Cash & Investments Flashcards
When reporting cash on the balance sheet what balance would be used?
The checkbook balance
bank statement balance
The checkbook balance would be used for the ‘cash” for the balance sheet bc it closely shows what is the cash that is unrestricted at the balance sheet date
What should the cash account on the balance sheet consist of?
1 - Coin & Currency on hand
2 - demands deposits checking accounts
3 - time deposits
4 -near cash assets deposits in transit or checks written to creditors
When calc the cash bank balance always remember the following?
The deposit transit are always added
Outstanding checks are always (subtracted)
Watch out for other adjustments
Calc the adjusted cash balance at June 30th?
For this problem remember we start off with the cash balance of 10,012
next we subtract the check issued 95 - 59 = 36
interest earned 35
Subtract 35
10,012 - 36 + 35 - 50 = 9,961
Calc, ending balance reported bank statement?
So we start off with balance
Bal per book 40,500
Minus transit (2,500)
add:outstand check 1,500
Minus bank charge (100)
Minus check error. 900
Balance per bank = 38,500
The process is the opposite from cash balance calc
How to calc the amount of income or loss investment should be reflected in earnings?
Year 3
Common Stock 40,000
Common Stock 35,000
5,000
Dividends (900)
= 4100 loss
How are measurement alternative for an investment in equity securities measured?
Cost minus subsequent impairment plus or minus changes resulting from observable prices changes for the identical or similar investment
Calc investment using the equity method?
Very important point to use the significant influence over the company is a huge sign to use the equity method
Investment 400,000
Share Net Income 50,000
Share of Dividends (15,000)
Investment 12/31. 435,000
Net Income 500,000 x 10% = 50,000
Dividends 150,000 x 10% = 15,000
how to calc the gain on sale for year 2 of the investment since half of it was sold?
We also need to calc the investment for year 1
Year 1
iNVESTMENT Y1 200,000
EARNINGS 24,000
DIVIDENDS 15,000
209,000
EARNINGS FOR Y2.
100,000 X 30% =. 30,000
= CV for Y2 239,000
For year 2
239,000 / 2 = 119,500
150,000 - 119,500 = 30,050
Calc, the carrying value amount for the investment in Devon year end?
Investment 200,000
Dividend (100,000)
400,000 x 25%
Net Income 150,000
= 200,000 + 150,000 NI - Dividends = 250,000 Carrying Amount
How to calc the investment of income in the income statement?
Net Income 120,000 x 30% x 6 months / 12 months = 18,000
How to calc the income statement investment?
So here we would always start off net income because this problem is asking us to calc the investment for the income statement
So here we start off with
120,000
FV adjustment. 10,000
5,000
= 42,000
90,000 difference / 18 years = 5000
An investor uses the equity method to the account for an
neither the cash dividends from investee and a change in fair value of the investee common stock has no affect on the investment in the securities under the equity method
Whenever they ask for calc the revenue and income of an investment all how to calc it?
Look for the net income and the percentage of stock owned
Are dividends reported under equity or fair value method?
No, because however, they are reported as 0 on the income statement
Is the equity method required when the investment is “Held for Sale” ?
No
calc the Goodwill of the acquisition using the equity method?
Calc the CV of the bonds under the effective interest method?
Step 1 first we need to calc the interest income
Interest 456,200 x 10% = 45,620
Face Value 500,000 x 8% = 40,000 = 5,620
CV for Year 1 456,000
discount Y1 5,620
= 461,820 CV for Year 1
Step 2 first we need to calc the interest income for Y2
Interest 461,820 x 10% = 46,182
Face Value 500,000 x 8% = (40,000) = 6,182
Year 2 CV 461,820 Discounted amorti. 6,182 = 468,002 CV for year 2
Calc the CV of the bonds?
Step off by using the effective method we will calc the reported CV for the bond by the following steps
Step 1 calc the interest received
Step 2 calc the interest expense
Step 3 get the diff between interest received & expense
Step 4 Subtract the paid fir the bonds by
Step 1 - Calc the interest received
Start with Paid 1,198,000 x 8% yield paid 6/12 = 47,920
Step 2 - Calc the interest exp
1,000,000 x 10% x 6/12 = 50,000
Difference = 50,000 - 47,920 = 2080
Paid 1,198,000 - 2080 = 1,195,920 is the CV of the balance sheet
calc the cash that should be reported in the balance sheet?
remember that cash is what is available for use there might be some cash that needed to be used for Receivables
So here we need to first find the checkbook balance which is 10,000 - 1,000 check payable to Rune which would equal = 9,000
when AFS are reported and there is decline in FV what affects does that cause Non current & net income?
Non-current asset there are no change however, the Net Income there would be a decrease in Net Income
Using the equity method account how do excesses of FV over carrying amounts reported equity earnings for the year?
Inventory Excess would a “Decrease”
Land Excess would be “No Effect”
When there is investment in equity securities that does not result in control or significant influence over the investee how is that measured ?
at FAIR VALUE
A measurement alternative may be elected for an investment in equity securities if
FV of the investment is not readilty determine and the investment does not result in control or significant over the investee
When the equity method is being used to account investment in common stock does goodwill or cash dividends affects the reported investments income?
goodwill amortization does not reduce investment
cash dividends doesn’t affect the equity account
What is trading for securities?
bought and held for sale in the near term meaning not for too long of a time
Calc, the balance sheet bonds that should be reported? using the straight line method
We are using the straight line method of amortization
Step 1 calc the premium
We have 15,000 as our premium
calc by purchased bond 215,000 - 200,000 = 15,000 premium
Step 2 calc the amortized months
15,000 premium x 200 = 3000
Step 3 subtract the CV - amortzation
215,000 CV - 3000 amortization
= 212,000 ending value
investments classified as held to maturity are measured at
Amortized costs with no unrealized gains or losses reported
Where are Investments reported as held to maturity gains or losses reported?
amortized cost with no unrealized gains or losses reported
calc the revenue that needs to be reported for the bonds?
Remember for the discounted bond you need to first calc the interest income for the bonds issued at a discount amortization during the interest period
Step 1 - calc the periodic cashflows
500,000 face amount
8%
6 July 1, year 4
12
20,000 periodic cash flows are equal
1,800 discounted amortization (given)
21,800 revenue reported for the discounted bond
Calc, the carrying amount of the bond using the effective interest method?
Step 1, Whether if the bond is premium or discount
Amount paid for the bond 1,198,000 x 8% x 6/12 = 47,920
Step 2 - Face value 1,000,000 x 10% x 6/12 = 50,000
Step 3 - subtract the difference of 50,000 - 47,920 = 2080
Step 4 - Paid 1,198,000 - 2098 = 1,195,920
Calc, the amount reported as gain from the sale of half an investment?
Step 1
Year 1
200,000.00
80,000 30%
50,000 30%
24,000
15,000
209,000 INVESTMENTS
Step 2
209,000 iNVESTMENTS
30000 earnings from Year 2 June 30th
239,000
119,500
150,000 sold half of stock
119,500
30,500
An entity should report an investment in marketable equity securities that does not significant or control over the investee at
FV, with holding gains and losses including in earnings
Where are Available for Sales debt securities reported?
Other Comprehensive Income (OCI) NOT in Income Statement so meaning in the Balance Sheet
Where are realized loss on sale of AFS securities & Unrealized holding gain on appreciation of FS securities reported on the Financial statements?
Income statement (realized loss on sale of FS securities) are reported bc they are included in the calculation of current period earnings
Balance Sheet (Unrealized holding gain on appreciation of AFS securities) are reported excluded from earnings and are reported on OCI
Calc, the depreciation exp?
Step 1. Start off with the equipment
reported equipment
379,000
344,000
increase in equipment 35,000
accumulated depreciation
153,000
128,000
25,000
purchase equipment 50,000
increase in equipment 35,000
15,000
15,000 carrying amount 9,000
6,000
25,000
6,000
31,000
Calc the depreciation expense using the Double Decline depreciation for Year 8?
Year 6 80,000 x .50 = 40,000
Year 7. 40,000 x .50 = 20,000
Year 8. 20,000 x .50 = 10,000
Calc the stock investment to be reflected for Gilmans earnings using the Fair Value option?
common stock 35,000
investments 32,000
3,000 received dividends
1,800.00
earnings 1,200.00
when using the FV option dividends received and unrealized gains and losses
on remeasurement if financial assets FV are reported in earnings
Investments that have the ability and positive intent to hold until maturity how are they measured?
amortized cost
calc, the OCI to be credited AT DECEMBER 31?
Year 3 Fair Value
120,000 - 90,000 = 30,000
Calc, the AFS securities comprehensive income for Year 2?
calc the following
530,000 June 30 year 2
490,000 Dec 31, year 2
= 40,000 OCI Other Comprehensive Income
When available for sale is transferred to trading securities how is that recognized?
in earnings
Calc, the bonds issued at a discount interest expense?
We use the Initial book value 980,000 x the effective interest rate 6% = 58,800 is the interest expense
Remember we use the book value and we multiple the effective interest rate to calc the interest expense
Calc, the interest payment for the bond issued at a discount?
To calc the interest payment we need to use the investment 1,000,000 and multiple that by stated interest rate of 5% = 50,000 interest payment
Calc, the interest expense for the bond issued at premium?
Book value 1,020,000 x 4% effective interest rate = 40,800 is the interest expense
Calc, the interest payment of bond issued at a premium?
1,000,000 investment x 5% = 50,000 interest payment
Calc, the amount that should be reported as investment in bonds?
We are using the effective interest method of amortization First step is to calc the CV
Price 946,000 - 40,000 accrued interest = 906,000
Does the fair value or equity method recognized cash dividends by increasing the investment balance?
Neither the fair value or the equity method recognize the cash dividends
What is the most likely cause of bonds decline in the FV?
Interest rates have increased when the bonds especially when it’s a premium bond
A measurement alternative may be elected for ana investment in equity securties if the
FV of the investment is nor readily determinable and the investment does not result in control or significant influence over the investee
Calc, the revenue for the bonds from long term investment for discounted bond?
Bonds face value 500,000
Coupon rate 8%
coupon rate. 6/12
= 20,000 Discounted amortization 1,800 Revenue reported. 21,800
The decisions to elect the fair value option (FVO)
Is irrevocable until the next election date, if any meaning the decision to elect the FVO is final and cannot be revoked unless a new election date occurs
Calc, the net income using the Fair Value option?
Under the fair value option when dividends are paid they are accounted as “Income” so we use that for the Fair Value option
step 1 - difference between the investment and investment at fair value
410,000 - 400,000 = 10,000 investor recognize a unrealized gain
Step 2 - use the dividend income of 20,000 x 30% = 6,000
Step 3 - we add the unrealized gain of 10,000 + 6,000 dividend income = 16,000
For interim financial statement when the net inventory how is market price recorded?
decrease market price in the first Quarter and increase the 3rd quarter by the amount of decrease in the first quarter
calc, the the recognized loss? in the equity security
A gain or loss is recognized when an individual equity security is sold or otherwise disposed of
To start off common stock 31,500 - 29,500 FV of the investment = 2000
Step 2 -
We Start off with 2000 shares x 14 - 29500 carrying amount - 1400 = 2900
Following statement with regard marketable securities are incorrect?
AFS portfolio of marketable debt securities unrealized gains are recorded on the income statement
which is incorrect they are reported on other comprehensive income
Calc, the carrying amount using the straight line method for the bond investment?
Using the straight line method
Start off with the 220,000 - 5,000 = 215,000
Step 2
15,000 x 15 months / 75 months = 3,000
200,000 + 15,000 - 3,000 = 212,000 bond reported
Calc, the long term investment pell should report year 4 revenue?
Face amount 500,000 x 8% coupon rate x 6/12 = 20,000
Pell recorded bond discount amortization 1800
20,000 + 1,800 = 21,800
How to cal the warranty expense?
Sales multiply by the warranty cost by sale
When an investor uses the equity method to account for investments in common stock, the investment account will be increased when the investor recognizes
a proportionate interest in the net income of the investee
calc, cash balance per books at April 30?
Balance per bank statement
46,500
+ Deposits 58,400
Disbursement (49,700)
outstanding check (7,000)
= balance per books 48,200
if the investment in debt securities has the ability and intent to hold until maturity must be classified as held to maturity and measured at amortized cost?
it’s amortized costs
Calc, the investment account using the equity method?
200 shares x fair value 150 = 30,000
18,000 net loss Year 1 x 2 /12 = 3000 x 0.25 = 750
200 x 1.20 = 240
2,000 x 25% = 500
30,000 - 750 - 240 - 500 = 28,510
The most likely causes of the decline in the bonds Fair value when it’s acquired at a premium?
The increase in interest cause a decrease on the price of the bond
When is the equity method not required?
When the investment is held for sale
A measurement alternative may be elected for an investment in equity securities if the?
Fair Value of the investment is not really determinable and the investment does not result in control or significant influence over the investee
The amount of income or loss that is attributable to the meteor stock investment in Gilman earnings?
Common Stock 35,000 - 32,000 = 3,000 dividends income received
3,000 dividends - 1,800 of dividends from investment = loss of 1,200
When is the equity method not required for an investment?
held for sale
Do cash dividends from investee & a change in fair value of the investee’s common stock affect equity based earnings?
Neither of them are affected
A changed in fair value of the investee’s common stock have no effect in the investment in securities account
Does the fair value or the equity method are used for cash dividends?
Neither the fair value or equity method uses the dividends
Decrease in FV of an investment in debt securities was amortized cost and due to credit losses?
earnings section of the income statement and writing down the amortized cost basis to FV
If Goll Co has common stock in two companies one is 25% and the other is 18%, however neither investment gave him the ability to exercise significant influence either company operating and financial policies. Can goll account either company using the equity method
No because the key point in this problem is neither company gave ability to exercise influence
