F4 M2, M3, M$ Flashcards
With the equity method there is no consolidation T or F
T
What are the percentage of ownership for Fair value, Equity, and Consolidated statements
Fair value 0-20; Equity 20-50; Consolidate 50-100
Exercise significant influence uses what method
Equity method; largest shareholder and majority of board
When is the equity method not appropriate
Bankruptcy, standstill agreement; investment is temporary; another small group has majority ownership and operate the company whiteout regard to the investor; cannot obtain the financial information; cannot obtain representation
In the equity method when dividends are paid you do not make an entry to dividend income instead you credit the investment account T of F
T D Cash; C Investment in Investee
What type of entry is made for stock dividends?
Memo entry only
Under the equity method what is the formula for when there is common stock and preferred stock
Subsidiary earnings (income) - cumulative Preferred Stock dividend issued X percentage of how much ownership owns of stock + preferred stock dividend owned
Asset adjustment formula is
The difference between the book value and the fair value of net assets acquired ; FV-BV = Asset Adjustment (which is amortized)
Goodwill
FV purchase price of the subsidiary - FV of the net assets (% owned * net assets) = goood will; do not amortize
An excess of an assets fair value (assets including inventory & PPE (except land) does what to eqyity
It decreases equity because it is amortized. This if the excess of these assets as a service charge.
Stockholder’s equity in terms of an acquisition is also known as what?
Book Value; if in a problem it mentions stockholder’s equity was xyz at time of purchase; that means this was the company’s book value of their assets
T or F; Going from the Fair Value(cost) to equity method is retroactive
F; retroactive adjustments are not required; the equity methods is adopted as of that date and going forward.
Under the US GAPP the two reason why you would not consolidate financial statements are
Legal reorganization, bankruptcy or the subsidiary operates under severe foreign restrictions
Controlling interest
Parent prepares and will consolidate all over 50% subsidiaries
Non contolling interest
financial statements can be prepared separately
Variable Interest Entity
You have a financial stake (variable interest) , your primarily recipient of financial benefits, I don’t have all of the characteristics of equity ownership
The purchase of a company (acquisition) is on the date the acquisition was completed T or F
T
Registration Fees for Equity Securities issued are expensed T or F
F; registration fees reduce paid in capital not expense
Common stock formula
Net income - preferred dividends = Net Income avail to shareholders * percentage of ownership = equity in earnings + dividend revenue
Par of stock is equivalent to
Common stock; when an acquisition takes place and there are shared issued part of stock those shares are common stock
APIC (additional paid in capital) is
APIC is the per market price of the stock over the par value of the stock; so if the par is $5 and the market price is $55; APIC is $50
Acquisition costs associated with a business transaction MUST BE expensed in the current period T or F
T
T or F Short term liabilities (accounts payable) represent variable interest
F; Most liabilities (excluding short-term payables) represent variable interests
The cost of a trademark is amortized when
Its amortized over its economic life; based on the purchase price. Ex: if the purchase price is $500,000 and the economic life is 50 years , but the book value is $380,000; you would amortize using the purchase price over $50 yeas
What is the capitalization rule for the amortization of software costs
The annual amortization amount is the GREATER of the amortization between the revenue approach (sales/expected sales) and the straight line deprecation of the asset amount
Trading securities reflect all realized and unrealized gains and losses in earnings T or F
T; A security that is AFS would have unrealized gains or losses in other comprehensive income, but once it is transferred into the trading category, those unrealized amount will need to be recognized IMMEDIATELY in earnings
