This document discusses different types of investments and how companies account for them. It outlines three main categories that companies use to classify investments: held-to-maturity, available-for-sale, and trading. Held-to-maturity securities are reported at amortized cost if the company has both the positive intent and ability to hold them to maturity. Available-for-sale securities are reported at fair value with unrealized gains and losses included in other comprehensive income. Trading securities are reported at fair value with unrealized gains and losses impacting net income. The document also discusses how companies account for investments in debt securities like bonds and equity securities like common stock.

1. INVESTMENTS

2. Agenda
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Different motivations for
investing:
To earn a high rate of
return.
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To secure certain
operating or financing
arrangements with
another company.

3. Templates
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Companies account for investments based on
 the type of security (debt or equity) and
 their intent with respect to the investment.

4. Templates
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Investments in Debt Securities
Debt securities (creditor relationship):
U.S. government
securities
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CATEGORY
Held-to-maturity
Municipal securities
Trading
Corporate bonds
Available-for-sale
Convertible debt
Commercial paper

5. Held-to-Maturity Securities
Classify a debt security as held-to-maturity only if it
has both
(1) the positive intent and
(2) the ability to hold securities to maturity.
Accounted for at amortized cost, not
fair value.

6. Available-for-Sale Securities
Companies report available-for-sale securities at:
 fair value, with
 unrealized holding gains and losses reported as
part of comprehensive income (equity).
Any discount or premium is amortized.

7. Trading Securities
Companies report trading securities at
 fair value, with
 unrealized holding gains and losses reported as
part of net income.
Any discount or premium is amortized.

8. The degree to which one corporation (investor) acquires an interest in the
common stock of another corporation (investee) generally determines the
accounting treatment for the investment subsequent to acquisition.
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9. Investments in Equity Securities
Represent ownership of capital
stock.
Cost includes:
 price of the security, plus
 broker’s commissions and
fees related to purchase.

10. THANK YOU!