far 3-1 Marketable Securities Flashcards
Trading securities are
= Current assets
Trading securities are those securities (both debt and equity) that are bought and held principally for the purpose of selling them in the near term.
Available-for-sale securities are
= Noncurrent (General Rule) assets
Available-for-sale securities are those securities (both debt and equity) not meeting the definitions of the other two classifications (trading or held-to-maturity). Securities classified as available-far-sale securities are reported as either current assets or noncurrent assets, depending on the intent of the corporation.
Held-to-Maturity Securities (debt securities only)
= Noncurrent (GR) assets
Investments in debt securities are classified as held-to-maturity securities only if the corporation has the positive intent and ability to hold these securities to maturity.
VALUATION
Trading and available-for-sale securities must be
reported at FAIR VALUE.
FAIR VALUE = MARK TO MARKET
Unrealized Gains and Losses – TRADING securities:
Unrealized holding gains and losses on
trading securities are included in earnings. This is going to go into income from continuing operations.
J/E to record loss on the I/S:
Dr Unrealized loss on trading securities $XXX
Cr Valuation account (fair value adjustment) $XXX
Unrealized Gains and Losses –AVAILABLE-FOR-SALE Securities :
Unrealized holding gains and losses on available-for-sale securities (including those classified as current assets) are reported in
OTHER COMPREHENSIVE INCOME.(it loos very same as the JE above except it’s not going to the P & L. It’s going to OCI.
J/E to record unrealized loss reported in OCI:
Dr Unrealized loss on available-far-sale securities $XXX Cr Valuation account (fair value adjustment) $XXX
VALUATION
Held-to-maturity securities are valued at
amortized cost.
Reclassification:
From Trading Category
The unrealized holding gain or loss at the date of transfer is already recognized in earnings and shall not be reversed.
Reclassification:
To Trading Category
The unrealized holding gain or loss at the date of transfer shall be recognized in earnings immediately.
Reclassification:
Debt Security Classified as Held-to-Maturity Transferred to Available-for-Sale
The unrealized holding gain or loss at the date of transfer shall be reported in other comprehensive income.
Reclassification:
Debt Security Classified as Available-for-Sale Transferred to Held-to-Maturity
The unrealized holding gain or loss at the date of transfer is already reported in other comprehensive income. The unrealized holding gain or loss shall be amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount. (AMORTIZE INTO I/S ANY G/L THAT WAS IN OCI).
Impairment of Securities
if the decline in fair value is other than temporary,
the cost basis of the individual security is written down to fair value as the new cost basis and the amount of the write-down is accounted for as a REALIZED LOSS AND INCLUDED IN EARNINGS. (I/S)
Sale of Security
= I/S
A sale of a security from any category results in a realized gain or loss and is reported on the income statement for the period.
For trading securities, the realized gain or loss reported
when the security is sold is the difference between the adjusted cost (original cost +/- unrealized gains/losses previously recognized on the income statement) and the selling price.
For available-for-sale securities, the realized gain or loss reported
when the security is sold is the difference between the selling price and the original cost of the security. Any unrealized gains or losses in accumulated other
comprehensive income must be reversed at the time the security is sold.
