Investments

Question 1

What factors need to be considered for significant influence?

Answer 1

1. Significant intercompany transactions
2. Officers of investor serving as officers or board members of investee
3. Investor is major customer or supplier of investee
4. Investor owns at least 20% of stock (unless another investor own majority)
5. Investor has plans to increase ownership to 20%

Question 2

What are steps to determine impairment?

Answer 2

1. Determine if investment is impaired
2. Evaluate if impairment is Other than Temporary
   If Other than Temporary, recognize loss = FV - cost in earnings

Question 3

How do you reclassify between Trading and AFS securities?

Answer 3

Reclassify at FMV

Realized G/L on I/S

Question 4

How do you reclassify from AFS to HTM securities?

Answer 4

Reclassify at FMV

Unrealized G/L on B/S in Comprehensive Income, amortize over remaining life

Question 5

How do you reclassify from HTM to AFS securities?

Answer 5

Reclassify at FMV

Record in OCI

Question 6

How do you apply fair value option to investments?

Answer 6

AFS - unrealized G/L reported as part of Net Income, NOT OCI
Trading - same treatment
HTM - CV adjusted to FV at B/S date, difference reported at part of Net Income

Question 7

How do you apply fair value option to investments accounted for under equity method?

Answer 7

Measure at FV at B/S date

Recognize G/L for changes, net of % dividends received