Acc 440 Exam One: Investments

Front 1

What is accrual accounting?

Back 1

wealth and wealth activities

Front 2

features of an economic model (4)

Back 2

assumptions, a formal model, outcomes, tests of the model

Front 3

measures wealth, verifiable, conservative, matching principle, faithful representation, going concern--these are all

Back 3

assumptions of the ACC model

Front 4

the formal part of the ACC model includes the 2 mathematical equations:

Back 4

DR = CR
assets = liabilities + shareholders' equity

Front 5

outcomes of an accounting model would include

Back 5

financial statements

Front 6

Do investors use financial statements? Does the market react? These are __ included in the ACC model

Back 6

tests

Front 7

Problem with the ACC model:

Back 7

is only includes ACC events and is thus biased

Front 8

the difference between interest payment and actual interest revenue hits the ___ account and changes ___

Back 8

discount/premium
the value of our investment in the books

Front 9

HTM classification requires that the company have

Back 9

positive intent and ability to hold to maturity

Front 10

the accounting treatment of HTM securities is

Back 10

amortization (NO fair value)

Front 11

If a company is trading securities for short-term gains, these securities would be classified as

Back 11

trading

Front 12

The ACC treatment for trading securities is

Back 12

mark to market (fair value)

Front 13

For trading securities, short-term gains/losses are recorded on the

Back 13

I/S

Front 14

If a company is willing to sell but not actively trading securities, they are

Back 14

AVS (available for sale)

Front 15

the ACC treatment of AVS securities is

Back 15

fair market value (mark to market)

Front 16

For equity securities, the AVS and trading classifications (NO HTM) only apply when

Back 16

ownership in the investee is less than 20%

Front 17

Short-term unrealized gains/losses for AVS securities are recorded on the

Back 17

Statement of Shareholders' Equity

Front 18

We must use the equity method of ACC if ownership in investee is between

Back 18

20% - 50%

Front 19

50% or greater investment in a company requires the use of ___

Back 19

consolidation accounting, which we do not cover

Front 20

amortized cost =

Back 20

face amount (cost) less unamortized discount (or plus unamortized premium)

Front 21

Net unrealized holding gains and losses is what kind of account?

Back 21

I/S for trading, S/E for AVS

Front 22

fair value adjustment is what kind of account?

Back 22

it is an adjunct account to investments on the balance sheet

Front 23

investments in trading securities have what affect on OCI?

Back 23

NONE

Front 24

Cash flows from buying and selling trading securities are generally classified as

Back 24

operating activities

Front 25

Below net income on the I/S is an extra section called __. Adding this to net income results in __.

Back 25

other comprehensive income (OCI)
comprehensive income

Front 26

AVS securities' gains/losses are accumulated in what account?

Back 26

accumulated other comprehensive income (AOCI) in the shareholders' equity section of the balance sheet

Front 27

cash flows from buying and selling AVS securities are generally classified as

Back 27

investing activities

Front 28

any unrealized holding gain or loss at reclassification should be accounted for

Back 28

in a manner consistent with the classification into which the security is being transferred

Front 29

if an investments' value declines for reasons that are "other than temporary", __

Back 29

we must impair the investment and record a loss on the I/S

Front 30

net assets =

Back 30

assets - liabilities
shareholders' equity

Front 31

Under the equity method, the asset recorded at cost increases for ___ and decreases for __

Back 31

share of investee NI
share of investee dividends

Front 32

If an investor own 20% of stock, they still might not have significant influence. List the possible scenarios in which this may be the case.

Back 32

1. investee challenges investor influence through litigation or other methods
2. investors signs agreement to surrender significant shareholder rights
3. investor cannot gather sufficient info to apply equity method
4. investor tries and fails to gain representation on board of directors

Front 33

the carrying amount of an investment under the equity method is

Back 33

increased by % share of income (decreased by loss)
and
decreased by dividends paid

Front 34

___ or ___ are both names for a company in which an investor has significant influence

Back 34

affiliate or associate

Front 35

Under the equity method, dividends are

Back 35

NOT income; they are a return of investment/capital

Front 36

identifiable net assets do not include

Back 36

goodwill

Front 37

A company's assets at BV will usually be lower than the company's FV because

Back 37

the company records assets at historical costs and may depreciate them
and a company is worth more than the sum of its parts (consider goodwill)

Front 38

analysts would be interested in what kinds of things about associates?

Back 38

1. if they are in the same business and subject to same risks
2. if there is debt or other guarantees
3. is affiliate is not publicly traded and may be buried in footnotes
4. if investment's goodwill is impaired and why

Front 39

Under the equity method, investments are amortized for ___ and ___ by Dr. __and Cr. __ for the percentage change that corresponds to the percentage owned of affiliate

Back 39

sale of inventory, depreciation of assets
Income from affiliate, Investment in Co. X