No Significant Influence

Question 1

At what cost are held-to-maturity securities carried and reported?

Answer 1

At amortized cost

Question 2

What investments are classified as available-for-sale?

Answer 2

Any debt or equity investments not classified as either Held-to-Maturity or Held-for-Trading. The Available-for-Sale category is the default category if an investment in debt or equity does not meet the requirements of either Held-to-Maturity or Held-for-Trading

Question 3

Where are held-to-maturity investments reported on the statement of cash flows?

Answer 3

Investing Activity

Question 4

Where are unrealized holding gains and losses on investments held-for-trading reported?

Answer 4

In income (Income Statement) as part of Income from Continuing Operations.

Question 5

What method is used to amortize a premium or discount on a security?

Answer 5

Effective interest method or straight-line method if not materially different.

Question 6

What amounts are included in a gain or loss recognized on the sale of an available-for-sale investment?

Answer 6

The gain or loss recognized on the sale of an available-for-sale investment includes:

1. )The difference between the carrying value of the investment and its selling price; and
2. )Any unrealized gain or loss in Accumulated Other Comprehensive Income related to the securities sold.

Question 7

What amounts should be included in the initial recording of a held-for-trading investment?

Answer 7

Purchase price of security;

Directly related cost of acquisition, e.g., brokerage fee, transfer fee, etc.

Question 8

List the criteria for held-for-trading securities

Answer 8

1. )Applies to investments in Debt and Equity;
2. )Investor buys for the purpose of selling in the near term w/ the objective of generating profits on short term price changes

Question 9

How are held-for-trading investments carried and reported?

Answer 9

At fair value, with changes in fair value reported in current income. For debt securities recognize periodic interest income and for equity, recognize dividends received as income

Question 10

Under what conditions can a debt security sold before maturity be considered held to maturity?

Answer 10

Under what conditions can a debt security sold before maturity be considered held to maturity?

Question 11

How is interest earned on held-to-maturity investments reported in the income statement?

Answer 11

As an Other Income item in the income statement.

Question 12

What amounts should be included in the initial recording of a held-to-maturity investment?

Answer 12

1. )Purchase price of security;
2. )Directly related cost of acquisition, e.g., brokerage fee, transfer fee, etc.;
3. )Accrued interest, if any, is not included in the cost of the investment.

Question 13

How are available-for-sale investments accounted for and reported in financial statements?

Answer 13

1. )Recognize interest income (one debt securities)/dividends (on equity securities);
2. )Amortize discount or premium, if any, on debt securities;
3. )Adjust investment to fair value at balance sheet date with any gain/loss reported as an item of other comprehensive income

Question 14

How are available-for-sale investments reported in the balance sheet?

Answer 14

At fair value (i.e., original cost +/- allowance to adjust to fair value) as either current or non-current asset (based on entity’s policy).

Question 15

List the criteria for a held-to-maturity classification.

Answer 15

1. )Debt security;
2. )Investor has intent to hold to maturity;
3. )Investor has ability to hold to maturity

Question 16

What is the carrying value of an investment that is determined to be “available for sale?”

Answer 16

It is the FV. Difference between FV and carrying value before revaluation is booked as a loss

Question 17

What is the process for determining if there has been a decline in fair value below amortized cost (debt) or cost (equity) and it is other than temporary

Answer 17

1. ) Determine if the FV of an investment is less than its amortized cost; if so, the investment is impaired.
2. ) Determine if the impairment is other than temporary

Question 18

If an investment is impaired and it is other than temporary what presentational items must be addressed?

Answer 18

1. ) An impairment loss equal to the difference between the investments cost and its FV recognized in current income
2. ) FV becomes new cost basis of investment
3. ) Subsequent recoveries in FV would not be recognized

Question 19

Generally, will Available-for-sale investments be classified as current or non-current assets?

Answer 19

Generally non-current. Those within one year of disposal will be classified as current

Question 20

What are the steps in determining Gain/Loss upon disposition of Available-for-sale investments?

Answer 20

1. ) If debt security, first recognize interest income and amortization of premium/discount to date
2. ) Determine carrying value of investment (Debt and Equity = FV)
3. ) Recognize gain or loss at date of sale, if any, as difference between sales price and carrying value
4. ) Any related unrealized (holding) gain or loss that is in AOCI is recognized in income.

Question 21

Changes in which type of security go into earnings?

Answer 21

Trading

Question 22

Change in which type of investment (classification) go into OCI?

Answer 22

Available for sale securities

Question 23

What are the 3 types of accounting for investments where an investor does not have significant control?

Answer 23

1. ) Held to Maturity (Debt) - Amortized Cost
2. ) Trading - Unrealized gains in earnings and shown as operating cash flow
3. ) Available for Sale - Unrealized gains in OCI, reverse when sold.