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in reply to: L1 Capital Lease Balance Sheet Question #82115Up::5
Figured it out thanks.
Interest expense needs to reduce shareholder equity, so while it’s on the other side of the bs, liabilities would not get affected by interest.
A = L + E
10000 credit to cash, 8,000 debit to lease liability and 2,000 debit from shareholders equity as a result of lower retained earnings.Up::5Quick question about Net Income/Earnings under Equity Method vs Acquisition
We are told that Net Income is equal under both methods, but how does the amortization of goodwill affect this?
Dagmar topic test from CFAI topic tests:
Dagmar would use the equity method to account for its investment in Elbe because of its classification as an associated company. Therefore, Dagmar will include its proportionate share of Elbe’s net earnings, minus the amortization of the excess purchase price from the initial acquisition. Dagmar owns 30%: (1.8/6.0, in millions of shares) of Elbe
30% proportional ownership, 12,375 Net Income from Investee company, and excess purchase price of $5250, 15 year depreciationSo, under equity method: (.30)*12,375 – [(5250*.30)/15) = 3607.5
Assuming that there was control for whatever reason, wouldn’t acquisition method Net Income be (.30)*12,375 and be different since there is no amortization of excess of the purchase price over fair value?
EDIT: acquisition method would have to depreciate it’s proportion of the assets too wouldn’t it, so net income because of all of the assets on the balance sheet would be equal?
in reply to: Elan wrong on answer??? #82250Up::4Question 1: Keyword in Answer 1 = Only, IFRS can revalue any assets.
Question 2: The Revalue allowed, but is shown in a Valuation Allowance (Contra Account), as opposed to the asset itself being revalued once it is written down, Profit/loss is shown on IS at time of sale. For Answer 2, they can be revalued above original value, but the gain recognized on IS may only be up to the amount of the original write down. Then, it would hit S/E to balance out the higher asset level. But the asset may be revalued higher (going to need disclosures about date, process etc.)
BTW, Logically, if Question 2 is Answer A, then Question 1 Cannot possibly be Answer C (Least accurate and Most accurate probably won’t be the same answer)
in reply to: Maintenance Margin Question L1 #82155in reply to: Option Adjust Spread #82186Up::3Just realized that this was posted in L2, can’t figure out how to delete the above comment, I’m an idiot!
Up::2I have been using this strategy. Even on days where I don’t want to study, I force myself to open the book and sit down and try. Most of the time that is enough to get over the hump. I’ve had a few 5-10 minute days (Friday afternoons are the toughest for me). But as you said, the less you worry about time, and just start going the better. I record the hours on each day of a calendar, I think that works as well.
in reply to: Option Adjust Spread #82184Up::2Full disclosure: I’m Still studying for my first try at level one, but maybe I can help you here.. My understanding is that OAS includes the option rather than excluding it as you mentioned above. It’s taking into account the risk that the option is exercised, like prepayment risk in MBS or call risk for a bond issued with a call option that could increase interest rate risk for instance. It could also narrow the spread if it was an option like a put option for the purchaser of the bond. A put option makes a bond less risky to a lender, intuitively, lower risk = lower spread.
For or a very broken down explanation of the above, see: (second post)
http://www.analystforum.com/forum/s/cfa-forums/cfa-level-i-forum/91310184
I’m not sure I KNOW the answer to the volatility question, but I’d imagine when yield volatility decreases, then the spreads narrow, an OAS includes interest rate risk and all others that would cause a standard spread to narrow, so when one component of a larger pie, decreases, I would imagine the large pie (oas) decreases as well. What I might also consider is that the YTM off the bond may cause the call price to be higher than the FMV of the bond, or prevailing interest rates aren’t low enough for borrowers to prepay. See the last paragraph in the article below.When schweser explanations don’t make sense for me, I’ve been finding success with investopedia.
http://www.investopedia.com/terms/o/optionadjustedspread.asp
Hopefully somebody further on can validate this, but I think the above is accurate. Just trying to help out here, good luck.
in reply to: Quant – Level 1 #82393Up::1there the key is in how they ask the question. Are they asking for a range, or test statistics to compare it to and reject or accept a hypothesis?
Lets make ale it easy and assume mean of 5, std dev of 10.
1) what interval can you assume 90% of the samples will fall between?
we know that 90% fall within 1.645 std dev of the mean. So multiply 10 by 1.645 to get 16.45. Answer will be 5 plus or minus 16.45 (-11.5 – 21.45)
i would strongly recommend memorizing 90, 95 and 99% as well as that 68% fall within one standard deviation of the mean.
2) there are 25 samples drawn with a mean of 10. John wants to test his hypothesis that the mean is greater than 8. Now you need to use a test statistic. I don’t have them in front of me so I can’t give you an example here.
hope this helps.
Up::0Thank you, here’s what I realized:
Solution, I’m an idiot. I’ve started memorizing formulas on flash cards this week, and the difference in presentation made me think in the Quicksheet one the “(Ra)” figure was a separate factor of the equation instead of a more complete way of saying “variance OF return on asset A” vs. “variance TIMES return of asset A”
Thanks for the help.
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