Equity & Debt Investments

Question 1

Brokerage fees when purchasing & selling shares

Answer 1

Brokerage fees are added to the purchase price when buying shares & deducted from the selling price when selling shares

Question 2

Equity Investments at FV Journal entries

Answer 2

Purchasing shares
Dr. Equity investment
Cr. Cash

Dividends Received
Dr. Cash
Cr. Dividend Income

Increase & Decrease in FV of shares
Dr. Equity Investment
Cr. Unrealized gain

Dr. Unrealized loss
Cr. Equity Investment

Question 3

What to take into account for investment income under equity method

Answer 3

An increase of FV or CV and increase in FV or CV depreciation, bother reduce the investment income amount

Question 4

When can you recognize dividend income under equity method?

Answer 4

Only with preferred stocks

Question 5

Where are credit losses recorded for debt securites

Answer 5

In the income statement, not the statement of comprehensive income

Question 6

When does an entity not record a credit loss

Answer 6

When the entity is able to hold the impaired security & it expects to recover the entire cost

Question 7

Stock dividends

Answer 7

Are not reported as dividend income like cash dividends, it’s represents additional ownership

Question 8

Is cash surrender value a debit or credit account

Answer 8

it is a debit account

Question 9

How to record a loss if not recorded at FV and there are brokerage fees

Answer 9

Since its not using the FV, the answer is the difference between the CV and the selling price and if there is again deduct the brokerage fees and if there is a loss add the brokerage fees to the loss