Investments Sid Glandon DBA CPA Assistant Professor of
Investments Sid Glandon, DBA, CPA Assistant Professor of Accounting The University of Texas at El Paso
Debt Securities n Classified as held-to-maturity n n Classified as trading n n Positive intent and ability to hold to maturity Help for sale in near term to generate income Classified as available-for-sale n Not classified as held-to-maturity or trading securities
Debt Securities Classified as Held-to-Maturity n Valuation n n Unrealized holding gains or losses n n Amortized cost Not recognized Other income n n Interest earned Realized gains and losses from sale
Debt Securities Classified as Trading n Valuation n n Unrealized holding gains or losses n n Fair value Recognized in net income Other income n n Interest earned Realized gains and losses from sale
Debt Securities Classified as Available-for-Sale n Valuation n n Unrealized holding gains or losses n n n Fair value Recognized as other comprehensive income Recognized as separate component of stockholders’ equity Other income n n Interest earned Realized gains and losses from sale
Investment in Debt Securities
Classified as Trading: Journal Entry
Classified as Trading
Classified as Trading
Classified as Available-for-sale
Classified as Available-for-Sale
Classified as Available-for-Sale
Classified as Held-to-Maturity n n n 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 n n n Ownership interests Include rights to buy or sell ownership Extent of ownership determines accounting treatment for equity securities
Degrees of Control
Available-for-Sale n n n Less than 20% ownership interest Recorded at cost Valued and reported at fair value Dividends are recognized as income Unrealized holding gains and losses n n Part of comprehensive income A component of stockholders’ equity
Trading n n n Less than 20% ownership interest Recorded at cost Valued and reported at fair value Dividends are recognized as income Unrealized holding gains and losses n Recognized in net income
Equity Method n n n Between 20% and 50% ownership interest Substantive economic relationship Investor’s carrying value n n Increased by proportionate share of earnings Decreased by n Dividends, and n Proportionate share of losses
Consolidation n n 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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