Post on 20-Dec-2015
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Overview of FASB No. 115Overview of FASB No. 115
Requires most investment Requires most investment securities to be valued at marketsecurities to be valued at market
Securities classified into three Securities classified into three categoriescategories
Held-to-maturityHeld-to-maturity– Only debt securities that will be held Only debt securities that will be held
to maturity dateto maturity date
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Overview of FASB No. 115Overview of FASB No. 115
Trading securitiesTrading securities– Debt and equity securities that are Debt and equity securities that are
purchased and sold for short-term purchased and sold for short-term profitsprofits
Available-for-saleAvailable-for-sale– All debt and equity securities not All debt and equity securities not
classified as held-to-maturity or tradingclassified as held-to-maturity or trading
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Short-term InvestmentsShort-term Investments
Readily saleable securitiesReadily saleable securities Management intends to sell within Management intends to sell within
one yearone year All three of FASB 115 categories All three of FASB 115 categories
applyapply
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Short-term Investments in Stocks Short-term Investments in Stocks (Trading)(Trading)
PurchasePurchase– Record cost in Short-term Investment Record cost in Short-term Investment
accountaccount Cash dividendsCash dividends
– Record revenue upon receipt of dividendRecord revenue upon receipt of dividend Stock dividends and splitsStock dividends and splits
– No entry and calculate new costNo entry and calculate new cost
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Short-term Investments in Stocks Short-term Investments in Stocks (Trading)(Trading)
SaleSale– Increase Cash for proceedsIncrease Cash for proceeds
– Decrease Investment account by costDecrease Investment account by cost
– Record Realized Gain(Loss) on Record Realized Gain(Loss) on Investment for differenceInvestment for difference
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Unrealized Gain or Loss Unrealized Gain or Loss (Trading)(Trading)
Valuation for financial statementsValuation for financial statements– Adjust Investment account to marketAdjust Investment account to market
– Record Unrealized Gain(Loss) for Record Unrealized Gain(Loss) for changechange
Unrealized gain or loss shown on Unrealized gain or loss shown on income statementincome statement
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Subsequent Sale (Trading)Subsequent Sale (Trading)
When sold after adjustment to When sold after adjustment to marketmarket
Realized gain or loss is difference Realized gain or loss is difference between market at date of sale and between market at date of sale and amount security adjusted to at last amount security adjusted to at last financial statement datefinancial statement date
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Short-term Investments in Bonds Short-term Investments in Bonds (Trading)(Trading)
PurchasePurchase– Record cost in Short-term Investment Record cost in Short-term Investment
accountaccount Interest accruals and receiptsInterest accruals and receipts
– Interest revenue accrued at appropriate Interest revenue accrued at appropriate datesdates
– No amortization of premium or discountsNo amortization of premium or discounts
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Short-term Investments in Bonds Short-term Investments in Bonds (Trading)(Trading)
SaleSale– Increase Cash for proceedsIncrease Cash for proceeds
– Accrue interest revenue to date of Accrue interest revenue to date of salesale
– Decrease Investment account by costDecrease Investment account by cost
– Record Realized Gain(Loss) on Record Realized Gain(Loss) on Investment for differenceInvestment for difference
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Unrealized Gain or Loss Unrealized Gain or Loss (Trading)(Trading)
Valuation for financial statementsValuation for financial statements– Adjust Investment account to marketAdjust Investment account to market
– Record Unrealized Gain(Loss) for Record Unrealized Gain(Loss) for changechange
Unrealized gain or loss shown on Unrealized gain or loss shown on income statementincome statement
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Subsequent Sale (Trading)Subsequent Sale (Trading)
When sold after adjustment to When sold after adjustment to marketmarket
Realized gain or loss is difference Realized gain or loss is difference between market at date of sale and between market at date of sale and amount security adjusted to at last amount security adjusted to at last financial statement datefinancial statement date
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Investments in Investments in Available-For-Sale SecuritiesAvailable-For-Sale Securities
Acquired as short-term or long-term Acquired as short-term or long-term investmentinvestment
When available-for-sale bonds held When available-for-sale bonds held as long-term, premium or discount as long-term, premium or discount should be amortized as adjustment should be amortized as adjustment to interest revenueto interest revenue
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Investments in Investments in Available-For-Sale SecuritiesAvailable-For-Sale Securities
Accounting similar to trading except:Accounting similar to trading except: Unrealized gains or losses reported as a Unrealized gains or losses reported as a
separate component of stockholders’ separate component of stockholders’ equityequity
When sold, realized gain or loss is When sold, realized gain or loss is difference between proceeds and difference between proceeds and original costoriginal cost– Unrealized gain or loss closedUnrealized gain or loss closed
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Long-term Investments in StocksLong-term Investments in Stocks
Own less than Own less than 20% of voting 20% of voting stockstock
Own 20-50% of Own 20-50% of voting stockvoting stock
Own more than Own more than 50% of voting 50% of voting stockstock
Market value Market value methodmethod
Equity methodEquity method
Prepare Prepare consolidated consolidated statementsstatements
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Equity Method of AccountingEquity Method of Accounting
Investment initially recorded at costInvestment initially recorded at cost Receipt of dividendsReceipt of dividends
– Reduces investment accountReduces investment account
– No revenueNo revenue
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Equity Method of AccountingEquity Method of Accounting
Investee reported incomeInvestee reported income– Increase Investment by investor’s shareIncrease Investment by investor’s share
– Report share of investee income as Report share of investee income as incomeincome
Investee reported lossInvestee reported loss– Decrease Investment by shareDecrease Investment by share
– Report share as lossReport share as loss
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Investment in Bonds Investment in Bonds Held-to-MaturityHeld-to-Maturity
FASB 115FASB 115 states must not be any states must not be any foreseeable intent to sell bonds foreseeable intent to sell bonds before maturity datebefore maturity date
Accounting is mirror image of Accounting is mirror image of accounting for long-term debtaccounting for long-term debt
Reported in financial statements at Reported in financial statements at amortized costamortized cost
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Analyzing InformationAnalyzing Information
What is overall percent of total What is overall percent of total assets invested in current and assets invested in current and noncurrent securities?noncurrent securities?
What is mix of trading, available-What is mix of trading, available-for-sale, and held-to-maturity for-sale, and held-to-maturity investments?investments?
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Analyzing InformationAnalyzing Information
Has company been successful in Has company been successful in generating additional income from generating additional income from investments?investments?
How does current market value and How does current market value and cost compare?cost compare?
Is there good range of maturity Is there good range of maturity dates?dates?
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Analyzing InformationAnalyzing Information
If equity securities accounted for If equity securities accounted for using equity methodusing equity method– does significant influence exist?does significant influence exist?
– how much of share of income has how much of share of income has been received as dividends?been received as dividends?