Chapter 17 Investments.ppt

Chapter 17: Investments Identify the three categories of debt securities and describe the accounting and reporting treatment for each category. Understand the procedures for discount and premium amortization on bond investments. Identify the categories of equity securities and describe the accounting and reporting treatment for each category. Explain the equity method of accounting and compare it to the fair value method for equity securities. Describe the disclosure requirements for investments in debt and equity securities. Discuss the accounting for impairments of debt and equity investments. Describe the accounting for transfer of investment securities between categories. The investor has both: a positive intent to hold the securities, and the ability to hold them to maturity. These securities are accounted for at amortized cost, not fair value. These investments are reported at fair value in the balance sheet. Differences between the fair value and amortized cost are reported as unrealized holding gains and losses (part of equity). When realized, gains and losses in fair value are reported as part of net income. Trading securities are used to generate profits from short-term differences in prices. The holding period is usually less than 3 months. The securities are reported at fair value. Unrealized gains and losses are reported as part of net income. Any discount or premium is not amortized. Issues: At what value is the security transferred? How are gains and losses accounted for? What is the effect of the gain/loss accounting on income and equity? Equity securities represent ownership interests such as common, preferred, or other capital stock. They include rights to buy and sell the ownership interests. Convertible debt and redeemable preferred stock are not equity securities for this purpose. The extent of ownership in common stock by an investor in an investee determines the accounting treatment for equity securities. The FASB has provided examples of ca