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Accouting Cycle 1-4 > Chapter 9 > Flashcards

Chapter 9 Flashcards

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WSET ® Level 4 D2 Business of Wine flashcards
1
Q

trading securities

A 
intent to resell in near future
highly liquid
balance sheet = current asset
carried at fair market value
included in operating income of each period
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2
Q

acquirer

A

parent
own more than 50% of stock
must consolidate accounts of acquired subsidiary

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3
Q

Have substantial amount of stock but not contorl

A

ownership level above 20% below 50%

investor is deemed to have ability to significantly influence the investee company

“equity method” of accounting used

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4
Q

Bond payable

A

promise to pay

issuer of the bond receives money today from investor with promise to repay plus interest

acquired with intent to hold bond until maturiey

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5
Q

Bond payable

A

promise to pay

issuer of the bond receives money today from investor with promise to repay plus interest

acquired with intent to hold bond until maturity

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6
Q

Trading

A

Fair value
gains and losses to operating income

intent to buy/sell for short term profits

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7
Q

Available for Sale

A

Fair value
gains and losses to operating income

Default category

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8
Q

Held to Maturity

A

Amortized cost

intent to buy and hold until fixed maturity date

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9
Q

Significant Influence

A

Equity Method

Stock investments 20-50%

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10
Q

Control

A

Consolidation

Stock investments generally exceeding 50%

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11
Q

Approaches are for

A

investment that are held

when sold the realized gain/loss is include. in operating income

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12
Q

Fair Value Option

A

allows many
available for sale & held to maturity investments
to be measured at fair value with unrealized gain/losses reported in earnings

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13
Q

Fair Value Option

A

allows many
available for sale & held to maturity investments
to be measured at fair value with unrealized gain/losses reported in earnings

move by FASB to value base accounting

once applied : irrevocable

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14
Q

Have substantial amount of stock but not control

A

ownership level above 20% below 50%

investor is deemed to have ability to significantly influence the investee company

“equity method” of accounting used

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15
Q

Fair Value Option

A

Overrides other options
allows many
available for sale & held to maturity investments
to be measured at fair value with unrealized gain/losses reported in earnings

move by FASB to value base accounting

once applied : irrevocable

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16
Q

Other comprehensive income

A

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

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17
Q

Avialble for sale journal

A

changes go into unrealized gain/loss -other comprehensive income

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18
Q

Available for sale journal

A

changes go into unrealized gain/loss -other comprehensive income

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19
Q

all-inclusive approach

A

accounting profession uses

all transactions and events make their way through net income

does not include OCI -unrealized gain/loss

20
Q

2 reporting options for OCI

A
  1. broader statement of comprehensive income - goes beyond operating income
  2. prepare a separate schedule reconciling net income to total comprehensive income
21
Q

ways available for sale does not fit all inclusive approach

A

-changes in value are recognized in unique account instead of operating income as with other trading securities

22
Q

2 reporting options for OCI

A
  1. broader statement of comprehensive income

2. prepare a separate schedule reconciling net income to total comprehensive income

23
Q

Journal Entry for adjusting available for sale securities

A
  • Adjust loss/gain using unrealized loss/gain account
  • can also use valuation adjustments account that affects the unrealized loss/gain account
  • no charge to a “normal income statement” as the net income is not affected by temporary fluctuations in market value
24
Q

Journal Entry for adjusting available for sale securities

A
  • Adjust loss/gain using unrealized loss/gain account
  • can also use valuation adjustments account that affects the unrealized loss/gain account

-no charge to a “normal income statement” as the net income is not affected by temporary fluctuations in market value

25
Q

Dividend or interest income received on available-for-sale securities

A
  • included in net income
  • Debit: cash
  • Credit: dividend income
26
Q

Journal Entry for adjusting available for sale securities

A
  • Adjust loss/gain using unrealized loss/gain account
  • can also use valuation adjustments account that affects the unrealized loss/gain account- more info-helpful for tax reporting
  • no charge to a “normal income statement” as the net income is not affected by temporary fluctuations in market value
27
Q

Balance Sheet for Available for Sale

A

Long term Investments:
Available for Sale securities

and

Under stockholder’s equity:
Accumulated other comprehensive income/loss

28
Q

Balance Sheet for Available for Sale

A

Long term Investments:
Available for Sale securities

and

Under stockholder’s equity:
Accumulated other comprehensive income/loss

*direct adjustment to equity accounts

29
Q

Bond

A

held to maturity

accounted using amortized cost method

$1,000, 5%, 10-year bond would pay $50 per year for 10 years (as interest), and then pay $1,000 at the stated maturity date.

30
Q

Bond issue price

A

depends on:
credit-worthiness of the issuer,
the remaining time to maturity,
and the overall market conditions

31
Q

Par

A

face value of bond
price is typically stated as percentage of face
103 means 103% of face or $1030 for $1000 bond

above: premium
below: discount

32
Q

Par

A

face value of bond
price is typically stated as percentage of face
103 means 103% of face or $1030

above: premium
below: discount

33
Q

Bonds purchased at premium

A

pay more than face value up front

maturity value is unchanged

higher annual interest receipts

we need to adjust for the overage we paid for bond as we will only “get back” the maturity rate - this is recorded in investment in bonds

34
Q

Bonds purchased at premium

A

pay more than face value up front

maturity value is unchanged

higher annual interest receipts

we need to adjust for the overage we paid for bond as we will only “get back” the maturity rate

35
Q

Investment in Bonds account

A

used to record purchase of bond as debit

purchase price plus brokerage fees and other incidental acquisition costs

interest payments recorded as credit to interest income

36
Q

Bonds purchased at premium

A

pay more than face value up front

maturity value is unchanged

higher annual interest receipts

not all interest income is recorded -some goes to invest in bonds to record “loss”

37
Q

straight-line method

A

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

38
Q

Bonds purchased at discount

A

pay less than face value

maturity value is unchanged

lower interest receipts

39
Q

Bonds purchased at discount

A

pay less than face value

maturity value is unchanged

lower interest receipts

Additional income over face value is recognized as gain and is recorded as investment in bonds

40
Q

Bonds purchased at discount

A

pay less than face value

maturity value is unchanged

lower interest receipts

Additional income over face value is recognized as gain and is recorded as investment in bonds

41
Q

Contract or stated interest rate

A

payments made each year, based on face amount

42
Q

term

A

time to maturity

43
Q

Equity Method

A

does not use market value adjustments

also called assoc. investment

accounting for this investment tracks the equity of the investee (company)

when the investee makes money (and experiences a corresponding increase in equity), the investor will record its share of that profit

44
Q

Journal entry for equity method

A

investment

investment income

45
Q

purchase differential

A

excess of fair value over the net book value

46
Q

goodwill

A

arises during acquisition of one business by another

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

Accouting Cycle 1-4 (13 decks)

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