02 No Significant Influence Flashcards

1
Q

What investments are classified as available-for-sale?

A

Any debt or equity investments not classified as either Held-to-Maturity or Held-for-Trading.

The Available-for-Sale category is the default category if an investment in debt or equity does not meet the requirements of either Held-to-Maturity or Held-for-Trading.

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2
Q

How are available-for-sale investments accounted for and reported in financial statements?

A

1 Recognize interest income (one debt securities)/dividends (on equity securities);

2 Amortize discount or premium, if any, on debt securities;

3 Adjust investment to fair value at balance sheet date with any gain/loss reported as an item of other comprehensive income.

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3
Q

How are available-for-sale investments reported in the balance sheet?

A

At fair value (i.e., original cost +/- allowance to adjust to fair value) as either current or non-current asset (based on entity’s policy).

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4
Q

What amounts are included in a gain or loss recognized on the sale of an available-for-sale investment?

A

The gain or loss recognized on the sale of an available-for-sale investment includes:

The difference between the carrying value of the investment and its selling price;

and Any unrealized gain or loss in Accumulated Other Comprehensive Income related to the securities sold.

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5
Q

What amounts should be included in the initial recording of a held-for-trading investment?

A

Purchase price of security; Directly related cost of acquisition, e.g., brokerage fee, transfer fee, etc.

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6
Q

List the 2 criteria for held-for-trading securities.

A

1 Applies to investments in Debt and Equity;

2 Investor buys for the purpose of selling in the near term.

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7
Q

How are held-for-trading investments carried and reported?

A

At fair value, with changes in fair value reported in current income.

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8
Q

Where are unrealized holding gains and losses on investments held-for-trading reported?

A

In income (Income Statement) as part of Income from Continuing Operations.

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9
Q

Under what conditions can a debt security sold before maturity be considered held to maturity?

A

1 Sale is near enough to maturity date so that interest rate risk is substantially eliminated;

2 Sale occurs after investor has collected a substantial portion (at least 85%) of the principal outstanding at acquisition date.

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10
Q

What amounts should be included in the initial recording of a held-to-maturity investment?

A

1 Purchase price of security;

2 Directly related cost of acquisition, e.g., brokerage fee, transfer fee, etc.;

3 Accrued interest, if any, is not included in the cost of the investment.

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11
Q

At what cost are held-to-maturity securities carried and reported?

A

At amortized cost.

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12
Q

What method is used to amortize a premium or discount on a security?

A

Effective interest method or straight-line method if not materially different.

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13
Q

How is interest earned on held-to-maturity investments reported in the income statement?

A

As an Other Income item in the income statement.

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14
Q

Where are held-to-maturity investments reported on the statement of cash flows?

A

Investing Activity.

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