1 / 22

Investments in Stocks and Bonds

Investments in Stocks and Bonds. Overview of FASB No. 115. Requires most investment securities to be valued at market Securities classified into three categories Held-to-maturity Only debt securities that will be held to maturity date. Overview of FASB No. 115. Trading securities

taylor
Download Presentation

Investments in Stocks and Bonds

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Investments in Stocks and Bonds

  2. Overview of FASB No. 115 • Requires most investment securities to be valued at market • Securities classified into three categories • Held-to-maturity • Only debt securities that will be held to maturity date

  3. Overview of FASB No. 115 • Trading securities • Debt and equity securities that are purchased and sold for short-term profits • Available-for-sale • All debt and equity securities not classified as held-to-maturity or trading

  4. Short-term Investments • Readily saleable securities • Management intends to sell within one year • All three of FASB 115 categories apply

  5. Short-term Investments in Stocks (Trading) • Purchase • Record cost in Short-term Investment account • Cash dividends • Record revenue upon receipt of dividend • Stock dividends and splits • No entry and calculate new cost

  6. Short-term Investments in Stocks (Trading) • Sale • Increase Cash for proceeds • Decrease Investment account by cost • Record Realized Gain(Loss) on Investment for difference

  7. Unrealized Gain or Loss (Trading) • Valuation for financial statements • Adjust Investment account to market • Record Unrealized Gain(Loss) for change • Unrealized gain or loss shown on income statement

  8. Subsequent Sale (Trading) • When sold after adjustment to market • Realized gain or loss is difference between market at date of sale and amount security adjusted to at last financial statement date

  9. Short-term Investments in Bonds (Trading) • Purchase • Record cost in Short-term Investment account • Interest accruals and receipts • Interest revenue accrued at appropriate dates • No amortization of premium or discounts

  10. Short-term Investments in Bonds (Trading) • Sale • Increase Cash for proceeds • Accrue interest revenue to date of sale • Decrease Investment account by cost • Record Realized Gain(Loss) on Investment for difference

  11. Unrealized Gain or Loss (Trading) • Valuation for financial statements • Adjust Investment account to market • Record Unrealized Gain(Loss) for change • Unrealized gain or loss shown on income statement

  12. Subsequent Sale (Trading) • When sold after adjustment to market • Realized gain or loss is difference between market at date of sale and amount security adjusted to at last financial statement date

  13. Investments in Available-For-Sale Securities • Acquired as short-term or long-term investment • When available-for-sale bonds held as long-term, premium or discount should be amortized as adjustment to interest revenue

  14. Investments in Available-For-Sale Securities • Accounting similar to trading except: • Unrealized gains or losses reported as a separate component of stockholders’ equity • When sold, realized gain or loss is difference between proceeds and original cost • Unrealized gain or loss closed

  15. Own less than 20% of voting stock Own 20-50% of voting stock Own more than 50% of voting stock Market value method Equity method Prepare consolidated statements Long-term Investments in Stocks

  16. Equity Method of Accounting • Investment initially recorded at cost • Receipt of dividends • Reduces investment account • No revenue

  17. Equity Method of Accounting • Investee reported income • Increase Investment by investor’s share • Report share of investee income as income • Investee reported loss • Decrease Investment by share • Report share as loss

  18. Investment in Bonds Held-to-Maturity • FASB 115 states must not be any foreseeable intent to sell bonds before maturity date • Accounting is mirror image of accounting for long-term debt • Reported in financial statements at amortized cost

  19. Analyzing Information • What is overall percent of total assets invested in current and noncurrent securities? • What is mix of trading, available-for-sale, and held-to-maturity investments?

  20. Analyzing Information • Has company been successful in generating additional income from investments? • How does current market value and cost compare? • Is there good range of maturity dates?

  21. Analyzing Information • If equity securities accounted for using equity method • does significant influence exist? • how much of share of income has been received as dividends?

More Related