Example from AIS FAR self study book
INVESTMENTS IN DEBT and EQUITY SECURITIES
FASB Codification Paragraph 320
Investment in stock carried on the equity basis and investments in
consolidated subsidiaries are not covered by this pronouncement. It applies to
other investments in equity securities that have readily determinable values and
to all investments in debt securities.
HELD TO MATURITY securities are
debt securities which the enterprise has the intent and ability to hold to
maturity. These are reported at amortized cost.
TRADING securities are
debt and equity securities held principally for selling them in the near term.
They are reported at fair value, with unrealized gains and losses included in
AVAILABLE FOR SALE securities include all other debt and
equity securities, and are reported at fair value. Unrealized gains and losses
are excluded from earnings and reported in a separate component of shareholders'
Trading securities are current assets. Cash flows from trading
securities are operating cash flows.
The usual current/noncurrent
criteria are used to determine the category in which to report held to maturity
and available for sale securities. Cash flows from purchases and sales of
available for sale and held to maturity securities are investing cash flows.
The transfer of a security between categories of investments is
accounted for at fair value. At the date of the transfer, if the security is
- Into trading, unrealized holding gain or loss is recognized in earnings
- From trading, unrealized holding gain or loss will have already been
recognized and is not reversed.
- From held to maturity into available, unrealized holding gain or loss is
recognized as a separate component of shareholders' equity.
- From available into held to maturity, unrealized holding gain or loss
continues to be reported in a separate component of shareholders' equity, but
is amortized over the remaining life as an adjustment to yield.
For available for sale or held to maturity securities, a decline in value
below carrying value that is other than temporary is recognized as a loss and
the cost basis of the individual security is written down to fair value. The new
cost basis is not changed for subsequent recoveries in fair value.
Now that you have read this example of a summary from our
self study book, you may be interested in what you might do next to prepare for
the CPA exam.
Many people choose to concentrate their efforts on two or
three sections of the exam to increase their chance of earning conditional
credit. One way of doing this is to concentrate on those areas in which you are
strongest. However, there are other approaches.
updating our books we see the frequency of changes taking place in the exam. BEC
changes the least rapidly, and REG (tax) the most rapidly. If your accounting
classes are recent, you might consider putting more effort into Regulation. It makes sense to get the areas out of the way where your
classroom work becomes "obsolete" due to new rules most quickly. FAR probably
changes a little faster than Auditing, although the AICPA has been pretty active
recently with new SAS and SSAE pronouncements.
Many people doing make a list of
questions while studying and use e-mail to ask questions
(telling us the page they are looking at in our book).
Good luck with your studies!
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