Marketable Securities and Business Combinations Flashcards
Investment in marketable equity securities in which the company does not intent to sell in the near-term?
Avail-for-sale,
Component of Other Comprehensive Income
Where do unrealized G/Ls go for:
- Trading Securities?
- Avail-for-sale securities?
Trading: hits “earnings,” changes reported at Fair Val:
eg. FVY2-FVY1
Avail-for-sale: acc. OCI;
Cost - Y2FV
A4S impairment rules
Unrealized holding G/Ls recognized in OCI
Y2: remove “Unrealized” loss from OCI and recognize in earnings as REALIZED loss, since loss believed to be permanent
IFRS reversals of impairment loss?
recognize by booking in CY income statement
Under the Cost method of accounting, only dividends (NOT earnings) are reflected as inc. from investor.
The cost-basis investment account is reduced ONLY if:
1) shares of stock are sold
2) Cumulative divs. exceed cumulative earnings
3) Subsidiary incurs losses that substantially reduce net worth
How is dividend revenue recognized under cost method?
Recognized to the EXTENT of cumulative earnings since acquisition,
and is a return of capital beyond that point.
(ROC or liquidating dividends go beyond that extent)
Stock dividends and stock splits are NOT considered “Income” to recipient.
How to treat stock divs. for cost and equity method?
Investors will not record these divs at FAIR VALUE (an income thing.)
Instead, they re-allocate the investment account balance
under either method (Cost or equ.) over MORE shares, so per-share value decreases.
Prior period adjustments are reported where?
- Adjustment to Opening Balance of Retained earnings
- NOT In Net Inc for the year ended
What do Dividends affect in equity method?
They hit INVESTMENT ACCOUNT but not INCOME
So they don’t affect INCOME stat.
But the divs hit balance sheet “Investment Account.”.
Are stock dividends considered dividend revenue to the recipient?
NO.
Only a memo entry is made.
What happens to carrying amount of Investment Bal. Sheet Account, with liquidating divs? (Cost and equity)
Cost - Decrease
Equity - Decrease
Goodwill created in an investment accounted for under the equity method?
Ignored.
Not amortized
Not tested for impairment
Rule of Consolidation?
In vertical chain, where parent co. owns more than 50% of sub. co, and sub co. earns more than 50% of other sub co., consolidate:
1) Third co into sub co
2) Sub Co into Parent Co
IN business combinations, where do “Stock Registration Fees” hit
They decrease APiC (Stockholder’s equity)
In a business combo, FV/appraised values of assets > acquisition price?
How to record?
Gain (after adjusting balance sheet, including identifiable intangible assets,) to Fair Val.
Rule about consolidated S/E on date of acquisition?
Consolidated S/E =
Parent Co. Equity + noncontrolling int.
Subsidiary equity eliminated.
How to calculate NCI, or non-controlling interest?
This is 100% - percent controlled.
EG if you control 100% that eliminates NCI completely. Also, NCI only really begins around 5-10% of total investment worth.
Rule about Acquisition Price > FV of net assets?
According to acquisition accounting, assets and liabilities should be presented in fair vals.
IFRS Partial Goodwill Formula?
GW = Acquisition Cost - FV Net Assets Acquired
EG
=2,850,000 - (3,650,000 x 75%) = 112,500
What is true of Parent S/E under GAAP?
100% of Stockholder’s Equity of sub, including common stock and APIC and R/E, is eliminated in intercompany transactions.
FV Assets under Consolidation Method?
Add Parent Total to Sub. amnt.
Rule on intercompany receivable balances / intercompany billings in consolidated fin stats?
100% are eliminated.
Is there elimination in equity method?
No, just in consolidation.
EG: interco. receivables under equity method should be disclosed separately.
Rule on intercompany bond holdings?
When members of a consolidated group have intercompany bond holdings, the bonds are eliminated at consolidation and the diff (Gain or Loss) between disc and Premium must be incl. in retained earnings
(As a decrease)
