Investments in Debt & Equity Securities Flashcards
held to maturity
reported at amortized cost with disclosure of the market value. and increases or decreases in fair value are not reported.
When the fair value option is elected, changes in fair value are reported in INCOME, not in other comprehensive income
GAIN/LOSS not in i/s OR OCI because it’s not adjusted to fair value
Any discount or premium is then amortized using the effective interest method over the term of the securities. The result is the AMORTIZED cost which is the amount at which the investment is reported on the balance sheet.
avail for sale
recorded at fair value (market value)
unrealized gains and losses (change in market value) are reported in other comprehensive income (OCI)
unrealized gain/loss has a debit balance, to eliminate credit OCI
when disposed: realized gain (diff b/w cost and market value) reported in INCOME with any previously reported unrealized gains and losses reclassified and removed from AOCI.
the intent of holding them for a while, but ultimately selling them
trading securities
recorded at fair value
with unrealized gains or losses recognized in INCOME STATEMENT
debt security is reclassified from available for sale (AFS) to held to maturity (HTM)
use market value on date of transfer
gain/loss is recognized on OCI and AMORTIZED as an adjustment to the effective interest rate on the HTM security.
temporary loss/gain
recognized in OCI as UNrealized gain/loss
permanent loss/gain
treated as a REALIZED loss equal to the excess of the cost of the Knox bonds over their market value.
investment in marketable equity securities is reported at
market value
hold the bond for the purpose of collecting the scheduled cash flows
record at amortized cost
impairments
gain/loss recognized in income
AFS securities when the fair value option is elected
Unrealized gains and losses on AFS securities when the fair value option is elected are reported as a component of income from continuing operations.
net unrealized loss to be reported on the balance sheet is
the same amount as the allowance for decline in value reducing the carrying value of securities available for sale.
realized gain/loss
realized gain or loss occurs when an asset is disposed of
unrealized gain or loss
A change in fair value, however, results in an unrealized gain or loss.
Unrealized gains and losses on trading securities are reported in income
but unrealized gains and losses on available-for-sale securities are reported in other comprehensive income.
AFS recorded at
Fair / market value
what if AFS is elected to be reported at fair value, where is unrealized gain and losses reported?
reported in INCOME from continuing operations.
** normally unrealized gain/loss from AFS is reported in OCI, but if fair value is elected, then its reported in INCOME.
