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30 Cards in this Set
- Front
- Back
- 3rd side (hint)
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The EQUITY METHOD is a special accounting treatment for investments in Equity Securities used ONLY when
the investor : 1___________, 2(consolidate???)_________ Dividends received from the investee __________ of the investment. |
1. can exert significant influence OR
control over the investee ( usually 20% - 50% of ownership) 2. does NOT consolidate the F/S of the Subsidiary 3. REDUCE the carring amount |
page F3-13
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The SEC requires reporting public Corporations to use EQUITY METHOD for
all investee coporations owned ___________ or more. OR If below required %, but exist the ability to ___________ |
20%
EXERCISE SIGNIFICANT INFLUENCE |
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Under the EQUITY METHOD :
1. Investment at acquisition = 2. Investment = 3. Invesment Revenue = 4. The cash dividends are Not included in the INVESTOR'S INCOME, but rather they __________ under the Equity method. |
1. = COST
2= COST + Share of earnings - Share of Dividends - Adjustment to after-acquisition income of investee 3. = Share of earnings - Adjustment to income of investee 4. Reduce the investment |
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SFAS 115 Investments:
1. Trading, 2. Available-for-Sale Debt Securities 3. Held-to-Maturity Debt Securities Reported on B/S as ___________ securities at______ value, unrealized G/L reported on __________ , type of Cash Flow__________ |
1. as CURRENT ASSETS, FAIR VALUE, INCOME Stmt, OPERATING
2. CURRENT or NONCURRENT, FAIR VALUE, Other Comprehensive Income ( PUFE), INVESTING 3. CURRENT or NONCURRENT, AMORTIZED COST, NONE, INVESTING |
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A sale of a Security from any category results in
a Realized G/L and is reported on the I/S. Record JE. 1. Trading 2. A-for-sale |
1. DR Cash
CR Trading Sec CR Realized Gain (IDEA) 2. DR Cash DR Unrealized Gain on A-for-Sale Security (PUFE) CR A-for-sale Sec CR Realized Gain (IDEA) |
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What amount should be reported on the B/S related to BOND SINKING FUND REQUIREMENTS, given :
Bond sinking fund PY balance Admin. cost Interest Revenue Dividends on Investment Carring amount of bonds payable Additional Investment CY |
Bond sinking fund PY balance
+ Interest Revenue + Dividends on Investment + Additional Investment CY - Admin. cost ------------------------------------------------- Bond Sinking Fund Balance CY |
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The transfer of a security between categories shall be accounted for at __________
2. transfer FROM the TRADING - affect on earnings? 3. transfer INTO the TRADING - affect on earnings? |
1. FV
2. NO AFFECT 3. the Unrealized holding G/L shall be recognized in earnings immediately |
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The investor receiving stock rights must allocate a portion of the purchase price of the investment that "carried" the rights. STOCK RIGHTS will be reported on the B/S as ____________ (how to calc.)
Issuance of warrants - ____________ Warrants are exercised - _______ is increased, no effect on ________ Stock RIGHT - gives you a right to purchase additional stock in accordance with terms of the instrument. Stock WARRANT - evidence of the ownership of stock rights. |
= COST OF THE STOCK ACQUIRED * ( STOCK RIGHT MARKET VALUE / (STOCK MV+ STOCK RIGHT MARKET VALUE))
Issuance of warrants - MEMO Warrants are exercised - APIC is increased, no effect on NI |
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When an investee has outstanding Cumulative Preferred stock,
and investor should compute its share of earnings (losses) after deducting the investee's -----------------------------, whether or not such dividends are declared |
preferred dividends
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A Co. using the Equity Method to account for an invesment received stock dividend. Its REVENUE ______________
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NO CHANGE
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Future Value of a SINGLE DEPOSIT after # period =
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1/ PRESENT VALUE OF $1 for that period
times $$$$ deposited |
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Equity Method reporting of investment
If the FV of assets was > than BV at the purchase date -> record Investment income |
% x Investee's income less (% x excess $$$ of FV over BV) over the life of the asset
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Good Will =
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Purchase price
less (FV of assets - FV of laib.) __________________ GW |
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SFAS 159 list items that are NOT eligible for the FV ELECTION
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An INVESTMENT and/or INTEREST which are required to CONSOLIDATE
Employers' and plans' obligations for pension benefits, postretirement benefits Financial assets/liab. under LEASES DEPOSIT LIAB. withdrawable on demand Financial instruments that are classified as a COMPONENT OF Shareholder's Equity |
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SFAS 159 list items that are ARE eligible for the FV ELECTION
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Financial assets and liab
A firm commitment that would otherwise not be recognized ( forward purchase contract) A written loan commitment The rights and obligations under an insurance contract that is not a financial instrument, but can be settled by paying a third party to provide those goods or services The rights and obligations under a warranty, but can be settled by paying a third party to provide those goods or services |
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SFAS 2 Accounting for Research and Development Costs, provides that research and development costs be ___________
Cost of registering the patent should be ____________ over the __________ |
expensed when incured
CAPITALIZED AND AMORTIZED over the ECONOMIC LIFE |
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Costs incurred to develope software for INTERNAL use are ____________ after the _____________ development stage is reached
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CAPITALIZED
APPLICATION |
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The annual amortization of the SOFTWARE COSTS shall be the greater
of the amount computed using 1. 2. |
1. the sale ratio
2. the straight-line amort.= 1/ life of asset |
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Impairment of GW is a 2step process:
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1. compare: a) year-end FV of asset
b) carrying amount including GW IF (b) > (a) => go to step 2; otherwise NO IMPAIRMENT Step 2: a) calc. implied FV of GW b) carrying amount of GW IF (b) > (a) =>IMPAIREMENT = (b) - (a) NOTE: loss cannot exceed the recorded GW |
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Dividends in ARREARS are NOT ______________ until actually DECLARED. Thus, ___________ need to be made in the notes or on the face of the B/S
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AN ACCRUED LIABILITY
DISCLOSURE |
Q 284 M-X
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A SHORT-TERM obligation should be excluded from Current liab. if: after the date of B/S but before that B/S is issued, a Long-term obligation or Equity security have been issuied for the purpose of ______________
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REFINANCING THE SHORT-TERM OBLIGATION ON A LONG-TERM BASIS
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FICA is paid by _____________ and is =
Fed tax is paid by ________ and is included in ___________ |
EMPLOYER
= % X GROSS WAGES EMPLOYEE GROSS WAGES |
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SALES before sales Tax =
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sales revenue / (1 + tax rate)
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INTEREST ON THE NOTE is classified as ___________;
this is NOT part of _____________ of the LONG-TERM debt. Only ___________ portion is. |
INTEREST PAYABLE
CURRENT MATURITIES PRINCIPLE |
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Deffered Gain on LEASEBACK Capital lease =
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SALES PRICE - CARRING AMOUNT
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GROSS MARGIN is also known as __________
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gross profit
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Defferred ( Unearned) Revenue ( a liability) is created at the time ____________
PAYABLES are recognized when ______ is delivered |
CASH IS RECEIVED
ORDER |
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Record AJE for dividends received in excess of earnings subsequent to the date of investment and are recorded as reduction of cost of the investmen.
This is __________ method of accounting for the investments. |
DR Cash
CR Divd income CR investment in CO COST |
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Under COST METHOD the cash dividends received are reported as ___________
Under EQUTY METHOD the cash dividends received are reported as ___________ |
DIVIDEND INCOME
REDUCTION TO INVESTMENT ACCOUNT |
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Deferred income tax liab. that will reverse are ___________ liabilities
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NONCURRENT
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