Act 610 Ch 1

Front 1

purchases of corporate equity securities can pose problems because

Back 1

a close relationship has been established without the investor gaining control

Front 2

accounting standards recognize three different approaches to the financial reporting of investments in corporate equity securities

Back 2

the fair value method; the consolidation of financial statements, the equity method

Front 3

when an investor possesses a small percentage of an investee company's outstanding stock it is usually reported using the

Back 3

fair-value method

Front 4

in fair value method, investments are recorded__ and

Back 4

at cost; periodically adjusted to fair value

Front 5

basic principles of SFAS 115

Back 5

initial investments are recorded at cost; equity securities held for sale in the s/t are classified as trading securities; equity securities that are not trading securities are available for sale, and reported at fair value; dividends received are recognized as income for AFS and Trading securities

Front 6

Initial investments in equity securities are recorded ___ and ___

Back 6

at cost; adjusted to fair value if determinable, otherwise the investment remains at cost

Front 7

equity securities HFS in the s/t are called ___ and reported at ____, with unrealized g/l ___

Back 7

trading securities, fair value; included in earnings

Front 8

equity securities not classified as trading securities are classified as ___ and reported at___ with unrealized g/l ___ and reported in___

Back 8

available for sale; fair value; excluded from earnings; separate component of shareholder's equity as part of other comprehensive income

Front 9

According to ARB No 51

Back 9

control generally requires the consolidation of the accounting information produced by the individual companies

Front 10

the equity method requires that ____ because______

Back 10

income be recognized by the investor as it is earned by the investee, to provide an objective basis for reporting investment income

Front 11

APB Opinion 18 provides guidance that

Back 11

significant influence exists with +investor representation on the board of directors of the investee + investor participation in policy making process + interchange of managerial personnel + material intercompany transactions + technological dependency

Front 12

if an investor holds between __ and __% of the voting stock ____ is assumed and ___ is applied

Back 12

20-50%; significant influence; equity method

Front 13

the equity method is not appropriate even though 20-50% ownership is obtained

Back 13

when an agreement exists between investor and invested whereby the investor surrenders significant rights as a shareholder; a concentration of ownership operates the investee without regards to the view of the investor; the investor attempts but fails to obtain representation on the board of directors

Front 14

an entity where a firm has a separate legal entity where it holds little or no voting interests but controls that entity through governance document provisions and other contracts that specify the distribution of profits and losses

Back 14

variable interest entity

Front 15

if the controlling frm is deemed a primary beneficiary of a variable interest entity, ____ is required

Back 15

consolodation of financial statements

Front 16

If there is lack of ability to significantly influence decisions, the normal ownership level is__ and the __ method is applied

Back 16

less than 20%, Fair Value SFAS 115 or cost

Front 17

If there is the presence of ability to significantly influence the normal ownership level is__ and the __ method is applied

Back 17

20-50%; Equity Method (APB Opinion 18 and SFAS 142)

Front 18

If there is control through voting interests the normal ownership level is__ and the __ method is applied

Back 18

More than 50%, Consolodated Financial statements (ARB No 51, SFAS 141 and 142)

Front 19

If there is control through variable interests the normal ownership level is__ and the __ method is applied

Back 19

Primary beneficiary status (no ownership required) , Consolodated Financial Statements (FIN 46R)

Front 20

in applying the equity method the accounting objective is to report

Back 20

the investors investment and invesment income

Front 21

two equity method entries periodically record the investments impact

Back 21

the investor's invesment account is increased as the investee earns and reports income; and is decreased whenever a dividend is collected

Front 22

when an investment is classified as available for sale, the excess of fair value over cost is reported as___ income is recognized ____

Back 22

a separate component of stockholders equity, as dividends are received

Front 23

recording transactions in equity method

Back 23

invesment in…Equity in Investee income (to accrue earnings of an investee)-- cash…Investment in little company (to record receipt of cash dividend)

Front 24

When an investment reaches the point at which the equity method becomes applicable, the investment should be reported...

Back 24

the accounts should be restaed so that he investor's financial statements appear as if the equity method had been applied from the date of the first acquisition

Front 25

journal entries for restating when changing to equity method from fair value method

Back 25

invesment in… Retained earnings prior period adjustment -equity in investee income (to ajust recores wso that investment is accounted for using equity method) --Unrealized holding gain, shareholders equity…Fair Value Adjustment (to remove the investor's percentage of the increase in fair value from stockholders equity and the AFS portfolio evaluation account)

Front 26

under the equity method a temporary drop in the FMV of an investment is ___

Back 26

ignored

Front 27

if the carrying value of an investment account under the equity method is reduced below zero, it should be recorded

Back 27

the investor should discontinue using equity method until subsequent investee profits eliminate unrealized losses

Front 28

When the percentage of ownership decreases enough to cause the investor to loose its ability to exercize influence , the investor must

Back 28

change to the fair value method, and the remaining book value becomes the new cost figure for the investment

Front 29

two categories of the excess payment in the equity method

Back 29

specific investee assets and libabilites that have FMV that differ from book value (inventory, equipment, etc) the investor could be willing to pay extra because future benefits are expected to accrue from the investment, generally referred to as goodwill

Front 30

SFAS no 142 states

Back 30

Gfor fiscal periods bebinning December 15, 2001, the useful life for goodwill is considered indefinite

Front 31

one difference in accounting for goodwill arising from a business combination as opposed to accounting for equity method investments is

Back 31

goodwill arising from a business combination will be subject to annual impariment reviews, whereas goodwill implicit in equity invesmments will not. Equity method investments will continue to be tested in their enitirety for permanent delcines in value

Front 32

the journal entry to record amortization of excess payment allocated to equipment and patent

Back 32

equity in investee income… investment in ? Company

Front 33

the investor's sale of an item to the investee is a __ transfer

Back 33

downstream

Front 34

the investee's sale of an item to an investor is

Back 34

upstream