F4 M2, M3, M$

Question 1

With the equity method there is no consolidation T or F

Answer 1

T

Question 2

What are the percentage of ownership for Fair value, Equity, and Consolidated statements

Answer 2

Fair value 0-20; Equity 20-50; Consolidate 50-100

Question 3

Exercise significant influence uses what method

Answer 3

Equity method; largest shareholder and majority of board

Question 4

When is the equity method not appropriate

Answer 4

Bankruptcy, standstill agreement; investment is temporary; another small group has majority ownership and operate the company whiteout regard to the investor; cannot obtain the financial information; cannot obtain representation

Question 5

In the equity method when dividends are paid you do not make an entry to dividend income instead you credit the investment account T of F

Answer 5

T D Cash; C Investment in Investee

Question 6

What type of entry is made for stock dividends?

Answer 6

Memo entry only

Question 7

Under the equity method what is the formula for when there is common stock and preferred stock

Answer 7

Subsidiary earnings (income) - cumulative Preferred Stock dividend issued X percentage of how much ownership owns of stock + preferred stock dividend owned

Question 8

Asset adjustment formula is

Answer 8

The difference between the book value and the fair value of net assets acquired ; FV-BV = Asset Adjustment (which is amortized)

Question 9

Goodwill

Answer 9

FV purchase price of the subsidiary - FV of the net assets (% owned * net assets) = goood will; do not amortize

Question 10

An excess of an assets fair value (assets including inventory & PPE (except land) does what to eqyity

Answer 10

It decreases equity because it is amortized. This if the excess of these assets as a service charge.

Question 11

Stockholder’s equity in terms of an acquisition is also known as what?

Answer 11

Book Value; if in a problem it mentions stockholder’s equity was xyz at time of purchase; that means this was the company’s book value of their assets

Question 12

T or F; Going from the Fair Value(cost) to equity method is retroactive

Answer 12

F; retroactive adjustments are not required; the equity methods is adopted as of that date and going forward.

Question 13

Under the US GAPP the two reason why you would not consolidate financial statements are

Answer 13

Legal reorganization, bankruptcy or the subsidiary operates under severe foreign restrictions

Question 14

Controlling interest

Answer 14

Parent prepares and will consolidate all over 50% subsidiaries

Question 15

Non contolling interest

Answer 15

financial statements can be prepared separately

Question 16

Variable Interest Entity

Answer 16

You have a financial stake (variable interest) , your primarily recipient of financial benefits, I don’t have all of the characteristics of equity ownership

Question 17

The purchase of a company (acquisition) is on the date the acquisition was completed T or F

Answer 17

T

Question 18

Registration Fees for Equity Securities issued are expensed T or F

Answer 18

F; registration fees reduce paid in capital not expense

Question 19

Common stock formula

Answer 19

Net income - preferred dividends = Net Income avail to shareholders * percentage of ownership = equity in earnings + dividend revenue

Question 20

Par of stock is equivalent to

Answer 20

Common stock; when an acquisition takes place and there are shared issued part of stock those shares are common stock

Question 21

APIC (additional paid in capital) is

Answer 21

APIC is the per market price of the stock over the par value of the stock; so if the par is $5 and the market price is $55; APIC is $50

Question 22

Acquisition costs associated with a business transaction MUST BE expensed in the current period T or F

Answer 22

T

Question 23

T or F Short term liabilities (accounts payable) represent variable interest

Answer 23

F; Most liabilities (excluding short-term payables) represent variable interests

Question 24

The cost of a trademark is amortized when

Answer 24

Its amortized over its economic life; based on the purchase price. Ex: if the purchase price is $500,000 and the economic life is 50 years , but the book value is $380,000; you would amortize using the purchase price over $50 yeas

Question 25

What is the capitalization rule for the amortization of software costs

Answer 25

The annual amortization amount is the GREATER of the amortization between the revenue approach (sales/expected sales) and the straight line deprecation of the asset amount

Question 26

Trading securities reflect all realized and unrealized gains and losses in earnings T or F

Answer 26

T; A security that is AFS would have unrealized gains or losses in other comprehensive income, but once it is transferred into the trading category, those unrealized amount will need to be recognized IMMEDIATELY in earnings