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Flashcards in STAY FOCUSED Deck (20)
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1
Q

WHAT are indicators of an investor’s ability to exercise significant influence over the operating and financial policies of an investee?

A
  • Representation on the Board of Directors
  • Participation in policy-making processes
  • Material Inter-Entity transactions
  • Interchange of managerial personnel
  • Technological Dependency
2
Q

WHAT must an entity disclose when it accounts for investments in common stock under the equity method?

A
  • The name of each investee (not investor) and percentage of the entity’s ownership of each investee’s common stock
  • The entity’s accounting policies for investments in common stock
  • The difference, if any, between the carrying amount of the investment and the amount of the entity’s underlying equity in the investee’s net assets
3
Q

Under IFRS, WHAT do Joint ventures involve?

A

BOTH shared control and rights to the arrangement’s net assets

4
Q

Under IFRS, WHAT do Joint Operations involve?

A

(1) Shared control but no rights to the arrangement’s net assets; and
(2) THEY are accounted for using the equity method approach – i.e. “Proportionate Consolidation”

5
Q

WHAT are your Current Assets?

A

ASSETS that will be settled within one-year or the operating cycle which ever is LONGER

6
Q

WHAT are your Current Liabilities?

A

LIABILITIES that will be settled within one-year or the operating cycle which ever is LONGER

7
Q

WHAT are Cash Equivalents?

A

Securities easily convertible into cash with an original maturity of 90 days or less

NOTE: A Cash Equivalent is “highly liquid” and has an “Original Maturity” of 3 months from the date of purchase

8
Q

WHAT does “D-E-N-T” stand for?

A
  • Derivative Cash Flow Hedges
  • Excess Adjustment of Pension PBO and FV of Plan Assets
  • Net unrealized gains or losses on Available-For-Sale Securities
  • Translation adjustments for Foreign Currency
9
Q

WHAT method of Accounting for an Investment would you use when the Ownership Percentage is 0 - 20%?

A

THE Cost Method

WHY? - Because there is no influence over the investee company

NOTE - If the security is NOT marketable, use the Cost Method

Caveat - An ownership percentage of 20% or less can have major influence IF the other owners’ have a less ownership amount

10
Q

WHAT method of Accounting for an Investment would you use when the Ownership Percentage is 20 - 50%?

A

THE Equity Method of Accounting (i.e. “One-Line Consolidation”)

WHY? - Because the implication is that the investor has significant voting influence over the investee entity

11
Q

WHAT method of Accounting for an Investment would you use when the Ownership Percentage is 50% or more?

A

YOU would use the Consolidation Approach

WHY? - Because the implication is that the investor has significant influence over the investee entity

e.g. Members of the investor entity constitute a majority of Board of Director’s of investee

12
Q

WHAT are your Equity in Earnings?

A

THE earned money an investor records in their books based on the percentage of ownership in the investee

The Account is “Equity in Earnings” and is a component of the Income Statement

13
Q

WHAT would be considered the method of accounting most consistent with accrual accounting for investments?

A

THE Equity Method

14
Q

HOW is an investment recorded initially under the Equity Method?

A

AT Purchase Price

(Debit) Investment
(Credit) Cash

NOTE: Subsequent income changes the account balance on a continuous basis

15
Q

WHAT is the initial Journal entry by the investor to record their investment in the investee? (Equity Method)

A

Dr. Investment

Cr. Cash

16
Q

WHAT is the Journal entry at year end by the investor to report their share of investee income? (Equity Method)

A

Dr. Investment

Cr. Equity in Investee Income

17
Q

WHAT is the Journal entry by the investor to record their share of investee dividends? (Equity Method)

A

Dr. Dividends Receivable

Cr. Investment

18
Q

HOW would an investor record dividends received under the Cost method?

A

As Dividend Income on the Income Statement

NOTE: IT is NOT recorded as a reduction of the investment

19
Q

HOW would an investor account for an investment if Market Value did exist under the cost method?

A

BY using the appropriate Marketable Securities Rule:

e.g. Trading, Available-for-Sale, Held-to-Maturity

20
Q

WHAT happens when a security is reclassified from a “Trading” to “Available-for-Sale” security?

A

THEY are initially recorded at the market value on the date of transfer