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SCSU ACC 311 - ACC 311 CHAPTER 17 Investments

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17-1CHAPTER 17InvestmentsASSIGNMENT CLASSIFICATION TABLETopics QuestionsBrief Exercises Exercises Problems Cases 1. Debt securities. 1, 2, 3, 15 1 7(a) Held-to-maturity. 4, 5, 7, 8, 15,211, 3 2, 3, 5 1, 7 4(b) Trading. 4, 6, 7, 8, 12,214 1, 4(c) Available-for-sale. 4, 7, 8, 9, 12,212 4 1, 2, 3, 4, 7 1, 4 2. Bond amortization. 8, 9 1, 2, 3 3, 4, 5 1, 2, 3 3. Equity securities. 1, 13, 14, 15,1617(a) Available-for-sale. 7, 10, 11, 17,214, 5, 8 6, 8, 9, 11,135, 6, 8, 9,10, 11, 121, 2, 3(b) Trading. 6, 7, 8, 16,17, 216 6, 7, 14, 15 6, 8 1, 3(c) Equity method. 18, 19, 20,21, 227 12, 13, 16, 17 5, 6 4. Comprehensive income. 24 9 10 10, 12 5. Disclosures of investments. 23 8, 9 5, 9, 10, 11,12 6. Impairments. 26 18 3 7. Transfers betweencategories.25 1, 3*8. Derivatives 27, 28, 29, 30,31, 32, 33, 3419, 20, 21,22, 2313, 14, 15,16, 17, 18*This material is dealt with in an Appendix to the chapter.17-2ASSIGNMENT CHARACTERISTICS TABLEItem DescriptionLevel ofDifficultyTime(minutes)E17-1 Classification of Investments. Simple 10-15E17-2 Entries for held-to-maturity securities. Simple 15-20E17-3 Entries for held to maturity. Simple 15-20E17-4 Entries for available-for-sale Simple 10-15E17-5 Amortization—bond investments. Simple 20-30E17-6 Available-for-sale trading securities entries. Simple 10-15E17-7 Trading securities entries. Simple 10-15E17-8 Available-for-sale securities entries and reporting. Simple 5-10E17-9 Available-for-sale securities entries and financial statementpresentation.Simple 10-15E17-10 Comprehensive income disclosure. Moderate 20-25E17-11 Equity securities entries. Simple 10-15E17-12 Journal entries for fair value and equity methods. Simple 15-20E17-13 Equity method. Moderate 20-25E17-14 Equity investment—trading. Moderate 20-25E17-15 Securities entries—buy and sell. Moderate 15-20E17-16 Fair value and equity method compared. Simple 15-20E17-17 Equity method with extraordinary item. Moderate 10-15E17-18 Impairment of debt securities. Moderate 15-20*E17-19 Derivative transaction. Moderate 15-20*E17-20 Fair value hedge. Moderate 20-25*E17-21 Cash flow hedge Moderate 15-20*E17-22 Fair value hedge Moderate 15-20*E17-23 Fair value hedge Moderate 15-20P17-1 Debt securities. Moderate 30-40P17-2 Debt securities—available-for-sale. Moderate 30-40P17-3 Entries—for long-term investments. Moderate 25-30P17-4 Available-for-sale debt securities. Moderate 25-35P17-5 Equity securities entries and disclosures. Moderate 25-35P17-6 Trading and available-for-sale securities entries. Simple 25-35P17-7 Available-for-sale and held-to-maturity debt securities entries. Moderate 25-35P17-8 Applying fair value method. Moderate 20-30P17-9 Financial statement presentation of available-for-saleinvestments.Simple 20-30P17-10 Available-for-sale securities and comprehensive income. Moderate 20-30P17-11 Available-for-sale entries and reporting. Complex 35-45P17-12 Available-for-sale —statement presentation. Moderate 20-25*P17-13 Derivative financial instrument. Moderate 20-25*P17-14 Derivative financial instrument. Moderate 20-25*P17-15 Free-standing derivative Moderate 30-40*P17-16 Fair value hedge interest rate swap. Moderate 30-4017-3ASSIGNMENT CHARACTERISTICS TABLE (Continued)Item DescriptionLevel ofDifficultyTime(minutes)*P17-17 Cash flow hedge. Moderate 25-35*P17-18 Fair value hedge. Moderate 25-35C17-1 Issues raised about investment securities. Moderate 25-30C17-2 Equity securities. Moderate 25-30C17-3 Financial statement effect of equity securities. Simple 20-30C17-4 Equity securities, current and noncurrent. Moderate 20-25C17-5 Investment accounted for under the equity method. Simple 15-25C17-6 Equity method. Moderate 25-35C17-7 Fair-value—Ethics. Moderate 25-3517-4ANSWERS TO QUESTIONS 1. A debt security is an instrument representing a creditor relationship with an enterprise. Debtsecurities include U.S. government securities, municipal securities, corporate bonds, convertibledebt, commercial paper, and all securitized debt instruments. Trade accounts receivable andloans 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 ascommon, preferred, or other capital stock. It also includes rights to acquire or dispose of an own-ership interest at an agreed-upon or determinable price such as warrants, rights, and call optionsor put options. Convertible debt securities and redeemable preferred stocks are not treated asequity securities. 2. The variety in bond features along with the variability in interest rates permits investors to shopfor exactly the investment that satisfies their safety, yield, and marketability desires, and permitsissuers to create a debt instrument best suited to their needs. 3. Cost includes the total consideration to acquire the investment, including brokerage fees andother costs incidental to the purchase. 4. The three types of classification are:Held-to-maturity: Debt securities that the enterprise has the positive intent and ability to holdto maturity.Trading: Debt securities bought and held primarily for sale in the near term togenerate income on short-term price differences.Available-for-sale: Debt securities not classified as held-to-maturity or trading securities. 5. A debt security should be classified as held-to-maturity only if the company has both: (1) thepositive intent and (2) the ability to hold those securities to maturity. 6. Trading securities are reported at fair value, with unrealized holding gains and losses reported aspart of net income. Since trading securities are held primarily for sale in the near term, anydiscount or premium is not 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. $1,750,000 X 10% = $175,000; $175,000 ÷ 2 = $87,500. 9. Securities Fair Value Adjustment (Available-for-Sale) ................................. 44,500Unrealized Holding Gain or Loss—Equity............................................ 44,500 [$1,802,000 – ($1,750,000 + $7,500)]10. Unrealized holding gains and losses for trading securities should be included in net income forthe current period. Unrealized holding gains and losses for available-for-sale securities should bereported as other comprehensive income and as a separate component of stockholders’ equity.Unrealized holding gains and losses are not


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