F-3 Marketable Securities And Business Combinations Flashcards
What are the three classifications for securities
Trading securities
Available for sale securities
Held to maturity securities
How are the unrealized gains and losses recognized for trading securities
And realize holding gains and losses in trading securities are included in the income statement
How are unrealized gains and losses recorded for available-for-sale securities
In OCI
How was the reclassification from trading securities treated
Since it’s already recognizing earnings there she’ll not be any adjustments made
What is the treatment for reclassifying to treating category
Transfer she’ll be recognizing earnings immediately
What is the treatment for debt security classification as held to maturity transferred to available for sale
Transfer she’ll be reported and OCI
What is the treatment of that security classification as available for sale transferred to held to maturity
Unrealized holding gains or losses she’ll be amortized over the remaining life the security
Basically you amortize into the income statement and he gains or losses that was in OCI
If the declining fair value in other than temporary meaning permanent losses the cost basis of the individual security is recognize how
The losses realize it included an earnings
What is the treatment for hedging trading securities and available for sale securities
Getting the losses are recognized in earnings
What is the income tax effects on securities
The income tax affect result in a deferred tax amount the gains and losses that are unrealized are not recognized intact until the security investment is sold
What is the definition of equity
Equity securities are defined as securities that represents an ownership interest in enterprise or the right to choir or dispose of an ownership interest in an enterprise it fixed or determinable prices
What are consolidated financial statements
Consolidated financial statements ignore importantly relationships and emphasize economic substance over form consolidated statements are in economic truth and illegal fiction
What are the limitation of consolidated financial statements
Noncontrolling interest shareholders of the subsidiary remain on informed regarding the subsidiary separate financial statements
We performance of one company may be offset by strong performance of another
Ratio analysis of consolidated that is not reliable
Retain earnings available for parent shareholders are not segregated nor otherwise indicated
What are the criteria of went to and when not to consolidate
Consolidate all majority owned subsidiary
Do not consolidate when you control is not with owners
Companies that have different year ends can be consolidated
In a vertical chain one parent company owns more than 50% of the subsidiary company and the subsidiary owns more than 50% of the third company consolidate
What are the various degrees of control
Cost method = 50% and control
What are the other names for the cost method
Available for sale method or fair value method
What are the three most frequently tested cost concepts
The investment in investee is not adjusted for investee earnings
The investment in investee is adjusted to fair value
Cash dividends from the investee are reported as income by the investor
When would you reduce the investments in Besty for return of capital
When the capital distribution or liquidating dividend is a dividend in excess of investors share of retained earnings
When would you record dividend income
When the distribution is not in excess of the investors share between earnings
When is the equity method used
The equity method is used when investment has significant influence can be extra size by the investor over the investee.
Noted the CPA exam frequently presents questions with the ownership percentage is below 20% but the ability to exercise significant influences exists. The equity method is the correct method of accounting for these investments
When is the equity method and not appropriate even if the investor owns 20% to 50% of the subsidiary
Bankruptcy of subsidiary
Investment in subsidiary is temporary
A lawsuit or complaint is filed
A standstill agreement is signed under which the investors renters rights as a shareholder
Another small group has major ownership in the operating company without regard to the investor
The investor cannot obtain the financial information necessary to play the equity method
The investor cannot obtain a representation on the Board of Directors
What happens when u change from cost method to equity method
When significant influence is acquired it is necessary to record a change from the cost available for sale classification to the equity method. The investment accounts and the retain earnings account or adjusted retrospectively for the difference between the available-for-sale classification/cost method to the equity method.
What happens when you change to equity from cost
The equity method should be used in the periods jury in which the cost method was used our retrospectively adjusted. The year and ownership percentage is used to make all equity entries
Moving from cost to equity method calculation
Apply the new method to the prior periods old percentages. Do not apply the new percentages to the prior pretty. (you do not own the percentage back then)
