Ch.12 Investments "Available for Sale"

How do we know how much to adjust to for in the fair value adjustment account?

Fair value adjustment= carrying value minus the fair value that the bond is going at.

Where are unrealized gains and losses that result from a change in fair value reported at?

As a part of comprehensive income on the statement of comprehensive income.

What are debt securities that are recorded as available for sale initially recorded at on the balance sheet?

At their cost

What are the four components that make up other comprehensive income

Gains and losses on securities classified as available for sale Gains and losses on retirement benefits Gain and losses on derivatives Gains and losses on the translation of foreign currency.

Where are adjustments made for debt securities classified as available for sale?

In an account called the fair value adjustment account

How do we define debt securities that are classified as available for sale?

Includes all debt securities that are not for ACTIVE TRADING or meant to be HELD TO MATURITY.

What account is used for unrealized gains and losses on a bond classified as trading?

unrealized gain/losses on trading investment- Net income

What is the formula for Comprehensive Income?

Net income + Other Comprehensive Income

If the market price is higher than the carrying value of the bond, do we debit or credit the fair value adjustment account?

we debit the fair value adjustment account and credit the gain.

Once a bond classified as "available for sale is sold" is sold what are the two things we must do?

Reclassify/ reverse the adjustment and then record the sale.

What is the opposite account that moves along with the fair value adjustment account?

The unrealized holding gain/losses on AFS investments-OCI

What are debt securities recorded as available for sale recorded at after time has gone by?

They are written either up or down to their fair market value

Why do we always update the carrying value of a bond?

To report it at the correct amounts on the balance sheet and to correctly calculate interest revenue.

How do we reclassify an adjustment that was made to the fair value adjustment account?

We must undue the balance in the fair value adjustment account and then give the balance to the reclassification adjustment OCI account.