F3- Investments Flashcards

1
Q

How are Available-For-Sale securities recorded on the Balance Sheet?

A

At Fair value as either Current or Non-current assets.

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2
Q

How are Available-For-Sale security Unrealized G/L treated?

A

Included in OCI

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3
Q

How are Unrealized G/L for Available-For-Sale securities that are reclassified to Held-to-Maturity or Trading Securities treated?

A
  • HTM: Stockholder’s Equity

- Trading Securities: Current Period.

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4
Q

How are Held-to-Maturity securities recorded on the Balance Sheet?

A

Amortized cost as Current or Non-current assets.

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5
Q

How are Held-to-Maturity securities Unrealized G/L treated?

A

Trick question - Unrealized gains or losses are not applicable because they are HTM

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6
Q

How are Trading Securities recorded on the Balance Sheet?

A

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.

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7
Q

How are Trading Securities Unrealized G/L treated?

A

Recorded on the Income Statement

If they are reclassified as HTM or AFS - there is no effect upon transfer.

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8
Q

Trading Securities

A
  • Both debt & Equity that are bought and held principally for the purpose of selling them in near term.
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9
Q

Available-for-Sale Securities

A
  • Both- Debt & Equity not meeting the definitions of the other 2 classifications:

~ trading or held-to- maturity

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10
Q

Held-to-Maturity Securities

A
  • Debt only

- Only if Corporation has a positive Intent & Ability to hold these securities to maturity.

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11
Q

Reclassification FROM Trading Category of Unrealized holding G/L at the date of transfer shall be recognized?

A
  • Is already recognized in earnings and shall not be reversed.
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12
Q

Reclassification TO Trading Category of Unrealized holding G/L at the date of transfer shall be recognized?

A

In earnings immediately.

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13
Q

The unrealized holding Gain/Loss at the date of transfer of HTM to AFS be reported in & Amortized?

A
  • In other comprehensive income.

- Amortized cost as a held-to-maturity security & is being transferred to a category valued at fair value.

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14
Q

Unrealized holding gain or loss at the date of transfer of AFS to HTM is reported & Amortized?

A
  • 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.
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15
Q

Impairment of Securities: If the decline in FV is other than temporary, the cost basis of the individual security is? [GAAP]

A

-Written down to FV as the new cost basis & the amount

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16
Q

Income Statement: Dividends distribution

A
  • 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
17
Q

BASE: ADD

A

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

18
Q

Investee Calc. of income from Subsidiary to be reported on the income statements:

A
  • Preferred Stock Dividends
  • Share of earning avail. to common shareholders
    ( Net income reduced by preferred dividends)
19
Q

Amortize asset FV difference (Premium) Over related asset life

A
  • 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.
20
Q

Goodwill Difference- Not Amortized & No impairment Test

A
  • 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.
21
Q

Income Statement: Dividends Distribution that exceeds invester’s share of the investee’s R/E ?

A
  • Reduce basis/ return of capital distribution
22
Q

BASE: Subtract

A

B: Beg. Balance A- ADD
S- Subtract: Investor’s share of investor dividends
(like bank withdrawals; and it is income)

E- Ending

23
Q
  • “Significant Influence” Test is generally met by?
A
  • The amount of common stock owned

(which is usually the only voting stock)