Chapter 5 Flashcards
When can cash be considered non current?
its use is restricted to such purposes as payments to sinking funds.
In order to be classified as a cash equivalent, what is the max amount of time an instrument can have until maturity?
3 months or less.
When is the decision whether to elect the Fair Value Option made?
irrevocably at an election date (unless a new election date occurs)
Can you use the Fair value option on Leases?
No
List the 3 classifications of equity securities
- Held to maturity
- Trading
- Available for Sale
Define Held-to-Maturity Securities
the holder has both the positive intent and the ability to hold the security until its maturity date.
Held-to-maturity securities are reported at?
amortized cost
Held-to-maturity securities are reported on the balance sheet
net of any unamortized premium or discount
Held-to-maturity securities are reported on the income statement
Realized gains and losses and interest income (including amortization of premium or discount) are included in earnings.
Trading securities are reported at?
Fair Value
Trading securities are reported on the income statement at?
Unrealized holding gains and losses
What category are held to maturity securities cash flows reported
As investing activities
What category are held to trading securities cash flows reported
As operating activities
When is the equity method used to value a security?
when the investor has significant influence and has not elected the FVO
Is good will amortized in the equity method?
No but it is test for impairment.
How is good will handled by a private company?
goodwill recognized must be amortized on a straight-line basis over 10 years
Under the equity method Dividends from the investee are treated as
as a return of an investment. They decrease the investment balance but have no effect on the investor’s income
What is the range of percentage of ownership for required use of the equity method?
20% to 50%
Where is the cash surrender value of life insurance policies on key executives reported?
Non current asset portion of the balance sheet.
How is the premium on the cash surrender value of life insurance policies on key executives
The annual premium is allocated between expense and the cash surrender value.
Life insurance expense is equal to?
the excess of the premiums paid over the increase in cash surrender value and dividends received
If the bond’s stated rate is greater than the current market rate,
the purchase price is higher than the face amount and the bond is purchased at a premium.
If the bond’s stated rate is less than the current market rate
the purchase price is lower than the face amount and the bond is purchased at a discount.
Investments in bonds are reported
i.e., amortized cost,
