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DQW2-2 - are reported at fair value with unrealized holding...

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2.     How do the various classifications of investments affect financial statements? What is the  rationale behind the different accounting methods for the various investment classifications?  Which is more important when determining the accounting method for securities, influence, or  ownership? Explain why. Different forms of investments can impact financial statements in various ways. For example,  held-to-maturity securities will not increase the volatility of reported earnings or reported capital;  whereas trading securities and available-for-sale securities will.  Available-for-sale securities are reported at fair value on the balance sheet, but do not report  changes in fair value as part of net income until after the securities are sold. Trading securities 
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Unformatted text preview: are reported at fair value, with unrealized holding gains and losses reported as part of net income. The rationale behind the different accounting methods for the various investment classifications is to identify the asset as either current or noncurrent. However, some investments are classified based on maturities and expectations as to sales and redemptions in the following year. It is believed by many that ownership, over influence, is more important when determining the accounting method for securities. This may be due to the necessity to report long-term investments separately. However, there is not a definitive answer as to whether influence or ownership is more important....
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