F3 Flashcards
Debt securities be reported at the end of the year:
Held-to-maturity
Available-for-sale
Trading
HTM: Amortized Cost (Non-current)
AFS: Fair Value (Non-Current)
Trading: Fair Value (Current)
Security does not intend to sell in the near term
Available for Sale
Available for Sale
unrealized gain and loss => OCI
Realized gain and loss=> Net income
Trading
Unrealized gain and loss=> Net income
Realized gain and loss=> Net income
Net income on continues operation
If the the loss is considered permanent.
Record as realized loss =>Net income
discount is not amortized
on short-term investments
When marketable equity securities are transferred between trading and available-for-sale
the transfer is made at fair value, and the difference is recorded as unrealized loss and charged to the income statement. The new carrying amount becomes the basis for any future gain or loss.
Marketable debt securities that the company has the intent and ability to hold to maturity, both “long” and “short” term,
reported at carrying amount (amortized cost)
Available-for-sale marketable equity securities are recorded at the fair value, and any temporary difference is reported as
“net unrealized loss on available-for-sale marketable equity securities” in other comprehensive income on the statement of stockholders’ equity.
Trading securities
both debt( Bond) and equity, are to be reported at fair value at the end of the current reporting period.
Realized gain on securities sold
Realized gain on securities sold = Sales price - Carrying value (ex: 12/31/1 FV)
Unrealized loss in securities
Unrealized loss in securities acquired = Year-end market value - Cost
When an available-for-sale security is determined to be impaired because of an other than temporary decline in fair value below cost,
the asset must be written down to the lower fair value by recording a loss that is recognized on the income statement.
Stock will be sold next year
Classified as Trading
AFS security has a unrealized loss
Unrealized holding loss-OCI
Investment account
next year sold for the exact same loss, the company would need to eliminate this unrealized loss from OCI by crediting it and record a realized loss on the income statement by debiting it.
Under cost method, dividends (not earnings) are reflected as
as income by the investor
Under IFRS, The increase for available-for-sale debt securities related to an impairment reversal will be report on
the income statement
cost method,dividends in excess of earnings.
return of capital
Under Cost method: The cost basis investment account is reduced only if:
- Shares of stock are sold, or
- Cumulative dividends exceed cumulative earnings (a return of capital), or
- Subsidiary incurs losses that substantially reduced net worth.
Under the cost method, receipt of a dividend is
recorded as income and does not affect the investment account.
equity method to account for its investment, stock dividend
As a memorandum entry reducing the unit cost of all Guard stock owned
under the equity method,receipt of a dividend is
recorded as a reduction in the carrying amount of the investment on the balance sheet
Stock dividends and stock splits
are not considered income to the recipient
Investors do not record stock dividends at fair value. They simply reallocate the investment account balance (under either method – cost or equity) over more shares so that value per share decreases.
Once a cost method investor becomes an equity method investor
the investment account must retroactively reflect the proportionate share of investee income recognized at each percentage level investment. Thus, 10% of Iona’s income from January 1 through July 31 and 40% of Iona’s income from August 1 through December 31 must be reported as earnings by Point.
Under the equity method,
receipt of a dividend is recorded as a decrease in the investment account.
Under the cost method
receipt of a dividend is recorded as income and does not affect the investment account.
Preferred stock ownership
does not allow the investor to exercise influence, so the preferred stock investment is accounted for using the cost method and the preferred stock dividends of $60,000 are recorded as dividend revenue on the income statement.
Undervalued asset amortization affects
both the investment account (an asset) and the investment income account (a revenue), while cash dividends affect the balance sheet investment account
Equity method
Net income->earning-> I/S
Dividend->investment acct-> B/S
Under both the cost and equity methods, liquidating dividends (return of capital)
reduce the carrying amount of the investment account
Changing from the equity method to the cost method does not require retroactive adjustment.
The company should use the equity method for the first half of the year and the cost method for the second half
The equity method can only be used
if the investor is able to exercise significant influence over the affairs of the investee
Land FV>BV
Since the difference between book value and fair market value on land is not amortized, the difference in the land value would have no effect on equity in earnings.
