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