acc 408 chapter 3 LO 2,5
2
ASU 2017-04 'simplifying the accounting for goodwill impairment' states the objective is to remove what step of the impairment testing?
qualitative
because impairment testing procedures can be costly, the FASB provides firms the option to first conduct what analysis to assess whether further testing procedures are appropriate?
no
does the selection of a particular method affect the totals ultimately reported for the combined companies ?
dr. intangibles, goodwill, cr. investment
entry a --
dr. investment, cr. dividends declared
entry d --
dr. amortization expense, asset, cr. depreciation expense, intangible asset
entry e--
dr. equity in subsidiary earnings, cr. investment
entry i --
dr. common stock, additional paid in capital, retained earnings, cr. investment
entry s --
entry e
entry that recognizes excess amortization expenses for the current period on the allocations from the original adjustments to fair value
control
for a parent company's external financial reporting, consolidation becomes necessary whenever this exists --
implied fair value
for goodwill, this is calculated in a similar manner to the determination of goodwill in a business combination --
reporting unit
goodwill impairment tests are reporting at what level within a combined entity?
operating items
how are goodwill impairment losses reported in the consolidated balance sheet ?
reporting unit's fair value compared to its carry amount (including goodwill)
in the first step of impairment testing, what is compared?
implied fair value of goodwill compared to its carrying amount
in the second set of impairment testing, what is compared ?
entry i
this entry removes from the worksheet the subsidiary income recognized by the parent during the year
equity
this method creates a parallel between the parent's investment accounts and changes in the underlying equity of the acquired company
equity
this method embraces full accrual accounting in maintaining the investment account and related income over time - accrues income when the subsidiary earns it
equity
this method is popular in companies where management periodically measures each subsidiary's profitability using accrual-based income figures
initial value
this method might be selected because the parent doesn't require an accrual-based income measure of subsidiary performance [ease of application]
equity, initial value, partial equity
three methods for investment accounting for the acquiring company -- (3)
fair value of consideration transferred
typically, what will serve as the recorded valuation basis on the parent's books for the investment ?
partial equity
under this method, earnings figures on the parent's books approximate consolidated totals but without the effort associated with a full application of the equity method
initial value
under this method, the parent recognizes income from its share of any subsidiary dividend when declared - frequently reflects the cash basis for income recognition
partial equity
under this method, the parent recognizes the reported income accruing from the subsidiary, dividends reduce the investment balance, but no other equity adjustments (amortization/deferral) are recorded
investment
what balance will be eliminated in preparing consolidated financial statements for external reporting?
total income
when the parent has complete ownership, equity method earnings from the subsidiary, combined with the parent's other income sources, creates what figure that is reflective of the entire combined business entity?
no
although goodwill may decrease over time, does it do so in the 'rational and systematic manner' that periodic amortization suggests?