D- depreciation expense

D- amortization expense

C- accumulated depreciation

C- intangible assets

D- Retained Earnings p-beginning

D- Depriciation Expense

D-Amortization expense

C-accumulated depreciation

C- intangible assets (not GW)

1. all affiliated entities must use same accounting policies
2. all affiliated entities must have same reporting period (GAAP can be < or = 3 months different)

• must recognize its share of dividends declared by sub as dividend income ( D- dividend receivable, C- dividend income) but don't adjust investment account because of dividends
• investment is adjusted at years end for change in subs RE

D- investment in sub

C- retained earnings

D- common stock

APIC

R/E (of sub since acq.)

assets

GW

C-liabilities

investment in sub

NCI (if needed)

1. parent share of income/loss
2. parent share of dividends declared by sub
3. amortization (depreciation) of FV of NA-BV of NA

D- C/S of sub

APIC of sub

RE of sub

identifiable assets (sub)

GW 

C- Liabilities (sub)

Investment in sub (1/01/0X)

1. NCI claim to consolidated NI will be shown
2. NCI claim= NCI% of subs NI, depletion/amortization on FV difference from BV and any other G/L attributable to subsidiary recognized on consolidating WS

1. NCI recognized as separate line item
2. =NCI% claim to sub: BV @ acquisition date +/- GW recognized @ acquisition date +/- other revenue/expenses or G/L attributable to sub on consolidated WS

intercompany inventory transfers

downstream (Parent-->Sub)

• intercompany sales and purchases downstream dont affect consolidated NI but still must be eliminated

D- Sales, C- Purchase

• ---

  Profit and loss must also be eliminated

D- COGS, C- Inventory

• if some is then sold to non-affiliate, reverse that portion of the above elimination entry

intercompany inventory transfers

upstream (Sub-->Parent)

• If Parent owns 100%, all intercompany P/L and sales/purchase are eliminated 
• if Parent owns < 100%, all intercompany sales/purchases are eliminated. P/L allocated to P and NCI inproportion to ownership %
• D- RE (parent), NCI. C- inventory

• because intercompany inventory profit or loss eliminated from ending inventory only occurs on solidated WS, the intercompany profit/loss will remain on books of (A) selling company as an element of P/L closed to RE and on (B) the books of the buying company as an overstatement (or under) of BI in subsequent period
• BI must be eliminated on subsequent consolidated WS:
• D- RE, C- beginning inventory

D- Fixed Asset (bring back to original cost)

Gain on sale (eliminate from parent)

C-accumulated depreciation (new amount)

EX: Overstatement of depreciation

D- accumulated depreciation

C- Depreciation expense

subsequent period, gain in RE must be eliminated, asset carrying value must be reinstated to original cost, and AD must be reinstated

D- Retained Earnings

Fixed Asset

C- accumulated depreciation

then, AD and depreciation expense must be reduced for period again

D- AD

C- depreciation expense

• parent owns 100%- same entries as downstream
• parent owns < 100%- same entries except g/l eliminated, depreciation expense and net asset adjustments must be allocated between CI and NCI

• treated as though retired
• bond payable eliminated against investment in bonds held by affiliate
• premium/discount on BP eliminated and results in gain or loss (premium = gain, discount=loss)
• premium or discount on investment in bonds -premium=loss, discount = gain

D- Bond payable

premium on bond payable

                   loss on retirement

C-investment in bond payable

premium on investment in bonds

D- Bond payable

-premium on bond payable

                   -loss on retirement

-interst income

C-investment in bond payable

-premium on BP

-interest expense

D- Bond payable

-premium on bond payable

                   -retained earnings

-interest income

C-investment in bond payable

-premium on BP

-interest expense

• parent owns 100%- same as others except G/L is attributable to sub and RE is of sub, not parent
• parent owns < 100%- same as others, but G/L allocated between parent and NCI

1. common control
2. common management
3. unconsolidated subsidiaries

1. eliminate intercompany balances and transactions
2. "unusual" matters treated same as consolidated FSs

*unlike consolidation, FSs that result do not represent financial position of a single entity

• assets/liability measured at FV- transaction costs excluded
• investment in debt/lending securities- transaction costs usually expensed when incurred
• debt issuance- transaction costs treated as deferred charges

• financial asset classified as A4S- must be assessed b/c changes in FV otherwise wont go through net income. impairment loss goes through net income
• financial asset classified as a debt security- treatment of loss depends on whether or not entity plans to dispose before CV is recovered
• dispose before recovered--> loss goes to current income
• dispose after recovered--> loss separated into 2 components
• portion of loss in FV attributable to credit standing of issuer-->income
• other loss in FV--> comprehensive income, net of tax

1. when there is objective evidence that a financial asset is impaired, its recoverable amount must be determined
2. recoverable amount - CV=impairment loss
3. impairment loss--> net income

1. fair value
2. carrying amount
3. asset or liability
4. "practicable to estimate" (if FV etimate can't be made w/ out incurring excessive costs, discolse why impractical and info that lead to this conclusion
5. credit risk if significant concentration exists

1. PBOs
2. retirment benefits
3. employee benefits
4. stock options and purchase plans
5. deferred compensation arrangements
6. substantially exstinguished debt
7. insurance Ks
8. leases
9. warranties
10. unconditional purchase Ks
11. instruments accounted for under equity method
12. NCI in consolidated sub
13. equity instruments issued and classified in SH equity
14. trade AR of AP when CV is about = to FV

1. market risk 
2. qualitative (required for SEC registrants along with quantitative)

• a financial instrument other than a K w/ all 3 of the following elements
1. 1 or more underlyings and 1 or more notional amount
2. requires no intial net investment or one that is smaller than one for a similar K
3. terms require or permit a net settlement

• a term or component attached to a derivative instrument that acts like a derivative as well
• hybrid instrument- has host K and embedded derivative

1. economic characteristics and risks not clearly and closely related to that of host K
2. hybrid instrument is not itself remeasured to FV w/ changes reported in NI 
3. as a separate instrument, it would meet derivative requirements

1. derivative is intially recorded at FV
2. CV OF HYBRID - FV OF DERIVATIVE=initial value of host K

• measured at either asset or liability at FV
• G/L will result
• treatment of G/L depends on if derivative is hedge or not, and if so, purpose of headge

1. definition doesn't include "notional amount" concept or specify a net settlement must be provided
2. doesn't require documentation if part of a normal purchase or sale
3. embedded derivative is not separated from host

1. non-hedging
2. FV hedge
3. cash flow hedge
4. foreign currency hedge

1. hedged item- recognize A, L, commitment, or planned transaction that is at risk of loss and hedge against that loss
2. hedging instrument- K or other arrangement that is entered into to eliminate or mitigate risk of loss

1. cash flow risk
2. FV risk

• financial A/L- price, interest rate, foreign x-change rate, credit
• nonfinancial A/L- FV of cash flows, functional currency equivalent cash flows
• foreign currency risk with net investment w/ foreign operations

1. foreign currency risk attached to business combo can be hedged
2. can hedge part-term
3. non-derviative FIs can be used as hedging instruments

1. initially recognize at FV (D- Investment in derivative, C- Cash)
2. change in FV results in:
• adjusting CV to FV
• recognizing G/L in income
• D- stock option, C- gain in stk option

1. formal documentation at inception of hedging relationship, objective and strategy, identification of hedge instrument and item, nature of risk and how effectiveness of hedge will be assessed
2. hedge is expected to be highly effective in offsetting changes in FV of hedged item, with an assessment of effectivenesss required when FSs are prepared and atleast every 3 months
3. item is identified as a recognized A, L, or firm committment, presents exposure to FV changes, isn't carried at FV, not accounted for with equity method, not a NCI or equity interest in consolidated sub and if debt security classified at H2M, risk being hedged is creditwortiness of obligor

1. interest rates don't have to be a benchmark rate
2. permits FV hedging of portion of a specified risk and/or portion of a time period until majority

1. formal documentation at inception of hedging relationship, objective and strategy, identification of hedge instrument and item, nature of risk and how effectiveness of hedge will be assessed
2. hedge is expected to be highly effective in offsetting changes in FV of hedged item, with an assessment of effectivenesss required when FSs are prepared and atleast every 3 months
3. specifically identfiied as single transaction or group of transactions w/ same risk exposure, probable of occuring with an external party, capable of affecting CFs that would affect earnings 

• if qualified as H2M, risk being hedged is risk of change in cash flow attributable to credit risk, foreign exchanged risk, or both.
• CAN'T involve a business combo, parent's equity interest in a sub, or entities own equity instruments

1. find each period change in FV and PV of future cash flows
2. find cumulative change in FV and cumulative change in PV of cash flows
3. each period change in FV results in increase or decrease in carrying value
4. cumulative change in PV of cash flows in OCI ("effective portion")
5. G/L in current income if cumulative change in FV isn't same as cumulative change in PV ("Ineffective portion")

• deferred g/l remaining in AOCI should continue to be reclassified in income 
• if a forecasted transaction is no longer expected to occur, dfined g/l is reclassified from AOCI to income

• A/L should continuously be assessed for impairment
• impairment loss incurs, deferred gain in AOCI should be reclassified to offset loss

1. G/L on hedge of forecasted transaction may be used (at option of entity) to adjust basis of hedged item
2. for consolidated purposes, only instruments with parties external to reporting entity can be designated as hedging instruments

1. forecasted foreign-currency-denominated transactions 
2. unrecognized foreign-currency-denominated firm committments 
3. foreign-currency-denominated recognized A or L
4. investments in A4S securities
5. net investments in foreign operations

*accounting is same as FV and CF hedges

1. prospective consideration- looks forward. generally involves a probability-weighted analysis of possible changes.
2. Retrospective evaluation- relationship between an instrument and an item must continue to be assessed for effectiveness and measured for ineffectiveness whnever FS are reported and at least every 3 months

1. ineffective treatment- measured as extent to which there is no exact offset in hedging relationship, must be included in earnings in period of ineffectiveness
2. time value- entity must specify whether or not all of part of the time value of the hedging instrument will be inclyded in assessment. excluded elements of time value from assessment must be included in earning in period of change.
3. short-cut method- applies to hedging relationships of interest rate risk that involves a recognized, interest bearing, financial A or L

• assumes that change in value of interest-rate swap is a perfect proxy for change in value of instrument
• can be used by an entity if all aspects of hedging relationship exactly match
• entity must assume no ineffectiveness and does not have to carryout assessment
• not allowed under IFRS

• objectives for issuing/holding, strategies
• distinguish between investments used for risk management and those used for other purposes
• info distinguishing CV, fv, foreign currency and others
• info about volume of activity
• quantitative: tabular format
• cross-reference footnotes

1. factoring
2. transferring with recourse
3. securitizeations
4. repurchase agreements
5. loan participation
6. banker's acceptance

• bank agrees to pay a client's liability to a vendor w/ propper evidence of documentations
• once client's draft is approved by bank, it become a negotiable instrument

1. control determination
2. financial-component concept
3. participating interest concept

1. there is no pro-rata ownership interest in an entire financial asset
2. all CFs received from asset are divided pro rata among participating interest holders in proportion to ownership share
3. CFs allocated such that rights of each holder have same priority and holders have no recourse to transferor except standard representations and warranties, service organizations, and contractual obligations to share benefits
4. no party has right to pledge/exchange entire financial asset unless all holders agree

• financial assets are derecognized when control is lost of contractural benefits tha compromise asset
• loss of control focussed on risks and rewards associated with asset

1. criteria for surrender of control are met, A has not been divided into components prior to transfer, transfer accounted for as a sale, and asset derecognized by transferor
2. criteria for surrender of control met, A has been divided into components prior to transfer, the transfer accounted for as a sale only if conponents involve participating interest
3. criteria for surrender not met or components of transferred A don't involve participating interest, transfer accounted for as a secured borrowing w/ pledge of collateral and A is derecognized by transferor

1. transfer is of entire A but criteria for surrender of control are not met
2. transfer is portion of A that is not a participating interest

1. derecognize A (or portion) for which transfer qualifies as sale
2. carry in BS any retained interest in the transferred A
3. recognize any A/L that results from transfer

• finanial asset derecognized in full if...
• transferred outside consolidated group and
• transferor gets rid of substantially all risk and rewards of ownership
• when A transferred and substantially all risk/reward have neither been transferred, nor retained, an assessment of control is necessary
• transferor determines transferee has unilateral ability to sell; control deemed transfered
• transferee doesn't have power to sell; control deemed to be transferor's and A may need partial derecognization

• write off old CV
• write on new FV as proceeds from sale
• G/L reported in current earnings (CV of old A/L - FV of new)

• consolidation occurs before determination of whether a transfer of a financial A is considered a sale
• derecognition is assessed @ consolidated level (entity level for GAAP)

1. entire financial asset or participating interest in a financial asset that doesn't meet conditions of sale
2. portion of entire financial asset and doesn't meet definition of participating interest, whether or not control is surrendered

• initial- recognize A received or L transferred
• subsequent-
• tranferor has not defaulted, continue to recognize collateral on books as an A 
• transferee has right to sell or repledge, reclassify and report separate from other assets on BS
• transferor has defaulted and can't redeem, write-off pledged A

• initial- recognize a receivable from transferor and reduction in A transferred to transferor
• subsequent-
• transferor has not defaulted, don't recognize
• transferee has right to sell and exercises right; recognize (D- proceeds, C- Liability to transferor)
• transferor defaults, recognize collateral as A at FV, or derecognize its liability if already sold

Which of the following statements, if any, identifies factors that enter into determining the correct accounting treatment for a financial asset when the criteria for surrender of control are not met?

I. Whether or not the transferee has the right to sell or repledge the asset.

II. Whether or not the debtor has defaulted on the obligation.

• collecting principle, interest, escrow amounts, or late fees
• paying taxes

• must be separately recognized as either a servicing asset or liability for impairment or increase in obligation based on FV, OR
• measured at FV no matter what (initially)
• subsequent measurement
• amortized in proportion to and over period of estimated NI or Net loss and assess the asset or liability for impairment or increase obligation on FV or
• adjust to FV @ each reporting date w/ G/L recognized in current income (FV option)

1. servicing rights considered retained interest so is recognized based on allocation of portion of CV
2. separate servicing rights are not considered financial instruments and can be measure at amortized cost or FV

1. assets pldged as collateral that aren't speartely disclosed in BS (classification and CV)
2. securitiezed financial assets accounted for as sale: info about accounting policies, characteristics about it, G/L on it, and assumptions used in measuring

1. management's basis for determining classes, risk description and instruments used to mitigate IS effects of change in FV
2. valuation technique, methodology, and assumptions
3. amount of fees recognized in income
4. details of activity relating to service accounts

1. debtor pays creditor and is relieved of obligation
2. debtor legally released from being primary obligator under the liability either by creditors or by the courts

• creditor release: 3rd party must assume obligation and original debtor becomes secondarily liable
• as guarantor, debtor accounts for guarantee obligtation as though it never has primary liability
• recognize obligation at FV and use as an adjustment to any G/L on extinguishment

1. recognize estimated loss and liability using conservatism and the definition of liability
2. when claims are made, pro rata amount reversed from previous entry
3. if estimate is significantly > actual claims cost, adjusting entry at year end uses smaller % to compensate (opposite is true as well)
4. if firm is able to estimate range of possible losses, amount recognized is lowest in amount (footnote disclosure of range is a requirement) unless a higher value has a higher probability

• if at BS date, it is not probable that a claim will occur or if the outcome is not expected to be unfavorable, no recognition or disclosure is required
• if probable claim or assessment will occur and reasonably possible it will be unfavorable, then claim or assessment is treated as a contingency (amount estimable=recognized L, otherwise just footnote disclosure)

at acquisition

• contractual contingency: L recognized at FV

non contractual w/ > 50% chance of becoming a L: L recognized at FV

subsequent

• if new infor obtained, contingency reported @ greater of (1) acquisition date FV or (2) amount recognized if normal contingency rules applied

• probable- just footnotes
• reasonable possible- just footnotes
• remote- not reccomended

• obligation of guarantor to be ready to comply if triggering event occurs (@ FV)
• debit depends on nature: 
• guarantee is for customer to pay for products or guarantor= D-reduction in profit on sale
• guarantee is stand alone: D=expense
• lesee guarantee of residual value in operating lease: D- prepaid rent
• Contingent liability: amount recognized is > of (1) initial FV or (2) amount recognized as contingency

1. nature, term, cause, and triggering event
2. max future payment amount
3. CV of L
4. recourse provision or available collateral description

1. present obligation arising from past event not recognized b/c < 50% probable
2. present obligation arising from past event not recognized b/c not estimable
3. possible obligation from past, whose existense can only be proved by contingent event

• way more uncertain than accruals
• if entity has a present obligation as a result of an obligation that will result in probable outflow of benefits to settle L and amount can be reliably estimated, provision is recognized

• discounting required if material difference between expected amount paid and PV
• change in PV recognized as borrowing costs
• 1 of 2 techniques used for measuring PV
• traditional PV- applies risk adjusted rate directly to estimates of cash flow (used with contractual cash flows)
• expected PV- applies risk-free rate to multiple CF projections each w/ associated probability of outcome (used when wide range of possible amounts)
• if range is equally likely amounts, middle # is used

• one that is possible or probable but less than certain
• if remote, not required