F3

Question 1

Debt securities be reported at the end of the year:
Held-to-maturity
Available-for-sale
Trading

Answer 1

HTM: Amortized Cost (Non-current)
AFS: Fair Value (Non-Current)
Trading: Fair Value (Current)

Question 2

Security does not intend to sell in the near term

Answer 2

Available for Sale

Question 3

Available for Sale

Answer 3

unrealized gain and loss => OCI

Realized gain and loss=> Net income

Question 4

Trading

Answer 4

Unrealized gain and loss=> Net income
Realized gain and loss=> Net income

Net income on continues operation

Question 5

If the the loss is considered permanent.

Answer 5

Record as realized loss =>Net income

Question 6

discount is not amortized

Answer 6

on short-term investments

Question 7

When marketable equity securities are transferred between trading and available-for-sale

Answer 7

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.

Question 8

Marketable debt securities that the company has the intent and ability to hold to maturity, both “long” and “short” term,

Answer 8

reported at carrying amount (amortized cost)

Question 9

Available-for-sale marketable equity securities are recorded at the fair value, and any temporary difference is reported as

Answer 9

“net unrealized loss on available-for-sale marketable equity securities” in other comprehensive income on the statement of stockholders’ equity.

Question 10

Trading securities

Answer 10

both debt( Bond) and equity, are to be reported at fair value at the end of the current reporting period.

Question 11

Realized gain on securities sold

Answer 11

Realized gain on securities sold = Sales price - Carrying value (ex: 12/31/1 FV)

Question 12

Unrealized loss in securities

Answer 12

Unrealized loss in securities acquired = Year-end market value - Cost

Question 13

When an available-for-sale security is determined to be impaired because of an other than temporary decline in fair value below cost,

Answer 13

the asset must be written down to the lower fair value by recording a loss that is recognized on the income statement.

Question 14

Stock will be sold next year

Answer 14

Classified as Trading

Question 15

AFS security has a unrealized loss

Answer 15

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.

Question 16

Under cost method, dividends (not earnings) are reflected as

Answer 16

as income by the investor

Question 17

Under IFRS, The increase for available-for-sale debt securities related to an impairment reversal will be report on

Answer 17

the income statement

Question 18

cost method,dividends in excess of earnings.

Answer 18

return of capital

Question 19

Under Cost method: The cost basis investment account is reduced only if:

Answer 19

• Shares of stock are sold, or
• Cumulative dividends exceed cumulative earnings (a return of capital), or
• Subsidiary incurs losses that substantially reduced net worth.

Question 20

Under the cost method, receipt of a dividend is

Answer 20

recorded as income and does not affect the investment account.

Question 21

equity method to account for its investment, stock dividend

Answer 21

As a memorandum entry reducing the unit cost of all Guard stock owned

Question 22

under the equity method,receipt of a dividend is

Answer 22

recorded as a reduction in the carrying amount of the investment on the balance sheet

Question 23

Stock dividends and stock splits

Answer 23

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.

Question 24

Once a cost method investor becomes an equity method investor

Answer 24

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.

Question 25

Under the equity method,

Answer 25

receipt of a dividend is recorded as a decrease in the investment account.

Question 26

Under the cost method

Answer 26

receipt of a dividend is recorded as income and does not affect the investment account.

Question 27

Preferred stock ownership

Answer 27

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.

Question 28

Undervalued asset amortization affects

Answer 28

both the investment account (an asset) and the investment income account (a revenue), while cash dividends affect the balance sheet investment account

Question 29

Equity method

Answer 29

Net income->earning-> I/S

Dividend->investment acct-> B/S

Question 30

Under both the cost and equity methods, liquidating dividends (return of capital)

Answer 30

reduce the carrying amount of the investment account

Question 31

Changing from the equity method to the cost method does not require retroactive adjustment.

Answer 31

The company should use the equity method for the first half of the year and the cost method for the second half

Question 32

The equity method can only be used

Answer 32

if the investor is able to exercise significant influence over the affairs of the investee

Question 33

Land FV>BV

Answer 33

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.