit losses. Repeat JE every period. Credit loss calculated PV - Amortized Cost. If impairment loss (PV-Cost) is BIGGER THAN ECL (Cost-FV) : DR Credit loss, DR Unrealized loss on AFS for amount exceeded ECL /CR Allowance for Credit Losses (equal ECL) and CR Valuation account (FV adj, extra than ECL)
3. Sold. DR Cash, DR Unrealized gain AFS (REVERSE ), CR AFS Asset. CR Realized gain on AFS (goes to IS)

Question 3

DEBT SECURITIES TS. Unrealized Gain/Losse goes to Income statement

Answer 3

1. Market price goes up. DR Valuation account (FV adj)/ CR Unrealized gain on TS
2. If Market price goes down. DR Unrealized loss on TS CR valuation account (FV adj)
3. TS Sold. DR Cash/ CR TS , CR Realized gain (S Price minus CV at time of sale)

Question 4

Equity securities. Reported through FVTNI Stock treated like a debt. Treated like TS. Unrealized gain/loss goes to IS.

Answer 4

Practicability Exception: if no FV, cost- minus impairment

Question 5

If interest rate increased

Answer 5

The bonds interest rate increased, then bonds interest rate would be less attractive to investors now vs then it was issued. This would cause decline in FMV

Question 6

AFS

Answer 6

Unsold. Reported in BS under FV. Unrealized loss/gain (price-FV) -OCI.

AFS Gin/Loss in OCI NET of Tax, e.g. 100 gain, tax 25%, report 75 in OCI

Question 7

Equity securities reported FVTNI>Retained earnings>Stockholders equity

Answer 7

Unrealized Gain/Loss of marketable equity securities accounted in NI.If multiple years FV given ATTENTION! Start with prior year adjusted FV balance.

Question 8

Common shares with elected FV option for investment

Answer 8

Gain/loss plus any received DIVIDENTS. Pay attention on dividend share. They can give total amount of dividends for all stock, apply your %

Question 9

TS

Answer 9

The bonds are for sale in next 12 months

Question 10

Common shares. What amount shown in BS as investment if FV, dividends given. stock split 2 to 1 given?

Answer 10

Only FV. Dividends considered income, not investment. Stock split 2 to 1-number of shares doubled and cost per share halved, so there is not change to investment amount.

Question 11

When debt securities (TS, common stock) 1st purchased, they recorded as Asset. Investments. For adjusting to FV use:

Answer 11

If gain, DR Valuation account, if Loss- credit contra asset valuation account.

Question 12

HTM

Answer 12

Impairment if it is permanent decline in FV :DR ECL CR Allowance for ECL

Question 13

Bond A is an 8-year bond paying 3%, par $100,000, price $90,000 issued at a market yield of 4.5%. Year 1 amortization is $1,050 and Year 2 amortization is $1,097.25.

Answer 13

Bought at Discount. Face value $100K, price $90K, income 3% per year, less than average market 4.5%, mean bought at discount. Discount $10K amortized each year and increase CV of Bond each year. At 8th year CV=Face value. If bound would be bought at premium, $110K, then amortization would reduce CV each year.

Question 14

Bond face value $100K bought on discount $90K.Paying 3%, Year 1 amortization is $1,050

Answer 14

1. Record purchase:
   DR Investment $100K
   CR Discount 10K
   CR Cash $90K
2. CV Bond 12/31:
   DR Discount (1 year amortization) $1.1K
   DR Cash (paying 3%) $3K
   CR Interest Rev $4.1

Question 15

Given:
Ember purchased 15%

30,000 common shares
declared dividend of $2.15 per share

Retained earnings at declaration date was $395,000.

JE in the end of the year?

Answer 15

Dividends paid to Ember are 30,000 shares × $2.15 per share = $64,500. Any dividends paid in excess of retained earnings are treated as a return of capital. Retained earnings of $395,000 × 15% = $59,250 “attributable” to Ember. The excess is treated as a reduction in the Investment
JE DR Cash 64,500
CR Interest Rev 59,250
CR Investment 5,250

Question 16

Bond purchased at $10K discount, sold at $14k premium. Amortization of discount total $2k. JE?

Answer 16

DR Cash $114 K
CR Investment $92K
CR Gain $22K

Question 17

York Co in 1/07 purchased 8% HTM bond. Face value $1,000K, Price paid $946K, including accrued interest $40K. Bonds were purchased at 10% yield interest. What amount should be record as investment?

Answer 17

Investment $906K
Accrued Interest $40K
Cash $946K

1. Caring Value 7/1 $946K-$40K=$906K
2. Interest Revenue $90610%6/12=$45.3K
3. Interest Receivable$1000K8%6/12=$40K
4. Discount amortized $5.3K
5. Caring value 12/31 $906K+$5.3K=$911.3K

Question 18

Equity method for investment (more than 20%)

Answer 18

Balance sheet: Parent’s initial investment+% of Net Income- % of Parent dividend (withdraw)-% of depreciation (service charge).

Income statement: Net income% - minus depreciation=Parent’s net equity earnings in investee
1. Record initial investment:
DR Investment
CR Cash (purchase price)
2. Recognize gain:
DR Investment
CR Equity in earnings (Net Income minus- Preferred dividends #of shares parcumulative%)% interest in investee

3. Record amortization (FV- BV) total excess to amortize*% in investee/ remaining useful life
   DR Equity in earnings
   CR Investment (reduction of our investment)
4. Dividends paid by investee (return on investment)
   DR Cash (Declared Dividends*% interest in investee)
   CR Investment to investee

Question 19

Use equity method ONLY if

Answer 19

You have more than 20% of voting common stock !NOT non voting preferred stock

Question 20

Receipt of dividends recorded:

Answer 20

Fair Value: Income. Doesn’t affect investment.

Equity method: Reduce investment

Question 21

When equity method used which of the following affects Investor’s income?

Answer 21

Change in FV-NO, Cash Dividends- NO

Question 22

Investor received dividends in excess of investors share of common stock. How it will affect investment account?

Answer 22

These are liquidation dividends. Decrease in FV and in Equity methods

Question 23

Under equity method

Answer 23

Common stock dividends recorded as reduction of investment. Preferred stock dividends-as dividend revenue

Question 24

What allocate to goodwill under equity method if given:

• Cost of investment $200
• 30% of common stock
• FV $600k
• BV 500k

Answer 24

1. Total excess Difference COST - BV $200k minus -(30%BV$500k)=$50k
2. Excess allocated to assets Difference FV- BV ($600k-minus BV $500k)*30%=$30k
3. Excess to goodwill$50k-$30k=$20k

Difference Cost- BV% and FV-BV%

Difference b/them goodwill

Question 25

Revenue due to investments is the same as

Answer 25

Net income after preferred dividends were paid * % of investment

Question 26

Income under equity method

Answer 26

Net income*% of investment- minus yearly amortization

Question 27

If stock dividend paid instead of cash

Answer 27

Don't include it in dividend income

Question 28

``` Given: 20% of preferred stock 10% cumulative. Total $100K 40% of common stock Total $700K Net income Paid dividends Calculate revenue ```

Answer 28

1. Preferred dividends $100k*10%*20% ownership 2. Net income minus preferred dividends= net income available for common shareholders 3. Multiply it by 40%=equity in earnings Total revenue =preferred dividends+equity in earnings

Question 29

Under equity method FV exceed BV.

Answer 29

Income from investment reduced for yearly amortization amount*% of share/years.

Question 30

Equity method

Answer 30

Do not include paid dividend into a calculation of revenue/divided revenue. It's return of the capital and it reduces investment.

Question 31

Under equity method

Answer 31

Do not include in income dividends, prior period adjustments. Include Equity in earnings

Question 32

If you make JE to record amortization and revenue under equity method remember

Answer 32

1. Reduce Net Income Minus - Preferred stock dividends (*cumulative %)= Net income after preferred dividends* investment %. 2. For amortization use (FV-BV)*investment %

Question 33

Right order for consolidation:

Answer 33

From bottom up. | Do not consolidate if undergoing legal reorganization. Use equity method.

Question 34

2 characteristics of Acquisition method

Answer 34

1. 100% of assets acquired reported under FV | 2. When companies consolidated, subsidiary entire equity (stock, retained earnings and APIC) excluded

Question 35

JE for consolidation for SUB Acquisition (done on excel spreadsheet not books)

Answer 35

``` DR Common stock SUB DR APIC SUB DR Retained Earnings CR Parent Investment in SUB CR Non controlling interest DR BS Adj to FV DR Intangible asset paid DR Good will plug ```

Question 36

Good will related to acquisition under US GAAP:

Answer 36

US Gaap Goodwill=Price paid + NCI- Shareholders Equity-Extra FV of Assets Shareholders Equity=CA+PPE-Liability NCI- calculate proportion 100%

Question 37

Goodwill partial method IFRS

Answer 37

Partial goodwill=Price paid not including NCI -(Common stock plus extra in FV of assets PLUS INTANGIBLE)*% of ownership Or Price paid excluding NCI minus (CA+PPE+Extra FV in Assets-Liabilities)

Question 38

``` Total FV: Goodwill Intangible BS extra BV (CAR Com Stock, APIC, Ret Earnings)(CA+PPE-Liabilities) ```

Answer 38

Total FV: NCI Acquisition Price (incl contingent consideration, do not include direct acquisition cost)

Question 39

NCI under US GAAP- proportion 100%

Answer 39

NCI under IFRS =FV of SUB Assets (CAR+BS Extra+Intangible)*NCI% or CAR BV of Assets - BV of Liabilities

Question 40

NCI if dividends paid is equal

Answer 40

Beginig NCI+Noncontrolling share of Net Income- Minus NC Dividends paid

Question 41

Intercompany transaction

Answer 41

Parent eliminates AP, AR. Dividends reported-only paid to external shareholders. Dividends paid to noncontrolling shareholders: DR Investment in SUB, DR NCI, CR Dividends paid/Retained earnings

Question 42

Consolidated effect/ JE on bond sale b/w parent/sub

Answer 42

If SUB bought parent's company bond, it's treated like bond retirement. If book value is more than selling price, bond retired at gain. "premium". BV-Price. DR premium on bond/ CR Retained earnings

Question 43

Intercompany

Answer 43

If asked about intercompany AP eliminated: Combined amount of AR minus Consolidated AR If asked about caring amount of inventory purchased/sold inside the company: Total Rev before elimination minus consolidated Rev =Intercompany sales*COGS% (1-GP%). Intercompany COGS *% still held in inventory

Question 44

When Parent Company sells to SUB ALL amount of Sale and COGC s/b eliminated

Answer 44

``` DR Sales Total Amount CR COGS (COGS + profit (% of marked up) must be eliminated) CR Inventory (profit must be eliminated from ending inventory) ```

Question 45

When Parent company sells equipment to SUB

Answer 45

DR Gain on sale (Price - BV) CR Depreciation expense for 1 year (difference old/new policy) CR Accumulated Depreciation (Plug) CR Asset (Price - Original cost)

Question 46

Intercompany current assets

Answer 46

Sum of Parent and SUB + FV Adj

Question 47

What mount of stockholders equity should be reported in Parent's consolidated Balance Sheet if Parent doesn't owe 100%?

Answer 47

Parent CAR + NCI NCI computing: 1. FV of NCI. NCI % of Price 2. Plus Net income before paid dividends = (Ending Retained Earnings - Beginning Retained Earnings +paid dividends)*NCI 3. Minus NCI*Dividends Paid 4. Total Parent's Stockholder's Equity= Parent's CAR+NCI balance

Question 48

Which of the following statements is correct regarding a discount bond redeemed at premium to par under US Gaap

Answer 48

Bond issuance cost not fully amortized will increase the size of the loss booked