Module 16: Investments

Question 1

Debt Securities

Answer 1

Any security representing a creditor relation with an entity. This includes corporate debt, convertible bonds, US Treasury and municipal securities, redeemable preferred stock, commercial paper, and other security debt instruments.

Question 2

Equity Securities

Answer 2

Include ownership interest (common, preferred, and other capital stock), rights to acquire ownership interests (rights, warrants, call options) and rights to dispose of ownership interest (put options).

Question 3

Trading Securities

Answer 3

Debt and equity securities brought and held principally for the purpose of selling them in the near term. Reported at fair value and grouped with current assets on the balance sheet. Unrealized gains and losses are included in earnings in the period they occur.

Question 4

Available for Sale

Answer 4

Debt and equity securities not classified as trading or held to maturity. Reported at fair value and may be classified as current or non-current. Unrealized gains and losses for a period are excluded from earnings and reported as other comprehensive income (if decline is “other than temporary” then recognized in earnings).

Question 5

Held to Maturity

Answer 5

Debt securities that the organization has the positive intent and ability to hold to the maturity date. Reported at amortized cost and may be classified as current or non-current. Unrealized gains and losses are excluded from earnings (unless decline is “other than temporary”).