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

How are realized gains and losses reported for HTM investments

Answer 8

Included in income for period

Question 9

How are brokerage fees and selling expenses treated for investment gain or loss

Answer 9

Included in calculation for sale of securities

Question 10

How is OCI changed when AFS investment is sold

Answer 10

Offset and unrealized loss in OCI

Question 11

What are trading securities

Answer 11

Securities held for current resale

Question 12

What are AFS securities

Answer 12

Securities not held for current resale and not HTM

Question 13

When is a gain reported for an AFS security

Answer 13

Only if security was sold for a price in excess of its cost

Question 14

How are permanent declines in AFS security value treated

Answer 14

Decline included in period income

Question 15

With AFS securities, how is a temporary decline in year 1 that becomes permanent in year two treated?

Answer 15

No effect on investment account

Credit OCI and debit Loss on income statement

Question 16

Where is dividend income reported

Answer 16

In income from continuing operations

Question 17

How are Nonmonetary assets received in a nonreciprocal transfer recorded

Answer 17

At FV of asset received

Question 18

How is a Nonmonetary asset to stockholder recorded

Answer 18

At FV of asset removed

Question 19

Where are Nonmonetary transactions recorded on the statement of cash flows

Answer 19

Under disclosures

Question 20

How is a dividend receive in excess of earrings reported

Answer 20

As a reduction of investment account

Question 21

How are inter company receivables and payables recorded for FV and equity method

Answer 21

Not eliminated, recorded as separate disclosures

Question 22

How is a transfer from AFS to HTM recorded

Answer 22

Report gain or loss as accumulated OCI amortized over life of security as adjustment to yield

Question 23

At what value is transfer of security reported between categories

Answer 23

Fair value

Question 24

How does an election to FV affect unrealized loss

Answer 24

all unrealized loss for year included in income

Question 25

How to calculate income from equity method investment

Answer 25

Investment company income x % owned - amortized cost over BV of assets from purchase (Depreciable assets only)

Question 26

Equity method calculate adjusted carrying value of investment

Answer 26

Cost + (company income x % owned) - amortized cost over BV from purchase - (dividends x % owned)

Question 27

Equity method earnings calculation with cumulative preferred dividends

Answer 27

Whether declared or not, earnings should be computed after deducting the investees cumulative preferred dividends

Question 28

Calculate dividend income for cumulative preferred stock

Answer 28

% owned x $ of stock outstanding x preferred dividend %

Question 29

Equity method - earnings affect which accounts

Answer 29

Increase investment account and increase income

Question 30

How are dividends recorded for AFS securities? Exceptions?

Answer 30

Dividends received are income to investor, no decrease in investment account unless dividend received had been in excess of earnings. Then decrease investment account

Question 31

Examples of equity method substantial influence

Answer 31

Majority of officers on board | Majority shareholder

Question 32

How to treat amortization of cost over BV if attributed to land or goodwill?

Answer 32

No amortization unless Depreciable

Question 33

How to account for change from non equity method to equity method

Answer 33

Restate financial statements to show like equity method was used all along. Income until equity method date x old owned% + income after equity method date x new owned %

Question 34

Equity method journal entry to record amortization due to cost in excess of BV attributed to equipment

Answer 34

DR investment revenue | CR investment

Question 35

Equity method journal entry for cash dividend

Answer 35

DR cash | CR investment

Question 36

Under equity method how are intercompany profit/loss, receivable and payables treated

Answer 36

Intercompany profit and loss eliminated | Intercompany receivables and payables recorded separately

Question 37

How are proportional stock dividends treated by various methods

Answer 37

Stock dividends not recognized as dividend income under any method

Question 38

How is cash dividend on preferred stock calculated

Answer 38

Shares x par x preferred dividend % Watch for dividends in arrears

Question 39

How is a receipt of stock rights recorded

Answer 39

Cost of investment is allocated between stock and rights based on fair value

Question 40

Life insurance - how is expense calculated

Answer 40

Cash paid - (ending CSV - beginning CSV) - cash dividend received

Question 41

Life insurance journal entry for dividends that increase CSV

Answer 41

DR CSV | CR insurance expense

Question 42

How is an increase in CSV reported

Answer 42

As a decrease in insurance expense

Question 43

How is life insurance gain calculated

Answer 43

Insurance proceeds received - CSV

Question 44

Under IFRS when can the fair value through profit and loss method be used

Answer 44

Only when security is traded in active market

Question 45

What are the investment categories under IFRS

Answer 45

Fair value through profit and loss, AFS, HTM