FAR: F3 & F4

Question 1

What are trading securities. How is it classified and reported on the B/S?

Answer 1

equity and debt securities bought to be sold in less than a year. Reported as a current asset. It is reported at FV.

Question 2

What are available for sale securities? How is it classified and reported on the B/S?

Answer 2

Equity and debt securities bought to be either sold within a year or sold at a later date beyond a year. Can be reported as either current or non current depending on managements intent. It is reported at FV.

Question 3

What are Held to Maturity securities? How is it classified and reported on the B/S?

Answer 3

Debt security investments that management has the positive intent and ability to hold the security until it matures. It is a Non current asset until maturity. It is reported at cost, net of amortization

Question 4

Unrealized G/L from trading securities are reported on which F/S?

Answer 4

Income statement

Question 5

Unrealized G/L from available for sale securities are reported on which F/S?

Answer 5

Balance sheet = Included in Comprehensive income

Question 6

Unrealized G/L from held to maturity are reported on which F/S?

Answer 6

None

Question 7

Realized G/L from trading securities are reported on which F/S?

Answer 7

Income statement

Question 8

Realized G/L from available for sale securities are reported on which F/S?

Answer 8

Income Statement

Question 9

Realized G/L from held to maturity are reported on which F/S?

Answer 9

in accordance with amortized cost

Question 10

Any transfer reclassification of a security (trading, AFS or held to maturity) is accounted for at

Answer 10

Fair Value

Question 11

What do you do when reclassification Unrealized G/L from trading to AFS or H-to-M?

Answer 11

Nothing! It has already been recognized income.

Question 12

What do you do when reclassification Unrealized G/L from AFS or H-to-M to trading?

Answer 12

Recognize in current earnings

Question 13

What do you do when reclassification Unrealized G/L from H-to-M to AFS?

Answer 13

Record in OCI

Question 14

What do you do when reclassification Unrealized G/L from AFS to H-to-M ?

Answer 14

Amortize G/L from OCI with any bond premium/discount amortization

Question 15

Dividend Income =

Answer 15

Number of shares x Dividend per share

Question 16

T/F: A stock dividend is income? How should it be recognized under a consolidated I/S?

Answer 16

False. Should be a memo entry only

Question 17

T/F: Under consolidated I/S Dividend revenue should be recognized to the extent of cumulative earnings since acquisition and return of capital beyond that point.

Answer 17

True

Question 18

T/F: Under the cost method, dividends (not earnings) are not reflected as income by the investor.

Answer 18

Flase

Question 19

The cost basis account is reduced only if (3 conditions)

Answer 19

Shares of stock are sold, cumulative dividends > cumulate earnings (Return of capital), or subsidiary incurs losses that significantly reduced net worth.

Question 20

Consolidated NI =

Answer 20

Parents NI 
\+Subs. NI (from date of acquisition)
\+/- effects of inter company transactions
- Depreciation 
- Impairment losses on goodwill (if any)
= Consolidated NI

Question 21

Consolidated R/E =

Answer 21

Parent’s Beg R/E
+ Consolidated NI
- Parents Dividends (CY)
= Ending R/E

Question 22

Under what method does a receipt of a dividend as income and is recorded as income and does not affect the investment account

Answer 22

Under the cost method

Question 23

Under what method does a receipt of a dividend recorded decrease the investment account

Answer 23

Under the equity method

Question 24

T/F: Under both the cost and equity methods, liquidating dividend reduce the carrying amount of the investment account

Answer 24

True

Question 25

T/F: ny good will created in an investment accounting for under the equity method is ignored. It is neither amortized nor tested for impairment. The entire investment (using the equity method) is subject to the impairment test.

Answer 25

True

Question 26

Significant influence cannot be exercised by holding non-voting stock. The cost method must be used.

Answer 26

True

Question 27

Under the cost method, receipt of a dividend is recorded as income and does not affect the investment account

Answer 27

True

Question 28

T/F: Under the Equity method, the consolidated stockholders equity will be the parent companies stockholders equity plus the non controlling interest at year end

Answer 28

False. That is under the Acquisition Method

Question 29

Consolidated Stockholders' Equity =

Answer 29

C/S + A.P.I.C. + Non controlling Interest + R/E

Question 30

Non Controlling Interest =

Answer 30

Beginning NCI* + NCI share of NI - NCI share of Dividends = Ending NCI

Question 31

Ending R/E =

Answer 31

Beginning R/E + NI - Dividends

Question 32

T/F: Under the acquisition method, Consolidated NI is the same as the parent company R/E under the equity method

Answer 32

False, this is under the equity method

Question 33

CAR IN BIG is a nemonic for

Answer 33

CAR: Common Stock, A.P.I.C. and R/E IN: Investments in Subs. and Non-Controlling Interest BIG: Balance sheet adjustment to FV, Identifiable Intangible Assets and Goodwill (or Gain)

Question 34

Journal Entry for Work paper eliminating - CAR IN BIG

Answer 34

DR: CARBIG CR: IN

Question 35

Full Goodwill Method

Answer 35

Goodwill = FV of subs. - FV of subs net assets

Question 36

Partial Goodwill Method

Answer 36

Goodwill = Acquisition cost - (FV of subs net assets acquired x Share %)

Question 37

Full Goodwill Method calc. for NCI

Answer 37

NCI = FV of subs x NCI%

Question 38

Partial Goodwill Method calc. for NCI

Answer 38

NCI = FV of subs net identifiable assets x NCI)

Question 39

Step Acquisition: From No control to control what should you do?

Answer 39

remeasure previously held equity interest.

Question 40

Control -> more or less control

Answer 40

no G/L recognize on the I/S

Question 41

Control to No control

Answer 41

Recognize the G/L of the sale of the stock, remeasure the remaining non consolidating interest to FV and recognize the adjustment to FV on the I/S

Question 42

Inter-company transactions should be

Answer 42

eliminated

Question 43

What is the formula to determine Intercompany sales

Answer 43

Parent Revenue + Subs. revenue - Rev. Consolidated = inter company sales (or revenue)

Question 44

What is the formula to determine Inter-company Receivable

Answer 44

Parent A/P + Subs A/P - Consolidated A/P = Intercompany Receivable

Question 45

What is the formula to determine Inter-company Payable

Answer 45

Parent A/R + Subs A/R - Consolidated A/R = Intercompany Receivable

Question 46

What is the formula to determine Inter-company Unrealized Profit

Answer 46

Parent Inventory + Subs. Inventory - Consolidated Inventory = unrealized Inter-company profit eliminated

Question 47

What are the 4 steps to determine carrying amount of inventory that sub. purchased from parent. Where is this reported?

Answer 47

1. Find COGS and GP% 2. Find Inter-company Revnue 3. Multiple Intercompany Revnue by COGS % 4. Multply # by inventory still on hand This is reported on the consolidated B/S

Question 48

The purchase by the member of a consolidated group of stock of another member of the same consolidated group is treated as a

Answer 48

treasury stock transaction

Question 49

What is the formula to determine adjusted Cost of Sales

Answer 49

Parent COGS + Sub COGS - Adjusment for inter company sales = adjusted COGS

Question 50

Working Capital =

Answer 50

Current Assets - Current Liabilities

Question 51

Current Ratio =

Answer 51

Current Assets/Current Liabilities

Question 52

Quick Ratio =

Answer 52

(Cash + N/R + Marketable Sec.)/Current Liabilities

Question 53

Uncollectible's, sales discounts, and sales returns and allowances are examples of

Answer 53

Allowances

Question 54

2/10, n30 Means?

Answer 54

2% discount if customer pays within 10 days, otherwise full payment is due in 30 days.

Question 55

Under Discounts how do you account for discounts under Gross and Net methods?

Answer 55

Gross Method - Assume no discount will be taken and DR: A/R and CR: S/R Net Method - Assume discount will be taken and DR: A/R (at discounted price) and Sales Rev at discounted price. * Sales discount taken

Question 56

Goods returned reduces

Answer 56

A/R and Sales

Question 57

T/F: Expected exchanges do not affect net sales or inventory or cost of sales

Answer 57

True

Question 58

What is the formula for a bank reconciliation: *DOSBENI

Answer 58

1. Deposits in transit (Add to Bank) 2. Outstanding Checks (Subtract from bank) 3. Service Charges (Subtract from books) 4. Bank Collections (add to books) 5. Erros (fix the error) 6. NSF (Subtract from books) 7. Interest Income (add to book)

Question 59

What is Pledging (Assignment)

Answer 59

Pledging is when a company uses there A/R as collateral for a loan. Requires a footnote disclosure only

Question 60

What is Factoring?

Answer 60

A company converting its receivables into cash by assigning them to a “factor” either with or without recourse.

Question 61

Under Factoring what is without recourse

Answer 61

means the sale is final and that the assignee (the factor) assumes the risk of any losses on collections. If the buyer cannot collect the A/R thats to bad.

Question 62

Under Factoring what is with recourse

Answer 62

factor has an option to re-sell any uncollectible receivables back to the seller (Sale or Loan)