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study gudie - Chapter 12 Investments Reporting Categories...

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Chapter 12 – Investments Reporting Categories for Investments o HTM (held to maturity) - Investments in debt securities with “positive intent and ability” to hold to maturity Reported at amortized cost Could elect Fair Value Option (same as trading) Unrealized holding gains/losses are not recognized o Trading Securities - Investments held in an active trading account Reported at fair value Unrealized holding gains/losses in Net Income o AFS (available for sale) – Other Reported at fair value Unrealized holding gains/losses in OCI o Significant Influence Owns between 20% and 50% of the voting stock of the investee Equity method used Investment cost adjusted for subsequent earnings and dividends of the investee o Control Investors owns more than 50% of the investee Consolidation method Financial statements of investor and investee are combined as if they are a single company HTM (held to maturity) o Premium: stated rate > market rate o Discount: stated rate < market rate o Reported at amortized cost o To record interest received: Debit cash (stated rate*face amount) Debit discount (plug) Credit investment revenue (market rate*outstanding balance) o Discount reduces, increases outstanding balance Trading securities o Reported at Fair Value, more relevant o Net unrealized loss Face amount Less discount Add back accumulated amortization Debit Net unrealized holding g/l’s – I/S Credit fair value adjustment AFS (securities available for sale) o Purchase of investments and recognition of investment revenue is the same for trading securities
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o Adjust to fair value the same Debit net unrealized holdings g/l’s – OCI o Sale – same Debit cash Debit discount Credit investment Credit gain on sale (plug) Financial Statement Presentation o See page 634 Page 635 (print out) Transfers between Reporting Changes o When a security is reclassified between two reporting categories the security is transferred at fair value on the dale of transfer o Any unrealized holding gains/losses at reclassification should be accounted for in a manner consistent with the classification into which the security is being transferred o Print out table on page 637 Fair Value Option o Irrevocable o Unrealized gains and losses included in income statement Impairment of Investments o If FV of HTM or AFS investment declines below amortized cost of investment and decline is other than temporary o For Equity investments – If company doesn’t have intent and ability to hold the investment until FV recovers Recognize OTT impairment loss in earnings and reduces carrying value of investment in balance sheet by that amount o For Debt investments More complicated Financial Statement Presentation and Disclosure o Trading securities go under Operating activities in Statement of Cash Flows o HTM, AFS go under Investing activities
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study gudie - Chapter 12 Investments Reporting Categories...

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