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Terms in this set (111)
Marian Company's records show the following account balances at 2/1/18: Investment in HTM securities, $500,000; and discount on HTM investment, $20,000. On that day, the company sells the investment for $520,000. The journal entry would include debits of (Select all that apply.)
$20,000 to loss.
$520,000 to cash.
$20,000 to gain.
$20,000 to discounts.$520,000 to cash.
$20,000 to discounts.Which of the following statements regarding the initial recognition of debt investments is correct?
All debt investments are initially recorded at the face amount.
All debt investments are initially recorded at cost.
All debt investments are initially recorded at value of future cash flows.All debt investments are initially recorded at cost.An investor who purchased corporate bonds that are not publicly traded may estimate the bonds' fair value by determining the
original cost of the investment
an appraised value
present value of the future cash flows
expected future earnings potential of the investeepresent value of the future cash flowsMargot Company purchases $100,000 face amount, 6% semi-annual bonds for $110,000 when the market interest rate is 5%. Margot should recognize the following interest revenue for the first 6-month period:
$6,000
$3,000
$2,750
$5,500$2,750
Reason:
$110,000 x (5% x 6/12)Which of the following are correct regarding the financial statement presentation of HTM securities? (Select all that apply.)
Unrealized holding gains and losses are disclosed in the notes to the financial statements.
Unrealized holding gains and losses are shown in other comprehensive income.
Gains and losses are shown in net income in the period in which the securities are sold.
Unrealized holding gains and losses are shown in net income.Unrealized holding gains and losses are disclosed in the notes to the financial statements.
Gains and losses are shown in net income in the period in which the securities are sold.Holding bonds during periods in which the fair value of the bonds changes results in
a change in the amount of interest received
realized gains and losses
unrealized holding gains and lossesunrealized holding gains and lossesJones Financial Institution buys and sells debt securities frequently to maximize short-term gains in market value. Jones should classify its portfolio as
held-to-maturity securities.
trading securities.
available-for-sale securities.trading securities.Which of the following conditions must be present for a debt security to be classified as "held-to-maturity?" (Select all that apply.)
The investor intends to hold the security until maturity.
The investment can be classified as a current asset.
The investor has the ability to hold the security until maturity.
The maturity date is less than 90 days from the date of purchase.The investor intends to hold the security until maturity.
The investor has the ability to hold the security until maturity.Bella Company purchased debt securities with a face amount of $500,000 for $480,000 and classifies them as trading securities. During the first year, the company amortized $2,000 of the associated discount. At the end of the period, the fair value is $504,000. Bella should recognize a fair value adjustment of
$22,000.
$18,000.
$20,000.$22,000.
(504,000 - 482,000)Marian Company's records show the following account balances at 2/1/18: Investment in HTM securities, $500,000; and discount on HTM investment, $20,000. On that day, the company sells the investment for $520,000. The journal entry would include credits of (Select all that apply.)
$480,000 to investments in HTM securities.
$500,000 to investments in HTM securities.
$20,000 to gain from sale of investment.
$20,000 to discounts.
$40,000 to gain from sale of investment.$500,000 to investments in HTM securities.
$40,000 to gain from sale of investment.Northern Company has bonds with an amortized cost of $600,000. At the end of the first reporting period, the bonds had a fair value of $675,000. 2 days after the end of the first reporting period, the bonds have a fair value of $680,000 and Northern decides to sell the bonds. The initial investment in the bonds was $700,000 and the discount on bond account has a $100,000 balance. Northern properly classifies these bonds as trading securities. The journal entry to record the sale of the bonds includes (Select all that apply.)
debit to discount on bond investment $100,000
credit to fair value adjustment $80,000.
debit to cash $680,000
debit to loss on trading securities-net income $20,000
credit to investment in bonds $700,000
debit to fair value adjustment $80,000
credit to gain on trading securities - net income $80,000debit to discount on bond investment $100,000
credit to fair value adjustment $80,000.
debit to cash $680,000
credit to investment in bonds $700,000If a company holds bonds that are not actively traded, it can estimate the fair value of those bonds by using ________ ___________ techniques.present valueGains and losses relating to debt securities classified as trading are presented in the __________ ___________ in the periods in which fair value changes, regardless of whether they are realized or unrealized.income statementCash flows from buying and selling held-to-maturity securities are typically classified as _____ activities on the Statement of Cash Flows.
investing
financing
operatinginvestingPorter Company classified its debt investment in Bailey Company as an available-for-sale security. Subsequent to the purchase, the fair value of the investment increased by $5,000. The result of this increase in value will be
disclosed in the notes, but not recorded in the financial statements.
an increase in other comprehensive income.
an increase in current period net income.an increase in other comprehensive income.Characteristics that support classification of investments as trading securities include (Select all that apply.)
frequent and active trading.
long-term reduction in investment risk.
motivation to realize short-term profits.
long-term appreciation of value.frequent and active trading.
motivation to realize short-term profits.How are available-for-sale debt securities reported? (Select all that apply.)
Unrealized gains and losses are reported as part of other comprehensive income when they occur.
Realized gains and losses are reported in net income in the period the investment is sold.
Unrealized gains and losses are reported as part of net income when they occur.Unrealized gains and losses are reported as part of other comprehensive income when they occur.
Realized gains and losses are reported in net income in the period the investment is sold.Northern Company has bonds with an amortized cost of $600,000 and a fair value of $675,000. Northern properly classifies these bonds as trading securities. At the end of the reporting period, (Select all that apply.)
Northern will report an unrealized holding gain in net income.
Northern will report an unrealized holding gain in other comprehensive income.
Northern will disclose the increase in fair value, but will not record an adjustment.
Northern will make a fair value adjustment of $75,000.Northern will report an unrealized holding gain in net income.
Northern will make a fair value adjustment of $75,000.Markus Company sells 1,000 bonds of its debt investment in Berta Inc. for $20,000. The original cost of the 1,000 bonds was $18,000. During the prior year, the bonds were reported on the balance sheet at a fair value of $19,000. On the date of sale, Markus should recognize a realized gain of _____ in net income. (Assume the debt investment was accounted for as available-for-sale and all unrealized holding gains and losses have been reversed.)
$1,000
$2,000
$0$2,000Action Company sells bond investments classified as trading securities for $99,000. The face amount is $100,000; unamortized discount is $2,000. What must be included in the journal entry to record the sale? (Select all that apply.)
debit to cash $99,000
credit to gain on sale for $1,000
debit to discount $2,000
credit investment in bonds $100,000
debit to loss on sale for $1,000
credit to fair value adjustment $1,000debit to cash $99,000
debit to discount $2,000
credit investment in bonds $100,000
credit to fair value adjustment $1,000Cash flows from buying and selling debt securities classified as trading as a part of normal operations typically are classified as ____________ activities in the statement of cash flows.operatingRosa Company purchases debt securities and classifies them as "available-for-sale" securities. How should Rosa recognize changes in the value of the investment?
Rosa should not recognize changes in value.
As unrealized holding gain or loss in income.
As unrealized holding gain or loss in other comprehensive income.As unrealized holding gain or loss in other comprehensive income.Cash flows from buying and selling AFS debt securities are typically shown on the Statement of Cash Flows in the _____ activities section.
financing
investing
operatinginvestingWhich of the following may be a valid concern that supports recognizing unrealized gains and losses associated with AFS debt securities in other comprehensive income?
Net income may otherwise be lower than it was in prior years.
Net income may otherwise appear more volatile than it actually is.
Net income may otherwise be higher than it was in prior years.Net income may otherwise appear more volatile than it actually is.Match the correct accounting treatment with the correct transaction.
Holding gain or loss in other comprehensive income
Holding gain or loss in income
No holding gain or loss is recognizedInvestment in available-for-sale debt securities
Investment in trading debt securities
Investment in held-to-maturity debt securitiesMarkus Company sells 1,000 bonds of its debt investment in Berta Inc. for $20,000. The original cost of the 1,000 bonds was $18,000. During the prior year, the bonds were reported on the balance sheet at a fair value of $19,000. Assume the investment was accounted for as available-for-sale and all unrealized holding gains and losses have been reversed. The journal entry to record the sale of the bonds should include these credits: (Select all that apply.)
Fair value adjustment AFS - $1,000
Investment in AFS - $19,000
Investment in AFS - $18,000
Gain on sale of investment - $1,000
Gain on sale of investment - $2,000Investment in AFS - $18,000
Gain on sale of investment - $2,000Northern Company has bonds with an amortized cost of $600,000. At the end of the first reporting period, the bonds had a fair value of $675,000. 2 days after the end of the first reporting period, the bonds have a fair value of $680,000 and Northern decides to sell the bonds. The initial investment in the bonds was $700,000 and the discount on bond account has a $100,000 balance. Northern properly classifies these bonds as trading securities. The journal entry to record the sale of the bonds includes (Select all that apply.)
credit to gain on trading securities - net income $80,000
debit to discount on bond investment $100,000
debit to fair value adjustment $80,000
debit to cash $680,000
credit to investment in bonds $700,000
debit to loss on trading securities-net income $20,000
credit to fair value adjustment $80,000.debit to discount on bond investment $100,000
debit to cash $680,000
credit to investment in bonds $700,000
credit to fair value adjustment $80,000.Under U.S. GAAP, which of the following statements regarding the classification of debt investments is correct?
The classification of investments must be reassessed each reporting period.
The classification of investments must be reassessed with each change in fair value.
The classification of investments is permanent.The classification of investments must be reassessed each reporting period.Gains and losses relating to debt securities classified as trading are presented in the ___________ _________in the periods in which fair value changes, regardless of whether they are realized or unrealizedincome statementThe fair value option can be applied to: (Select all that apply.)
shareholders' equity
financial liabilities
financial assetsfinancial liabilities
financial assetsGlobal Company holds a portfolio of equity securities. The company intends to sell the securities during the next accounting period. The company should classify the investment as
noncurrent.
current.
either current or noncurrent.noncurrent.Accounting for held-to-maturity, trading, and available-for-sale debt securities differs with respect to:
the year-end fair value adjustment.
the initial investment.
interest earned on the investment.the year-end fair value adjustment.From an accounting perspective, critical events that investors experience over the life of an investment include (Select all that apply.)
receiving dividends
changes in related cash flows
sale of investment
changes in effective interest rates
changes in fair valuereceiving dividends
sale of investment
changes in fair valueMarkus Company sells 1,000 bonds of its debt investment in Berta Inc. for $20,000. The original cost of the 1,000 bonds was $18,000. During the prior year, the bonds were reported on the balance sheet at a fair value of $19,000. On the date of sale, Markus should recognize a realized gain of _____ in net income. (Assume the debt investment was accounted for as available-for-sale and all unrealized holding gains and losses have been reversed.)
$2,000
$1,000
$0$2,000Beginning in 2018, equity adjustments that lack significant influence are accounted for the same way as debt investments classified as
available-for-sale securities
held-to-maturity securities
trading securitiestrading securitiesThe appropriateness of the classification of debt investments must be reassessed
each reporting date
every five years
quarterlyeach reporting dateJanuary 1, 2021, Smith Co. purchased common stock of North Company for $500,000. North Company has common stock outstanding of $10 million. How should Smith Co. record the purchase of this investment? (Select all that apply.)
debit investment in North Company $500,000
credit investment in North Company $500,000
debit cash $500,000
credit cash $500,000debit investment in North Company $500,000
credit cash $500,000Under the fair value option, unrealized gains and losses on HTM and AFS debt securities are recognized in ____________ ___________ in the period they occur.net incomeJames Company is paid $6,000 in dividends from Mark Corp. on its equity investment. James lacks significant influence over Mark Corp. James Company should
debit dividend revenue
credit investment in trading securities
debit investment in trading securities
credit dividend revenuecredit dividend revenueDividends earned on an equity investment, when there is a lack of significant influence, are credited to:
the investment account.
dividend revenue.
other comprehensive income.dividend revenue.The choice to classify debt securities as current or noncurrent depends on
what type of security is involved.
when they are expected to mature or be sold.
the company's desire to present a favorable result.when they are expected to mature or be sold.Identify critical events that companies experience with respect to equity investments that must be recognized in the accounting system. (Select all that apply.)
changes in fair value
receiving dividends
purchase of investment
changes in the riskiness of investment
sale of investmentchanges in fair value
receiving dividends
purchase of investment
sale of investmentRegarding the valuation of equity investments that lack significant influence beginning in 2018, which of the following statements is correct?
Companies can choose between the AFS method and the fair value through net income method.
Companies are required to use the fair value through net income method.
Companies can carry only certain investments at fair value.
Companies must carry all investments at the lower-of-cost-or-market.Companies are required to use the fair value through net income method.How is an equity investment that lacks significant influence adjusted to fair value at the end of each reporting period?
A valuation allowance account is increased or decreased.
A realized gain or loss is recorded.
The equity investment account is directly adjusted to fair value.A valuation allowance account is increased or decreased.All equity investments are initially recorded at
fair value
cost
present value of expected future cash flows
net realizable valuecostJanuary 1, 2021, Smith Co. purchased common stock of North Company for $500,000. North Company has common stock outstanding of $10 million. Smith owns 5% of the outstanding stock of North. On December 31, 2021, the investment in North Company has a fair value of $505,000. On January 1, 2022, Smith sells the investment in North Company for $505,000. What journal entry is required to record the sale? (Select all that apply.)
debit cash $505,000
credit investment in North stock $505,000
credit gain on sale of investment in North stock $5,000
credit investment in North stock $500,000
credit fair value adjustment $5,000
debit fair value adjustment $5,000debit cash $505,000
credit investment in North stock $500,000
credit fair value adjustment $5,000James Company is paid $6,000 in dividends from Mark Corp. on its equity investment. James lacks significant influence over Mark Corp. James Company should
debit investment in trading securities
debit dividend revenue
credit investment in trading securities
credit dividend revenuecredit dividend revenueWhen fair value of equity investments is not readily determinable,
the fair value is estimated as the present value of the future cash flows of the equity investments.
the fair value is estimated as cost, less previously recognized impairments, then adjusted based on similar equity.
the fair value method is prohibited.the fair value is estimated as cost, less previously recognized impairments, then adjusted based on similar equity.Global Company holds a portfolio of equity securities. The company intends to sell the securities during the next accounting period. The company should classify the investment as
either current or noncurrent.
current.
noncurrent.noncurrent.Equity investments for which the investor does not have significant influence are classified as _____ in the balance sheet. (Select all that apply).
current liabilities
noncurrent liabilities
current assets
noncurrent assetscurrent assets
noncurrent assetsFrom an accounting perspective, critical events that investors experience over the life of an investment include (Select all that apply.)
receiving dividends
changes in effective interest rates
changes in fair value
changes in related cash flows
sale of investmentreceiving dividends
changes in fair value
sale of investmentWhich reporting method should be used if the investor can exert significant influence over the investee?
Consolidation method
Cost method
Equity method
Fair value methodEquity methodHow are equity investments that lack significant influence adjusted? (Select all that apply.)
Unrealized holding gain or loss is included in other comprehensive income.
A fair value adjustment is recorded only when the investment is sold.
A fair value adjustment is recorded at the end of every reporting period.
Unrealized holding gain or loss is included in net income.Unrealized holding gain or loss is included in other comprehensive income.
A fair value adjustment is recorded only when the investment is sold.
A fair value adjustment is recorded at the end of every reporting period.
Unrealized holding gain or loss is included in net income.Andrea Company purchases 30% of Sander Company's outstanding stock for $420,000. Andrea should record this investment at
present value of expected future cash flows
net realizable value
cost
Sander's book valuecostWhen equity investments that lack significant influence are sold and a fair value adjustment account has been used to increase or decrease the carrying value of the investment, the investment account is credited for the
the carrying value of the investment.
original cost of the investment.
the sale price of the investment.original cost of the investment.Consistent with the equity method, investment income is
based on dividends declared by investee times ownership percentage.
based on investee's income times ownership percentage.
not recognized.based on investee's income times ownership percentage.When fair value of equity investments is not readily determinable (select all that apply)
the investor needs to continually evaluate whether fair value is readily determinable.
the fair value is estimated as cost, adjusted for previous impairments and changes in the prices of similar equity investments.
the investor recognizes increases and decreases in the fair value into other comprehensive income.
the investor needs to assess annually whether the investment is impaired.the investor needs to continually evaluate whether fair value is readily determinable.
the fair value is estimated as cost, adjusted for previous impairments and changes in the prices of similar equity investments.
the investor needs to assess annually whether the investment is impaired.Dividends cause the investor's investment in the investee's net assets to
remain the same.
increase.
decrease.decrease.Cash flows related to equity investments for which the investor lacks significant influence and are held with an intent for short-term profit are shown in the _____ section of the Statement of Cash Flows.
investing
financing
operatingoperatingIdentify the statement that is correct regarding the purpose of additional adjustments under the equity method.
Adjustments help to approximate the effects of consolidation.
Adjustments help improve financial statement comparability.
Adjustments help improve financial statement consistency.Adjustments help to approximate the effects of consolidation.Von Company properly applies the equity method in accounting for its investment in Neumann Inc., (investing 20% of common stock.) Which of the following statements are correct? (Select all that apply.)
Von has more than 50% of voting rights
Von has full control over Neumann Inc
Von owns 20% of the voting rights in Neumann Inc
Von has significant control over Neumann IncVon owns 20% of the voting rights in Neumann Inc
Von has significant control over Neumann IncAdrianna Company purchases 35% of Saddle Company's outstanding stock for $450,000. Adrianna should record this investment with (Select all that apply.)
debit common stock of Saddle $450,000
credit cash $450,000
debit cash $450,000
credit investment in Saddle $450,000
debit investment in Saddle $450,000
credit common stock of Saddle $450,000credit cash $450,000
debit investment in Saddle $450,000Lerner Inc. owns 30% of the outstanding voting shares of Koerner Inc. On the date of acquisition, the fair value of Koerner's equipment with a remaining useful life of ten years and no residual value exceeded its carrying value by $50,000. During the year after the acquisition, the undervalued equipment will _____ Lerner's investment revenue by _____.
increase; $1,500
decrease; $1,500
increase; $5,000
decrease; $5,000decrease; $1,500
Reason:
($50,000 x .3)/10Ziegler Company owns 40% of Norm Company's outstanding voting stock. During the current year, Norm reported income of $2 million and declared dividends of $1 million. Ziegler should report income from its investment of
$2,000,000
$800,000
$400,000
$1,000,000$800,000
Reason:
$2 million x 40%Adrianna Company purchases 35% of Saddle Company's outstanding stock for $450,000. At the time of acquisition, book value of the company's net assets is $1 million and the fair value of the company's net assets is $1.2 million. The difference between the book value and fair value of the net assets is attributed to undervalued land. Adrianna should
not amortize the difference between fair value and book value attributable to land.
adjust investment revenue for the land.
amortize the difference between fair value and book value attributable to land.not amortize the difference between fair value and book value attributable to land.Under the equity method, dividends received from the investment
increase the investment account balance
increase the investor's net income
decrease the investment account balancedecrease the investment account balanceSilvia Company acquires a 30% interest in Small Company. The fair value of Small's inventory exceeds its carrying value by $100,000. During the subsequent year, the inventory is sold. As a result of the sale of inventory, investment revenue would:
decrease by $30,000
increase by $30,000
increase by $100,000
decrease by $100,000
not changedecrease by $30,000
(100,000 x 30%)Which of the following scenarios may require additional adjustments under the equity method?
The investor's acquisition cost exceeds market value of the underlying net assets.
The investor's acquisition cost exceeds the book value of the underlying net assets.
The acquisition takes place during the middle of the fiscal period.The investor's acquisition cost exceeds the book value of the underlying net assets.The carrying value of an equity method investment consists of its initial cost plus
the investor's equity in the investee's undistributed income
changes in the fair value of the investee's common shares held by the investor
the investee's undistributed income
changes in the fair value of the investee's common sharesthe investor's equity in the investee's undistributed incomeWhich reporting method should be used if the investor can exert significant influence over the investee?
Fair value method
Consolidation method
Equity method
Cost methodEquity methodOn July 1, Adrianna Company purchases 35% of Saddle Company's outstanding stock for $450,000. During the first year, Saddle reports income of $200,000 and declares dividends of 50,000. Adrianna should recognize income earned by debiting
investment in Saddle Company for $70,000.
investment in Saddle Company for $15,000.
dividends revenue for $15,000.
investment in Saddle Company for $35,000.investment in Saddle Company for $35,000.
Reason:
The stock was purchased July 1 so 6/12Abbott Inc. owns 30% of the outstanding voting shares of Berta Inc. On the date of acquisition, the fair value of Berta's equipment with a remaining useful life of five years and no residual value exceeded its carrying value by $20,000. During the year after the acquisition, the undervalued equipment will _____ Abbott's investment revenue by _____.
decrease; $4,000
increase; $4,000
increase; $1,200
decrease; $1,200decrease; $1,200
Reason:
$(20,000 x 0.3)/5 additional depreciation decreases investment revenueUnder the equity method, if the investee company reports a net loss, the investment balance will
not change
decrease by the investor's proportionate share of the investee's net loss
increase by the investor's proportionate share of the investee's net lossdecrease by the investor's proportionate share of the investee's net lossGoodwill arising from an investment accounted for under the equity method is
not amortized.
amortized over 40 years.
amortized over 10 years.not amortized.The investment account associated with Adam Corp.'s equity method investment shows a balance of $500,000. The investment is sold for $550,000. Adam should
adjust other comprehensive income for $50,000.
increase the investment account by $50,000.
recognize a gain of $50,000.recognize a gain of $50,000.Gunter Company acquires a 25% interest in Hunter Company. The fair value of Hunter's inventory exceeds its book value by $40,000. During the subsequent year, the inventory is sold. As a result of the sale of inventory, investment revenue would:
increase by $40,000
decrease by $10,000
increase by $10,000
decrease by $40,000
not changedecrease by $10,000
(40,000 x 25%)Gruen Corporation aquires a 25% interest in Blau Company for $1 million. The excess of investment cost over Gruen's share of the book value of Blau's net assets is solely attributable to goodwill. During the year, Blau reports income of $500,000 and declares dividends of $100,000. The carrying value of Gruen's investment at the end of the accounting period will be:
$1.4 million
$1,125,000
$1 million
$1.1 million$1.1 million
Reason:
1 mill + ((500,000 - 100,000)*.25))Barber Company acquires 35% of the outstanding shares of Carter Company. Which of the following is correct?
Barber must consolidate Carter Company.
Barber must utilize the equity method.
Barber may choose to apply the fair value option.Barber may choose to apply the fair value option.If an investment accounted for under the equity method is acquired during the year, income and other adjustments are
deferred until the following year.
recognized for the portion of the year the investment was owned.
recognized for the entire fiscal year if the investment was purchased by June 30.recognized for the portion of the year the investment was owned.True or false: If the investee reports a net loss, the equity investment account is not adjusted for additional expenses.
True
FalseFalse
Reason:
If the investee reports a net loss, the investment account is decreased by the investor's share of the invetee's net loss, adjusted for additional expenses.Kendrick Company elected the fair value option for its equity method investments. During the current period, the fair value of the investments increased. Kendrick Company should
ignore the increase.
report the increase as part of other comprehensive income.
report the increase as part of net income.report the increase as part of net income.When an equity method investment is sold,
retained earnings is adjusted by the difference between the book value and sales price.
other comprehensive income is adjusted by the difference between the fair value and book value.
a gain or loss is recognized if the sales price is more or less than the book value.a gain or loss is recognized if the sales price is more or less than the book value.Which accounting standards require the equity method for use with significant influence investees?
U.S. GAAP and IFRS
IFRS only
U.S. GAAP onlyU.S. GAAP and IFRSSilvia Company acquires a 30% interest in Small Company. The fair value of Small's inventory exceeds its carrying value by $100,000. During the subsequent year, the inventory is sold. As a result of the sale of inventory, investment revenue would:
increase by $30,000
not change
decrease by $30,000
increase by $100,000
decrease by $100,000decrease by $30,000Which of the following is a common special purpose fund?
Bonds payable
Inventory
Petty cashPetty cashIf a company chooses to apply the fair value option to investments that otherwise would be accounted for under the equity method, the election (Select all that apply.)
is irrevocable
can be changed later
can be made for some investments and not others
must be made for all investmentsis irrevocable
can be made for some investments and not othersOn July 1, Adrianna Company purchases 35% of Saddle Company's outstanding stock for $450,000. During the first year, Saddle reports income of $200,000 and declares dividends of 50,000. Adrianna should recognize income earned by debiting
investment in Saddle Company for $15,000.
investment in Saddle Company for $70,000.
investment in Saddle Company for $35,000.
dividends revenue for $15,000.investment in Saddle Company for $35,000.
Reason:
The stock was purchased July 1 so 6/12The premium payments of life insurance policies with cash surrender value include an insurance expense portion and a(n)
initial deposit portion.
investment portion.
cancellation fee portion
risk adjustment portion.investment portion.Unrealized gains and losses for equity method investments that are carried at fair value are:
reported as other comprehensive income
reported as part of earnings
ignoredreported as part of earningsCredit losses are due to
a decrease in market interest rates.
a decrease in the fair value of the investment.
an expected decrease in future cash flows due to defaults on interest or principal payments.
an expected decrease in future cash flows due to economic conditions.an expected decrease in future cash flows due to defaults on interest or principal payments.Which of the following represent differences under IFRS (as compared to U.S. GAAP) with respect to the equity method? (Select all that apply.)
The fair value option may be chosen for equity method investments
The fair value option is not available for most equity method investments
The investee must adjust its accounting policies to correspond with the investor's policiesThe fair value option is not available for most equity method investments
The investee must adjust its accounting policies to correspond with the investor's policiesNoncurrent special purpose funds set aside for a future specific use, are typically classified as
expenses on the income statement.
cash on the balance sheet.
revenues on the income statement.
investments on the balance sheet.investments on the balance sheet.Impairments of available-for-sale debt instruments are recognized in other comprehensive income
to the extent that they arise from noncredit losses
for the entire impairment amount
to the extent of the credit lossesto the extent that they arise from noncredit lossesBarber Company acquires 35% of the outstanding shares of Carter Company. Which of the following is correct?
Barber must utilize the equity method.
Barber must consolidate Carter Company.
Barber may choose to apply the fair value option.Barber may choose to apply the fair value option.Under IFRS, the entire impairment of debt investments are recognized in ______; under U.S. GAAP, if a portion of an impairment is due to noncredit losses, it is recorded in _______.
earnings; OCI
OCI; earnings
OCI; OCI
earnings; earningsearnings; OCIThe premium payments of life insurance policies with cash surrender value include (Select all that apply.)
an investment portion
a risk adjustment portion
a cancellation fee
an insurance expense portionan investment portion
an insurance expense portionCredit losses are calculated as the difference between the amortized cost of the debt and
the market value of the debt.
the principal and interest still due on the debt instrument.
the present value of future cash flows expected to be collected.the present value of future cash flows expected to be collected.Which accounting standards require the equity method for use with significant influence investees?
U.S. GAAP and IFRS
U.S. GAAP only
IFRS onlyU.S. GAAP and IFRSLosses arising from credit losses on available-for-sale debt securities are recognized in _____; noncredit losses are recognized in _____.
OCI; OCI
net income; OCI
OCI; net income
net income; net incomenet income; OCIConsistent with IFRS No. 9, impairments of debt investments will be accounted for using a
expected credit loss model.
expected cash flow model.
present value model.
fair value model.expected credit loss model.Impairments of available-for-sale debt instruments are recognized in other comprehensive income
to the extent that they arise from noncredit losses
to the extent of the credit losses
for the entire impairment amountto the extent that they arise from noncredit losses
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CSD 321 - Final
99 terms
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