Accounting: Investments

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Chapter 17

Debt Securities

creditor relationship with another entity. US GOvernment, Municipal Securities, Corporate Bonds, Convertible Debt, and Commercial Paper.

What are the three debt securities?

Held-to-maturity
Trading
Available-or-sale

Held-to-maturity

Debt Securities that te company has positive intent and ability to hold maturity.

Trading

Debt securities bought and held primarily for sale in the near term to generate income on short-term price differences. WIll be sold regardless of the price.

Available-for-securities

Debt securities not classified as held-to-maturity trading securities.

Held-to-Maturity Valuation& Unrealized Holdings

Amortized Cost
Not Recognized

Trading Securities Valuation& Unrealized Holding

Fair Value
Recognized in net income

Available-for-sale Valuation& Unrealized Holdings

Fair Value
Recognized

What are the requirements to be labeled Held-to-Maturity?

Positive intent and the ability to hold securities maturity

Equity Securities

Ownership is a business via common, preferred, or other capital stock. Include rights to dispose or acquire ownership.

Influence own 0%-20% equity stock & Method

Little Influence, use fair value method

Influence if you own 20%-50%

Significant influence and equity method.

Influence if you own 50%-100%

Control the company and consolidated method

What is the fair value method for equity holdings of less than 20%?

Available-for-sale securities and trading securities.

What is the journal entry for initial investment of available securities?

Equity Investments
Cash

Journal entry for available-for-sale securities that receive cash dividend?

Cash
Dividend Revenue

Journal entry for available-for-sale securities that has a realized holding gain or loss?

Unrealized Holding Gain or Loss-Equity
Fair Value adjustment(ava-for-sale)

Journal entry to record the sale available-for-sale securities?

Cash
Equity Investments
Gain on Sale Investments

Equity method aka significant influence journal entry for reported net income?

Take the percentage of the ownership*net income:
Equity Investments
Revenue from Investments

Equity method aka significant influence journal entry for cash dividends?

To reduce the overall net income. Therefore, take the % of ownership by the cash dividend and subtract from overall.
Cash
Equity Investments

Equity method aka significant influence journal entry for net loss?

Take percentage of loss.
Loss on Investment
Equity Investments

Equity method aka significant influence journal entry for increase and decrease of sales compared to the market and fair value?

No entry is recorded. If market price is $11 and common stock price is $10. Don't record the gain.

Derivatives

securities providing payoffs that depend on the values of other assets. 3 types (futures/forwards, options, and swaps)

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