Investments Flashcards
Where are held-to-maturity investments reported on the statement of cash flows?
Investing Activity.
How is interest earned on held-to-maturity investments reported in the income statement?
As an Other Income item in the income statement.
What method is used to amortize a premium or discount on a security?
Effective interest method or straight-line method if not materially different.
At what cost are held-to-maturity securities carried and reported?
At amortized cost.
What amounts should be included in the initial recording of a held-to-maturity investment?
- Purchase price of security; 2. Directly related cost of acquisition, e.g., brokerage fee, transfer fee, etc.; 3. Accrued interest, if any, is not included in the cost of the investment.
Under what conditions can a debt security sold before maturity be considered held to maturity?
- Sale is near enough to maturity date so that interest rate risk is substantially eliminated; 2. Sale occurs after investor has collected a substantial portion (at least 85%) of the principal outstanding at acquisition date.
Where are unrealized holding gains and losses on investments held-for-trading reported?
In income (Income Statement) as part of Income from Continuing Operations.
How are held-for-trading investments carried and reported?
At fair value, with changes in fair value reported in current income.
List the criteria for held-for-trading securities.
- Applies to investments in Debt and Equity; 2. Investor buys for the purpose of selling in the near term.
What amounts should be included in the initial recording of a held-for-trading investment?
Purchase price of security; Directly related cost of acquisition, e.g., brokerage fee, transfer fee, etc.
What amounts are included in a gain or loss recognized on the sale of an available-for-sale investment?
The gain or loss recognized on the sale of an available-for-sale investment includes: 1. The difference between the carrying value of the investment and its selling price; and 2. Any unrealized gain or loss in Accumulated Other Comprehensive Income related to the securities sold.
How are available-for-sale investments reported in the balance sheet?
At fair value (i.e., original cost +/- allowance to adjust to fair value) as either current or non-current asset (based on entity’s policy).
How are available-for-sale investments accounted for and reported in financial statements?
- Recognize interest income (one debt securities)/dividends (on equity securities); 2. Amortize discount or premium, if any, on debt securities; 3. Adjust investment to fair value at balance sheet date with any gain/loss reported as an item of other comprehensive income.
What investments are classified as available-for-sale?
Any debt or equity investments not classified as either Held-to-Maturity or Held-for-Trading. The Available-for-Sale category is the default category if an investment in debt or equity does not meet the requirements of either Held-to-Maturity or Held-for-Trading.
List the criteria for a held-to-maturity classification.
- Debt security; 2. Investor has intent to hold to maturity; 3. Investor has ability to hold to maturity.
