17

Question 1

does a change in market value of investee’s CS affect the investor’s reported investment income with the equity method?

Answer 1

no, not considered income to parent under the equity method

Question 2

what happens to equity in earnings when inventory-excess and land excess exceeds their CV

Answer 2

inventory excess means higher COGS, so more income and less investment (decrease in investment) and land would not be affected

Question 3

how should a change to the equity method be accounted?

Answer 3

it should be accounted for prospectively; adopted from the date and going forward

*if date is at YE, do not include the earnings (no prior adj needed either)

Question 4

how do you calculate GW on an acquisition under equity method?

Answer 4

investment PP - FV excess (% * ID NA) = GW

Question 5

how is excess FA reported in the equity method?

Answer 5

it reduces the investment income account

Question 6

how is inv. WO treated in equity method?

Answer 6

it reduces the investment income account

Question 7

how do liquidating div’s affect FV and equity method investments?

Answer 7

they both are reduced by liquidating dividends

*for FV method, JE:
cash    xx
investment        xx 
                DI       xx
(return of capital)

*to summarize, liquidating div’s account for as reductions to invest. acc)

Question 8

how do you calculate equity in earnings when PS is included?

Answer 8

• sub earnings - PD = sub NI avail to common SH
• sub NI avail * % = equity in earnings
• equity in earnings + (cumu PS * % own PS) = total earnings

Question 9

how is GW created in an investment accounted for under equity method?

Answer 9

it is ignored; no amortization or testing for impairment is allowed

Question 10

how do you calculate for FV of a depreciable asset?

Answer 10

(NBV+excess FV)/% ownership

*NBV and excess amt is already multipled by %, so we reverse it to get FV

Question 11

in a business combo, the valuation of GW is a calc of:

Answer 11

the residual paid above FV of ID NA’s

Question 12

what is sig. influence?

Answer 12

dependence by investee on tech, interchange of mgt personnel, investor can rep. on BoD

( NOT recommendations (has to be mandates)

Question 13

how do you find APIC after a business combo?

Answer 13

JE:
Dr:invest in sub (issued *FV)
Cr: CS (par)
Cr: APIC (remaining)

Question 14

how are direct costs of a combination treated (other than regis. and issuance cost)?

Answer 14

they are exp’d as incurred

Question 15

what are the general guidelines to inventories acquired in an acq. trans?

Answer 15

FG’s are valued at est’d SP - cost of disp - reas. allow.

Question 16

how are registration and issuance costs recorded?

Answer 16

as a direction reduction to APIC as an out-of-pocket cost

Question 17

how are finders (acq cost), due diligence costs, and legal fees recorded in business acq’s?

Answer 17

they are expensed and used in determination of NI

Question 18

is relocation cost included in acquistion cost?

Answer 18

no, it is not

Question 19

CAR IN BIG:

Answer 19

consol’d elimination entry:

CS, APIC, RE - sub xx
invest in sub xx (FVown%)
NCI xx (FVNCI%)
BS adj to FV xx (FV NA - BV)
ID IA to FV xx
GW xx (FV - FV NA)

Question 20

how is FV sub calc’d?

Answer 20

acq cost + NCI at FV