intermediate accountingfifteenth edition ch

1、CHAPTER 17InvestmentsASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)TopicsQuestionsBriefExercisesExercisesProblemsConcepts for Analysis 1.Debt securities.1, 2, 3, 1316(a)Held-to-maturity.4, 5, 7, 8, 10, 13, 211, 32, 3, 51, 7(b)Trading.4, 6, 7, 8, 10, 2141(c)Available-for-sale.4, 7, 8, 9, 10, 11, 212, 104

2、1, 2, 3, 4, 71 2.Bond amortization.8, 91, 2, 33, 4, 51, 2, 3 3.Equity securities.1, 12, 1616(a)Available-for-sale.7, 10, 11, 15, 215, 86, 8, 9, 11, 12, 16, 19, 203, 5, 6, 8, 9, 10, 11, 121, 2, 3(b)Trading.6, 7, 8, 10, 14, 15, 2166, 7, 14, 15, 19, 206, 81, 3(c)Equity method.16, 17, 18,19, 20712, 13,

3、16, 1784, 5 4.Comprehensive income.229109, 10, 12 5.Disclosures of investments.18105, 8, 9, 10, 11, 12 6.Fair value option.25, 26, 2719, 20, 21 7.Impairments.2410183 8.Transfers between categories.2381, 3, 6 *9.Derivatives.28, 29, 30, 31, 32, 33, 34, 35 22, 23, 24, 25, 26, 2713, 14, 15, 16, 17, 18*1

4、0.Variable Interest Entities.36, 37*This material is dealt with in an Appendix to the chapter.ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)Learning ObjectivesQuestionsBrief ExercisesExercisesProblemsConcepts for Analysis1.Identify the three categories of debt securities and describe the ac

5、counting and reporting treatment for each category.1, 2, 3, 4, 5, 6, 71CA17-12.Understand the procedures for discount and premium amortization on bond investments.8, 9, 10, 111, 2, 3, 42, 3, 4, 5, 211, 2, 3, 4, 73.Identify the categories of equity securities and describe the accounting and reporting

6、 treatment for each category.12, 13, 14, 155, 6, 81, 6, 7, 8, 9, 11, 12, 14, 15, 16, 19, 20, 213, 5, 6, 8, 9, 10, 11, 12CA17-1, CA17-3, CA17-54.Explain the equity method of accounting and compare it to the fair value method for equity securities. 16, 17, 18, 19, 20, 25712, 13, 16, 178CA17-45.Describ

7、e the accounting for the fair value option and the accounting for impairments of debt and equity investments.21, 24, 26, 271018, 19, 20, 218, 9, 10, 12CA17-66.Describe the reporting of reclassification adjustments and the accounting for transfers between categories.22, 23910*7.Describe the uses of,

8、and accounting for derivatives. 28, 2922, 2613, 14, 15*8.Explain how to account for a fair value hedge.30, 31, 3223, 2516, 17, 18*9.Explain how to account for a cash flow hedge.33, 3424, 27*10.Identify special reporting issues for derivatives. 35, 36, 37ASSIGNMENT CHARACTERISTICS TABLEItemDescriptio

9、nLevel ofDifficultyTime(minutes)E17-1Investment classifications.Simple510E17-2Entries for held-to-maturity securities.Simple1015E17-3Entries for held-to-maturity securities.Simple1520E17-4Entries for available-for-sale securities.Simple1015E17-5Effective-interest versus straight-line bond amortizati

10、on.Simple2030E17-6Entries for available-for-sale and trading securities.Simple1015E17-7Trading securities entries.Simple1015E17-8Available-for-sale securities entries and reporting.Simple 510E17-9Available-for-sale securities entries and financial statement presentation.Simple1015E17-10Comprehensive

11、 income disclosure.Moderate2025E17-11Equity securities entries.Simple2025E17-12Journal entries for fair value and equity methods.Simple1520E17-13Equity method.Moderate1015E17-14Equity investmenttrading.Moderate1015E17-15Equity investmentstrading.Moderate1520E17-16Fair value and equity method compare

12、d.Simple1520E17-17Equity method.Simple1015E17-18Impairment of debt securities.Moderate1520E17-19Fair value measurement.Moderate1520E17-20Fair value measurement issues. Moderate1520E17-21Fair value option.Moderate1520*E17-22Derivative transaction.Moderate1520*E17-23Fair value hedge.Moderate2025*E17-2

13、4Cash flow hedge.Moderate2025*E17-25Fair value hedge.Moderate1520*E17-26Call option.Moderate2025*E17-27Cash flow hedge.Moderate2530P17-1Debt securities.Moderate2030P17-2Available-for-sale debt investments.Moderate3040P17-3Available-for-sale investments.Moderate2530P17-4Available-for-sale debt securi

14、ties.Moderate2535P17-5Equity securities entries and disclosures.Moderate2535P17-6Trading and available-for-sale securities entries.Simple2535P17-7Available-for-sale and held-to-maturity debt securities entries.Moderate2535P17-8Fair value and equity methods.Moderate2030P17-9Financial statement presen

15、tation of available-for-sale investments.Moderate2030ASSIGNMENT CHARACTERISTICS TABLE (Continued)ItemDescriptionLevel ofDifficultyTime(minutes)P17-10Gain on sale of securities and comprehensive income.Moderate2030P17-11Equity investmentsavailable-for-sale.Complex3040P17-12Available-for-sale securiti

16、esstatement presentation.Moderate2030*P17-13Derivative financial instrument.Moderate2025*P17-14Derivative financial instrument.Moderate2025*P17-15Free-standing derivative.Moderate2025*P17-16Fair value hedge interest rate swap.Moderate3040*P17-17Cash flow hedge.Moderate2535*P17-18Fair value hedge.Mod

17、erate2535CA17-1Issues raised about investment securities.Moderate2530CA17-2Equity securities.Moderate2530CA17-3Financial statement effect of equity securities.Simple2030CA17-4Equity securities.Moderate1525CA17-5Investment accounted for under the equity method.Simple1525CA17-6Equity investment.Modera

18、te2535CA17-7Fair value.Moderate2535SOLUTIONS TO CODIFICATION EXERCISESCE17-1Master Glossary(a)Trading securities are securities that are bought and held principally for the purpose of selling them in the near term and therefore held for only a short period of time. Trading generally reflects active

19、and frequent buying and selling, and trading securities are generally used with the objective of generating profits on short-term differences in price.(b)A holding gain or loss is the net change in fair value of a security. The holding gain or loss does not include dividend or interest income recogn

20、ized but not yet received or write-downs for other-than-temporary impairment.(c)A cash flow hedge is a hedge of the exposure to variability in the cash flows of a recognized asset or liability, or of a forecasted transaction, that is attributable to a particular risk.(d)A fair value hedge is a hedge

21、 of the exposure to changes in the fair value of a recognized asset or liability, or of an unrecognized firm commitment, that are attributable to a particular risk.CE17-2According to FASB ASC 235-10-S99-1 (Notes to Financial StatementsSEC Materials):(n)Accounting policies for certain derivative inst

22、ruments. Disclosures regarding accounting policies shall include descriptions of the accounting policies used for derivative financial instruments and derivative commodity instruments and the methods of applying those policies that materially affect the determination of financial position, cash flow

23、s, or results of operation. This description shall include, to the extent material, each of the following items:(1)A discussion of each method used to account for derivative financial instruments and derivative commodity instruments;(2)The types of derivative financial instruments and derivative com

24、modity instruments accounted for under each method;(3)The criteria required to be met for each accounting method used, including a discussion of the criteria required to be met for hedge or deferral accounting and accrual or settlement accounting (e. g., whether and how risk reduction, correlation,

25、designation, and effectiveness tests are applied);(4)The accounting method used if the criteria specified in paragraph (n)(3) of this section are not met;(5)The method used to account for terminations of derivatives designated as hedges or derivatives used to affect directly or indirectly the terms,

26、 fair values, or cash flows of a designated item;CE17-2 (Continued)(6)The method used to account for derivatives when the designated item matures, is sold, is extinguished, or is terminated. In addition, the method used to account for derivatives designated to an anticipated transaction, when the an

27、ticipated transaction is no longer likely to occur; and (7)Where and when derivative financial instruments and derivative commodity instruments, and their related gains and losses, are reported in the statements of financial position, cash flows, and results of operations. Instructions to paragraph

28、4-08(n).1.For purposes of this paragraph (n), derivative financial instruments and derivative commodity instruments (collectively referred to as “derivatives”) are defined as follows:(i)Derivative financial instruments have the same meaning as defined by generally accepted accounting principles (see

29、 Financial Accounting Standards Board (“FASB”), Statement of Financial Accounting Standards No. 119, “Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments,” (“FAS 119”) paragraphs 57, (October 1994), and include futures, forwards, swaps, options, and other financ

30、ial instruments with similar characteristics.(ii)Derivative commodity instruments include, to the extent such instruments are not derivative financial instruments, commodity futures, commodity forwards, commodity swaps, commodity options, and other commodity instruments with similar characteristics

31、that are permitted by contract or business custom to be settled in cash or with another financial instrument. For purposes of this paragraph, settlement in cash includes settlement in cash of the net change in value of the derivative commodity instrument (e. g., net cash settlement based on changes

32、in the price of the underlying commodity).2.For purposes of paragraphs (n)(2), (n)(3), (n)(4), and (n)(7), the required disclosures should address separately derivatives entered into for trading purposes and derivatives entered into for purposes other than trading.For purposes of this paragraph, tra

33、ding purposes has the same meaning as defined by generally accepted accounting principles (see, e. g., FAS 119, paragraph 9a (October 1994). 3.For purposes of paragraph (n)(6), anticipated transactions means transactions (other than transactions involving existing assets or liabilities or transactio

34、ns necessitated by existing firm commitments) an enterprise expects, but is not obligated, to carry out in the normal course of business (see, e. g., FASB, Statement of Financial Accounting Standards No. 80, “Accounting for Futures Contracts,” paragraph 9, (August 1984). 4.Registrants should provide

35、 disclosures required under paragraph (n) in filings with the Commission that include financial statements of fiscal periods ending after June 15, 1997.45 FR 63669, Sept. 25, 1980, as amended at 46 FR 56179, Nov. 16, 1981; 50 FR 25215, June 18, 1985; 50 FR 49532, Dec. 3, 1985; 51 FR 3770, Jan. 30, 1

36、986; 57 FR 45293, Oct. 1, 1992; 59 FR 65636, Dec. 20, 1994; 62 FR 6063, Feb. 10, 1997CE17-3According to FASB ASC 323-10-35-20 (InvestmentsEquity Method and Joint VenturesSubsequent Measurement):The investor ordinarily shall discontinue applying the equity method if the investment (and net advances)

37、is reduced to zero and shall not provide for additional losses unless the investor has guaranteed obligations of the investee or is otherwise committed to provide further financial support for the investee.CE17-4According to FASB ASC 815-10-45-4 (Derivatives and HedgingOther Presentation MattersBala

38、nce Sheet Netting);Unless the conditions in paragraph 210-20-45-1 are met, the fair value of derivative instruments in a loss position shall not be offset against the fair value of derivative instruments in a gain position. Similarly, amounts recognized as accrued receivables shall not be offset aga

39、inst amounts recognized as accrued payables unless a right of setoff exists.ANSWERS TO QUESTIONS 1.A debt security is an instrument representing a creditor relationship with an entity. Debt securities include U.S. government securities, municipal securities, corporate bonds, convertible debt, and co

40、mmercial paper. Trade accounts receivable and loans receivable are not debt securities because they do not meet the definition of a security.An equity security is described as a security representing an ownership interest such as common, preferred, or other capital stock. It also includes rights to

41、acquire or dispose of an ownership interest at an agreed-upon or determinable price, such as warrants, rights, and call options or put options. Convertible debt securities and redeemable preferred stocks are not treated as equity securities. 2.The variety in bond features along with the variability

42、in interest rates permits investors to shop for exactly the investment that satisfies their risk, yield, and marketability desires, and permits issuers to create a debt instrument best suited to their needs. 3.Cost includes the total consideration to acquire the investment, including brokerage fees

43、and other costs incidental to the purchase. 4.The three types of classifications are:Held-to-maturity:Debt investments that the company has the positive intent and ability to hold to maturity.Trading:Debt investments bought and held primarily for sale in the near term to generate income on short-ter

44、m price differences.Available-for-sale:Debt investments not classified as held-to-maturity or trading securities. 5.A debt investment should be classified as held-to-maturity only if the company has both: (1) the positive intent and (2) the ability to hold those securities to maturity. 6.Trading sec

45、urities are reported at fair value, with unrealized holding gains and losses reported as part of net income. Any discount or premium is amortized. 7.Trading and available-for-sale securities should be reported at fair value, whereas held-to-maturity securities should be reported at amortized cost. 8

46、.$3,500,000 X 10% = $350,000; $350,000 ÷ 2 = $175,000. Wheeler would make the following entry:Cash ($4,000,000 X 8% X 1/2)160,000Debt Investments15,000Interest Revenue ($3,500,000 X 10% X 1/2)175,000 9.Fair Value Adjustment (available-for-sale)89,000Unrealized Holding Gain or LossEquity $3,604,

47、000 ($3,500,000 + $15,000)*89,000*See number 8.10.Unrealized holding gains and losses for trading securities should be included in net income for the current period. Unrealized holding gains and losses for available-for-sale securities should be reported as other comprehensive income and as a separa

48、te component of stockholders equity. Unrealized holding gains and losses are not recognized for held-to-maturity securities.Questions Chapter 17 (Continued) 11.(a)Unrealized Holding Gain or LossEquity60,000Fair Value Adjustment (available-for-sale)60,000(b)Unrealized Holding Gain or LossEquity70,000

49、Fair Value Adjustment (available-for-sale)70,000 12.Investments in equity securities can be classified as follows:(a)Holdings of less than 20% (fair value method)investor has passive interest.(b)Holdings between 20% and 50% (equity method)investor has significant influence.(c)Holdings of more than 5

50、0% (consolidated statements)investor has controlling interest.Holdings of less than 20% are then classified into trading and available-for-sale, assuming determinable fair values. 13.Investments in stock do not have a maturity date and therefore cannot be classified as held-to-maturity securities. 1

51、4.Selling price of 10,000 shares at $27.50$275,000Less: Brokerage commissions (1,770)Proceeds from sale 273,230Cost of 10,000 shares (260,000)Gain on sale of investments$ 13,230Cash273,230Equity Investments260,000Gain on Sale of Investments 13,230 15.Both trading and available-for-sale equity securi

52、ties are reported at fair value. However, any unrealized holding gain or loss is reported in net income for trading securities but as other comprehensive income and as a separate component of stockholders equity for available-for-sale securities. 16.Significant influence over an investee may result

53、from representation on the board of directors, participation in policy-making processes, material intercompany transactions, interchange of managerial personnel, or technological dependency. An investment (direct or indirect) of 20% or more of the voting stock of an investee constitutes significant

54、influence unless there exists evidence to the contrary. 17.Under the equity method, the investment is originally recorded at cost, but is adjusted for changes in the investees net assets. The investment account is increased (decreased) by the investors proportionate share of the earnings (losses) of

55、 the investee and decreased by all dividends received by the investor from the investee. 18.The 20% rule is that an investment (direct or indirect) of 20 percent or more of the voting stock of an investee leads to the presumption that an investor has the ability to exercise significant influence over an investee and the equi