Lecture 21 Flashcards by A C

minority active investment

20%-50% ownership

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minority passive investment

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a company’s investment in debt securities is a ___ investment

passive - debt holders have no ownership

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accounting at acquisition

same for all cases

investment recorded and reported @cost, at the fair value of what was paid to acquire the securities

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HTM

NOT APPLICABLE TO EQUITY

debt: investments that the company has positive intent and ability to hold until maturity

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Trading

both debt & equity

held primarily for sale in the near term to generate income on short term price differences

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AFS

available for sale; both debt & equity

investments that aren’t classified as HTM or trading

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4 types of journal entries for marketable securities

record acquisition
record receipts of interest or dividends
record change in market prices of investments
record sale

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how much would a company pay for a bond?

PV coupon + PV face value

if semi-annual coupon payments, use semi-annual discount rate & n*2 payments

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journal entry to record acquisition (HTM)

investment in Mkt Sec (HTM)

Cash

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journal entry to record coupon receipts (HTM)

cash
investment in Mkt Sec (HTM)

Int Rev

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interest revenue =

Beg balance of investment * discount rate (semi-annual)

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journal entry to record price increases (HTM)

NO ENTRY

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cash receipts of bonds

DO NOT CHANGE

=face value * coupon rate

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journal entry to record loss on sale (HTM)

Cash
(realized) Loss on sale

investment in Mkt Sec account (HTM)

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realized gains/losses for HTM are recorded in ___

income statement

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realized gains/losses are recorded in ___

income statement

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journal entry to record dividend (interest) receipts (trading)

div (interest) receivable

div (interest) revenue

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dividend (interest) revenue for trading is recorded in ___

income statement

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dividend (interest) revenue is recorded in ___

income statement

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minority passive investment

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a company’s investment in debt securities is a ___ investment

passive - debt holders have no ownership

How well did you know this?

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accounting at acquisition

same for all cases

investment recorded and reported @cost, at the fair value of what was paid to acquire the securities

How well did you know this?

Not at all

Perfectly

HTM

NOT APPLICABLE TO EQUITY

debt: investments that the company has positive intent and ability to hold until maturity

How well did you know this?

Not at all

Perfectly

Trading

both debt & equity held primarily for sale in the near term to generate income on short term price differences

AFS

available for sale; both debt & equity investments that aren't classified as HTM or trading

4 types of journal entries for marketable securities

1. record acquisition 2. record receipts of interest or dividends 3. record change in market prices of investments 4. record sale

how much would a company pay for a bond?

PV coupon + PV face value if semi-annual coupon payments, use semi-annual discount rate & n*2 payments

journal entry to record acquisition (HTM)

investment in Mkt Sec (HTM) Cash

journal entry to record coupon receipts (HTM)

cash investment in Mkt Sec (HTM) Int Rev

interest revenue =

Beg balance of investment * discount rate (semi-annual)

adjustment previously recognized unrealized holding loss for trading is recorded in ___

income statement

cash receipts of bonds

DO NOT CHANGE =face value * coupon rate

Beg balance of investment

investment in Mkt Sec account

journal entry to record gain/loss on sale

Cash (realized) Loss on sale investment in Mkt Sec account (HTM)

realized gains/losses are recorded in ___

income statement

journal entry to record acquisition (Trading)

investment in Mkt Sec account cash

journal entry to record interest receipts

div (interest) receivable div (interest) revenue

dividend (interest) revenue is recorded in ___

income statement

journal entry to record change in market value (Trading)

allowance to adjust to market (Trading) unrealized holding gain

unrealized holding gain/loss for trading recorded in ___-

income statement

allowance to adjust to market is a _____

companion account to investments account

net value of investments =

balance in allowance acct + book value of investments

allowance to adjust to market

can have debit or credit balance captures the net unrealized gains and losses that have been recognized in the past

ending balance in allowance account should be such that...

end of the period net value = market value

debit in allowance

increases value of investments

credit in allowance

decreases value of investments

realized gains for trading recorded in ___

income statement

journal entry to record sale of trading w/ a gain

Cash Investment in Mkt Sec (trading) realized gains

what do you need to do when you sell the trading security?

CLOSE ALLOWANCE

journal entry to close allowance acct

allowance to adjust to market adjustment previously recognized unrealized holding loss

adjustment previously recognized unrealized holding loss for trading is recorded in ___

income statement

journal entry to record acquisition of AFS

investment in mkt sec (AFS) cash

journal entry to record dividend (int) receipts for AFS

dividend (interest) receivable dividend (interest) rev

dividend (interest) rev for AFS recorded in ___

income statement

journal entry to record change in market value (AFS)

allowance to adjust to market (AFS) unrealized holding gains

unrealized holding gain/loss for AFS recorded in ___

OCI in SE of BS

journal entry for unrealized holding gain

allowance to adjust to market unrealized holding gain

journal entry for unrealized holding loss

unrealized holding loss allowance to adjust to market

realized gains for AFS recorded in ___

income statement

adjustment previously recognized unrealized holding loss/gain for AFS recorded in ___

OCI account (BS)

major diff b/w trading and AFS

unrealized gains and losses flow thru IS for trading unrealized gains and losses goes directly to OCI (BS) for AFS

NI is more volatile for ___ securities

trading

RE under ___ doesn't include unrealized gains/losses

AFS

equity method accounting

initial book value of the investment is the purchase price (historical cost) after acquisition, recognize: 1. affiliate's earnings 2. affiliate's div payments

journal entry for recognizing affiliate's earnings

investment in affiliate (A+) equity in earnings (NI+)

journal entry to recognize affiliate's div payments

cash (A+) investment in affiliate (A-)

use equity method when...

you own 20-50% of affiliate

EB Marketable securities =

BB + Purchases - Cost of securities sold/matured

Lecture 21 Flashcards

(69 cards)