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FAR > F4 > Flashcards

F4 Flashcards

1
Q

Available for sale items would never be included in the

A

Income statement

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2
Q

A loss in held to maturity would be recorded when amortized cost is

A

Above present value

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3
Q

Jeep Co purchased bonds at a discount of $20,000. Subsequently jeep sold those bonds at a premium of $36,000. During the period that jeep or he’ll disinvestment amortization of the discount amount it to $6000. What amount should a cheap report as gain on the sale of bonds.?

  1. 12,000
  2. 36,000
  3. 50,000
  4. 56,000
A

50,000

(If original cost was $100k and sold at a discount of $20k then it was $80. But if sold at a premium of $30k that means the amount was sold at $136k minus the amortization discount of $6k).

36k - 6k = 30k + 20k = $50k

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4
Q

During your five, Gene purchased 5000 shares of the 500,000 outstanding shares of meteor, stock for $35,000. During your three Gene received $1800 for dividends from its investment in meatier stock. The fair value of genes investment on December 31 year five, is $32,000. Gene has selected the fair value option for this investment. What amount of income or loss that is attributable to the meteor stock investment should be reflected in genes earning for year five?

  1. Income of $4,800
  2. Income of $1,800
  3. Loss of $3,000
  4. Loss of $1,200
A
  1. Loss of $1,200

(Gene selected fair value option. The dividends are recognized as net income. Unrealized holding loss of $3,000 is also included in net income).

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5
Q

For available for sale if there is a difference between present value & fair value recorded, then the unrealized gain/loss would be recorded in:

A

Other comprehensive income

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6
Q

For available for sell, if there is a difference between the amortized cost & present value the unrealized gain/loss would be a:

A

Credit loss

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7
Q

Equity securities are generally reported at …. Through net income

A

Fair value

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8
Q

Unrealized holding some gains and losses on equity securities are included in ……… as they occur

A

Earnings

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9
Q

In the unrealized gain or loss for available for sale securities are recorded in

A

Other comprehensive income

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10
Q

 Dogs Co is the securities at December 31 included available for sale securities with a cost bases of $25,000 in a fair value of $32,000. Dogs income tax rate was 20%. What amount of unrealized gain or loss should a dog recognize in its income statement at December 31?

  1. 6,400 gain
  2. 7,000 gain
  3. 7,000 loss
  4. 0
A
  1. 0

(Unrelies games for available for sale securities are recorded in other comprehensive income OCI. The entire $7000 unrealized gain will go to OCI, with no amount reflected on the income statement).

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11
Q

Trading debt securities are reported at fair value with unrealized gains and losses included in

A

Earnings

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12
Q

Bond investments can be classified as trading securities because the bonds are held for the purpose of selling them …..

A

In the near term

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13
Q

Trading securities are reported at …….. on the balance sheet

A

Fair value

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14
Q

In year 1, Lee acquired, at a premium Enzo think your buns classified as a pill to maturity investment. And December 31 year to Enzo bonds were quoted at a small discount. Which of the following situations is most likely cause of the decline in the bonds market value?

  1. Enzo is expected to call the bonds at a premium, which is less than Lee’s carrying amount.
  2. Enzo issued a stock dividend
  3. Interest rates have declined since Lee purchased a bonds
  4. Interest rates have increased since Lee purchased the bonds
A
  1. Interest rates have increased since Lee purchased the bonds

(If interest rates have increased, then bars interest rates would be less attractive to investors now than when the bones were originally issued. This would most likely cause a decline in the bonds market value. Know that because the bond investment is classified as hill to maturity, the investment will be reported at amortized cost, not fair value).

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15
Q

Marketable debt securities that accompany has the intent and ability to hold to maturity both long and short term are reported at………… Unless there is a permanent decline in market value.

A

Carrying amount (amortized cost)

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16
Q

Are leases eligible for the fair value option?

A

No, investments and subsidaries, pension benefit assets/liabilities and assets and liabilities recognized under leases are excluded from fair value option.

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17
Q

Disclosures about the following kinds of risks are required for most financial instruments.

Concentration of. Market
Credit risk. Risk
1. No. Yes
2. No. No
3. Yes. No
4. Yes. Yes

A
  1. Yes. No.

(concentration of Credit risk – the risk that the other party to the instrument will not prefer – must be disclosed

Disclosure of material risk – the risk of loss from changes in marketplaces – is Encouraged, but not required

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18
Q

Available for sale security transfer to the trading category, the portion of unrealized Holdener lost at date of transfer that has not been previously recognized in earnings should be?

A

Recognized in earnings immediately

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19
Q

Trading debt securities are reported at fair value, withholding gains and losses included in

A

Earnings

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20
Q

On July 1 year one, York purchased as a Held to maturity investment for $1,000,000 of Park, Inc’s 8% bonds for $946,000, including accrued interest of $40,000. The bonds were purchased to yield 10% interest. The bonds mature on 1/1/08 abs post interest annually on 1/1. York Uses the effective interest method of amortization period and it’s December 31 year one, pharmacy, what amount see your report as investment and bonds?

  1. $916,600
  2. $911,300
  3. $953,300
  4. $960,600
A
  1. $911,300

(Carrying amount of bonds is $906,000 on July 1, Year 1 946,000 - $40,000). The discount is amortized for 6 months (July 1 to December 31):

Interest revenue: (906,000 x 10% x 6/12): $45,300
Interest receivable: (1,000,000 x 8% x 6/12): -40,000
5,300
5,300 + 906,000 = 911,300

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21
Q

Pear CO’s income statement for the year ended December 31, year one, as prepared by pears controller, reported income before taxes of $125,000. The auditor questioned the following amounts that had been included in income before taxes:

Equity and earnings of shin C. $40,000
Dividends received from shin. $. 8,000
Adjustments to profits of prior years for Errors in depreciation. ($35,000)

Pear owns 40% of Shin common stock Pears 12/31/Y1 income statement should report income before taxes

  1. 85,000
  2. 152,000
  3. 120,000
  4. 117,000
A
  1. $152,000

(The $40k is already included in the earnings because of the equity method it’s included in the income statement while dividends received are not). The $35k adjustment should be to the opening balance of retained earnings, not current period income
Income reported 125,000
Dividends received. (8,000)
Prior period adjust. 35,000

Income before taxes 152,000

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22
Q

on July first of year 1 Denver purchase 3,000 shares of eagles 10,000 outstanding shares of common stock for $20 per share. on December 15, year 1 , eagle paid $40,000 dollars in dividends to its common shareholders . Eagles net income for the year ended December 31, year 1, was )120,000, earned evenly throughout the year. In it’s Year 1 income statement, what amount of income from this investment should Denver report?

  1. 6,000
  2. 12,000
  3. 36,000
  4. 18,000
A
  1. 18,000

Eagles year 1 income $120,000
% owned - 3,000 of 10,000. x 30%

                                                     36,000 Owned for 6 months 7/1-12/31.  x 6/12
Inc from investment in Eagle 18,000
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23
Q

The carrying amount for of investment when company has significant influence over another has to add income x percentage and less

A

Dividends

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24
Q

On January 1 year too point purchased 10% of iOS come in stock. Point purchased additional shares and bringing its ownership up to 40% of Iowa’s common stock outstanding on August 1 of year 2. During October, year 2, Iowa declared and paid a cash dividend on all of its outstanding, stock. How much income from the Iowa investment should points year 2 income statement report?

  1. 10% of Iowa’s dividends for 1/1 - 7/1, year 2, plus 40% of Iowa’s income for August 1 to December 31, Year 2
  2. 40% of Iowa’s income for August to December 31, Year 2 only.
  3. 40% of Iowas Year 2 income
  4. Amount equal to dividends received from Iowa
A
  1. 40% of Iowa’s income for August to December 31, Year 2 only.

(when significant influence is acquired, the equity method is adopted from that date and going forward. Retroactive adjustments are not required.

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25
Q

An investor in common stock received dividends in excess of the investor share of investes earnings subsequent to the date of the investment. How will the Vesters investment account be affected by those dividends under each of the following accounting methods?

       FMV.                 .     Equity Method  1     No effect.                       Decrease   2     No effect.                       No effect  3     Decrease.                       Decrease  4     Decrease.                       No effect
A
  1. Decrease. Decrease

(under both the fair value and equity methods, liquidating dividends reduce the carrying amount of the investment account.

26
Q

When equity method is used To account for investments in Commonstock, which of the following affects the investor’s reported investment income?

A change in
Market value
Of investee’s. Cash Dividends
Common Stock. From Investee
1. No. No
2. Yes. No
3. No. Yes
4. Yes. Yes

A
  1. No. No

( Investor records as revenue it’s share of the investees earnings not dividends received under the equity method

Dividends from an investee company are recorded by the investor as a reduction in the caring amount of the investment on the balance sheet of the investor

27
Q

Any goodwill create it in an investment accounted for under the equity method is……….?

A

Ignored

(It is neither amortize nor tested for impairment).

28
Q

Band uses the equity method to account for its investment and guard,, stock. How should ban record a 2% stock dividend received from guard?

  1. As dividends revenue at guards carrying value of the stock
  2. As a reduction in the total cost of guard stock owned.
  3. As a memorandum entry reducing the unit cost of all guard stock owned.
  4. As dividend revenue at the market value of the stock.
A
  1. As a memorandum entry reducing the unit cost of all guard stock owned.
29
Q

When holding none voting stock a Company cannot exercise

A

Significant influence

30
Q

When using the equity method a company should disclose…………… In the companies annual financial statements.

A

The company’s accounting policy for the investment

31
Q

General rule for equity method is when a company owns ………% of voting stick of another investee company

A

20% - 50%

32
Q

Consolidated financial statements are typically prepared when one company has a controlling financial interest in another unless?

  1. The two companies are in unrelated industries, such as manufacturing and real estate.
  2. The subsidiary is in backruptcy
  3. The fiscal year-ends of the two companies are more than three months apart.
  4. The subsidiary is a finance company
A
  1. The subsidiary is in backruptcy
33
Q

When a company has over 50% of a subsidiary common stock that has over 50% of another subsidiary, they both would be ………

A

Consolidated

34
Q

Which of the following is not a characteristic that is used to determine the primary beneficiary of a variable interest entity (VIE) under US GAAP?

  1. The obligation to absorb expected V i.e. losses
  2. The power to direct the activities of the VIE
  3. Greater than 50% honorship of the VIE
  4. The right to receive the expected VIE residual returns
A
  1. Greater than 50% honorship of the VIE

(Under the via E model, the primary beneficiary is not required to have greater than 50% ownership of the VIE. The primary beneficiary is the entity that has the power to direct the activities of a variable interest entity that most significantly impact entities economic performance and observes the expected VIE losses and or receive the expected VIE residual returns).

35
Q

Which of the following is an example of a variable interest in an entity?

  1. A forward contract to sell assets owned by the entity
  2. Accounts Payable
  3. An option to acquire a leased asset at fair value at the end of the lease term.
  4. An explicit guarantee of the entity’s debt 
A
  1. Accounts Payable

(Most liabilities, excluding short term trade payables accounts payable, represent variable interest.

36
Q

A holder of a variable interest that is not the primary beneficiary acquired additional variable interest in the variable interest entity what action if any should follow?

  1. The holder of the variable interest should reconsider whether it is now the primary beneficiary.
  2. No action is necessary because the primary beneficiary of a VIE does not change subsequent to the initial assessment.
  3. The holder of the variable interest-rate use the voting interest model to determine whether the VIE should be consolidated.
  4. The primary beneficiary should discontinue consolidation of the VA because the election to consolidate is no longer allowed.
A
  1. The holder of the variable interest should reconsider whether it is now the primary beneficiary.
37
Q

When a parent‘s upset a relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of?

  1. Legal entity
  2. Reliability
  3. Materiality
  4. Economic entity
A
  1. Economic entity

(Reporting car solidated financial statements is consistent with the concept that the economic entity can be identified with a unit of accountability).

38
Q

When the acquisition price exceeds the fair value of net assets acquired, assets and liability should be presented at the……..?

A

Fair value

39
Q

Fees of finders and consultants are expensed in the period occurred. Registration fees for equity securities issue decreased additional paid in capital stockholders’ entity.

A

Only fees of finders and consultants are expensed

40
Q

Legal fees and due diligence cost are…………… Debt securities create liabilities, and debt securities registration cost are capitalized in amortized

A

Expensed in the period incurred

41
Q

Allocation costs associated with a business transaction must be………… As occurred

A

Expensed as invited in the current period

42
Q

A business combination is accounted for properly as an acquisition. Direct cost of combination, Howsington registration and insurance cost of equity securities, should be?

  1. Capitalized as a deferred charge and amortized.
  2. deducted directly from the retained earnings of the combined corporation.
  3. Deducted in determining the net income of the combined corporation for the period in which the cost were incurred.
  4. Included in the acquisition cost to be allocated to identifiable assets according to their fair values.
A
  1. Deducted in determining the net income of the combined corporation for the period in which the cost were incurred

(Direct costs are expensed in the period occurred).

43
Q

Would the relocation costs associated with another company’s headquarters be included in an acquisition cost?

A

No, Such cost or accountant for separately from the acquisition according to the requirements for exit or disposal cost. The investment would be valued at the fair value of the consideration given which is the amount to acquire the stock

44
Q

Replacement costs are appropriate measure of fair market value for………

A

Raw materials inventory

45
Q

The fair value of finish goods and merchandise inventory are based upon……………?

A

Seeking price less disposal costs and a reasonable profit allowance.

46
Q

When the acquisition method is being used, 100% of the subsidiaries equity accounts are…… In consolidation

A

Eliminated

47
Q

At the date of acquisition, the consolidated entity will be equal to…… Equality plus the fair value of any non-controlling interest. The subsidies company equity accounts were eliminated

A

The parent company’s equity

48
Q

In an acquisition, the net income of a newly acquired subsidy will only be included in consolidated net income from date of………
for example if 20% was owned until July 1 and then 95% after then………

A

Acquisition

Only 20% of sub net income is included in consolidated earnings until June 30 then 95% afterwards

49
Q

When a company owns subsidiaries greater than 50% the liabilities of ……… should be included expect

A

All subsidiaries should be included expect the subs that are less than 50% owned

50
Q

The acquisition method requires that 100% of the fair value of the Southsiders assets are recognize. Therefore plant asset reported on the consolidated balance sheet would be…… Of the subsidiaries plant assets plus the…… Of the parent company plant assets

A

Fair value of the subsidiary company & the book value if the parent companies plant assets

51
Q

When it comes to the current assets of a consolidated company the currents for both are……… plus any

A

Are added together plus any FMV adjustments that can increase/decrease based on the if fmv is more than carrying amounts

52
Q

100% of an intercompany balances among members of the consolidated group are…………

A

Eliminated

53
Q

All in her company transactions, including lungs in advance, should be………… Upon consolidation.

A

Eliminated

54
Q

If a sub company has a payable to its parent company whose balance sheet should it show up on?

  1. Both sub & parent companies
  2. Sub
  3. Neither company
  4. Parent company
A
  1. Sub company

(Any payables or receivables between a parent and a subsidiary company must be eliminated in a consolidated presentation to avoid double counting. However on the subsidiaries on the balance sheet, any payables or receivables resulting from a transaction with the parent company should be reflected).

55
Q

P purchased term bonds at a premium on the open market. These bonds represent at 20% of the outstanding class of bonds issued at a discount by S. Peas holy on subsidiary. P intends to all the Bond’s until maturity. In a consolidated balance sheet, the difference between the barn carrying amounts in the two companies would be?

  1. Reported as a deferred credit to be amortized over the remaining life of the bonds.
  2. Included as an increase to retained earnings.
  3. Included as a decrease to retained earnings.
  4. Reported as a deferred debit to be amortized over the remaining life of the bonds.
A
  1. Included as a decrease to retained earnings.

(When members of a consolidated group have intercompany bond holdings, the bonds are eliminated and consolidation and the difference (gain or loss) Between the discounted issue price and the premium on reacquisition would be included in retained earnings

56
Q

Fixed asset cost is based on…… From the outside world and remains the same on consolidated Financial statements?

A

Original cost

57
Q

King owns 70% of Simon outstanding, stock. Kings liabilities total $500,000, and Simmons liabilities total $200,000. Included in Simmons financial statements is a $100,000 note payable to King. What amount of total liability should be reported in the consolidated financial statements?

  1. $650,000
  2. $600,000
  3. $500,000
  4. $700,000
A
  1. $600,000

(Total liabilities reported in a consolidated financial statements would be $600,000, which represents Kings total liabilities of $500,000 and $100,000 of Simmons liabilities, reflecting Simmons total liabilities of $200,000 less the $100,000 note payable to King).

58
Q

When it comes to parent company and sub company on the realize intracompany profit being eliminated one would have to take the difference from the?

A

Difference in inventory From consolidated and both of the parent and serve companies inventory added together

59
Q

When it comes to the parent company and sub company for the amount of interim company sales, One minus add both of the revenues from the sub and parent company together and ……..company the difference with the consolidated amount.

A

Subtract

60
Q

To find the amount that the sub company has payable to the parent company in your company sales one must subtract the consolidated amount from both of the…… Amounts of both companies

A

Accounts Receivables

61
Q

On January 1, Year 1, Congo.com issued $1,000,000, 9% 10-year bonds (interest paid annually) to yield 8%. The present value of $1 at 9% for 10 years is 0.4224 and the present value of an ordinary annuity of $1 at 9% for 10 years is 6.4177. The present value of $1 at 8% for 10 years is 0.4632 and the present value of an ordinary annuity of $1 at 8% for the 10 years is 6.7101. Which of the following is closest to the selling price of the bond?

  1. $1,067,100
  2. $1,000,000
  3. $920,000
  4. $1,040,800
A
  1. $1,067,100

The selling price of a bond is equal to the present value of the principal and interest payments calculated using the effective rate or market yield as follows:

PV of principal: 1,000,000 x 0.4632= $463,200
PV of interest: 90,000 x 6.7101= 603,909

1,000,000 x 9% = 90,000

FAR (7 decks)

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