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63 Cards in this Set

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  • Back
Financially what does recording Bad Debts Exp do?
Decreases NI, Net A/R, current assets & working capital.
What's the PV of a note issued for cash?
It's equal to the cash proceeds received.
What are two parts of factoring?
1 With recourse
2 Without recourse
How do you record non-int bearing notes or "other" notes?
At PV or value of the property, good or service exchanged, whichever is more clearly determinable.
What is a non-int bearing note?
Interest is included in the face amount.
How do you record a note that is exchanged for cash & promise to provide merchandise at a discount?
AT PV. The diff btw the FV & cash payments is recognized as interest revenue over the contract life and is recorded as part of the cost of the related merchandise.
What are the 3 methods of measuring impairment?
1 PV Method - PV of future principal & int cash inflows.
2 Market Price Method - loans observable mkt price
3 FV of collateral method - FV of collateral pledged, if the loan is collateral dependent, if foreclosure use this method.
Where are changes in FV reported for Trading Securities?
Current Inc
What kind of equity securities are usually treated using the cost method?
Trading & AFS
How are all securities initially recorded?
At Cost
What is a financial instrument?
Cash, evidence of an ownership interest in an entity or contract that does both: obligation & right
How are dividends received accounted for in Trading or AFS Securities?
In current income
Where are changes in FV reported for AFS securities?
OCI
When a company owns stk in another corp, what are the 3 methods to account for the investment?
1. Cost
2. Equity
3. Consolidated
When disposing an equity method investment should you recognize a G or L?
Yes. Diff btw the carrying amount of the investment and its sale price.
When changing from equity method to cost method, whats the cost basis?
Carrying amount of the investment at the date of the change.
When is the only time a loss in value of an equity method investment should be recognized?
If other than temporary
HTM are what kind of securities?
Debt
What is a liquidating dividend?
Dividend distributions in excess of earnings subsequent to acquisition.
A valuation allowance account is used for unrealized holding G/L's for what kind of securities?
Trading or AFS
When are realized G/L's recognized under the cost method?
Upon disposal to the extent that the proceeds received differ from the carrying amount of the investment.
What's the JE for dividend declared under the equity method?
Dr Receivable
Cr Investment
Do you have to allocate the carrying amt of an investment when stk rights are received?
Yes. Btw the investment and the rights. Based on the ratio of the market value of the stk & the market value of the rights.
Do you ever adjust the investment acct for earnings or dividend distributions under the cost method?
No. except for liquidatiing dividend
What's the JE for recognizing share of income under the equity method?
Dr. Investments
Cr. Inv Inc
Do changes in the market value of the investees stk affect the investment under the equity method?
No
Is the equity or cost method more consistent with accrual accounting?
Equity
In lump sum purchases, how various securities priced?
Relative to their FV's.
Is accrued interest part of the cost of debt securities?
No
Are HTM securities adjusted for unrealized holding G & L's?
No. But FV must be disclosed!!
What's the credit side of a JE to record the FV increase in an AFS security and where is it on the I/S?
Unrealized holding gain & its in OCI
How is a decline in FV that is other than temporary accounted for under AFS or HTM?
Write the investment down to FV & a realized loss is recognized in current earnings.
When changing from the cost method to the equity method do you adjust prior periods?
Yes
If a partial disposal of an Equity Method investment makes it less than 20%, should you stop accruing your share of the investee income?
Yes. Change in the method of accounting must be made to the cost method.
Trading & AFS Securities can be either what type?
Equity or Debt
How are HTM securities reported?
Amortized cost
If you transfer a security from the trading category should any previously recognized unrealized holding G or L be reversed?
No
what's the credit side of a JE to record the FV increase in a Trading Security and where is it on the I/S?
Unrealized holding gain & it's in current income.
What is the account called that holds adjustments in FV for Trading & AFS securities?
Market Adjustment Account
How are debt securities initially recorded?
At cost
When determining the G or L on a security sale, do we care about market adjustments or previously recognized unrealized losses or recoveries?
No
What are reclassification adjustments when selling securities?
They are made to avoid double counting in regular income G or L's realized previously included in OCI as unrealized G or L's.
How are changes in FV of non-hedge derivatives reported?
G or L's in earnings.
What are derivatives on the f/s?
A or L, FV is used to measure them.
What's the main diff btw Trading & AFS for accounting purposes?
Change in FV is either recorded in income or OCI.
What are the 2 methods of estimating uncollectible receivables?
1 Percentage of sales method.
2 Percentage of outstanding receivables method.
Why are derivatives assets or liabilities?
Because they are rights & obligations.
When you sell a debt or equity security what is the realized G or L?
Difference between the net proceeds & the cost or unamortized cost of the security . NOT FV!!!!
Can Trading, AFS or HTM all be considered debt securities?
Yes
What is hedging?
A risk management strategy to protect against the possibility of loss, such as from price fluctuations.
What's a notional amount?
A number of currency units, shares, bushels, pounds or other units.
sometimes called a face amount in some contracts.
Who is responsible for shipping charges when shipped FOB shipping point?
The Buyer
Example of a trade discount?
Trade Disc = 20%, 10%
List Price $100
$100-20%($100)=$80
$80-10%($80)=$72
Why does a reinstatement of a written of A/R cause an in & out of A/R entry? 2 JE's
Reinstatement
AR
Allowance
Payment
Cash
AR
Who is responsible for shipping charges when shipped FOB destination?
The Seller
Describe the 3 types of Hedging Derivatives?
1 FV Hedge - a hedge of the exposure to changes in FV of an A or L, or an unrecognized firm commitment.
2 CF Hedge - " " variable cash flows on an existing, recognized A or L.
3 Foreign Currency Hedge
How are unrealized G or L's from changes in FV of hedge derivatives accounted for?
Depends on which of the following 3:
1 FV Hedge - reported in earnings
2 Cash Flow Hedge - effective portion reported in OCI, ineffective portions reported in earnings
3 Hedge of a Net Inv in Foreign Operation - same as 2
What's a derivative instrument?
Has 3 Characteristics
a. Underlying & Notional Amount or Payment Provision
b. Zero or small investment
c. Net Settlement
When you transfer a security into the trading category, what should you do with any unrealized holding G or L?
Recognize in earnings immediately!
If a debt security is transferred from AFS to HTM, what should you do with any unrealized holding G or L?
Report in OCI account & amortize over the security's remaining life.
What are net proceeds received from a sale?
Gross selling price of the security less brokerage commissions & taxes.
When you transfer debt security from HTM to AFS, what should you do with any unrealized holding G or L?
Recognize in OCI
What's an underlying?
It's a specified int rate, security price, commodity price, foreign exchange rate, index of prices or rates or other variable.