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My CPA-FARmodule16

Notecards I made from Wiley's 2012 CPA Exam Review

What are the three categories for debt securities? How about equity security categories? 1. trading, available for sale, and held to maturity 2. ownership interests (stock), rights to acquire ownership interests, and rights to dispose ownership interests
What are equity securities recorded at? Cost, which means cash paid, or in non cash transactions the FV of securities received or resources sacrificed (whichever is more clearly determinable)
At what percentage of voting stock owned is the equity method used for valuation? How about the percentage needed for the balance sheet presentation to need consolidated financial statements? Percentage to be thought of having significant influence? 1. >20% 2. > 50% 3. > 20%
What type of securities are in the held-to-maturity category? What requited? What are they carried at? What classified as on BS? Statement of cash flows? 1. only debt securities 2. positive intent and ability to hold the security 3. amortized cost using the effective interest method (unrealized gains/losses are not reported) 4. current or noncurrent on individual basis 5. investing activity
What is classified as a trading security? What are they carried at? What gains are included in income? How are dividends treated? Reported as on BS? Statement of cash flows? 1. Debt/equity securities purchased for gains on resale 2. Current MV 3. Realized and unrealized gains 4. income when declared by investee; > cumulative earnings since bought excess is liquidating dividend 5. current or noncurrent 6 operating or inve
What is classified as a available-for-sale security? What's included in earnings? What are they carried at? Where are unrealized gains/losses recognized? Where recognized on BS? Statement of cash flows? 1. debt/equity securities that dont fit other classifications 2. realized gains & losses, dividends, interest income 3. Current MV 4. change in value reported as other comp. income 5 Current or noncurrent based on intent of holding period 6 investing
If a security investment needs to be reclassified, at what value does this occur? With respect to unrealized gains/losses what happens: Transfer to trading? From trading? Held to available? available to held? 1. FV taking into account unrealized gains/losses 2. recognize immediately 3. don't reverse amt previously recognized in income 4. report as accumulated other comprehensive income 5. report as AOCI & amortize over remaining life
If significant influence exists through ownership of stock, what method is required for recording these investments? Equity method
Describe the equity method for recording investments. 1. record cost of investment in investment account 2. investor recognize amt of % ownership shares of change in investee's net assets (dividends, earnings) 3 dif btw FV & BV related to asset with useful live amortized (straight line) to investment accou
Under the equity method, how are dividends received treated? reduction in investment balance sheet account, not part of the income from investment account
When changing to the equity method, how is the investment account adjusted (affect on income and RE)? retroactively and income and RE must be retroactively restated. Done with investment account and RE debit/credit to put at amount it would be at under the equity method - Reverse unrealized gains/lossess too
When changing from the equity method, is retroactive restatement needed? No, not allowed - earnings and losses previously recognized remain a part of the carrying amount
What debits are done to the investment account? under equity method Original cost, % share of investees income since acquired, amortize excess BV over cost, if increase % above 20; retroactive adjustment for change in equity
What credits are done to the investment account? under equity method % share of investees losses since acquired, % share dividends received, amortize excess cost over BV, sales of investment in stock
If an entity elects to value its securities at FV, how is it revalued? what happens to gains or losses in the period? When can a company elect to use it? 1. at FV 2. recorded in earnings for the period 3. date an investment is first recognized or if acquire >20% but already valued at FV can elect to stay that way and not use the equity method
When stock rights are offered (first offer to purchase additional common stock below existing market price to current shareholders) at what amount should they be allocated? between MV of the rights and MV of the stock, done with the following formula; MV of right / (MV of right + MV of stock)
How are stock rights recorded when receive the rights? when exercised? if rights lapse 1. D: Investment in stock rights, C: Investment in common stock 2. D: Investment in common stock, C: Investment in stock rights, Cash 3. D: Loss on expiration of stock rights, C: investment in stock rights
What is meant by cash surrender value of life insurance? what is the entry to record insurance premiums? 1. a noncurrent investment when the company is the beneficiary (not the employees) 2. D: Insurance expense, Cash surrender Value, C: Cash
Under IFRS, what are the classifications for financial instruments? FV through profit or loss (includes financial assets in the held for trading category), held to maturity, available for sale, or loans and receivables
Under IFRS, what is done with the FV through profit or loss classification at the end of each period? Can it be elected to be used instead of other classifications? 1. remeasured at FV, profit or loss is recorded in that period 2. yes for asset normally classified as available for sale or held to maturity (needs an active market to determine FV, may not be subsequently reclassified)
Under IFRS, Describe the held to maturity classification. The available for sale classification. 1. recorded at cost, subsequently measured at amortized cost using the effective interest method 2. measured at FV income/ loss is recognized in other comprehensive income for the period
Under IFRS, how are investments in affiliates accounted for? either the equity method (>20% stock owned) or the FV through loss or profit method... point of note, goodwill is not recognized like it would be in US GAAP
Created by: Bsantoro
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