ch12-5th_outline - Spiceland, Sepe, Nelson, and Tomassini...

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1 Chapter 12 Spiceland, Sepe, Nelson, and Tomassini – Fifth Edition Investments Revised January 2010 Learning Objectives ) 1. Record the acquisition of securities acquired for (a) cash, b) noncash consideration, and (c)in a lump sum purchase. 2. Identify the types of security investments for which the following methods of accounting should be used: (a) cost, (b) equity, (c) fair value. 3. In the context of SFAS 115, define the following classes of securities: (a) trading securities, (b) available-for-sale securities, and (c)held-to-maturity securities. 4. Define the following: (a) realized gains and losses, (b) unrealized holding gains and losses. 5. For debt and equity securities accounted for SFAS 115's fair value method, prepare entries to record: (a) acquisition, (b) investment income, (c) sale, (d) permanent impairment in value, (e) unrealized holding gains and losses, and (g) transfers between investment categories. 6. For debt and equity securities accounted for SFAS 115's fair value method, explain how the following are presented on the financial statements for both trading securities and available-for-sale securities: (a) the investment account (b) the market/fair value adjustment account, (c) unrealized holding gains and losses, and (d)realized gains and losses. 7. For the cost/amortized cost method as defined under GAAP, define the following: (a) investment income, (b) carrying value of the investment, and (c) writedown of the investment below cost. 8. For debt and equity securities accounted for under the cost/amortized cost method as defined under GAAP, prepare entries to record: (a) acquisition, (b)investment income, (c)sale, (d) liquidating dividends (equity investments only), and (e) permanent impairment in value. 9. For the equity method as defined under GAAP , define (a) investment income/loss and (b) the carrying value of the investment and explain how investment income/loss and the investment account are presented on the financial statements. 10. For securities accounted for under the equity method as defined under current GAAP, prepare entries to record: (a) acquisition, (b)investment income, (c) amortization of the difference between cost and book value, (d) sale, and (e) permanent impairment in value. 11 . Define the cash surrender value of life insurance and prepare entries to (a) record insurance expense and the increase in cash surrender value and (b) record the receipt of the death benefit. 12. Describe when the fair value option can be used for financial assets and how it is 1
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accounted for. CHAPTER OUTLINE I. Why do companies make investments in the debt and equity securities of other firms? II. Accounting for securities at acquisition A. As with the acquisition of other assets, securities investments are recorded at cost . This can include the purchase price as well as brokerage fees, excise taxes, and transfer costs. E12-3 B. When securities are acquired in exchange for noncash consideration , they are recorded at the fair value of the consideration given or received whichever is more
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This note was uploaded on 11/09/2010 for the course ACCT 301 taught by Professor Lynn during the Spring '10 term at University of Baltimore.

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ch12-5th_outline - Spiceland, Sepe, Nelson, and Tomassini...

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