300350 Flashcards
Equity Security
Definition 1: An equity security is any security representing an ownership interest in an entity (for example, common, preferred, or other capital stock) or the right to acquire (for example, warrants, rights, forward purchase contracts, and call options) or dispose of (for example, put options and forward sale contracts) an ownership interest in an entity at fixed or determinable prices. The term equity security does not include any of the following:
- Written equity options (because they represent obligations of the writer, not investments)
- Cash-settled options on equity securities or options on equity-based indexes (because those instruments do not represent ownership interests in an entity)
- Convertible debt or preferred stock that by its terms either must be redeemed by the issuing entity or is redeemable at the option of the investor
Definition 2: An equity security is any security representing an ownership interest in an entity (for example, common, preferred, or other capital stock) or the right to acquire (for example, warrants, rights, forward purchase contracts, and call options) or dispose of (for example, put options and forward sale contracts) an ownership interest in an entity at fixed or determinable prices. However, the term does not include convertible debt or preferred stock that by its terms either must be redeemed by the issuing entity or is redeemable at the option of the investor.
FASB ASC Glossary
A company should report investment in debt securities that it has classified as trading at:
fair value, with holding gains included in earnings only to the extent of previously recognized holding losses.
lower of cost or market, with holding gains and losses included in earnings.
lower of cost or market, with holding gains included in earnings only to the extent of previously recognized holding losses.
fair value, with holding gains and losses included in earnings.
fair value, with holding gains and losses included in earnings.
Investment in debt securities are carried at fair value with holding gains and losses included in earnings.
Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date.
Holding Gain or Loss
A holding gain or loss is the net change in fair value of a security. The holding gain or loss does not include dividend or interest income recognized but not yet received, write-offs, or the allowance for credit losses.
FASB ASC Glossary
Trading Debt Securities
Trading debt securities are debt securities that are bought and held principally for the purpose of selling them in the near term and therefore held for only a short period of time. Trading generally reflects active and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.
2251.15
Buying and selling trading debt securities is designed to generate profits from the short-term differences in price; these investments are typically held less than three months.
2251.16
Trading securities are carried on the balance sheet at fair value, with unrealized holding gains and losses (determined at the portfolio level) reported in net income. Any discount or premium is amortized.
2251.17
When a trading security is sold, the Investment in Debt Securities account is reduced by the amortized cost of the bonds.
Any realized gain or loss is recorded as “Other revenues and gains” or “Other expenses and losses” on the income statement.
Any related unrealized holding gain or loss is not adjusted on the date of sale, but rather is removed in conjunction with the year-end fair value adjustment computation.
FASB ASC 320-10-20
