F4- Module 1
Held-to-maturity securities
when investor has the ability and intent to hold the debt securities to maturity. Reported in financial statement at amortized cost.
Financial assets
- Receiving payments (Investor, bondholder or lender) Includes : - cash (e.g demand deposit and foreign currency) - evidence of ownership interest in an entity (e,g stock certificate, partnership interest . - A contract conveys to one entity a right to: -received cash or another financial instrument from second entity (bond investment or note receivable)
available for sale debt securities
- Securities not classified as held-to-maturity or trading securities - Market FV if its sold any realize gain and losses goes to IS - Market FV if securities not sold unrealized gain or losses goes to equity in "other comprehensive income". - If you buy it it is cash flow in investing. -Unrealized gain and losses from making _________ (assuming they are non- impaired) at the balance sheet date are treated as other comprehensive income items and bypass the income statement.
b. leases are not eligible for the fair value option Entities may measure certain assets and liabilities at fair value. The fair value option applies to financial assets (e.g debt and equity securities) and liabilities (e.g notes payable). Excluded from the fair value option are investments in subsidiaries, pension benefits asset /liabilities and asset and liabilities recognized under leases. Therefore fair value measurement is not option for these capital lease.
A company leases trucks and properly classifies the lease as finance lease. The leases have a 10 year term, and the lease calculations were done three years ago when interest rates were lower. Which of the following is the appropriate accounting treatment, if any, for the application of the fair value option to lease transaction ? a. recognized the change to fair value accounting with an unrealized loss in accumulated other comprehensive income. b. leases are not eligible for the fair value option c. recognized the change to fair value accounting with a cumulative adjustment to beginning retained earnings. d. recognize the change to fair value accounting with unrealized loss in the income statement.
b. the portion of the dividends received this year that were not in excess of the investors share of investees undistributed earnings since the date of investment. The amount of dividend revenue that should be reported in the investors income statement of this year would be the portion of the dividends received this year that were not in excess of the investors share of investees undistributed earnings since the date of investment. Rule: Dividend revenue, under the fair value method , should be recognized to the extent of cumulative earnings since acquisition and return of capital beyond that point.
An investor uses fair value through net income to account for an investment in common stock . Dividends received this year exceeded the investors share of investees undistributed earnings since the date of investment. The amount of dividend revenue that should be reported in the investors income statement on this year would be: a. Zero b. the portion of the dividends received this year that were not in excess of the investors share of investees undistributed earnings since the date of investment. c. the portion of the dividends received this year that were in excess of the investors share of investees undistributed earnings since the date of investment. d. the total amount of dividends received this year.
a. Gain of $10,500 These are trading debt securities, the year 2 income statement will be affected by both the realized gain from the securities sold and unrealized loss on the securities acquires in year 2: realized gain on securities sold= Sales price - carrying value = $140,500-92,000 = 12,500 Unrealized loss in securities acquired= Year ended market value - Cost = $71,000-73,000= (2,000) Total income statement impact = Realized gain (loss) + unrealized gain (loss) = 12,500+(2,000)= 10,500 gain
At the end of year 1 , Lane Co. held trading debt securities that cost $86,000 and which had a year-end market value of $92,000. During year 2, all of these securities were sold for $104, 500. At the end of year 2, lane had acquired additional trading debt securities that cost $73,000 and which had a year- end market value of $71,000. What is the impact of these transaction on Lanes Year 2 income statement? a. Gain of $10,500 b. Gain of $ 18,500 c. Gain of $16,500 d. Loss of $2,000
b. credit loss on the income statement of $0 per the current expected credit loss (CECL) model, the expected credit loss is equal to the difference between amortized cost ($1,000,000) and the present value of expected cash flows (1,015,000) is higher than amortized cost. because fair value exceeds amortized cost, the security actually produces a gain of $15,000 (the different between 1,015,000 and 1,000,000). The gain will be recorded in other comprehensive income (OCI)
Available -for-sale security purchased at par for $1,000,000 has a current fair value of 1,015,000 due to an overall decline in market interest rates. Due to cash flow concerns , the investor anticipates a reduction in interest payments from the issuer. the present value of expected cash flow from the bond is equal to $978,000. The investor will record a (n) a. unrealized loss in other comprehensive income of $15,000 b. credit loss on the income statement of $0 c. unrealized gain in other comprehensive income of $37, 000 d. credit loss on the income statement of 22,000
a. Earnings section of the income statement and writing down the cost basis of FV. Using the current expected credit loss (CECL) model , when a n available- for -sale debt security has a fair value that is below amortized cost , the asset must be written done to the lower fair value by recording a credit loss that is recognized on the income statement. Even though the fair value is above the present value of expected cash flow, an available- for sale security can be sold at any time so the credit loss is limited to the difference between amortized cost and fair value.
Based on an evaluation of current conditions and future expectations, Beach Co. determined that the decline in the fair value (FV) of debt investment was below the amortized cost but above the present value of the principal and interest expected to be collected. The investment was classified as available- for- sale on Beach books. the controller properly recorded the credit losses based on the CECL model under US GAAP by including it in which of the following? a. Earnings section of the income statement and writing down the cost basis of FV. b. Other comprehensive income section of the income statement only c. Earnings section of the income statement, net of tax , and writing down the cost basis to FV. d. other comprehensive income section of the income statement, and writing down the cost basis to FV.
c. 227,000 Although the total difference between amortized cost (250,000) and fair value (218,000) is 32,000, the credit loss is equal to the difference between amortized cost and the present value of expected cash flow (interest and principal to be received). If the credit loss is recorded $23,000, the present value must be equal to 250,000-32,000, or 227,000. the additional $9,000 difference between the PV and FV is recorded as an unrealized loss in OIC . 218,000+9,000=227,000
Based on the current expected credit loss model, a company records the following journal entry at the year end to a five year bond issued by Jenins Corp. Debit: Credit loss 23,000 Debit: Unrealized loss- AFS 9,000 Cr: Allowance for credit loss 23,000 Cr: valuation allowance 9,000 the security is classified as available for sale and has an amortized cost of 250,000 and current fair value of 218,000. based on the JE above, the present value of expected future cash flow must be close top: a. 241,000 b. 273,000 c. 227,000 d. 259,000
held -to-debt maturity debt securities
Bond investments which are intended to be held until maturity date are classified as_________ and are reported at their amortized cost (do not marked to FMV ). Investment in debt securities classified as ______ only if the corporation has the positive intent and ability to hold these securities to maturity. Reported as current or noncurrent asset based on the maturity If the intent is to hold security for an indefinite period of time , but not necessarily to maturity, then security is classified to available for sale.
b. 30,000 The unrealized gain would be accounted for in net income original Cost 150,000 market value Yr. 1 (130,000) Year 1 decrease in net income 20,000 market value year. 2 160,000 Prior year fair value (130,000) year 2 increase in net income 30,000
Data regarding Balls Corp marketable equity securities as follows: Cost Market Value 12/31/ Yr.1 150,000 130,000 12/31/ Yr.2 150,000 160,000 Differences between cost and market values are condidered temporary. The decline in market values was considered temporary and was properly accounted for at Dec. 31, Yr. 1. Balls year 2 statement of change in stock holder equity would report an increase of : a. 10,000 b. 30,000 c. 20,000 d, 0
d. Concentration credit risk - YES ; Market risk- NO Concentration risk- the risk that the other party to the instrument will not perform must be disclosed. Disclosure of market Risk - The risk from changes in market prices - is encouraged, not not required
Disclosure about the following kinds of risk are required for most financial instruments a. Concentration credit risk - YES ; Market risk- YES b. Concentration credit risk - NO ; Market risk- YES c. Concentration credit risk - NO ; Market risk- NO d. Concentration credit risk - YES ; Market risk- NO
c. 0 unrealized gains on available for sale (AFS) securities in other comprehensive income . The entire 6,000 unrealized gain (30,000 FV- 24,000 Cost basis) will go in OCI, with no amount reflected on IS .
Dodd Co.'s deb securities at December 31 included available for sale securities with the a cost basis of $24,000 and fair value of $30,000. Dodd's income tax rate was 20% . What amount of unrealized gain or loss Dodd recognized in its income statement at December 31? a. 6,000 gain b. 6,000 loss c. 0 d. 4,800 gain
c. 2,900 original cost year . 1 31,500 unrealized loss changed to income in Yr. 1 (2,000) Fair value at 12.31.Yr.1 29,500 Sales proceeds (14*2,000 sh) 28,000 less brokerage comission & taxes (1,400) -26,600 Realized loss in year 2. Income statement 2,900 Rule: Equity securities are reported at the fair value with unrealized gains and losses included in earnings. Fair value becomes the new basis (revalued cost) for computing realize gain or losses upon sale.
During year 1, Wall Co. purchased 2,000 shares to Hemp Corp. common stock for $31,500. The market value of this investment was $29,500 at Dec. 31, year 1. Wall sold all the Hemp common stock for $14 per share on Dec. 15, year 2 incurring 1,400 in brokerage commission and taxes. On the sale, wall should report a realized loss in its income statement of : a. 3,500 b. 4,900 c. 2,900 d. 1,500
c. $10,000 Equity securities reported at fair value through net income (FVTN). Unrealized holding gains losses on equity securities are included in earnings as the occur. The fair value is $10,000 less than the cost and should be recorded ad unrealized loss in net income. FV - Cost = G/L ( 286,000-296,000 =(10,000)
During year 1, scott corp. purchased marketable equity securities. pertinent data follow: market Value Seurity Cost at 12/31/Yr.1 D $36,000 $40,000 E $80,000 $60,000 F $180,000 $186,000 Total $296,000 $286,000 Scott appropriately carries these securities at market value . The amount of unrealized loss on these securities in Scott's Year 1 income statement should be: a. $20,000 b. $14,000 c. $10,000 d. $0
d. Loss of 1,200 32,000-35,0000= (3000) (3000)+1,800= 1,200 Gilman Co. would recognized a loss of 1,200. Gilman's has selected the fair value option. Therefore, the dividends of $1,800 received by Gilman Co. are recognized in net income. The unrealized holding loss on the investment of $3,000 (initial purchased of $35,000 less fair value at Dec.31 year 3 of 32,000) is also included in net income.
During year 3, Gilman Co. purchased 5,000 shares of the 500,000 outstanding shares of Meteor Corps. common stock for $35,000. During Year 3, Gilman received $1,800 of dividends from its investment in Meteor's stock. The fair value of Gilman's investment on Dec. 31, year 3 is $32,000. Gilman has elected the fair value option for this investment. What amount of income or loss that is attributable to the meteor stock investment should be reflected in Gilman's earnings for year 3? a. Income of $1,800 b. Loss of $3,000 c. Income of $4,800 d. Loss of 1,200
b. net income = $0 ; Other Comprehensive Income= $75,000 Unrealized gains and losses (assuming no impairment) on available for sale are recognized in other comprehensive income (OIC) in the period incurred. The impact of the unrealized gain or loss will show net of tax, either as an individual line item or in aggregate with other components of OIC .
Duringthe current year, Cooley Co. had an unrealized gain of $100,000 on the debt investment classified as available- for sale . Cooleys corporate tax rate is 25% . What amount on the gain should be included in cooleys net income and other comprehensive income at the end of the current year? a. net income = $100,000 ; Other Comprehensive Income= $0 b. net income = $0 ; Other Comprehensive Income= $75,000 c.net income = $25,000 ; Other Comprehensive Income= $75,000 d. net income = $75,000; Other Comprehensive Income= $25,000
b. Fair value, with holding gains and losses included in earnings . b. Fair value, with holding gains and losses included in earnings . Trading debt securities are reported at fair value , with holding gains and losses included in earnings
Entities should report marketable debt securities classified as trading at: a. Lower of cost or market, with holding gains and losses included in earnings. b. Fair value, with holding gains and losses included in earnings . c. Lower of cost or market, with holding gains included in earnings only to the extent of previously recognized holding losses. d. fair value with holding gains included in earnings only to the extent of previously recognized holding losses.
Financial assets - Whenever you receive payments Financial liability- If you have to make a payment
Financial instruments has one or two sides :
b. Recognized in earnings immediately Trading securities reflect all realized and unrealized gain and losses in earnings. A security that is classified as available for sale would have unrealized gains or losses reflected in other comprehensive income, but once it is transferred into trading category, the unrealized amounts will need to be recognize in earnings
For an available- for sale security transferred into the trading category, the portion of the unrealized holding gain or loss at the date of the transfer that has NOT been previously recognized in earnings shall be: a. Deferred and recognized when the security is sold b. Recognized in earnings immediately c. transferred to other comprehensive earnings d. amortized over the period to date of sale
- Trading Securities -Available- For Sale Securities -Held to- Maturity Securities
In US GAAP what are the 3 debt Securities portfolio classification?
c. Interest rates have increased since lee purchased the bonds. If interest have increased, then the bonds interest rate would be less attractive to investors now than when the bonds were originally issued. This would most likely cause a decline in the bonds market value. Note that because the bonds investment is classified as held to maturity , the investment will be reported at amortized cost not fair value .
In Year 1, Lee Co. acquired at a premium, Enfield, Inc. 10 year bonds classified as a held- to- maturity investment. At December 31, Year 2, Enfield bonds were quoted at a small discount. Which of the following situation is the most likely cause of the decline in the bonds market value? a. Enfield expected to call the bonds at a premium, which is less than Lees carrying amount. b. Enfield issued a stock dividend c. Interest rates have increased since lee purchased the bonds. d. interest rates have declined since Lee purchased the bonds.
d. $20,500 Stone must report a net cumulative loss on its statement of stockholder equity (under "accumulated other comprehensive income") of $22,000 (148,000 FMV- 170,000 cost) . Stone has already reported $1,500 loss as of 12/31/Yr. 1, therefore an unrealized loss of $20,500(20,000-1,500) should be reported in the statement of comprehensive income (as part of other comprehensive income ) for year 2.
Information regarding stones Co's. available- for sale portfolio of marketable debt securities is a follows: Aggregate cost as of 12/31/Yr. 2 = $170,000 market value as of 12/31/yr.2 = $148,000 At December 31, Yr.1 Stone reported an unrealized loss of $1,500 to reduce investment to market value. This was the first such adjustment made by stone on these types of securities. There is no excepted credit loss on this investment. In its year 2. statement of comprehensive income, what amount of unrealized loss should stone report? a. $30,000 b. $22,000 c. $0 d. $20,500
Debit: Unrealized loss on trading securities (NI, RE, E decrease) Credit: Valuation account (fair value adjustment) (contra asset increase and asset decrease)
JE to record loss in net income unrealized gain and losses (trading securities)
c. 2,500 1100+2500+(750)+1400+(4000) = 250 shares left 250*$10- 2,500 Equity securities are marked to fair value at the FS date. Based on activity during the year 250 shares of Flax Co. are held by Janson at year end . Based on trading price of $10 on Dec.31 the value of the investment is 2,500.
Jason traded flax Co. during year 1 as follows # of share purchase and sold Cost 02/3/ Yr.1 1,100 $11 04/15/Yr. 1 2,500 9 05/28/Yr. 1 (750) 13 07/05/Yr. 1 1,400 12 09/30/Yr. 1 (4,000) 15 No other transaction took place for Flax during the remainder of the year. At December 31, Yr. 1 Flax is trading at $10 per share. Janson traded on the last in , first out basis . What amount is the net value of the investment in Flax at year end? a. $2,7500 b. 3,750 c. 2,500 d. (250)
b. amortized cost Bond investments which are intended to be held until maturity date are classified as held to maturity securities and are reported at their amortized cost.
Kale Co. purchased bonds at a discount on the open market as an investment and intends to hold these bonds to maturity. Kale should account for these bonds at: a. fair value b. amortized cost c. lower of cost or market d. cost
b. an unrealized gain of $5,000 Equity securities are generally reported value through net income (FVTNI). Unrealized holding gains and losses on equity securities are included in earnings as they occur. (85,000-80,000 = 5,000)
Lee Corp.. reported following marketable equity security on its Dec. 31 Year1, balance sheet : Neu Corp. Common Stock, cost $100,000 Less: Allowance for decline in market value $(20,000) Balance $80,000 At December 31, year 2 the market value of Lees investment in the Neu Corp stock was $85,000. As a result of the year 2 increase in this stock market value, Lees Year 2 income statement should report: a. an unrealized loss of $15,000 b. an unrealized gain of $5,000 c. a realized gain of $5,000 d. no gain or loss
c. available for sale debt securities Unrealized gain and losses from making available for sale debt securities for fair value (assuming they are non- impaired) at the balance sheet date are treated as other comprehensive income items and bypass the income statement.
Long Co . Invested marketable securities . At year end , fair value changes in this investment were included in Longs' other comprehensive income. How Long classify this investment? a. held- to maturity securities b. trading debt securities c. available for sale debt securities d. equity securities
d. XYZ debt is classified as available for sale. if XYZ debt is appropriately classified as available for sale, that alone would not be enough of a reason to reverse a journal entry that debited an unrealized loss to OIC. Available for sale debt securities will result in losses in OIC when the fair value is below the present value of expected cash flow and the present value is below amortized cost. The loss recorded in OIC is equal to the difference between the present value and fair value. The credit loss recorded on the income statement is the difference between amortized cost and the present value.
Mary Reid is a senior accountant reviewing the year-end JE prepared by her staff accountant. Reid sees one JE that has a debit to unrealized loss for XYZ debit hitting other comprehensive income (OCI), with the notes to the journal stating that this relates to an impairment/ credit loss situation. Reid reverse the entry, believing it to be incorrect. Which of the following situation on its own not a valid reason for Reid reversing the entry? a. the fair value of XYZ debt is above amortized cost. b. the fair value of XYZ debt is above the present value of expected cash flow. c. XYZ is properly classified as held to maturity . d. XYZ debt is classified as available for sale.
d. $1,020,000 The bond investment are classified as trading securities because the bonds are held for the purpose of selling them in the near term. Trading securities are reported at fair value on the balance sheet.
On January 1 of the current year, Barton CO. paid $900,000 to purchase two- year, 8%, 1,000,000 face value that were issued by another publicly- traded corporation. Barton plans to sell the bonds in the first quarter of the following year. The fair value of the bonds at the end of the current year was $1,020,000. At what amount should Burton report the bonds in its balance sheet at the end of the current year? a. $1,000,000 b. $900,000 c. $950,000 d. $1,020,000
d. $945,000 The security would be recorded at fair value on July 2, year 1 or $910,000. Accrued interest is a receivable and does not affect cost. The $90,000 discount is not amortized on short-term investments. On December 31, Year 1, the investment would be adjusted to fair value , $945,000. The unrealized holding gain of $35,000 would be reported separate component of other comprehensive income.
On July 2, Year 1 , Wyn Inc. purchased as an available- for -sale debt security a $1,000,000 face value Kean Co. 8% bond for $910,000 plus accrued interest to yield 10%. The bonds mature on January 1, Year 7, and pay interest annually on January 1, On Dec. 31, Year 1 , the bonds had a market value of $945,000. On February 13, Year 2, Wynn sold the bonds for $920,000. In its December 31, year 1, balance sheet , what amount should Wynn report for available-for- sale investment in debt securities? a. $950,000 b. $910,000 c. $920,000 d. $945,000
a. 911,300 The carrying amount of bonds is $906,000 on July 1, year 1 (946,000-40,000) . the discount is amortized for 6 months (july 1 to Dec. 31); Interest revenue (906,000 x 10% x6/12) = 45,300 Interest receivable ($1,000,000 x8% X 6/121) = (40,000) Discount amortized = 5,300 the carrying amount on December 31, year 1 is $906,000+5,300= 911,300
On July, 1 year 1, York co. purchased as held-to maturity investment $1,000,000 of park . Inc. 8% bonds for $946,000, including accrued interest of $40,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, year 8, and pay interest annually on January 1. York uses the effective interest method of amortization . In its December 31, year 1 balance, sheet what amount should York report as investment in bonds? a. 911,300 b. 953,300 c. 916,600 d. 960,600
a. $ 24,000 Dividend income = Number of Shares X Dividend per share = 12,000 X $2 = $24,000 receipt of a stock dividends is not income. It increases the number of shares held and decreases the cost basis per share.
Plack Co. purchased 10,000 shares (2 percent ownership) of TY Corp. On Febuary 14, year 1 . Plack received dividend of 2,000 shares on April 30, year 1, when the market value per share was $35. TY paid cash dividend of $2 per share on December 15, year 1. In its year 1 income statement , what amount should Plack report as dividend income? a. $ 24,000 b. $94,000 c. $20,000 d. $90,000
c. $55,000 Unrealized holding gain on trading debt securities reported in year 2 income statement 155,000- 100,000 = 55,000 Unrealized gain, reflect in income Rule: unrealized gain and losses are reported as follows: trading debt securities reported at fair value with unrealized gains and losses included in earnings ( along with realized gains and losses, if any) available for sales debt securities reported at fair value with unrealized gains and losses reported as a separate component of other comprehensive income until realized.
The following data pertains to Tyne Co.'s Investment in marketable debt securities. Market Value Cost 12/31/Yr2 12/31/Yr1. Trading 150,000 155,000 100,000 Ava. For Sale 150,000 130,000 120,000 Note: the available for sale security is not deemed to be impaired. what amount should Tyne report as unrealized gain (loss) in its year 2 income statement? a. $60,000 b. $50,000 c. $55,000 d. $65,000
market risk
The risk from changes in market prices - is encouraged, not not required Possibility of loss from changes in market value ( not necessarily due to the failure of other party, but due to changes in economic circumstances).
concentration of credit risk
The risk that the other party to the instrument will not perform must be disclosed. - Occurs when the entity has contracts of material value with one or more parties in the same industry or region or having similar economic characteristic (eg. group of highly leverage entities) - Under US GAAP disclosures apply to all entities (except for the non public entities that have total assets < 100 million and have no instrument that are accounted for as derivatives).
a. Record a loss because amortized cost is above the present value. For held to maturity debt security based o the current expected credit loss (CECL) model, a loss is recorded when the amortized cost exceeds the present value of the principal and interest expected to be collected. The original cost and current fair value are not relevant to calculating the credit loss . because the amortized cost is between the fair and present value , and because the fair value is higher than present value , it must be case that amortized cost is higher than present value. A loss will therefore be recorded equal to the difference between amortized cost and present value.
The treasurer of the public company is reviewing the company current investment portfolio. All debt investment in the portfolio are classified as held- to maturity . For the Rangar county bond investment , the fair value is higher than the PV based on the expected future cash flows. the amortized cost is between the fair and the present values, and all the values are higher than the bonds original cost to the company. On the year-end financial statements the treasurer will: a. Record a loss because amortized cost is above the present value. b. record a loss because amortized cost is above the original cost c. not record a loss because fair value is above the PV . d. not record loss because fair value is above the amortized cost.
Sales price - Carrying value / market value = Realized gain on securities sold.
To calculate realized gain on securities sold
year end market value- Cost = Unrealized loss in securities acquired
To calculate unrealized loss in securities acquired
Dr: Unrealized loss on trading securities Cr: Valuation account (Fair value adjustment)
Trading securities Journal entry gain or loss in net income
Unrealized gains and losses ('Trading"securities)
Unrealized gain and losses of debt securities included in earnings and recognized in net income.
available for sales debt security
Unrealized gains and losses (assuming no impairment) on available for sale are recognized in other comprehensive income (OIC) in the period incurred
c. Trading - YES; Held- to-maturity - NO Trading debt securities are reported at fair value with unrealized gains and losses included earnings. Hel-d to maturity debt securities are reported at the amortized cost.
Unrealized holding gains/losses would be included in earnings for which of the following debt securities? a. Trading - YES; Held- to-maturity - YES b. Trading - NO; Held- to-maturity - NO c. Trading - YES; Held- to-maturity - NO d. Trading - NO; Held- to-maturity - YES
True
Using the current expected credit loss (CECL) model , when a n available- for -sale debt security has a fair value that is below amortized cost , the asset must be written done to the lower fair value by recording a credit loss that is recognized on the income statement True or False
d . Long -term marketable debt securities - CARRYING AMOUNT ; Short-term marketable debt securities - CARRYING AMOUNT
When the market value of an investment in debt securities in which the company has a positive intent and ability to hold to maturity exceeds its carrying amount, how should each of the following assets be reported at the end of the year? a. Long -term marketable debt securities - MARKET VALUE ; Short-term marketable debt securities - CARRYING AMOUNT b. Long -term marketable debt securities - MARKET VALUE ; Short-term marketable debt securities - MARKET VALUE c . Long -term marketable debt securities - CARRYING AMOUNT ; Short-term marketable debt securities - MARKET VALUE d . Long -term marketable debt securities - CARRYING AMOUNT ; Short-term marketable debt securities - CARRYING AMOUNT
b. the notes to the financial statements Concentration of credit risk is required disclosure in the notes to the FS.
Where in its financial statements should a company disclose information about its concentration of credit risks? a. no disclosure is require b. the notes to the financial statements c. managements report to shareholders d. supplementary information to the financial statements.
b. Carrying Value - YES ; Fair Value - YES Both carrying value(amount) and fair value must be disclosed for most financial instrument (when it is applicable to estimate fair value).
Which of the following must be disclosed for most financial statement? a. Carrying Value - YES ; Fair Value - NO b. Carrying Value - YES ; Fair Value - YES c. Carrying Value - NO ; Fair Value - NO d. Carrying Value - NO ; Fair Value - YES
Hel-d to maturity debt securities
______ are reported at the amortized cost.
Trading Security
______ securities is intended to active trading. The portfolio it self is carried cost and is reported to Fair Value in Financial statements thru the valuation account Unrealized gain or losses are reported on the Income statement. The gain and losses is including earnings.
Trading debt securities
_________ are reported at fair value with unrealized gains and losses included earnings.
Trading securities
___________ debt securities are reported at fair value , with holding gains and losses included in earnings . debt securities bought and held principally for the purpose of selling them in near term. Generally reported as current asset although they can be reported as non-current. -Current asset --> cashflow from operation - At fair value --> which all gain and losses is on IS.
Available- for -sale (AFS) securities
_______securities carried at cost and reported at fair value in the financial statement through the use of a valuation account. Unrealized gains and losses are reported in other comprehensive income ( the "U" PUFFIE)
Held-to-maturity securities
debt security based o the current expected credit loss (CECL) model, a loss is recorded when the amortized cost exceeds the present value of the principal and interest expected to be collected.
c. 11,545 the amortized cost is given as $995,182 . The present value of expected future cash flows is calculated as follows: PV of face value at maturity = 1,000,000*0.9422=942,200 Pv of interest payments (four semiannual payments remaining) = 10,750*3.8544= 41,435 PV total = 942,200+41,345 =983,635 loss= 995,182 (amortized cost) - 983,635 (PV) = 11,547 (rounded to 11,545)
the investment manager for Daxler Co. Pays $988,472 to purchase a $1,000,000 face value bond maturing in five years and paying interest semiannually at an annual rate of 2.75 percent.. The annual market rate for comparable bonds at the time of issuance is 3%. With two years remaining, the manager determines that the bond will pay the full $1,000,000 at maturity but will pay $3,000 less in the interest than planned every sis months for the remainder of the bonds life. The relevant present value factors for $1 and a $1 ordinary annuity are 0.9422 and 3.8544, respectively. If the bonds current fair value with two years remaining is $994,800 and the amortized cost of the bond is $995,182, the current expected credit loss, assuming that the bond is classified as held- to maturity is closely to: a. 6,710 b. 4,835 c. 11,545 d. 11,165
