Chapter 7 Financial Assets

Question 1

How can financial assets be subsequently measured (initial measure is at FV)

Answer 1

Using
Amortized Cost (bonds,a/r,n/r
FVTOCI
FVTPL

Question 2

Criteria to record at AMORTIZED Cost

Answer 2

Business model test required
1.Objective is to hold the asset/collect contractual cash flows
2. Contractual cash flows are only interest/principal

Question 3

Criteria to record at FVTOCI

Answer 3

Business model test requires
1.Objective is to hold the asset and collect contractual cash flows/eventually sell
2. contractual cash flows are only interest and principal

Question 4

Criteria to record at FVTPL

Answer 4

Company can always elect FVTPL

Must use HELD FOR SALE investments here

Question 5

How are bonds classified and where do realized/unrealized G/L go

Answer 5

1. Amortized Cost
   
   2. FVPL
   3. FVOCI
      Unrealized gains/losses -> go to OCI
      Realized gains/losses -> go to P&

Question 6

How are shares classified and where do realized/unrealized gain/losses go

Answer 6

1. FVPL
   
   2. FVOCI
      Unrealized gains/losses go to OCI
      Realized gains/losses go to OCI

Question 7

How to record TRANSFER OF RECEIVABLE (SALE)

Answer 7

Transfer of receivable occurs when A/R is transferred to another party to speed up cash collection

IF YOU ARE SELLING:

Difference book value receivable and assets received from Finance company is expensed right away

Transferor:
Dr Cash
Dr Expense (amount between cash/a/r)
Cr A/R

Transferee (Finance Company)
Dr A/R
Cr Deferred Financing Revenue (amount between a/r and cash)
Cr Cash

Question 8

How to record TRANSFER OF RECEIVABLE BORROWING

Answer 8

Receivables would stay on the book and instead record a loan

Difference between book value receivables and assets recieved from finance co is interest over term of loan

Transferor:
Dr CASH
DR DISCOUNT ON NOTE
CR Note payable

Transferee (financing company)
Dr note receivable
cr discount on n/r
cr cash

Question 9

How to do the effective interest method and when to use it

Question 10

HOW TO RECORD FINANCIAL ASSETS IN ASPE

Answer 10

If it shares w no active market:
record at COST

CAN ELECT amortized cost:
-subject to straight line or effective interest method

CAN ELECT Fair Value
-subject to record g/l in fv
-if held in active market w no hedge accounting