FAR 3 Marketable securities

Question 1

Classification of securities

Answer 1

1. Trading securities - current asset
2. Available for sale securities - noncurrent
3. Held to maturity securities (debt securities only) - noncurrent

Question 2

Trading securities

Answer 2

• both debt and equity securities

- held for sell

Question 3

Available for sale securities

Answer 3

• both debt and equity securities

- current or noncurrent

Question 4

Held to maturity

Answer 4

• debt securities only

- intent and ability to hold to them to maturity

Question 5

Valuation of Trading and Securities

Answer 5

• reported at fair value
• unrealized gains and losses included in earnings (income statement)

Unrealized loss on trading security
Valuation account

Question 6

Valuation of Available for sale securities

Answer 6

• reported at fair value
• unrealized gains and losses included in other comprehensive income

Unrealized loss on available for sale security
Valuation account

Question 7

Realized gains and losses of trading and available for sale securities

Answer 7

• recognized when a security is sold and available for sale is impaired.
• recognized on income statement

Question 8

Valuation of held to maturity securities

Answer 8

• valued at amortized cost

Question 9

Reporting securities in Cash Flow statement

Answer 9

• Trading if:
  current asset then operating cash flow
  noncurrent asset then investing cash flow
• Available for sale - investing cash flow
• Held to maturity - investing cash flow

Question 10

Reclassification securities - accounted for at FV

Trading securities

Answer 10

1. From Trading category - the unrealized holding gain or loss at the date of transfer is already recognized in earnings and should not be reversed.
2. To trading category - the unrealized holding gain or loss at the date of transfer should be recognized in earnings immediately.

Question 11

Reclassification securities - accounted for at FV

Held to maturity and available for sale

Answer 11

3. Held to maturity transferred to Available for Sale- other comprehensive income
4. Available for sale transferred to held to maturity - already recognized in other comp income and should be amortized over the remaining life of the security

Question 12

Impairment of securities

Answer 12

If permanent change in value, the cost basis is written down to FV and the new cost basis and impairment amount accounted for as a realized loss and included in earnings.

Question 13

Sale of trading security

Answer 13

Cash
Trading security
Realized gain on trading security (IS)

Question 14

Sale of available for sale sale security

Answer 14

Cash
Unrealized gain on AFS security (OCI)
Available for sale security
Realized gain on AFS sec (IS