ACCt 327 Chapter 14 - Investments

Debt Securities

creditor relationship, bonds, convertible debt, commercial paper

3 ways to classify debt securities

1. Held to Maturity (HTM)

2. Available for Sale (AFS)

3. Trading Securities (TS)

The investment account for ALL debt securities is record at?

Amortized cost (ex: CV of bond)

Trading and Available for Sale Securities are recorded at?

Fair Value (Mark to Market)

End SFVA formula

CV - market value

Purchase of debt investments are recorded at

Present Value

How do you calculate cash int. payments?

Std rate x face value

How do you calculate interest revenue>

CV x mkt rate

What should you always account for?

PERIODS AND TIME

Discounts and Premiums for debt securities are recorded in what accoount?

The investment accoun

AFS unrealized gains and losses go to?

OCI

TS unrealized gains and losses go to?

Net Income

Balance Sheet Presentation of Revenue

Inv account balance. xx

-/+ SFVA

= Net Investment

What effects SHE?

RE and AOCI

What type of account is SFVA?

Permanent, so the balance rolls over

Income statement presentation of debt securities

Interest Revenue

<Unrealized loss>

(TS ONLY)

AOCI Presentation

Beg AOCI

-/+ OCI (year)

= End AOCI

REALIZIED gains/losses from SELLING go where?

Net income! AFS and TS

When you sell a bond but are still owed interest, what do you record it as?

Interest receivable

When you reclassify AFS securities, what is the JE

SVFA xx

            Unrealized Loss xx

OR

Unrealized Gain xx

            SFVA xx

Reclassification refers to what?

Disclosure and is NOT an AJE

Equity Securities

company buys another company’s stock, no interest paid to us, no sert future cash flows

All equity securities are recorded at?

At cost

20% ownership or less

Fair Value Method

20%-50% Ownership and can exert significant influence

The equity method

50% ownership or more

Put together consiolidated financial statements

Under the fair value method how do you record dividends?

Cash xx

Dividend Revenue xx

Under the equity method how do you record divdends

Cash xx

Investment xx

The equity method

1. record investment at cost

2. Increase investment account when investee records income, decrease when loss

3. Decrease investment account when dividends are paid

Thinking to use equity, but its actually fair value

• a situation where the investee opposes acquisition of stock

• surrendered voting rights

• remaining 80% of shares are contracted by someone who doesn’t consider preferences

• investor tries and fails to get on Board of Directors

Under the equity method, always adjust investment income for

percentage of ownership and time!!

Under the equity method, always adjust dividends for

percentage of ownership