F5

Is an HTM security impaired?

Yes, if the Amortized cost is < PV of expected cash flows.

You do not use FV because you are not selling the security.

You use discounted cash flows because it is a monetary asset, not a raw asset like PP&E.

Is an AFS security impaired? How do you find the ECL?

Yes, if the FV is < Amortized cost.

Why do you use FV? AFS is available to sell at any time, so it is appropriate to use the amount you could sell it for right now.

You use Amortized Cost because you want to measure how market value has changed.

ECL: Amortized cost - PV of expected cash flows

How are equity instruments recorded?

FVTNI (so record at fair value)

Consolidations: Investment in Sub vs. Equity account

Both are increased by earnings, but the Investment in Sub account is decreased by dividends.

CAR IN BIG

Eliminate COMMON STOCK EQUITY RETAINED EARNINGS

Eliminate INVESTMENT ACCOUNT and add NONCONTROLLING INTEREST

Adjust BALANCE SHEET TO FV and IDENTIFIABLE ASSETS and the rest is GAIN

Types of Partnership Acquisitions

Exact: You have to calculate the contribution (eg. Old $100 = 0.75x) w/ X being the new total)

Bonus: Figure out if bonus exists based on total new balance of capital accounts (eg. $75 x (1/3) should be $25 but contributed $35 = bonus of $10 for old partners)

Goodwill: Use implied value based on contribution (eg. $35 × 3 = $105 - $75 actual capital accoutns = $30 goodwill. Then record debit for Goodwill and allocate the Goodwill)

Steps of Partnership Liquidation

1) Record cash from sales and divide corresponding loss amount

2) Pay creditors using cash (partnership liability, so don’t allocate)

3) If deficient partner has an advance, adjust deficiency upwards in that amount. Partners don’t have the right to the money.

4) If partner is still deficient, allocate the deficiency amount by remaining partners. Ex: If deficient parner has 20% interest, new denominator is 80%. Equation: X / .80 * Deficiency

5) Determine cash distributions. Deficient partner will be 0. Any non-deficient partners with advance will have that amount added to their cash.