Deck18

Question 1

Bond prices and interest rates are ____________ related? Directly or Inversely

Answer 1

Inversely - When bond prices increase, the market value of fixed income investments, such as bonds decrease, because now there are better opportunities on the market.

Question 2

For AFS securities, UNrealized changes in market value are recorded where?

Answer 2

Owners Equity

Question 3

For AFS securities gains have to be __________ to be recognized for the period

Answer 3

Realized - the gain must be REALIZED to be part of Net Income for the period.

Question 4

A permanent decline (not temporary) of an AFS security is “recognized” as a loss where?

Answer 4

Income Statement - When the loss is considered permanent, it is “conservative” accounting that recognizes it now since it’s probably not going to change.

Question 5

For Trading Securities, will Realized and UNrealized losses be netted together for End of Year Purposes?

Answer 5

Yes, because for Trading Securities, both Realized and Unrealized Gains/Losses go to the income statement.

Question 6

For investments in Debt Securities (Bonds) other than those Held to Maturity(HTM), which valuation method is applied?

Answer 6

Fair Value Method

Question 7

Reclassification between HFT and AFS securities under the Cost Method is always recorded at what value? Cost or Market Value

Answer 7

Market Value

Question 8

Holding gains from AFS securities are reported where?

Answer 8

Earnings - Which is a place on Statement of Owners Equity

Question 9

(IFRS) - Can debt and equity securities be transferred between categories (as far a the length of time they are expected to be held)?

Answer 9

No - only debt securities under IFRS can be transferred

Question 10

(IFRS) - Can debt securities be transferred from “Amortized Cost” to “Fair Value” and from “Fair Value” to “Amortized Cost”?

Answer 10

Yes

Question 11

Under the Equity Method, the investor recognizes its share of investee earnings where?

Answer 11

Income Statement

Question 12

Are dividends recognized by an investor (sig influence) under the equity method?

Answer 12

No - dividends are a return of capital to the investor

Question 13

(Significant Influence or NO Significant Influence)Does a dividend ever Increase and Investment Account?

Answer 13

No - Under the Cost Method, dividend is recorded as Revenue. Under Equity Method it is a decrease(credit) to the Investment Account.

Question 14

(Equity Method) Do Dividends from Investee affect Net Income?

Answer 14

No - they are a Credit to Investment Account

Question 15

(Equity Method) What must the investor “Capture” at the time it acquires significant influence?

Answer 15

Book Value and Fair Value of investee’s Assets and Liabilities