Chapter 12 (handbook)

Question 1

US GAAP on investments

Answer 1

ASC Codification Topic 320

Question 2

IFRS authoritative support on investments

Answer 2

IAS 39

Question 3

What is the difference on reclassification between categories in IFRS IAS 39

Answer 3

(1) A reclassification INTO the fair value through profit or loss category (not allowed)
(2) A reclassification OUT OF the fair value through profit or loss category (not allowed)
but it is allowed with GAAP

Question 4

Does IFRS allow fair value option of investments qualified as equity method

Answer 4

no

Question 5

Does GAAP allowing fair value option of investments qualified as equity method

Answer 5

yes

Question 6

GAAP classification of Investment securities

Answer 6

320

Question 7

what are the requirements for trading securities

Answer 7

acquired with the intent of selling it within hours or days.

Question 8

requirements for available for sale

Answer 8

debt and equity securities that have READILY DETERMINABLE FAIR VALUES not classified as trading securities or as HTM

Question 9

requirements for HTM

Answer 9

debt securities if the reporting entity has the POSITIVE INTENT AND ABILITY to hold those securities to maturity

Question 10

types of equity securities

Answer 10

CS, PS and other forms of capital stock.
rights to acquire ownership shares including: stock warrants, rights, and call options.
rights to dispose of ownership shares in the future

Question 11

Equity securities DO NOT include

Answer 11

PS redeemable at the option of the investor or stock that must be redeemed by the issuer.
TS
Convertible bonds

Question 12

What are TS classified in cash flows

Answer 12

operating

Question 13

what are AFS classified in cash flows

Answer 13

Investing

Question 14

what are HTM classified in cash flows

Answer 14

Investing

Question 15

Where are Unrealized gains and losses reported for TS

Answer 15

current period earnings - net income

Question 16

Where are unrealized gains and losses reported for AFS

Answer 16

OCI - AOCI

Question 17

Reclassification: From Trading to any other

Answer 17

the unrealized holding gain or loss at the date of transferred is already recognized in earnings and shall not be reversed

Question 18

Reclassification: From any other to Trading

Answer 18

recognized in current earnings (income) (because you haven’t recognized it yet)

Question 19

Reclassification: from HTM to AFS

Answer 19

record in OCI

Question 20

Reclassification: from AFS to HTM

Answer 20

Amortize gain or loss from OCI with any bond premium/ discount amortization over the remaining life of the security.

Question 21

OTTI of AFS

Answer 21

must be reflected in EARNINGS (income)

Question 22

what happens to subsequent recoveries in AFS for OTTI

Answer 22

previous permanent decline CANNOT be recognized in income UNTIL LIQUIDATED

Question 23

What happens to the OTTI loss AFS

Answer 23

recognized in earnings (net income)

Question 24

what happens to the carrying value of OTTI AFS

Answer 24

in the BS by that amount

Question 25

permanent Impairment of TS

Answer 25

does not arise, the distinction between realized and unrealized gains or losses does not exist for TS

Question 26

once OTTI is recognized for TS the reduced carrying value becomes..

Answer 26

the new cost basis from which other increases or decreases in value are measured

Question 27

Hedging TS

Answer 27

gains and losses that hedge TS should be reported in earnings, consistent with the recovery of unrealized gains and losses on TS

Question 28

Hedging AFS

Answer 28

gains and losses on derivative instruments that hedge AFS are recognized currently in earnings together wit offsetting losses or gains on the AFS securities attributable to the hedged risk

Question 29

Sale of a TS

Answer 29

realized gain and loss is recognized as the difference between the adjusted costs and selling price

Question 30

Sale of AFS

Answer 30

realized gain or loss is recognized as the difference between the selling price and original cost of the security. Any realized gains/losses in AOCI must be reversed at the time the security is sold

Question 31

required disclosures for AFS and HTM

Answer 31

aggregate fair value gross unrealized and realized holding gains/losses amortized cost by major security type information about the contractual maturities and debt securities

Question 32

up and downs of equity method investors

Answer 32

up for net earnings and down for investee dividends paid

Question 33

equity method includes

Answer 33

common stock not preferred stock

Question 34

equity method has none of what

Answer 34

dividend revenue

Question 35

Significant influence:

Answer 35

``` representation on BOD participation in policy making processes material intra entity transactions interchange of managerial personnel technological dependency ```