Ch 17 Flashcards Preview

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Flashcards in Ch 17 Deck (56):
0

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

1 earn a high rate of return

2 secure certain operating or financing arrangements with
Other companies

1

Debt securities

Represent creditor relationship with another entity

2

3 debt investment classifications

1 held to maturity

2 trading

3 available for sale

3

Under IFRS debt investments are classified as either...

Held for collection or trading

4

Debt: held-to-maturity

Debt securities that company as positive intent and ability
To hold to maturity

5

Debt: trading

Debt securities bought and held primarily for sale in near
Term to generate income on short-term price differences

6

Debt: available for sale

Debt securities not classified as held to maturity or trading securities

7

Debt: held to maturity- valuation

Amortized cost

8

Debt: trading securities- valuation

Fair value

9

Debt: available for sale- valuation

Fair value

10

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

Not recognized

11

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

Recognized in net income on income statement

12

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

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

13

Amortized cost

Acquisition cost adjusted for amortization of discount or
Premium

14

Fair value

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

15

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

Effective-interest method

16

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

Maintain a record of its amortized cost

17

Gains trading

Selling the winners and holding the losers

Way companies can manage their net income

18

Holding gain or loss

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

exclusive of dividend or interest revenue recognized but
not received

19

Equity securities

Ownership interests in common, preferred or other
Capital stock, warrants, call and put options

20

Investor and investee

Investor acquires interest in common stock of another
Corporation (investee)

21

Classification of investments on a companies balance sheet depends on...

The percentage of the investee voting stock that is held
By the company

22

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

Investor has passive interest

Acct m: fair value method

23

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

Investor has significant influence

Acct. m: equity method

24

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

Investor has controlling interest

Acct m: consolidated statements

25

Equity: fair value method

Recording at Market price

26

5 indications of significant influence in the company?

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

27

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

Not recognized

28

Equity method, define, how are dividends treated

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

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?

Investor: parent

Investee: subsidiary

30

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

As a single economic entity

31

IFRS has similar accounting rules for significant influence

Equity investments

32

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

Consolidated (group) statements and parent company
Financial statements

33

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

Fair value option

34

Impairment, how often should it be evaluated?

Loss in value that is other than temporary

Evaluated at each reporting date

35

Impairment for debt securities

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

36

2 ways companies may display components of comprehensive income

1 combined statement of income and comprehensive income

2 separate statement of comprehensive income

37

Reclassification adjustment

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

38

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

Fair value

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?

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

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?

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

41

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

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

42

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

Security transferred at fair value at date of transfer

43

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

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

44

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

None

45

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

Security transferred at fair value at date of transfer

46

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

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

47

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

None

48

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

Investments shown at fair value, in current assets

49

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

Interest and dividends are recognized as revenue

Unrealized holding gains and losses are included in net
income

50

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

Investments shown at fair value

Current or long term assets

Unrealized holding gains and losses are separate component
Of stockholders' equity

51

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

Interest and dividends are recognized as revenue

Unrealized holding gains and losses aren't included in
Net income but in other comprehensive income

52

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

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

53

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

Interest recognized as revenue

54

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

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

55

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

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