Ch 17

Question 0

Debt securities

Answer 0

Represent creditor relationship with another entity

Question 1

2 common motivations for investing in securities issued by other companies?

Answer 1

1 earn a high rate of return

2 secure certain operating or financing arrangements with
Other companies

Question 2

3 debt investment classifications

Answer 2

1 held to maturity

2 trading

3 available for sale

Question 3

Under IFRS debt investments are classified as either…

Answer 3

Held for collection or trading

Question 4

Debt: held-to-maturity

Answer 4

Debt securities that company as positive intent and ability

To hold to maturity

Question 5

Debt: trading

Answer 5

Debt securities bought and held primarily for sale in near

Term to generate income on short-term price differences

Question 6

Debt: available for sale

Answer 6

Debt securities not classified as held to maturity or trading securities

Question 7

Debt: held to maturity- valuation

Answer 7

Amortized cost

Question 8

Debt: trading securities- valuation

Answer 8

Fair value

Question 9

Debt: available for sale- valuation

Answer 9

Fair value

Question 10

Debt: held to maturity- treatment of unrealized holding gains or losses

Answer 10

Not recognized

Question 11

Debt: trading securities- treatment of unrealized holding gains or losses

Answer 11

Recognized in net income on income statement

Question 12

Debt: available for sale- treatment of unrealized holding gains or losses

Answer 12

Recognized as other comprehensive income and as separate component of stockholder’s equity

Question 13

Amortized cost

Answer 13

Acquisition cost adjusted for amortization of discount or

Premium

Question 14

Fair value

Answer 14

Fair value price thats received to sell an asset or paid to
Transfer liability in orderly transaction btw market participants
At measurement date

Question 15

For debt investments, companies must amortize premium or discount using the…

Answer 15

Effective-interest method

Question 16

What does the use of the fair value adjustment account enable a company to do?

Answer 16

Maintain a record of its amortized cost

Question 17

Gains trading

Answer 17

Selling the winners and holding the losers

Way companies can manage their net income

Question 18

Holding gain or loss

Answer 18

Net change in fair value of security from one period
To another

exclusive of dividend or interest revenue recognized but
not received

Question 19

Equity securities

Answer 19

Ownership interests in common, preferred or other

Capital stock, warrants, call and put options

Question 20

Investor and investee

Answer 20

Investor acquires interest in common stock of another

Corporation (investee)

Question 21

Classification of investments on a companies balance sheet depends on…

Answer 21

The percentage of the investee voting stock that is held

By the company

Question 22

Classification of investments if investor (corporation) holds less than 20%, what accounting method is used?

Answer 22

Investor has passive interest

Acct m: fair value method

Question 23

Classification of investments if investor (corporation) holds 20% to 50%, what accounting method is used?

Answer 23

Investor has significant influence

Acct. m: equity method

Question 24

Classification of investments if investor (corporation) holds more than 50%, what accounting method is used?

Answer 24

Investor has controlling interest Acct m: consolidated statements

Question 25

Equity: fair value method

Answer 25

Recording at Market price

Question 26

5 indications of significant influence in the company?

Answer 26

``` 1 representation in the board of directors 2 participation in policy making process 3 material inter company transactions 4 interchange of managerial personnel 5 technological dependency ```

Question 27

Unrealized holding gains and loses for over 20% ownership in company

Answer 27

Not recognized

Question 28

Equity method, define, how are dividends treated

Answer 28

Company originally records investment at cost of shares Acquired and subsequently adjusts amount each period For change in investee's net assets Dividends received by investor decrease the investment's carrying amount

Question 29

When a corporation holds more than 50% or a company (controlling interest) what is the investor corporation referred to as? What is the investee corporation referred to as?

Answer 29

Investor: parent Investee: subsidiary

Question 30

How do consolidated financial statements treat the parent and subsidiary corporations?

Answer 30

As a single economic entity

Question 31

IFRS has similar accounting rules for significant influence

Answer 31

Equity investments

Question 32

In contrast to US firms, financial statements of non-US companies often include both...

Answer 32

Consolidated (group) statements and parent company | Financial statements

Question 33

IFRS doesn't not allow the use of the........... For equity method investments

Answer 33

Fair value option

Question 34

Impairment, how often should it be evaluated?

Answer 34

Loss in value that is other than temporary Evaluated at each reporting date

Question 35

Impairment for debt securities

Answer 35

Company uses impairment test to determine whether it's Probable that investor will be unable to collect all amounts Due according to contractual terms

Question 36

2 ways companies may display components of comprehensive income

Answer 36

1 combined statement of income and comprehensive income 2 separate statement of comprehensive income

Question 37

Reclassification adjustment

Answer 37

Ensures that gains and losses aren't counted twice when | Sales occur

Question 38

Companies account for transfers between categories (available for sale or trading) at...

Answer 38

Fair value

Question 39

Transfer from trading to available for sale to trading or trading to available for sale. What is the transfers impact on stockholder's equity?

Answer 39

Unrealized holding gain/loss at date of transfer increases | Or decreases stockholder's equity

Question 40

Transfer from trading to available for sale to trading or trading to available for sale. What is the impact of the Transfer on Net Income?

Answer 40

Unrealized holding gain or loss at date of transfer is | Recognized as net income

Question 41

Transfer from trading to available for sale to trading or trading to available for sale. Measurement basis?

Answer 41

Security transferred at fair value at date of transfer, which is New cost basis of security

Question 42

Transfer from held to maturity to available for sale. Measurement basis?

Answer 42

Security transferred at fair value at date of transfer

Question 43

Transfer from trading to available for sale to trading or trading to available for sale. Impact of transfer on stockholder's equity?

Answer 43

Separate component of stockholders' equity is increased | Or decreased by unrealized gain or loss at date of transfer

Question 44

Transfer from trading to available for sale to trading or trading to available for sale. Impact of transfer on net income?

Answer 44

None

Question 45

Transfer from available for sale to held to maturity. Measure,emit basis?

Answer 45

Security transferred at fair value at date of transfer

Question 46

Transfer from available for sale to held to maturity. Impact of transfer on stockholders' equity?

Answer 46

Unrealized gain/loss at date of transfer carried as separate Component of stockholders' equity is amortized over Remaining life of security

Question 47

Transfer from available for sale to held to maturity. Impact of transfer on net income?

Answer 47

None

Question 48

Reporting of trading (debt and equity securities) on the balance sheet?

Answer 48

Investments shown at fair value, in current assets

Question 49

Reporting of trading (debt and equity securities) on the income statement?

Answer 49

Interest and dividends are recognized as revenue Unrealized holding gains and losses are included in net income

Question 50

Reporting of Available for sale (debt and equity securities) on the balance sheet?

Answer 50

Investments shown at fair value Current or long term assets Unrealized holding gains and losses are separate component Of stockholders' equity

Question 51

Reporting of available for sale (debt and equity securities) on the Income statement?

Answer 51

Interest and dividends are recognized as revenue Unrealized holding gains and losses aren't included in Net income but in other comprehensive income

Question 52

Reporting of held to maturity (debt securities) on the balance sheet?

Answer 52

Investment's shown at amortized cost, current or Longterm | Assets

Question 53

Reporting of trading (debt securities) on the income statement?

Answer 53

Interest recognized as revenue

Question 54

Reporting equity securities using the equity and/or consolidation methods the balance sheet?

Answer 54

Investments originally are carried at cost, are periodically Adjusted by investor's share of investee's earnings or losses Decreased by all dividends received from investee and Classified as long term

Question 55

Reporting equity securities using the equity and/or consolidation methods the income statement?

Answer 55

Revenue is recognized to extent of investee's earnings or | Losses reported subsequent to date of investment