1 / 14

CHAPTER 17

CHAPTER 17. Investments in Debt and Equity Securities. ……..…………………………………………………………. Debt held-to-maturity. Amortized cost. Debt plan to sell. Fair value. Equity plan to sell. Fair value. Equity exercise some control. Equity method. DEBT SECURITIES. Held-to-maturity.

lamont
Télécharger la présentation

CHAPTER 17

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CHAPTER 17 Investments in Debt and Equity Securities ……..…………………………………………………………... Debt held-to-maturity Amortized cost Debt plan to sell Fair value Equity plan to sell Fair value Equity exercise some control Equity method

  2. DEBT SECURITIES • Held-to-maturity intent and ability to hold security until it matures • Trading held primarily for sale in the near term • Available-for-sale none of the above

  3. HELD-TO-MATURITY SECURITIES Periods Rate PV Annuity FV AD? 1/1/03 1/1/03 Purchased a $50,000, 10% bond for $51,388. The bond pays semiannual interest and matures 7/1/04. Most firms do not record separate premium or discount.

  4. 7/1/03 Effective interest = 8% Date Cash Rec’d Interest Rev. Premium Amortiz Carrying Amount 1/1/03 $51,388 7/1/03 1/1/04 7/1/04

  5. Date Cash Rec’d Interest Rev. Premium Amortiz Carrying Amount 1/1/04 2,500 2,038 462 50,482 7/1/04 2,500 2,018 482 50,000 6/1/04 12/31/03 6/1/04 Sold bond for $50,050 plus $2,083 accrd interest.

  6. AVAILABLE-FOR-SALE SECURITIES Date Cash Rec’d Interest Rev. Premium Amortiz Carrying Amount 6/30/02 12/31/02 6/30/02 Purchased a $20,000, 4-year, 7% bond for $18,681 (effective yield=9%). 12/31/02 700 841 141 18,822

  7. 1/1/03 12/31/02 12/31/03 12/31/02 Fair value = $19,340; carrying amount = $18,822. 1/1/03 Sold bonds for $19,440. 12/31/03 Adjust fair value adjustment account.

  8. Adjusting Securities to Fair Value • Securities Fair Value Adjustment (AFS) is an asset valuation account that is added to or subtracted from the Available-for-Sale Securities account. • Unrealized Holding Gain or Loss - Equity is reported as part of Other Comprehensive Income. • The year-end adjustment will eliminate any unrealized gains or losses accumulated in the Securities Fair Value Adjustment (AFS) account related to securities that have been sold.

  9. TRADING SECURITIES • Similar to available-for-sale securities, except unrealized gains and losses are closed to net income. 12/31/02 Secur FV Adjustment (Trading) 518 Unrealiz Holding G/L - Income 518

  10. EQUITY SECURITIES • Holdings of less than 20% • fair value method • AFS or trading Accounting treatment the same as with debt securities. • Holdings between 20% and 50% • equity method • Holdings of more than 50% • consolidated statements

  11. HOLDINGS BETWEEN 20% AND 50% • Investor is presumed to exercise “significant influence” if holding 20% or more of voting stock. • Unless there is evidence to the contrary. • Investment: • recorded at cost • not adjusted to market price • increased by share of net income (revenue distinguished from extraordinary G/L) • decreased by amortization of excess of cost over share of book value • decreased by amount of dividends received

  12. OTHER REPORTING ISSUES Financial Statement Presentation Notes for AFS & Held-to Maturity • Total fair value, unreal holding G/L, amortized cost • for each major security type • Summary info. about debt maturities Notes for Equity Method Investments • Name of investee & % ownership • Underlying equity (if different from carrying value) • Fair value

  13. Sec FV Adjust 1,400 Trading Secur 50,000 Loss: Sale of Sec Unreal Hold G/L Reclassification Adjustments 10,000 1,000 40,000 400 600 1,000 Other comprehensive income Total holding gains for period Less: Reclass adj for losses included in net income

  14. Sec FV Adjust 1,400 Trading Secur 50,000 Impairment of Value • If decline in value in not temporary, record impairment. 2/1/07 Loss on Impairment 1,400 Sec FV Adjust 1,400 Unrealiz Hold G/L 1,400 Trading Securities 1,400

More Related