The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles....

A)When a company assigns goodwill to a reporting unit acquired in a business combination, it must record an impairment loss if the fair value of the reporting unit is less than its carrying value and the carrying value of goodwill is more than the implied value of its goodwill.

B)The preferred method of presenting a noncontrolling interest in a consolidated balance sheet would be as a separate item within the stockholders' equity section.

C)Where in the FASB code is it discussed how to record the initial measurement of a Variable Interest Entity in a Business Combination?

Solutions

Expert Solution

A) Cash-generating unit (CGU) — the lowest level at which goodwill is monitored for internal management purposes. This level cannot be larger than an operating segment.The recoverable amount of a CGU (higher of (1) fair value less costs to sell and (2) value in use) is compared with the carrying amount. The impairment loss is allocated by (1) reducing any goodwill of the CGU and then (2) reducing the carrying value of other assets of the CGU on a pro rata basis, subject to certain constraints.

B) Noncontrolling interest (NCI) is the portion of equity ownership in a subsidiary not attributable to the parent company, who has a controlling interest (greater than 50% but less than 100%) and consolidates the subsidiary's financial results with its own.

C)VIEs are most common among financial institutions for use with their subprime mortgage-backed securities (MBS). VIEs can be utilized as special-purpose vehicles (SPVs) to let the firms avoid having to list the assets on their balance sheets. A variable interest entity references how a financial firm's exposure to SPVs can change, which is pivotal to whether it can be eliminated from the balance sheet. Corporations make use of a vehicle such as a VIE to provide an investment with financing without putting the entirety of the firm in jeopardy. The major issue with VIEs, similar to an issue that has arisen with SPVs in previous years, is that they are frequently a go-to method for hiding certain factors, like subprime exposure.

ekkarill92 answered 1 year ago

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