F3 : Marketable Securities
Trading securities
Fair value
Sale of Security =income statement
A sale of security from any category results in a realized gain or loss and is reported on the income statement for the period.
Under the IFRS partial goodwill method, goodwill is calculated as follows:
Goodwill = Acquisition cost - Fair value of subsidiary's net assets acquired
Held-to-Maturity Securities
Net Book Value Amortized.
This choice would only be correct if the security
was actually sold for $28,500. Changes in fair value for AFS securities represent unrealized gains or losses which go to OCI.
The impairment of an available-for-sale security must be recorded on the income statement.
Only gains and temporary losses on available-for-sale securities are reported in other comprehensive income.
The unrealized loss
would not affect retained earnings, although the realized loss certainly would.
In year 1, a company reported in other comprehensive income an unrealized holding loss on an investment in available-for-sale securities.During year 2, these securities were sold at a loss equal to the unrealized loss previously recognized.The reclassification adjustment should include which of the following?
The unrealized loss should be credited to the other comprehensive income.
financial assets subject to prepayment
are measured like debt securities classified as available-for-sale or trading.
Trading securities are reported
at fair value, with holding gains and losses included in earnings.
The fair value of Sand's net assets is
book value + asset FV adjustments + identifiable intangibles
Under IFRS, reversals of impairment losses are allowed and the increase would be
booked to the current year's income statement.
When marketable securities are transferred between trading and available-for-sale, the transfer is made at
fair value, and the difference (if any) is recorded as unrealized loss and charged to the income statement. The new carrying amount becomes the basis for any future gain or loss.
because the journal entry for a write-off of a customer account is to debit the allowance account and credit the accounts receivable account. There is no effect on
income and a net zero effect on total assets.
Trading is reported in balance sheet (current) at fair value,
income statement (unrealized gain/loss) and cash flow (operating or investing)
Only the unrealized losses on available-for-sale securities
is reported in other comprehensive income. The other gain and loss would be reported on the income statement.
Under U.S. GAAP, if the decline in fair value is other than temporary, the cost basis of the individual security
is written down to fair value as the new cost basis and the amount of the write-down is accounted for as a realized loss and included in earnings. (Income Statement)
ASC 470-10-45-14 allows classification of short-term liabilities expected to be refinanced to be classified as
noncurrent assuming that the short-term liabilities do not arise from the normal course of business (e.g., accounts payable and accrued liabilities).
Held-to-maturity debt securities is reported as Non-current in Balance sheet at amortized cost
none as an unrealized gain/loss and as investing in statement of cash flow.
Under IFRS, a provision is
probable and measureable.
Under ASC Topic 860, a sale occurs if the seller
surrenders control of the receivables transferred.
When an available-for-sale security is determined to be impaired because of an other than temporary decline in fair value below cost,
the asset must be written down to the lower fair value by recording a loss that is recognized on the income statement.
When an investor sells shares and goes from control to non-control,
the investor must recognize a gain or loss from the sale of the stock and then remeasure the remaining non-consolidating interest to fair value. The fair value adjustment is recognized as an additional gain or loss on the income statement.
When the fair value of an investment in debt securities exceeds its amortized cost, how should each of the following debt securities be reported at the end of the year?
>> Held-to-maturity (Amortized cost) >> Available for Sale (Fair value)
When the market value of an investment in debt securities in which the company has a positive intent and ability to hold to maturity exceeds its carrying amount, how should each of the following assets be reported at the end of the year?
>> Long-term marketable debt securities : Carrying amount. >> Short-term marketable debt securities: Carrying amount
When the market value of an investment in debt securities in which the company has a positive intent and ability to hold to maturity, exceeds its carrying value amount, how should each of the following assets be reported at the end of the year?
>> Long-term marketable debt securities : Carrying amount. >> Short-term marketable debt securities: Carrying amount.
Nola Co. has a portfolio of marketable equity securities which it does not intend to sell in the near term. How should Nola classify these securities, and how should it report unrealized gains and losses from these securities?
>>Classified as: Available-for-sale securities >> Component of other comprehensive income.
Only the unrealized losses on available-for-sale securities is reported in other comprehensive income.
All of the other items listed are reported in the income statement.
Kale Co. purchased bonds at a discount on the open market as an investment and intends to hold these bonds to maturity. Kale should account for these bonds at:
Amortized Cost
Calculate any realized gain or loss on the Year 2 income statement.
Available-for-sale securities(alr put up for sale): >>Securities @ sales -Fair value of securities-unrealized loss = Realized loss. >>Securities @sales (sales price) - Cost (at the beginning of the period).
Net unrealized loss on available-for-sale marketable equity securities (in accumulated other comprehensive income on the balance sheet)=
Cost - Market Value at latest year-end.
The acquisition date eliminating journal entry would be:
DR: Equity - Seed (CAR) CR: Investment in Seed CR: Noncontrolling interest DR: Balance sheet adjusted to fair value DR: Identifiable intangible assets at fair value DR: Goodwill
The eliminating journal entry on the date of acquisition would be:
DR: Equity―subsidiary (CAR) CR: Investment in subsidiary CR: Noncontrolling interest DR: Balance sheet adjustment DR: Intangible assets CR: Gain
Journal entry to record unrealized loss reported in other comprehensive income: (OCI/PUFE)
Debit: Unrealized loss on available-for-sale securities Credit: Valuation account (fair value adjustment)
Journal entry to record loss on the income statement: (Idea)
Debit: Unrealized loss on trading securities. Credit: Valuation account (fair value adjustment)
Excess is Goodwill
FV of Sand Corporation - Balance Sheet of Sand at BV - Adjust Balance Sheet to FV - Recognize Identifiable Intangibles at FV
When acquiring a corporation with an acquisition cost that is less than the fair value of 100% of the underlying net assets acquired, the balance sheet, including any identifiable intangible assets, must be adjusted to fair value. This creates a negative balance in the acquisition cost account, which is recorded as a gain.
Fair value of subsidiary <BV net assets> _________________ Difference − Adjust BS to fair value − Record intangibles at FV __________________________ Gain
Entities should report marketable equity securities classified as trading at:
Fair value, with holding gains and losses included in earnings.
Held-to-Maturity Securities
Investments in debt securities are classified as held-to-maturity securities only if the corporation has the positive intent and ability to hold these securities to maturity.
Under the IFRS partial goodwill method, noncontrolling interest (NCI) is calculated as follows:
NCI = FV of subsidiary net assets × NCI %
Under U.S. GAAP, noncontrolling interest (NCI) is calculated as follows:
NCI = Fair value of subsidiary × NCI %
Carrying amount of security
Net book value
Available-for-sale securities
PUFE
Realized gain or loss on income statment
Sold
Income Tax Effects = When sold (when marked to market)
Tax effects of unrealized gains or losses entering into the determination of net income must be reflected in the computation of deferred income taxes, because unrealized gains and losses are not deductible for tax purposes.
The increase for available-for-sale debt securities related to an impairment reversal will be report on the income statement and not in other comprehensive income.
The reversal should be reflected on the current year income statement.
Debt Security Classified as Available-for-Sale Transferred to Held-to-Maturity:
The unrealized holding gain or loss at the date of transfer is already reported in other comprehensive income.The unrealized holding gain or loss shall be amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount.
Debt Security Classified as Held-to-Maturity Transferred to Available-for-Sale
The unrealized holding gain or loss at the date of transfer shall be reported in other comprehensive income.
The bond investment are classified as trading securities because the bonds are held for the purpose of selling them in the near term.
Trading securities are reported at fair value on the balance sheet.
Calculate any unrealized gain or loss on the Year 2 income statement:
Trading securities: Carrying value (Fair value at the end of year 1) -Fair value at the end of year 2
A note is normally considered a current liability if it is due and payable in one year. However, if a company has both the intent and ability to refinance the debt on a long-term basis (ASC 470-10-45-14), the note can be classified as
a long-term liability in the December 31, Year 1, balance sheet.
Equity securities do not include:
a. Preferred stock redeemable at the option of the investor or stock that must be redeemed by the issuer, b. Treasury stock [the company's own stock repurchased and held], and c. Convertible bonds.
Equity securities may be represented by
a. ownership shares (common, preferred, and other forms of capital stock), b. rights to acquire ownership shares (stock warrants, rights, and call options), and c. rights to dispose of ownership shares (put options).
Bond investments which are intended to be held until the maturity date
are classified as held-to-maturity securities and are reported at their amortized cost.
Equity Securities
are defined as securities that represent an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices.
In an acquisition method business combination, direct out-of-pocket costs such as legal and consulting fees
are expensed.
Unrealized Gains and Losses-- Trading Securities:
are included in earnings. Therefore, the unrealized gain or loss on trading securities is shown in the income statement
In an acquisition method business combination, registration and issuance costs
are recorded as a direct reduction to the value of the stock issued by reducing APIC .
Marketable debt securities that the company has the intent and ability to hold to maturity, both "long" and "short" term,
are reported at carrying amount (amortized cost) unless there is a permanent decline in market value.
Investments in marketable securities
are reported at fair value or at their amortized cost, depending on their classification.
After year end ,held-to-maturity investments
are reported at their carrying value (amortized cost), not fair value.
Trading securities and available-for-sale securities
are reported at their fair value.
Unrealized Gains and Losses--Available-for-Sale Securities
are reported in other comprehensive income.
Unrealized losses on available-for-sale securities
are reported in other comprehensive income.
Available-for-Sale Securities
are those securities (both debt and equity) not meeting the definitions of the other two classifications (trading or held-to-maturity).
Trading Securities
are those securities (both debt and equity) that are bought and held principally for the purpose of selling them in the near term.
Held-to-maturity securities
are valued at amortized cost.
Available-for-sale securities is reported in balance sheet (non current) at fair value,
as unrealized gain or loss in other comprehensive income (PUFER), and investing in statement of cash flow.
"Available-for-sale equity" securities are
carried at fair value.Permanent impairment in value results in a writedown and a charge to income as if the loss was realized.
The reversal would not be placed in
either the current or previous year's other comprehensive income.
Trading and available-for-sale securities must be reported at
fair value.
Collection of a receivable results in an increase in cash and a decrease in the accounts receivable balance. The accounts receivable turnover ratio
is computed by dividing net credit sales by the average net accounts receivable balance. Collection of a receivable reduces the average net accounts receivable balance. Thus the receivable turnover ratio increases.
The lower of cost or market method
is no longer used to account for marketable securities.
Lower of cost or market valuation
is not permitted under IFRS or U.S. GAAP.
Assets and liabilities acquired in a business combination must be valued at their fair value. In a bargain purchase where the fair value of the net assets acquired is more than the consideration exchanged for the net assets, the difference
is recognized as a gain by the acquirer at the time of the acquisition.
The year-end carrying amount of available-for-sale investments
is the fair value at year end.
The year-end carrying amount of trading investments
is the fair value at year end.
Fair value
is the market price of the security or what a willing buyer and seller would pay and accept to exchange the security. Changes in the fair value of trading and available-for-sale securities result in unrealized holding gains or losses.
When an investor goes from non-control to control of a subsidiary through a step acquisition, the previously held equity investment
must be adjusted to fair value. The fair value adjustment is recognized as a gain or loss by the investor in the period of the additional acquisition. Beginning carrying amount ______<Adjustment>_______ New carrying amount
Realized gains on available-for-sale securities are reported
on the income statement.
Unrealized gains and losses on available-for-sale (AFS) securities are booked in
other comprehensive income (OCI). Changes in the fair value of the securities will continue to go to OCI until the security is sold, at which point the balance in OCI will be removed and a realized gain or loss will be booked on the income statement.
The quick ratio is calculated by dividing
quick assets by current liabilities. Quick assets are those current assets that can be quickly converted to cash. Because inventory and prepaid rent are not quickly converted to cash, they are not classified as quick assets. Cash, net accounts receivable, and short-term marketable securities are the quick assets in this case.
when goods are shipped FOB destination, title does not pass to the buyer until
the goods have been delivered. The purchase and related liability will not be recorded by Dwyer until title passes, which is on the date the supplies are received—January 3, year 2.
Trading securities are not reported at
the original cost of the bonds, the amortized cost of the bonds, and at the face value of the bonds.
"Contingency" designates a claim or right whose existence is
uncertain but which may become valid property rights eventually. Accountants have adopted a conservative policy in the area of gain contingencies. Per ASC Topic 450, gain contingencies should not be reflected in the accounts since to do so might be to recognize revenue prior to its realization.
