Deck 2

Question 1

Debt Securities should be reported at:

Answer 1

Held to maturity = Amortized Cost
Available for Sale = Fair Value
Trading Securities = Fair Value

Question 2

Investments in marketable equity securities which the company does not intend to sell in the near future should be classified as:

Answer 2

Available for sale and unrealized gain or losses are reported to other comprehensive income.

Question 3

Trading Securities:

Answer 3

Bonds that are held for the purpose to sell in the near term are Trading Securities. They are reported at fair value on the balance sheet.

Question 4

Consolidated financial statements are prepared when one company has a controlling interest in another unless:

Answer 4

The subsidiary is in bankruptcy.

Question 5

Consolidated financial statements include subsidiaries:

Answer 5

That are are controlled by the parent, which is more than 50% ownership.

Question 6

Dividend Revenue, under cost method:

Answer 6

Should be recognized to the extent of cumulative earnings since acquisition and return of capital beyond that point.

Question 7

Combined financial statements may be used for:

Answer 7

Companies under common management, commonly controlled companies (e.g an individual owns many companies), and unconsolidated subsidiaries.

Question 8

Intercompany transactions for combined financial statements:

Answer 8

You do not eliminate equity accounts (they are all added across). However, all other transactions and balances are eliminated.

Question 9

Combined financial statements are:

Answer 9

Prepared in the same manner as consolidated financial statements, except there is no parent company. Different fiscal periods and foreign operations are treated the same for combined and consolidated financial statements.

Question 10

Under the equity method, to calculate income from investment:

Answer 10

Take % of net income and reduce it by any undervalued asset in accordance with the undervalued asset treatment (i.e for its % and amortized amount).

Question 11

Under the equity method, stock dividends are recorded as:

Answer 11

When the stock dividend is of the same shares in the same company a memo entry that reduces the unit cost of all stock owned.

Question 12

Under the equity method, the investor records as revenue:

Answer 12

Its share of investee’s earnings, not dividends received.

Question 13

Under the cost method, income is the:

Answer 13

Dividend received and the dividends do not affect the investment account.

Question 14

Under the equity method, receipt of dividend is:

Answer 14

Recorded as a decrease in the investment account.

Question 15

Preferred Stock ownership:

Answer 15

Does not allow the investor to exercise significant influence; therefore, preferred stock is accounted for under cost method and preferred stock dividends are recorded as dividend revenue on the income statement.

Question 16

Under the equity method, common stock dividends are:

Answer 16

Recorded as a reduction to the investment account.

Question 17

Under equity method, undervalued asset amortization related to purchase affect:

Answer 17

Both the investment account and the investment income account.

Question 18

Under both cost and equity method, stock dividends:

Answer 18

Reduce the carrying amount of the investment account.

Under the cost method, liquidating cash dividends do not get reported as dividend income.

Question 19

Under the equity method, Goodwill created in an investment account is:

Answer 19

Ignored. It is neither amortized nor tested for impairment. The entire investment (under equity method) is tested for impairment.

Question 20

Registration fees for equity securities issued:

Answer 20

Decrease additional paid-in-capital. And are not expensed in the period incurred.

Question 21

Consolidated Stockholder’s Equity is:

Answer 21

The parent company stockholders’ equity plus the noncontrolling interest.

Question 22

Noncontrolling interest (NCI), under GAAP is:

Answer 22

The FV of Subsidiary times noncontrolling %. Plus NCI Net Income, less NCI of dividends.

Question 23

Consolidated equity:

Answer 23

Will be equal to the parent company’s equity plus the fair value of any noncontrolling interest. The subsidiaries equity accounts are eliminated.

Question 24

Consolidated Retained Earnings:

Answer 24

Are the same as the parent company retained earnings, under acquisition method.

Question 25

Consolidated Net Income:

Answer 25

Is the same as the parent company net income, under the equity method.

Question 26

Under IFRS, Partial Goodwill is calculated as:

Answer 26

Acquisition Cost - FV of subsidiary’s net assets acquired

Question 27

Noncontrolling interest (NCI), under IFRS partial Goodwill method is:

Answer 27

FV of subsidiaries net assets times NCI %

Question 28

The Acquisition Method requires assets of subsidiary company to be reported at:

Answer 28

Fair value and the parents assets reported at book value.

Question 29

Receivables and payables to investee are reported:

Answer 29

Separately on balance sheet.

Question 30

The purchase of the parent company bond by the subsidiary is treated:

Answer 30

As if the bond was retired at consolidation. Gain is calculated as Book Value less sale price.

Question 31

Intercompany bond holdings are:

Answer 31

Eliminated in consolidation and the difference (gain or loss) between the discounted issue price and the premium on acquisition would be included in retained earnings.