F10

Question 1

Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.

Answer 1

Fair Value Measurement

Question 2

1. Market Approach- Uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities to measure fair value. 2. Income Approach- Converts future amounts, including cash flows or earnings, to a single discounted amount to measure the fair value of assets or liabilities. 2. Cost Approach- Uses current replacement cost to measure the fair value of assets.

Answer 2

Fair Value Measurement

Question 3

1. Level 1 inputs-Quoted prices in active markets for identical assets or liabilities. 2. Level 2 inputs- Inputs other than quoted market prices that are directly or indirectly observable for an asset or liability. 3. Level 3 Inputs- Unobservable inputs for the asset or liability that reflect the entities assumptions and are based on the best available information. Note: Level 1 inputs are the highest priority.

Answer 3

Fair Value Measurement

Question 4

1. Exact method, 2. Bonus method, 3. Goodwill method.

Answer 4

Partnerships

Question 5

The purchase price equals the book value of the capital account purchased. No adjustments to the existing partner’s capital accounts. No goodwill or bonus.

Answer 5

Partnerships

Question 6

Bonus Method: New partner’s capital account = (A+B+C) times C’s percentage ownership. Excess of new partner’s contribution over capital interest received is a bonus to the old partners. Excess of capital interest received over partner’s contribution is a bonus to the new partner.

Answer 6

Partnerships

Question 7

Goodwill is recognized based on the total value of the partnership implied by the new partner’s contribution. Goodwill is shared by the existing partner’s used the agreed profit or loss ratio.

Answer 7

Partnerships

Question 8

The difference between the balance of the withdrawing partner’s capital account and the amount that person is paid is the amount of the bonus. The bonus is allocated among the remaining partners’ capital accounts in accordance with their remaining profit and loss ratios.

Answer 8

Partnerships

Question 9

The partners may elect to record the implied goodwill in the partnership based on the payment to the withdrawing partner. The amount of the implied goodwill is allocated to all of the partners in accordance with their profit and loss ratios. After allocating goodwill, the balance in the withdrawing partner’s capital account should equal the final distribution to the withdrawing partner.

Answer 9

Partnerships

Question 10

Creditors, Loans and advances to partners, Capital account of partner. Remember that all losses must be provided for before disposal that is, maximum potential losses before distribution of cash.

Answer 10

Partnerships

Question 11

A corporation, partnerships, trust, LLC or other legal structure used for business purposes that either does not have equity investors with voting rights or lacks sufficient financial resources to support its activities.

Answer 11

Variable Interest Entities

Question 12

The entity with the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and: 1. Absorbs the expected VIE losses, or 2. Receives the expected VIE residual returns, The primary beneficiary must consolidate the VIE.

Answer 12

Variable Interest Entities

Question 13

The entity that absorbs the expected losses consolidates.

Answer 13

Variable Interest Entities

Question 14

A legal obligation associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, development, and/or normal operation of a long-lived asset.

Answer 14

Asset Retirement Obligations

Question 15

At fair value ( present value of the future obligation) as an asset (asset retirement cost) and a liability (asset retirement obligation).

Answer 15

Asset Retirement Obligations

Question 16

The ARO liability is adjusted for accretion expense and the ARO asset is depreciated.

Answer 16

Asset Retirement Obligations

Question 17

1 .Transfer of assets, 2. Transfer of equity interest, 3. Modification of terms, 4. A combination of above three

Answer 17

Troubled Debt Restructurings (Impaired Loans)

Question 18

It is the difference between the carrying amount of the obligation prior to restructuring and undiscounted total future cash flows required after restructuring, if undiscounted future cash flows are less than the carrying amount.

Answer 18

Troubled Debt Restructurings (Impaired Loans)

Question 19

Restate the assets transferred to fair value and recognize a gain or loss in ordinary income. Recognized a gain for the difference between the fair value of the assets transferred and the carrying amount of the debt forgiven. The gain is possibly reported as extraordinary under U.S. GAAP if it meets the U.S. GAAP requirements (material, infrequent, and unusual).

Answer 19

Troubled Debt Restructurings (Impaired Loans)

Question 20

For debtor, when there is a modification of terms and payment of the entire debt is not affected. For creditor, when the total cash to be received is greater than the amount receivable. The difference is amortized as interest. .

Answer 20

Troubled Debt Restructurings (Impaired Loans)

Question 21

Probable that all amounts due (principal and interest) will not be received.

Answer 21

Troubled Debt Restructurings (Impaired Loans)

Question 22

Present value of the loan’s expected future cash flows discounted at the loan’s effective interest rate. Debit: Bad debt expense, Credit: Allowance for credit losses

Answer 22

Troubled Debt Restructurings (Impaired Loans)

Question 23

1. A description of the main changes in terms and/or features of settlements. 2. Gain on restructuring of payables (in the aggregate). 3. Net gain or loss on transfers of assets recognized in the period (in the aggregate). 4. Per share amount of the aggregate gain on the restructuring of payables. 5. The amount of contingently payable amounts included in the carrying amount of restructured payables (and any conditions that would cause those amounts to be payable or to be forgiven).

Answer 23

Troubled Debt Restructurings (Impaired Loans)

Question 24

1. The creditor’s policy for recognizing interest income. 2. Any commitment the creditor has to lend additional funds to the debtor. 3. The activity in the allowance account for the reporting period. 4. The average recorded investment in impaired loans for the period (including the amount of related interest income and the interest income recognized on a cash basis)

Answer 24

Troubled Debt Restructurings (Impaired Loans)

Question 25

Probable, Reasonably possible, Remote

Answer 25

Contingencies

Question 26

When the loss is both probable and can be reasonably estimated, then record and disclose. Financial statement disclosure only for reasonably possible contingent losses. Remote contingent losses are not disclosed, unless they are “guarantee-type” contingent losses, which must be disclosed.

Answer 26

Contingencies

Question 27

Gain contingencies are not reflected on the balance sheet but are disclosed as to their nature and amount if likelihood is probable and to do so would not be misleading.

Answer 27

Contingencies

Question 28

An event or transaction that occurs after the balance sheet date but before the financial statements are issued or are available to be issued. 1. Recognized subsequent events- Provide additional information about conditions that existed at the balance sheet date. 2. Nonrecognized subsequent events- Provide information conditions that occurred after the balance sheet date and did not exist on the balance sheet date.

Answer 28

Subsequent Events

Question 29

1. If an entity is not a SEC filer, the entity must disclose the date through which subsequent events have been evaluated. 2. Nonrecognized subsequent events should be disclosed if disclosure is necessary to keep the financial statements from being misleading.

Answer 29

Subsequent Events

Question 30

Fair value and related carrying amounts; Concentrations of credit risk; Market risk (optional)

Answer 30

Financial Instruments

Question 31

On specified election dates, an entity may choose to measure eligible financial instruments at fair value with unrealized gains and losses reported in earrings. The fair value option is irrevocable.

Answer 31

Financial Instruments

Question 32

A “derivative instrument” is a financial instrument (or other contract) that “derives” its value from the value of some other instrument and has all 3 of the following characteristics; 1. One or more underlying’s and one or more notional amounts or payment provisions (or both); 2. Requires no initial net investment; and 3. Its terms require or permit a net settlement.

Answer 32

Financial Instruments

Question 33

Underlying: A specified price, rate or other variable (e.g., interest rate, security price, foreign exchange rate, index of prices or rates, etc.). Notional amount: A specified unit of measure (e.g. currency units, shares, bushels, pounds, etc.)

Answer 33

Financial Instruments

Question 34

1.Options contracts; 2. Futures contract; 3. Forward contracts and 4. Swap contracts

Answer 34

Financial Instruments

Question 35

Fair Value Hedge, Cash Flow Hedge, and Foreign currency hedge

Answer 35

Financial Instruments

Question 36

Fair Value Hedge: Include in current earning with gain or loss from change in value of offsetting asset/liability. Cash Flow Hedge: Effective portion- include in other comprehensive income until cash flows from hedged item are realized. Ineffective portion- included in current earnings. Foreign currency hedge: Fair Value Hedge- included in current earnings with gain or loss from change in value of offsetting asset/liability. Cash Flow Hedge-included in other comprehensive income (effective portion). Net investment hedge-included in other comprehensive income, as cumulative translation adjustment.

Answer 36

Financial Instruments