Lesson 9 Flashcards
What does instrument-by-instrument basis application mean?
When companies have to the option to report financial instruments at fair value, with gains and losses related to changes in fair value reported in the income statement.
What is gains trading?
Companies sell their “winners” reporting the gains in income, and hold on to the “losers”
What is CECL?
Current expected credit loss.
What does CECL model do?
It is use measure impairments in receivable and debt investments: held to maturity.
Available for sale investments don’t use CECL to measure for impairment. What do they do instead?
The company has two choices
1. they may realize the value of these securities either through collection of the cash flows or
2. by the sale of the securities.
When do companies recognized credit losses on an available for sale security?
When the security’s fair value is less than the amortized cost.
When do companies recognized credit losses on held for maturity securities?
A company can still report a credit loss when fair value is higher than amortized cost
Companies account for transfers between any of the categories (held to maturity, available for sales, and trading) at….?
Fair value.
At the date of transfer
Dublin Company holds a 30% stake in Club Company which was purchased in 2021 at a cost of $3,000,000. After applying the equity method, the Investment in Club Company account has a balance of $3,040,000. At December 31, 2021 the fair value of the investment is $3,120,000.
What is an acceptable value for Dublin to use in its balance sheet at December 31, 2021?
$3,040,000 and $3,120,000
If a company chooses to use the fair value option, it must measure this instrument at fair value until the company no longer has ownership. $3,040,000 and $3,120,000 are acceptable both representing Fair Value.
Where is a reclassification adjustment reported in?
Statement of comprehensive income as other comprehensive income.
The FASB prefers to show the reclassification amount in the accumulated other comprehensive income in the notes of the financial statements.
What does the fair value option allows a company to do?
Report most financial instruments at fair value at any point of time
If a company chooses to use the fair value option, it must measure this instrument at fair value until the company no longer has ownership.
