Chapter 15 Flashcards
non strategic equity investment
- share investment
- current asset
- less than 20% of shares
- uses FVTPL
FVTPL for non strategic equity investments:
-recorded at cost and continued to be measured at fair value
NSE (non strategic equity investment) purchase entry
dr investment- name
Dr transaction fees (if need be)
cr cash
NSE dividend entry
dr cash
cr dividen income
NSE fair value adjustment
book value > fair value
dr investment
cr investment income
Book value < fair value
dr investment income
cr investment
NSE selling shares
loss
dr cash
dr transaction fees
dr investment income
cr investment
gain
dr cash
dr transaction fees
cr investment income
cr investment
strategic equity investments (SE)
INVESTMENTS IN ASSOCAITES
- 20-50% of shares
- USE EQUITY METHOD
- share purchases recorded at cost
- profit/loss recorded
- dividends decrease investment
SE purchase of shares
dr investment in associates
cr cash
SE profit entry
dr investments in associates (profit x % of shares)
cr investment income
SE loss entry
dr investment income
Cr investment in associates
SE cash dividend entry
dr cash
cr investment in associates
SE selling shares
gain
dr cash
cr investment income
cr investment in associates
loss dr cash dr investment income cr investment in associates ** before selling shares the investment account must be brought up to date from profit, loss and dividends
debt investments FVTPL
- purchase recorded at cost
- investment income/loss from fair value test is recorded on income statment
- carrying value is adjusted to fair value on the balance sheet
FVTPL purchase of bond
dr investment-bond
dr transaction fee
cr cash
FVTPL accrued interest on bond
dr interest receivable
cr interest income
FVTPL carrying value adjustment for bond
gain dr investment cr investment income loss dr investment income cr investment
amortized cost method ( DEBT INVESTMENT)
- recorded at Present value of future cash flows
- uses effective interest method
- RECORDED AT COST PAID FOR BOND(which is pv )
- interest recorded and premium/ discount amortization
purchase of bond entry (discount)
dr investment - bond 28477
cr cash 28477
interest earned bond discount entry
dr cash (par value x contract rate x time)
dr investment
cr interest income ( carrying value x market rate time)discount
carrying value starts out as less and increases to par value ( dr investment) until discount is fully amortized
collection at maturity bond
dr cash
cr investment bond
Premium
carrying value wills tart higher than par value and decrease ( cr investment) as the premium is amortized
Premium purchase entry
dr investment bond 34,900
cr cash 34,900
Premium interest entry
dr cash
cr investment bond
cr interest income
how to determine cash payment and interest income for bonds with discount/ premium
cash int payment= par value x contract rate x time
interest income= carrying value x market rate x time
