New Study Plan Flashcard Deck 3
An entity should report an investment in marketable equity securities that does not result in significant influence or control over the investee
FV with holding gains and losses included in earnings bc the result don’t have significant influence
If investor uses the equity method to account for an investment
Increases by the shares of earnings of the investee and decrease both earnings and losses of the investee
Is the equity method require if the investment is classified as held to sale?
No
Under the equity method are dividends reported for stock dividend or cash dividend?
Neither should be reported should be reported
Are preferred dividends declared?
Yes
Example would be 100,000 common stock noncumulative preferred stock x 75% = 75,000
How are dividends treated for investee?
They are treated as return on investment which decreases. the investments balance
How will the equity method to account for investments in common stock, the investment account will be increased when the investor recognizes ?
a proportionate interest in the net income of the investee
When there is a prior period adjustment does the result cause a change in accounting principal or the correction of an error?
Results from the correction of an error
A computation of earnings per share includes simple capital structure of the following?
Common Stock, preferred Stock and debt outstanding
Are interest and rent accrued or deferred for appropriate cost purposes ?
Yes for both Rent and interest
When AFS Securities are transferred into trading category and the unrealized holding gain or loss transferred are not recognized in earnings shall be
recognized in earnings immediately during the transfer
A material loss is not a component of current period income from continuing operations when it is
A cumulative effect change in accounting principle
How are credit losses on AR accounts adjusted retrospectively and prospectively?
propectively
Calc the carrying amount of long term investment using the using the effective interest method?
To calc the carrying value of the long term investment we need to first calc the carrying amount add the discount for Year 1 and 2
456,200 x 10% interest = 45,620
500,000 x 8% bonds = 40,000
45,620 - 40,000 = 5,620
CV 456,200 + discount 5,620 = 461,820 Year 1 carrying amount
When an account is previously written off and that is not expected to be collected. What changes that cause to allowance of credit loss and AR?
It increases the allowance of credit losses
Does the FV or the equity method recognize a cash dividends by increasing the investment balance?
Neither the FV or equity method increase FV or equity
Should an entity disclose credit risks to the F/S?
YES bc investors should know the risks that may be related to the business
Calc the cash balance bal per book?
Balance per bank statement 46,500
ADD - DEPOSITS 58.400
MINUS - DISBURSEMENTS 49,700
MINUS CHECKS - 7000
46,500 + 58,400 - 49,700 - 7000 = 48,200
When an investment in equity securities that does not result in significant influence or control over the investee
The FV with holding gains and losses included in earnings
The impact the write off on net income and total assets
Neither NI and Total Assets decrease
When the allowance method of recognizing uncollectible accounts is used and the accounts is PREVIOUSLY written off that not expected to be collected
Increased the allowance for the credit losses
Under the allowance method of recognizing credit losses on A/R the entry to write off an uncollectible account
Has no effect on Net Income
When the allowance method is used to recognize the credit losses on AR written off affect gross accounts receivable and the allowance for credit losses?
Debit - Cash 100
Credit - allowance for credit losses 100 (increase)
The gross AR isn’t affected
When there is a factored without recourse how is that transaction treated?
transaction is treated as a sale
Is the accrued interest receivable always equal to the face amount times the nominal rate?
To calc the carrying amount of investment at year end?
NI - 1,000,000 x 15% = 150,000
Dividends 500,000 x 15% = 75,000
150,000 - 75,000 = 75,000
CV 200,000 + 75,000 = 275,000
Is operating income not subjected to the application of intraperiod income tax allocation?
No
A material event that is unusal in nature or infrequent in occurrence should reported separately on the income statement as a component of income
Net of income tax is NOT reported however before results of discontinued operations
