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Flashcards in Investments Deck (27)
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1
Q

How are Available-For-Sale securities recorded on the Balance Sheet?

A

At Fair value as either Current or Non-current assets.

2
Q

How are Available-For-Sale security Unrealized G/L treated?

*What about if permanent VS temporary?

A

Included in OCI (Other Comprehensive Income)

*Permanent: I/S (earnings as a realized loss)
Temporary: B/S as OCI

3
Q

How are Unrealized G/L for Available-For-Sale securities that are reclassified to Held-to-Maturity or Trading Securities treated?

A

HTM - Stockholder’s Equity
/ Trading Securities - Current Period.

4
Q

How are Held-to-Maturity securities recorded on the Balance Sheet?

A

Amortized cost as Current or Non-current assets.

If reclassified as AFS - Unrealized G/L go to Stockholder’s Equity

If reclassified as Trading Securities - Unrealized G/L recognized in Current Period

5
Q

How are Held-to-Maturity securities Unrealized G/L treated?

A

Trick question - Unrealized gains or losses are not applicable because they are HTM

6
Q

How are Trading Securities recorded on the Balance Sheet?

A

At Fair Value as a Current Asset

Unrealized gains/losses are recorded on the Income Statement

If they are reclassified as held-to-maturity or available-for-sale- there is no effect upon transfer.

7
Q

How are Trading Securities Unrealized G/L treated?

A

Recorded on the Income Statement

If they are reclassified as HTM or AFS - there is no effect upon transfer.

8
Q

What is the % of ownership for marketable securities?

Whats another characteristic?

A

0-20%

Investment in securities (debt or equity) that are publically traded

9
Q

How does balance sheet, income statement, and cash flows look like for Trading securities, available for sale, and held to maturity Pg. 5-5

What is the most important concept (unrealized gain/loss)?

A

Pg. 5-5

For trading securities unrealized gain/losses go to the I/S

For available for sale it goes to the balance sheet

*Look at class example for reference

10
Q

What is Fair Value accounting option VS not using fair value option? Pg. 5-5

A

Report Trading Securitites, Available for Sale, and Held to Maturity to INCOME STATEMENT

Report Trading Securities unrealized gains/losses to income statement, and Available for Sale unrealized gains/losses to balance sheet (Look at table 5-5)

11
Q

What is the significance of dividends received and earnings received?

A

Dividends cant exceed the amount of earnings since acquistition. Otherwise you would have to reduce the investment amount

12
Q

Signficance of “Other Than Temporary” Pg. 5-4

A

Occurs when marketable security under the equity method if FV is less than its cost => considered IMPAIRED

The security must be written down to a new cost basis and is treated as a realized loss

Loss: debit
Investment in AFS: credit

13
Q

What does report in earnings mean?

A

Income Statement

14
Q

What is the significance of Available for Sale for unrealized loss/gain and 2 years are mentioned?

A

Combine both years because this will go under Other Comprehensive Income under the balance sheet

15
Q

For journal entries what do you think of with an unrealized gain?

A

Debit an “allowance” account

16
Q

Where do allowance accounts show up? What is the reason for this?

A

The allowance accounts show up in the balance sheet

It shows up here and not the income statement because this account can be here year after year; used to offset

17
Q

What do you do if they ask for the accumulated OCI?
Pg. 5-3

What about if they ask about comprehensive income? Marketable Securities #4

A

Net OCI of X1 and X2

Add both years

18
Q

What is a big difference between the income statement and the balance sheet regarding invesments?

A

Income statement is current year

Balance sheet can be this year and the past years

19
Q

Permanent VS Temporary gain/loss?

A

Permanent means realized, while temporary mean unrealized

20
Q

How do you find unrealized loss when a market security is reclassified to held to maturity

A

Report to stockholder’s equity; use original cost and subtract with market value when it was reclassified

21
Q

Compare unrealized gain / loss VS realized gain / loss Marketable securities #12

A

Unrealized is temporary, while realized is permanent

22
Q

For bonds, what do you do with accrued interest? Marketable securities #23

A

Subtract from carrying value to get a new value

23
Q

Which cost do you use for? Pg. 5-5

a) Trading securities
b) Available for sale
c) Held to maturity

A

a) FMV
b) FMV
c) Amortized COST

24
Q

What is a component of stockholder’s equity?

A

OCI in the balance sheet

25
Q

Carrying amount of investment at the beginning of the year same as what in investment journal entry? Cost & Equity #10

A

Purchase price

26
Q

What do you think about for marketable security questions?

A

Think about T-account to connect all years (1 column); income statement is “this year only”

27
Q

How do you determine the clasification of each marketable security? Marketable security #9

A

What is the purpose of the purchase of the security? ie) even though a bond is usually held to maturity, if the INTENT of the purchase of the investment is to sell them near term => the bond is considered a trading security