F4

Entities should report marketable debt securities classified as trading at:

Fair value, with holding gains and losses included in earnings

With acquisition accounting, the net asset acquired are based on:

Faire market value

Any payables or receivables between the parent and its subsidiary company must be ______ in a consolidated presentation in order to avoid double counting. However, on the subsidiary's own balance sheet, any payables or receivables resulting from a transaction with the parent company should be ______.

- eliminated - reflected

When the market value of an investment in debt securities in which the company has positive intent and ability to hold to maturity exceeds its carrying amount, how should each of the following assets be reported at the end of the year: 1. Long-term marketable debt securities 2. Short-term marketable debt securities

1. Carrying amount 2. Carrying amount Explanation: Marketable debt securities that the company has the intent and ability to hold to maturity (both long and short term) are reporting at carrying amount (amortized cost) unless there is a permanent decline in market value

If the significant influence threshold is not met, how else could an investor be seen to have significant influence?

1. If it has representation on BOD of the investee 2. Participates in policy-making processes 3. Has material intercompany transactions 3. Interchanges managerial personnel 4. The investee has technological dependency on the investor

When a subsidiary is acquired with an acquisition cost that is less than FV of the underlying assets, the following steps are required:

1. The BS is adjusted to FV, which creates a negative balance in the acquisition account 2. Identifiable intangible assets are recognized at FV, which increases the negative balance in the acquisition account 3. The total negative balance in the acquistion account is recorded as a gain

Disclosures about the following kinds of risks are required for most FS: 1. Concentration of credit risk 2. Market risk

1. Yes 2. No Explanation: Concentration of credit risk (the risk that the other party to the instrument will not perform) must be disclosed. Disclosure of market risk (the risk of loss from changes in market price) is encouraged BUT not required.

Unrealized holding gains/losses would be included in earnings for which of the following debt securities: 1. Trading 2. Held to maturity

1. Yes 2. No Explanation: Trading debt securities are reported at fair value with unrealized gains and losses included in earnings. Held-to-maturity debt securities

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

As a gain in earnings at the acquisition date

Classify the following security: Unrealized gains and losses from marking the securities to fair value (assuming they are not impaired) at the balance sheet date are treated as other comprehensive income items and bypass the income statement

Avaliable-for-sale debt securities

Can significant influence be exercise by holding a non-voting stock?

No - FV method must be used

When does significant influence exist?

when a company owns between 20% and 50% of the voting stock of another company

For an available for sale security transferred to the trading category, the portion of unrealized holding gain or loss at the date of the transfer that has NOT been previously recognized in earnings shall be:

Recognized in earnings immediately explanation: trading securities reflect all realized and unrealized gains and losses in earnings. A security that is classified as available for sale would have unrealized gains or losses reflected in other comprehensive income, but once it is transferred into the trading category, those unrealized amounts will need to be recognized in earnings.

The fair value of finished goods and merchandise inventory are based upon:

Selling price less disposal costs and reasonable profit allowance

What does the fair value option apply to?

The FV option applies to financial assets (e.g., debt and equity securities) and liabilities (e.g., notes payable). Excluded from the FV option are investments in subsidiaries, pension benefit assets / liabilities and assets and liabilities recognized under leases

acquisition costs associated with a business transaction must be:

expensed as incurred in the current period

Goodwill =

purchase price - fair value of net assets

Avaliable-for-sale debt securities will result in losses in OCI when:

the FV is below the present value of expected cash flows and the present value is below amortized cost the loss recorded in OCI is equal to the difference between the PV and FV the credit loss recorded on the income statement is the difference between amortized cost and the PV

For a held-to-maturity debt security, based on the CECL model, a loss is recorded when:

the amortized cost exceeds the present value of the principal and interest expected to be collected (the original cost and FV are not relevant to calculating the credit loss)

Using the current expected credit losses (CECL) model, when an available-for-sale debt security has a fair value that is below amortized cost:

the asset must be written down to the lower fair value by recording a credit loss that is recognized on the income statement