Ch17s - Chapter 17 Investments Accounting 301A-Eiler 1...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 17 Investments 1 Accounting 301A-Eiler
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 17: Key Concepts v Brief overview of investments. v Accounting for Debt Securities: v Held-to-Maturity (HTM), Available-for-Sale (AFS), & Trading (TS). v Accounting for Equity Investments: v Holdings <20%, 20%-50%, and >50%. v Discuss Fair Value Option (Review from Chapter 7). v Other Issues: v Impairments & Transfers. 2 Accounting 301A-Eiler
Background image of page 2
Investments v Motivations for investing in debt or equity securities of other companies: v To earn a high rate of return. v To exercise some influence and control over other companies (this applies primarily to equity securities). v Companies account for investments based on: v The type of security (debt or equity) and v their intent with respect to the investment. 3 Accounting 301A-Eiler
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Valuation of Investments v Depends on type of security and intent. v Debt securities v Equity securities 4 Accounting 301A-Eiler Management Intent Valuation Approach No plans to sell Amortized Cost Plan to sell Fair Value Management Intent Valuation Approach Plan to sell Fair Value Exercise some control Equity Method
Background image of page 4
Investments in Debt Securities v Three categories of investments in debt securities. Accounting Treatment differs based on classification. Accounting and Reporting Management Intent Valuation Approach Unrealized Holding Gains & Losses Other Income Effects Held-to-Maturity Amortized Cost Not Recognized Interest as earned; Gains & losses from sale Trading Securities Fair Value Recognized in Net Income Interest as earned; Gains & losses from sale Available-for- Sale Fair Value Recognized in Other Comprehensive Income & as separate part of Stockholders’ equity Interest as earned; Gains & losses from sale
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Debt Security Categories v Held-to-Maturity Securities – must meet two requirements: 1. Management has positive intent and 2. ability to hold the securities to maturity. v. Why measured at amortized cost rather than fair value? v. Premium or discount are recorded in separate accounts and are amortized using effective interest method (Chapter 7). v. If security is sold before maturity, gains or losses are calculated based on the difference between cash and carrying value at time of sale. 6 Accounting 301A-Eiler
Background image of page 6
Held-to-Maturity Debt Securities v Example: v On January 1, 2009, Adrian, Inc. purchased $1,000,000, of 10%, 10-year bonds as an investment. Interest on the bonds is paid annually. The market rate for similar bonds is 12%.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/08/2011 for the course ECON 102 taught by Professor Smith during the Spring '11 term at Saddleback.

Page1 / 25

Ch17s - Chapter 17 Investments Accounting 301A-Eiler 1...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online