F3

Question 1

How are available-for-sale securities valued in the financial statements?

Answer 1

At fair value

Question 2

How are trading securities valued in the financial statement?

Answer 2

At fair value

Question 3

How are held-to-maturity securities valued in the financial statements?

Answer 3

At amortized cost

Question 4

What are available-for-sale securities?

Answer 4

Those securities (both debt and equity) that are neither trading securities nor held-to-maturity securities.

Can be either current assets or noncurrent assets, depending on INTENT.

Question 5

What are held-to-maturity securities?

Answer 5

Investments in debt securities but only if there is both intent and ability to hold them to maturity.

If intent is for an indefinite period of time, but not necessarily to maturity, then the security ought to be classified as available-for-sale.

HTM securities are either current or noncurrent based on time to maturity.

Question 6

How do you treat reclassification of securities FROM (out of) trading category?

Answer 6

Unrealized gain/loss at date of transfer is already recognized in earnings (income statement) and does not need to be reversed.

Question 7

How do you treat reclassification of securities TO (into) trading category?

Answer 7

Unrealized gain/loss at date of transfer needs to be recognized in earnings (income statement) immediately.

Question 8

How do you treat reclassification of debt securities in held-to-maturity transferred TO (into) available-for-sale?

Answer 8

Unrealized gain/loss at date of transfer needs to be reported in other comprehensive income.

HTM are valued at amortized cost and is being transferred to a category where securities are being valued at fair value.

Question 9

How do you treat reclassification of debt securities in available-for-sale transferred TO held-to-maturity?

Answer 9

Unrealized holding gain/loss at date of transfer is already reported in other comprehensive income. Unrealized holding gain/loss needs to be amortized over remaining life of security as adjustment to OCI.

Question 10

What is the journal entry when you sell Trading securities?

Answer 10

DR Cash

CR Trading security

CR Realized gain/loss (IDEA)

Question 11

What is the journal entry when you sell available-for-sale securities?

Answer 11

DR Cash

DR Unrealized gain on available for sale security (PUFE)

CR Available-for-sale security

CR Realized gain on available-for-sale security (IDEA)

Question 12

What is the CAR IN BIG for?

Answer 12

This is the memory devise for Acquisition Method.

Question 13

What are the journal entries when you are acquiring a subsidiary?

Answer 13

DR Common Stock - subsidiary

DR APIC - subsidiary

DR R/E - subsidiary

CR Investment in subsidiary

CR Noncontrolling interest

DR Balance sheet adjustments to FV

DR Identifiable intangible assets to FV

DR Goodwill

CR Gain

Question 14

How do you calculate NCI using Full Goodwill Method?

Answer 14

NCI = FV of subsidiary x NCI %

This is the method used under GAAP.

Question 15

How do you calculate NCI using Partial Goodwill Method?

Answer 15

NCI = FV of subsidiary’s net identifiable assets x NCI %

Question 16

How do you calculate goodwill under the Full Goodwill Method?

Answer 16

Goodwill = FV of subsidiary - FV of subsidiary’s net assets

This method is used under GAAP.

Question 17

How do you calculate goodwill under the Partial Goodwill Method?

Answer 17

Goodwill = Acquisition Cost - FV of subsidiary’s net assets acquired.

If you own 80% of the subsidiary, then you multiply the FV of their assets by 80%. This method is not the method used under GAAP.

Question 18

If you own 15% of another company, do you eliminate intercompany transactions?

Answer 18

No, if you do NOT consolidate then you do NOT eliminate!

You will show the intercompany items separately in the financial statements and also include a footnote disclosure.