Final FAR Review Deck 2 Flashcards
(39 cards)
What are trading securities reported at and where is the unrealized gains or losses reported?
Trading securities are reported at fair value on the financial statement and unrealized gains and losses are reported on the income statement
What are available for sale securities reported at?
Available for sale securities are reported at fair value on the financial statement
What is held to maturity securities reported at?
Held to maturity securities are reported at amortized cost on the financial statement
What is the equity method investments?
This is the method used when an investor owns more than 20% but less 50% of voting shares in an entity and/or has “significant influence” over the investee
What is the voting interest model?
This is when an investor owns more than 50% of the voting stock
Under the acquisition method, What is recorded during consolidation? CAR IN BIG
CAR- Common stock, APIC, and retained earnings of the subsidiary are eliminated
I- The parent company’s investments in the subsidiary is eliminated
N- Noncontrolling interest is created if the parent owns less than 100 percent of the subsidiary
B- Balance sheet of the subsidiary is adjusted to fair value for 100% of assets and liabilities
I- Identifiable intangible assets of the subsidiary are recorded at their fair value
G- Goodwill (or Gain) is required
Under US GAAP how is goodwill calculated?
Goodwill= Fair value of a subsidiary - Fair value of a subsidiary’s net assets
Under IFRS how is goodwill calculated?
Goodwill= Acquisition cost- Fair value of the subsidiary’s net assets acquired
When is a lease classified as a finance lease?
When one of the five listed (OWNES) criteria is met
- Ownership transfer to lessee at end of lease
- Written purchase option exists (purchase option < estimated fair value)
- The present value of the minimum lease payments is > ninety (90) percent of the fair value of the leased property
- The lease term is > seventy-five (75) percent of the asset’s economic life
- The asset is specialized such that it will not have an expected, alternative use to the lessor when the lease term ends
If none of the above criteria are met, it should be treated as operating by the lessee
What are the three types of cash flow on a cash flow statement?
- Operating
- Investing
- Financing
What is operating on the statement of cash flow and what does it include?
Operating: Changes in cash resulting from business operations ⁃ Cash received from customers ⁃ Dividend income ⁃ Interest income/expense ⁃ Cash paid for business expenses
What is Investing on the statement of cash flow and what does it include?
Investing: Changes in cash resulting from investing activities
⁃ Purchase/sale of investments or long-term assets
⁃ Making loans (getting a loan would be financing)
What is financing on the statement of cash flow and what does it include?
Financing: Changes in cash resulting from financing
activities
⁃ Issuing and selling company stock
⁃ Purchasing treasury stock
⁃ Getting a loan (also making payments on a loan)
⁃ Paying dividends
⁃ Issuing bonds
What is the earnings per share (EPS) equation?
Earnings per share (EPS)= Net income-preferred stock dividends/ Weighed Avg # of outstanding common stock
What are the required financial statements for a defined benefit pension plan?
-Statement of net assets available for benefits as of the end of the plan year
-Statement of changes in net assets available for benefits
for the year then ended
What are the required financial statements for a defined contribution pension plan?
- Statement of net assets available for benefits as of the end of the plan year
- Statement of changes in net assets available for benefits
How do you reconcile bank balance to book balance ?
Bank balance Add: Deposits in transit Less: Outstanding checks \+/- Bank errors \+/- Errors on ledgers = Book balance
What is the allowance method?
Allowance \+ Beginning Balance - Write offs (WO's) \+ Provision for BD \+ Recovery = Ending Balance
How is FIFO and average-cost method valued?
Lower of cost of
net realizable value
How is LIFO valued?
This uses lower of cost or market
What is is the lower of cost or market?
This is replacement cost subject to a ceiling and floor. If replacement cost is in between the ceiling and floor, then use replacement cost.
Ceiling = NRV
Floor = NRV - profit margin
When are cost capitalized?
- Costs to get the asset ready to use
- Costs to extend the asset’s useful life or increase
productivity (Maintaince cost is not included)
What is included from the cost of inventory?
Included: • Purchase returns • Freight-in (shipping costs to get the inventory to the warehouse) • Sales tax on acquisition • Insurance on transit
When do you record an impairment cost?
When its fair value becomes less than carrying value.
