CH 17 Investments Flashcards
Held-to-Maturity (Debt)
- record @ cost
- positive intent; hold till maturity
Available-for-Sale(Debt)
- record @ Fair Value
- make Fair Market Value Adjustment (adjust cost to fair value)
- FMA = Accumulated Other Comprehensive Income (BS)
Recording Debt Investments
- Record purchase of investment
- Record interest payments
- Record Discount (If nesscary)
- Sale of Investment ( Amortized Cost - Selling Price = Gain/Loss)
Trading (Debt)
- intent on selling them
- record @ fair value
- Unrealized hold G/L to net income
Investments in Equity (Holdings)
How to record them
- Less an 20% = Fair Value Method
- Between 20% - 50% “Significant influence” = Equity Method
- More than 50% “Control” = Consolidated
Equity Method vs. Fair Value Method
- Record purchase of Equity Investment
- record portion of net income or loss (Equity Investment/Investment Income - value of investment goes up_
- record portion of dividend
- DO NOT make fair value market adjustment
Imapairments
- loss in value
- Account: Loss on Impairment (noncollectable)
How do you compute Comprehensive Income? (Investments)
Net Income + Unrealized hold G/L = Comprehensive Income
How to compute gain or loss on sale of investment/debt?
Selling price - Proceeds = Gain or Loss (Realized)
Record sale of equity Investment
Cash
Take equity investment off the books
Compute loss or gain
AFS (Investments)
Recroded at cost
record cash div.
Trading (Investments)
recorded @ cost
record cash dividend
report as net income
Holdings between 20% and 50%
Equity method
- Record purchase
- Record portion of net income
- Record cash dividend
- Equity Invet Dr. Invest. Inc. Cr.
- Do not adjust for FVA
Derivatives
- derive their value from values of other assets
Guidelines for Derivatives
- recognized as assets and liab.
- Report @ Fair Value
- Recognize gains/losses to income
- Report Gains/Losses - depends on hedge
