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Accounting 3332 > Chapter 17: Investments > Flashcards

Chapter 17: Investments Flashcards

1
Q

What are the three types of investments with no significant influence?

A
  1. held-to-maturity
  2. trading securities
  3. available-for-sale
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2
Q

What are the two types of investments with significant influence?

A
  1. equity method

2. consolidation

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3
Q

Investments in debt securities with a maturity date.

A

held to maturity securities

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4
Q

Type of securities that have an intent and ability to hold maturity.

A

held to maturity securities

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5
Q

How are held to maturity securities reported?

A

reported at amortized cost/(face + premium - discount)

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6
Q

How do you record the interest in held to maturities securities using the effective rate method?

A
  • interest revenue: carrying value * market rate
  • cash received for interest: face value * stated rate
  • difference to discount/premium amortization
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7
Q

Investments in debt or equity securities are known as?

A

trading securities

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8
Q

Actively managed in a trading account to benefit from short term price changes?

A

trading securities

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9
Q

In trading securities, fair value changes are unrealized gains/losses in ___.

A

earnings

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10
Q

How are investments reported in trading securities?

A

reported at fair value and are current assets

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11
Q

What actions are taken with the sale of trading securities?

A
  • realized gains/losses in earnings

- update FVA and reverse unrealized gains and losses

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12
Q

Investments that are not classified as TS or HTM securities?

A

available-for-sale securities

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13
Q

Dividends/interest are included in income are in what type of securities?

A

available-for-sale securities

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14
Q

In available-for-sale securities, fair value changes are unrealized gains/losses in ___.

A

other comprehensive income (OCI)

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15
Q

Available-for-sale securities are reported at _____ and could be ___ or ___.

A

fair value; current; noncurrent

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16
Q

What actions are taken with the sale of available-for-sale securities?

A
  • realized gains/losses in earnings

- update FVA and reverse unrealized gains/losses from (OCI)

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17
Q

When adjusting the fair value, trading securities to fair value goes to the ___.

A

income statement

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18
Q

When adjusting the fair value, available for sale securities to fair value goes to the ___.

A

other comprehensive income (OCI)

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19
Q

How do you calculate the FVA of an investment?

A

fair value - discount on bond investment = amortized cost

amortized cost +/- XX = fair value

20
Q

What type of method includes investors that own 20% to 50% of investee stock?

A

equity method

21
Q

In the equity method, the investor can influence financial and operating policies, so this time the investment is recorded at _____ and the investee account is subsequently adjusted.

A

initial cost

22
Q

If there is an increase for percentage of investee’s income, then we are going to do this journal entry.

A

Dr. investment in ABC XX

Cr. investment income XX

23
Q

If thre is a decrease for percentage of investee dividends, then we are going to do this journal entry.

A

Dr. cash XX

Cr. investment in ABC XX

24
Q

When there is a purchase price difference in the equity method, we are going to amortize book value differences on the investee’s book by doing this journal entry.

A

Dr. investment income XX

Cr. investment in ABC XX

25
Q

Journal to record the purchase of securities

A

Dr. Investment in ABC XX

Cr. Cash (% * fair value total) XX

26
Q

Journal to record ownership % of investee income

A

Dr. Investment in ABC XX

Cr. Investment revenue (% * NI) XX

27
Q

Journal to record receive dividends: liquidation of investment

A

Dr. Cash XX

Cr. Investment in ABC (%* dividends) XX

28
Q

impairment loss is recorded if _____ is less than _____ and it is considered _____.

A

fair value; cost; other than temporary (OTT)

29
Q

What factors are considered to determine OTT?

A
  1. length of time market value < cost
  2. financial condition of issuer and possibility of recovery
  3. intent and ability to retain the investment to allow for anticipated recovery of the decline
30
Q

Securities already at FV and gains/losses in income so no additional adjustment needed.

A

trading securities

31
Q

Securities that recognize the loss in earnings, reclassifying out of OCI if necessary.

A

available for sale securities

32
Q

(Financial Statement Disclosures)

On the balance sheet, the investments can be ___ or ___.

A

current or noncurrent

33
Q

(Financial Statement Disclosures)
On the statement of cash flows, trading securities fall in the ___ activities and AFS and HTM fall in the ___ activities.

A

operating, investing

34
Q

Investments in debt securities that the investor has intent and ability to hold to maturity.

A

Held to maturity

35
Q

Investments in debt or equity securities held in an acitve trading account for immediate resale.

A

trading securities

36
Q

Investments in debt or equity securities that do not qualify as HTM or trading.

A

Available for sale

37
Q

Investor has significant influence over investee policies. Owns twenty to fifty percent of investee voting stock.

A

equity method

38
Q

The investor controls investee. Owns more than fifty percent of the investee voting stock.

A

consolidation

39
Q

If the investor elects the _____ , the investment is reported at fair value and unrealized holding gains/losses are included in earnings.

A

fair value option

40
Q

What is the treatment of unrealized gains and losses with held to maturity?

A
  • no gains or losses

- not recognized

41
Q

What is the treatment of unrealized gains and losses with trading securities?

A

recognized in net income (flows through to retained earnings in equity)

42
Q

What is the treatment of unrealized gains and losses with available for sale?

A

recognized in other comprehensive income (flows into AOCI in equity)

43
Q

How is the investment of held to maturity reported in the balance sheet?

A

amortized cost

44
Q

How is the investment of trading securities reported in the balance sheet?

A

fair value

45
Q

How is the investment of available for sale reported in the balance sheet?

A

fair value

46
Q

What is the cash flow impact for:

  • held to maturity
  • trading
  • available for sale
A
  • held to maturity to investing activities
  • trading to operating activities
  • available for sale to investing activitites

Accounting 3332 (10 decks)

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