Investments Sid Glandon, DBA, CPA Assistant Professor of Accounting The University of Texas at El Paso.

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Presentation transcript:

Investments Sid Glandon, DBA, CPA Assistant Professor of Accounting The University of Texas at El Paso

Debt Securities Classified as held-to-maturity Positive intent and ability to hold to maturity Classified as trading Help for sale in near term to generate income Classified as available-for-sale Not classified as held-to-maturity or trading securities

Debt Securities Classified as Held-to-Maturity Valuation Amortized cost Unrealized holding gains or losses Not recognized Other income Interest earned Realized gains and losses from sale

Debt Securities Classified as Trading Valuation Fair value Unrealized holding gains or losses Recognized in net income Other income Interest earned Realized gains and losses from sale

Debt Securities Classified as Available-for-Sale Valuation Fair value Unrealized holding gains or losses Recognized as other comprehensive income Recognized as separate component of stockholders’ equity Other income Interest earned Realized gains and losses from sale

Investment in Debt Securities

Classified as Trading: Journal Entry

Classified as Trading

Classified as Available-for-sale

Classified as Available-for-Sale

Classified as Held-to-Maturity No entry for fair value adjustment Fair value changes are not recognized at the balance sheet date Securities are reported at amortized cost

Equity Securities Ownership interests Include rights to buy or sell ownership Extent of ownership determines accounting treatment for equity securities

Degrees of Control

Available-for-Sale Less than 20% ownership interest Recorded at cost Valued and reported at fair value Dividends are recognized as income Unrealized holding gains and losses Part of comprehensive income A component of stockholders’ equity

Trading Less than 20% ownership interest Recorded at cost Valued and reported at fair value Dividends are recognized as income Unrealized holding gains and losses Recognized in net income

Equity Method Between 20% and 50% ownership interest Substantive economic relationship Investor’s carrying value Increased by proportionate share of earnings Decreased by Dividends, and Proportionate share of losses

Consolidation More than 50% voting interest Investor is parent Investee is subsidiary Investor prepares consolidated financial statements Investor accounts for investment on its books using the equity method

Investments In Equity Securities

Accounting by Category

Transfers of Classifications

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