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F5 Flashcards

1
Q

financial asset

A
  • cash
  • evidence of ownership
  • contract to receive cash
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2
Q

financial liability

A

a contract that imposes the obligation to deliver cash or other financial instruments

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3
Q

under the fair value option, unrealized gains and losses are reported in

A

earnings

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4
Q

can you revoke the fair value option

A

no

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5
Q

fair value changes attributable to instrument specific credit risk

A

derivative liabilities recognize these changes in net income

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6
Q

once the financial liability is derecognized, any accumulated gain or losses in OCI are recognized in

A

earnings

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7
Q

debt securities include

A
  • corporate bonds
  • redeemable preferred stock
  • government securities
  • convertible debt
  • commercial paper
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8
Q

debt securities do not inclide

A
  • option, futures, or forward contracts
  • lease contracts
  • account and notes receivable
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9
Q

debt securities should be classified as one of these

A
  • trading securities
  • available for sale debt securities
  • held to maturity debt securities
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10
Q

trading securities

A

bought and held principally for the purpose of selling them in the near term
- active and frequent buying and selling
- current asset

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11
Q

available for sale debt securities

A
  • does not meet the other 2 classifications
  • can be current and non-current
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12
Q

held to maturity debt securities

A
  • only if the corporation has the positive intent and ability to hold these securities to maturity
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13
Q

debt securities classified as trading and AFS must be reported at

A

fair value

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14
Q

unrealized holding gains and losses on debt securities classified as trading securities are included in earnings. Therefore, the unrealized gain or loss on trading securities is recognized in

A

net income

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15
Q

unrealized holding gains and losses on AFS are recognized in

A

OCI

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16
Q

realized gains or losses are recognized in

A

Net income

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17
Q

held to maturity debt securities are reported at

A

amortized cos

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18
Q

are unrealized gains and losses on HTM securities recognized in financial statements

A

no

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19
Q

unrealized holding gain or loss from trading category at date of transfer

A

it is already recognized in earnings and shall not be reversed

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20
Q

unrealized holding gain or loss to trading category at date of transfer

A

must be recognized in earnings immediately

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21
Q

unrealized holding gain or loss from HTM to AFS at date of transfer

A

must be reported in OCI

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22
Q

unrealized holding gain or loss from AFS to HTM at date of transfer

A

already reported in OCI

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23
Q

interest income from an investment in debt securities classified as trading or AFS is recorded on

A

income statement

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24
Q

under the current expected credit losses model, AFS and HTM debt securities should be reported at

A

the net amount expected to be collected using an allowance for expected credit losses

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25
expected credit losses are determined based on the
current conditions, past experiences, and future expectation
26
a credit loss is recognized as a
current period expense on the income statement and as an offsetting allowance on the balance sheet
27
increase and decreases in expected credit losses are reflected o
the income statement in the period incurred when the estimate of expected credit losses changes
28
if impairment of HTM is determined that all amounts due (principal and interest) will not be collected on a debt investment reported at amortized cost, the investment should be reported at
present value of the principal and interest
29
a credit loss is
the difference between the present value and the amortized cost
30
credit loss for impairment of AFS is reported in
net income but is limited to the amount by which fair value is below amortized cost
31
a sale of a debt security from any category results in a realized gain or loss is recognized in
net income for the period
32
the realized gain or loss reported when a trading security is sold is the
difference between the adjusted cost (original cost plus or minus unrealized gains and losses previously recognized in net income) and the selling price
33
the unrealized gain or loss reported when a AFS debt security is sold is the
difference between the selling price and the original cost of the security. any unrealized gains or losses in accumulated OCI must be reversed at the time of sale
34
equity security
represents ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at a fixed or determinable prices
35
equity securities are generally carried at
fair value through net income
36
practicability exception
allows an entity to measure an equity investment at cost less impairment, plus/minus observable price changes
37
the practicability exception is applicable for
equity investments that do not have a readily determinable fair value
38
dividend income from an equity security investment is recognized in
net income. Unless the dividend is a liquidating dividend
39
liquidating dividend
a distribution that exceeds the investor's share of the investee's retained earnings
40
a liquidating dividend is a
return of capital that decreases the investor's basis in the investment
41
equity investments that do not have readily determinable fair values are measured at
cost minus impairment
42
when an impairment exists, the cost basis of the security is
written down to fair value and the amount of the write-down is accounted for as a realized loss and included in earnings
43
the sale of an equity security does not give rise to a gain or loss if
all changes in the equity's fair value have been reported in earnings as unrealized gains or losses as they occur
44
if an entity has not recorded an equity security's change in fair value up to the point of sale, a gain or loss is recorded at
the time of the sale equal to the difference between adjusted cost (original cost plus or minus unrealized gains and losses previously recognized in earnings) and the selling price
45
entities should disclose the portion of unrealized gains and losses for the period that
relates to the equity securities still held at the end of the reporting period
46
concentrations of credit risk
entities must disclose all significant concentrations
47
market risk
the possibility of loss from changes in market value
48
do entities have to disclose market risk
no but they are encouraged to disclose quantitative information about the market risk of financial instruments
49
significant influence
a company that owns 20-50% if voting stock of another "investee" company
50
equity method
used to account for investments if significant influence can be exercised
51
consolidated statements should be presented when
ownership is great than 50% and there is control over the investee
52
in the equity method the investment is originally recorded at
the price paid to acquire the investment
53
if an investor owns both common and preferred stock
the significant influence test is generally met
54
the fair value excess attributable to goodwill is not
amortized and is not subject to a separate impairment test
55
the total equity method investment (including goodwill) must be
analyzed at least annually for impairment
56
an impairment loss on an equity method investment is recognized on the income statement when
- the fair value of the investment falls below the carrying value - the entity believes the decline in value is other than temporary
57
consolidated/parent status
when control over an investee is established or more than 50% of the voting stock of the investee has been acquired
58
controlling interest
an investor owning more than 50% of a subsidiary
59
noncontrolling interest
the portion of the equity of a subsidiary that is not attributable to the parent
60
noncontrolling interest is reported at
the fair value in the equity section of the consolidated balance sheet
61
acquisition method
- 100% if the net assets acquired are recorded at fair value - when the companies are consolidated the subsidiary's entire equity is eliminated
62
what is eliminated during consolidation
- common stock - APIC - RE - investment in sub
63
NCI
this is created during consolidation
64
if one member of the consolidated group acquires an affiliate's debt from an outsider, the debt is considered to be
retired and a gain/loss is recognized on the consolidated income statement
65
interecompany interest
eliminate intercompany interest
66
amortization of discount or premium
eliminate amortization of the discount or premium
67
intercompany sale of land
the gain/loss on the sale of land remains unrealized until the land is sold to an outsider
68
the gain or loss on the intercompany sale of a depreciable asset is unrealized from a consolidated financial statement perspective until the
asset is sold to an outsider
69
GAAP formation of a partnership
use FV of assets
70
Tax rule formation of a partnership
use NBV of assets
71
how do you handle a bonus method
balance in total capital accounts controls the capital account allocation
72
the existing partner is credited in a bonus method if
the new partner pays more than NBV
73
the new partner is credited in a bonus method if
the new partner pays less than NBV
74
where does goodwill go
going in investment (dollars) controls capital account allocation and goodwill calculation
75
what creditors get paid in liquidation
creditors, including partners who are creditors, must be paid before the noncreditor partners receive any payment
76
operating cash flows
cash receipts and disbursements from transactions reported on the income statement and current assets and current liabilities
77
investing cash flows
cash receipts and disbursements from non-current assets
78
financing cash flows
cash receipts and disbursements from debt
79
operating activities
CLAD - current assets and liabilities - losses and gains - amortization and depreciation - deferred items
80
investing activities
- making loan - trading securities, AFS, HTM - acquiring and disposing of PPE - acquiring another entity
81
financing activities
- stock - dividend - bonds - notes - principal
82
DTL
future tax income > future financial income
83
DTA
Future tax income < future accounting income
84

FAR (6 decks)

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