Marketable Securities Flashcards
Equity securities
Securities that represent an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices
What are not considered equity securities?
- Preferred stock redeemable at the option of investor
- Treasury stock
- Convertible bonds
Categories of equity securities
- Trading securities
- Available-for-sale securities
- Held-to-maturity securities (debt securities)
Trading securities
Securities (debt and equity) that are bought and held principally for purpose of selling them in near term
Current assets
Available-for-sale securities
Securities (debt and equity) not meeting definition of other 2 classifications
GR = Noncurrent asset
Held-to-maturity securities
Investments in debt securities when corporation has positive intent and ability to hold securities to maturity
GR = Noncurrent asset
Fair value
Marked to market
How are trading securities valued?
Fair value
Where are unrealized gains and losses on trading securities recorded?
Earnings (income statement…Ida)
Dr. Unrealized loss on trading securities
Cr. Valuation account (FV adjustment)
How are AFS securities value?
Fair value
Where are unrealized gains and losses on AFS securities recorded?
Other comprehensive income (pUfe)
Dr. Unrealized loss on AFS securities
Cr. Valuation account (FV adjustment)
When are realized gains and losses recognized?
When a security is sold and when an AFS security is deemed impaired (recognized in IS)
How are held-to-maturity securities valued?
At amortized cost
How are transfers from one security group to another accounted for?
At fair value
Where is the unrealized holding gain or loss from transferring a security FROM the trading category accounted for?
At the date of transfer, it is already recognized in earnings and shall not be reversed
Where is the unrealized holding gain or loss from transferring a security TO the trading category accounted for?
At the date of transfer, it shall be recognized in earnings immediately
Where is the unrealized holding gain or loss from transferring a debt security held as held-to-maturity to the AFS accounted for?
At the date of transfer, it shall be reported in OCI (amortized => FV)
Where is the unrealized holding gain or loss from transferring a debt security held as AFS to the held-to-maturity accounted for?
At the date of transfer, it is already reported in OCI. It shall be amortized over the remaining life of the security as an adjustment of yield in a manner consistent w/ amortization of any premium/discount (amortize into IS)
Under US GAAP, how is it accounted for if there is a decline in value below the adjusted/amortized cost of any security classified as either AFS or held-to-maturity that is other than temporary?
The cost basis of the individual security is written down to FV as the new cost basis and the amount of the write-down is accounted for as a REALIZED loss and included in earnings
How is a sale of a security accounted for?
Realized gain or loss is reported on the IS for the period
Valuation account removed on sale of security
Are unrealized gains and losses deductible for tax purposes?
No, therefore the tax effects must be reflected in the computation of deferred income taxes
What information must be disclosed regarding AFS and held-to-maturity securities?
- Aggregate FV
- Gross unrealized holding gains/losses
- Amortized cost basis by major security type
- Info about the contractual maturities of debt securities
When the FV of an investment in debt securities exceeds its amortized cost, how should held-to-maturity and AFS securitied be reported at end of year?
Held-to-maturity: Amortized cost
AFS: Fair value
How are equity securities presented in the BS?
Net of unrealized gains/losses
Under IFRS, how are reversals of impairment losses accounted for?
They are allowed and the increase would be booked to the current year’s income statement
