Chapter 17 - CHAPTER 17 Investments CHAPTER REVIEW 1. The...

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CHAPTER 17 Investments CHAPTER REVIEW 1. The problems of accounting for investments involve measurement, recognition, and disclosure. Investments are generally classified as either debt securities or equity securities. Chapter 17 covers both temporary and long-term investments. The first section presents accounting for debt securities; the second section covers accounting for equity securities; and the remainder of the chapter presents the equity method of accounting, disclosure requirements, impairments, and accounting for the transfer of investment securities between categories. Debt Securities 2. (S.O. 1) Debt Securities are instruments representing a creditor relationship with an enterprise. Debt securities include U.S. government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. *Note: All asterisked (*) items relate to material contained in the Appendix to the chapter. 3. Debt securities are grouped into the following three separate categories: a. Held-to-maturity: Debt securities that the enterprise has the positive intent and ability to hold to maturity. b. Trading: Debt securities bought and held primarily for sale in the near term to generate income on short-term price differences. c. Available-for-sale: Debt securities not classified as held-to-maturity or trading securities. Held-to-Maturity Debt Securities 4. Held-to-maturity debt securities are accounted for at amortized cost, not fair value. A Held-to Maturity Securities account is used to indicate the type of debt security purchased. Available-for-Sale Debt Securities 5. Available-for-sale debt securities are reported at fair value. The unrealized gains and losses related to changes in the fair value of available-for-sale debt securities are recorded in an unrealized holding gain or loss account. This account is reported as other comprehensive income and as a separate component of stockholders’ equity until realized. A valuation account called “Securities Fair Value Adjustment (Available-for-Sale)” is used instead of debiting or crediting the Available-for-Sale Securities account to enable the company to maintain a record of its amortized cost. 6. When an available-for-sale debt security is sold, the realized gain or loss is reported in the Other
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Revenues and Gains section or the Other Expenses and Losses section of the income statement. Trading Securities 7. Trading securities are reported at fair value, with unrealized holding gains and losses reported as part of net income. A holding gain or loss is the net change in the fair value of a security from one period to another, exclusive of dividend or interest revenue recognized but not received. A valuation account called “Securities Fair Value Adjustment (Trading)” is used instead of debiting or crediting the Trading Securities account. Amortization on Bond Investments
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Chapter 17 - CHAPTER 17 Investments CHAPTER REVIEW 1. The...

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