1 Sale of Securities On April 1, 2006, the investment in Silmaril’s debt securities is sold for $103,000, which includes accrued interest of $2,500. On January 1, the debt securities had a carrying value of $105,240, therefore interest revenue of $2,105 ($105,240 x .08 x 3/12) would be recorded The required amortization for the three-months’ premium
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1 Sale of Securities On April 1, 2006, the investment in Silmarils debt securities is sold for $103,000, which includes accrued interest of $2,500. On.
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Sale of Securities
On April 1, 2006, the investment in Silmaril’s debt securities is sold for $103,000, which
includes accrued interest of $2,500. On January 1, the debt securities had a carrying value of $105,240, therefore interest revenue of $2,105 ($105,240 x .08 x 3/12) would be recorded The required amortization for the three-months’ premium between January 1
and April 1 would be $395.
On April 1, 2006, the investment in Silmaril’s debt securities is sold for $103,000, which
includes accrued interest of $2,500. On January 1, the debt securities had a carrying value of $105,240, therefore interest revenue of $2,105 ($105,240 x .08 x 3/12) would be recorded The required amortization for the three-months’ premium between January 1
and April 1 would be $395.
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Sale of Debt SecuritiesEntry to record accrued revenue and to amortize premium:Apr. 1 Interest Receivable 2,500
Investment in Held-to Maturity Securities 395Interest Revenue 2,105
Entry to record sale:Apr. 1 Cash 103,000
Realized Loss on Sale of Securities 4,345
Interest Receivable 2,500Investment in Held-to Maturity Securities 104,845
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Sale of Equity Securities
Date Activity ($)
Jan 1, 2003 Bought Trading Securities 10,000
Dec 31, 2003 Fair Market Value 12,000
Dec 31, 2004 Sold for its Fair Market Available 9,000
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Sale of Equity Securities
Jan. 1, 2003 Investment in Trading Securities 10,000 Cash 10,000
Dec 31, 2003 Market Adjustment – Trading 2,000 Unrealized gain - Trading 2,000
Dec 31, 2004 Unrealized loss – Trading 2,000 Market Adjustment – Trading 2,000
Dec 31, 2004 Cash 9,000 Realized loss – Trading 1,000 Investment in Trading Securities 10,000
5Transferring SecuritiesBetween Categories
TransferredTreatment of
Change in ValueFrom trading Any unrealized change in value not
previously recognized will be recognized in net income in the current period.
To trading Any unrealized change in value not previously recognized will be recognized in net income in the current period.
From held to maturity to available for sale
Recognize any unrealized change in value in a stockholders’ equity account.
ContinuedContinuedContinuedContinued
6Transferring SecuritiesBetween Categories
TransferredTreatment of
Change in ValueFrom available for sale to held to maturity
Any unrealized change in value recorded in a stockholders’ equity account is to be amortized over the security’s remaining life using the effective-interest method.
Statement of Financial Standards No. 115, par. 15d
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Assume:Cost of trading security $3,000Fair market value, end of 2006 3,600Fair market value at transfer
date (in 2007) 3,800
Transfer from the trading to available-for-sale category
ContinuedContinuedContinuedContinued
8Transfer from the trading to available-for-sale category
Investment in Available-for-Sale Securities 3,800
Market Adjustment--Trading Securities
600 Unrealized Gain on Transfer
of Securities 200
Investment in Trading Securities3,000
9Transfer from the available-for-sale category
to the trading security category
Assume:Cost of available-for-sale security
$12,000Fair market value, end of 2006
10,700
ContinuedContinuedContinuedContinued
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Investment in Trading Securities 10,300Market Adjustment--Trading Securities 1,300Unrealized Loss on Transfer
of Securities 1,700Unrealized Increase/Decrease in Value of Available-for- Sale Securities 1,300
Investment in Available-for- Sale Securities 12,000
Transfer from the available-for-sale category to the trading security category
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Assume:Cost of held-to-maturity security
20,000Fair market value, Dec. 31, 2006
20,700
Transfer from held-to-maturity to the available-for-sale category.
ContinuedContinuedContinuedContinued
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Investment in Available-for- Sale Securities 20,400
Unrealized Increase/ Decrease in Value of Available-for-Sale
Securities400Investment in Held-to-
Maturity Securities 20,000
Transfer from held-to-maturity to the available-for-sale category.
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Assume:Cost of available-for-sale
securities$5,000
Fair market value, end of 20066,500
Fair market value at transfer date5,900
Transfer from available-for-sale to held-to-maturity.
ContinuedContinuedContinuedContinued
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Investment in Held-to-MaturitySecurities 5,900
Unrealized Increase/Decrease in Value of Available-for-Sale
Securities 600Investment in Available-for-
Sale Securities 5,000Market Adjustment—
Available-for-Sale Securities 1,500
Transfer from available-for-sale to held-to-maturity.
15Investment securities and the cash flow statement
The purchase and sale of available-for-sale, held-to-maturity, and equity method securities are reported in the Investing Activities section of the statement of cash flows. In contrast, the cash flows associated with the purchase and sale of trading securities are shown in the Operating Activities section. This difference stems from the fact that, by definition, a company that maintains a trading securities portfolio considers as part of its normal business operations the attempt to make money through the correct timing of purchases and sales of (trading) securities.
16Cash Flows from Gains and Losses on Available-for-Sale
Cash Company began with a $1,000 investment on January 1, 2005.
Cash sales $1,700Cash expenses (1,400)Purchases of investment securities (600)Sale of investment securities (costing $200) 170
ContinuedContinuedContinuedContinued
17Cash Flows from Gains and Losses on Available-for-Sale
The market value of the remaining securities was $500 on December 31, 2005.
ContinuedContinuedContinuedContinued
Sales $1,700Expenses (1,400
)Operating income $ 300Realized loss on sale of securities (30
) Net income $ 270
18Cash Flows from Gains and Losses on Available-for-SaleCash Company will report a $100
unrealized increase in the value of it available-for-sale portfolio.
This $100 unrealized increase is reported as an increase in
Accumulated Other Comprehensive Income.
This $100 unrealized increase is reported as an increase in
Accumulated Other Comprehensive Income.
However, if it were a Trading security, Cash Company would
report the $100 unrealized increase in the income statement
19Cash Flows from Gains and Losses on Available-for-Sale
The statement of cash flows for Caesh Company for 2005 appear as follows:
Operating activities:Net income $ 270Plus realized loss on sale of securities 30 $ 300
Investing activities:Purchase of investment securities $(600)Sale of investment securities 170 (430)
Financing activities:Initial investment by owner 1,000
Net increase in cash $ 870
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Classification and Disclosure
• Trading securities– The change in net unrealized holding gain or
loss that is included in the income statement.• Available-for-sale securities
– Aggregate fair value, gross unrealized holding gains and gross unrealized holding losses, and amortized cost basis by major security type.
– The proceeds from sales of available-for-sale securities and the gross realized gains and losses on those sales and the basis on which cost was determined in computing realized gains and losses.
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• Available-for-sale securities (continued):– The change in net unrealized holding gain or loss
on available-for-sale securities that has been included in stockholders’ equity during the period.