- The amount for minority interest in the balance sheet and the income statement should match the ones claimed by the ‘other company’ (the amount in the income statement will be subracted if there’s a gain and added for a loss). Can you please explain the process involved in ensuring the amounts claimed by both of the companies are identical? 2) Are bank overdrafts considered part of an Operating Activity under IFRS and Financing under GAAP? 3) The following is an exerpt from Schweser (SS #8, page 67) Interest paid on bonds is typically tax deductible for the firm. If convertible bonds are converted to stock, the firm saves the insterest cost but loses the tax deduction. Thus, only the after-tax interest savings are added back to income available to common shareholders. Why would there be any interest savings (let alone after-tax) if the bonds are already converted to stock? 4) Can you please clarify how are stock options and warrants dilutive when their excercise prices are less than the average market price of a stock over the year? 5) At the end of an accounting period, net income is added to stockholder’s equity (SE) via retained earnings. Any dividends paid will come out of retained earnings and will reduce SE. Is this correct? 6) If there are gains in FX trades it is to be recorded in Other Comprehensive Income under SE. This trade gain will never show up in the Income statement - is this correct? 7) How can inventories be recognized as an expense? Thanks!
I know this seems like a lot of questions… any takers?
Sujan Wrote: ------------------------------------------------------- > 1) The amount for minority interest in the balance > sheet and the income statement should match the > ones claimed by the ‘other company’ (the amount in > the income statement will be subracted if there’s > a gain and added for a loss). > > Can you please explain the process involved in > ensuring the amounts claimed by both of the > companies are identical? I’m not certain there is one - it’s not covered by the CFA material as far as I know. > > 2) Are bank overdrafts considered part of an > Operating Activity under IFRS and Financing under > GAAP? > > 3) The following is an exerpt from Schweser (SS > #8, page 67) > > Interest paid on bonds is typically tax deductible > for the firm. If convertible bonds are converted > to stock, the firm saves the insterest cost but > loses the tax deduction. Thus, only the after-tax > interest savings are added back to income > available to common shareholders. > > Why would there be any interest savings (let alone > after-tax) if the bonds are already converted to > stock? Because now, instead of paying interest on the bonds (increasing interest expense), that expense is reduced, which increases income available to shareholders (but reduces the tax shield, thereby increasing the income tax expense which reduces NI available to SE). > > 4) Can you please clarify how are stock options > and warrants dilutive when their excercise prices > are less than the average market price of a stock > over the year? When the exercise price is less than the average price, it is likely they will be converted, thus dilluting SE. > > 5) At the end of an accounting period, net income > is added to stockholder’s equity (SE) via retained > earnings. Any dividends paid will come out of > retained earnings (RE) and will reduce SE. Is this > correct? Yes - I calculate the contributed to ending RE though as ‘NI - dividends paid’, and then this number is added to beginning RE. > > 6) If there are gains in FX trades it is to be > recorded in Other Comprehensive Income under SE. > This trade gain will never show up in the Income > statement - is this correct? Correct, this is a direct to equity transaction. > > 7) How can inventories be recognized as an > expense? When converted to COGS, otherwise they’re an asset (with either an offsetting reduction in cash, or an offsetting increase in liability). > > > Thanks!
number 2 should be an operating activity number 5 is correct number 6-depends if it’s a self-contained entity or not number 7-COGS is the expense
Thanks jcole21 and I_Passed_Level_1! Remembering all these answers is going to be a challenge…and some of the questions from FSA are downright nasty… In order to really nail FSA concepts were there any techniques you followed (except for doing a lot of problems)? Thanks.