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Financial Accounting Reporting > F5 M1 > Flashcards

F5 M1 Flashcards

Financial instruments

1
Q

fair value option

A

-entities can choose fair value option on instruments not typically measured at FV
-unrealized gains and losses reported in earnings
-cannot change out of the fair value option

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2
Q

financial assets and liabilities eligible for fair value option

A

1) debt investment otherwise classified as AFS
2) equity investment

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3
Q

financial assets and liabilities NOT eligible for fair value option (IV PLED)

A

1) investments in subsidiaries
2) VIES required to consolidate
3) pension benefits assets and liabilities
4) leases
5) deposit liabilities of financial institutions
6) equity financial instruments

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4
Q

fair value changes in instrument specific credit risk

A

-part of the change in fair value related to instrument specific credit risk recognized in OCI
-derivative liabilities recognize it in net income
-once liability derecognized, and remaining AOCI gains and losses recognized in earnings

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5
Q

when can a fair value option be applied?

A

1) date entity recognizes an eligible financial instrument
2) investment treated under equity method accounting
3) date entity stops consolidating investment in subsidiary or VIE

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6
Q

trading securities

A

-securities bought and held for purpose of selling it in near term
-generally reported as current assets (sometimes non-current assets)
-gains and losses (realized and unrealized) reported in net income

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7
Q

available for sale security

A

-not an AFS or HTM
-holding a security for an indefinite period of time
-reported current assets or non-current assets
-unrealized gains and losses reported in OCI
-realized gains and losses move to earnings

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8
Q

held to maturity

A

-entity has intent to hold security to maturity
-reported as current or non-current assets
-no gains and losses are reported

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9
Q

when can the HTM security classification not be used?

A

when an entity cannot get nearly all of the money it anticipated from its investment

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10
Q

how are trading securities and AFS securities measured at?

A

fair value

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11
Q

what is a HTM security measured at?

A

amortized cost

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12
Q

what is fair value?

A

the market price of a security a buyer and seller would pay and accept for it

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13
Q

unrealized holding gain for trading securities journal entry

A

Dr. Valuation account
Cr. Unrealized gain on trading securities

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14
Q

unrealized holding loss for trading securities journal entry

A

Dr. Unrealized loss on trading securities
Cr. Valuation account

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15
Q

unrealized holding gain for AFS journal entry

A

Dr. Valuation account
Cr. Unrealized gain on AFS

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16
Q

unrealized holding loss for AFS journal entry

A

Dr. Loss on AFS
Cr. Valuation account

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17
Q

realized gains and losses for trading securities and AFS

A

-occurs when debt security is sold OR AFS security deemed to be impaired
-realized gains and losses recorded in net income

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18
Q

are HTM unrealized gains and losses recognized?

A

No, because they are not marked to market

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19
Q

security transferring out of trading category

A

unrealized gains and losses already recognized in I/S, no adjustment to be made

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20
Q

security transferring to trading category

A

unrealized hold gains and losses recognized in earnings immediately

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21
Q

HTM to AFS transfer

A

unrealized holding gains and losses recorded in OCI

22
Q

AFS to HTM transfer

A

amortize gains and losses from OCI with any bond premium or discount amortization

23
Q

journal entry to record interest income on trading or AFS security

A

Dr. Cash
Cr. Interest income

24
Q

credit losses under CECL?

A

-determined based on past, current and future conditions
-recognized as current expense on I/S and allowance on B/S
-increases and decreases in credit loss changes reflected in I/S

25
Q

impairment for HTM

A

=the PV of expected cash flows (includes PV of loan and PV of interest payments) - amortized cost
-loss reported on net income

26
Q

impairment of AFS

A

=fair value - amortized cost
-credit loss reported on net income
-any additional unrealized loss reported in OCI

27
Q

impairment of AFS and there is a loss

A

1) fair value - amortized cost
2) the PV of expected cash flows - amortized cost = expected credit loss
3) remainder is unrealized holding loss on AFS

28
Q

journal entry for allowance on credit loss if loss is less than expected credit loss calculation

A

Dr. Credit loss
Cr. Allowance for credit losses

29
Q

journal entry for allowance on credit loss if loss is greater than expected credit loss calculation (AFS)

A

Dr. Credit Loss (PV of expected future cash flows - amortized cost)
Dr. Unrealized loss on AFS (total loss - expected credit loss calc)
Cr. Allowance for credit losses (PV of expected future cash flows - amortized cost)
Cr. Valuation account (total loss - expected credit loss calc)

30
Q

journal entry for sale of trading security

A

Dr. Cash
Cr. Trading security
Cr. Realized gain on trading security

31
Q

realized gain or loss on trading security calculation

A

selling price - adjusted cost

Note: adjusted cost (original cost +/- unrealized holding gains or losses previously recognized in net income)

32
Q

journal entry for sale of AFS security

A

Dr. Cash
Dr. Unrealized gain on AFS
Cr. AFS
Cr. Realized gain on AFS

33
Q

realized gain or loss on AFS calculation

A

= selling price - original cost of security

Note: any unrealized holding gains and losses recorded in AOCI should be reversed at time of sale

34
Q

equity security

A

-an ownership interest in an enterprise or right to get or dispose of interest in an entity

35
Q

put options

A

right to dispose of ownership shares

36
Q

equity securities are valued at

A

fair value through net income

37
Q

practicability exception to FVTNI can be used for:

A

equity investments that do not have determinable fair value

38
Q

unrealized loss on equity security journal entry

A

Dr. Unrealized loss on equity security
Cr. Valuation account

39
Q

unrealized gain on equity security journal entry

A

Dr. Valuation account
Cr. Unrealized gain on equity security

40
Q

treatment of non-liquidating and liquidating dividends for equity securities

A

-dividends treated as dividend income if a non-liquidating dividend
-liquidating dividends treated as return of capital and reduce investor’s basis in investment

41
Q

journal entry for non-liquidating dividend

A

Dr. Cash
Cr. Dividend income

42
Q

journal entry for liquidating dividend

A

Dr. Cash (dividend * % ownership)
Cr. Dividend income (RE * % ownership)
Cr. Investment in Investee (plug)

43
Q

equity investment valued if fair value not determinable

A

= cost - impairment

Note: if impairment exists, cost is written down to fair value and write down considered as realized loss in earnings

44
Q

instances where equity investment considered impaired

A

1) going concern (noncompliance to debt)
2) adverse changes in industry, geography, tech etc.
3) significant decline in earnings, business prospects etc.
4) offers to buy from investee for less than investor’s carrying value

45
Q

sale of equity security journal entry (no gain or loss)

A

Dr. Cash
Cr. Equity security

46
Q

sale of equity security with a gain journal entry

A

Dr. Cash
Cr. Gain on equity security
Cr. Equity security

47
Q

AFS and HTM items disclosed in notes to F/S

A

1) aggregate fair value
2) gross unrealized holding gains and losses
3) amortized cost basis by major security type
4) info about contractual maturities of debt securities

48
Q

disclosure for equity securities and calculation

A

-unrealized holding gains and losses during reporting period

Calculation:
Net gains and losses recognized during period on equity securities
(Net gains and losses recognized during period on equity securities sold)

49
Q

disclosures for entities opted for practicability exception

A

1) carrying amt of investments without readily determinable FV
2) any impairment charges during period
3) adjustments to carrying value from price changes to reflect FV of security

50
Q

disclosure of concentration credit risks

A

-risk of loss from failure or another party to meet contract terms
-concentration of credit risk occurs when entity has contracts of material value with parties in same industry
-disclosures apply to all entities (except nonpublic entities < $100M and no derivatives)

51
Q

market risk disclosure

A

-risk of loss due to changes in market value
-entities not required (encouraged) to disclose quantitative info of market risks of financial instruments

Financial Accounting Reporting (34 decks)

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