Tải bản đầy đủ

Intermediate accounting 17e by kieso ch17

Intermediate Accounting
Seventeenth Edition
Kieso ● Weygandt ● Warfield

Chapter 17

Investments


Learning Objectives
After studying this chapter, you should be able to:
1. Describe the accounting for investments in debt
securities.
2. Describe the accounting for investments in equity
securities.
3. Explain the equity and consolidation methods of
accounting.
4. Evaluate other major issues related to investments in
debt and equity securities.
Copyright ©2019 John Wiley & Sons, Inc.


2


Preview of Chapter 17
Investments

Investments in Debt Securities
• Debt investment classifications
• Held-to-maturity securities
• Available-for-sale securities
• Trading securities

Copyright ©2019 John Wiley & Sons, Inc.

3


Preview of Chapter 17
Investments

Investments in Equity Securities
• Holdings of less than 20%
• Holdings between 20% and 50%
• Holdings of more than 50%

Copyright ©2019 John Wiley & Sons, Inc.

4


Preview of Chapter 17
Investments

Other Financial Reporting Issues
• Fair value option
• Impairment of value
• Reclassification adjustments
• Transfers related to debt
• Securities
• Summary
Copyright ©2019 John Wiley & Sons, Inc.

5


Learning Objective 1
Describe the Accounting for
Investments in Debt Securities

LO 1

Copyright ©2019 John Wiley & Sons, Inc.

6


Investment in Debt Securities
Different motivations for investing:
• To earn a high rate of return.
• To secure certain operating or financing
arrangements with another company.

LO 1

Copyright ©2019 John Wiley & Sons, Inc.

7


Investment in Debt Securities

Summary of Investment Accounting Approaches
Companies account for investments based on
• the type of security (debt or equity) and
• their intent with respect to the investment.
Type of Security
Debt
Equity

LO 1

Management Intent

Valuation Approach

No plans to sell
Plan to sell

Amortized cost
Fair value

Plan to sell
Exercise some control

Fair value
Equity method

Copyright ©2019 John Wiley & Sons, Inc.

8


Debt Investment Classifications
Debt securities represent a creditor relationship:

Type

Accounting Category

• U.S. government
securities

• Held-to-maturity

• Municipal securities

• Available-for-sale

• Corporate bonds

• Trading

• Convertible debt
• Commercial paper
LO 1

Copyright ©2019 John Wiley & Sons, Inc.

9


Debt Investment Classifications
Accounting for Debt Securities by Category
Category Valuation
Held-to- Amortized
maturity cost

Unrealized Holding
Gains or Losses
Not recognized

Other Income Effects
Interest when earned;
gains and losses from sale.

Trading
Fair value
securities

Recognized in net
income

Interest when earned;
gains and losses from sale.

Available Fair value
-for-sale

Recognized as other
comprehensive income
and as separate
component of
stockholders’ equity

Interest when earned;
gains and losses from sale.

LO 1

Copyright ©2019 John Wiley & Sons, Inc.

10


Investment in Debt Securities

Held-to-Maturity Securities (Amortized Cost)
Classify a debt security as held-to-maturity only if it has
both
1. the positive intent and
2. the ability to hold securities to maturity.
Accounted for at amortized cost, not fair value.
Amortize premium or discount using the effectiveinterest method unless the straight-line method yields
a similar result.
LO 1

Copyright ©2019 John Wiley & Sons, Inc.

11


Held-to-Maturity Securities (Amortized
Cost)

Illustration: Robinson Company purchased $100,000 of 8
percent bonds of Bush Corporation on January 1, 2019, at a
discount, paying $92,278. The bonds mature January 1, 2024
and yield 10%; interest is payable each July 1 and January 1.
Robinson records the investment as follows:
January 1, 2019
Debt Investments
Cash
LO 1

92,278

Copyright ©2019 John Wiley & Sons, Inc.

92,278
12


Schedule of Interest Revenue and
Bond Discount Amortization—
Effective- Interest Method
LO 1

Copyright ©2019 John Wiley & Sons, Inc.

13


Amortized Cost – July 1, 2019

Robinson Company records the receipt of the first
semiannual interest payment on July 1, 2019, as follows:
Cash
Debt Investments
Interest Revenue
LO 1

Copyright ©2017 John Wiley & Sons, Inc.

4,000
614
4,614
34


Amortized Cost – December 31, 2019

Robinson is on a calendar-year basis, it accrues interest and
amortizes the discount at December 31, 2019, as follows:
Interest Receivable
Debt Investments
Interest Revenue
LO 1

Copyright ©2017 John Wiley & Sons, Inc.

4,000
645
4,645
34


Amortized Cost

Reporting of Held-to-Maturity Securities

LO 1

Copyright ©2019 John Wiley & Sons, Inc.

16


Amortized Cost – November 1, 2023
Reporting of Held-to-Maturity Securities

Robinson Company sells its investment in Evermaster bonds
on November 1, 2023, at 99¾ plus accrued interest. The
discount amortization from July 1, 2023, to November 1, 2023,
is $635 (4∕6 × $952). Robinson records this discount
amortization as follows.
Debt Investments
Interest Revenue

LO 1

Copyright ©2019 John Wiley & Sons, Inc.

635
635

17


Amortized Cost – November 1, 2023
Computation of Gain on Sale of Bonds

Robinson records the sale of the bonds as:
Cash
Interest Revenue
Debt Investments
Gain on Sale of Investments
LO 1

102,417

Copyright ©2019 John Wiley & Sons, Inc.

2,667
99,683
67
18


Available-for-Sale Securities (Fair Value
Through Other Comprehensive Income

Companies report available-for-sale securities at
• fair value, with

• unrealized holding gains and losses reported
as other comprehensive income, a separate
component of stockholder’s equity, until
realized.
Any discount or premium is amortized.

LO 1

Copyright ©2019 John Wiley & Sons, Inc.

19


Available-for-Sale Debt Securities
Example: Single Security

Graff Corporation purchases $100,000, 10 percent, five-year
bonds on January 1, 2019, with interest payable on July 1 and
January 1. The bonds sell for $108,111, which results in a
bond premium of $8,111 and an effective interest rate of 8
percent. Graff records the purchase of the bonds on January
1, 2019, as follows.
Debt Investments
Cash

LO 1

108,111

Copyright ©2019 John Wiley & Sons, Inc.

108,111

20


Schedule of Interest Revenue and
Bond Premium Amortization—
Effective-Interest Method
LO 1

Copyright ©2019 John Wiley & Sons, Inc.

21


Single Security – July 1, 2019

The entry to record interest revenue on July 1, 2019, is as follows.
Cash
Debt Investments
Interest Revenue
LO 1

Copyright ©2017 John Wiley & Sons, Inc.

5,000
676
4,324
34


Single Security – Dec. 31, 2019

The entry to record interest revenue on Dec. 31, 2019, is as follows.
Interest Receivable
Debt Investments
Interest Revenue
LO 1

Copyright ©2017 John Wiley & Sons, Inc.

5,000
703
4,297
34


Fair Value Adjustment – Dec. 31, 2019

To apply the fair value method to these debt securities, assume that
at December 31, 2019 the fair value of the bonds is $105,000. Graff
makes the following entry.
Unrealized Holding Gain or Loss—Equity
Fair Value Adjustment
LO 1

Copyright ©2017 John Wiley & Sons, Inc.

1,732
1,732
34


Available-for-Sale Debt Securities
Example: Portfolio of Securities

Webb Corporation has two debt securities classified as availablefor-sale. The following illustration identifies the amortized cost, fair
value, and the amount of the unrealized gain or loss.

LO 1

Copyright ©2019 John Wiley & Sons, Inc.

25


Tài liệu bạn tìm kiếm đã sẵn sàng tải về

Tải bản đầy đủ ngay

×

×