ACCT 3113 ch. 17 pre lesson

A requirement for a security to be classified as held-to-maturity is -ability to hold the security to maturity. -positive intent. -the security must be a debt security. -all of these answer choices are correct.

All of these answer choices are correct.

Unrealized holding gains and losses from speculation in derivatives are recognized immediately in income.

True. (An unrealized holding gain or loss from speculation in a derivative is reported in the current period's income.)

GAAP requires that both the cost and fair value of all financial instruments be reported in the notes to the financial statements.

True. (Fair value disclosure requirements include reporting in the notes to the financial statements both cost and fair value for all financial instruments.)

Which of the following is included as part of comprehensive income? -Realized gains on sale of available-for-sale-securities. -Unrealized holding gains on available-for-sale-securities. -A reclassification adjustment for gains included in net income. -All of these answer choices are correct.

All of these answer choices are correct. (Comprehensive income includes realized gains on sales of available-for-sale-securities, unrealized holding gains on available-for-sale-securities, and reclassification adjustments for gains included in net income. This response is the best answer.)

When an available-for-sale equity security is sold, the gain (loss) on sale is the difference between the net proceeds from the sale and the security's:

Amortized cost. (The gain (loss) on sale of an available-for-sale equity security is the difference between the net proceeds from the sale and the amortized cost of the security.)

Accounting and reporting for equity securities where the company has 20 - 50% ownership uses which of the following methods?

Equity.

Transfers between categories of investments are accounted for at:

Fair Value.

Held-to-maturity securities are reported at fair value.

False (Held-to-maturity securities are reported at amortized cost, not fair value.)

Companies with investments accounted for using the equity method cannot elect the fair value option.

False. (Companies may elect the fair value option for investments accounted for using the equity method.)

Under the equity method, dividends received by the investor are reported as dividend revenue on the income statement.

False. (Dividends received by the investor decrease the investment's carrying amount on the balance sheet. They are not reported as dividend revenue on the income statement.)

Gains and losses resulting from changes in the fair value of trading securities are reported as unrealized gains and losses in the equity section of the balance sheet.

False. (Gains and losses from changes in the fair value of trading securities are reported on the income statement as part of net income.)

Held-to-maturity (GAAP) and held-for-collection (IFRS) investments are accounted for at fair value.

False. (Held-to-maturity (GAAP) and held-for-collection (IFRS) investments are accounted for at amortized cost.)

Separating the value of the host security from that of the embedded derivative is referred to as designation.

False. (Separating the value of the host security from that of the embedded derivative is referred to as bifurcation, not designation.)

The unrealized holding gain or loss on a fair value hedge is reported as part of other comprehensive income.

False. (The unrealized holding gain or loss on a fair value hedge is reported as part of net income.)

To highlight the levels of reliability in valuation, FASB established a fair-value hierarchy with level 1 being the least reliable and level 3 being the most reliable measurement.

False. (To highlight the levels of reliability in valuation, FASB established a fair-value hierarchy with level 1 being the most reliable and level 3 being the least reliable measurement.)

Trading securities are reported on the balance sheet at fair value.

True (Trading securities are reported on the balance sheet at fair value with the unrealized gain or loss reported in income.)

Unrealized gains and losses on cash flow hedges are reported as part of other comprehensive income.

True. (Unrealized gains and losses on cash flow hedges are accumulated in equity as part of other comprehensive income until the period in which the related asset is sold.)

The current expected credit loss (CECL) model is used to measure impairment of

debt investments reported at amortized cost.