Investmenst in Stocks and Bonds

Investmenst in Stocks and Bonds - Investments in Stocks and...

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Unformatted text preview: Investments in Stocks and Bonds Copyright D Hillman 2000 1 Overview of FASB No. 115 s Requires most investment securities to be valued at market s Securities classified into three categories s Held-to-maturity Only debt securities that will be held to maturity date Copyright D Hillman 2000 2 Overview of FASB No. 115 s Trading securities Debt and equity securities that are purchased and sold for short-term profits s Available-for-sale All debt and equity securities not classified as held-to-maturity or trading Copyright D Hillman 2000 3 Short-term Investments s Readily saleable securities s Management intends to sell within one year s All three of FASB 115 categories apply Copyright D Hillman 2000 4 Short-term Investments in Stocks (Trading) s Purchase Record cost in Short-term Investment account s Cash dividends Record revenue upon receipt of dividend s Stock Copyright D Hillman 2000 dividends and splits 5 No entry and calculate new cost Short-term Investments in Stocks (Trading) s Sale Increase Cash for proceeds Decrease Investment account by cost Record Realized Gain(Loss) on Investment for difference Copyright D Hillman 2000 6 Unrealized Gain or Loss (Trading) s Valuation for financial statements Adjust Investment account to market Record Unrealized Gain(Loss) for change s Unrealized gain or loss shown on income statement Copyright D Hillman 2000 7 Subsequent Sale (Trading) s When sold after adjustment to market s Realized gain or loss is difference between market at date of sale and amount security adjusted to at last financial statement date Copyright D Hillman 2000 8 Short-term Investments in Bonds (Trading) s Purchase Record cost in Short-term Investment account s Interest accruals and receipts Interest revenue accrued at appropriate dates No amortization of premium or discounts Copyright D Hillman 2000 9 Short-term Investments in Bonds (Trading) s Sale Increase Cash for proceeds Accrue interest revenue to date of sale Decrease Investment account by cost Record Realized Gain(Loss) on Investment for difference Copyright D Hillman 2000 10 Unrealized Gain or Loss (Trading) s Valuation for financial statements Adjust Investment account to market Record Unrealized Gain(Loss) for change s Unrealized gain or loss shown on income statement Copyright D Hillman 2000 11 Subsequent Sale (Trading) s When sold after adjustment to market s Realized gain or loss is difference between market at date of sale and amount security adjusted to at last financial statement date Copyright D Hillman 2000 12 Investments in Available-For-Sale Securities s Acquired as short-term or long-term investment s When available-for-sale bonds held as long-term, premium or discount should be amortized as adjustment to interest revenue Copyright D Hillman 2000 13 Investments in Available-For-Sale Securities s Accounting similar to trading except: s Unrealized gains or losses reported as a separate component of stockholders' equity s When sold, realized gain or loss is difference between proceeds and original cost Unrealized gain or loss closed Copyright D Hillman 2000 14 Long-term Investments in Stocks Own less than 20% of voting stock s Own 20-50% of voting stock s Own more than 50% of voting stock s Copyright D Hillman 2000 s Market value method Equity method Prepare consolidated statements 15 s s Equity Method of Accounting s Investment initially recorded at cost s Receipt of dividends Reduces investment account No revenue Copyright D Hillman 2000 16 Equity Method of Accounting s Investee reported income Increase Investment by investor's share Report share of investee income as income s Investee reported loss Decrease Investment by share Report share as loss Copyright D Hillman 2000 17 Investment in Bonds Held-to-Maturity s FASB 115 states must not be any foreseeable intent to sell bonds before maturity date s Accounting is mirror image of accounting for long-term debt s Reported in financial statements at amortized cost Copyright D Hillman 2000 18 Analyzing Information s What is overall percent of total assets invested in current and noncurrent securities? s What is mix of trading, availablefor-sale, and held-to-maturity investments? Copyright D Hillman 2000 19 Analyzing Information s Has company been successful in generating additional income from investments? s How does current market value and cost compare? s Is there good range of maturity dates? Copyright D Hillman 2000 20 Analyzing Information s If equity securities accounted for using equity method does significant influence exist? how much of share of income has been received as dividends? Copyright D Hillman 2000 21 ...
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