Intermediate Accounting Exam 3

Dividends

Under fair value method, net income is not recognized unless ____ are received

Held to maturity

A debt investment that has the intent and ability to be held to maturity

Trading securities

investments in debt that are acquired for purposes of earning profit on short term price fluctuations 

Available for sale

Investments that we aren’t planning to trade but the investment is available to sell

20

If an investor owns less than __% of voting shares, the investor does not have significant influence.

fair value through net income

When investors lack significant influence over the investee, equity investments are accounted for like trading securities, using this approach.

significant influence

When an investor has 20-50% of voting stock they have what

Control

if an investor has more than 50% of the voting stock of another company it has this

no journal entry required

Under the equity method of accounting, at year end what journal entry is needed to adjust the investment to its fair value.

Gross method

a way of recording purchases or sales at the full invoice price, without immediately considering any cash discounts offered for early payment.

• The purchase of inventory is recorded for its full amount.

• The amount paid for inventory during the discount period is the full amount of the purchase minus the discount.

• The amount paid for inventory after the discount period is the full amount of the purchase.

net method

records purchases (or sales) by initially assuming that any available cash discounts for early payment will be taken.

• Purchases are recorded at the invoice price less the expected discount.

• The accounts payable and the related asset or expense are recorded at this discounted amount upfront.

• If payment is made within the discount period, no further adjustment is needed.

LIFO

In a period of declining costs, the use of which of the following inventory cost methods would result in the highest ending inventory?

LIFO

International Financial Reporting Standards allow companies to use each inventory valuation method except:

Costs are rising and inventory quantity declines.

LIFO liquidation profits occur when:

Gross profit ratio

(Sales-COGS)/Sales

COGS/Average Inventory

Inventory turnover ratio

Beginning inventory + net purchases - ending inventory

Cost of goods sold

365/Inventory Turnover Ratio

Average days in inventory

The lower of cost or net realizable value

For companies that use FIFO, average cost, or any method other than LIFO or retail inventory method, inventory is valued at:

net realizable value

Estimated selling price less any costs of completion, disposal, and transportation.

Conservatism

Application of the lower of cost or market method is an example of which practice in accounting:

includes markdowns

The difference in the calculation of the cost-to-retail percentage applying the conventional retail method and the average cost method is that the average cost method:

Includes beginning inventory

The difference in the calculation of the cost-to-retail percentage applying the LIFO method and the average cost method is that the average cost method:

FIFO to LIFO

Which of the following inventory changes does not require the company to report the change retrospectively?

the investment is not classified as held to maturity

Fair value is used as the basis for valuation of a firm's debt investments when:

Not reported in the income statement nor the balance sheet

Unrealized holding gains and losses for securities to be held-to-maturity are:

other comprehensive income

Unrealized holding gains and losses for securities available-for-sale are:

included in accumulated ____ in the shareholders' equity section of the balance sheet.

trading

Unrealized holding gains and losses for _____ securities are:Included in the determination of income from operations in the period of the change.

Fair value

Under IFRS Number 9, equity investments can be classified as:

A reduction in the investment account

When applying the equity method, an investor should report dividends from the investee as:

Trading security

The accounting for unrealized holding gains and losses will be different if the fair value option is elected for all of the following types of investments except:

Trading security.

Equity method.

Available-for-sale.

Held-to-maturity.

Fair value option

allows a company to choose to measure certain eligible financial assets and liabilities at their fair value instead of at cost or using the equity method.