F3- Investments Flashcards
How are Available-For-Sale securities recorded on the Balance Sheet?
At Fair value as either Current or Non-current assets.
How are Available-For-Sale security Unrealized G/L treated?
Included in OCI
How are Unrealized G/L for Available-For-Sale securities that are reclassified to Held-to-Maturity or Trading Securities treated?
- HTM: Stockholder’s Equity
- Trading Securities: Current Period.
How are Held-to-Maturity securities recorded on the Balance Sheet?
Amortized cost as Current or Non-current assets.
How are Held-to-Maturity securities Unrealized G/L treated?
Trick question - Unrealized gains or losses are not applicable because they are HTM
How are Trading Securities recorded on the Balance Sheet?
At Fair Value as a Current Asset
Unrealized gains/losses are recorded on the Income Statement
If they are reclassified as held-to-maturity or available-for-sale- there is no effect upon transfer.
How are Trading Securities Unrealized G/L treated?
Recorded on the Income Statement
If they are reclassified as HTM or AFS - there is no effect upon transfer.
Trading Securities
- Both debt & Equity that are bought and held principally for the purpose of selling them in near term.
Available-for-Sale Securities
- Both- Debt & Equity not meeting the definitions of the other 2 classifications:
~ trading or held-to- maturity
Held-to-Maturity Securities
- Debt only
- Only if Corporation has a positive Intent & Ability to hold these securities to maturity.
Reclassification FROM Trading Category of Unrealized holding G/L at the date of transfer shall be recognized?
- Is already recognized in earnings and shall not be reversed.
Reclassification TO Trading Category of Unrealized holding G/L at the date of transfer shall be recognized?
In earnings immediately.
The unrealized holding Gain/Loss at the date of transfer of HTM to AFS be reported in & Amortized?
- In other comprehensive income.
- Amortized cost as a held-to-maturity security & is being transferred to a category valued at fair value.
Unrealized holding gain or loss at the date of transfer of AFS to HTM is reported & Amortized?
- Already reported in other comprehensive income.
- Amortized over remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount.
Impairment of Securities: If the decline in FV is other than temporary, the cost basis of the individual security is? [GAAP]
-Written down to FV as the new cost basis & the amount
Income Statement: Dividends distribution
- Record Cash dividends from investee’s retained earnings.
- Do Not recognize Stock dividends.
- Dividends to the investor/ Parent (from investee) are income (Earnings) to the Investor/Parent
BASE: ADD
B: Beg. Balance
A- Add: Investor’s Share of Investee’s Earning (like bank interest; it is income when earned, not when taken out.
S- Subtract: E- Ending Balance
Investee Calc. of income from Subsidiary to be reported on the income statements:
- Preferred Stock Dividends
- Share of earning avail. to common shareholders
( Net income reduced by preferred dividends)
Amortize asset FV difference (Premium) Over related asset life
- Excess of an asset FV over its book value is amortized over the Life of the asset
(excess caused by land is not amortized) - This additional amortization causes the investors share of the investee’s net income to Decrease.
Goodwill Difference- Not Amortized & No impairment Test
- NOT reported
- FV excess attributable is not amortized & is not subject to a separate impairment test.
- The total equity method investment (including goodwill) must be analyzed at least annually for impairment.
Income Statement: Dividends Distribution that exceeds invester’s share of the investee’s R/E ?
- Reduce basis/ return of capital distribution
BASE: Subtract
B: Beg. Balance A- ADD
S- Subtract: Investor’s share of investor dividends
(like bank withdrawals; and it is income)
E- Ending
- “Significant Influence” Test is generally met by?
- The amount of common stock owned
(which is usually the only voting stock)
