ACCTG 101 Lecture Notes - Lecture 24: Amortization Schedule, Retained Earnings, Book Value

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18 Dec 2020

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Fair value through other comprehensive income (fv-oci) model. Amortization schedule does not change if you adjust. Transaction costs usually added to carrying amount* At each reporting date, fv-oci investments are adjusted to current fair value and any holding gain or loss is reported in other comprehensive income (oci) Accumulated holding gains/losses are reported in aoci, a separate item in shareholder"s equity. On disposal, previously unrealized holding gains or losses need to be transferred out of oci/aoci. ***first write up the asset to its fair value and recognize an. Must also write up its carrying value based on amortization schedule. Then sell them and dispose of the amount. Then transfer all holding gain or losses - oci into either. Under fv-oci with recycling, unrealized holding gains or losses are recycled into net income (and as part of net income, closed into retained earnings) Debit or credit gain or loss on sale of.

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Question 3 (15 marks)

Prints Galore Ltd., a Canadian company, acquired 100% ofSculptures Ltd. for FC 300,000 on January 1, 2014. Prints Galoreâsfunctional currency is the Canadian dollar and Sculptureâsfunctional currency is the FC. Selected exchange rates arepresented below:

January 1,2014 FC1 = $1.6993CAD

December 31,2015 FC1 = $1.7182 CAD

December 31,2016 FC1 = $1.7233 CAD

Assume that the average rate for 2014, 2015, and 2016 is FC 1 =$1.7201 CAD.

Required:

At the time of acquisition, thefair value of Sculptureâs net assets was FC 200,000. There has beenno impairment of goodwill.

Calculate the amount of goodwillthat should be presented on Prints Galoreâs December 31, 2016consolidated statement of financial position.

Calculate the amount of exchangegain/loss, if any, that should be reported on Prints Galoreâs 2016consolidated statement of income under other comprehensiveincome.

Assume that at the time ofacquisition, the fair value of Sculptureâs net assets is FC300,000. All of the net assets equaled their carrying value withthe exception of some machinery which exceeded its carrying valueby FC 100,000. The machinery has a remaining useful life of 5years. Both Prints and Sculpture use straight-lineamortization.

At the end of 2016, what amount,if any, of the acquisition differential should be added to the netbook value of the equipment?

Calculate the amortizationexpense, if any, related to the acquisition differential thatshould be included in Printsâ consolidated statement ofcomprehensive income for 2016.

Calculate the ending balance ofthe cumulative exchange gain, cumulative OCI.

tanyellowjacket454

Read the 2015 annual report of Air France â KLM and answer the 20 questions asked regarding the accounting issues. Link is provided below:

http://www.airfranceklm.com/sites/default/files/publications/afkl_registration_doc_2015.pdf

1. Air France-KLM reports âConsolidated statement of recognized income and expensesâ for the year ended December 31, 2015. If this statement was a U.S. GAAP statement, what would be the title of this statement?

a. Consolidated statement of total net income

b. Consolidated statement of other comprehensive income

c. Consolidated statement of comprehensive income

d. Consolidated statement of recognized net income

2. What method does Air France-KLM use for the Statement of Cash Flows?

a. Indirect method

b. Direct method

c. Gross method

d. Net method

3. The basic and diluted earnings per share for the year ended December 31, 2015, indicates that Air France-KLM has:

a. no convertible debts.

b. some dilutive securities.

c. no preferred stocks.

d. some treasury stocks.

4. What method is used to account for investments in companies over which Air France-KLM can âexercise significant influence on financial and operating policy decisions?â

a. Cost method

b. Liability method

c. Equity method

d. Fair value method

5. Sale of passenger tickets is accounted for at the time of ticket sale as:

a. Sales revenue

b. Deferred revenue

c. Contingent asset

d. No recognition

6. How does Air France account for business combination costs other than those related to the issuance of debt or equity securities?

a. Expensed as incurred

b. Capitalized as incurred

c. Included in goodwill

d. Used to offset fair value of the acquisition

7. Which of the following is not an âaccumulated other comprehensive incomeâ item among those reported in the âreserves and retained earningsâ in the 2015 consolidated balance sheet of Air France-KLM?

a. Available for sale securities reserves.

b. Derivatives reserves.

c. Legal reserves.

d. Pension defined benefits reserves.

8. What is the carrying amount of investments in debt and equity securities that are classified as available-for-sale?

a. Fair value Cost

b. Amortized cost

c. Lower of cost or market

9. Inventories are carried at:

a. The lower of the first-in-first-out cost or net realizable value.

b. The first-in-first-out cost.

c. The lower of the weighted-average cost or net realizable value.

d. The weighted-average cost.

10. Air France-KLM classifies its frequent flyer programs as:

a. Noncurrent liability

b. Current liability

c. Current asset

d. Other debt

11. The followings are included in Air France-KLMâs intangible assets, except for:

a. Trademarks

b. Leased aircraft

c. Customer relationships

d. Slots for takeoff and landing

12. Air France-KLM reports bank overdrafts as:

a. A contra account to cash and cash equivalents.

b. A current liability.

c. An expense.

d. A bank deposits in transit.

13. Which method does Air France-KLM use to record depreciation expense for its flight equipment?

a. The activity-based method.

b. The sum-of-yearsâ-digit method.

c. The straight-line method.

d. The group method.

14. Which accounting standards does Air France-KLM use?

a. U.S. GAAP

b. French GAAP

c. Netherlands GAAP

d. International Financial Reporting Standards

15. As of December 31, 2015, what assets are held for sale?

a. Land

b. Aircraft

c. Equipment

d. Buildings

16. Which of the following is included in âincome from operating activitiesâ but not in âincome from current operations?

a. Sale of aircraft equipment

b. Research and development costs

c. Bad debt expense

d. Interest revenue

17. Which of the following is not true about accounting treatment for the overhaul cost of major airframe and engine?

a. The cost is treated as separate asset component.

b. The cost is capitalized.

c. The cost is depreciated over the remaining useful life.

d. The cost is expensed as incurred.

18. How are financial assets accounted for if the Air France-KLM intends to sell them in the near future to realize capital gains?

a. At fair value with fair value changes recognized in the current period profit and loss

b. At fair value with fair value changes recognized as other comprehensive income

c. At cost with no recognition of fair value changes

d. At amortized cost with no recognition of fair value changes

19. Which of the following is not true about impairment test?

a. Tangible fixed assets, intangible assets, goodwill, and other assets with indefinite useful life are subject to an impairment test.

b. The impairment test is done at least once a year.

c. Recoverable value is the lower of the net realizable value and value in use.

d. The value in use is determined according to the discounted future cash flow method.

20. Which of the following is not an âother non-current income and expensesâ item?

a. Restructuring costs

b. Gains and losses on disposal of shares available for sale

c. Gains and losses on disposal of subsidiaries and affiliates

d. Gains and losses on sale of trading securities

During 2017 the Lung Association received a contribution of marketable securities that were to be placed in a permanent endowment fund. Neither donor stipulations nor applicable state law requires that capital gains or increases in value be added to the endowment principal. The income from the securities was to be restricted to research in pulmonary diseases. The following schedule indicates the value of the securities as of the date of receipt (labeled "cost"), the fair value at December 31, 2017, and the unrealized gains and losses of the year.

Endowment Portfolio as of December 31, 2017 (in thousands)

Cost Fair Value Unrealized Gain (Loss)

Northwest Industries $260 $275 $15

Campbell Corp. 317 304 (13)

St. Regis, Inc. 141 171 30

$718 $750 $32

1. Prepare a journal entry to record the unrealized net gain during the year. Be sure to indicate the type of fund+(unrestricted, temporarily restricted, or permanently restricted) in which the entry would be made. Assuming no other transactions and no other assets in the relevant funds, show how the investments would be reported on the hospital's year-end 2017 statement of financial position.

2. During 2018, the hospital sold Northwest Industries for $280. Prepare appropriate journal entries to record the sale. Credit the gain to the same account in which you credited the unrealized appreciation of 2017.

3. As of December 31, 2018, the market value of Campbell Corp. had increased to $320; that of St. Regis, Inc., to $180. Prepare a journal entry to record the unrealized gain during the year. Show how the association would report the investment portfolio on its December 31, 2018, statement of financial position. You may combine the cash and securities of each type of fund into a single account.

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ACCTG 101 Lecture Notes - Lecture 24: Amortization Schedule, Retained Earnings, Book Value

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