
Investments Sid Glandon, DBA, CPA Associate Professor of Accounting The University of Texas at El Paso
Debt Securities • Classified as trading • Held for sale in near term to generate income • Classified as available-for-sale • Not classified as held-to-maturity or trading securities • Classified as held-to-maturity • Positive intent and ability to hold to maturity
Debt Securities, Classified as Trading • Valuation • Fair value • Unrealized holding gains or losses • Recognized in net income • Other income • Interest earned • Realized gains and losses from sale
Debt Security, Classified as available-for-sale • Valuation • Fair value • Unrealized holding gains or losses • Recognized as other comprehensive income • Recognized as separate component of stockholders’ equity • Other income • Interest earned • Realized gains and losses from sale
Debt Securities, Classified as Held-to-Maturity • Valuation • Amortized cost • Unrealized holding gains or losses • Not recognized • Other income • Interest earned • Realized gains and losses from sale
Equity Securities • Ownership interests • Include rights to buy or sell ownership • Extent of ownership determines accounting treatment for equity securities
Equity Security,Classified as available-for-sale • Less than 20% ownership interest • Recorded at cost • Valued and reported at fair value • Dividends are recognized as income • Unrealized holding gains and losses • Part of comprehensive income • A component of stockholders’ equity
Trading • Less than 20% ownership interest • Recorded at cost • Valued and reported at fair value • Dividends are recognized as income • Unrealized holding gains and losses • Recognized in net income
Equity Method • Between 20% and 50% ownership interest • Substantive economic relationship • Investor’s carrying value • Increased by proportionate share of earnings • Decreased by • Dividends, and • Proportionate share of losses
Consolidation • More than 50% voting interest • Investor is parent • Investee is subsidiary • Investor prepares consolidated financial statements • Investor accounts for investment on its books using the equity method