Chapter 16-1 CHAPTER 16 INVESTMENTS

Chapter 16-2 Valuing and Reporting Investments Categories of Securities Companies classify debt and stock investments into three categories:  Trading securities  Available-for-sale securities  Held-to-maturity securities These guidelines apply to all debt securities and all stock investments in which the holdings are less than 20%.

Chapter 16-3 Valuing and Reporting Investments Trading Securities Companies hold trading securities with the intention of selling them in a short period. Trading means frequent buying and selling. Companies report trading securities at fair value, and report changes from cost as part of net income. LO 5 Indicate how debt and stock investments are reported in financial statements. See page 693 & 694

Chapter 16-4 Valuing and Reporting Investments Available-for-Sale Securities Companies hold available-for-sale securities with the intent of selling these investments sometime in the future. These securities can be classified as current assets or as long-term assets, depending on the intent of management. Companies report securities at fair value, and report changes from cost as a component of the stockholders’ equity section. See page 695 & 696

Chapter 16-5 Marketable securities bought and held primarily for sale in the near term are classified as: a.available-for-sale securities. b.held-to-maturity securities. c.stock securities. d.trading securities Question Valuing and Reporting Investments LO 5 Indicate how debt and stock investments are reported in financial statements.

Chapter 16-6 Problem: Problem: Loxley Company has the following portfolio of securities at September 30, 2008, its last reporting date. Trading Securities On Oct. 10, 2008, the Fogelberg shares were sold at a price of $54 per share. In addition, 3,000 shares of Los Tigres common stock were acquired at $59.50 per share on Nov. 2, The Dec. 31, 2008, fair values were: Petra $96,000, Los Tigres $132,000, and the Weisberg common $193,000. LO 5 Indicate how debt and stock investments are reported in financial statements.

Chapter 16-7 Problem: Problem: Prepare the journal entries to record the sale, purchase, and adjusting entries related to the trading securities in the last quarter of Portfolio at September 30, 2008 Market Adjustment – Trading (account balance)($19,000) Trading Securities LO 5 Indicate how debt and stock investments are reported in financial statements.

Chapter 16-8 Problem: Problem: On Oct. 10, the Fogelberg shares were sold at a $54 per share. In addition, 3,000 shares of Los Tigres common stock were acquired at $59.50 per share on Nov. 2. Cash (5,000 x $54) 270,000 Trading securities 225,000 October 10, 2008 (Fogelberg): Gain on sale 45,000 Trading securities (3,000 x $59.50) 178,500 Cash 178,500 November 2, 2008 (Los Tigres): Trading Securities LO 5 Indicate how debt and stock investments are reported in financial statements.

Chapter 16-9 Problem: Problem: Portfolio at December 31, 2008 Unrealized loss - Income89,500 Market adjustment - Trading 89,500 December 31, 2008: Trading Securities

Chapter Problem: Problem: How would the entries change if the securities were classified as available-for-sale? The entries would be the same The entries would be the same except that the Unrealized Gain or Loss—Equity account is used instead of Unrealized Gain or Loss—Income. The unrealized loss would be deducted from the stockholders’ equity section rather than charged to the income statement. Available-for-Sale Securities LO 5 Indicate how debt and stock investments are reported in financial statements.

Chapter An unrealized loss on available-for-sale securities is: a.reported under Other Expenses and Losses in the income statement. b.closed-out at the end of the accounting period. c.reported as a separate component of stockholders' equity. d.deducted from the cost of the investment. Question Available-for-Sale Securities LO 5 Indicate how debt and stock investments are reported in financial statements.

Chapter Also called marketable securities, are securities held by a company that are (1)readily marketable and (2)intended to be converted into cash within the next year or operating cycle, whichever is longer. Short-Term Investments Balance Sheet Presentation Investments that do not meet both criteria are classified as long-term investments. See page 697

Chapter Nonoperating items related to investments Presentation of Realized and Unrealized Gain or Loss Balance Sheet Presentation LO 6 Distinguish between short-term and long-term investments. Illustration 16-10

Chapter Realized and Unrealized Gain or Loss Balance Sheet Presentation LO 6 Distinguish between short-term and long-term investments. Unrealized gain or loss on available-for-sale securities are reported as a separate component of stockholders’ equity. Illustration 16-11

Chapter Balance Sheet Presentation Illustration Classified Balance Sheet (partial) See page 699