Investments Flashcards
How are Available-For-Sale securities recorded on the Balance Sheet?
At Fair value as either Current or Non-current assets.
How are Available-For-Sale security Unrealized G/L treated?
*What about if permanent VS temporary?
Included in OCI (Other Comprehensive Income)
*Permanent: I/S (earnings as a realized loss)
Temporary: B/S as OCI
How are Unrealized G/L for Available-For-Sale securities that are reclassified to Held-to-Maturity or Trading Securities treated?
HTM - Stockholder’s Equity
/ Trading Securities - Current Period.
How are Held-to-Maturity securities recorded on the Balance Sheet?
Amortized cost as Current or Non-current assets.
If reclassified as AFS - Unrealized G/L go to Stockholder’s Equity
If reclassified as Trading Securities - Unrealized G/L recognized in Current Period
How are Held-to-Maturity securities Unrealized G/L treated?
Trick question - Unrealized gains or losses are not applicable because they are HTM
How are Trading Securities recorded on the Balance Sheet?
At Fair Value as a Current Asset
Unrealized gains/losses are recorded on the Income Statement
If they are reclassified as held-to-maturity or available-for-sale- there is no effect upon transfer.
How are Trading Securities Unrealized G/L treated?
Recorded on the Income Statement
If they are reclassified as HTM or AFS - there is no effect upon transfer.
What is the % of ownership for marketable securities?
Whats another characteristic?
0-20%
Investment in securities (debt or equity) that are publically traded
How does balance sheet, income statement, and cash flows look like for Trading securities, available for sale, and held to maturity Pg. 5-5
What is the most important concept (unrealized gain/loss)?
Pg. 5-5
For trading securities unrealized gain/losses go to the I/S
For available for sale it goes to the balance sheet
*Look at class example for reference
What is Fair Value accounting option VS not using fair value option? Pg. 5-5
Report Trading Securitites, Available for Sale, and Held to Maturity to INCOME STATEMENT
Report Trading Securities unrealized gains/losses to income statement, and Available for Sale unrealized gains/losses to balance sheet (Look at table 5-5)
What is the significance of dividends received and earnings received?
Dividends cant exceed the amount of earnings since acquistition. Otherwise you would have to reduce the investment amount
Signficance of “Other Than Temporary” Pg. 5-4
Occurs when marketable security under the equity method if FV is less than its cost => considered IMPAIRED
The security must be written down to a new cost basis and is treated as a realized loss
Loss: debit
Investment in AFS: credit
What does report in earnings mean?
Income Statement
What is the significance of Available for Sale for unrealized loss/gain and 2 years are mentioned?
Combine both years because this will go under Other Comprehensive Income under the balance sheet
For journal entries what do you think of with an unrealized gain?
Debit an “allowance” account
Where do allowance accounts show up? What is the reason for this?
The allowance accounts show up in the balance sheet
It shows up here and not the income statement because this account can be here year after year; used to offset
What do you do if they ask for the accumulated OCI?
Pg. 5-3
What about if they ask about comprehensive income? Marketable Securities #4
Net OCI of X1 and X2
Add both years
What is a big difference between the income statement and the balance sheet regarding invesments?
Income statement is current year
Balance sheet can be this year and the past years
Permanent VS Temporary gain/loss?
Permanent means realized, while temporary mean unrealized
How do you find unrealized loss when a market security is reclassified to held to maturity
Report to stockholder’s equity; use original cost and subtract with market value when it was reclassified
Compare unrealized gain / loss VS realized gain / loss Marketable securities #12
Unrealized is temporary, while realized is permanent
For bonds, what do you do with accrued interest? Marketable securities #23
Subtract from carrying value to get a new value
Which cost do you use for? Pg. 5-5
a) Trading securities
b) Available for sale
c) Held to maturity
a) FMV
b) FMV
c) Amortized COST
What is a component of stockholder’s equity?
OCI in the balance sheet
Carrying amount of investment at the beginning of the year same as what in investment journal entry? Cost & Equity #10
Purchase price
What do you think about for marketable security questions?
Think about T-account to connect all years (1 column); income statement is “this year only”
How do you determine the clasification of each marketable security? Marketable security #9
What is the purpose of the purchase of the security? ie) even though a bond is usually held to maturity, if the INTENT of the purchase of the investment is to sell them near term => the bond is considered a trading security
