HIGHLIGHTS OF CHAPTER 12: Investments

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HIGHLIGHTS OF CHAPTER 12 Investments

• April 2004

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SIGNIFICANT ISSUES

• Classifications of investment securities
• Accounting for changes in value
• Equity method
• Control versus significant influence

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CLASSIFICATIONS

• Control -consolidation
• Significant influence equity method
• Held-to-maturity debt amortized cost
• Available-for-sale at FV
• Trading at FV

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HELD-TO-MATURITY

• Amortized cost
• Effective yield method
• Disclosure of FV
• Market implications

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AVAILABLE-FOR-SALE

• Recorded at FV
• Unrealized holding gains losses in Other
  Comprehensive Income
• Cumulative Unrealized holding gains losses in
  Stockholders Equity

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TRADING SECURITIES

• Recorded at FV
• Unrealized holding gains losses in Net Income
• Cumulative Unrealized holding gains losses in
  Retained Earnings
• Realized gains losses

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TRANSFERS BETWEEN CLASSIFCATIONS

• Transfer at FV at date of transfer
• Include cumulative unrealized holding gains
  losses related to the new classification

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FINANCIAL STATEMENT DISCLOSURES

• Aggregate FV
• Gross realized unrealized gains losses
• Change in cumulative unrealized holding gains
  losses
• Amortized cost basis by major security type

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EQUITY METHOD

• Significant influence
• 20 to 50 assumed influence
• Record of investees income or loss
• Record dividends as decrease in investment
• Adjustment for increased value

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RECORDING GOODWILL

• Excess of cost over FV of assets acquired
• Subject to impairment but not amortization

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CONSOLIDATION

• When investee controlled
• Later, Dude!!
• Youll love it!!

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OTHER INVESTMENTS

• Sinking funds
• Cash surrender value of life insurance policies
• Report as long-term investments

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TROUBLED DEBT RESTRUCTURING

• Settled by exchange of assets
• Modification of terms