FAR 3

Question 0

What is the CV of each type of security?

Answer 0

Held-to-Maturity
CV = amortized cost, not FV
Trading securities
CV= FV
Available for sale
CV=FV

Question 1

Types of equity securities

Answer 1

1-Ownership shares (common, preferred, or other forms of capital stock)
2-rights to acquire ownership shares (stock warrants, rights, and call options)
3-rights to dispose of ownership shares

Question 2

How are gains/losses for securities reported on the financials?

Answer 2

Trading securities
Realized gains/losses on the income statement
Available for sale securities
Unrealized gains/losses in OCI
Held-to-maturity
No unrealized gains/losses. Only realized at the time of sale in OCI.

Question 3

What degree of control do we consolidate financial statements?

Answer 3

1-Cost Method (do not consolidate)
No significant control (< 20%)
2-Equity method (do not condolidate)
Significant control but 50% of less ownership.
(Largest shareholder & Majority of board)
> 50% ownership
3-Consolidate = Control

Question 4

How do you calculate the value of an investment using the Equity Method?

Answer 4

Investment
+ share of earnings (net income)
-Dividends paid by investee
+Value of Investment

Question 5

What items should be adjusted during a consolidation (>50%)?

Answer 5

CAR IN BIG
Common Stock, APIC, Retained Earnings of the sub.
Non controlling interest is created
Balance Sheet of the Sub is adjusted to FV
Identifiable assets of the subsidiary are recorded at FV
Goodwill or gain is required.

Question 6

What is the full goodwill method in regards to consolidation.

Answer 6

Used under GAAP and can be used with IFRS

GW= FV of subsidiary less FV of subsidiaries net assets

Question 7

What is the partial GW method in regards to consolidation?u

Answer 7

Used with IFRS

GW=Acquisition costs less FV of subsidiaries net assets (% ownership)

Question 8

What is the amount of dividend revenue (under the cost method) where the dividends received exceeded the investor’s share of investee’s undistributed earnings since the date of the investment?

Answer 8

The portion of the dividend’s received this year that were NOT in excess of the investor’s share of investee’s undistributed earnings since the date of the investment.
Rule - Dividend should be recognized to the extent of cumulative earnings since acquisition and return of capital beyond that point.