Investments in Debt/Equity Security

Question 1

Debt Security

Answer 1

any security that represents a creditor relationship with an entity. Most normal form is in bonds.

Debt securities are listed on the balance sheet

Question 2

Trading Securities

Answer 2

Current asset used to make profit on buying and selling the securities within a short period of time. Recorded at cost but carried at fmv (adjusted at year end to fmv)

Realized and unrealized gains/losses and interest income are recorded on the income statement

Operating activity on the statement of cash flows

Question 3

Available for Sale Securities

Answer 3

All securities that aren’t trading or held to maturity

Can be current/noncurrent

recorded at cost but with an adjustment to fmv at year end

unrealized gains/losses go to Accumulated Other Comprehensive Income on the BS

Realized gains/losses and interest income go on the income statement still

Investing activity of the statement of cash flows

Question 4

Held to Maturity Securities

Answer 4

Securities that the investor has the intent and ability to hold until they mature, these become current assets when they are due in less than a year

No unrealized gains/losses at all
Realized gains/losses go on the Income statmenet
Investing activity of the statement of cash flows

Question 5

Selling Available for Sales Securities

Answer 5

difference between cost and proceeds is a realized gain/loss. ignore the allowance account unless it’s the last investment being sold

Question 6

Impairment loss on A4S securities

Answer 6

Realized loss that goes on the income statement
2 step process
1. Determine if it’s impaired Cost>FV
2.Is impairment “other than temporary”

Question 7

Investment in Equity Securities

Answer 7

Similar to Trading securities, these include stocks

Recorded at cost but carried at fmv
Realized/unrealized gains/losses go on the income statement
Operating or Investing activity on the statement of cash flows
Current of non current on the balance sheet
Can elect the Fair Value Election

Question 8

Fair Value Election

Answer 8

Treat A4s like trading securities as far as unrealized gains/losses go on the income statement

Question 9

Realized Gain/loss

Answer 9

when the object is disposed of

Question 10

Unrealized gain/loss

Answer 10

when fmv changes