16 Investments Wrong Answers Flashcards
What happens when trading securities are transferred to held to maturity?
Do not reverse unrealized gain/loss previously recognized in income
What happens when trading securities are transferred to available for sale?
Do not reverse unrealized gain/loss previously recognized in income
What happens when available for sale securities are transferred to trading?
Recognize unrealized gain/loss immediately
What happens when available for sale securities are transferred to held to maturity? 2
1 report unrealized G/L as acc. OCI in SHE
2 amortize gain or loss over remaining life of security
What happens when held to maturity securities are transferred to available for sale?
Report unrealized gain/loss as acc. Other comprehensive income
What happens when held to maturity securities are transferred to trading?
Recognize unrealized gain/loss immediately
A held to maturity investment sold at a discount with accrued interest, how is the carrying amount calculated for a later date?
Subtract accrued interest and add back amortized discount
During the switch from available for sale to held to maturity, how should losses be reported?
2) After the switch?
Should Be reported as unrealized losses in other comprehensive income During the switch
2) after unrealized losses are not reported, the amounts that have
Been recorded up to the switch are amortized
Regardless of the accounting method used, no dividend is recognized when an investor receives a…
Why?
Proportional stock dividend
2) Because the investor continues to own the same proportion
Of the investee before the stock dividend
When a proportional stock dividend is paid, what entry is made by the investor?
2) the balance of the investment account is then spread over the total number of shares (previous holdings + stock dividend) to determine the…
No entry, just a memo to record additional shares while leaving
The balance of the investment account unchanged
2) new per share cost of stock
Purchases and sales of trading portfolio securities are classified as what on the statement of cashflows?, why?
Operating activities
Due to short term profit seeking nature of the investment
Unrealized holding gains and losses on securities transferred to held to maturity from available for sale
Reported as separate component of Stockholder’s equity
(Acc. Other comprehensive income)
Amortized over remaining life of security
If unrealized holding gains and losses on trading securities have already been included in income as unrealized components…
They should not be double recognized as realized components
How are dividends received form available for sale securities treated?
As dividend income on the income statement
When an available for sale security that has a previous unrealized loss in acc. OCI, is sold…
A reversing entry is made eliminating the loss from acc. OCI
and recognizing it as a loss
