Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FAR - Becker Flachcards > F3 > Flashcards

F3 Flashcards

1
Q

On the balance sheet, marketable securities classified as trading or available-for-sale are valued…

A

at fair value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

On the balance sheet, marketable securities classified as held-to-maturity are valued….

A

at amortized cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How are unrealized gains/ losses on trading securities recognized?

A

Unrealized gains and losses on trading securities are recognized on the income statement.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How are unrealized gains/losses on available-for-sale securities recognized?

A

Unrealized gains and losses on available-for-sale securities are reported in other comprehensive income (OCI).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

List three conditions when losses on marketable securities classified as available-for-sale are recognized in income

A
  • Sale of the security
  • Transfer of the security to trading classification
  • Other than temporary decline of individual security below cost (impairment)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

When a marketable equity security is transferred from trading to available-for-sale, or vice versa, at what cost is it transferred?

A
  • Transferred at fair value, which then becomes new basis
  • For a security transferred into the trading category, the difference is treated as a realized gain or loss and recognized on the income statement
  • For a security transferred from the trading category, the unrealized holding gain or loss will already have been recognized in earnings

NOTE: transfers to and from the trading category should be rare

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How are gains and losses on financial instruments that hedge trading securities reported?

A

Reported in earnings, consistent with reporting unrealized gains and losses on trading securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How are gains and losses on financial instruments that hedge AFS securities reported?

A

Reported in earnings together with the offsetting gains or losses on the available for sale securities attributable to the hedge risk.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What disclosures should be made for AFS and HTM securities?

A
  • Aggregate fair value
  • Gross unrealized holding gains and losses
  • Amortized cost basis by type
  • information about the contractual maturity of debt securities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

State the criteria to consolidate subsidiaries

A
  • Consolidate when the parent is able to control the subsidiary. Usually this is indicated by greater than 50% ownership of the voting stock of the subsidiary
  • Do not consolidate when control is not with owners ( as in bankruptcy of subsidiary)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Identify the three levels of control and the appropriate accounting method for each

A

1) No significant influence - cost method: trading or available for sale securities, at fair value
2) Significant influence but 50% of less ownership - equity method
3) Control
* cost or equity method (internal accounting)
* consolidated financial statements (external reporting)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

When is the cost method of accounting for investments used?

A
  • The cost method, also known as the fair value method or the available for sale method, should be used when the investor owns less than 20% of the investee’s voting stock and does not exercise significant influence
  • Lacking evidence to the contrary, it is assumed that no significant influence can be exercised from 0% - 20%
  • The original investment under the cost method is accounted for in the same manner as marketable equity securities, generally as an available for sale investment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How are dividends distributed by the investee treated by the investor receiving them?

A
  • stock dividends issued by the investee are not recognized by the investor
  • Cash dividends received by the investor are accounted for as dividend income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How is the year end “investment in investee” reported on the balance sheet calculated under the equity method?

A 
Beginning investment in investee
\+ Investor's share of investee earnings 
- Investor's share of investee dividends
- Amortization of FV differences
= Ending investment in investee
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How is an investor’s equity method investment reported on the income statement?

A

Investor’s share of investee earnings
- Amortization of FV differences
= Equity in earnings / investee income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How are joint ventures accounted for under IFRS and US GAAP?

A

Joint ventures are accounted for using the equity method under both US GAAP and IFRS

17
Q

In a step by step acquisition, what is the accounting treatment when significant influence is acquired?

A
  • Going from the cost method to the equity method is handled like a change in accounting principle - retroactively.
  • Go back retroactively with the equity method but not with the new ownership percentage.
  • Prior period financial statements are restated
18
Q

When are consolidated financial statements prepared?

A

When the parent company has CONTROL over the subsidiary company. Control is achieved when more than 50% of the voting stock of the subsidiary is owned directly or indirectly by the parent and no other factors are present that would indicate a lack of control (bankruptcy, reorganization)

19
Q

In acquisition accounting, state the consolidating workpaper elimination entry.
*CAR IN BIG

A 
DR Common stock - subsidiary
DR APIC - subsidiary
DR Retained earnings - subsidiary
     CR Investment in subsidiary
     CR Noncontrolling interest
DR Balance sheet adjustment to fair value
DR Identifiable intangible assets to fair value
DR Goodwill
20
Q

How are expenses relating to the combination treated under the acquisition method?

A
  • Direct out of pocket costs are expensed
  • Stock related costs are a reduction in value of the stock issued (normally a debit to additional paid in capital)
  • Indirect costs are expensed
  • Bond issue costs are capitalized and amortized
21
Q

In an acquisition, how are acquired identifiable intangible assets amortized?

A
  • Finite useful life: Amortized to residual value over expected useful life
  • Indefinite useful life: do not amortize
22
Q

How is goodwill calculated under the US GAPP acquisition method?

A

US GAAP:

  • Goodwill is the excess of the fair value of the subsidiary (acquisition cost plus noncontrolling interest) over the fair value of the subsidiary’s net assets, including identifiable intangible assets at FV
  • Goodwill = Fairvalue of subsidiary - Fairvalue of subsidiary’s net assets
  • Goodwill recorded in a business combination is not amortized. The entire investment is subject to the impairment test.
23
Q

How is goodwill calculated under the IFRS acquisition method?

A

IFRS:

  • Goodwill is recognized using the full goodwill method (same as US GAAP) or the partial goodwill method
  • Under the partial goodwill method, goodwill is the excess of the acquisition cost over the fair value of the subsidiary’s net assets acquired
  • Partial goodwill = Acquisition cost - Fair value of subsidiary’s net assets acquired
24
Q

How is noncontrolling interest (balance sheet) calculated under US GAAP?

A

Noncontrolling Interest (NCI) = FV of subsidiary x NCI %

25
Q

How is noncontrolling interest ( balance sheet) calculated under IFRS?

A

IFRS permits the use of the full goodwill method or partial goodwill method.

Full Goodwill Method (same as US GAAP):
NCI= FV od subsidiary x NCI%

Partial Goodwill Method:
NCI = FV of subsidiary’s net identifiable assets x NCI%

26
Q

How is noncontrolling interest on the income statement calculated?

A

Subsidiary net income
x Noncontrolling interest %
= NCI in net income

27
Q

In a business combination, what is the treatment of an acquisition in which the acquisition cost is less than the fair value of 100% of the net assets acquired?

A

The acquisition cost is allocated to the fair value of 100% of the balance sheet accounts and the fair value of 100% of the identifiable intangible assets. This creates a negative balance in the acquisition account, which is recorded as a gain.

28
Q

Name several pro forma workpaper elimination entries when producing consolidated financial statements.

A

Eliminate:

  • The effects of intercompany dividends
  • Parent’s investment in sub account.
  • The entire stockholder’s equity section of the sub
  • The effects of the gain or loss and adjustment for the excess depreciation on the sale of property, plant and equipment between affiliates.
  • All intercompany sales and purchases
  • All other intercompnay balance sheet and income statement accounts
  • Intercompany profit in cost of goods sold, in beginning and ending inventories relating to an intercompany sale of merchandise between affiliates

Adjust:

  • Recognize noncontrolling interest
  • Adjust the balance sheet of the sub to fair value. Establish goodwill.
29
Q

State the workpaper elimination entry for intercompany inventory transactions.

A

DR Retained earnings (intercompany profit in beginning inventory)
DR Intercompany sales
CR Intercompany cost of goods sold
CR Cost of goods sol (intercompny profit in goods sold)
CR Ending inventory (intercompany profit in ending inventory)

30
Q

State the workpaper elimination entry for intercompany bond transactions

A

DR Bonds payable
DR Premium ( or credit discount)
CR Investment in affiliates bonds
CR Gain on extinguishment of bonds ( or debit loss on extinguishment of bonds)

31
Q

State the workpaper elimination entry for intercompany land transactions

A

DR. Intercompany gain of sale of land

CR. Land

32
Q

State the workpaper elimination entries for intercompany depreciable assets transactions.

A

Elimination Entry 1 - Eliminate intercompany gain and adjustment asset and accumulated depreciation to original amounts:
DR Intercompany gain on sale of machinery
CR Machinery
CR Accumulated depreciation

Elimination Entry 2 - Eliminate excess depreciation:
DR Accumulated depreciation
CR Depreciation Expense

33
Q

When are combined financial statements prepared?

A
  • Companies are under common control
  • Companies are under common management
  • Unconsolidated subsidiaries are combined
34
Q

When preparing combined financial statements, identify the requirements.

A
  • Inter-company transactions and balances among these companies are eliminated
  • Noncontrolling interest treated like consolidated financial statements
  • Capital stock and retained earnings are added across, not eliminated.
  • Income statements are added across
35
Q

Describe push down accounting.

A

Reports assets and liabilities at fair value in separate financial statements of subsidiary. In effect, consolidation adjustments are “pushed down” into the records.

  • Assets and liabilities are adjusted to fair market value at date of acquisition
  • Retained earnings of the subsidiary are transferred to paid-in-capital.
  • Net income of each subsidiary includes depreciation, amortization, and interest expense based on fair values rather than historical cost.
  • The SEC requires push down accounting for each “substantially wholly owned subsidiary.”

FAR - Becker Flachcards (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions