chap012 (1) - 12-1 Chapter12Investment 12-2...

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12-1 Chapter 12 Investment
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12-2 Nature of Investments Bonds and notes (Debt securities) Bonds and notes (Debt securities) Common and preferred stock (Equity securities) Common and preferred stock (Equity securities) Investments can be accounted for in a variety of ways, depending on the nature of the investment relationship.
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12-3 Reporting Categories for Investments Control Characteristics of the Investment Reporting Method Used by the Investor The investor lacks significant influence over the operating and financial policies of the investee: Investment in debt securities for which the investor has the "positive intent and ability" to hold to maturity. Held-to-maturity (HTM) - investment reported at amortized cost.* Investment held in an active trading account. Trading securities (TS) - investment reported at fair value with unrealized holding gains and losses included in net income. Other. Securities available-for-sale (AFS) - investment reported at fair value with unrealized holding gains and losses excluded from net income and reported in other comprehensive income.* The investor has significant influence over Typically the investor owns between 20% and 50% of the voting stock of the investee. Equity method - investment cost adjusted for subsequent earnings and dividends of the investee.* controls the investee: The investor owns more than 50% of the voting stock of the investee. Consolidation - the financial statements of the investor and investee are combined as if they are a single company. Reporting Categories for Investments * If the investor elects the fair value option , this type of investment also can be accounted for using the same approach that's used for trading securities, with the investment reported at fair value and unrealized holding gains and losses included in earnings.
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12-4 Investor Lacks Significant Influence Reporting Approach Treatment of Unrealized Holding Gains and Losses Investment Reported in the Balance Sheet at Held-to-maturity (HTM): used for debt Not recognized Amortized Cost that is planned to be held for its entire life Trading (TS): used for debt or equity Recognized in net income Fair Value that is held in an active trading and therefore in retained account for immediate resale, or for earnings as part of which the fair value option had been stockholders' equity elected. Available-for-sale (AFS): used for debt Recognized in other or equity that does not qualify as comprehensive income, held-to-maturity or trading. and therefore in accumulated other comprehensive income in shareholders' equity
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12-5 Securities to Be Held to Maturity Securities are investments in bonds or other debt security that have a specified maturity date. The bonds or other debt are initially recorded at cost. The investor may have the “positive intent and ability” to hold the securities to maturity and can therefore be classified as held-to-maturity ( HTM ).
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chap012 (1) - 12-1 Chapter12Investment 12-2...

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