Fair Value Method - CPA Financial Accounting and Reporting (FAR)
Card 1 of 24
Which of the following is correct regarding the fair value method?
Which of the following is correct regarding the fair value method?
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When using the fair value method, an investment is originally accounted for at cost, then adjusted to fair value each year and the balance sheet date.
When using the fair value method, an investment is originally accounted for at cost, then adjusted to fair value each year and the balance sheet date.
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Blue Corp purchased marketable securities in Purple Corp during Year 1. At the end of Year 1, the fair value of Purple Corp had dropped below cost. Blue Corp considered the decline in value to be temporary and the security is classified as available-for-sale. What should be the effect on Blue's financial statements in Year 1?
Blue Corp purchased marketable securities in Purple Corp during Year 1. At the end of Year 1, the fair value of Purple Corp had dropped below cost. Blue Corp considered the decline in value to be temporary and the security is classified as available-for-sale. What should be the effect on Blue's financial statements in Year 1?
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Unrealized holding gains/losses on securities classified as available-for-sale are recognized as part of other comprehensive income. Therefore, in this scenario, the investment account is decreased and a loss is recognized in OCI.
Unrealized holding gains/losses on securities classified as available-for-sale are recognized as part of other comprehensive income. Therefore, in this scenario, the investment account is decreased and a loss is recognized in OCI.
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A marketable debt security is moved from available-for-sale to held-to-maturity securities. At the transfer date, the security’s market value has fallen below its cost. What amount is used at the transfer date to record the security in the held-to-maturity portfolio?
A marketable debt security is moved from available-for-sale to held-to-maturity securities. At the transfer date, the security’s market value has fallen below its cost. What amount is used at the transfer date to record the security in the held-to-maturity portfolio?
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The security will be recorded at market value regardless of whether the decline in value is permanent or temporary.
The security will be recorded at market value regardless of whether the decline in value is permanent or temporary.
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ABC Company acquired 40% of the outstanding non voting preferred stock of DEF Co. Which method of recording an investment should ABC use?
ABC Company acquired 40% of the outstanding non voting preferred stock of DEF Co. Which method of recording an investment should ABC use?
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Significant influence cannot be exercised by holding non voting stock. Fair value must be used.
Significant influence cannot be exercised by holding non voting stock. Fair value must be used.
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ABC Company received a cash dividend from a common stock investment. Should ABC report an increase in the investment account if it uses the fair value method or the equity method of accounting?
ABC Company received a cash dividend from a common stock investment. Should ABC report an increase in the investment account if it uses the fair value method or the equity method of accounting?
Tap to reveal answer
Under fair value, receipt of a dividend does not affect the investment account whereas under equity method it is a decrease in the investment account.
Under fair value, receipt of a dividend does not affect the investment account whereas under equity method it is a decrease in the investment account.
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When a dividend is paid from a majority owned subsidiary to its parent company, what effect is demonstrated?
When a dividend is paid from a majority owned subsidiary to its parent company, what effect is demonstrated?
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In this circumstance, the dividend is treated as a return of capital from one company to its parent. Retained earnings remains stagnant and the NCI is decreased as it has its capital returned to it.
In this circumstance, the dividend is treated as a return of capital from one company to its parent. Retained earnings remains stagnant and the NCI is decreased as it has its capital returned to it.
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Which of the following is correct regarding the fair value method?
Which of the following is correct regarding the fair value method?
Tap to reveal answer
When using the fair value method, an investment is originally accounted for at cost, then adjusted to fair value each year and the balance sheet date.
When using the fair value method, an investment is originally accounted for at cost, then adjusted to fair value each year and the balance sheet date.
← Didn't Know|Knew It →
Blue Corp purchased marketable securities in Purple Corp during Year 1. At the end of Year 1, the fair value of Purple Corp had dropped below cost. Blue Corp considered the decline in value to be temporary and the security is classified as available-for-sale. What should be the effect on Blue's financial statements in Year 1?
Blue Corp purchased marketable securities in Purple Corp during Year 1. At the end of Year 1, the fair value of Purple Corp had dropped below cost. Blue Corp considered the decline in value to be temporary and the security is classified as available-for-sale. What should be the effect on Blue's financial statements in Year 1?
Tap to reveal answer
Unrealized holding gains/losses on securities classified as available-for-sale are recognized as part of other comprehensive income. Therefore, in this scenario, the investment account is decreased and a loss is recognized in OCI.
Unrealized holding gains/losses on securities classified as available-for-sale are recognized as part of other comprehensive income. Therefore, in this scenario, the investment account is decreased and a loss is recognized in OCI.
← Didn't Know|Knew It →
A marketable debt security is moved from available-for-sale to held-to-maturity securities. At the transfer date, the security’s market value has fallen below its cost. What amount is used at the transfer date to record the security in the held-to-maturity portfolio?
A marketable debt security is moved from available-for-sale to held-to-maturity securities. At the transfer date, the security’s market value has fallen below its cost. What amount is used at the transfer date to record the security in the held-to-maturity portfolio?
Tap to reveal answer
The security will be recorded at market value regardless of whether the decline in value is permanent or temporary.
The security will be recorded at market value regardless of whether the decline in value is permanent or temporary.
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ABC Company acquired 40% of the outstanding non voting preferred stock of DEF Co. Which method of recording an investment should ABC use?
ABC Company acquired 40% of the outstanding non voting preferred stock of DEF Co. Which method of recording an investment should ABC use?
Tap to reveal answer
Significant influence cannot be exercised by holding non voting stock. Fair value must be used.
Significant influence cannot be exercised by holding non voting stock. Fair value must be used.
← Didn't Know|Knew It →
ABC Company received a cash dividend from a common stock investment. Should ABC report an increase in the investment account if it uses the fair value method or the equity method of accounting?
ABC Company received a cash dividend from a common stock investment. Should ABC report an increase in the investment account if it uses the fair value method or the equity method of accounting?
Tap to reveal answer
Under fair value, receipt of a dividend does not affect the investment account whereas under equity method it is a decrease in the investment account.
Under fair value, receipt of a dividend does not affect the investment account whereas under equity method it is a decrease in the investment account.
← Didn't Know|Knew It →
When a dividend is paid from a majority owned subsidiary to its parent company, what effect is demonstrated?
When a dividend is paid from a majority owned subsidiary to its parent company, what effect is demonstrated?
Tap to reveal answer
In this circumstance, the dividend is treated as a return of capital from one company to its parent. Retained earnings remains stagnant and the NCI is decreased as it has its capital returned to it.
In this circumstance, the dividend is treated as a return of capital from one company to its parent. Retained earnings remains stagnant and the NCI is decreased as it has its capital returned to it.
← Didn't Know|Knew It →
ABC Company acquired 40% of the outstanding non voting preferred stock of DEF Co. Which method of recording an investment should ABC use?
ABC Company acquired 40% of the outstanding non voting preferred stock of DEF Co. Which method of recording an investment should ABC use?
Tap to reveal answer
Significant influence cannot be exercised by holding non voting stock. Fair value must be used.
Significant influence cannot be exercised by holding non voting stock. Fair value must be used.
← Didn't Know|Knew It →
ABC Company received a cash dividend from a common stock investment. Should ABC report an increase in the investment account if it uses the fair value method or the equity method of accounting?
ABC Company received a cash dividend from a common stock investment. Should ABC report an increase in the investment account if it uses the fair value method or the equity method of accounting?
Tap to reveal answer
Under fair value, receipt of a dividend does not affect the investment account whereas under equity method it is a decrease in the investment account.
Under fair value, receipt of a dividend does not affect the investment account whereas under equity method it is a decrease in the investment account.
← Didn't Know|Knew It →
When a dividend is paid from a majority owned subsidiary to its parent company, what effect is demonstrated?
When a dividend is paid from a majority owned subsidiary to its parent company, what effect is demonstrated?
Tap to reveal answer
In this circumstance, the dividend is treated as a return of capital from one company to its parent. Retained earnings remains stagnant and the NCI is decreased as it has its capital returned to it.
In this circumstance, the dividend is treated as a return of capital from one company to its parent. Retained earnings remains stagnant and the NCI is decreased as it has its capital returned to it.
← Didn't Know|Knew It →
Which of the following is correct regarding the fair value method?
Which of the following is correct regarding the fair value method?
Tap to reveal answer
When using the fair value method, an investment is originally accounted for at cost, then adjusted to fair value each year and the balance sheet date.
When using the fair value method, an investment is originally accounted for at cost, then adjusted to fair value each year and the balance sheet date.
← Didn't Know|Knew It →
Blue Corp purchased marketable securities in Purple Corp during Year 1. At the end of Year 1, the fair value of Purple Corp had dropped below cost. Blue Corp considered the decline in value to be temporary and the security is classified as available-for-sale. What should be the effect on Blue's financial statements in Year 1?
Blue Corp purchased marketable securities in Purple Corp during Year 1. At the end of Year 1, the fair value of Purple Corp had dropped below cost. Blue Corp considered the decline in value to be temporary and the security is classified as available-for-sale. What should be the effect on Blue's financial statements in Year 1?
Tap to reveal answer
Unrealized holding gains/losses on securities classified as available-for-sale are recognized as part of other comprehensive income. Therefore, in this scenario, the investment account is decreased and a loss is recognized in OCI.
Unrealized holding gains/losses on securities classified as available-for-sale are recognized as part of other comprehensive income. Therefore, in this scenario, the investment account is decreased and a loss is recognized in OCI.
← Didn't Know|Knew It →
A marketable debt security is moved from available-for-sale to held-to-maturity securities. At the transfer date, the security’s market value has fallen below its cost. What amount is used at the transfer date to record the security in the held-to-maturity portfolio?
A marketable debt security is moved from available-for-sale to held-to-maturity securities. At the transfer date, the security’s market value has fallen below its cost. What amount is used at the transfer date to record the security in the held-to-maturity portfolio?
Tap to reveal answer
The security will be recorded at market value regardless of whether the decline in value is permanent or temporary.
The security will be recorded at market value regardless of whether the decline in value is permanent or temporary.
← Didn't Know|Knew It →
Which of the following is correct regarding the fair value method?
Which of the following is correct regarding the fair value method?
Tap to reveal answer
When using the fair value method, an investment is originally accounted for at cost, then adjusted to fair value each year and the balance sheet date.
When using the fair value method, an investment is originally accounted for at cost, then adjusted to fair value each year and the balance sheet date.
← Didn't Know|Knew It →
Blue Corp purchased marketable securities in Purple Corp during Year 1. At the end of Year 1, the fair value of Purple Corp had dropped below cost. Blue Corp considered the decline in value to be temporary and the security is classified as available-for-sale. What should be the effect on Blue's financial statements in Year 1?
Blue Corp purchased marketable securities in Purple Corp during Year 1. At the end of Year 1, the fair value of Purple Corp had dropped below cost. Blue Corp considered the decline in value to be temporary and the security is classified as available-for-sale. What should be the effect on Blue's financial statements in Year 1?
Tap to reveal answer
Unrealized holding gains/losses on securities classified as available-for-sale are recognized as part of other comprehensive income. Therefore, in this scenario, the investment account is decreased and a loss is recognized in OCI.
Unrealized holding gains/losses on securities classified as available-for-sale are recognized as part of other comprehensive income. Therefore, in this scenario, the investment account is decreased and a loss is recognized in OCI.
← Didn't Know|Knew It →