CPA FAR 5(Cash and Investments)
Which should be disclosed in the notes to the financial statements? Compensating Balance or Restricted Cash
BOTH Cash amounts designated for special uses should be separately presented. For example, cash restricted for bond sinking funds should be separately stated from cash and disclosed in the financial statements. As part of an agreement regarding either an existing loan or the provision of future credit, a borrower may be required to keep an average or minimum deposit with the lender. This compensating balance not only increases the effective rate of interest paid by the borrower but also creates a disclosure issue because the full amount reported in the cash account might not be available to meet general obligations.
At December 31, Hull Corp. had the following equity securities that were purchased during the year, its first year of operations: In current: Cost FV Unrealized Gain(loss) Security A 90,000 60,000 (30,000) Security B 15,000 20,000 5,000 TOTALS 105,000 80,000 (25,000) noncurrent: Cost FV Unrealized Gain(loss) Security Y 70,000 80,000 10,000 Security Z 90,000 45,000 (45,000) TOTALS 160,000 125,000 (35,000) All changes in fair value are considered temporary. Security A is a trading security, and the other securities are available-for-sale securities. What amounts should be charged to earnings and other comprehensive income at December 31?
Earnings = ($30,000) OCI = ($30,000) The unrealized holding loss $(30,000) on the trading security (Security A) is included in earnings. Unrealized holding gains and losses on available-for-sale securities, whether classified as current or noncurrent, are included in other comprehensive income until realized, assuming they are not designated as being hedged in a fair value hedge. Hence, the net debit to other comprehensive income is $30,000 ($45,000 loss on Z - $10,000 gain of Y - $5,000 gain on B).
When the fair value of an investment in debt securities exceeds its carrying amount, how should each of the following assets be reported at the end of the year? Held-to-Maturity Securities - Available-For-Sale Securities
Held-to-Maturity Securities - Carrying Amount Available-For-Sale Securities - Fair Value
A company has a 22% investment in another company that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements? - The reason for the company's decision to invest in the investee company. - The company's accounting policy for the investment. - The names and ownership percentages of the other stockholders in the investee company. -Whether the investee company is involved in any litigation.
answer (The company's accounting policy for the investment.) is correct. A company is required to disclose its accounting policies for equity method investees. Disclosures for an investment accounted for under the equity method should also include (1) the names and company's percentage of ownership in each investee; (2) the difference, if any, between the carrying amount of the investment and the underlying equity in the net assets of the investee; and (3) the accounting method applied to the difference.
Pal Corp's current year dividend income included only part of the dividend received from its Ima Corp. investment. The balance of the dividend reduced Pal's carrying amount for its Ima investment. This reflects the fact that Pal accounts for its Ima investment by the a) Fair value method or cost method, and only a portion of Ima's dividends represent earnings after Pal's acquisition. b) Cost method, and its carrying amount exceeded the proportionate share of Ima's fair value. c) Equity method, and its carrying amount exceeded the proportionate share of Ima's fair value. d) Equity method, and Ima incurred a loss in the current year.
answer (a) is correct. Under the fair value method or cost method, dividends from an investee should be accounted for by the investor as dividend income unless a liquidating dividend is received. A liquidating dividend occurs when the total accumulated dividends received by the investor since the date of acquisition exceed the investor's proportionate share of the investee's net accumulated earnings during that time. A liquidating dividend is treated as a reduction in the carrying amount of the investment rather than as dividend income. The portion of the dividends received that was not in excess of the investor's share of investee's earnings subsequent to the date of investment is reported as dividend revenue.