11.02 Investments in Debt Securities Flashcards
What is the accounting and reporting of an investment in debt securities?
The accounting and reporting of an investment in debt securities depends on management’s intent for holding the debt security. In addition, an important factor in the valuation of the debt security is whether there is a readily determinable FV.
What are the three types of debt securities?
Trading; Available-for-sale; Held-to-maturity
What is a trading security?
Trading securities are debt investments that a company acquires with the intent to make a profit by buying and selling within a short period of time.
What is the balance sheet measurement of a trading security?
Fair value
How are holding gains/losses of a trading security reported in the financial statements?
Reported in net income.
What is an available-for-sale security?
All other securities not classified as trading or held-to-maturity.
What is the balance sheet measurement of an available-for-sale security?
Fair value
How are holding gains/losses of an available-for-sale security reported in the financial statements?
Reported in other comprehensive income
What is a held-to-maturity security?
Held-to-maturity (HTM) securities are investments in debt securities that an entity has both the intent and ability to hold until maturity.
What is the balance sheet measurement of a held-for-sale security?
Amortized cost
What is the initial measurement of a trading security?
Price paid, usually PV of future cash flows
What is the initial measurement of an available-for-sale security?
Price paid, usually PV of future cash flows. Valuation account to report security at FV.
What is the initial measurement of a held-to-maturity security?
Price paid, usually PV of future cash flows
What is the subsequent measurement of a trading security?
Interest income and amortization of premium or discount recorded in net income. Difference between CV and FV is unrealized gain or loss recorded in net income and adjusts value of debt investment.
What is the subsequent measurement of an available-for-sale security?
Interest income and amortization of premium or discount recorded in net income. Difference between CV and FV is unrealized gain or loss recorded in OCI and in a valuation account.
