F3- Investments

Question 1

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

Answer 1

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

Question 2

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

Answer 2

Included in OCI

Question 3

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

Answer 3

• HTM: Stockholder’s Equity

- Trading Securities: Current Period.

Question 4

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

Answer 4

Amortized cost as Current or Non-current assets.

Question 5

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

Answer 5

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

Question 6

How are Trading Securities recorded on the Balance Sheet?

Answer 6

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.

Question 7

How are Trading Securities Unrealized G/L treated?

Answer 7

Recorded on the Income Statement

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

Question 8

Trading Securities

Answer 8

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

Question 9

Available-for-Sale Securities

Answer 9

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

~ trading or held-to- maturity

Question 10

Held-to-Maturity Securities

Answer 10

• Debt only

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

Question 11

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

Answer 11

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

Question 12

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

Answer 12

In earnings immediately.

Question 13

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

Answer 13

• In other comprehensive income.

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

Question 14

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

Answer 14

• 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.

Question 15

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

Answer 15

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

Question 16

Income Statement: Dividends distribution

Answer 16

• 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

Question 17

BASE: ADD

Answer 17

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

Question 18

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

Answer 18

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

Question 19

Amortize asset FV difference (Premium) Over related asset life

Answer 19

• 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.

Question 20

Goodwill Difference- Not Amortized & No impairment Test

Answer 20

• 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.

Question 21

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

Answer 21

• Reduce basis/ return of capital distribution

Question 22

BASE: Subtract

Answer 22

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

E- Ending

Question 23

• “Significant Influence” Test is generally met by?

Answer 23

• The amount of common stock owned

(which is usually the only voting stock)