Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Acct II Exam 1
Key Concepts
| Question | Answer |
|---|---|
| What is a held to maturity debt investment? | A debt investment used for debt for which the investor has the positive intent and ability to hold the maturity |
| What is a HTM debt investment reported at in the balance sheet? | At amortized cost |
| How are fluctuations in fair value recorded for a HTM investment? | Not recognized |
| What is a trading security debt investment? | A debt investment used for debt that is held in an active trading account for immediate resale |
| What is a TS debt investment reported at in the balance sheet? | At fair value |
| How are fluctuations in fair value recorded for a TS investment? | Recognized in net income, therefore in retained earnings (part of shareholders' equity) |
| What is an available for sale debt investment? | A debt investment used for debt that does not qualify as HTM or TS |
| What is an AFS debt investment reported at in the balance sheet? | At fair value |
| How are fluctuations in fair value recorded for an AFS investment? | Recognized in other comprehensive income, therefore in accumulated other comprehensive net income |
| What is the journal entry for purchase of a discount debt investment? | Investments Discount Cash |
| What is the journal entry for purchase of a premium debt investment? | Investments Premium Cash |
| What is the journal entry for interest received on a debt investment? | Cash Discount Interest Revenue |
| How do you record the sale of HTM bonds? | Cash Discount Investments Gain (Loss is debited) |
| When recording HTM bonds when is a gain or loss recognized? | Only when the bonds are sold, as gains and losses are not recognized for fair value changes |
| How do you adjust TS to fair value? | Fair Value Adjustment Gain (Unrealized NI) |
| When selling TS what must you first do? | Adjust the TS to fair value |
| How do you record the sale of TS bonds? | Cash Discount Investments FV Adjustment (Removes balance) |
| How do adjust AFS to fair value? | FV Adjustment Gain (Unrealized OCI) |
| When selling AFS what must you do? | Adjust the AFS to fair value and then reclassify them |
| What is the journal entry for reclassification of AFS? | Reclassification (OCI) FV Adjustment (Debited or credited depending on balance) |
| How do you record the sale of AFS bonds? | Cash Discount Investments Gain (NI) |
| What method is used when the investor lacks significant influence? | Fair Value through Net Income Method |
| What percent must an owner have to hold significant influence? | 20 to 50% |
| What method is used when the investor has significant influence? | Equity Method |
| How do you record the purchase of an equity investment? | Investment in Equity Cash |
| How do you record the share of net income when using the equity method? | Investment in Equity Investment Revenue (Based on % of ownership) |
| Which equity investment method adjusts to fair value? | Fair Value through Net Income Method |
| How do you record dividends received with the Fair Value method? | Cash Dividend Revenue |
| How do you record dividends with the Equity Method? | Cash Investment in Equity Affiliate |
| Should fair value equities be adjusted to fair value before being sold? | Yes |
| How do you record the sale of a fair value equity? | Cash FV adjustment Investment in Equity |
| How do you record the sale of a equity method investment? | Cash Loss (NI) (can be a gain) Investment in Equity |
| What is an accounts payable liability and why is it a liability? | Obligations to suppliers of merchandise and services |
| What is a notes payable liability and why is it a liability? | A short term loan used for temporary financing |
| What is an accrued interest liability and why is it a liability? | Interest that has been built up but not yet paid |
| What is an accrued wages liability and why is it a liability? | Compensation that occurs when employees have provided services that are not yet paid (paid after financial statement date) |
| What is a deferred revenue liability and why is it a liability? | Customer advances that will be satisfied at a later date |
| When can current liabilities be classified as long-term? | If the company intends to refinance on a long-term basis and demonstrates the ability to do so |
| When can long-term liabilities be classified as current? | When they become payable within a year, or if the debt is callable or violates a provision of the debt agreement, or if a violation is not corrected within the grace period |
| What is a contingency? | An existing, uncertain situation involving a potential loss or gain depending on a future event |
| When are loss contingencies recorded and disclosed? | When the likelihood is probable and the dollar amount is either known or reasonably estimated |
| When are loss contingencies only disclosed? | When the likelihood is probable and the dollar amount is not reasonable estimate, or when the likelihood is reasonably probable |
| When are loss contingencies ignored? | When the likelihood is remote |
| When are gain contingencies recognized? | Only after the event occurs |
| How are loss contingencies treated under IFRS? | Disclosure of two types: possible obligations who existence will be confirmed by future events the company does not control and a present obligation for which either it is not probable a future outflow will occur or the amount cannot be measured reliably |
| How does IFRS define probable? | More Likely Than Not (More than 50%) which is a lower threshold than GAAP's probable |
| What part of the range does IFRS use? | Midpoint range to estimate expenditure |
| How do you determine the selling price of a bond? | The bond price equals the present value of the principal payable at maturity plus the present value of the periodic interest cash payments |
| How do you determine interest expense on a bond? | Interest expense is the effective rate (market rate) times the outstanding balance |
| How do you determine interest paid on a bond? | Interest paid is the stated rate times the face amount |
| How do you account for interest under the effective interest method? | Cash interest (stated rate x face amount), Effective interest (market rate x outstanding balance). Ef Int - Cash Int = Increase in balance |
| How do you account for interest under the straight line method? | Cash interest, Increase in balance = (difference between face value and outstanding balance) / Number of periods, Effective interest (Cash interest + increase in balance) |
| What is early extinguishment of debt? | When debt is retired prior to its scheduled maturity date. The account balances of debt must be removed and the difference between outstanding debt and amount paid to retire is a loss or gain |
| How do we record early extinguishment of debt? | Bonds Payable (face amount) Loss on Early Extinguishment (call price - out balance) Discount on Bonds Pay (face amount - out balance) Cash (Call price) |
| What is a conversion option on a bond? | Bonds that can be exchanged for shares of stock at the option of the investor |
| How do you record the issuance of a convertible bond? | Cash (Market % x face) Convertible Bonds Payable (Face amount) Premium on Bonds Payable (Difference) |
| What is a detachable stock warrant on a bond? | It gives the investor an option to purchase a stated number of common share stocks at a specific price which can be independent in the market from the bonds |
| How do you record the issuance of a detachable stock warrant bond? | Cash (market % x face) Discount on bonds payable (difference) Bonds payable (face) Equity - stock warrants (bonds x warrant x price) |
| Revenue for gift card breakage should be recognized when? | When the probability of gift card redemption is viewed as remote |
| At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent what? | Liabilities until the product or service is provided |
| Gain contingencies usually are recognized in the income statement when? | The gain is realized |
| Bonds usually sell at their what? | Present value |
| Bond X and Y both are issued by the same company. Each bond has a maturity value of $100,000 and each pays interest at 8%. The current market rate of interest is 8%. Bond X matures in 7 years while bond Y matures in 10 years. What will they sell for? | Both bonds sell for the same amount |
| Auerbach Incorporated issued 4% bonds in 2024. The bonds have a maturity date of 2034 and a face value of $300 million. The bonds pay interest semiannually, beginning. The effective interest rate was 6%. Auerbach issued the bonds for what? | At a discount |
| Bonds were issued at a discount. What happens in the bond amortization schedule? | Total effective interest over the term to maturity is equal to the amount of the discount plus the total cash interest paid |
Created by:
Faith64
Popular Accounting sets