Investments

Question 1

How are Available-For-Sale securities recorded on the Balance Sheet?

Answer 1

At Fair value as either Current or Non-current assets.

Question 2

How are Unrealized G/L for Available-For-Sale securities that are reclassified to Held-to-Maturity or Trading Securities treated?

Answer 2

HTM - Stockholder’s Equity Trading Securities - Current Period.

Question 3

How are Held-to-Maturity securities recorded on the Balance Sheet?

Answer 3

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

Question 4

How are Held-to-Maturity securities Unrealized G/L treated?

Answer 4

Trick question - Unrealized gains or losses are not applicable because they are HTM

Question 5

How are Trading Securities recorded on the Balance Sheet?

Answer 5

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.

Question 6

How are Trading Securities Unrealized G/L treated?

Answer 6

Recorded on the Income Statement If they are reclassified as HTM or AFS - there is no effect upon transfer.

Question 7

How are unrealized gains/losses on available-for sale securities recognized?

Answer 7

Reported in OCI. Under IFRS, foreign exchange gains and losses on available-for-sale DEBT securities are reported on the income statement

Question 8

Under IFRS, how are foreign exchange gains/losses on available-for-sale securities treated?

Answer 8

Gains/losses on available-for-sale DEBT securities are reported DIRECTLY ON THE INCOME STATEMENT. Gains/losses on available for sale EQUITY securities are reported IN OCI (OTHER COMPREHENSIVE INCOME)

Question 9

When are losses on available-for-sale securities recognized in income?

Answer 9

• Sale of security
• The available-for-sale security is transfered to “trading securities” classification
• Other than temporary impairment = write down to fair value

Question 10

What disclosures should be made for available-for-sale and held-to-maturity securities?

Answer 10

• Aggregate fair value
• Gross unrealized holding gains and losses
• Amortized cost basis by type
• Information about the contracractual maturity of debt securities

Question 11

What are the rules for impairment reversal under GAAP? IFRS?

Answer 11

GAAP = no reversal of impairment

IFRS = impairment losses may be reversed

Question 12

How is an unrealized loss on available-for-sale equity securities recorded if temporary? If permanent?

Answer 12

If temporary:

Dr: OCI

CR: Valuation account (noncurrent asset)

Do not record loss in income statement.

Subsequent recovery:

DR: Valuation account (noncurrent asset)

CR: OCI

If Other Than Temporary:

1. Record realized loss (debit) in the income statement
2. Credit the cost of the individual security account