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Financial Acct Systems 2 > Ch 17 > Flashcards

Ch 17 Flashcards

0
Q

Debt securities

A

Represent creditor relationship with another entity

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1
Q

2 common motivations for investing in securities issued by other companies?

A

1 earn a high rate of return

2 secure certain operating or financing arrangements with
Other companies

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2
Q

3 debt investment classifications

A

1 held to maturity

2 trading

3 available for sale

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3
Q

Under IFRS debt investments are classified as either…

A

Held for collection or trading

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4
Q

Debt: held-to-maturity

A

Debt securities that company as positive intent and ability

To hold to maturity

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5
Q

Debt: trading

A

Debt securities bought and held primarily for sale in near

Term to generate income on short-term price differences

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6
Q

Debt: available for sale

A

Debt securities not classified as held to maturity or trading securities

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7
Q

Debt: held to maturity- valuation

A

Amortized cost

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8
Q

Debt: trading securities- valuation

A

Fair value

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9
Q

Debt: available for sale- valuation

A

Fair value

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10
Q

Debt: held to maturity- treatment of unrealized holding gains or losses

A

Not recognized

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11
Q

Debt: trading securities- treatment of unrealized holding gains or losses

A

Recognized in net income on income statement

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12
Q

Debt: available for sale- treatment of unrealized holding gains or losses

A

Recognized as other comprehensive income and as separate component of stockholder’s equity

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13
Q

Amortized cost

A

Acquisition cost adjusted for amortization of discount or

Premium

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14
Q

Fair value

A

Fair value price thats received to sell an asset or paid to
Transfer liability in orderly transaction btw market participants
At measurement date

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15
Q

For debt investments, companies must amortize premium or discount using the…

A

Effective-interest method

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16
Q

What does the use of the fair value adjustment account enable a company to do?

A

Maintain a record of its amortized cost

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17
Q

Gains trading

A

Selling the winners and holding the losers

Way companies can manage their net income

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18
Q

Holding gain or loss

A

Net change in fair value of security from one period
To another

exclusive of dividend or interest revenue recognized but
not received

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19
Q

Equity securities

A

Ownership interests in common, preferred or other

Capital stock, warrants, call and put options

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20
Q

Investor and investee

A

Investor acquires interest in common stock of another

Corporation (investee)

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21
Q

Classification of investments on a companies balance sheet depends on…

A

The percentage of the investee voting stock that is held

By the company

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22
Q

Classification of investments if investor (corporation) holds less than 20%, what accounting method is used?

A

Investor has passive interest

Acct m: fair value method

23
Q

Classification of investments if investor (corporation) holds 20% to 50%, what accounting method is used?

A

Investor has significant influence

Acct. m: equity method

24
Q

Classification of investments if investor (corporation) holds more than 50%, what accounting method is used?

A

Investor has controlling interest

Acct m: consolidated statements

25
Q

Equity: fair value method

A

Recording at Market price

26
Q

5 indications of significant influence in the company?

A 
1 representation in the board of directors
2 participation in policy making process
3 material inter company transactions
4 interchange of managerial personnel
5 technological dependency
27
Q

Unrealized holding gains and loses for over 20% ownership in company

A

Not recognized

28
Q

Equity method, define, how are dividends treated

A

Company originally records investment at cost of shares
Acquired and subsequently adjusts amount each period
For change in investee’s net assets

Dividends received by investor decrease the investment’s
carrying amount

29
Q

When a corporation holds more than 50% or a company (controlling interest) what is the investor corporation referred to as? What is the investee corporation referred to as?

A

Investor: parent

Investee: subsidiary

30
Q

How do consolidated financial statements treat the parent and subsidiary corporations?

A

As a single economic entity

31
Q

IFRS has similar accounting rules for significant influence

A

Equity investments

32
Q

In contrast to US firms, financial statements of non-US companies often include both…

A

Consolidated (group) statements and parent company

Financial statements

33
Q

IFRS doesn’t not allow the use of the……….. For equity method investments

A

Fair value option

34
Q

Impairment, how often should it be evaluated?

A

Loss in value that is other than temporary

Evaluated at each reporting date

35
Q

Impairment for debt securities

A

Company uses impairment test to determine whether it’s
Probable that investor will be unable to collect all amounts
Due according to contractual terms

36
Q

2 ways companies may display components of comprehensive income

A

1 combined statement of income and comprehensive income

2 separate statement of comprehensive income

37
Q

Reclassification adjustment

A

Ensures that gains and losses aren’t counted twice when

Sales occur

38
Q

Companies account for transfers between categories (available for sale or trading) at…

A

Fair value

39
Q

Transfer from trading to available for sale to trading or trading to available for sale. What is the transfers impact on stockholder’s equity?

A

Unrealized holding gain/loss at date of transfer increases

Or decreases stockholder’s equity

40
Q

Transfer from trading to available for sale to trading or trading to available for sale. What is the impact of the Transfer on Net Income?

A

Unrealized holding gain or loss at date of transfer is

Recognized as net income

41
Q

Transfer from trading to available for sale to trading or trading to available for sale. Measurement basis?

A

Security transferred at fair value at date of transfer, which is
New cost basis of security

42
Q

Transfer from held to maturity to available for sale. Measurement basis?

A

Security transferred at fair value at date of transfer

43
Q

Transfer from trading to available for sale to trading or trading to available for sale. Impact of transfer on stockholder’s equity?

A

Separate component of stockholders’ equity is increased

Or decreased by unrealized gain or loss at date of transfer

44
Q

Transfer from trading to available for sale to trading or trading to available for sale. Impact of transfer on net income?

A

None

45
Q

Transfer from available for sale to held to maturity. Measure,emit basis?

A

Security transferred at fair value at date of transfer

46
Q

Transfer from available for sale to held to maturity. Impact of transfer on stockholders’ equity?

A

Unrealized gain/loss at date of transfer carried as separate
Component of stockholders’ equity is amortized over
Remaining life of security

47
Q

Transfer from available for sale to held to maturity. Impact of transfer on net income?

A

None

48
Q

Reporting of trading (debt and equity securities) on the balance sheet?

A

Investments shown at fair value, in current assets

49
Q

Reporting of trading (debt and equity securities) on the income statement?

A

Interest and dividends are recognized as revenue

Unrealized holding gains and losses are included in net
income

50
Q

Reporting of Available for sale (debt and equity securities) on the balance sheet?

A

Investments shown at fair value

Current or long term assets

Unrealized holding gains and losses are separate component
Of stockholders’ equity

51
Q

Reporting of available for sale (debt and equity securities) on the Income statement?

A

Interest and dividends are recognized as revenue

Unrealized holding gains and losses aren’t included in
Net income but in other comprehensive income

52
Q

Reporting of held to maturity (debt securities) on the balance sheet?

A

Investment’s shown at amortized cost, current or Longterm

Assets

53
Q

Reporting of trading (debt securities) on the income statement?

A

Interest recognized as revenue

54
Q

Reporting equity securities using the equity and/or consolidation methods the balance sheet?

A

Investments originally are carried at cost, are periodically
Adjusted by investor’s share of investee’s earnings or losses

Decreased by all dividends received from investee and
Classified as long term

55
Q

Reporting equity securities using the equity and/or consolidation methods the income statement?

A

Revenue is recognized to extent of investee’s earnings or

Losses reported subsequent to date of investment

Financial Acct Systems 2 (22 decks)

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