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F4 Flashcards

1
Q

DEBT SECURITIES HTM

A

Ignore any change in value. In BS on amortized cost. No sales. No unrealized gain/loss. If it’s impaired-calculate ECL (expected credit loss)= PV of principal and interest you ae going to receive minus amortized cost. If loss from impairment: DR Credit loss (IS, RE,E)/ CR Allowance for credit losses (BS Asset decline).

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2
Q

DEBT SECURITIES AFS. Unrealized gain//loss go directly o Equity (as a part of OCI)

A

UNSOLD:

  1. If FV goes up: DR Valuation account (FV adj )/Unrealized gain on AFS. AOCI increased.
  2. Impairment: DR Credit loss goes to IS (Cost - FV +any losses in OCI) CR Allowance for credit losses. Repeat JE every period. Credit loss calculated PV - Amortized Cost. If impairment loss (PV-Cost) is BIGGER THAN ECL (Cost-FV) : DR Credit loss, DR Unrealized loss on AFS for amount exceeded ECL /CR Allowance for Credit Losses (equal ECL) and CR Valuation account (FV adj, extra than ECL)
  3. Sold. DR Cash, DR Unrealized gain AFS (REVERSE ), CR AFS Asset. CR Realized gain on AFS (goes to IS)
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3
Q

DEBT SECURITIES TS. Unrealized Gain/Losse goes to Income statement

A
  1. Market price goes up. DR Valuation account (FV adj)/ CR Unrealized gain on TS
  2. If Market price goes down. DR Unrealized loss on TS CR valuation account (FV adj)
  3. TS Sold. DR Cash/ CR TS , CR Realized gain (S Price minus CV at time of sale)
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4
Q

Equity securities. Reported through FVTNI Stock treated like a debt. Treated like TS. Unrealized gain/loss goes to IS.

A

Practicability Exception: if no FV, cost- minus impairment

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5
Q

If interest rate increased

A

The bonds interest rate increased, then bonds interest rate would be less attractive to investors now vs then it was issued. This would cause decline in FMV

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6
Q

AFS

A

Unsold. Reported in BS under FV. Unrealized loss/gain (price-FV) -OCI.

AFS Gin/Loss in OCI NET of Tax, e.g. 100 gain, tax 25%, report 75 in OCI

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7
Q

Equity securities reported FVTNI>Retained earnings>Stockholders equity

A

Unrealized Gain/Loss of marketable equity securities accounted in NI.If multiple years FV given ATTENTION! Start with prior year adjusted FV balance.

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8
Q

Common shares with elected FV option for investment

A

Gain/loss plus any received DIVIDENTS. Pay attention on dividend share. They can give total amount of dividends for all stock, apply your %

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9
Q

TS

A

The bonds are for sale in next 12 months

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10
Q

Common shares. What amount shown in BS as investment if FV, dividends given. stock split 2 to 1 given?

A

Only FV. Dividends considered income, not investment. Stock split 2 to 1-number of shares doubled and cost per share halved, so there is not change to investment amount.

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11
Q

When debt securities (TS, common stock) 1st purchased, they recorded as Asset. Investments. For adjusting to FV use:

A

If gain, DR Valuation account, if Loss- credit contra asset valuation account.

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12
Q

HTM

A

Impairment if it is permanent decline in FV :DR ECL CR Allowance for ECL

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13
Q

Bond A is an 8-year bond paying 3%, par $100,000, price $90,000 issued at a market yield of 4.5%. Year 1 amortization is $1,050 and Year 2 amortization is $1,097.25.

A

Bought at Discount. Face value $100K, price $90K, income 3% per year, less than average market 4.5%, mean bought at discount. Discount $10K amortized each year and increase CV of Bond each year. At 8th year CV=Face value. If bound would be bought at premium, $110K, then amortization would reduce CV each year.

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14
Q

Bond face value $100K bought on discount $90K.Paying 3%, Year 1 amortization is $1,050

A
  1. Record purchase:
    DR Investment $100K
    CR Discount 10K
    CR Cash $90K
  2. CV Bond 12/31:
    DR Discount (1 year amortization) $1.1K
    DR Cash (paying 3%) $3K
    CR Interest Rev $4.1
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15
Q

Given:
Ember purchased 15%

30,000 common shares
declared dividend of $2.15 per share

Retained earnings at declaration date was $395,000.

JE in the end of the year?

A

Dividends paid to Ember are 30,000 shares × $2.15 per share = $64,500. Any dividends paid in excess of retained earnings are treated as a return of capital. Retained earnings of $395,000 × 15% = $59,250 “attributable” to Ember. The excess is treated as a reduction in the Investment
JE DR Cash 64,500
CR Interest Rev 59,250
CR Investment 5,250

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16
Q

Bond purchased at $10K discount, sold at $14k premium. Amortization of discount total $2k. JE?

A

DR Cash $114 K
CR Investment $92K
CR Gain $22K

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17
Q

York Co in 1/07 purchased 8% HTM bond. Face value $1,000K, Price paid $946K, including accrued interest $40K. Bonds were purchased at 10% yield interest. What amount should be record as investment?

A

Investment $906K
Accrued Interest $40K
Cash $946K

  1. Caring Value 7/1 $946K-$40K=$906K
  2. Interest Revenue $90610%6/12=$45.3K
  3. Interest Receivable$1000K8%6/12=$40K
  4. Discount amortized $5.3K
  5. Caring value 12/31 $906K+$5.3K=$911.3K
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18
Q

Equity method for investment (more than 20%)

A

Balance sheet: Parent’s initial investment+% of Net Income- % of Parent dividend (withdraw)-% of depreciation (service charge).

Income statement: Net income% - minus depreciation=Parent’s net equity earnings in investee
1. Record initial investment:
DR Investment
CR Cash (purchase price)
2. Recognize gain:
DR Investment
CR Equity in earnings (Net Income minus- Preferred dividends #of shares parcumulative%)% interest in investee

  1. Record amortization (FV- BV) total excess to amortize*% in investee/ remaining useful life
    DR Equity in earnings
    CR Investment (reduction of our investment)
  2. Dividends paid by investee (return on investment)
    DR Cash (Declared Dividends*% interest in investee)
    CR Investment to investee
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19
Q

Use equity method ONLY if

A

You have more than 20% of voting common stock !NOT non voting preferred stock

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20
Q

Receipt of dividends recorded:

A

Fair Value: Income. Doesn’t affect investment.

Equity method: Reduce investment

21
Q

When equity method used which of the following affects Investor’s income?

A

Change in FV-NO, Cash Dividends- NO

22
Q

Investor received dividends in excess of investors share of common stock. How it will affect investment account?

A

These are liquidation dividends. Decrease in FV and in Equity methods

23
Q

Under equity method

A

Common stock dividends recorded as reduction of investment. Preferred stock dividends-as dividend revenue

24
Q

What allocate to goodwill under equity method if given:

  • Cost of investment $200
  • 30% of common stock
  • FV $600k
  • BV 500k
A
  1. Total excess Difference COST - BV $200k minus -(30%BV$500k)=$50k
  2. Excess allocated to assets Difference FV- BV ($600k-minus BV $500k)*30%=$30k
  3. Excess to goodwill$50k-$30k=$20k

Difference Cost- BV% and FV-BV%

Difference b/them goodwill

25
Q

Revenue due to investments is the same as

A

Net income after preferred dividends were paid * % of investment

26
Q

Income under equity method

A

Net income*% of investment- minus yearly amortization

27
Q

If stock dividend paid instead of cash

A

Don’t include it in dividend income

28
Q 
Given:
20% of preferred stock 10% cumulative. Total $100K
40% of common stock  Total $700K
Net income
Paid dividends
Calculate revenue
A
  1. Preferred dividends $100k10%20% ownership
  2. Net income minus preferred dividends= net income available for common shareholders
  3. Multiply it by 40%=equity in earnings

Total revenue =preferred dividends+equity in earnings

29
Q

Under equity method FV exceed BV.

A

Income from investment reduced for yearly amortization amount*% of share/years.

30
Q

Equity method

A

Do not include paid dividend into a calculation of revenue/divided revenue. It’s return of the capital and it reduces investment.

31
Q

Under equity method

A

Do not include in income dividends, prior period adjustments. Include Equity in earnings

32
Q

If you make JE to record amortization and revenue under equity method remember

A
  1. Reduce Net Income Minus - Preferred stock dividends (cumulative %)= Net income after preferred dividends investment %.
  2. For amortization use (FV-BV)*investment %
33
Q

Right order for consolidation:

A

From bottom up.

Do not consolidate if undergoing legal reorganization. Use equity method.

34
Q

2 characteristics of Acquisition method

A
  1. 100% of assets acquired reported under FV

2. When companies consolidated, subsidiary entire equity (stock, retained earnings and APIC) excluded

35
Q

JE for consolidation for SUB Acquisition (done on excel spreadsheet not books)

A 
DR Common stock SUB
DR APIC SUB
DR Retained Earnings
CR Parent Investment in SUB 
CR Non controlling interest
DR BS Adj to FV
DR Intangible asset paid
DR Good will plug
36
Q

Good will related to acquisition under US GAAP:

A

US Gaap Goodwill=Price paid + NCI- Shareholders Equity-Extra FV of Assets

Shareholders Equity=CA+PPE-Liability

NCI- calculate proportion 100%

37
Q

Goodwill partial method IFRS

A

Partial goodwill=Price paid not including NCI -(Common stock plus extra in FV of assets PLUS INTANGIBLE)*% of ownership

Or Price paid excluding NCI minus (CA+PPE+Extra FV in Assets-Liabilities)

38
Q 
Total FV:
Goodwill
Intangible
BS extra
BV (CAR Com Stock, APIC, Ret Earnings)(CA+PPE-Liabilities)
A

Total FV:
NCI
Acquisition Price (incl contingent consideration, do not include direct acquisition cost)

39
Q

NCI under US GAAP- proportion 100%

A

NCI under IFRS =FV of SUB Assets (CAR+BS Extra+Intangible)*NCI%
or CAR BV of Assets - BV of Liabilities

40
Q

NCI if dividends paid is equal

A

Beginig NCI+Noncontrolling share of Net Income- Minus NC Dividends paid

41
Q

Intercompany transaction

A

Parent eliminates AP, AR. Dividends reported-only paid to external shareholders. Dividends paid to noncontrolling shareholders: DR Investment in SUB, DR NCI, CR Dividends paid/Retained earnings

42
Q

Consolidated effect/ JE on bond sale b/w parent/sub

A

If SUB bought parent’s company bond, it’s treated like bond retirement. If book value is more than selling price, bond retired at gain. “premium”. BV-Price. DR premium on bond/ CR Retained earnings

43
Q

Intercompany

A

If asked about intercompany AP eliminated: Combined amount of AR minus Consolidated AR
If asked about caring amount of inventory purchased/sold inside the company:
Total Rev before elimination minus consolidated Rev =Intercompany sales*COGS% (1-GP%). Intercompany COGS *% still held in inventory

44
Q

When Parent Company sells to SUB ALL amount of Sale and COGC s/b eliminated

A 
DR Sales Total Amount
CR COGS (COGS + profit (% of marked up) must be eliminated)
CR Inventory (profit must be eliminated from ending inventory)
45
Q

When Parent company sells equipment to SUB

A

DR Gain on sale (Price - BV)
CR Depreciation expense for 1 year (difference old/new policy)
CR Accumulated Depreciation (Plug)
CR Asset (Price - Original cost)

46
Q

Intercompany current assets

A

Sum of Parent and SUB + FV Adj

47
Q

What mount of stockholders equity should be reported in Parent’s consolidated Balance Sheet if Parent doesn’t owe 100%?

A

Parent CAR + NCI

NCI computing:

  1. FV of NCI. NCI % of Price
  2. Plus Net income before paid dividends = (Ending Retained Earnings - Beginning Retained Earnings +paid dividends)*NCI
  3. Minus NCI*Dividends Paid
  4. Total Parent’s Stockholder’s Equity= Parent’s CAR+NCI balance
48
Q

Which of the following statements is correct regarding a discount bond redeemed at premium to par under US Gaap

A

Bond issuance cost not fully amortized will increase the size of the loss booked

FAR (12 decks)

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