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ACFM 323 Final
| Term | Definition |
|---|---|
| Return & Strategy | What are the 2 main reasons companies invest in the equity of other companies' equity? |
| Fair Value Through Net Income (FVNI) | When you own < 20% how do you account for it? |
| Equity Method | When you own between 20% & 50% (significant influence) how do you account for it? |
| Acquisition Method | When you own > 50% (control) how do you account for it? |
| Equity Method | Ability to exercise significant influence over operating and financial policies of an investee may be indicated in several ways |
| Cost, % of S Reported NI, % of Dividends Declared, & % Income Adjustments | Imagine a T-account for Investment in S when using the equity method...what should be on it? |
| % of S Reported NI & % Income Adjustments | Imagine a T-account for Equity in S NI when using the equity method...what should be on it? |
| Prospectively | Once the ability to exercise significant influence is obtained, the switch to the equity method is accounted for __________ |
| Sales Price - Basis = Realized Gain or (Loss) | Sale of an investment accounted for using the equity method... |
| Use Equity Method at the New Percentage Owned | If after the sale, P can still exercise significant influence... |
| FV Through NI | If after the sale, P cannot exercise significant influence... |
| Revenue or Profits | Companies cannot recognize _______ or ________ by transacting with themselves |
| Deferred | Any profits that are recognized on the investee's or investor's books must be ___________ until the goods are ultimately transferred outside of the accounting entity |
| Downstream Sale | When inventory goes from the parent to the subsidiary When the A/R or cash goes from the subsidiary to the parent |
| Upstream Sale | When inventory goes from the subsidiary to the parent When the A/R or cash goes from the parent to the subsidiary |
| FMV of Consideration > FMV of Net Assets Acquired | What does it mean when there is goodwill? |
| FMV of Consideration < FMV of Net Assets Acquired | What does it mean when there is a gain from bargain purchase? |
| Market Rate Decrease | When BV Liability < FV Liability |
| Market Rate Increase | When BV Liability > FV Liability |
| Journal Entry S | Eliminate subs stockholders' equity accounts as of the beginning of the year |
| Journal Entry A | Recognize the unamortized specific allocations as of the beginning of the year |
| Journal Entry I | Eliminate the impact of intra-entity subsidiary income accrued by the parent |
| Journal Entry D | Eliminate the impact of intra-entity subsidiary dividends |
| Journal Entry E | Recognize excess amortization expense for the current period on allocations from fair value allocation schedule |
| Contingent Consideration | Additional payments to former owners "contingent" on the achievement of negotiated performance goals |
| Expenses | Costs associated with accountants, attorneys, investment bankers, consultants are ____________ in the period incurred |
| Reduction | Costs associated with the issuance of securities to finance the acquisition are treated as a ____________ in the proceeds from the security issued |
| Investment is Increased for P's Share of S's Income Equity in S's Income is Adjusted for FV/BV Differences Investment is Decreased for P's Share of S's Dividends Declared/Paid | Full Equity Method |
| Investment is Increased for P's Share of S's Income Investment is Decreased for P's Share of S's Dividends Declared/Paid | Partial Equity Method |
| Full Equity Partial Equity Initial Value | What are the three methods when accounting for the Investment in S? |
| Literally just the Beginning Balance or Original Price Paid | How do you account in the Initial Value Method? |
| Retained Earnings Account | The balance difference between methods is held in the ___________________________________ |
| Undervalued so New Discount Rate < Historic Discount Rate | When FMV > BV with acquired debt it is considered... |
| Interest Expense needs to be Reduced Debt needs to be Increased | When FMV > BV, in consolidation interest expense needs to be & debt needs to be |
| Overvalued so New Discount Rate > Historic Discount Rate | When FMV < BV with acquired debt it is considered... |
| Interest Expense needs to be Increased Debt needs to be Decreased | When FMV < BV, in consolidation interest expense needs to be & debt needs to be |
| Noncontrolling Interest (NCI) | The portion of the common equity not owned by the controlling company is known as? |
| Control Premium | P may offer a premium to existing shareholders' to acquire the amount needed to get control is called what? |
| Beginning NCI NCI Share of S NI % of S's Dividends | How to find how the NCI changes? |
| NCI % of S's BV NCI % of FV Increase NCI Allocated Goodwill | How to find the Fair Value of NCI? |
| Mid Year Acquisition | In the year of acquisition, only revenue and expenses that accrue to the subsidiary starting on the date of acquisition are included in consolidated income |
| An Equity Investment is Adjusted to FMV When the Level of Influence Changes | What triggers the revaluation of an investment in equity securities to FMV? |
| Step Acquisition | Control of another company is not established in a single transaction, but rather in a series of transactions |
| Difference between Sales Proceeds & Basis is Treated as a Change in P's Equity | If control is maintained after sale of stock after control achieved: |
| Difference between Sales Proceeds & Basis is Treated as a Gain/Loss | If control is no longer present after sale of stock after control achieved: |
| Eliminated x 2 | All intra-entity sales must be ____________ and any profit remaining in the purchaser's inventory must be _____________ |
| Parents & S's Adjusted NI | Downstream sales are 100% the ________ and it requires different calculations of ____________________________ to calculate P's Share & NCI's Share |
| Parent & NCI & Same | Upstream sales are shared by the ____________ & _______ and S's Adjusted NI to calculate P's Share & NCI's Share is the ________ |
| Sales COGS Ending Inventory | These consolidated numbers are the same regardless if the intra-entity sale is downstream or upstream: |
| Equity in S NI Investment in S NCI Share of S Adjusted NI Consolidated NCI | These consolidated numbers are different if the intra-entity sale is downstream or upstream: |
| Journal Entry G* | Recognize gross profit deferred last year |
| Journal Entry TI | Eliminate intra-entity sales |
| Journal Entry G | Defer gross profit in ending inventory |
| Removed | For land transfers, any gain/loss created by the intra-entity transfer is _________ each year in the consolidation process |
| Eliminated | For depreciable asset transfers, intra-entity gain/loss must be __________________ in the year of the sale |
| Depreciable asset is adjusted to historical cost Beginning AD is adjusted to what it would be using historical cost Deferred gain/loss will reduce/increase consolidated depreciation expense to reflect what historical depreciation would be | For depreciable asset transfers, in the year of the sale and every year there after |
| Greater Than | For calculation of impairment loss, if a qualitative analysis indicates that the carrying amount is _____________________ the fair value, a quantitative analysis must be determined |
| Compared | The quantitative value is __________ to the carrying amount |
| Goodwill Impairment Expense | The difference is _________________________________ |
| Variable Interest Voting | What are the two primary consolidation models under U.S. GAAP? |
| Total equity at risk is not sufficient (Equity/Assets < 10%) OR Equity investors lack any one of these: Power Obligation to absorb expected losses of entity Right to receive expected residual returns of entity | Identification of a VIE |
| Yes | If the company has controlling financial interest, are they the primary beneficiary? |
| Power to Direct Obligation to Absorb Right to Receive | Controlling financial interest is established if noth of the following characteristics are present in the legal documents: |
| (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding | Calculation for Basic Equity Per Share |
| Stock Options Convertible Bonds Convertible Preferred Stock | Can be fully dilutive eps if any of these exist: |
| Weakens (Domestic Currency Strengthens) | For export sales, there is a Fx loss if the foreign currency ____________ |
| Strengthens (Domestic Currency Weakens) | For export sales, there is a Fx gain if the foreign currency _____________ |
| Strengthens (Domestic Currency Weakens) | For import purchases, there is a Fx loss if the foreign currency ____________ |
| Weakens (Domestic Currency Strengthens) | For import purchases, there is a Fx gain if the foreign currency ______________ |
| Forward Contracts Options (Puts & Calls) | Hedging will be accomplished using two different derivative instruments |
| Spot Rate | Price a foreign currency can be purchased or sold today |
| Forward Rate | Price today at which a foreign currency can be purchased or sold at a future date |
| Premium | When forward rate > spot rate, foreign currency is selling at a _____________ |
| Discount | When forward rate < spot rate, foreign currency is selling at a _____________ |
| Foreign Currency Forward Contract | Usually negotiated by a firm with its bank to exchange foreign currency for U.S. dollars, or vice versa, on a specified future date at a predetermined exchange rate |
| Used to hedge a receivable (asset) | Firm agrees to sell and the bank agrees to buy a foreign currency at a locked in price |
| Used to hedge a payable (liability) | Firm agrees to buy and the bank agrees to sell a foreign currency at a locked in price |
| Asset (positive fair value) OR Liability (negative fair value) | Derivative instruments will be reported on the balance sheet as: |
| Net Income OCI | Changes in fair value will be reported on the income statement as part of: |
| Recognize the sale/purchase transaction | For the cash flow hedge, what do you do on the initiation date? |
| 1. Adjust A/R / A/P to fair value 2. Adjust forward contract to fair value with change in OCI 3. Recognize Fx gain/loss to reverse #1 4, Recognize a portion of forward points in NI with offset to OCI | For the cash flow hedge, how do you account for the balance sheet date? |
| 1. Repeat all steps from BS date 2. Settle foreign currency asset/liability 3. Settle forward contract | For the cash flow hedge, how do you account for the settlement date? |
| Recognize the sale/purchase transaction | For the fair value hedge, what do you do on the initiation date? |
| 1. Adjust A/R / A/P to fair value 2. Adjust forward contract to fair value with change in Fx gain/loss 3. Adjust Fx gain/loss from 1 & 2 to portion of forward points with change in OCI | For the fair value hedge, how do you account for the balance sheet date? |
| 1. Repeat steps 1-2 on BS date 2. Transfer what was put into AOCI in 4 above to NI 3. Settle foreign currency asset/liability 4. Settle forward contract | For the fair value hedge, how do you account for the settlement date? |
| Passing income balances through to partners avoids double taxation of profits earned and distributed to owners | Treatment of Partnership Income |
| Operating losses reduce their personal taxable income directly if they materially participated in the business | Treatment of Partnership Operating Losses |
| Uniform Partnership Act | Establishes standards and rules for partnerships, but a written agreement will supersede the UPA standards |
| Initial Contribution Share of Partnership Income Share of Partnership Loss Withdrawals Additional Capital Contribution | Calculation of a Partner's Capital Balance |
| Cash Cash & Property Cash & Intangible Asset | Ways initial capital investments are made by partners to form the partnership: |
| Bonus Method Goodwill Method | Two ways to account for the contribution of an intangible asset |
| Partnership Dissolution | Any change in the specific individuals composing the partnership automatically leads to a legal dissolution. Changes: new partner admitted, partner leaves, partner passes, or partnership dissolves |
| Dealing with the Individual Partners Dealing with the Partnership | New partner can buy their share by: |
| Book Value Goodwill | Two methods to account for dealing with the individual partners |
| Bonus Method Goodwill Method | Two methods to account for dealing with the partnership |
| Sold to an outside party Acquired by the partnership | When a partner leaves a partnership, the interest can be: |
| Bonus Method Goodwill Method | Two methods to account for acquired by the partnership |
| 1. Noncash partnership assets are sold for cash 2. Partnership liabilities & expenses incurred during liquidation are paid from the partner's available cash 3. Any partnership cash remaining after paying those are distributed to the individual | Subsequent liquidation of a partnership generally involves three important steps: |
| Creditors have priority to the assets held by the business at dissolution | Who gets assets first? |
| Statement of Partnership Liquidation | Summarizes the transactions occurring during the liquidation process |
| Calculate Safe Payments | Liquidation process is not complete, but cash is available...can any be distributed safely |
| Proposed Schedule of Liquidation | Objective is to ensure the partnership maintains enough capital to absorb all future losses, needs to be continually updated |
| Pre-Distribution Plan | Serves as a guide for future distributions to partners |
| P Sales + S Sales - Intra Sales | Calculate Consolidated Sales |
| P COGS + S COGS - Intra Sales - GP BI + GP EI | Calculate Consolidated COGS |
| P Oper Exp + S Oper Exp +/- FVA | Calculate Consolidated Operating Expenses |
| P Interest Exp + S Interest Exp +/- Interest Exp Adj from Intra Debt | Calculate Consolidated Interest Expense |
| P Interest & Dividend Rev + S Interest & Dividend Rev - Interest Rev Adj from Intra Debt | Calculate Consolidated Interest & Dividend Income |
| P Other Gains/Loss + S Other Gains/Losses +/- Land Adj +/- Intra Debt Adj | Calculate Consolidated Other Gains & Losses |
| P Investments + S Investments +/- Bond Investment Adj | Calculate Consolidated Investments in Bonds & Equity |
| P Inventory + S Inventory - GP EI | Calculate Consolidated Inventory |
| P Land + S Land - Land Gain Deferred | Calculate Consolidated Land |
| P Equip + S Equip + Equip Adj | Calculate Consolidated Equipment |
| P AD + S AD + AD Adj | Calculate Consolidated Accumulated Depreciation |
| P Existing Goodwill + Goodwill from FV Allocation Schedule | Calculate Consolidated Goodwill |
| P Liab + S Liab +/- FVA +/- Amort +/- Bond Adjustment | Calculate Consolidated Liabilities |
Created by:
MOWGaming04
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