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Investment Alternatives

Investment Alternatives. Consolidation Equity Method Cost Method Held to Maturity Available for Sale Trading Securities. Mark-to-Market. Investment Alternatives. Note the Tables on p. 621 and 644 Keep significant influence in mind. Held to Maturity. Bond accounting Bond valuation

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Investment Alternatives

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  1. Investment Alternatives • Consolidation • Equity Method • Cost Method • Held to Maturity • Available for Sale • Trading Securities Mark-to-Market Intermediate Accounting I – Fall 2012

  2. Investment Alternatives • Note the Tables on p. 621 and 644 • Keep significant influence in mind Intermediate Accounting I – Fall 2012

  3. Held to Maturity • Bond accounting • Bond valuation • Investment revenue • Bond amortization table • Discounts and premiums More in Chap. 14 Intermediate Accounting I – Fall 2012

  4. Trading Securities • Unrealized holding gains & losses: in earnings • Under SFAS 157, Fair Value Measurements, a valuation allowance is now used to revalue the investment • Note treatment of gain or loss on sale Intermediate Accounting I – Fall 2012

  5. Available for Sale • Same as accounting for trading securities except for OCI treatment • Record at cost • Dividends & interest: in earnings • Realized gains & losses: in earnings • Unrealized holding gains & losses: in OCI • See p. 629 Intermediate Accounting I – Fall 2012

  6. Reporting • Balance sheet • Income statement • Statement of cash flows • Trading: operating cash • Other: investing cash • Statement of shareholders’ equity Intermediate Accounting I – Fall 2012

  7. Permanent Impairment • Adjust & include in earnings • Continue with normal accounting for HTM and AFS after the impairment Intermediate Accounting I – Fall 2012

  8. Transfers • Mark-to-market first • To trading: include unrealized holding gains & losses in earnings • From trading: no P & L adjustment • HTM to AFS: unrealized holding gains & losses in OCI • AFS to HTM: amortize unrealized holding gains & losses Intermediate Accounting I – Fall 2012

  9. Fair Value Options • SFAS 159 • Irrevocable • Simply treat the HTM or AFS security as a trading security • P. 637 and 653 Intermediate Accounting I – Fall 2012

  10. Disclosure • Aggregate fair value • Gross realized & unrealized holding gains • Gross realized & unrealized holding losses • Change in net unrealized holding gains & losses • Amortized cost basis by major security type--see p. 642 Intermediate Accounting I – Fall 2012

  11. Investor Has Significant Influence—the Equity Method • Again note the impact of significant influence • Record at cost • Reflect % of net inc. or loss in investment acct. • Zero floor concept • Decrease invest. acct. for div. rec’d. • Acquisitions in excess of BV-p.647-649 • Fair value option is also available: separately reported Intermediate Accounting I – Fall 2012

  12. Significant Influence • Generally between 20% and 50% ownership • Exceptions: see p. 644 Intermediate Accounting I – Fall 2012

  13. Change in Circumstances • From equity: discontinue equity • To equity: restatement & adjustment to R/E Intermediate Accounting I – Fall 2012

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