F4 Investments, Business Combinations, And Goodwill

Question 1

Characteristics to Determine the Primary beneficiary of Variable Interest Entity (VIE) under GAAP

Answer 1

1. Has the power to direct the activities of VIE
2. The obligation to absorb expected VIE losses
3. The right to receives the expected VIE residual returns

4 NOT required to have greater the 50% ownership of the VIE.

Question 2

Company that completed a business combination, what is expensed and not capitalized?

Answer 2

1. Legal fees
2. Due diligence cost

Issuing and Registering in the business combination are capitalized

Question 3

What does 
     The
C
A
R
     I'm 
I
N
      Is 
B
I
G
      Mean?

Answer 3

C- Common stock. - old owner equity/NBV
A- APIC - old owner equity/NBV
R-  Retained Earnings- owner equity/NBV
I- Investment - Total parent paid
N- Noncontroling interest - Total FV of NCI
B- Balance sheet FV Adjustments- less
I- Identifiable Intangible Assets  - less
G- Goodwill if debit. Or Gain if credit

Question 4

Members of a Consolidate Group have an Intercompany bond holding, what happens in the Balance Sheet Consolidation with the bonds?

Answer 4

Bonds are eliminated in the consolidation and the difference (gain or loss) between like

Discount issued will increase Retained Earnings

Premium issued will decrease Retained Earnings

Question 5

What is an example not to used for a variable interest in an entity?

Answer 5

Most liabilities

Excluding short-term trade payable = accounts payable

Question 6

Held- to- Maturity HTM - Impairment calculation and JE?

Answer 6

PV < Amort cost = Impairment loss = ECL expected credit loss

Dr credit loss - IS (PV - Amort)
Cr Allowance for credit loss - BS

Question 7

Available- for- Sale AFS debt securities- Impairment calculation and JE?
All is need to calculate is

FV
Amort cost
PV use market rate

Answer 7

FV > Amort cost = Unrealized gain OCI
Dr. Valuation account - BS
Cr. Unrealized gain - OCI

FV < Amort cost = Impaired
Impaired = FV - Amort
Calculate ECL (PV - amort)

If Impaired amount < ECL then record Impaired amout NOT ECL AMOUNT.
Dr. Credit loss - IS
Cr. Allowance for credit loss - BS

If Impaired amout is > ECL then record
Dr. Credit loss - AT ECL AMOUNT = IS
Cr. Allowance for credit loss - AT ECL AMOUNT
Dr. Unrealized loss on AFS - ( IMPAIRED- ECL) - OCI
Cr. Valuation accounts - ( IMPAIRED- ECL)

Question 8

How to calculate Expected credit loss?

Answer 8

PV - amort cost (BV)

Question 9

Consolidation financial statement are typically prepared by the primary beneficiary expected when significant doubts exits like:

Answer 9

1 when subsidiary is in legal reorganization
2 bankruptcy
3 subsidiary operated under server foreign restrictions

Question 10

When parent-subsidiary relationship exists, consolidation financial statement are prepared in recognition of the accounting concept?

Answer 10

Economic entity

Question 11

Financial instruments
Financial Assets
Financial Liabilities

Answer 11

Financial Asset = Receiving payments, investor, bondholders, lender

Financial Liabilities = Make payment, borrower, issuer, seller bond.