F-3 Marketable Securities And Business Combinations

Question 1

What are the three classifications for securities

Answer 1

Trading securities
Available for sale securities
Held to maturity securities

Question 2

How are the unrealized gains and losses recognized for trading securities

Answer 2

And realize holding gains and losses in trading securities are included in the income statement

Question 3

How are unrealized gains and losses recorded for available-for-sale securities

Answer 3

In OCI

Question 4

How was the reclassification from trading securities treated

Answer 4

Since it’s already recognizing earnings there she’ll not be any adjustments made

Question 5

What is the treatment for reclassifying to treating category

Answer 5

Transfer she’ll be recognizing earnings immediately

Question 6

What is the treatment for debt security classification as held to maturity transferred to available for sale

Answer 6

Transfer she’ll be reported and OCI

Question 7

What is the treatment of that security classification as available for sale transferred to held to maturity

Answer 7

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

Question 8

If the declining fair value in other than temporary meaning permanent losses the cost basis of the individual security is recognize how

Answer 8

The losses realize it included an earnings

Question 9

What is the treatment for hedging trading securities and available for sale securities

Answer 9

Getting the losses are recognized in earnings

Question 10

What is the income tax effects on securities

Answer 10

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

Question 11

What is the definition of equity

Answer 11

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

Question 12

What are consolidated financial statements

Answer 12

Consolidated financial statements ignore importantly relationships and emphasize economic substance over form consolidated statements are in economic truth and illegal fiction

Question 13

What are the limitation of consolidated financial statements

Answer 13

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

Question 14

What are the criteria of went to and when not to consolidate

Answer 14

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

Question 15

What are the various degrees of control

Answer 15

Cost method = 50% and control

Question 16

What are the other names for the cost method

Answer 16

Available for sale method or fair value method

Question 17

What are the three most frequently tested cost concepts

Answer 17

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

Question 18

When would you reduce the investments in Besty for return of capital

Answer 18

When the capital distribution or liquidating dividend is a dividend in excess of investors share of retained earnings

Question 19

When would you record dividend income

Answer 19

When the distribution is not in excess of the investors share between earnings

Question 20

When is the equity method used

Answer 20

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

Question 21

When is the equity method and not appropriate even if the investor owns 20% to 50% of the subsidiary

Answer 21

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

Question 22

What happens when u change from cost method to equity method

Answer 22

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.

Question 23

What happens when you change to equity from cost

Answer 23

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

Question 24

Moving from cost to equity method calculation

Answer 24

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)