Term
| What is the percentage range to have passive minority ownership in a stock |
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Definition
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Term
| What is the percentage range to have significant minority influence? |
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Definition
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Term
| What is the percentage range to have majority control in a stock? |
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Definition
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Term
| Does the mark-to-market method apply to passive investments? |
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Definition
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Term
| How do you compute the fair value or "market" value of a stock owned? |
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Definition
| Current market price * # shares |
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Term
| What does AOCI stand for? |
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Definition
| Accumulated, other comprehensive income. |
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Term
| What determines if a passively owned stock is income or not? |
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Definition
| Whether or not it is trading stock (buy and hold) versus available for sale. |
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Term
| What does mark-to-market mean with respect to passive investments |
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Definition
| That we show the current market value of the stocks on the balance sheet. Not the total purchase price. |
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Term
| Between available-for-sale and trading investments, which is immediately reported on the income statement? |
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Definition
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Term
| Between available-for-sale and trading investments, which is posted to AOCI? |
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Definition
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Term
| Between available-for-sale and trading investments, which one would you report dividends received as income? |
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Definition
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Term
| Between available-for-sale and trading investments, which one would you report dividends received as income? |
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Definition
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Term
| Between available-for-sale and trading investments, which has an effect on retained earnings before selling the investment? |
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Definition
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Term
| What effect does the sale of trading investments have on retained earnings? |
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Definition
| None, it would have touched retained earnings at the end of the prior reporting period. |
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Term
| If you sell available-for-sale investments for a total of $X and you make $Y on the sale what is the impact on the balance sheet and income statement |
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Definition
Add cash of X. Reduce non-cash assets by X
Reduce AOCI by $Y and add $Y to retained earnings and add $Y to the income statement. |
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Term
| If you sell trading investments for a total of $X and you make $Y on the sale what is the impact on the balance sheet and income statement |
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Definition
| Add cash of $X, Reduce non-cash assets by $X |
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Term
| If you invested in an available-for-sale stock that has *net* gains of $X how is the recorded on the balance sheet? |
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Definition
| It shows up as an increase in AOCI in the amount of $X (mark-to-market but doesn't touch retained earnings) |
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Term
| In the accounting equation A = L + E which does AOCI show up on? |
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Definition
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Term
| Does the Equity Method Investments apply to passive investments? |
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Definition
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Term
| Does the Equity Method Investments apply to significant influence investments? |
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Definition
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Term
| Does the Equity Method Investments apply to control investments? |
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Definition
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Term
| With Equity Method Investments, are investments recorded at their purchase price? |
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Definition
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Term
| Under Equity Method Investments, are dividends paid recorded as income? |
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Definition
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Term
| Under Equity Method Investments, are investments recorded at market or "fair value"? |
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Definition
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Term
| Do you mark-to-market Equity Method Investments? |
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Definition
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Term
| If company A buys 40% of company B and company B reports net income of $1000. How does that impact the balance sheet and income statements. |
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Definition
| This is significant influence so equity method investment. That means $400 (40% of 1000) added to non-cash assets. Retained earnings increase of $400 and income of $400. |
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Term
| If company A buys 25% of company B and company B pays cash dividends of $1000 how does that impact the balance sheet and income statement? |
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Definition
| 25% is significant influence so equity method investment. That means $250 (.25 x 1000) goes to company A who then reduces non-cash assets by $250, increases cash by $250. No impact on the income statement. |
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Term
| If company A and B create company C and company C gets a loan, how does that liability effect company A and B's financial statements |
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Definition
| It doesn't. The 50% of the loan is an "off balance sheet liability" |
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Term
| If company A acquires company B for $X how does that impact the *pre*consolidated balance sheet? |
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Definition
| Reduces Cash by $X, Increases non-cash investment by $X. |
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Term
| How do you calculate goodwill? |
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Definition
| Purchase price - (Asset appraisal - liabilities) |
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Term
| How do you calculate net assets with regards to the acquisition of a company? |
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Definition
| Appraisal price of assets - total liabilities |
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Term
| Which part of the accounting equation does goodwill impact? |
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Definition
| Assets (goodwill) and retained earnings and revenue. |
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Term
| Why is the pre-consolidated balance sheet inferior to the consolidate balance sheet during a 100% acquisition? |
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Definition
| It understates both assets and liabilities (assets don't show appraised gains as well as good will) and liabilities don't show the acquired liabilities from the company. |
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Term
| What adjustments may need to be made when building a consolidated balance sheet after an acquisition? |
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Definition
1) Current Assets and PPE (diff between appraised value and value on acquired company's balance heet) - generally increase
2) 100% of the investment (i.e. purchase price) - deduction
3) Goodwill (increase)
4) All of acquired contributed capital - reduction
5) All of acquired retained earnings - reduction |
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Term
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Definition
| In-Process Research and Development |
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Term
| How do companies compute IPR&D? |
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Definition
| By estimating the future estimate cash flows from that R&D |
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Term
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Definition
| No, it is capitalized and amortized. Abandoned projects will be written off. |
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Term
| What are the two steps in determining goodwill impairment |
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Definition
1) Ensure the market value of the company acquired is less than the book value.
2) Do another goodwill computation with the current market value and if it is less than the original goodwill amount, impair it by the difference. |
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Term
| While both PPE impairments and Goodwill impairments are both two step processes, what's the difference? |
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Definition
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Term
| What's the allowable percentage range for minority (noncontrolling) interest in a company? |
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Definition
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Term
| What's the downside of consolidated balance sheets? |
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Definition
| The make comparisons across companies more complicated. |
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Term
| What are the three bond investment classifications? |
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Definition
1) Held-to-maturity
2) Available-for-sale
3) Trading |
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Term
| Can equity investments be held-to-maturity? |
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Definition
| No, stocks don't have maturity dates. |
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Term
| Define held-to-maturity investments |
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Definition
| Bond investments where the bond is held until it's maturity date. |
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Term
| Which of the three bond investment classifications report interest on the income statement |
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Definition
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Term
| What is the only difference between the bond investment classification and equity investment classifications? |
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Definition
| The notion of held-to-maturity. |
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Term
| How do you calculate implied goodwill? |
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Definition
| Market value of company - net assets of company (minus goodwill) |
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Term
| How do you calculate goodwill impairment? |
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Definition
| Current Goodwill Balance - Implied goodwill. |
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Term
| Is there a goodwill impairment if the current goodwill balance is less than the implied goodwill? |
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Definition
| No. Impairment occurs when the goodwill balance is greater than the implied goodwill (assuming step 1) |
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