F3

Question 1

two key terms for held to maturity

Answer 1

*positive intent and ability to hold to maturity

Question 2

Type of gain/loss not reported for AFS securities in OCI under IFRS

Answer 2

*foreign exchange gains and losses on AFS DEBT securities

Question 3

Cash flow designation for trading securities

Answer 3

*usually operating but could be investing

Question 4

Reclassification of Securities

1. From Trading Category
2. To Trading Category
3. Debt Security HTM to AFS
4. Debt Security AFS to HTM

Answer 4

1. nothing changes
2. unrealized gain/loss is recognized in earnings immediately
3. unrealized holding gain/loss will be reported in OCI
4. unrealized gain/loss will be amortized over the remaining life of the security

Question 5

OTT Losses

Answer 5

*reported in earnings in the current period

Question 6

Two types of gains/losses reported on income statement

Answer 6

• realized gains
• unrealized gains

*don’t think that realized gains includes all gains/losses on I/S

Question 7

Can companies consolidate with different year ends?

Answer 7

*yes, if it is disclosed (GAAP) or adjusted (IFRS) and does not exceed three months (GAAP)

Question 8

Special Considerations for Cost Method

Answer 8

1. adjust to FV
2. reduce investment for RETURN OF CAPITAL DISTRIBUTIONS (in excess of R/E only)
   * only dividend income up to the point where it does not exceed Retained Earnings

Question 9

Key for Determining Equity or Cost Method

Answer 9

• is there an ability to exercise significant influence?
• it could be less than 20% but still use the equity method
• largest shareholder or majority of the board
• determined using common stock

Question 10

How are joint ventures usually accounted for?

Answer 10

*equity method

Question 11

What must be done for a step-by-step acquisition? (to equity from cost)

Answer 11

*retrospective adjustment to R/E

Question 12

Two situations where subsidiary would not be consolidated

Answer 12

1. legal reorganization

2. bankruptcy or severe foreign restrictions

Question 13

At what FV % do you consolidate at?

Answer 13

100%

Question 14

Mneumonic for Consolidations

Answer 14

C ommon stock
A PIC
R etained Earnings
I nvestment 
N on-controlling interest
B alance sheet adjusted to FV
I dentifiable intangible assets are recorded at FV
G oodwill 

IN = CAR BIG

Question 15

Treatment of Following Expenses:
Finder's Fee or Legal Fee
Stock registration and issuance fees
Indirect costs 
Bond issue costs

Answer 15

1. expensed
2. decrease cash and APIC
3. expensed
4. capitalized and amortized

Question 16

When accounting for a business combination as an acquisition, debit ___________

Answer 16

Investment in Subsidiary (not the individual assets and liabilities)

Question 17

NCI Equation

Answer 17

Beginning NCI
+ % subsidiary NI
- % subsidiary dividends
= Ending NCI

Question 18

In Process R&D

Answer 18

success –> amortize

failure –> impair/write-off

Question 19

Items to Eliminate for Intercompany Transactions

Answer 19

DR: Revenue
CR: COGS (parent)
CR: Inventory
CR: COGS (subsidiary)

DR: A/P
CR: A/R

Question 20

How to Reverse Intercompany Transactions Dealing with Inventory

Answer 20

Inventory sold to oustiders: correct COGS

Inventory still on hand: correct ending inventory

Question 21

When eliminating intercompany bond transactions, how should the transaction be treated?

Answer 21

• treat it as though the bonds are being retired

* this means that a gain or a loss may occur

Question 22

How to Reverse Intercompany Profit on Depreciable Fixed Asset

Answer 22

• restore asset to original cost (DR or CR)
• book original accumulated depreciation
• back out the gain or loss (adjustment to R/E in subsequent years)

*decrease accumulated depreciation and depreciation expense over time for the amount in excess each year