advanced financial accounting exam 2 review

E and A entries are based on ____ balances of ____

E and A entries are based on BOY balances of subsidiary equity and remaining AAP

Entry to record AAP amortization of an unrecorded or undervalued asset

Dr. Equity Income

Cr. Investment

Which entries affect equity income?

Net Income

AAP Amortization

Deferred intercompany gains and losses

never dividends

C entry

eliminates all changes related to investment bookkeeping for the year so that net income is not double counted, and dividends from within the company are not either.

Dr. Equity Income

Cr. Dividends

Cr. Investment

D entry

made to recognize changes in AAP DURING THE YEAR?

Dr. Operating Expense

Cr. PPE

Cr. Patent

How is the consolidated cash flow statement prepared?

using consolidated financial statements, not the parent and subs individual financial statements and then consolidating them.

how often should goodwill impairment testing be done?

annually at the reporting unit level

first qualitative factors, and then if needed, quantitative evaluation

the quantitative impairment test must be conducted when:

the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying value

when do you have to impair goodwill?

when FV < Carrying Value

private companies can elect to amortize goodwill over no more than ___ years, and then they do not have to:

private companies can elect to amortize goodwill over no more than 10 years, and then they do not have to recognize goodwill impairment

If BV of reporting unit = $1,010,000, and the FV = $500,000 , how is goodwill impaired

Record impairment on goodwill = $510,000

Dr. Goodwill Impairment Loss 510,000

Cr. Goodwill 510,000

is a bargain acquisition recognized on the income statement upon acquisition?

yes

Normal entry to eliminate intercompany profit

Dr. Income intercompany margin

Cr. Investment intercompany margin

Normal entry for intracompany inventory sold in the next year

Dr. Investment profit realized

Cr. Income profit realized

Balance of investment account =

Investment =

Current BV of Equity (use current Retained earnings)

+ Remaining AAP

± deferrred intracompany deferred gains or losses

Intercompany sale of inventory where all is sold in first year

Normal equity method entries, only [I] entries

[I]:

to fix the double counting:

Dr. Sales transfer price

Cr. COGS transfer price

If there are intracompany receivables or payables:

Dr. A/P unpaid

Cr. A/R unpaid

Year 1 entries for an Intercompany sale of inventory where all is sold in Year 2

YEAR 1:

Normal equity entries AND an equity entry that defers intracompany profit for the sake of net income:

Dr. Equity Income GP*% held

Cr. Investment GP*%held

Create chart and find that the should be column has nothing except 50,000 inventory because nothing has been sold outside of the company. I ENTRIES ARE:

Dr. Sales sale price for big

Cr. COGS sale price for big

^the exact same as if it were sold in year 1

Dr. COGS GP*% held

Cr. Inventory GP*% held

^defers unrealized profit for the sake of fixing COGS and inventory.

Year 2 entries for an Intercompany sale of inventory where all is sold in Year 2

Equity Method entry:

Dr. Investment 50k

Cr. Income 50k

^inverse of equity method entry from year 1 to get net income correct

{I]
Dr. Investment 50k

Cr. COGS 50k

^Inverse of 2022, but use investment instead of inventory to recognize 50k of gain.

I entry questions to ask self

1. Did I have an I/C transaction this year?

Yes: [I] Dr.Sales / Cr. COGS ( transfer price )

No: Nothing

2. Do I need to defer anything?

Yes: Dr. COGS / Cr. Inventory (profit in ending inventory)

No: no entry

3. Do I have any previously deferred G/L?

Yes: Do I get to recognize it?

yes: Dr. Investment / Cr. COGS

No: Dr. investment / Cr. Inventory

No: no entry

4. Do we owe each other?

Yes: Dr. A/P / Cr. A/R (unpaid balance)

no: no entry

Equity entries

in year of sale to defer : Dr. E Income Cr. Investment

when inventory sells: Dr. Investment, Cr. E income

Defer gain on intercompany land sale in first year

Equity entry: Dr. Income / Cr. Investment

[I] entry: Dr. Gain / Cr. Land

Entries where an intercompany land gain from prev years will still not be recogized this year

[I] Dr. Investment / Cr. Land

Entry to recognize gain on IC sale of land from prev. years

Equity entry: Dr. Investment / Cr. Income

[I]: Dr. Investment / Cr. Gain

intercompany sale of depreciable property: Gain year of sale entries

Equity entry: dr. equity income / cr. investment

[I]: Dr. Gain / Cr. PPE

IC sale of equipment year 2, sale was previous year

Equity: Dr. Investment / Cr. Income [10k]

[I]: 1. Restore BOY

Dr. Investment / Cr. PPE BOY balance of deferred

Dr. PPE / Cr. Dep expense 10k