F5 - Investments, Stmt of CF, & Inc Taxes

Question 1

HTM Carrying Amount on IS

Answer 1

Carrying amount X Market Rate = Int Income

Face value X Coupon rate = Int payment

Amortization amount = Int Income - Cash Int Payment

Question 2

Amortizing a Premium

Answer 2

Decreasing the the carrying amount
Cash Int received (Higher) - Int Income (Lower)

Question 3

Amortizing a Discount

Answer 3

Amortizing a discount increases the carrying amount
Int Income (higher) and the cash int received (lower)

Question 4

JE for INT Income & Amortization

Answer 4

DR Cash (for the int payment received)
CR Int Income (for the effective int method)
AND
Adjust Investment in Bonds for the amortization amount

Question 5

Initial JE for Bond Purchase

Answer 5

DR Inv in Bonds (purch price)
CR Cash

Reflecting the investment at its acquisition cost

Question 6

Straight Line (How to figure Annual Amortization)

Answer 6

Face Value - Purch price / period of amortization = Annual Amortization
Discount or Premium

Question 7

Equity Method

Answer 7

Use when ownership is 20%-50%

Ownership % = Investment Amount / Total Value of Voting Shares

Question 8

Bond Investments that are HTM - Held-to-Maturity

Answer 8

Are reported at amortized costs

Question 9

AFS should be recorded at

Answer 9

OCI unless impaired

Question 10

Trading Securities

Answer 10

Are to be measured at Fair Value and recorded in Income Stmt

Trading securities are reported at Fair Value

If bond investments are classified as trading securities (held for the purpose of selling them in near term)

Question 11

NOT subject to the application of intraperiod income tax allocation

Answer 11

GAAP does not require intraperiod Income Tax allocation to OPerating Income

Only certain Items are shown “Net of Income Tax” and Operating Income is NOT one of them

Question 12

FORMULA for Effective Tax Rate

Answer 12

Income Tax Expense = Taxable Income X Tax Rate

Effective Tax Rate = Income Tax Expense / Pretax Income (original amount, NOT worked amount)

Question 13

When Financial Statement Income exceeds taxable income

Answer 13

A Deferred Tax Liability will be recorded bc more tax will be owed in the future when that temporary difference reverses

Question 14

A deferred tax asset results when the amount of taxes paid in the current period exceeds the amount of income tax expense

Answer 14

A deferred tax asset represents a future tax benefit where future taxable income will be less than future financial income. If it is more likely than not (likelihood greater than 50%) that part or all the deferred tax asset will not be realized, a valuation allowance is recognized so that the net amount represents the portion that is expected to be realized. This decision is based on available evidence.

Question 15

Deferred Tax Asset

Answer 15

Bad Debt & Warranty Expense

When dealing with Income Taxes

Amount of taxes paid in the current period exceeds the amount of income tax expense in the current period

Anticipated future benefits of taxable income
Future taxable income will be less than future financial accounting income due to temp differences

Question 16

In regards to Income Taxes

Answer 16

Amount to be recognized is the amount that has more than 50% chance of occurring