F3 NoteCards Flashcards
Held-to-maturity securities reported at what?
Amortized Cost
Available-for-sale securities reported at what?
Fair Value, with unrealized gains/losses (from cost to market) reported as a component of OCI
Trading securities reported at what?
Fair Value, with holding gains and losses (from one year to the next) included in earnings on the Income Statement
Trading Securities definition
- Can be debt or equity securities
- Bought and held principally for the purpose of selling them in the near term (current assets)
Available-For-Sale Securities definition
- Can be debt or equity securities-
- Doesn’t meet the other two classifications (usually noncurrent assets)
Held-to-Maturity Securities definition
- Debt securities only
- Company has positive intent and ability to hold these securities to maturity
IFRS: Unrealized Gains/Losses Rule
- Unrealized gains/losses for all AFS securities reported as OCI
- Foreign Exchange gains/losses for AFS Equity securities reported as OCI
- Foreign Exchange gains/losses for AFS DEBT securities reported on I/S
2 exceptions to not reporting consolidated statements:
1- Subsidiary is in legal reorganization
2- Subsidiary is in bankrupt
When AFS security is determined to be impaired due to a permanent decline in fair value,
Asset must be written down to the lower fair value by recording a loss recognized in the earnings section of the income statement
A held-to-maturity bond is reported at what?
It’s carrying value
3 Degrees of Control for Consolidation
1- No Significant Influence (0%-20%)- do not consolidate - cost method
2- Significant Influence (20%-50%)- do not consolidate - equity method
3- Control (<50%) - consolidate - cost or equity method
Dividend Income
Just cash received. If stock dividend granted, not included in dividend income. Stock dividend gets memo entry only
If a company owns less than 20% of stock and does not exercise significant influence, what method is used?
Cost Method
If a company owns less than 20% of stock but DOES exercise significant influence, what method is used?
Equity Method
Cost Method is also known as:
Fair Value Method or Available-for-Sale Method
Cost Method: carrying amount of the investments account stays the same from the date of acquisition unless:
1- Shares of stock in the investee are purchased/sold
2- There is an accumulated dividend in excess of accumulated earnings resulting in a return of capital (liquidating dividend)
3- Basis is adjusted to FV as required by marketable equity securities
4- Investee incurs losses that substantially reduce net worth
The “Investment in Investee” is NOT adjusted for:
Investee earnings
The “Investment in Investee” is adjusted to:
Fair Value
Cash dividends from the investee are reported as:
Income by the investor (parent)
Are stock dividends and stock splits considered income to the recipient?
No.
Criteria for using equity method
-Investor exerts significant influence over operating and financial policies of invested
OR
-Ownership of 20%-50% of investee’s voting stock
Equity Method: investment originally recorded at:
Price paid to acquire the investment
Investment account is adjusted as:
Income is earned and dividends are paid
Equity Method not appropriate when:
- Bankruptcy
- Investment is temporary
- Lawsuit/complaint filed
