Advanced Accounting for Investment Banking

Explore how deferred tax assets and liabilities arise from timing differences between book and tax rules, including depreciation methods, current tax payable, and the impact on cash from operations.

Analyze how differences between book and tax depreciation create timing gaps, producing a deferred tax liability on the balance sheet through a $30 asset and a double declining balance depreciation.

Convert accounting net income to cash from operations by adding depreciation and changes in deferred tax liabilities, as 2015 shows net income 24 turning into 36 through these adjustments.

Show how differences between book and tax bases of a fixed asset create a deferred tax liability, illustrated by a $30 machine over three years and eventual base convergence.

Explain how accrual book revenue differs from tax revenue, creating a deferred tax asset through timing differences, using a magazine subscription example.

Learn to complete the cash flow statement by starting with gap-based net income and adjusting for deferred revenue and the deferred tax asset to derive cash from operations.

Net operating losses create deferred tax assets that shield future profits, affect retained earnings, and illustrate how a 40 percent tax rate interacts with a 20-year loss carryforward.

Explain net operating loss carrybacks up to two years offsetting prior profits to yield a tax refund, and valuation allowances reducing the deferred tax asset when future profits are uncertain.

Explore a 40 percent tax-rate NOL exercise, calculating GAAP taxes, cash taxes, and DTA across eight years, with no carryback and forward-only utilization.

Learn how net operating losses are presented on the balance sheet as deferred tax assets, distinguishing current and non-current DTAs and noting expiration timelines for NOLs to offset future profitability.

Explore intercompany investments and the three accounting paths—investments in securities, equity investments, and consolidation—detailing trading, available-for-sale, and held-to-maturity securities, with cash flow and income statement impacts.

Explore three exercises on trading, available-for-sale, and held-to-maturity securities, covering journal entries, dividends, fair value changes, unrealized gains, and gains on sale.

Explore equity investments with 20–50 percent ownership and significant influence, applying the equity method to report a proportionate share of affiliate net income and recognizing the initial acquisition price.

Explore equity method accounting by tracing affiliate income, cash impact, and the effects of dividends on investments and retained earnings in the balance sheet and cash flows.

Explain how the equity method recognizes affiliate income and creates deferred taxes via the dividends received deduction, noting timing differences between book income and tax when dividends or sale occur.

Under the equity method, paying above book value allocates excess to intangibles or goodwill while preserving the original purchase price for the investment; amortization then reduces the investor’s earnings.

Analyze paying above book value for a 25 percent stake, focusing on intangible amortization, goodwill treatment, and the resulting investor income and balance sheet effects.

The consolidation method combines 100 percent of assets and liabilities for majority-owned investments, while recognizing non-controlling interests for the portion not owned.

Analyze how consolidation of an 80 percent acquisition affects the income statement, including net income and noncontrolling interest expense, cash flow, dividends to noncontrolling interests, and balance sheet effects under consolidation.

Learn how to apply the consolidation method when paying in excess of book value, derive implied purchase price, allocate to fair value, and divide goodwill between controlling and non-controlling interests.

Examine paid-in-kind loans and accruing interest in debt accounting. Study bonds with original issue discounts and premiums, including zero-coupon and coupon bonds, plus PIK toggles.

Capitalize interest on loans used to fund long-term asset construction, recording it as part of construction in progress and depreciating it over the asset’s life.

Explain original issue discount bonds, including zero coupon bonds, and how annual amortization increases the loan's carrying value toward the redemption price, with cash interest and amortization affecting interest expense.

Learn to determine the implied discount rate for a five-year zero coupon bond and apply amortization expense and interest expense under US GAAP/IFRS, linking journal entries to loan balance growth.

Explore the original issue discount bond with a 5% coupon on a $10,000 face value, initial inflow of $9,579, and implied interest rate-driven amortization under 40 percent tax.

Analyze a five-year coupon bond issued at a premium and its impact on the balance sheet and income statement, including implied 4 percent interest and negative amortization.

Examine how original issue discount and original issue premium affect deferred taxes, showing how amortization and redemption create deferred tax assets or liabilities on the balance sheet.

Explore how original issue discount (OID) and original issue price (OIP) create deferred tax assets through tax vs. gap accounting, with implications for cash taxes, GAAP bases, and extinguishment losses.

Analyze how OID and OIP affect book versus tax accounting by illustrating the creation of deferred tax assets and liabilities through amortization and cash taxes.

Review the relevant chapters to reinforce advanced accounting topics frequently used in financial analysis and modeling. Apply these concepts to your work as you complete the course.