F10

Question 1

What is FV?

Answer 1

Exit Price = is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction b/n market participants in the principal (or most advantageous) market at the measurement date under current market conditions

Question 2

What are the 3 Valuations of FV

Answer 2

Market Approach
Income Approach =PV (discounted CF)
Cost Approach

Question 3

What are the hierarchy of inputs?

Answer 3

Level 1 = Identical
Level 2 =Similar = other than quoted market prices that are directly or indirectly observable for the asset or liability
Level 3 = Discounted CF = Unobservable = Reporting entity’s assumptions

Question 4

What is the most advantageous market?

Answer 4

is the market with the best price after considering transaction costs

Question 5

Is FV the price to acquire an asset or assume a liability?

Answer 5

No- it is an exit price (the price to sell and asset or transfer a liability)

Question 6

What costs does FV include?

Answer 6

Transportation cost but not transaction cost

Question 7

What is the price in the principal market for an asset or liability?

Answer 7

FV measurement

Question 8

How are remotely possible contingent liabilities treated?

Answer 8

Neither Accrued nor disclosed

~Unless it is a related party transaction

Question 9

Fair Value

Answer 9

Exit Price = is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction b/n market participants in the principal (or most advantageous) market at the measurement date under current market conditions

Question 10

What are the type of Valuations?

Answer 10

Market Approach

Income Approach =PV (discounted CF)

Cost Approach

Question 11

What is the hierarchy of Inputs?

Answer 11

Level 1 = Identical

Level 2 =Similar = other than quoted market prices that are directly or indirectly observable for the asset or liability

Level 3 = Discounted CF = Unobservable = Reporting entity’s assumptions

Question 12

How to account for a partnership by purchase or sale of existing

Answer 12

Outside Partnership Transaction

No J/E - Just change names on capital accts

Question 13

How are assets and liabilities valued under partnership contributions

Answer 13

Assets = FV (GAAP Rule) / Tax = NBV

Liabilties = PV

Question 14

Exact Method - Formation of a partnership

Answer 14

Equal to BV

Incoming parter’s capital acct is their actual contribution (you must calculate)

No adj to existing partner’s capital accts is required

Question 15

Bonus Method - Formation of Partnership

Answer 15

Purchase price is more or less than the BV of the capital acct purchased, bonuses are adjusted b/n the old and new partners’ capital accts and do not affect partnership assets

Balance in total capital accts controls the computation

Incoming partner’s captial account is their % of the partnership total NBV (after their contribution)

Adj the existing partner’s capital accts to balance

Question 16

J/E to record admission the admission of a new partner and the bonus to existing partners

Answer 16

DR: Cash
CR: A, Capital (Extra paid X %)
CR: B, Capital (Extra Paid X %)
CR: C, Capital (Cap A + Cap B + Cap C = total X ⅓)

Question 17

J/E to record the partnership and recognize the bonus to new partners:

Answer 17

DR: Cash
DR: A, Capital (Difference X %)
DR: B, Capital (Difference X %)
CR: C, Capital (Cap A + Cap B+ Cap C = Total x ⅓)

Question 18

Formation of a partnership–Goodwill Method

Answer 18

(recognize intangible assets) = is recognized based upon the total value of the partnership implied by the new partner’s contribution.

Going in investment (dollars) controls the computation

Incoming partner’s capital account is their actual contribution

Goodwill (implied) is determined based upon the incoming partner’s contribution, and shared by the existing partners

Question 19

J/E to record the admission of new partner into partnership and recognize goodwill

Answer 19

DR: Cash
DR: Goodwill (Implied Value X # of partners)
CR: A, Capital (Goodwill x %)
CR: B, Capital (Goodiwll X %)
CR: C, Capital (equals amt contributed by C)

Question 20

Withdrawal of a partner (Bonus Method)

J/E to revalue the assets to reflect FV:

J/E to payoff withdrawing partner

Answer 20

J/E to revalue the assets to reflect FV:
	DR: Asset Adj
	CR: 	A, Capital (%)
	CR:	B, Capital (%)
	CR: 	C, Capital (%)
J/E to payoff withdrawing partner
	DR: A, Capital (%)
	DR: B, Capital (%)
	DR: X, Capital (100%) buy him out 
	CR: 	Cash

Question 21

Withdrawal of a partner (Goodwill Method)

J/E to revalue assets to reflect FV

J/E to record goodwill to make withdrawing partner’s capital account equal payoff:

J/E to payoff withdrawing partner

Answer 21

J/E to revalue assets to reflect FV
	DR: Asset Adj
	CR: 	A, Capital (%)
	CR:	B, Capital (%)
	CR: 	C, Capital (%)
J/E to record goodwill to make withdrawing partner’s capital account equal payoff:
        DR: Goodwill
        CR:       A, Capital (%)
        CR:       B, Capital (%)
        CR:       X, Capital (%)
J/E to payoff withdrawing partner
        DR: X, Capital (100%)
        CR:             Cash