Investments

1
Investments

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

2
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

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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

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Debt SecuritiesClassified as Trading

• Valuation
• Fair value
• Unrealized holding gains or losses
• Recognized in net income
• Other income
• Interest earned
• Realized gains and losses from sale

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Debt SecuritiesClassified 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

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Investment in Debt Securities
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Classified as Trading Journal Entry
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Classified as Trading
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Classified as Trading
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Classified as Available-for-sale
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Classified as Available-for-Sale
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Classified as Available-for-Sale
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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

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Equity Securities

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

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Degrees of Control
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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

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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

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Equity Method

• Between 20 and 50 ownership interest
• Substantive economic relationship
• Investors carrying value
• Increased by proportionate share of earnings
• Decreased by
• Dividends, and
• Proportionate share of losses

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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

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Investments In Equity Securities
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Accounting by Category
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Transfers of Classifications