FAR: F3 & F4 Flashcards
What are trading securities. How is it classified and reported on the B/S?
equity and debt securities bought to be sold in less than a year. Reported as a current asset. It is reported at FV.
What are available for sale securities? How is it classified and reported on the B/S?
Equity and debt securities bought to be either sold within a year or sold at a later date beyond a year. Can be reported as either current or non current depending on managements intent. It is reported at FV.
What are Held to Maturity securities? How is it classified and reported on the B/S?
Debt security investments that management has the positive intent and ability to hold the security until it matures. It is a Non current asset until maturity. It is reported at cost, net of amortization
Unrealized G/L from trading securities are reported on which F/S?
Income statement
Unrealized G/L from available for sale securities are reported on which F/S?
Balance sheet = Included in Comprehensive income
Unrealized G/L from held to maturity are reported on which F/S?
None
Realized G/L from trading securities are reported on which F/S?
Income statement
Realized G/L from available for sale securities are reported on which F/S?
Income Statement
Realized G/L from held to maturity are reported on which F/S?
in accordance with amortized cost
Any transfer reclassification of a security (trading, AFS or held to maturity) is accounted for at
Fair Value
What do you do when reclassification Unrealized G/L from trading to AFS or H-to-M?
Nothing! It has already been recognized income.
What do you do when reclassification Unrealized G/L from AFS or H-to-M to trading?
Recognize in current earnings
What do you do when reclassification Unrealized G/L from H-to-M to AFS?
Record in OCI
What do you do when reclassification Unrealized G/L from AFS to H-to-M ?
Amortize G/L from OCI with any bond premium/discount amortization
Dividend Income =
Number of shares x Dividend per share
T/F: A stock dividend is income? How should it be recognized under a consolidated I/S?
False. Should be a memo entry only
T/F: Under consolidated I/S Dividend revenue should be recognized to the extent of cumulative earnings since acquisition and return of capital beyond that point.
True
T/F: Under the cost method, dividends (not earnings) are not reflected as income by the investor.
Flase
The cost basis account is reduced only if (3 conditions)
Shares of stock are sold, cumulative dividends > cumulate earnings (Return of capital), or subsidiary incurs losses that significantly reduced net worth.
Consolidated NI =
Parents NI \+Subs. NI (from date of acquisition) \+/- effects of inter company transactions - Depreciation - Impairment losses on goodwill (if any) = Consolidated NI
Consolidated R/E =
Parent’s Beg R/E
+ Consolidated NI
- Parents Dividends (CY)
= Ending R/E
Under what method does a receipt of a dividend as income and is recorded as income and does not affect the investment account
Under the cost method
Under what method does a receipt of a dividend recorded decrease the investment account
Under the equity method
T/F: Under both the cost and equity methods, liquidating dividend reduce the carrying amount of the investment account
True
T/F: ny good will created in an investment accounting for under the equity method is ignored. It is neither amortized nor tested for impairment. The entire investment (using the equity method) is subject to the impairment test.
True
Significant influence cannot be exercised by holding non-voting stock. The cost method must be used.
True
Under the cost method, receipt of a dividend is recorded as income and does not affect the investment account
True
T/F: Under the Equity method, the consolidated stockholders equity will be the parent companies stockholders equity plus the non controlling interest at year end
False. That is under the Acquisition Method
Consolidated Stockholders’ Equity =
C/S + A.P.I.C. + Non controlling Interest + R/E
Non Controlling Interest =
Beginning NCI* + NCI share of NI - NCI share of Dividends = Ending NCI
Ending R/E =
Beginning R/E + NI - Dividends
T/F: Under the acquisition method, Consolidated NI is the same as the parent company R/E under the equity method
False, this is under the equity method
CAR IN BIG is a nemonic for
CAR: Common Stock, A.P.I.C. and R/E
IN: Investments in Subs. and Non-Controlling Interest
BIG: Balance sheet adjustment to FV, Identifiable Intangible Assets and Goodwill (or Gain)
Journal Entry for Work paper eliminating - CAR IN BIG
DR: CARBIG
CR: IN
Full Goodwill Method
Goodwill = FV of subs. - FV of subs net assets
Partial Goodwill Method
Goodwill = Acquisition cost - (FV of subs net assets acquired x Share %)
Full Goodwill Method calc. for NCI
NCI = FV of subs x NCI%
Partial Goodwill Method calc. for NCI
NCI = FV of subs net identifiable assets x NCI)
Step Acquisition: From No control to control what should you do?
remeasure previously held equity interest.
Control -> more or less control
no G/L recognize on the I/S
Control to No control
Recognize the G/L of the sale of the stock, remeasure the remaining non consolidating interest to FV and recognize the adjustment to FV on the I/S
Inter-company transactions should be
eliminated
What is the formula to determine Intercompany sales
Parent Revenue + Subs. revenue - Rev. Consolidated = inter company sales (or revenue)
What is the formula to determine Inter-company Receivable
Parent A/P
+ Subs A/P
- Consolidated A/P
= Intercompany Receivable
What is the formula to determine Inter-company Payable
Parent A/R
+ Subs A/R
- Consolidated A/R
= Intercompany Receivable
What is the formula to determine Inter-company Unrealized Profit
Parent Inventory
+ Subs. Inventory
- Consolidated Inventory
= unrealized Inter-company profit eliminated
What are the 4 steps to determine carrying amount of inventory that sub. purchased from parent. Where is this reported?
- Find COGS and GP%
- Find Inter-company Revnue
- Multiple Intercompany Revnue by COGS %
- Multply # by inventory still on hand
This is reported on the consolidated B/S
The purchase by the member of a consolidated group of stock of another member of the same consolidated group is treated as a
treasury stock transaction
What is the formula to determine adjusted Cost of Sales
Parent COGS + Sub COGS - Adjusment for inter company sales = adjusted COGS
Working Capital =
Current Assets - Current Liabilities
Current Ratio =
Current Assets/Current Liabilities
Quick Ratio =
(Cash + N/R + Marketable Sec.)/Current Liabilities
Uncollectible’s, sales discounts, and sales returns and allowances are examples of
Allowances
2/10, n30 Means?
2% discount if customer pays within 10 days, otherwise full payment is due in 30 days.
Under Discounts how do you account for discounts under Gross and Net methods?
Gross Method - Assume no discount will be taken and
DR: A/R and CR: S/R
Net Method - Assume discount will be taken and
DR: A/R (at discounted price) and Sales Rev at discounted price.
- Sales discount taken
Goods returned reduces
A/R and Sales
T/F: Expected exchanges do not affect net sales or inventory or cost of sales
True
What is the formula for a bank reconciliation: *DOSBENI
- Deposits in transit (Add to Bank)
- Outstanding Checks (Subtract from bank)
- Service Charges (Subtract from books)
- Bank Collections (add to books)
- Erros (fix the error)
- NSF (Subtract from books)
- Interest Income (add to book)
What is Pledging (Assignment)
Pledging is when a company uses there A/R as collateral for a loan. Requires a footnote disclosure only
What is Factoring?
A company converting its receivables into cash by assigning them to a “factor” either with or without recourse.
Under Factoring what is without recourse
means the sale is final and that the assignee (the factor) assumes the risk of any losses on collections. If the buyer cannot collect the A/R thats to bad.
Under Factoring what is with recourse
factor has an option to re-sell any uncollectible receivables back to the seller (Sale or Loan)
