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P.A.2 2
| Question | Answer |
|---|---|
| What is NOT a reason that companies make investments? | to reduce risk of bankruptcy |
| Short term investments are securities that | management intends to convert to cash within one year of the operating cycle, whichever is longer & are readily convertible to cash |
| What do debt securities reflect? | a creditor relationship, which includes investments in notes, bonds, or certificates of deposit |
| What do equity securities reflect? | an ownership relationship, such as investments in shares of stock |
| what is NOT a factor that helps determine how to account for investments in securities? | the dollar amount of the investment |
| What statements support reasons that companies make investments? | to produce income for pension funds & to produce higher income using excess cash |
| Interest revenue earning on debt investments is reported where? | the income statement |
| What are long-term investments in securities defined as? | as those securities that are NOT readily convertible to cash or are NOT intended to be converted to cash in the short term |
| Why is a share of stock considered an equity security? | because it represents ownership in a company. When you buy stock, you acquire a stake in the company, giving you a claim on its assets and earnings |
| BLANK are the debt investments that the company intends to buy & sell for profit | Trading securities |
| What are trading securities considered? | current assets |
| what are the three factors that help determine how to account for investments in securities? | the security type (debt or equity), the intent to hold as either short-term or long-term, & the percent ownership |
| what is unrealized gain or loss considered? | a temporary account |
| what is fair value adjustment - trading considered? | a permanent account |
| what is the group of trading securities reported together as? | a portfolio at fair value |
| when making a fair-value adjustment for trading securities, the unrealized gain or loss is-- | a temporary account & its closed to the income summary |
| BLANK securities are debt securities a company intends & is able to hold until maturity. they are reported in BLANK or BLANK, depending on their maturity date. | Held-to-maturity, current assets, long-term assets |
| Available securities are reported-- | at fair value |
| unrealized losses are reported in | the equity section of the balance sheet |
| available for sale securities are | debt investments NOT classified as trading or held-to-maturity securities |
| Earnings from long-term investments in equity securities influence is reported in | the earnings from equity method investments account. This account is a temporary account, & is reported on the income summary |
| an investor who owns more than BLANK of a company's voting stock has control over the investee | 50% |
| the consolidation method is used to account for-- | long-term investments in equity securities with controlling influence |
| Income from long-term investments in equity in securities with significant influence is reported in | the earnings from equity method investment account. this account is a temporary account, closed to the income summary account |
| the BLANK method states that the controlling investor is called the parent & investee is called the subsidiary | consolidation |
| the controlling investor is called the | parent |
| the investee is called the | subsidiary |
| BLANK is defined as all changes in equity during the period EXCEPT those from owners' investments & dividends | comprehensive income |
| Other comprehensive income includes-- | unrealized gains & losses on available-for-sale securities, foreign currency translation adjustments, & other adjustments |
| the reporting method for trading-- | is fair value |
| the reporting method for held-to-maturity is | cost |
| the reporting method for significant influence is | equity method |
| the reporting method for controlling influence is | consolidation |
| comprehensive income is computed by adding or subtracting-- | other comprehensive income by net income |
| what are motivations for investments? | companies invest extra cash into investments to earn more income, some entities are set up to earn more income from investments, & companies make investments for strategic reasons |
| short term investments are securities that | management intends to convert to cash within A YEAR. They are also current assets |
| Long term investments are | NOT intended to be converted to cash in the SHORT TERM, & are reported in the NONCURRENT SECTION OF THE BALANCE SHEET, often in its own category |
| debt securities are | a reflection of a creditor relation & are investments in bonds issues by components or governments |
| equity securities are | a reflection of an owner relation & are investments in shares of stock issued by companies |
| what are the three factors that accounting for investments depend on? | security type: debt or equity. intent to hold the security short or long term. & Percentage ownership in another company's equity securities |
| Debt investments are recorded at...what? | Cost |
| what are trading debt investments? | actively bought & sold for profit, always CURRENT assets, portfolio reported at FAIR VALUE, & unrealized gain or loss from change in fair value reported on the INCOME STATEMENT |
| unrealized gain (or loss) for trading debt investments are | income reported in the other revenues & gains (expenses & losses) section on the income statement. it is a TEMPORARY account. |
| fair value adjustment for trading debt investments are | a permanent account |
| Held-to-Maturity debt investments are | debt securities companies intend to hold to maturity. |
| Held-to-Maturity debt investments are recorded as | current assets if maturity dates are within one year. Long-term investments in their maturity dates are longer than one year. Portfolio of these securities are reported at amortized cost. There is no fair value adjustment to the portfolio. |
| Available-for-Sale debt investments are | debt investments NOT classified as trading or held-to-maturity. |
| Available-for-Sale debt investments are recorded as | short-term investments if intent to sell within one year. Otherwise, classified as long-term investments. Portfolio is reported at fair value, & unrealized gain or loss from change in fair value reported in the equity section of the balance sheet. |
| are Available-for-Sale debt investment permanent or temporary accounts? | permanent |
| what does insignificant influence mean? | when you own under 20% of a company's stock |
| what is insignificant influence's accounting method? | fair value method |
| what does significant influence mean? | when you own 20-50% of a company's stock |
| what is significant influence's accounting method? | equity method |
| what is controlling influence mean? | when you own more than 50% of a company's stock |
| what is controlling influence's accounting method? | consolidation method |
| equity investments are recorded at | Cost when acquired, including any commissions or brokerage fees paid. |
| unrealized gain (or loss) for insignificant influence is | income, a temporary account, & is reported in other revenues & gains (expenses & losses) section on the income statement |
| Information on the statement of cash flows helps users answer all of the following questions EXCEPT | why did the company invest in long-term assets? |
| which of the following questions could NOT be answered from the statement of cash flows? | what are the earnings-per-share of common stock? |
| a cash equivalent must satisfy what two criteria? | 1. be readily convertible to a known amount of cash & 2. be sufficiently close to maturity so its market value is unaffected by interest rate changes |
| a BLANK occurs when the receipts in a category exceed to payments | net cash inflow |
| what questions can be answered by the statement of cash flows? | can the company pay its debts? How does a company spend its cash? does the company have the resources to pursue opportunities? |
| what does operating activity include? | transactions & events that affect net income, including purchase of goods & services, cash sales to customers, & payments of operating expenses |
| which of the following transactions would NOT be classified as an operating activity on the statement of cash flows? | cash dividends paid to shareholders |
| what activities include those transactions & events such as lending & collecting money for notes receivable & cash receipts from sale of short-term investments? | investing |
| what occurs when the payments in a category exceed the receipts? | a net cash outflow |
| what following transaction would NOT be reported under investing activities in the statement of cash flows? | cash paid for interest on long-term notes |
| what activities include those transactions & events that affect long-term liabilities & equity, such as obtaining cash from issuing debt & distributing cash to owners? | financing activities |
| The purchase of goods & services, the sale of goods & services to customers, & costs to operate the business are all reported on the statement of cash flows under what? | operating activities |
| which of the following items would be reported under financing activities on the statement of cash flows? | cash paid to repay debt. cash dividends paid to shareholders. cash received from issuing notes payable |
| what transactions would be reported under cash flows from operating activities? | cash paid to lenders for interest. cash received from sales. cash paid for salaries & wages. |
| what items are classified as noncash investing & financing activities? | conversion of preferred stock to common stock. lease of assets in a long-term lease transaction. retirement of debt by issuing stock. |
| collecting money for notes receivable would be reported on the | statement of cash flows as an investing activity |
| the statement of cash flows reports noncash investing & financing transactions in | a note or separate schedule |
| in a statement of cash flows, cash received from the sale of a building would be classified under | cash flows from investing activities |
| the presentation of what section is sown differently depending on if the statement of cash flows is reported using the direct or indirect method? | operating |
| which of the following would NOT be reported under financing activities on the statement of cash flows? | cash received from sale of plant assets |
| the BLANK method of reporting statement of cash flows separately lists operating cash receipts & operating cash payments. The cash payments are subtracted from cash receipts to determine the net cash provided (used) by operating activities | direct |
| which of the following items is a noncash investing & financing activity that must be reported in a note to the statement of cash flows | retirement of debt by issuing stock & lease of an asset in a long-term lease transaction |
| the BLANK method of reporting the statement of cash flows reports net income & then adjusts it for items that do not affect cash | indirect |
| the format of a statement of cash flows includes reporting cash flows from three activities including | operating, financing, & investing |
| the indirect method of computing & reporting net cash flows from operating activities involves adjusting what to obtain the net cash provided or used by operating activities | net income |
| what method separately lists each major item of operating cash receipts & operating cash payments. The cash payments are subtracted from cash receipts to determine the net cash provided (used) by operating activities? | direct |
| which of the following items would be adjusted to net income when computing cash flows from operating activities, using the indirect method? | loss on sale of investment, gain on sale of building , depreciation expense |
| both the direct & indirect methods of operating activities report which of the following items? | net cash inflows (outflows) |
| which of the following items would NOT be adjusted to net income when computing cash flows from operating activities, using the indirect method? | cash received from sale of building |
| which of the following items would be added to net income when reporting cash flows from operating activities, using the indirect method? | increase in unearned revenue & increase in accounts payable |
| when creating a statement of cash flows using the direct method, loss on sale of assets is | never reported |
| when creating a statement of cash flows using the direct method, depreciation is | not reported |
| what is earnings from equity method investments for a significant stock influence? | a temporary account closed to the income summary at period end |
| book value of investment will equal | cost + share earnings - share of dividends |
| what does the investor report pertaining to controlling influence? | they report consolidated financial statements |
| what is a consolidated financial statement? | it shows the financial statements of ALL entities under parent's control, including all subsidiaries |
| the controlling investor is called the | parent |
| the investee is called the | subsidiary |
| what is comprehensive income? | the total change in equity for a reporting period other than from transactions with owners |
| what are the comprehensive income reporting options? | 1. separate statement of comprehension income that follows the income statement ( the most common ) 2. Lower section of the income statement (as a single, continuous statement of income & comprehensive income |
Created by:
leestudymaster
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