Far 4 - Marketable Securities

Question 1

What are Held-for-Trading(HFT) securities?

Answer 1

Securities purchased and held for the short term only

Question 2

Define Available-for-Sale securities

Answer 2

Securities that are purchased and held for the longer term;not meant for sale, but can be sold

Question 3

Define Held-to-Maturity Securities

Answer 3

Securities that are held till they fully mature, meaning bonds.

Question 4

To what statement do realized gains and losses belong

Answer 4

Income

Question 5

To what statement to unrealized gains and losses of HFT securities belong?

Answer 5

Income Statement

Question 6

Journal entry for purchasing HFT security

Answer 6

DR Investment in trading securites, CR Cash

Question 7

Are HFT Securities held at FMV?

Answer 7

Initiallly recorded at cost, carried at FMV

Question 8

Which are current and which are non-current: HFT, AFS, & HTM

Answer 8

HFT-current, AFS-current/non-current, HTM-non-current till last year, then current

Question 9

HFT Securities are what type of activity: Operating, Investing or Financing?

Answer 9

Operating

Question 10

AFS Securities Securities are what type of activity: Operating, Investing or Financing?

Answer 10

Investing

Question 11

HTM Securities Securities are what type of activity: Operating, Investing or Financing?

Answer 11

Normally Investing

Question 12

How are AFS securities valued?

Answer 12

FMV

Question 13

How are HTM Securites valued?

Answer 13

Amortization

Question 14

What is general approach to reclassifying between HFT and AFS marketable securities?

Answer 14

Treat them as being sold from portfolio they are leaving and being repurchased at market value of portfolio they are entering

Question 15

Reclassifying between HFT and AFS securities

Answer 15

1. Reclassify as FMV
2. Difference is treated as a realized gain/loss on I/S
3. Eliminate any related valuation accounts

Question 16

Reclassifying between HTM & AFS securites

Answer 16

1. Reclassify at FMV
2. IF HTM to AFS then record in OCI
3. IF AFS to HTM report unrealized gain/loss on B/S as part of OCI and amortized over remaining life

Question 17

Unrealized gains/losses on AFS Securities when FMV is elected are reported where?

Answer 17

As a component of income from continuing operations

Question 18

Unrealized gains/losses on trading securities meant for the short term are reported where?

Answer 18

As a component of income from continuing operations

Question 19

Journal entry-rise in value of HFT securities

Answer 19

DR Trading securities, CR unrealized gain on trading securities

Question 20

Journal entry-drop in value of HFT securities

Answer 20

DR unrealized loss on trading securities, CR Trading Securities

Question 21

Journal entry for rise in value of AFS securities

Answer 21

Debit AFS Securities, CR unrealized gain on AFS securities

Question 22

Journal entry for drop in value of AFS Securities

Answer 22

DR Unrealized loss of AFS securities, CR AFS securities

Question 23

If a trading security experiences an “other than temporary loss”, where and how is it recorded?

Answer 23

Income statement, and FMV basis is written down.

Question 24

On disposal of an AFS Security, how is loss or gain figured?

Answer 24

Cost minus sale price

Question 25

To what statement to unrealized gains and losses of AFS securities belong?

Answer 25

Balance sheet

Question 26

To what statement to realized gains and losses of HTM securities belong?

Answer 26

Income Statement

Question 27

To what statement to realized gains and losses of HFT securities belong?

Answer 27

Income statement

Question 28

To what statement to unrealized gains and losses of AFS securities belong?

Answer 28

Balance sheet

Question 29

G/L amounts for AFS securities reported in OCI represent what time frame?

Answer 29

Current period

Question 30

G/L amounts for AFS securities reported in Owners Equity represent what time frame?

Answer 30

Cumulative

Question 31

What is stated rate of interest?

Answer 31

The amount of interest stated that a bond will pay you.

Question 32

What is effective interest rate?

Answer 32

The amount of interest actually received from a bond including compounding.

Question 33

How does accrued interest affect a bond's purchase price?

Answer 33

Total price minus accrued interest. For example, a $250,000 bond with $60,000 accrued interest would cost $190,000

Question 34

HFT gains or losses are shown on the I/S. Where is the other "half" of this entry located?

Answer 34

ON the B/S in the current asset section.

Question 35

What is a market valuation account?

Answer 35

The other half of a gain or loss entry

Question 36

G/L for HFT are shown on I/S in what section?

Answer 36

Income from continuing operations

Question 37

G/L for AFS are shown in what section on what statement?

Answer 37

On B/S as a part of comprehensive income in equities section

Question 38

Allowance account for G/L for AFS are shown in what section on which statement?

Answer 38

B/S in asset section

Question 39

What is the other half of a unrealized G/L entry called?

Answer 39

An allowance account

Question 40

How are valuation allowance accounts treated on HFT to AFS reclassification?

Answer 40

They are eliminated and totals are converted to realized losses and gains

Question 41

HFT Unrealized G/L appear on what statement?

Answer 41

Income statement

Question 42

What statement does AFS unrealized G/L appear?

Answer 42

Balance sheet

Question 43

Is a liquidating dividend dividend income?If not, Why?

Answer 43

It is recognized as a return of instead OF a return ON investment, and reduces the investment account

Question 44

In the equity method what does a dividend revenue do?

Answer 44

It lowers the investment account. DR Cash, CR investment.

Question 45

If an investment is accounted for in the equity method, what items are listed in the income section?

Answer 45

Changes in value of the investment and dividend revenue

Question 46

What word contained in an mcq is a sign of an unrealized gain or loss?

Answer 46

"Record"

Question 47

In IFRS when using fair value through profit and loss how are HTM securities calculated?

Answer 47

Difference between cost and fair value.

Question 48

In IFRS when using fair value through profit and loss how are HFT securities calculated?

Answer 48

Difference between cost and fair value.

Question 49

What is a differential?

Answer 49

Difference between the cost of an investment and the carrying value of its net assets. It is periodically amortized to reduce investment account

Question 50

When is the cost method used?

Answer 50

- 0-20% ownership | - no marketable price exists

Question 51

Explain cost method

Answer 51

- original investment recorded @ cost - adjusts carrying amount for subsequent changes in FMV - records dividends as income. - if dividends > share of income since acquisition excess treated as liquidating div & reduces investment account.

Question 52

What is cash surrender value in life insurance?

Answer 52

What you receive in cash if you terminate the whole life policy.

Question 53

Show journal entry for life insurance.

Answer 53

Cash surrender value. xx Insurance expense. xx Cash xx

Question 54

What can cause deferred tax liability?

Answer 54

When earnings are undistributed and the 80% Dividends receive deduction kicks in. A portion of the undistributed income wil eventually become dividend income, and get taxed.

Question 55

When the fair value option is chosen for marketable securities what items will be listed on the income statement?

Answer 55

1. Changes in fair value | 2. Dividends

Question 56

Using the equity method of accounting how should an investor list a receivable? Where should it be shown at?

Answer 56

It should be listed on the B/S and completely separate from other receivables.