Chapter 17 Investments Charles Evans

Investments Overview
Debt Securities
Equity Securities
Measurement Issues
Re-classifications/Transfers
Debt Securities
Classifications
Held-to-Maturity
Intent to hold/Amortized Cost
no holding gains
interest earned in other revenues and gains on balance sheet
gains losses from sale
Debt Investments (Cash)
Use effective interest method
Accrue/amortize interest at end of year
Long-Term Investment on balance sheet
Trading
Held for sale in near term to generate income on the short term
Fair value
Unrealized gains/losses recognized in net income
Available-for-sale
Neither of the above
Reported at Fair value on balance sheet and do not report changes in fair value as
part of net income until after the security has sold
Other comprehensive income
Interest earned/gains losses from sale
Single Security
Debit Investments (Cash) purchase

Chapter 17 Investments Charles Evans

Cash (Debt Investments) (Interest Revenue) interest revenue
Interest Receivable (Debt Investments) (Interest Revenue) accrual
Unrealized holding gain or loss - equity (Fair Value Adjustment) holding
loss/gain
Portfolio
Account for holding gain/loss for multiple securities in one entry
Sale of
Cash Loss on Sale/(gain on sale) (Debt Investments) sale
Reported in other expenses/losses section
Fair value adjustment (Holding gain/loss)
Based on previous fair value adjustment balance

Trading Securities

Intention to sell in a short period

Reported at fair value, unrealized holding gains and losses recognized as part
of net income

Fair Value Adjustment trading (Unrealized Holding Gain/Loss)-Income

Equity Securities
<20% - investor has passive interest fair value method
o Classified as available for sale securities or trading securities
o Recognize net income only when investee declares dividend
o Holding gains or losses(equity) Other Comprehensive Income until
realized
20-50% - investor has significant influence equity method
Equity Method

Chapter 17 Investments Charles Evans

Investor shares in losses/income and dividends.
Investment value decreases w/dividends and net losses
>50% - investor has controlling interest consolidated statements
Controlling interest
Investor = parent, prepares consolidated financial statements
Investee = subsidiary
Equity method
For trading securities, how short does the period have to be? Does it mean within the
year?
Do investors that own more than 50% also share in net income/loss in the same way
as owning 20-50%?