Unit 5 - Cash and Investments

Question 1

When doing a bank reconciliation - NSF checks should be

Answer 1

Backed out of cash and recorded in AR

Question 2

When doing a bank reconciliation - checks dated and recorded in books at 12/31, but not mailed until January should be

Answer 2

Added back since it wasn’t mailed out until January and check is still within control of the company

Question 3

FVO (Fair Value Option)
Under FVO, how are dividends received & unrealized gains/losses treated?

Answer 3

Under the fair value option, dividends received and unrealized gains and losses on remeasurement of financial assets to fair value are reported in earnings

Question 4

Investments in Equity Securities:
What are the accounting methods in voting stock that depend on the presumed influence of the investor has over the investee?

Answer 4

Percentage Ownership Presumed Influence Accounting Method

100% Control Consolidation
50% Significant Equity Method or FVO
0% - 20% Little or none Fair Value Measurement

Question 5

Equity Method:
Equity method goodwill is …

Answer 5

the difference between the cost of the investment MINUS the investor’s equity in the FV of the investee’s net assets

Question 6

Equity Method:
How does investor recognize its share of the investee’s earnings or losses? Dividends?

Answer 6

in the periods for which they are reported by the investee as follows:
Net income for the period:
Investment in Co. X $XX
Share of X Co. Earnings $XX

Net loss of the period:
Share of X Co. Losses $XX
Investment in Co. X $XX

Dividends are treated as a return on investment:

Cash/ Dividend receivable $XX
Investment in X. Co. $XX

Question 7

Investments in Debt Securities:
What are the 3 categories of debt securities? Measured?

Answer 7

1 - Held to Maturity - Positive intent and ability to hold to maturity - AMORTIZED COST
2 - Trading - Intended to be sold in the near end
3 - Available-for-sale - Not classified as held to maturity/trading [Portion of impairment that relates to credit loss are recognized in NI & and Noncredit losses portion = unrealized holding loss in OCI ] FAIR VALUE

Question 8

Investments in Debt Securities:
Transfers between categories

Question 9

Investments in Bonds: