CH17_Investment_new

CH17_Investment_new - Chapter 17: Investment Learning...

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Chapter 17: Investment Learning Objectives: 1. Identify the three categories of debt securities and describe the accounting and reporting treatment for each category. 2. Understand the procedures for discount and premium amortization on bond investments. 3. Identify the categories of equity securities and describe the accounting and reporting treatment for each category. 4. Explain the equity method of accounting and compare it to the fair value method for equity 11
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Investments in Debt Securities Investments in Equity Securities Other Reporting Issues Held-to-maturity securities Available-for-sale securities Trading securities Holdings of less than 20% Holdings between 20% and 50% Holdings of more than 50% Fair value option Impairment of value Reclassification adjustments Transfers between categories Fair value controversy Summary Investments
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Summary of Accounting for Investments Reporting of Unrealized Holding Method Gains and Losses A. Invest. In Equity Securities 1. No significant influencant a. Trading Fair value Income statement b. Available-for-Sale Fair value Stockholders' equity 2. Significant influence (20% to 50% ownership) Equity method Not recognized 3. Control (more than 50% ownership) Consolidation Not recognized B. Invest. In Debt Securities a. Trading Fair value Income statement b. Available-for-Sale Fair value Stockholders' equity c. Held-to-Maturity Amortized cost Not recognized
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Debt securities (creditor relationship): Investments in Debt Securities U.S. government securities Municipal securities Corporate bonds Convertible debt Commercial paper Type Held-to-maturity Trading Available-for-sale Accounting Category
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LO 1 Identify the three categories of debt securities and describe the accounting and reporting treatment for each category. Investments in Debt Securities Accounting for Debt Securities by Category Illustration 17-2
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Held-to-Maturity Securities Classify a debt security as held-to-maturity only if it has both (1) the positive intent and (2) the ability to hold securities to maturity. Accounted for at amortized cost , not fair value. Amortize premium or discount using the effective-interest method unless the straight-line method yields a similar result. LO 2 Understand the procedures for discount and premium amortization on bond investments. Debt Securities
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Illustration: KC Company purchased $100,000 of 8 percent bonds of Evermaster Corporation on January 1, 2009, at a discount, paying $92,278. The bonds mature January 1, 2014 and yield 10%; interest is payable each July 1 and January 1. KC records the investment as follows: January 1, 2009 Held-to-Maturity Securities 92,278 Cash 92,278 Held-to-Maturity Securities Debt Securities
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LO 2 Illustration 17-3 Schedule of Interest Revenue and Bond Discount Amortization: Effective-Interest Method Held-to-Maturity Securities Debt Securities
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Illustration: KC Company records the receipt of the first semiannual interest payment on July 1, 2009, as follows: July 1, 2009 Cash 4,000 Held-to-Maturity Securities 614 Interest Revenue 4,614 Held-to-Maturity Securities Debt Securities
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This note was uploaded on 09/29/2011 for the course ACCT 302 taught by Professor Staff during the Spring '11 term at S.F. State.

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CH17_Investment_new - Chapter 17: Investment Learning...

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