investments Flashcards
investments in debt and marketable equity securities that are not classified as trading securities or held-to-maturity securities. They are reported at fair value, and their unrealized holding gains and losses are excluded from earnings and reported as a separate component of shareholders’ equity. Available-for-sale securities may be either current or noncurrent.
available-for-sale securities
debt or marketable equity securities that are bought and held principally for the purpose of selling them in the near term. They are reported at fair value per FASB ASC 320-10-20, with unrealized gains and losses included in current period earnings. Trading securities are current assets. short term
Trading securities
under the fair value options, what amount should you recognize in the net income?
increase in fair value of the investment, and the amount of dividend received. Net income ins not included.
if it had been the equity method, the peacock would have included the income and the portion of dividend would have decreased the investment account.
A derivative financial instrument is best described as:
a contract that has its settlement value tied to an underlying notional amount.
There is an underlying or notional amount.
There is little or no initial net investment.
Its term requires or permits net settlement.
under FV method, all unrealized and realized gains and losses go to the income statemnt? T/F
True, and no valuation account is used.
trading securities, the basis is written to market every year, gains always go to income statement assuming company does not elect to use fair value method
yes, short term, current asset, on B/S at FMV.
available for sale, assuming the company does not elect the fair value option, the amount should go to accumulated OCI in stockholders’ equity
yes
realized loss always to go to the income statement? T/F
True
Anchor Co. owns 40% of Main Co.’s common stock outstanding and 75% of Main’s noncumulative preferred stock outstanding. Anchor exercises significant influence over Main’s operations. During the current period, Main declared dividends of $200,000 on its common stock and $100,000 on its noncumulative preferred stock. What amount of dividend income should Anchor report on its income statement for the current period related to its investment in Main?
An entity that exerts significant influence over another company in which it owns stock must use the equity method to account for its investment. Under this method, dividends received from an investee reduce the carrying amount of the investment but are not included in the income of the investor.
However, an investment in preferred stock does result in dividend income. Consequently, Anchor will report dividend income of $100,000 × 0.75 ($75,000).
Disclosure of information about significant concentrations of credit risk is required for:
all financial instruments.
both trading and available for sale are reported at fair value. T/F
True
An investor uses the cost method to account for an investment in common stock classified as an available-for-sale security. Dividends received this year exceeded the investor’s share of investee’s undistributed earnings since the date of investment. The amount of dividend revenue that should be reported in the investor’s income statement for this year would be:
the portion of the dividends received this year that were not in excess of the investor’s share of investee’s undistributed earnings since the date of investment.
Under the cost method, an investor reports only dividends received as revenue. Only distributions from undistributed earnings are considered dividends.
available for sale unrealized losses get debited to OCI
trading securities, unrealized losses or gains get recorded in the current period’s income. held to maturity do not record unrealized gains or losses.
Available-for-sale securities are investment securities
that are not classified as either Held-to-maturity security or as Trading securities.
