F3 Flashcards
marketable equity securities which it does not intend to sell in the near term.
Investments in marketable equity securities which the company does not intend to sell in the near term should be classified as available-for-sale. Unrealized gains and losses on available-for-sale securities should be reported as a separate component of other comprehensive income.
In the current year, the company reversed a portion of the impairment loss. How should the company account for the impairment loss reversal on its current year financial statements
under IFRS, reversals of impairment losses are allowed and the increase would be booked to the current year’s income statement.
Under the cost method what is the nature of dividends and the cost basis investment account
Rule: Under the cost method, dividends (not earnings) are reflected as income by the investor. The cost basis investment account is reduced only if:
Shares of stock are sold, or
Cumulative dividends exceed cumulative earnings (a return of capital), or
Subsidiary incurs losses that substantially reduced net worth.
When the equity method is used to account for investments in common stock, which of the following affect(s) the investor’s reported investment income
Rule: Investor records as revenue its “share of the investee’s earnings” (not “dividends received”) under the equity method.
Dividends from an investee company are recorded by the investor as a reduction in the carrying amount of the investment on the balance sheet of the investor.
Changes in the market value of investee’s common stock are not considered income to the parent under the equity method.
Under the cost method, receipt of a dividend is recorded as income and does not affect the investment account.
Stock dividends on common stock should be recorded at their fair value by the investor when the related investment is accounted for under which of the following methods
Rule: Stock dividends and stock splits are not considered income to the recipient.
Therefore, investors do not record stock dividends at fair value. They simply reallocate the investment account balance (under either method – cost or equity) over more shares so that value per share decreases.
Peel Co. received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it uses the cost method or the equity method of accounting
Under the cost method, receipt of a dividend is recorded as income and does not affect the investment account.
Under the equity method, receipt of a dividend is recorded as a decrease in the investment account.
How do these excesses of fair values over carrying amounts affect Park’s reported equity in Tun’s Year 1 earnings? For COGS and Land
Park would record the additional COGS associated with the undervalued beginning inventory by debiting Investment Income and crediting the Investment in Tun’s account. Since the difference between book value and fair market value on land is not amortized, the difference in the land value would have no effect on equity in earnings.
Which of the following expenses related to the business combination should be included, in total, in the determination of net income of the combined corporation for the period in which the expenses are incurred
Fees of finders and consultants are expensed in the period incurred. Registration fees for equity securities issued decrease additional paid-in capital (stockholders’ equity).
In a business combination accounted for as a purchase, the appraised values of the identifiable assets acquired exceeded the acquisition price. How should the excess appraised value be reported
When a subsidiary is acquired with an acquisition cost that is less than the fair value of the underlying assets, the following steps are required:
The balance sheet is adjusted to fair value, which creates a negative balance in the acquisition account.
Identifiable intangible assets are recognized at fair value, which increases the negative balance in the acquisition account.
The total negative balance in the acquisition account is recorded as a gain.
In acquisiton process…
Rule: In an acquisition, the net income of a newly acquired subsidiary will only be included in consolidated net income from the date of acquisition. Therefore, only 20% of Sago net income is included in consolidated earnings until June 30 and 95% thereafter.
The general guidelines for assigning amounts to the inventories acquired provide for
With acquisition accounting the net assets acquired are based on fair market value. The fair value of finished goods and merchandise inventory are based upon selling price less disposal costs and a reasonable profit allowance.
The acquisition price exceeds the fair value of net assets acquired. How should Company J determine the amounts to be reported for the plant and equipment and long-term debt acquired from Company K?
When the acquisition price exceeds the fair value of net assets acquired, assets and liabilities should be presented at fair value.
Reporting NI in the equity method
Consolidated net income is the same as parent company net income, when the equity method is used.
Selling shares that were once owned
When an investor sells shares and goes from control to non-control, the investor must recognize a gain or loss from the sale of the stock and then remeasure the remaining non-consolidating interest to fair value. The fair value adjustment is recognized as an additional gain or loss on the income statement.
