New f3 Flashcards
Cost Method_owning less than 20%/ does not exercise significant influence)
两件事儿“
- year end fair value adjustment
- dividends income
- owning less than 20%
- does not exercise significant influence
- J/E on balance sheet
3.1 record the investment
investment xxxx
cash xxxx
**record all costs (FV + legal fees)
3.2 mark to market (same as available for sale)
unrealized holding loss xxx
investment xxx
investment xxx
unrealized holding gain xxx
3.3 return of capital distribution or liquidating dividend
cash xxx
investment xxx
- J/E on Income statement
4.1 receive cash dividends
cash xxx
dividends income xxx
Cost Method - 注意一下重点
- only dividends income, not for investee’s earning
- adjusted to fair value every year
- dividends received as dividends income
Equity method (20% - 50%, ability to exercise significant influence)_equity method not appropriate for the following -
a. bankruptcy of subsidiary
b. investment in sub is temporary
c. a lawsuit or complaint is filed
d. “standstill agreement” under which the invest or surrenders significant rights as a shareholder
e. another small group has majority ownership and they operate the company without regard to the investor
f. the investor cannot obtain the financial info
g. the investor cannot obtain the representation on the board of directors
Equity method (20 - 50%, significant influence) - like bank account
两件事儿:
- bank account (interest income and dividends withdrawal)
- bank service charge (fair value amortization)
Balance sheet
1. j/e to record the investment at COST
investment xxxx
cash xxx
- when sub earning money
investment (% of sub’s earning) xxx
equity in earnings/investee income xxx - when sub paying the dividends （just like withdrawal money from your bank account, not an income)
cash xxx
investment xxx
income statement
investment in investee xxx
investee income (%) xxx
关键点： dividends 不是 income, 是with drawl
Equity method - core BASE formula
Beg. investment \+ % of investor earnings - dividends paid - amortization from fair value difference = end. investment bal
income from investee (%)
- amortization from fair value diff.
= total income from investee
Equity method_ difference between purchase value and book value_ additional adjustment
- purchase price （顺序1）
2- difference = good will difference (No amortization no impairment) - fair value of equity acquired （顺序2）
1 - difference = fair value difference (premium, amortize over related asset life) - book value of equity acquired （顺序3）
1-difference = fair value difference
Income xxx (reduce)
investment xxx (reduce)
Cost -> Equity, Apply retrospectively
adjustment j/e 细节见例题
investment xxxx
unrealized loss xxx
adjustment to r/e xxx**
** retrospective adjustment to retained earnings
Acquisition method (CAR - old book value 100% get away; IN - get away new fair value investment at transaction close day, 100%, BIG - adjust sub’s balance sheet to fair value)
Common stock (sub's old book value 100%)
APIC (Sub's old book value 100%)
Retained earning (sub's old book value 100%)
Investment (Fair value)
Noncontrolling interests (fair value, if not 100% owned)
Balance sheet adjustments to FV
Identifiable intangible asset to FV
GoodwillAcquisition method (CAR) Retained earning in acquisition day
CAR
Common stock -sub, get out
APIC - sub, get out
Retained earnings at the ACQUISITION Day! - sub, get out
Beg R/E
+ net income
- dividends
= end R/E
Acquisition method (IN)_investment and expenses
Investment in sub = the original cost ONLY, legal fees etc are all expenses.
what about other expense?
legal fee - debit expense
stock registration and issuance cost - debit APIC
Indirect cost - debit expense
Bond issue cost - bond issue cost and amortized
which date to use for acquisition?
Acquisition date
