5.3 classification of investment

How to recognize realized gain or loss on a security?

A realized loss or gain is recognized when an individual security is sold or otherwise disposed of. Because the shares were purchased as a long-term investment, they should be classified as available-for-sale securities.

Investments classified as held-to-maturity are measured at?

Amortized cost, with no unrealized gains or losses reported.

How to classify debt security as available for sale?

An investment in a debt security is initially classified as available for sale if the entity does not (1) plan to hold it to maturity or (2) intend to sell it in the near term.

How to recognize available for sale securities?

Available-for-sale (AFS) securities are recognized initially at cost (the amount paid). At the balance sheet date, they are remeasured at fair value.

How to treat debt security that is not classify as held to maturity or trading?

Consequently, the debt security is not initially classifiable as held-to-maturity or trading, respectively. At the reporting date, the classification is reassessed.

Fair Value accounting applies to trading and available for sale securities. What is the difference treating on both for holding gain and loss?

Fair value accounting applies to both trading and available-for-sale securities. The difference in treatment is that the unrealized holding gains and losses are included in earnings for trading securities and in other comprehensive income for available-for-sale securities, assuming the latter are not designated as being hedged in a fair value hedge.

How to treat debt securities?

Investments in debt securities must be classified as held-to-maturity and measured at amortized cost in the balance sheet if the reporting entity has the positive intent and ability to hold them to maturity.

What is marketable securities?

Marketable equity securities may be classified as either trading or available-for-sale (assuming no election of the fair value option). Equity securities that are not expected to be sold in the near term should be classified as available-for-sale. These securities should be reported at fair value, with unrealized holding gains and losses (except those on securities designated as being hedged in a fair value hedge) excluded from earnings and reported in OCI.

A reclassification of available-for-sale securities to the held-to-maturity category will result in?

The amortization of an unrealized gain or loss existing at the transfer date. The unrealized holding gain or loss on the date of transfer for available-for-sale securities transferred to the held-to-maturity category continues to be reported in OCI. However, it is amortized as an adjustment of yield in the same manner as the amortization of any discount or premium. This amortization offsets or mitigates the effect on interest income of the amortization of the premium or discount. Fair value accounting may result in a premium or discount when a debt security is transferred to the held-to-maturity category.

How to treat temporary decline of available for sale security?

The temporary decline below cost of the fair value of available-for-sale securities is recorded in OCI.

How to treat trading and available for sale securities?

Trading and available-for-sale securities are accounted for at fair value.

What is trading securities?

Trading securities are debt securities not classified as held to maturity and equity securities with readily determinable fair values that are bought and held primarily for sale in the near term.

The held-to-maturity portfolio consists only of debt securities.?

Yes,

How to treat permanent gain or loss at fair value ?

As a result of a permanent decline in fair value, the security should be written down to fair value, and the loss should be treated as a realized loss. Accordingly, the loss will flow through the income statement, and the new cost basis will not be adjusted for increases in the fair value of the security. Interest paid is not added to the fair value because it is part of the cost.

Define trading securities?

Trading securities are (1) debt securities not classified as held to maturity and (2) equity securities with readily determinable fair values. They are held primarily for sale in the near term. Unrealized changes in their fair value are included in earnings.

Securities held primarily for sale in the near term to generate income on short-term price differences are known as?

Trading securities. Trading securities are bought and held primarily for sale in the near term. They are purchased and sold frequently. They are initially recorded at cost but are remeasured at fair value at each balance sheet date, with the unrealized holding gains or losses recognized in earnings.

Which securities will recognize the unrealized holding gain and loss in income statement?

Unrealized gains and losses caused by changes in fair value are reported in the income statement for (1) trading securities and (2) financial assets and liabilities for which the fair value option has been elected.

How to treat temporary unrealized holding gains and loss from remeasurement?

Unrealized holding gains and losses from remeasurement are reported in other comprehensive income (OCI) if they are temporary.

How to treat available for sale securities reported at fair value?

Assuming the fair value option has not been elected, available-for-sale securities are reported at fair value, with unrealized gains and losses reported in other comprehensive income (OCI).

What is exception of recognizing available for sale securities in earning?

Assuming the fair value option has not been elected, unrealized holding gains and losses on available-for-sale securities are reported in other comprehensive income. (But all or part of unrealized holding gains and losses on available-for-sale securities designated and qualifying as hedged items in a fair value hedge are recognized in earnings.)

Beach Co. determined that the decline in the fair value (FV) of an investment was below the amortized cost and permanent in nature. The investment was classified as available-for-sale on Beach's books. The controller would properly record the decrease in FV by including it in which of the following?

Earnings section of the income statement and writing down the cost basis to FV. The amortized cost basis is used to calculate the amount of any impairment. The amortized cost basis should be distinguished from fair value, which equals the cost basis plus or minus the net unrealized holding gain or loss. If a decline in fair value of an individual available-for-sale security below its amortized cost basis is other than temporary, the amortized cost basis is written down to fair value as a new cost basis. The write-down is deemed to be a realized loss and is included in earnings.

An entity should report the marketable equity securities that it has classified as trading at?

Fair value, with holding gains and losses included in earnings. Trading securities are those held principally for sale in the near term. They are classified as current and consist of debt securities and equity securities with readily determinable fair values. Unrealized holding gains and losses on trading securities are reported in earnings. On a statement of financial position, these securities are reported at fair value.

How to treat equity securities?

Investments in equity securities are classified as either trading or available-for-sale. Equity securities that are not expected to be sold in the near term should be classified as available-for-sale. These securities should be reported at fair value, with unrealized holding gains and losses (except those on securities designated as being hedged in a fair value hedge) excluded from earnings and reported in OCI.

Which securities will be treated as OCI with unrealized holding gains and loss?

The security (1) must have been classified as available-for-sale, (2) was not designated as being hedged in a fair value hedge, and (3) was not accounted for as if it were a trading security (after an FVO election) because the unrealized holding loss is separately recorded in the balance sheet. This amount should appear as a net amount in other comprehensive income.

Tips for trading securities?

Trading securities are recorded at fair value, and unrealized holding gains and losses are included in earnings. When a trading security is reclassified, it should be transferred at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer will have already been recognized in earnings and is not reversed.

How to treat securities with Fair Value Option?

Trading securities or securities for which the FVO has been elected are reported at fair value, with unrealized gains and losses reported in net income.

Unrealized gains and losses on trading securities should be presented in the?

Unrealized holding gains and losses on trading securities are included in earnings and are therefore reported in the income statement.

How to treat unrealized holding gains and losses on trading securities?

Unrealized holding gains and losses on trading securities are included in earnings, and reclassification is at fair value. Furthermore, "for a security transferred from the trading category, the unrealized holding gain or loss at the date of transfer already will have been recognized in earnings and shall not be reversed."

How to treat unrealized holding rain and loss on trading securities and available for sale securities?

Unrealized holding gains and losses on trading securities must be recognized in earnings. Unrealized holding gains and losses on available-for-sale securities not designated as being hedged in a fair value hedge are recognized in other comprehensive income.

When the fair value of an investment in debt securities exceeds its carrying amount, how should each of the following assets be reported at the end of the year? 1.Held-to-Maturity 2.Available-for-Sale

When fair value exceeds the carrying amount of held-to-maturity securities, GAAP currently do not permit recognition of the unrealized holding gain. Accordingly, these debt securities should be reported at their carrying amount (amortized cost). However, fair value accounting applies to available-for-sale and trading securities.

A company purchased bonds at a discount on the open market as an investment and has the intent and ability to hold these bonds to maturity. Absent an election of the fair value option, it should account for these bonds at?

Without an election of the fair value option, investments in debt securities must be classified as held-to-maturity and measured at amortized cost. But this treatment requires the reporting entity to have the positive intent and ability to hold them to maturity.