GR 9
What type of securities can be classified as held-to-maturity?
debt
Dividends cause the investor's investment in the investee's net assets to
decrease
If an investee company reports a net loss, the investor's equity method investment account will
decrease
For held-to-maturity debt instruments, the difference between fair value and amortized cost must be _________ in a ________ to the financial statements.
disclosed in a note
Which types of investments are reported at fair value?
- Available for sale - Trading
Additional adjustments under the equity method affect which accounts?
- Investment - Income from investment
Greenly Company acquired $40,000 face amount bonds of Neumann Company. Greenly can expect to receive the following cash flows from its investment
- Principal - Interest
What conditions must be present for debt security to be classified as "held-to-maturity?"
- The investor has the ability to hold the security until maturity - The investor intends to hold the security until maturity
What are the valuation methods used over the life of an investment classified as trading securities?
- cost - fair value
Significant influence is typically assumed if the investor owns atleast _____ percent of the equity of the investee
20
Net fair value adjustments to date - net holding gains and losses to date
Accumulated other comprehensive income
Investments classified as held-to-maturity, for which the fair value option is not chosen, are reported at
Amortized cost
Which of the following events is of little importance if an investment in debt securities is held to maturity.
Changes in fair value during the holding period
Parent issues financial statements that include the financial statements of the subsidiary
Consolidated
Andrea company purchases 30% of Sander Company's outstanding stock for $420,000. Andrea should record this investment at
Cost
Investments classified as "available-for-sale" securities are initially recognized at
Cost
Trading securities typically are classified in the balance sheet as
Current assets
At the end of the accounting period, trading securities must be adjusted to
Fair value
Investments classified as "available-for-sale" securities are reported at
Fair value
______________ ___________ earned on an investment in trading debt securities is calculated based on amortized value times the effective interest rate
Investment revenue
Interest revenue is calculated based on the _____________ interest rate.
Market
Realized gains and losses from the sale of AFS securities
Net income
Current period holding gains and losses
Other comprehensive income
Investor who controls another entity through majority stock ownership
Parent
If a bond sells for more than its maturity value, the bond sells at a
Premium
The price of a bond is equal to
Present value of future cash receipts
Holding gains and losses associated with investments properly classified as "trading securities" are
Recognized as part of income
The determining factor that affects financial accounting and reporting for investments is whether the investor exerts ______________ _____________ over the operating and financial policies of the investee
Significant influence
Von Company properly applies the equity method in accounting for its investment in Neumann Inc. Von apparently has ____________ ____________ with respect to Neumann Inc.
Significant influence
Company that is controlled by another entity
Subsidiary
Investments in debt or equity securities acquired principally for the purpose of selling them in the near term are classified as ________________ securities
Trading
The factor that determines accounting for investments is the ___________ that the investor has over the investee
influence
Cash flows from buying and selling held-to-maturity securities are typically classified as _____ activities on the Statement of Cash Flows.
investing
The primary reasons why holding gains and losses relating to held-to-maturity securities are not recognized even though they are recognized for trading and AFS securities probably is that the information is ___________ ________________
less relevant
If the interest rate paid on a bond is lower than the market interest rate, the bond will sell for an amount that is
less than its maturity value
investors use this rate when investing in bonds
market interest rate
If a company holds bonds that are not actively traded, it can estimate the fair value of those bonds by using ____________ ____________ techniques
present value techniques
Characteristics that support classification of investments as trading securities include:
- Motivation to realize short-term profits - Frequent and active trading
Which are the possible categories for the purpose of classifying investments in the stock of another company?
- No significant influence or control - Control - Significant influence
What information is necessary to calculate cash interest each period?
- Par value of debt instrument - Stated interest rate (stated rate x face amount)
An investor is assumed to have control over the investee company if the investor owns _______ of the investee's outstanding voting shares.
More than 50%
What are the classifications possible for investments in which the investor does not exert significant influence?
Trading securities, available-for-sale securities, and held-to-maturity securities
Journal entry for dividends received on investments
credit to investment revenue
Kuhn Company purchases an investment in equity securities and lacks significant influence. Kuhn may elect to value the investment at
fair value
