Module 16

Question 1

What is the definition of a Trading security?

Answer 1

A debt or equity security bought and held principally for the purose of selling them in the near term?

Question 2

How is a trading security recorded on the balance Sheet?

Answer 2

It is reported at fair value

Question 3

How are unrealized holding gains and losses reported on the income statement for Trading securities?

Answer 3

They are included in earnings in the period in which they occur

Question 4

How are realized holding gains and losses reported in income for Trading Securities?

Answer 4

Realized gains and losses not allready recognized as unrealized components are recognized

Question 5

What section of the statement of cash flows do trading secutities appear?

Answer 5

Operating or Investing activities

Question 6

What is the definition of an Available for Sale Security?

Answer 6

They are debt or equity securities not classified as trading or held-to-maturity?

Question 7

How are available for sale securities recorded on the balance sheet?

Answer 7

They are reported at fair value classified as current or non-current.

Question 8

How are unrealized holding gains and losses reported on the income statement for Available for sale securities?

Answer 8

Unrealized gains and losses for a period are excluded from earnings. And reported as other comprehensive income.

Question 9

How are realized holding gains and losses reported in income for Available for Sale Securities?

Answer 9

Relized gains and losses are recognized in income

Question 10

What section of the statement of cash flows do available for sale securities appear?

Answer 10

Investing activities

Question 11

Temporary Losses on Available for Sale Securities are not recognized as loss?

Answer 11

TRUE

Question 12

What is the definition of a held to maturity security?

Answer 12

Debt securities that the organizaiton has the positive intent and ability to hold to the maturity date.

Question 13

How are held-to-maturity secutiyies recorded on the balance sheet?

Answer 13

They are reported at amortized cost and may be classified as current or noncurrent

Question 14

How are unrealized holding gains and losses reported on the income statement for held to maturity securities?

Answer 14

They are excluded from earnings (unless decline is “other than temporary”)

Question 15

How are realized gains and losses reported in the income statement for Held to maturity Securities?

Answer 15

Realized gains and losses are recognized in accordance with amortized cost method.

Question 16

What section of the statement of cash flows do held to maturity securities appear?

Answer 16

Investing activities

Question 17

What categories of investments are defined as ownership of less than 20%?

Answer 17

Trading securities, and available-for-sale.

Question 18

How are investment of 20-50% of the shares of stock treated?

Answer 18

Using the Equity Method

Question 19

How are investments of 50% or greater treated?

Answer 19

Using the Consolidated financial statements

Question 20

How are securities that are held to maturity treated if they are recategorizied as available for sale

Answer 20

You Report unrealized G/L as accumulated other comprehensie income

Question 21

How are securities that are held to maturity treated if they are recategorizied as trading securities

Answer 21

You recognize unrealized G/L imediatlely

Question 22

How are securities that are available for sale treated if they are recategorizied as held to maturity?

Answer 22

You report unrealized G/L as accumulated OCI - and you amoritize the gain or loss oer remaining life of security

Question 23

How are securities that are available for sale treated if they are recategorizied as trading securities?

Answer 23

You immedatitly recognize unrealized G/L

Question 24

How are securities that are Trading treated if they are recategorized as held to maturity?

Answer 24

Do not reverse unrealized G/L previously recognized in income.

Question 25

How are securities that are Trading treated if they are recategorized as available for sale?

Answer 25

Do not reverse unrealized G/L previously recognized in income.

Question 26

Investment where significant influence doees exist.

Answer 26

Even if you own less that 20%, if you are able to exercise significant influence you would still use the equity method.

Question 27

What is the cost adjusted for fair value method?

Answer 27

It is an Equity distinction that you 1st record the cost of the investment in the investment account. 2nd Income is recognized for dividends distributed from income (dividends distributed by the investee which exceed earnings since the acquisition date are classified as a return of capital and reduce the investment account.

Question 28

How are equity securities that are treated under the cost adjusted for fair value method treated?

Answer 28

Equity securities must be adjusted for subsequent changes in fair value, and he unrealized holding gain or loss on equity securities for the period equals the current fair vlaue minus the previous periods fair value on the books.

Question 29

How are items treated when an investor changes from the cost adjusted for fair vlaue method to the equity method?

Answer 29

The investment account must be adjusted retroactivly and prior year’s income and retained earnings must be retroactively restated.

Question 30

What is the accounting treatment for the fair value option?

Answer 30

The securities are revalued to fair value, and any gain/loss is recorded in earnings for the period.

Question 31

Are stock dividends and stock splits recorded in income?

Answer 31

No, the investor would make a memo entry to record the receipt of additional shares and reconpute the per share cost of the stock.

Question 32

What is the JE to record the cash surrender value of life insurance policies?

Answer 32

Dr. Insurance Expense (Plug) Dr. Cash surender value (The increase in CSV). Cr. Total Premium

Question 33

How is the Cash surrender value treated in the balance sheet?

Answer 33

It remains a noncurrent asset unless the company plans to cash in the policy withing the next period.