IA3 Vocab (unit test and pa (OA1

Which valuation method is used to record securities which are categorized as trading securities?

Fair value

A parent company owns 90% of the subsidiary company's outstanding common stock.

How should the company account for the income of the subsidiary?

An increase to the equity investment account

Which statement describes the accounting treatment for the transfer of debt securities from available-for-sale to held-to-maturity?

Unrealized gains or losses at the date of transfer are amortized over the remaining life of the securities.

Which security can be classified as a held-to-maturity security?

Debt security

Which item is used to calculate impairments of held-to-maturity debt investments?

Current expected credit loss model

Which equity securities should be accounted for using the equity method?

Securities where a company has holdings between 20% and 50%

Which method should be used to measure impairment of available-for-sale debt investments?

Actual selling price

Which security can be classified as a held-to-maturity security?

Debt security

A company transfers its securities from held-to-maturity to available-for-sale.

Which impact from unrealized gains/losses will stem from this transfer?

Change in stockholders equity

A company transfers available-for-sale securities to trading securities.

Which measurement basis should be used to determine the cost basis?

Fair value at transfer date

An investor uses the equity method and has an investee that has generated net income.

How should this income be recorded by the investor?

Debit the proportionate share to the equity investment account

Kretsmart accounts for its investment in the common stock of Quiet Flag Industries using the equity method and needs to record net income from that company.

How should that income be recorded?

As an addition to the carrying value of the investment

Which Financial Accounting Standards Board (FASB) asset-liability method should be used to present deferred taxes on the financial statement?

As either net noncurrent deferred tax assets or noncurrent deferred tax liabilities

Which type of tax rate is used to measure a deferred tax asset or liability when an entity's income is subjected to a graduated rate schedule?

Average rates

Which temporary difference increases net income in the current financial statements but is potentially taxable in a future period?

Gain from involuntary conversion of a nonmonetary asset

Which account may companies use to reduce income taxes payable?

Prepaid income taxes

Which account may be used to reduce a deferred tax asset?

Valuation account

What is the difference between a company's calculated tax expense and taxes payable based on tax laws?

Deferred tax expense

Which situation causes a company to have a permanent difference between accounting and taxable incomes?

A fine resulting from violations of regulations

Which item is considered a permanent difference between financial statements and taxable income?

Interest earned from state and local bonds

Which presentation of deferred taxes should be used on the balance sheet?

As a noncurrent amount

Which Financial Accounting Standards Board (FASB) method will recognize the amount of taxes payable or refundable for the current year?

Asset-liability

What does a deferred tax liability represent?