Reporting Approach Held-to-maturity (HTM): used for debt that is planned to be held for it entire life
Trading (TS): used for debt or equity that is held in an active trading account for immediate resale, or for which the fair value option had been elected.
trading securities, with the investment reported at fair value and unrealized holding gains and losses included in earnings.
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Investor Lacks Significant Influence
of the voting stock of the investee.
subsequent earnings and dividends of the investee.*
The investor controls the investee:
The investor owns more than 50% of the voting
Consolidation - the financial statements of the investor
stock of the investee.
and investee are combined as if they are a single
company.
* If the investor elects the fair value option , this type of investment also can be accounted for using the same approach that's used for
has the "positive intent and ability" to hold to
amortized cost.*
maturity.
Trading securities (TS) - investment reported at fair
Investment held in an active trading account.
Chapter 07 Investments
1
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Nature of Investments
Bonds and notes
(Debt securities)
Common and preferred stock
(Equity securities)
Investments can be accounted for in a variety of ways, depending on the nature
value with unrealized holding gains and losses included
in net income.
Securities available-for-sale (AFS) - investment
Other.
reported at fair value with unrealized holding gains and losses excluded from net income and reported in other
Available-for-sale (AFS): used for debt or equity that does not qualify as held-to-maturity or trading.
Treatment of Unrealized Holding Gains and Losses Not recognized
comprehensive income.*
The investor has significant influence over the
operating and financial policies of the investee:
Typically the investor owns between 20% and 50% Equity method - investment cost adjusted for
Investment Reported in the Balance Sheet at Amortized Cost
Recognized in net income and therefore in retained earnings as part of stockholders' equity
Fair Value
Recognized in other comprehensive income, and therefore in accumulated other comprehensive income in shareholders' equity
Reporting Method Used by the Investor
The investor lacks significant influence over the
operating and financial policies of the investee:
Investment in debt securities for which the investor Held-to-maturity (HTM) - investment reported at
of the investment relationship.
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Reporting Categories for Investments
Reporttrol Characteristics of the Investment