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Chapter 18

Investments. Debt Securities. Equity Securities. Chapter 18. Investments in Debt Securities. Represent a creditor relationship with an enterprise U.S. government securities Municipal securities Corporate bonds Convertible debt Commercial paper All securitized debt instruments.

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Chapter 18

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  1. Investments Debt Securities Equity Securities Chapter 18

  2. Investments in Debt Securities • Represent a creditor relationship with an enterprise • U.S. government securities • Municipal securities • Corporate bonds • Convertible debt • Commercial paper • All securitized debt instruments

  3. Valuation and Reporting of Investments in Debt Securities • Three separate portfolios • Held to Maturity • Trading Securities • Available for Sale

  4. Investments in Debt Securities (SFAS 115)

  5. Valuation and Reporting of Investments in Debt Securities • Held to Maturity • Entity must have positive intentandability to hold securities until maturity. • Carried at amortized cost

  6. Valuation and Reporting of Investments in Debt Securities • Trading Securities • Used to generate profits from short-term differences in prices. • Holding period is usually less than 3 months. • Reported at fair market value. • Unrealized gains and losses reported in net income. • Discount or premium is not amortized.

  7. Valuation and Reporting of Investments in Debt Securities • Available for Sale: • Reported at fair market value. • Unrealized gains and losses reported in comprehensive income and as a separate component of stockholders’ equity.

  8. Investments in Equity Securities • Ownership interests such as common, preferred, or other capital stock • Rights to buy and sell the ownership interests (i.e., warrants, rights, call options, and put options).

  9. Investments in Equity Securities

  10. Valuation & Reporting of Equity Securities: Fair Value Method • Two separate portfolios • Trading Securities (TS) • Available for Sale (AFS) • No Held to Maturity (HTM) portfolio because shares do not have a maturity date.

  11. Available-for-Sale Recorded at cost when acquired Valued and reported at fair value subsequent to acquisition Unrealized holding gains and losses are reported as: Part of compre-hensive income, and A component of stockholders’ equity Trading Securities Recorded at cost when acquired Valued and reported at fair value subsequent to acquisition Unrealized holding gains and losses are reported in net income Valuation & Reporting of Equity Securities: Fair Value Method

  12. Investments in Equity Securities:Fair Value Method Vs. Equity Method

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