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FAR > 2E Investments > Flashcards

2E Investments Flashcards

1
Q

Held to Maturity debt securities

A
  1. Carrying value amortized for any discounts or premiums.
  2. No unrealized gains/losses
  3. returns recorded to interest income
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2
Q

Trading debit securities (short term)

A
  1. Measured at fair value
  2. Changes in fair value recorded as unrealized gain/loss
  3. Returns recorded to interest income
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3
Q

Available for sale debt securities (long term but not to maturity)

A
  1. Measured at fair value
  2. Changes in fair value recorded to OCI/AOCI
  3. Returns recorded to interest income
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4
Q

Readily determinable fair value of equity securities 0.01% to < 20%

A
  1. Measured at fair value
  2. Changes in fair value recorded as unrealized gain/loss
  3. Returns recorded to dividend income
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5
Q

No readily determinable fair value of equity securities 0.01% to < 20%

A
  1. Measured at historical cost less impairment
  2. No unrealized gain/loss
  3. Returns recorded to dividend income
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6
Q

Equity method investment 20% to 50%

A
  1. Investment account adjusted for gain/loss and dividends
  2. Changes in fair value recorded as adjustments to investment account (BS) and equity in earnings (IS)
  3. Returns adjust investment account for dividends paid
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7
Q

20% to 50% - Fair value option, if elected

A
  1. Measured at fair value
  2. Changes in fair value recorded Other Income/Loss
  3. Returns recorded to dividend income
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8
Q

50%+ - Consolidation(Acquisition) method

A
  1. Eliminate investment account
  2. Non-controlling interest account for less than 100% ownership
  3. Subsidiary balance sheet accounts at fair value
  4. Changes in value recorded to Goodwill (debit) or Gain on bargain purchase (credit)
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9
Q

Levels of the fair value hierarchy

A

Level 1 - Observable, quoted prices in active markets for identical assets
Level 2 - Observable prices for similar assets in active markets OR identical assets in inactive markets
Level 3 - Unobservable inputs using the best information reasonably available

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10
Q

Changes in fair value for trading security

A

Increase in Fair Value:
Dr - Valuation allowance
Cr - Unrealized gain

Decrease in Fair Value:
Dr - Unrealized loss
Cr - Valuation allowance

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11
Q

Change in fair value for Available for Sale security

A

Increase in Fair Value:
Dr -Investment in AFS securities
Cr - Unrealized gain-OCI

Decrease in Fair Value:
Dr - Unrealized loss-OCI
Cr - Investment in AFS securities

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12
Q

Impairment of Available for Sale securities

A

Cost > fair value, permanently. Recognize immediately.

Dr - Impairment loss on AFS securities
Cr - Investment in AFS securities

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13
Q

Sale of Available for Sale securities

A
  1. Adjust to fair value
  2. Record the sale
    Dr - Cash
    Dr - Loss on disposal
    Cr - Investment in AFS
    Cr - Gain on disposal
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14
Q

Held to Maturity debt investments

A

must have positive intent and ability to hold the security until maturity

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15
Q

Held to maturity initial measurement

A

Present value of $1 = face value x market rate (divided by 2, if semi-annually)
+ Present value of annuity = face value x contract rate (divided by 2, if semi-annually)
= Cash amount paid

Purchaser:
Dr - Investment in bonds Face value
Cr - Cash Present value of $1 + Present value of annuity
Cr - Unamort. bond discount Plug

Issuer:
Dr - Cash Present value of $1 + Present value of annuity
Cr - Bonds Payable Face value
Dr - Unamort. bond discount Plug

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16
Q

Held to maturity Interest Payment

A

Purchaser:
Dr - Cash Face value x stated rate (divided by 2, if semi-annually)
Dr - Bond discount Plug
Cr - Interest income Cash paid amount x market rate (divided by 2, if semi-annually)

Issuer:
Dr - Interest expense Cash paid amount x market rate (divided by 2, if semi-annually)
Cr - Bond discount Plug
Cr - Cash Face value x stated rate (divided by 2, if semi-annually)

Accrual at end of year will hit interest receivable/payable instead of cash

17
Q

Conditions for selling HTM security prior to maturity date

A
  1. Sale is close to maturity date (within 3 months)
  2. Sale after substantial portion of principal is collected (85%+)

Realized gain/loss is recognized if carrying value differs from selling price

18
Q

HTM sale JE

A

Dr - Cash Plug
Cr - Interest income (Face value x contract rate)x(length of time since last payment ie 5/6)
Cr - Bond Carrying value (including last weighted interest payment)
Cr - gain on sale of bond Selling price less carrying value

19
Q

Impairment of HTM bonds

A

Carrying value > fair value, permanently

Dr - Impairment loss on bond
Cr - Investment in bonds

20
Q

When the equity method is applicable

A

20-50% or significant influence. Adopted prospectively.

21
Q

Under IFRS, Fair Value option not permitted for entities with significant influence

A

True

22
Q

Effect of net income (loss) under equity method

A

Net income:
Dr - Investment in Company
Cr - Equity in earnings

Net Loss:
Dr - Equity in earnings
Cr - Investment in Company

Based on % of ownership. Prorate income based on ownership date.

23
Q

Dividend income under the equity method

A

Dr - Cash or dividends receivable
Cr - Investment in Company

Do NOT prorate dividends. Multiply by ownership %.

24
Q

Changing to/from the equity method

A

Change is prospective. Make changes going forward, not backward.

25
Q

Impairment under the equity method

A

Carrying value < fair market value, permanently

Dr - Impairment loss on investment
Cr - Investment in securities - equity method

26
Q

Equity security previously classified as AFS

A

Reclassify from AOCI to Retained earnings

27
Q

Trading to Available for Sale/Held to Maturity

A

Do nothing at reclassification date.

28
Q

AFS/HTM to Trading

A

Recognize unrealized gain or loss immediately

29
Q

AFS to HTM

A

Record unrealized gain or loss in AOCI. Amortize the gain or loss over remaining life.

30
Q

HTM to AFS

A

Record unrealized gain or loss in AOCI.

31
Q

Cash Surrender Value

A

Initial entry:
Dr - Insurance expense
Cr - Cash

Once cash surrender value is enforcable:
Dr - Insurance expense
Dr - cash surrender value
Cr - Cash

Dividends:
Dr - Cash
Cr - Insurance expense

32
Q

Stock Rights

A

Ability to buy shares of stock at a discounted price

33
Q

Purchase of stock rights

A

Dr- Investment in stock rights

Cr - Cash

34
Q

Exercising stock rights

A

Dr - Investment in common stock
Cr - Investment in stock rights
Cr - Cash

35
Q

Stock rights expire

A

Dr - Loss on expiration of stock rights

Cr - Investment in stock rights

FAR (18 decks)

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