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 (Other Comprehensive Income)

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.

If reclassified as AFS - Unrealized G/L go to Stockholder’s Equity

If reclassified as Trading Securities - Unrealized G/L recognized in Current Period

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

Investment in Bonds - classified as HTM

How to account for changes in fair value?

Answer 8

Changes is fair value is not recognized
unless it is impairment
Requires a footnote disclosure only

Do not include in the computation of unrecognized gain/loss (if given together with other securities in the problem)

Question 9

In the equity method, what is the JE for dividends received on CS and PS assuming the entity exercises significant control over the investee?

declared 100,000 dividends on CS
declared 60,000 dividends on PS non cum
% owned for PS 100%
% owned for CS 30%

Answer 9

Cash 30,000
Investments 30,000
#CS dividends under equity method

Cash 60,000
Dividend income 60,000
#PS dividends

Question 10

JE - bonds HTM straight line method

Quick calculation of carrying value if straight line is used

Answer 10

Carrying value @ acquisition
Less: Premium/Discount amort

just get the ratio of # of months lapsed over
total # of months

Question 11

Secured borrowings are measured at

Answer 11

FV

Question 12

Servicing assets are measured at

Answer 12

FV

Question 13

Pledges of collateral are measured at

Answer 13

FV

Question 14

Financial assets subject to prepayment are measured

Answer 14

like debt securities classified as available-for-sale or trading.