Although the appropriate classification of investments is determined at the purchase date, management can reevaluate the classifications at the end of each financial period and adjust accordingly. When transferring debt securities from the available-for-sale portfolio to held-to-maturity, which of the following rules is most likely in accordance with SAFS 115? Available-for-sale securities transferred to held-to-maturity are transferred at: A) fair market value, and any unrealized gains or losses are included in income in the period of transfer. B) fair market value, and any unrealized gains or losses remain in equity but are subsequently amortized over the remaining life of the security. C) their amortized cost, and any unrealized gains or losses remain in equity but are subsequently amortized over the remaining life of the security. ------------------------------------------------------------------------------------------------------------------- Relative to the pre-acquisition financial statements, what would be the most likely impact on the following items of financing the acquisition with new debt? Leverage Total Assets Current ratio A) Small increase Increase Increase B) Large increase Unchanged Falls C) Large increase Increase Insufficient information
a a- are we missing some info here?
rethinking top one…might be b…nah ill stick with a. i think avail for sale are at fair value, but htm are historical. wait. avail for sale does report changes to OCI so i will change that answer to b?
nevermind. cancel both of those out. i will take the physical challenge
b and c
barthezz Wrote: ------------------------------------------------------- > b and c Both are correct… Can you please explain the first one… with an example.? I got the second one right too…
Re: Intercorp investment Q’s Posted by: SkipE99 (IP Logged) [hide posts from this user] Date: March 14, 2009 04:20PM nevermind. cancel both of those out. i will take the physical challenge hahahahha this is what i needed to lighten up my day. +1 for double dare.
charu, not 100% sure on this one, how you apply the interest method to amortize unrealized holding g/l in equity that will mitigate interest income. maybe cpk or the other FSA specialists can draw an example.
I will give it a shot…Leverage goes up, of course because you are debt to make the acquisition. Leverage composes of Total debt. Total Assets= Total L + Total E…so this too will increase, becoz the liability component. Current ration - Insufficient info…because we don’t need how much of the debt used, is CL and /or LTD.
Entire deal is with Debt financing. So Debt would go up big time. So Leverage would increase, and it would be a Large Increase. Since A=L+E --> Total Assets would also go up - and it would be an increase as well. Debt could have a current portion of Long term debt + Long term debt portion. In the absence of information with regards to that, we cannot say if there is a current portion of long term debt that would increase the current liabilities. If current liabilities increased and there current assets did not - current ratio would fall… but since this info. is not available - it is insufficient info.
thanks CP. Here I go for the first question - When the debt securities are initially classified as “Available for Sale” securities… unrealized gains & losses are recorded in Equity (comp income) Balance sheet value is recorded at FMV. Now when they are reclassified as “Held to Maturity” Ideally debt instruments are recorded at “Amortized cost” and income statement ll record the coupon expense. To have this *same* effect [this is something I was doubting] (after reclassification to HTM ) - 1) debt security still remains at FMV. [does this change over remaining life of debt security?] 2) unrealized gains/ losses are amortized. Let me know - what do you think ?
you are correct. Though this is something that is present in QBank this year as well, I do not believe that there are any LOS’s covering this portion. HTM -> HFT Transferred on Balance sheet at FMV. Any unrealized gain/loss is recognized on Income Statement as part of Net Income. HTM -> AFS Transferred on Balance Sheet at FMV. Unrealized gains / loss is recognized in Equity. AFS -> HTM Transferred on Balance Sheet at FMV. Unrealized gains / losses remain in Equity and are amortized over the remaining life of the security.
That’s great summary…Even I thought tht LOS doesn’t cover this…