HIGHLIGHTS OF CHAPTER 12: Investments

1. HIGHLIGHTS OF CHAPTER 12: Investments April 2004

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

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

4. HELD-TO-MATURITY • Amortized cost • Effective yield method • Disclosure of FV • Market implications

5. AVAILABLE-FOR-SALE • Recorded at FV • Unrealized holding gains & losses in Other Comprehensive Income • Cumulative Unrealized holding gains & losses in Stockholders’ Equity

6. TRADING SECURITIES • Recorded at FV • Unrealized holding gains & losses in Net Income • Cumulative Unrealized holding gains & losses in Retained Earnings • Realized gains & losses

7. TRANSFERS BETWEEN CLASSIFCATIONS • Transfer at FV at date of transfer • Include cumulative unrealized holding gains & losses related to the new classification

8. FINANCIAL STATEMENT DISCLOSURES • Aggregate FV • Gross realized & unrealized gains & losses • Change in cumulative unrealized holding gains & losses • Amortized cost basis by major security type

9. EQUITY METHOD • Significant influence • 20% to 50% assumed influence • Record % of investee’s income or loss • Record dividends as decrease in investment • Adjustment for increased value

10. RECORDING GOODWILL • Excess of cost over FV of assets acquired • Subject to impairment but not amortization

11. CONSOLIDATION • When investee controlled • Later, Dude!! • You’ll love it!!

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

13. TROUBLED DEBT RESTRUCTURING • Settled by exchange of assets • Modification of terms