F5 Flashcards
Fin Instruments, Equity Method, Consolidated FS, Partnerships, Cash Flows, Income Taxes
under the indirect method of cash flows, how is cash paid for interest and income taxes accounted for?
a supplemental disclosure ONLY is required
Operating activities
cash receipts/disbursements reported on IS, current assets, and most current liabilities (excluding current notes payable and current long term debt)
Investing activities
receipts/disbursements from noncurrent assets including purchase of LT assets and investments
financing activities
receipts/disbursements from interest bearing debt (including noncurrent liabilities) and equity
partnerships bonus method
purchase price </> BV of capital account balance; total balance in capital account controls computation!-
1. determine total capital & interest of new partner
2. If interest < contribution, bonus to old partners
3. if interest > contribution, bonus to new partner
partnerships exact method
purchase price is equal to the book value of the investment- no goodwill or bonus; only partnership % will change ($ value of investments remain same); use ‘finger math’ to find new partner contribution
partnerships goodwill method
total value of partnership implied by new partner’s contribution; investment going in (contribution) controls the computation
1. compute existing capital balances after admitting new
2. compute net worth & compare to existing cap balances
3. difference is ‘goodwill’ allocated to old partners according to profit ratio
cash equivalents
short-term, liquid investments that are quickly convertible and mature within 90 days; only changes form of cash- not reported on statement of CFs
cash flows from operations- indirect method
NI + noncash expenses losses [+ depreciation + most amortization + bad debt expense] - noncash income/gain [- amortization] + change in operating liabilities - change in operating assets
trading (debt) securities
bought to be sold in the near future- operating cfs, held at FV, unrealized g/l on IS
AFS (debt) securities
investing cfs, held at FV, unrealized g/l to PUFI
HTM (debt) securities
positive intent and ability to hold until maturity- investing cfs, held at amortized cost,
current portion of income tax expense
income tax payable on taxable income (taxable income x rate)
deferred tax asset (DTA)
future tax benefit, tax income first or deduct later
deferred tax liability (DTL)
future tax liability, tax income later or deduct first
what GAAP approach is used to determine income tax expense?
asset and liability approach
how are equity securities measured?
fair value through net income (unrealized gain/loss reported in current earnings, IS)
True or False: Under the equity method, cash dividends are dividend revenue
False, under the equity method cash dividends from subsidiaries are a return of capital and reduce the investment account balance
Gross profit formula
= (revenue - cogs) / revenue
gross profit
the amount (percentage) of revenue a corp retains after direct expenses
valuation JE
Dr. Unrealized Loss
Cr. Valuation Account
expected credit loss of debt securities
if the probably amount due will not be collected, write down debt investment to record the loss; trading- N/A
AFS- ecl recognized on IS and excess to OCI HTM- recognized on IS
expected credit loss calc
PV of future cash flows - amortized cost **no credit loss if cash flows exceed amortized cost
Equity method JEs
Investment @ cost
Dr. Investment in investee
Cr. Cash
Investor share of earnings (Income on IS)
Dr. Investment in investee
Cr. Equity earnings/investee income
Share of cash dividends (return of capital, NOT income)
Dr. Cash
Cr. Investment in investee
