Marketable Securities

Question 1

Marketable Securities

Answer 1

Debt = bonds
Equity = stocks
Debt matures
Equity does not; indefinite life

Question 2

Equity securities

Answer 2

ownership interest in an enterprise; (shares, stocks)
or
rights to acquire (stock warrants, rights, or call options) or dispose (put options) an ownership interest in an enterprise at fixed, determinable prices

Question 3

Equity securities dont include

Answer 3

treasury stock, convertible bonds, or preferred stock redeemable at the option of the investor of the stock

Question 4

Classification basis

Answer 4

intent of the company- what do they want to do with the stock

Question 5

Trading

Answer 5

Debt and equity securities bought and held with the intention of selling them; profits are on short term price differences

Question 6

Trading securities are generally

Answer 6

current assets

Question 7

Available for sale security

Answer 7

Debt and equity securities not meeting the definition of trading or held to maturity securities

Question 8

AFS Securities are generally

Answer 8

non current assets

can be current assets or non current based on the intent

Question 9

Held to Maturity securities

Answer 9

ONLY debt securities; if the company has both a POSITIVE INTENT and ABILITY to hold these securities till maturity;
if intent to hold indefinitely but not necessarily to maturity then afs

Question 10

HTM securities are generally

Answer 10

noncurrent; current or noncurrent based on time to maturity

Question 11

Valuation

Answer 11

Trading securities and AFS are reported at Fair Value (mark to market); this results in unrealized gains or losses
HTM: valued at amortized cost; no unreallized gains or losses

Question 12

Trading security unrealized gains or losses

Answer 12

income from continuing operations;
dr u/r loss on trading security
cr valuation account (fair value adjustment)

Question 13

AFS unrealized gains or losses

Answer 13

OCI even if these are classified as current assets;
dr u/r loss on afs
cr valuation account

every year mark to mkt; diff between mk to mkt in yr1 and mk to mkt in yr 2 goes into oci

Question 14

Realized gains and losses from afs and trading

Answer 14

Recognized when asset is sold and when afs is impaired; income statement

Question 15

CF from each

Answer 15

Trading can be operating (if current) or investing (if non current)
AFS and HTM investing

Question 16

Deferred tax

Answer 16

difference between gain and loss everytime you mk to mkt because that is reported for gaap but for tax purposes gain or loss is not recognized until its sold

Question 17

Reclassification 1

Answer 17

From trading category- nothing happens; unrealized holding gain or loss is already on the income statement so you dont reverse

Question 18

Reclassification 2

Answer 18

To trading category - unrealized holding gains or losses at the date of transfer is recognized on the I/S

Question 19

Reclassification 3

Answer 19

Debt security: HTM –> AFS
unrealized holding gain or loss at the date of transfer is recognized in OCI
was valued at Amortized cost now being valued at FMV under this new category

Question 20

Recalssification 4

Answer 20

Debt security: AFS–> HTM

Amortize gain or loss from OCI with any bond premium/discount amortization into I/S

Question 21

Impairment of securities

Answer 21

For AFS or HTM, if the decline in fair value is other than temporary then you write down the value of the account and that realized loss is included in earnings

Question 22

Subsequent increase after impairment

Answer 22

HTM-> not recognized
AFS-> subsequent increase in FV is included in OCI;
subsequent temporary decreases in value are also included in OCI

Question 23

Hedging gains or losses

Answer 23

trading -> I/S

AFS -> OCI

Question 24

Sales of a security–> realized gain or loss

Answer 24

I/S for any type of security

Question 25

Unrealized gain or loss

Answer 25

mark to market

Question 26

Sale JE

Answer 26

Page F-3-7
Trading:
Dr Cash
Cr trading security
Cr realized gain on trading security (IDA)
Gains = SP - (Cost +/- unrealized gains or losses)
AFS:
Dr. Cash
Dr. Unrealized gain on afs (from oci)
Cr. AFS (most recent cost basis)
Cr. Realized gain on AFS (ida)
Gains = SP - orig Cost

Question 27

Income tax effects

Answer 27

Unrealized gains or losses are not deductible and create a book tax difference; when sold that gain or loss is tax deductible

Question 28

Comprehensive example

Answer 28

Pag 5-8

Question 29

Carrying value of HTM at year end

Answer 29

= NBV = Amortized cost = purchase price

Question 30

Amortization cost

Answer 30

cost adjusted for amortization of premium or discount; approached fv

Question 31

AFS OCI Net gain for the year

Answer 31

includes all prio mk to mkts: always cumulative

Question 32

AFS if loss permanent

Answer 32

then on the i/s

Question 33

aggregate cost of yr 2 end

Answer 33

only for that year

Question 34

everytime you mark it to market

Answer 34

you mark the actual asset up or down

Question 35

bonds discount and int

Answer 35

int separate account

disc is not amortized on st investments

Question 36

htm

Answer 36

both short and long term you report at carrying value or amortized cost unless there is a permanent decline in value

Question 37

afs permanent write down in year 2

DBT CHECK

Answer 37

in yr one temp decline was in oci
in yr 2 if perm decline- that loss from yr 1 is realeased from oci to ni;

that yr 2 decline has no effect on ni

Question 38

impairment loss reversal ifrs afs* mpre

Answer 38

adjustment reported on oci and allowed

Question 39

amortization htm

Answer 39

purchase price-fv / number years of maturity