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Question 1

For a held-to-maturity security - when is a loss recorded based on CECL model?

Answer 1

Loss is recorded when the amortized cost exceeds the PVFCF

Question 2

For AFS debt security: When is a credit loss recognized and where is it reported? What is the amount of PVFCF

Answer 2

Recognized when Amortized cost > FV –> Asset has to be written down to lower FV,` credit loss

PVFCF = Amort cost LESS Credit loss

*note that the unrealized loss or valuation allowance is not included

Reported on Income Statement

Question 3

What should Equity Method investment disclosure include?

Answer 3

disclose the Company’s accounting policy for the investment

Question 4

For most financial instruments - what amount is disclosed?

Answer 4

FV and Carrying Value

Question 5

How are Trading Securites classified?

Answer 5

At FV, within holding G/L in earnings

Question 6

How do you calc the NCI during the year?

Answer 6

Beg NCI
+ NCI share of Sub NI
- NCI share of Sub dividends
___________________________________
End NCI

Question 7

In a business combination - how are direct costs treated?

Answer 7

Expensed in the period incurred

Question 8

What is the consolidating elimination entry?

Answer 8

DR: CAR (CS/APIC/RE) OF SUB acquiring

CR: IN (investement in sub = purch amt, NCI if not 100%)

DR: BI (BS at FV, ID IA at FV) for changes in assets to FV

Goodwill/Gain (plug)

Question 9

What is the qualitative evaluation of Goodwill impairment?

Answer 9

1. used before quantitative evaluation
2. Used to determine if quantitative is needed
3. If 50% chance that the FV of Net assets < BV continue to quantitative

Question 10

What is the cap on impairment loss?

Answer 10

Cannot exceed the BV of GW

Question 11

Where are the Unrealized G/L from FV option recorded?

Answer 11

in I/S

Question 12

What are not examples of Debt securities

Answer 12

Options (future or forward), leases, AR and AP

Question 13

For a trading debt securities:

What is it classified as (A/L)
Where in the cashflows is it
Where is G/L recorded?

Answer 13

CA
CF operations
FV = G/L on IS

Question 14

For AFS debt securities

What is it classified as (A/L)
Where in the cashflows is it
Where is G/L recorded?

Answer 14

CF investing
FV realized G/L –> IS
FV unrealized G/L –> OCI

Question 15

For HTM debt securities:

What is it classified as (A/L)
Where in the cashflows is it
Where is G/L recorded?

Answer 15

CA/NCA
Amortized cost
no g/l

Question 16

What is the calc of Impairment on debt security

Answer 16

PV - amort cost

Question 17

what is FVTNI used to classify?

Answer 17

Valuation of equity securities (for public companies)

Question 18

What are the 5 disclosures necessary for securities

Answer 18

1. investment in debt securities (type,G/L, value)
2. investment in equity securities (type,
3. FV - need to state category
4. Concentration of credit risk
5. Market risk (optional)

Question 19

What are the three rules for Variable interest entity?

Answer 19

1. Variable interest exists (financial stake in company)
2. In a VIE (lack basic equity)
3. primary beneficiary (Biggest winner/loser)

Question 20

what are the 5 ways to distinguish that a business entity is a VIE

Answer 20

1. Insufficient level of equity in risk
2. Inability to make decision
3. No obligation to absorb
4. no right to rec returns
5. Dis proportion of voting rights

Question 21

If an there is an asset and in addition to GW that needs to be evaluated for impairment in a REPORTING UNIT - how will the GW be evaluated?

Answer 21

Evaluate other assets impairment first prior to GW

Question 22

If you acquire 100% of a company for stock @par of 10 and @FV of $17 - what is the value of investment?

Answer 22

Recorded at FV ALWAYS (17)

Question 23

How do you record the impairment of GW JE?

Answer 23

DR: Impairment loss
CR: Goodwill

Question 24

What is the JE to eliminate Intercompany Payable and Receivable?

Answer 24

DR: Intercomp payable
CR: Intercompany rec

Question 25

Will the "investment in subsidiary" included in the Consolidated FS?

Answer 25

NO - it is a credit in CAR IN BIG --> removed so no double counting

Question 26

When a subsidiary and consolidated entity pay dividends, what amount will be reported on the consolidated F/S

Answer 26

Only the parent issued dividends bc the subsidiary dividends will be eliminated

Question 27

What are the exceptions to consolidation when a company has controlling int of another entity?

Answer 27

1. when subsidiary is in legal reorganization or bankruptcy 2. sub operates under severe foreign currency exchange transactions 3. other govt imposed uncertanties so severe that cast doubt on parent to own subsidiary

Question 28

What is the valuation of equity securities reported at? where are unrealized G/L reported for these?

Answer 28

1. reported at FVTNI 2. Unreal G/L reported on i/s

Question 29

What is the impact of an undervalued asset amortization on the investment income using the equity method?

Answer 29

This will decrease the both rev and investment account DR: Equity rev CR: Investment in sub

Question 30

If there is goodwill created from an equity investment, how is the accounting treatment for this?

Answer 30

DO NOTHING, the entire investment is subject to impairment

Question 31

When acquiring a company - what is the amount assigned to inventories (FG and RM)

Answer 31

Fair value FG FV = EST SP - costs of disposal and profit allowance

Question 32

What are two type of securities that are not Equity securities?

Answer 32

Treasury stock and convertible bonds

Question 33

Under the FVTNI - what is the entry to record dividends rec

Answer 33

DR: Cash CR: Dividend incoe

Question 34

What are the 3 ways that the investment account will decrease through FVTNI

Answer 34

1. Shares of stock are sold 2. Cumulative dividends exceed cumulative earnings (ROC) 3. subsidiary incurs losses that result in impairment

Question 35

Even if a company owns a majority of voting interest in an investee. How will a noncontrolling shareholder stop them from having controlling financial interest?

Answer 35

If the noncontrolling shareholder has the right to block decisions in the ord course of business

Question 36

If an investor investment is reduced to zero due to investee losses and equity method is suspended, when can the investor resume applying the equity method?

Answer 36

Once the investee has returned to profitability and any net losses allocated to the investor during suspension period are covered by investors share of investee NI

Question 37

What is the definition of a financial instrument?

Answer 37

Contract with the right to receive cash and obligation to the issuing party to pay cash

Question 38

When the FV of equipment is greater than BV in acquiring a company, what is the impact on the equity method (include JE)

Answer 38

*only for assets with depreciation* 1. FV - BV of asset = BS Gain 2. BS Gain * equity invest % = portion to investor 3. Portion to invest / Useful life remaining = Amortization 4. Decreases both Investment income and investment account JE: DR: Income in investee CR: investment in investee

Question 39

What is the classification of an amount held in a sinking fund required by bond agreement

Answer 39

Restricted cash

Question 40

What is credit risk

Answer 40

Risk that other party will partially or not complete terms of agreement (i.e will not collect --> AR)

Question 41

If an entity is acquired July 1, 2021 - what would the consolidated F/S be as of July 1,2021?

Answer 41

BS of both Parent and Sub IS of only Parent (bc no sub income/loss operations yet)

Question 42

What is the cap on the amount of GW impairment loss?

Answer 42

If the impairment is greater than the GW balance --> only record loss up to the amount of GW on the books I.e CV = 105, FV = 90, GW balance = 12 ... normally impairment would be 15 (105-90) however, bc GW balance is 12 --> record 12