F3 CPA

Change in FV and Cash Dividends from Investee have NO EFFECT on income (Equity Method)

- Investor records as revenue its "share of the investee's earnings" (not "dividends received") under the equity method. - Dividends from investee company are recorded as a reduction in the CV on the balance sheet of the investor. - Changes in the FV of investee's common stock (not income under equity method) Under the cost method, receipt of a dividend is recorded as income and does not affect the investment account.

Combined Financial Statements

- Treated same as consolidated; except there is no parent - Don't Eliminate Equity - All other intercompany transactions and balances (Eliminated)

Combined Statements

1) Many companies owned by one individual (Commonly Controlled Companies) 2)Many companies under common management. 3) Unconsolidated subsidiaries

No effect on retained earnings and a decrease in noncontrolling interest

A 70%-owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and noncontrolling interest balances in the parent company's consolidated balance sheet?

Recognize the reversal to the current year's income statement (Under IFRS, reversals of impairment losses are allowed - I/S)

A company reporting under IFRS holds a position in BE Corp. bonds that it classifies as available-for-sale. In the previous year, the company recorded an impairment loss related to the bonds. In the current year, the company reversed a portion of the impairment loss. How should the company account for the impairment loss reversal on its current year financial statements?

- Receivables from Non-Subsidiaries Only (No significance influence) - A/R from Subsidiaries = Eliminated

Accounts Receivables in Consolidated Financial Statements

- Under both the cost and equity methods, liquidating dividends reduce the carrying amount of the investment account. - Investment Account is DECREASED for BOTH Cost and Equity Method when receiving dividends in excess of earnings

An investor in common stock received dividends in excess of the investor's share of investee's earnings subsequent to the date of the investment. How will the investor's investment account be affected by those dividends under each of the following accounting methods?

Expensed as incurred in the current period

Bale Co. incurred $100,000 of acquisition costs related to the purchase of the net assets of Dixon Co. The $100,000 should be:

As a memorandum entry reducing the unit cost of all Guard stock owned. (Stock Dividends - Memo Entry Only)

Band Co. uses the equity method to account for its investment in Guard, Inc. common stock. How should Band record a 2% stock dividend received from Guard?

CV = Parent's C0st - Subsidiary Gain

Carrying Value of Sub Selling to Parent (Intercompany Transaction):

Combined Statements Procedure

Combined statements may be used for companies under common management or commonly controlled companies (e.g., individual owns many companies). Procedure: 1) All intercompany transactions and balances among the related companies are eliminated. 2) Minority interests are treated as in consolidated financial statements. 3) Equity accounts are added across, not eliminated. 4) Income statement accounts are added across.

Purchase Price > Fair Value of Net Assets (Assets and Liabilities should be presented at FV)

Company J acquired all of the outstanding common stock of Company K in exchange for cash. The acquisition price exceeds the fair value of net assets acquired. How should Company J determine the amounts to be reported for the plant and equipment and long-term debt acquired from Company K?

The subsidiary is in legal reorganization or bankruptcy and/or the subsidiary operates under severe foreign restrictions

Consolidated financial statements are typically prepared when one company has a controlling financial interest in another unless:

Amortized

Debt securities create liabilities, and debt security registration costs are capitalized and amortized.

Treated the same for both combined and consolidated financial statements

Different Fiscal Periods and Foreign Operations are treated:

Dividend Income (Cost Method)

Dividend revenue, under the cost method, should be recognized to the extent of cumulative earnings since acquisition and return of capital beyond that point

Fixed Assets for Consolidated Financial Statements

Fixed Asset Cost is based on original cost from the outside world and remains the same on consolidated financial statements

Gain in Earnings at the Acquisition Date Gain ("Discount")

How should the acquirer recognize a bargain purchase in a business acquisition?

As a gain, after adjusting the balance sheet, including identifiable intangible assets, to fair value.

In a business combination accounted for as a purchase, the appraised values of the identifiable assets acquired exceeded the acquisition price. How should the excess appraised value be reported?

Of the residual paid above fair value of the identifiable net asset (Goodwill = Excess of Price Paid - FV)

In a business combination, the valuation of Goodwill is a calculation:

Decrease to Retained Earnings ("Premium" paid to retire the bonds)

In a consolidated balance sheet, the difference between bond carrying amounts are included as a

Consolidated Financial Statements

In a vertical chain, where parent co. owns more than 50% of subsidiary co., and subsidiary owns more than 50% of a third company, consolidate: 1. Third co. into subsidiary co. 2. Subsidiary co. (now consolidated with third co.) into parent co.

The Unrealized Loss should be credited to Other Comprehensive Income

In year 1, a company reported in other comprehensive income an unrealized holding loss on an investment in available-for-sale securities. During year 2, these securities were sold at a loss equal to the unrealized loss previously recognized. The reclassification adjustment should include?

Expensed as Incurred

Legal fees and due diligence costs are expensed in the period incurred.

Cost Method - Significant influence cannot be exercised by holding non-voting stock

Louis, Inc. acquired 40% of the outstanding non-voting preferred stock of Rich Co. What method for recording the investment should Louis use?

Once a cost method investor becomes an equity method investor, the investment account must retroactively reflect the proportionate share of investee income recognized at each percentage level investment. Thus, 10% of Iona's income from January 1 through July 31 and 40% of Iona's income from August 1 through December 31 must be reported as earnings by Point.

On January 1, Year 2, Point, Inc. purchased 10% of Iona Co.'s common stock. Point purchased additional shares bringing its ownership up to 40% of Iona's common stock outstanding on August 1, Year 2. During October, Year 2, Iona declared and paid a cash dividend on all of its outstanding common stock. How much income from the Iona investment should Point's Year 2 income statement report?

Finished goods to be valued at estimated selling prices, less both costs of disposal and a reasonable profit allowance

PDX Corp. acquired 100% of the outstanding common stock of Sea Corp. in an acquisition transaction. The cost of the acquisition exceeded the fair value of the identifiable assets and assumed liabilities. The general guidelines for assigning amounts to the inventories acquired provide for:

- No Accounting Necessary - Goodwill from Equity Method is Ignored (NO Amortization and NO Impairment Test)

Palmetto Inc. is currently using the equity method to account for its 30% investment in Royal Company. In the acquisition last year of Royal Co. common stock, Palmetto calculated $1,000,000 of goodwill. The correct accounting for this goodwill during the current year is:

Inventory Excess = Decreases Investment in Subsidiary Land Excess = No Effect on Earnings (Land - Not Amortized)

Park Co. uses the equity method to account for its January 1, Year 1, purchase of Tun, Inc.'s common stock. On January 1, Year 1, the fair values of Tun's FIFO inventory and land exceeded their carrying amounts. How do these excesses of fair values over carrying amounts affect Park's reported equity in Tun's Year 1 earnings?

Consolidation used for both Sell and Vane

Penn, Inc., a manufacturing company, owns 75% of the common stock of Sell, Inc., an investment company. Sell owns 60% of the common stock of Vane, Inc., an insurance company. In Penn's consolidated financial statements, should consolidation accounting or equity method accounting be used for Sell and Vane?

Sales and Costs of Goods Sold should be reduced by the intercompany sale - All goods sold = no adjustment needed

Perez, Inc. owns 80% of Senior, Inc. During Year 1, Perez sold goods with a 40% gross profit to Senior. Senior sold all of these goods in Year 1. For Year 1 consolidated financial statements, how should the summation of Perez and Senior's income statement items be adjusted?

A/R and A/P are reported SEPARATELY on the balance sheet

Receivables and Payables should be:

DO NOT Record Stock Dividends at FV

Stock dividends and stock splits are not considered income to the recipient. Reallocate the investment account balance (under either method -- cost or equity) over more shares so that value per share decreases.

The portion of the dividends received this year that were NOT in excess of the investor's share of investee's undistributed earnings since the date of investment

Under the cost method, the amount of dividend revenue that should be reported in the investor's income statement for the current year is:

Economic Entity

When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of: