Marketable Securities and Long Term Investments_1

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Marketable Securities, Long-Term Investments and Business Combinations The problems of accounting for investments involve measurement, recognition, and disclosure. Investments are generally classified as either debt securities or equity securities. The first section presents accounting for debt securities; the second section covers accounting for equity securities; and the remainder of the chapter presents the equity method of accounting, disclosure requirements, impairments, and accounting for the transfer of investment securities between categories. Debt Securities Debt Securities are instruments representing a creditor relationship with an enterprise. Debt securities include U.S. government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. Debt securities are grouped into the following three separate categories: a. Held-to-maturity: Debt securities that the enterprise has the positive intent and ability to hold to maturity. b. Trading: Debt securities bought and held primarily for sale in the near term to generate income on short-term price differences. c. Available-for-sale: Debt securities not classified as held-to-maturity or trading securities. Held-to-Maturity Debt Securities Held-to-maturity debt securities are accounted for at amortized cost, not fair value . A Held-to Maturity Securities account is used to indicate the type of debt security purchased. Available-for-Sale Debt Securities Available-for-sale debt securities are reported at fair value . The unrealized gains and losses related to changes in the fair value of available-for-sale debt securities are recorded in an unrealized holding gain or loss account . This account is reported as other comprehensive income and as a separate component of stockholders’ equity until realized . A valuation account called “Securities Fair Value Adjustment (Available-for-Sale)” is used instead of debiting or crediting the Available-for-Sale Securities account to enable the company to maintain a record of its amortized cost.
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This note was uploaded on 10/07/2010 for the course FIN 3162N taught by Professor Spencer during the Spring '10 term at Dowling.

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Marketable Securities and Long Term Investments_1 -...

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