F4

Question 1

Characteristics to determine the primary beneficiary of a variable interest entity

Answer 1

• power to direct activities of VIE
• absorbs the expected VIE losses
• receives the expected VIE residual returns

Question 2

Examples of variable interests in entitys

Answer 2

Most liabilities excluding short term payables, represent variable interests like forward contracts or guarantee of entity’s debt

Question 3

Acquisition Method Journal Entries

Answer 3

Acquisition for cash
Dr. Investment
Cr. Cash

Acquisition by issuing common stock
Dr. Investment
Cr. Common Stock
Cr. APIC

Question 4

When does goodwill impairment occur

Answer 4

Carrying amount of the reporting unit including goodwill exceeds FV of including goodwill

Question 5

Goodwill impairment question where they tell you the current goodwill

Answer 5

Subtract CV from FV and if if that is less than the goodwill amount given, then that is goodwill, if it is more use the goodwill amount given in the question

Question 6

When you acquire all of the stock of the company for cash and the acquisition price exceeds FV of net assets acquired how should you value everything

Answer 6

Fair value

Question 7

How to account for registration fees when you issue shares to purchase shares of another company

Answer 7

It reduces the APIC
Dr. Investment
Dr. Legal expense*
Cr. Common Stock
Cr. APIC - reduce by registration fee
Cr. Cash - legal fees and registration fees

Question 8

How do you assign amounts to inventories after an acquisition?

Answer 8

Based upon selling price minus disposal price and a reasonable profit allowance

Question 9

In consolidations what affect does declaring a dividend have

Answer 9

Well it doesn’t effect parent’s retained earnings because it is just a transfer to cash, but for the noncontrolling interest since they are equity method it reduces their share

Question 10

Inventory Consolidation Table

Answer 10

———————Should be—–P—–S—–Eliminations
Sales(dr)
COGS(cr)
Inventory(cr)

Question 11

Depreciable Asset Consolidation Table

Answer 11

-----------------Should be-----What is-----Difference
Equipment
Accum Dep
Depreciation
Gain or R/E

Question 12

Intercompany bonds

Answer 12

Bonds are eliminated and difference (gain or loss) between the discounted issue price and the premium on reacquisition would be included in retained earnings

Premium would decrease and a discount would increase retained earnings

Question 13

How to solve for intercompany sales

Answer 13

Add up revenues or sales of companies and subtract the total by consolidated revenues or sales

Question 14

How to solve for intercompany payables

Answer 14

Add up accounts receivable and subtract by consolidated receivables

Question 15

How to solve for intercompany profit

Answer 15

Add up inventories and subtract by consolidated inventory

Question 16

Current expected credit losses model

Answer 16

When an available for sale debt security is below amortized cost it must be written down to the lower fair value by recording a credit loss that’s recognized in the income statement.

Question 17

How to calculate credit loss

Answer 17

Difference between amortized cost and present value of expected cash flows (interest & principle to be received)

Question 18

Dividends received under fair value method vs equity method

Answer 18

Under fair value method, dividends received is recorded as income and does not affect the investment account while for the equity method dividends received decrease the investment account

Question 19

How to calculate intercompany inventory purchase

Answer 19

• Add up revenues then subtract from consolidated amount
• Multiply the difference by COGS % for gross profit of parent
• Multiply that by % still in inventory

Question 20

Accounting for goodwill under equity method

Answer 20

It is ignored, neither amortized or tested for impairment