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Ch 17 CHAPTER INVESTMENTS CHAPTER LEARNING OBJECTIVESDescribe the accounting for debt investments Describe the accounting for equity investments Explain the equity method of accounting Evaluate other major issues related to debt and equity investments Des

CHAPTER INVESTMENTS CHAPTER LEARNING OBJECTIVESDescribe the accounting for debt investments Describe the accounting for equity investments Explain the equity method of accounting Evaluate other major issues related to debt and equity investments Describe the uses of and accounting for derivatives Explain the accounting for hedges Identify special reporting issues related to derivative ?nancial instruments that cause unique accounting problems Describe required fair value disclosures TRUE-FALSE ?? Conceptual The IASB requires that investments meeting the business model held- for-collection and contractual cash ow tests be valued at fair value The IASB requires that companies classify ?nancial assets into two measurement categories ?? amortized cost and fair value Amortized cost is the initial recognition amount of the investment minus cumulative amortization Companies measure debt investments at fair value if the objective of the company ? s business model is to hold the ?nancial asset to collect the contractual cash ows The gain on sale of debt investments is the excess of the selling price over the fair value of the bonds The Unrealized Holding Gain or Loss ??Income account is reported in the other income and expense section of the income statement At each reporting date companies adjust debt investments ? amortized cost to fair value with any unrealized holding gain or loss reported as part of their comprehensive income Over the life of a debt investment interest revenue and the gain on sale are the same using either amortized cost or fair value measurement C - Test Bank for Intermediate Accounting IFRS Edition e The fair value option is generally available only at the time a company ?rst purchases the ?nancial asset or incurs a ?nancial liability Equity security holdings between and percent indicates that the investor has a controlling interest over the investee The Unrealized Holding Gain Loss ??Equity account is reported as a part of other comprehensive income Non-trading equity investments are recorded at fair value with unrealized gains and losses reported in other comprehensive income An investment of more than percent of the voting stock of an investee should lead to a presumption of signi ?cant in uence over an investee All dividends received by an investor from the investee decrease the investment ? s carrying value under the equity method Under the fair value method the investor reports as revenue its share of the net income reported by the investee A controlling interest occurs when one corporation acquires a voting interest of more than percent in another corporation An impairment loss is the di ?erence between an investment ? s cost and the expected future cash ows If a company determines that an investment is impaired it writes down the amortized cost basis of the individual security to re ect this loss in value Companies account for transfers between investment classi ?cations retroactively at the end of the accounting period after the change in the business model Transferring an investment from one classi ?cation to another should occur only when the business model for managing the investment