Becker - FAR F5 Flashcards

Purchase Price - Fair Value of Net Assets Acquired

How do you calculate goodwill?

Equity Method

Used when the investor has significant influence over the investee, typically owning 20% to 50% of voting stock, or otherwise able to influence operating and financial policies

At Cost

Under the equity method, how is the initial investment recorded?

Cost (Fair Value) Method

Used when the investor has little or no influence over the investee, typically owning less than 20% of voting stock and no significant influence

At Cost

Under the cost method, how is the initial investment recorded?

Net Income or Other Comprehensive Income

Under the cost method, where are changes in fair value recognized?

Consolidation Method

Used when the investor has control over the investee, typically owning more than 50% of voting stock

DR Common Stock (Sub)

DR APIC (Sub)

DR Retained Earnings (Sub)

CR Investment in Sub

CR Noncontrolling Interest

DR Balance Sheet Adjustments to FV

DR Identifiable Intangibles to FV

DR Goodwill (Plug)

What is the consolidating journal entry?

(Gross Income - Deductions) * Current Tax Rate

How do you calculate current income tax expense?

Temporary Difference * Enacted Tax Rate

How do you calculate a DTL/DTA?

Deferred Tax Asset (DTA)

You pay more tax now and will pay less tax in the future; DR to CR

Deferred Tax Liability

You pay less tax now and will pay more tax in the future; CR to DR

NOL Carryforward

When a company has a net operating loss (NOL) in one year and instead of using it all in that year, it carries that loss forward to future years to offset taxable income

Net Operating Loss (NOL)

Occurs when a company's tax-deductible expenses exceed its taxable income in a given year, resulting in a negative taxable income

Operating Activities

The day-to-day business stuff—how the company earns money and pays expenses

Investing Activities

This is about buying or selling things that help the business operate long-term

Financing Activities

This section shows how the company raises money from or returns money to owners and creditors

False (Not on SOCF)

Purchasing a treasury bill is reported in the operating section of the statement of cash flows.

True or False?

Amortized Cost

At what value are held to maturity securities recorded at? (Fair Value or Amortized Cost)

Fair Value

At what value are trading securities recorded at? (Fair Value or Amortized Cost)

Fair Value

At what value are available for sale securities recorded at? (Fair Value or Amortized Cost)

Fair Value Option

A choice companies have to measure certain financial assets and liabilities at their current market value (fair value) instead of cost. Changes in value go straight to the income statement. But this option doesn’t apply to things like leases or investments in subsidiaries

Notes to the Financial Statements

Where in its financial statements should a company disclose information about its concentration of credit risks?

Income Statement

Where are unrealized gains/losses on trading securities reported?

Other Comprehensive Income

Where are unrealized gains/losses on AFS securities reported?

Marketable Equity Securities

Investments in equity (ownership) shares of companies that are actively traded on public exchanges, meaning they have readily determinable fair values. Because they are easily bought and sold in the market, their value can be measured reliably at any given time.

Yes, No

Would unrealized holding gains/losses would be included in earnings for trading debt securities? HTM securities?

A

Based on an evaluation of current conditions and future expectations, Beach Co. determined that the decline in the fair value (FV) of a debt investment was below the amortized cost but above the present value of the principal and interest expected to be collected. The investment was classified as available-for-sale on Beach's books. The controller would properly record the credit loss based on the CECL model under U.S. GAAP by including it in which of the following?

A. Earnings section of the income statement and writing down the cost basis to FV.

B. Earnings section of the income statement, net of tax, and writing down the cost basis to FV.

C. Other comprehensive income section of the income statement only.

D. Other comprehensive income section of the income statement, and writing down the cost basis to FV.

Unrealized Gains/Losses

These are changes in the value of an asset that you still own but have not yet sold

Realized Gains/Losses

Changes in the value of an asset that occur when you actually sell the asset or when an impairment is recognized (a permanent loss in value)