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Fin > F4 > Flashcards

F4 Flashcards

1
Q

if interest rates have increased, then the bonds’ interest rate would be _____ attractive to investors now than when the bonds were originally issued. this would cause:

A

less, decline in the bond’s market value (premium to discount)

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2
Q

Because the bond investment is classified as held to maturity, the investment will be reported at:

A

amortized cost ( for long and short term, unless there’s permanent decline in market value)

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3
Q

trading debt securities and available for sale debt securities are reported at:

A

fair value

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4
Q

dividend revenue, under fair value method, should be recognized to the extent of:

A

cumulative earnings since acquistion and then return of capital beyond that point

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5
Q

equity securities are marked to _____ at the FS date

A

fair value

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6
Q

concentration of credit risk:

A

risk that the other party to the instrument will not perform (must be disclosed in notes)

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7
Q

disclosure of market risk:

A

the risk of loss from changes in market prices (encouraged but not required)

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8
Q

disclosure of carrying value:

A

must be disclosed for most financial instruments

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9
Q

disclosure of fair value:

A

must be disclosed for most financial instruments (when it is practicable to estimate fair value)

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10
Q

the fair value option applies to:

A

financial assets (debt and equity securities)

liabilities (notes payable)

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11
Q

The fair value option doesn’t apply to:

A

investments in subsidiaries

pension benefit assets/liabilities

assets and liabilities recognized under leases

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12
Q

unrealized holding gains and losses on equity securities are included in:

A

net income

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13
Q

trading debt securities are reported at:

A

fair value with holding gains and losses included in earnings

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14
Q

a company owning a 22% investment in another company in which the investment is accounted for using the equity method is considered as having “significant influence” over the company and is required to disclose:

A

the company’s accounting polic for the investment

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15
Q

a company should record the 2% stock dividend received from its investment company with a:

A

memorandum entry that reduces the unit cost of all Guard stock owned.

(the toal investment will be spread over a larger amount of shares, thereby reducing the unit cost of all Guard stock owned)

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16
Q

investor records as revenue its __________ under the equity method

A

“share of the investee’s earnings” (not dividends received”)

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17
Q

dividends from an investee company are recorded by the investor as:

A

a reduction in the carrying amount of the investment on the balance sheet of the investor

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18
Q

Changes in the market value of investee’s common stock are not considered ____ to the parent under the equity method

A

income

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19
Q

under the fair value method, receipt of a dividend is recorded as income and does not affect:

A

the investment account

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20
Q

fair value of FIFO inventory exceed carrying amounts. How does the excess affect reported equity in earnings?

A

decrease, record the additional COGS associated with the undervalued beginning inventory by debiting investment income and crediting the investment

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21
Q

fair value of land exceed carrying amounts. How does the excess affect reported equity in earnings?

A

no effect, because the difference between book value and fair market value on land is not amortized

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22
Q

when significant influence is acquired, the _______ is adopted from that date and going forward

A

equity method

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23
Q

under equity method, receipt of a dividend is recorded as ________ in the investment account

A

a decrease

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24
Q

when two or more purchases of stock cause ownership in an investee to go from less than 20% to more than 20%, the cost of acquiring the additional interest in the investee is:

A

added to the carrying value of the investment and the equity method is adopted as of the date that significant influence is acquired and going forward

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25
Q

3 rules of income in investee in equity method:

A
  1. income from an investee is recognized only from date of purchase
  2. the dividends received reduce the investment account, but do not affect income
  3. with over 20% ownership, significant influence is assumed and the equity method is used
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26
Q

under the equity method, the common stock dividend are recorded as:

A

a reduction to the investment account

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27
Q

preferred stock ownership doesn’t allow the investor to exercise influence, so the preferred stock investment is accounted for:

A

using the fair value method and the preferred stock dividends are recorded as dividend revenue on the IS

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28
Q

undervalued asset amortization affects:

A

the investment account and the investment income account (revenue)

JE:

equity revenue
investment account

29
Q

cash dividends affects:

A

the investment account

JE:

Cash
investment account

30
Q

under _______, liquidating dividends reduce the carrying amount of the investment account

A

fair value and equity methods

31
Q

any goodwill created in an investment accounted for under the equity method is:

A

ignored (no accounting)

32
Q

the entire equity method investment is subject to:

A

impairment test

33
Q

the amount of goodwill recorded on the balance sheet by an acquiring firm for a business combination represents:

A

the excess of the price paid over the fair value of the identifiable net assets

34
Q

Signifiant influence exists when a company owns between _________ of the voting stock of another company.

A

20 to 50%

35
Q

Even if significant influence threshold is not met, the investor is seen to have it if it:

A
  • has representation on the board of directors of the investee
  • participates in policy-making processes
  • has material intercompany transactions
  • interchanges mangerial personnel
  • the investee has technological dependency on the investor
36
Q

The exceptions to not consoldiating a majority owned subsidiary are when:

A
  • the subsidiary is in legal reorganization or bankruptcy and/or
  • the subsidiary operates under severe foreign currency exchange restrictions, controls, or other governmentally imposed uncertainites so severe that they cast doubt on the parent’s ability to control the subsidiary
37
Q

reporting consolidated FS is consistent with the concept that:

A

economic entiry can be identified with a unit of accountability

38
Q

in a vertical chain, where parent company owns more than ____ of subsidiary company, and subsidiary owns more than ____ of a third company, consolidate:

A
  1. third company into subsidary company

2. subsidary company into parent company

39
Q

Under the VIE model, the primary beneficiary is not required to have greater than ____ ownership of the VIE.

A

50%

40
Q

Under the VIE model, The primary beneficiary is:

A
  1. the entity that has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and
  2. absorbs the expected VIE losses and/or
  3. receives the expected VIE residual returns
41
Q

Most liabilites, excluding short-term trade payables (AP), represent:

A

variable interests

42
Q

Examples of variable interests:

A
  • a forward contract to sell assets owned by the entity
  • an option to acquire a leased asset at fair value at the end of the lease term
  • an explicit guarantee of the entity’s debt
43
Q

An investor is considered to have parent status when:

A

control over an investee is established or more than 50% of the voting stock of the investee has been acquired

44
Q

an entity has insufficient equity investment at risk if:

A

the entity’s equity investment at risk is less than the equity investment at risk of similar non-VIE entities.

45
Q

an entity has sufficient equity investment at risk when:

A
  • the entity’s equity investment at risk is at least as much as the equity investment of other non-VIE entities that hold similar assets of similar quality
  • the fair value of the equity investment at risk is greater than expected losses
  • the entity can finance its own activites
  • the facts and circumstances indicate that there is sufficient equity at risk
46
Q

Under IFRS, a sponsoring company must consolidate an SPE if:

A

it controls the SPE.

47
Q

Control exists when the sponsoring company is:

A
  • benefited by the SPE’s activites
  • has decision making powers that allow it to benefit from the SPE
  • absorbs the risks and rewards of the SPE
  • has residual interest in the SPE
48
Q

If over 50% control exists, consolidated FS should be prepared unless:

A
  • control is temporary

- significant doubt exists regarding the parents ability to control the subsidary

49
Q

Direct costs of combination, other than registration and issuance costs of equity securities should be:

A

deducted in determining the net income of the combined corporation for the period in which the costs were incurred

50
Q

With acquistion accounting the net assets acquired are based on:

A

fair market value

51
Q

the fair value of finished goods and merchandise inventory are based upon:

A

selling price - disposal costs and a reasonable profit allowance

52
Q

_____ are an appropriate measure of fair market value for raw materials inventory

A

replacement cost

53
Q

the fair value of work in process should be based upon:

A

the estimated selling price of finished goods - the costs to complete and dispose and a reasonable profit allowance

54
Q

registration and issuance costs of equity securites decrease:

A

APIC

55
Q

acquistion costs associated with a business transaction must be:

A

expensed in period incurred

56
Q

when acquistion price exceeds the fair value of net assets acquired, assets and liabilites should be presented at:

A

fair value

57
Q

when subsidiary is acquired with an acquistion cost that is less than the fair value of the underlying assets:

A
  1. balance sheet is adjusted to fair value, which creates a negative balance in acquistion account
  2. identifiable intangible assets are recognized at fair value, which increases the negative balance in the acquistion account
  3. the total negative balance in the acquistion account is recorded as a gain
58
Q

under GAAP, goodwill is the difference between:

A

the fair value of the subsidiary and fair market value of the net assets acquired

59
Q

the acquistion price paid is calculated on:

A

the date the acquistion is finalized

60
Q

acquistion date eliminating journal entry (less than 100%)

A

equity (new company)
balance sheet adjusted to FV
Identifiable intangible assets at FV
Goodwill
investment in CO
noncontrolling interest

61
Q

acquistion date eliminating journal entry (100%)

A

equity (new company)
balance sheet adjusted to FV
Identifiable intangible assets at FV

                                          investment in CO
                            noncontrolling interest (0)
                                                               Gain
62
Q

when an investor goes from non-control to control of a subsidiary through a step acquistion, the previously held equity investment must be adjusted to fair value. the fair value adjustment is recognized as:

A

gain or loss by the investor in the period of the additional acquisition

63
Q

under GAAP, noncontrolling interest (NCI) is calculated as:

A

NCI = fair value of subsidiary * NCI %

fair value of the subsidiary - acquistion cost = NCI

64
Q

under IFRS partial goodwill method, noncontrolling interest (NCI) is calculated as:

A

NCI = fair value of subsidiary net assets * NCI%

65
Q

under IFRS partial goodwill method, goodwill is calculated as:

A

goodwill = acquistion cost - fair value of subsidary’s net assets acquired (%)

66
Q

ending noncontrolling interest calculation:

A

beginning NCI
+ NCI share of subsidary net income
- NCI share of subsidiary dividends
= ending NCI

67
Q

in a bargain purchase where the fair value of the net asset acquired is more than the consideration exchanged for the net assets, the difference is recognized as:

A

a gain by the acquirer at the time of acquisition

68
Q

Under GAAP, goodwill impairment is analyzed at:

A

reporting unit level

69
Q

Under IFRS, goodwill impairment is analyzed at:

A

cash generating unit level

Fin (4 decks)

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