Far 4 - Marketable Securities Flashcards
What are Held-for-Trading(HFT) securities?
Securities purchased and held for the short term only
Define Available-for-Sale securities
Securities that are purchased and held for the longer term;not meant for sale, but can be sold
Define Held-to-Maturity Securities
Securities that are held till they fully mature, meaning bonds.
To what statement do realized gains and losses belong
Income
To what statement to unrealized gains and losses of HFT securities belong?
Income Statement
Journal entry for purchasing HFT security
DR Investment in trading securites, CR Cash
Are HFT Securities held at FMV?
Initiallly recorded at cost, carried at FMV
Which are current and which are non-current: HFT, AFS, & HTM
HFT-current, AFS-current/non-current, HTM-non-current till last year, then current
HFT Securities are what type of activity: Operating, Investing or Financing?
Operating
AFS Securities Securities are what type of activity: Operating, Investing or Financing?
Investing
HTM Securities Securities are what type of activity: Operating, Investing or Financing?
Normally Investing
How are AFS securities valued?
FMV
How are HTM Securites valued?
Amortization
What is general approach to reclassifying between HFT and AFS marketable securities?
Treat them as being sold from portfolio they are leaving and being repurchased at market value of portfolio they are entering
Reclassifying between HFT and AFS securities
- Reclassify as FMV
- Difference is treated as a realized gain/loss on I/S
- Eliminate any related valuation accounts
Reclassifying between HTM & AFS securites
- Reclassify at FMV
- IF HTM to AFS then record in OCI
- IF AFS to HTM report unrealized gain/loss on B/S as part of OCI and amortized over remaining life
Unrealized gains/losses on AFS Securities when FMV is elected are reported where?
As a component of income from continuing operations
Unrealized gains/losses on trading securities meant for the short term are reported where?
As a component of income from continuing operations
Journal entry-rise in value of HFT securities
DR Trading securities, CR unrealized gain on trading securities
Journal entry-drop in value of HFT securities
DR unrealized loss on trading securities, CR Trading Securities
Journal entry for rise in value of AFS securities
Debit AFS Securities, CR unrealized gain on AFS securities
Journal entry for drop in value of AFS Securities
DR Unrealized loss of AFS securities, CR AFS securities
If a trading security experiences an “other than temporary loss”, where and how is it recorded?
Income statement, and FMV basis is written down.
On disposal of an AFS Security, how is loss or gain figured?
Cost minus sale price
To what statement to unrealized gains and losses of AFS securities belong?
Balance sheet
To what statement to realized gains and losses of HTM securities belong?
Income Statement
To what statement to realized gains and losses of HFT securities belong?
Income statement
To what statement to unrealized gains and losses of AFS securities belong?
Balance sheet
G/L amounts for AFS securities reported in OCI represent what time frame?
Current period
G/L amounts for AFS securities reported in Owners Equity represent what time frame?
Cumulative
What is stated rate of interest?
The amount of interest stated that a bond will pay you.
What is effective interest rate?
The amount of interest actually received from a bond including compounding.
How does accrued interest affect a bond’s purchase price?
Total price minus accrued interest. For example, a $250,000 bond with $60,000 accrued interest would cost $190,000
HFT gains or losses are shown on the I/S. Where is the other “half” of this entry located?
ON the B/S in the current asset section.
What is a market valuation account?
The other half of a gain or loss entry
G/L for HFT are shown on I/S in what section?
Income from continuing operations
G/L for AFS are shown in what section on what statement?
On B/S as a part of comprehensive income in equities section
Allowance account for G/L for AFS are shown in what section on which statement?
B/S in asset section
What is the other half of a unrealized G/L entry called?
An allowance account
How are valuation allowance accounts treated on HFT to AFS reclassification?
They are eliminated and totals are converted to realized losses and gains
HFT Unrealized G/L appear on what statement?
Income statement
What statement does AFS unrealized G/L appear?
Balance sheet
Is a liquidating dividend dividend income?If not, Why?
It is recognized as a return of instead OF a return ON investment, and reduces the investment account
In the equity method what does a dividend revenue do?
It lowers the investment account. DR Cash, CR investment.
If an investment is accounted for in the equity method, what items are listed in the income section?
Changes in value of the investment and dividend revenue
What word contained in an mcq is a sign of an unrealized gain or loss?
“Record”
In IFRS when using fair value through profit and loss how are HTM securities calculated?
Difference between cost and fair value.
In IFRS when using fair value through profit and loss how are HFT securities calculated?
Difference between cost and fair value.
What is a differential?
Difference between the cost of an investment and the carrying value of its net assets. It is periodically amortized to reduce investment account
When is the cost method used?
- 0-20% ownership
- no marketable price exists
Explain cost method
- original investment recorded @ cost
- adjusts carrying amount for subsequent changes in FMV
- records dividends as income.
- if dividends > share of income since acquisition excess treated as liquidating div & reduces investment account.
What is cash surrender value in life insurance?
What you receive in cash if you terminate the whole life policy.
Show journal entry for life insurance.
Cash surrender value. xx
Insurance expense. xx
Cash xx
What can cause deferred tax liability?
When earnings are undistributed and the 80% Dividends receive deduction kicks in. A portion of the undistributed income wil eventually become dividend income, and get taxed.
When the fair value option is chosen for marketable securities what items will be listed on the income statement?
- Changes in fair value
2. Dividends
Using the equity method of accounting how should an investor list a receivable? Where should it be shown at?
It should be listed on the B/S and completely separate from other receivables.
