Chapter 9

Question 1

all inclusive approach

Answer 1

A concept of income by which virtually all nonequity-based transactions and events are captured and reported in the income statement; the preferred approach for income theory.

Question 2

amortized cost method

Answer 2

The approach mandated for held-to-maturity securities; investments are reported at their cost with any premium or discount amortized over the life of the investment.

Question 3

available for sale securities

Answer 3

Investments tath are neither “held-to-maturity” or “trading,” a default category that is accounted for at fair value with changes in value recognized in other comprehensive income.

Question 4

consolidation

Answer 4

To prepare financial reports for a parent and subsidiary company as a single economic unit.

Question 5

current operating approach

Answer 5

A concept of income where income is limited to transactions related to central ongoing operations; not an acceptable approach for income theory.

Question 6

discount on bonds

Answer 6

The difference between face value and issue price of a bond, where the issue price is less; causes the effective yield to be higher than that stated.

Question 7

equity method

Answer 7

Method to account for stock investment when significant influence is present; changes in equity of the investee are recognized by the investor on a pro rata basis

Question 8

goodwill

Answer 8

The excess of the purchase price of an acquired company over the fair value of the identifiable net assets acquired.

Question 9

held to maturity investments

Answer 9

Investments purchased with intent to hold to maturity; usually investment in debt; accounted for by amortized cost method.

Question 10

investee

Answer 10

The company in which another has an investment.

Question 11

issue price

Answer 11

The amount a compnay receives in exchange for the initial issue of debt or other financial instrument.

Question 12

other comprehensive income

Answer 12

An account for changes in value of available for sale securities; not part of net income but is included in the broader concept of total comprehensive income.

Question 13

par value on bonds

Answer 13

The face or contract amount of a bond; the amount to be repaid at maturity along with any interest.

Question 14

premium on bonds

Answer 14

The difference between face value and issue price of a bond, where the issue price is more; causes the effective yield to be lower than that stated.

Question 15

significant influence

Answer 15

The ability to sway management and decision making of another entity, but generally not enough to assert absolute control

Question 16

straight-line amortization

Answer 16

A method for amortizing premiums and discounts on bonds; the premium or discount is spread uniformly over the life of the bond as an adjustment of interest.