F5 Flashcards
Financial Instruments: Financial Assets
Financial Instruments: Financial Liabilities
Financial Instruments: Fair Value Option
Investments in Debt Securities (Asset): Classification
Investments in Debt Securities (Asset): Valuation
Investments in Debt Securities (Asset): Reclassification
Investments in Debt Securities (Asset): Income from investments in debt securities
For discount or premium Bonds (HTM): JE includes discount or premium on bonds
Investments in Debt Securities (Asset): Impairment of debt securities - What is ECL and what is the AFS/HTM Treatment?
Investments in Debt Securities (Asset): Impairment of debt securities - Current expected credit losses model (CECL) - IMPAIREMENT OF HTM
Investments in Debt Securities (Asset): Impairment of debt securities - Current expected credit losses model (CECL) - IMPAIREMENT OF AFS
Investments in Debt Securities (Asset): Sale of Debt Securities (Trading and AFS only)
Investments in Equity Securities: Preferred and Common Stock Influence
Investments in Equity Securities: Classification, General Rule, and Practicability Exception
Investments in Equity Securities: Valuation - no significant influence
Investments in Equity Securities: Income from Investments in Equity Securities - No significant influence Dividends and liquidating dividends
Liquidating dividends are distributed from the capital base of the company rather than its earnings. Since it is a return of capital, it is not considered dividend income for the purpose of the income statement.
Investments in Equity Securities: Impairement of Equity & Sale of Security - No significant influence
Investments in Equity Securities: Required Disclosures - No significant influence
Notes from MCQs:
Dividend revenue, under FV method, should be recognized to the extent of cumulative earnings since acquisition and return of capital beyond that point
Not allowed to use FV option:
Investments in subsidiaries
Pension benefit
Leases
Equity Method: When to use and not to use
At the point at which the investor’s carrying amount of the investment is reduced to zero due to investee losses, the application of the equity method is suspended. The investor can resume applying the equity method once the investee has returned to profitability and any net losses allocated to the investor during the suspension period are covered by the investor’s share of the investee’s net income.
Extra Explanation:
In equity accounting, when an investor’s share of an investee’s losses reduces the carrying amount of the investment to zero, the investor stops recognizing further losses. However, if the investee later returns to profitability, the investor does not immediately resume equity method accounting. Instead, the investor waits until its share of the investee’s net income has offset all the losses that were not recognized during the period when the equity method was suspended. This means the investor must wait until the cumulative share of net income since the suspension matches the cumulative share of losses that were not accounted for. Only then does the equity method resume, ensuring that the investment’s carrying amount reflects the investor’s share of the investee’s earnings and losses over time, including those losses that were not recognized while the equity method was suspended.
Equity Method: Accounting - Recording investment at cost, Recording Increase/Decrease of investment
Under the equity method, dividends received are considered returns on investment and are deducted from the investment account rather than recognized as dividend income.
Equity Method: Accounting for asset FV differences and Goodwill “Premium”
Equity Method: Impairment
Equity Method: Summary
Equity Method: Transition to the Equity Method
Consolidated Financial Statements: Basic Consolidation Concepts (Control, Controlling and Noncontrolling Interest)
Consolidated Financial Statements: Acquisition Method
Consolidated Financial Statements: Acquisition Method - Noncontrolling Interest & EXAMPLE
Consolidated Financial Statements: Eliminating intercompany transactions
Consolidated Financial Statements: Eliminating intercompany transactions - Intercompany inventory/merchandise transactions
Consolidated Financial Statements: Eliminating intercompany transactions - Intercompany Bond transactions and Sale of Land
Consolidated Financial Statements: Eliminating intercompany transactions - Intercompany inventory/merchandise transactions - EXAMPLE
Consolidated Financial Statements: Eliminating intercompany transactions - Intercompany Sale of Fixed Assets - EXAMPLE
Partnerships: Admission of a Partner
Partnerships: Admission of a Partner - Creation of a new partnership interest with investment of additional capital - EQUITY METHOD
Partnerships: Admission of a Partner - Creation of a new partnership interest with investment of additional capital - BONUS METHOD
Partnerships: Admission of a Partner - Creation of a new partnership interest with investment of additional capital - GOODWILL METHOD
Partnerships: Admission of a Partner - Creation of a new partnership interest with investment of additional capital - SUMMARY OF METHODS
Partnerships: Withdrawal of a Partner - BONUS & GOODWILL METHODS
Partnerships: Withdrawal of a Partner - BONUS & GOODWILL METHODS - EXAMPLE
For Goodwill Method: the goodwill is the bonus allocated to all the partners. If Reynolds (25% share) gets 18k bonus to withdraw then 18k/25% = 72k Total Goodwill. Lewis Goodwill = 72k * 35%. Sandford Goodwill = 72k * 40%.
Asset revaluation is the same with both methods.
Everybody benefits from the goodwill. For bonus method, they just pay off Reynolds and need to pick up the difference according to their share.
Partnerships: Liquidation of a Partnership
Statement of Cash Flows: General Info
Statement of Cash Flows: Indirect Method
For Operating Activities: Subtract Gains not part of core business
Financing: long-term liabilities (Principal) and equity. current portion of long term liab
Net increase or decrease in cash and cash equivalents should equal balance sheet cash change.
Statement of Cash Flows: required supplemental disclosures
Income Taxes: Overview
deferred tax assets and liabilities are always netted and treated as non-current on the Balance Sheet.
Income Taxes: Permanent Differences
Income Taxes: Temporary Differences
deferred tax assets and liabilities are always netted and treated as non-current on the Balance Sheet.
Income Taxes: Temporary Differences - Deferred Tax Liabilities
Income Taxes: Temporary Differences - Deferred Tax Assets
A deferred tax asset (DTA) occurs when a temporary difference results in more taxes paid now and less taxes owed in the future. This occurs when income appears on a tax return before the income statement, or when expenses appear on an income statement before they appear on a tax return.
Income Taxes: Uncertain Tax Positions
Income Taxes: Treatment of and adjustment for changes
Income Taxes: Investee’s undistributed earnings
Income Taxes: Income tax disclosures
under U.S. GAAP, all deferred tax assets and deferred tax liabilities are reported as non-current.
