Intermediate Accounting 2
eBook - ePub

Intermediate Accounting 2

a QuickStudy Digital Reference Guide

Michael P Griffin

Share book
  1. 44 pages
  2. English
  3. ePUB (mobile friendly)
  4. Available on iOS & Android
eBook - ePub

Intermediate Accounting 2

a QuickStudy Digital Reference Guide

Michael P Griffin

Book details
Book preview
Table of contents
Citations

About This Book

Essentials of the college level Intermediate Accounting 2 course expertly written in our time-tested condensed format that is proven to support students, their studies, grades and even their professional life after graduation. Our experienced author, professor and consultantMichael Griffin, MBA, CMA, CFM, ChFC has outdone himself providing the clearest organization of concepts streamlined to offer facts, equations, examples and explanations in this digital guide offering incredible value for quality course and professional support that you will not find anywhere else. Any business professional that deals with top-level management of multifaceted companies would also find this to be a great reference for facets they may not deal with on a daily basis, but that they are expected to understand regarding operations and strategy, again at an unbeatable value.
Digital guide includes:

  • Investments
  • Current Payables
  • Income Tax Accounting
  • Long-Term Liabilities
  • Asset Retirement Obligations
  • Leases
  • Pensions
  • Contingencies
  • Equity
  • Statement of Cash Flows

Frequently asked questions

How do I cancel my subscription?
Simply head over to the account section in settings and click on “Cancel Subscription” - it’s as simple as that. After you cancel, your membership will stay active for the remainder of the time you’ve paid for. Learn more here.
Can/how do I download books?
At the moment all of our mobile-responsive ePub books are available to download via the app. Most of our PDFs are also available to download and we're working on making the final remaining ones downloadable now. Learn more here.
What is the difference between the pricing plans?
Both plans give you full access to the library and all of Perlego’s features. The only differences are the price and subscription period: With the annual plan you’ll save around 30% compared to 12 months on the monthly plan.
What is Perlego?
We are an online textbook subscription service, where you can get access to an entire online library for less than the price of a single book per month. With over 1 million books across 1000+ topics, we’ve got you covered! Learn more here.
Do you support text-to-speech?
Look out for the read-aloud symbol on your next book to see if you can listen to it. The read-aloud tool reads text aloud for you, highlighting the text as it is being read. You can pause it, speed it up and slow it down. Learn more here.
Is Intermediate Accounting 2 an online PDF/ePUB?
Yes, you can access Intermediate Accounting 2 by Michael P Griffin in PDF and/or ePUB format, as well as other popular books in Business & Financial Accounting. We have over one million books available in our catalogue for you to explore.

Information

Year
2019
ISBN
9781423243311
Edition
1
Investments
Classification of investments: Debt securities (bonds and notes) and equity securities (common and preferred stocks):
  • Debt securities: Debt instrument that can be bought or sold between two parties and has basic terms defined, such as the amount borrowed (principal), interest rate, and maturity date.
  • Equity securities: An ownership interest in an entity or a right to acquire such an interest.
    • These are recorded at cost and measured at fair values when quoted market prices are available.
    • If quoted market prices do not exist, equity securities are reported at cost until sold.
  • When the investing company lacks significant influence over the operating and financial policies of the investee, the investments are recorded using three categories:
Category Criteria Reporting
Method Used
Treatment of Unrealized Gains and Losses
Held to maturity Debt securities that the company has the intent to hold until maturity Investment is reported at amortized cost with disclosure of fair value in the financial statement notes. Not recognized
Trading Debt or equity securities that the company intends to sell in the near future Investment is reported at fair value. Recognized in net income
Available for sale Debt or equity securities not classified as held to maturity or trading Investment is reported at fair value. Recognized in other comprehensive income
Held-to-Maturity Securities
  • These securities have a specified date that they mature and on that date the principal (face value) is paid to investors.
  • Usually, interest is paid to the investor periodically during the life of the security.
  • Premium: If the interest rate (stated rate) paid by the debt security is higher than the prevailing market rate on similar risk debt securities, the debt instrument will be sold for a value greater than its face value.
    EX: A company buys a bond with a face value of $1,000,000 for $1,100,000. The premium is $100,000. The bond would be recorded upon purchase as follows:
    DebitCredit
    Investment in bonds $1,000,000
    Premium on bonds $100,000
    Cash $1,100,000
  • Discount: If the interest rate (stated rate) paid by the debt security is lower than the prevailing market rate on similar risk debt securities, the debt instrument will be sold for a value less than its face value.
    EX: A company buys a bond with a face value of $1,000,000 for $750,000. The discount is $250,000. The bond would be recorded upon purchase as follows:
    DebitCredit
    Investment in bonds $1,000,000
    Discount on bonds $250,000
    Cash $750,000
Recognizing Interest Revenue on Held-to-Maturity Investments
  • The effective interest method is used to calculate the interest revenue.
    • Effective interest rate: The prevailing market rate of interest on debt securities with risk similar to the investment’s risk.
      EX: A company buys a bond with a face value of $1,000,000 for $1,100,000. The stated rate of interest is 6%, but the market rate on debt securities with similar risk is 8%. The 8% rate will be used to calculate the interest income.
Trading Securities
Debt or equity securities that are acquired principally for the intent of selling them in the near future
  • These are typically reported as a current asset.
  • Cash flows from buying and selling trading securities are typically classified as operating activities if traded by financial institutions.
    • If the company that is buying and selling trading securities is not a financial institution, then the cash flows from buying and selling the securities is classified as investing activity cash flows if the investment is not held for sale in the near term.
  • It is recorded at cost but reported at fair value when the balance sheet is prepared.
    • Investment is written up or down to its fair value; this process is called “marking to market.”
    • A valuation allowance account (fair value adjustment) is used to record the fair value adjustment, and an account called “net unrealized holding gains or losses” is used to record the rise or fall in fair value.
      • Fair value adjustment account is used to increase or decrease the carrying value of the trading securities asset value.
      • Net unrealized holding gains or losses are reported on the income statement.
        • Unrealized means that the gain or loss has not been realized because the investment has not yet been sold.
    EX: Investment A is a trading security that was acquired for $100,000. Upon preparing a balance sheet, it is determined that investment A has lost $10,000 of value. The entry would be as follows to record the unrealized loss and to re-value the investment account:
    DebitCredit
    Net unrealized holding gains and losses $10,000
    Fair value adjustment $10,000
    EX: Investment B is a trading security that was acquired for $100,000. Upon preparing a balance sheet, it is determined that investment B has gained $20,000 of value. The entry would be as follows to record the unrealized gain and to re-value the investment account:
    DebitCredit
    Fair value adjustment $20,000
    Net unrealized holding gains and losses $20,000
Available-for-Sale Securities
Investments that are not intended to be traded actively but are available for sale if certain conditions are met or need arises
  • These are neither held-to-maturity nor trading securities.
  • Cash flow from buying and selling available-for-sale securities are classified as investing activities on the statement of cash flows.
  • Like trading securities, they are recorded at cost when acquired and reported at fair value on t...

Table of contents