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FAR MC > F4 > Flashcards

F4 Flashcards

1
Q

Trading securities

Type of asset, where cash flow, how measured?

A

Current asset
Cash flow from continuing ops
Fair value - all gain / loss to IS

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2
Q

Redeemable Preferred Stock

A

Debt - debt rules
Has maturity date
No voting rights

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3
Q

Available for sale securities

Type of asset, where cash flow, how measured?

A 
Cash flow from investing
Fair value (unrealized gains / losses to OCI
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4
Q

Held to maturity debt securities

Type of asset, where cash flow, how measured?

A 
Debt only
Amortized cost (not fair value)
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5
Q

Requirements for held to maturity

A

INTENT and ABILITY to hold the securities to maturity

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6
Q

Debt securities reported at fair value are classified as

A

Either trading securities or available for sale

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7
Q

Offset account for unrealized gains and losses JE for fair value adjustments of financial instruments

A 
Valuation account (fair market adjustment) 
Contra asset
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8
Q

Is retained earnings affected by recognizing an unrealized loss on AFS securities?

A

No - does not effect retained earnings. Effects OCI and comprehensive income

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9
Q

If AFS is permanently impaired, where is the loss recognized?

A

IS - NOT OCI

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10
Q

Requirements for transferring between categories of securities

A

Must be justified

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11
Q

If a trading security is non-current, where does it appear on the cash flow?

A

Investing

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12
Q

If a trading security is current where does it appear on the cash flow?

A

Operating

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13
Q

What happens to unrealized gain / loss when transferring from trading securities to another category?

A

Unrealized gain / loss in earnings shall NOT be reversed

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14
Q

What happens to unrealized gain / loss when transferring to trading securities?

A

Recognize in Earnings

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15
Q

What happens to unrealized gain / loss when transferring from AFS to HTM?

A

Unrealized holding gain will be amortized over the remaining life of the security (like discount / premium)

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16
Q

Interest income cash flow category

A

Operating

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17
Q

Permanent impaired HTM, where does loss go?

A

Mark to FMV and loss goes to IS

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18
Q

Does permanently impaired loss ever hit OCI?

A

Never - b/c this is a realized loss

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19
Q

Can you have significant influence if you don’t have voting rights?

A

No

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20
Q

Non public trading securities are valued at

A

Cost less impairment

Private means hard to judge FV

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21
Q

Liquidating JE for investor

A

Cash

Investment in investee

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22
Q

What is a liquidating dividend?

A

Dividend is greater than what the company has in retained earnings. The excess is liquidating

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23
Q

Fair value through net income

A

Trading security rules for equity investments

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24
Q

Required disclosures for investments in debt securities

A

Fair value (HTM / AFS)
Unrealized gains and losses
Amortized Cost

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25
Q

Market risk

A

Sensitivity to overall macroeconomic conditions

Encouraged disclosure - not mandatory

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26
Q

Credit risk concentrations

A

Mandatory disclosure

Risk of loss from party nonperformance

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27
Q

How to calculate realized gain / loss on AFS debt security

A

Original cost - selling price = gain (loss)

Reverse OCI

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28
Q

FVTNI

A

Fair value through net income (trading security rules by named differently to keep equity separate)

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29
Q

Can Equity be avail. For sale?

A

No

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30
Q

IFRS difference in equity instruments gains / losses (investor)

A

Equity instruments can be valued as AFS (FVOCI)

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31
Q

Practability exception to fair value reporting

A

Not practical to report at fair value

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32
Q

What is required to disclose for financial instruments that have elected the practicability exception?

A

Carrying amount

Impairment

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33
Q

Can trading securities be impaired under GAAP or IFRS?

A

No - changes in fair value already recognized in NI

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34
Q

IFRS reclassification of investor securities difference from GAAP

A

Recognize gain / loss in earnings no matter the classification and remeasure at fair value

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35
Q

IFRS impairment difference for investor securities

A

AFS -> loss to OCI

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36
Q

JE for Dividends received (no significant control)

A

Cash

Dividend income

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37
Q

Where does unrealized gain and loss go for trading securities?

A

IS

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38
Q

Where does unrealized gain and loss go for AFS?

A

OCI

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39
Q

Where does unrealized gain / loss go for HTM?

A

Not measured

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40
Q

Reclassification from AFS to HTM - what happens unrealized holding gain / loss?

A

Adjustment of yield in manner consistent to amortization of premium or discount

41
Q

What most likely would cause a decline in bond’s market value?

A

Interest rate increase

42
Q

Items excluded from fair value reporting options

A

a. Leases
b. Pension benefit assets / liabilities
c. Investments in subsidiaries

43
Q

Equity method is not appropriate even when investor owns 20 - 50% when

A 
Bankruptcy in sub
Invest in sub temporary
Lawsuit or complaint filed
Standstill agreement
No significant influence
44
Q

How are Earnings and Dividends recorded for investments under the equity method?

A

a. Earnings increased investment

b. Dividends decrease investment - they are NOT income

45
Q

Income from investment equity method account is what account (revenue side)

A

Equity in investee income

46
Q

Equity in investee income is calculated how

A

Preferred stock dividends + share of earnings available to common stock (net income reduced by preferred dividends)

47
Q

If impairment is temporary, how recorded?

A

Only permanent impairment is recorded

48
Q

Transition from fair value method to equity method for equity investment

A

Add to investment and account prospectively

49
Q

If significant influence is acquired in an investment of investee on Dec 31st, how should income from investee be calculated?

A

Investment from investee would be calculated as ( 0/12 * % owned * investee Earnings ) b/c the control was acquired on the last day of the year and only Earnings after that date (prospective) will be income

50
Q

Under the equity method, when is goodwill obtained from an investment tested for impairment?

A

It isn’t. The entire investment is tested for impairment

51
Q

Significant doubt exists in the parent’s ability to control the subsidiary when

A

Bankruptcy
Legal reorganization
Severe foreign restrictions

52
Q

IFRS VIE

A

SPE

Special purpose entity

53
Q

Under IFRS when does an entity consolidate a SPE?

A

When the entity has CONTROL

54
Q

Does a sub’s partial ownership of. Parent company affect the decision to consolidate?

A

No

55
Q

Record company acquisition based on fair market value of common stock at announcement date or closing date?

A

Closing date

56
Q

Business combination costs are

A

Direct out of pocket costs are Expensed

57
Q

Stock registration and issuance costs are

A

Debit APIC

Direct reduction of the value of stock issued

58
Q

Contingent consideration JE for acquisition of sub

A

Invest in Sub
Contingent Liability

Add to invest in sub and record as contingent Liability

59
Q

Do preferred Dividends increase income or decrease investment under equity method?

A

Preferred Dividends increase income under the equity method

60
Q

CAR IN BIG

A

CS, APIC, RE
Invest in sub, NCI
BS FV, Intangible FV over carrying
Goodwill

61
Q

How is FV of finished goods calculated?

A

Estimated selling prices less costs of disposal and a reasonable profit allowance

62
Q

Is replacement cost an appropriate measure of fair value for raw materials inventory?

A

Yes

63
Q

Can NCI have a neg. balance in consolidation?

A

Yes, if there is sufficient loss in sub

64
Q

What is the partial method of goodwill?

A

Preferred method of calculation of NCI under IFRS - Fair value of net assets * ownership %

65
Q

In process R + D in business combinations

A

A capitalized intangible asset. Example you buy a cancer research company b/c of the potential for a cure.

Expense any R&D after acquisition and amortize if research is successful, otherwise impair

66
Q

Private company goodwill accounting alternative

A

Amortize goodwill and some intangibles are forgone in favor of goodwill such as customer related intangibles and non-competes

Amortized over MAX 10 years

67
Q

Do the partial and full goodwill methods differ when the parent owns 100% of the sub?

A

No

68
Q

In the partial goodwill method in consolidation, how much goodwill does NCI get?

A

None

69
Q

When an entity switches from equity method to consolidation method, how is gain / loss calculated?

A

FIRST The equity method investment must be adjusted to fair value - this results in a gain or loss. Then goodwill is calculated

70
Q

When acquiring a company that already has in process R + D on the books and the fair value of that intangible is higher than CV, what do you record as the value for in process R + D?

A

The fair value

71
Q

How should Dividends paid by sub be reported on consolidated financials when ownership interest is less than 100%?

A

Fully eliminate against investment in sub and NCI accounts

72
Q

Amount of unrealized company profit eliminated is…

A

The difference between consolidated inventory and sub + parent inventory and consolidated inventory

73
Q

If a sub buys parent stock, what is the gain / loss on transaction?

A

No gain / loss - it’s recorded as treasury stock

74
Q

The amount of Depr. Expense on equipment sold through intercompany is decreased by

A

1 / x * gain

where x is the useful life left when the intercompany sale took place

75
Q

If a parent owns x% of a sub and the sub acquires the parent’s bonds, what is the % of gain the parent recognizes as gain on extinguishment of debt?

A

100%

76
Q

If a parent owns x% of a sub and the parent acquires the sub’s bonds, what is the % of gain the parent recognizes as gain on extinguishment of debt?

A

x% b/c it’s the sub’s bonds, NCI will recognize 1 - (x / 100) of the gain

77
Q

When subs declare Dividends, what amount will be reported on parent’s consolidated financials?

A

The NCI portion only

78
Q

Formula for finding cost from markup and sales

A

Sales / (1 + markup %) = cost

79
Q

Does markup = gross profit %?

A

No!

80
Q

Is NCI part of parent’s equity?

A

Yes!

81
Q

Tricky part of consolidating sub net income

A

Only include sub revenues and expenses AFTER date of acquisition

82
Q

Net cash spent or received in an acquisition must be reported where in the statement of cash flows?

A

Investing section

83
Q

Financing section needs to report what if NCI exists on consolidated financials

A

Dividends paid by sub to NCI

84
Q

JE to adjust sub’s intercompany note payable unrealized loss

A

No entry necessary because will be eliminated in consolidation

85
Q

Goal of intercompany elimination for transfer of fixed asset

A
  • Eliminate gain on sale
  • Eliminate differences in carrying price and AD
  • Eliminate excess Depr exp
86
Q

If you own 95% of a company how much income do you recognize from sub in your own income?

A

95%, 5% will go to NCI instead of closing to your RE

87
Q

When consolidating parent and sub, do you use fair value or book value?

A

Fair value of sub’s assets at ACQUISITION DATE and book value of parent’s (can’t mark up fixed assets under GAAP)

88
Q

How to calculate ending NCI in equity?

A

Acquisition price / % ownership - acquisition price = beg NCI + NCI share of sub NI

89
Q

Cash Generating Unit

IFRS or GAAP term?

A

IFRS

90
Q

When is there possible impairment?

A

FV < BV

91
Q

Goodwill should be tested for value impairment at what level under GAAP

A

Reporting unit

92
Q

Goodwill should be tested for value impairment at what level under IFRS

A

Cash generating unit

93
Q

If both an asset group and goodwill have to be tested for impairment, which should be tested first?

A

Asset group. Fair value of identifiable assets have to be determined before FV of unidentifiable assets can be determined

94
Q

Implied goodwill

A

Excess of fair value over identifiable net assets and the max goodwill allowed

Excess of book value over implied goodwill is equal to the goodwill impairment

95
Q

Carrying value exceeds fair value means

A

There may be impairment

96
Q

Fair value exceeds carrying value means

A

There is no impairment

97
Q

Equity method goodwill impairment vs consolidation when tested?

A

Consolidation - yearly

Equity method - goodwill is NOT tested for impairment, instead entire investment tested for impairment

98
Q

When liquidating a partnership - advances from partners are
A. cashed out
B. Offset with their capital balances (increase)

A

B. Right to offset. Increases capital balances

FAR MC (10 decks)

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