ACCT 3110 CH 12

ACCT 3110 CH 12 - Accounting 3110: External Financial...

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Accounting 3110: External Financial Reporting I Chapter 12: Investments (Skip Appendix A and Appendix B )
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Nature of Investments Investments can be accounted for in a variety of ways, depending on the nature of the investment relationship. Bonds and notes (Debt securities) Common and preferred stock (Equity securities)
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Reporting Categories for Investments Control Characteristics of the Investment Reporting Method Used by the Investor The investor lacks significant influence over the operating and financial policies of the investee: Investment in debt securities for which the investor has the "positive intent and ability" to hold to maturity. Held-to-maturity (HTM) - investment reported at amortized cost.* Investment held in an active trading account. Trading securities (TS) - investment reported at fair value with unrealized holding gains and losses included in net income. Other. Securities available-for-sale (AFS) - investment reported at fair value with unrealized holding gains and losses excluded from net income and reported in Other Comprehensive income.* The investor has significant influence over Typically the investor owns between 20% and 50% of the voting stock of the investee. Equity method - investment cost adjusted for subsequent earnings and dividends of the investee.* controls the investee: The investor owns more than 50% of the voting stock of the investee. Consolidation - the financial statements of the investor and investee are combined as if they are a single company. Reporting Categories for Investments * If the investor elects the fair value option, this type of investment also can be accounted for using the same approach that's used for trading securities, with the investment reported at fair value and unrealized holding gains and losses included in earnings.
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Financial Statement Classification Classification Balance Sheet Income Statement Statement of Cash Flows Held-to-Maturity: debt securities where management has the intent and ability to hold until maturity Shown at amortized cost (HC +/- amortization of premium/discount). Current asset or noncurrent asset (depends on maturity). Interest earned reported as interest revenue with non- operating items. Interest revenue reported under operating activities. Purchase/Sale/ Maturity under investing activities. Trading Securities: debt and equity securities actively traded Shown at FMV. Current asset. Non-operating items: Unrealized/realized gains/losses. Dividends/interest earned reported as revenue. Dividend/interest revenue under operating activities. Purchase/Sale/ Maturity (bond) typically operating activities. Available for Sale: debt and equity Shown at FMV. Unrealized gains/losses a component of OCI. Current asset or noncurrent Non-operating items: Dividends/interest earned reported as revenue.
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ACCT 3110 CH 12 - Accounting 3110: External Financial...

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