Answers To Wileyplus Accounting Homework

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5, 6, 8 1, 6, 7, 8, 9, 11, 12, 14, 15, 16 3, 5, 6, 8, 9, 10, 11, 12 4. Unrealized holding gains and losses are not recognized for held-to-maturity securities. (a) Unrealized Holding Gain or Loss—Equity.................................................... Securities Fair Value Adjustment (Available-for-Sale)...................... 70,000 (b) 80,000 Unrealized Holding Gain or Loss—Equity....................................................

Identify the three categories of debt securities and describe the accounting and reporting treatment for each category. Understand the procedures for discount and premium amortization on bond investments. Identify the categories of equity securities and describe the accounting and reporting treatment for each category. Understand the basic guidelines for accounting for derivatives. Describe the accounting for derivative financial instruments. Unrealized holding gains and losses for available-for-sale securities should be reported as other comprehensive income and as a separate component of stockholders’ equity.

This feature is referred to as net settlement and serves to reduce the transaction costs associated with derivatives. The purpose of a fair value hedge is to offset the exposure to changes in the fair value of a recognized asset or liability or of an unrecognized firm commitment. The unrealized holding gain or loss on available-for-sale securities should be reported as income when this security is designated as a hedged item in a qualifying fair value hedge.

If the hedge meets the special hedge accounting criteria (designation, documentation, and effectiveness), the unrealized holding gain or losses is reported as income. This is likely a setting where the company is hedging the fair value of a fixed-rate debt obligation.

Convertible debt securities and redeemable preferred stocks are not treated as equity securities. The variety in bond features along with the variability in interest rates permits investors to shop for exactly the investment that satisfies their risk, yield, and marketability desires, and permits issuers to create a debt instrument best suited to their needs. Cost includes the total consideration to acquire the investment, including brokerage fees and other costs incidental to the purchase. The three types of classifications are: Held-to-maturity: Debt securities that the enterprise has the positive intent and ability to hold to maturity.

Answers To Wileyplus Accounting Homework

It also includes rights to acquire or dispose of an ownership interest at an agreed-upon or determinable price such as warrants, rights, and call options or put options.The fixed payments received on the swap will offset fixed payments on the debt obligation.As a result, if interest rates decline, the value of the swap contract increases (a gain), while at the same time the fixed-rate debt obligation increases (a loss).Payment is determined by the interaction of the underlying with the face amount and the number of shares, or other units specified in the derivative contract (these elements are referred to as notional amounts). See illustration below: Traditional Financial Instrument (e.g., Trading Security) Derivative Financial Instrument (e.g., Call Option) Payment Provision Stock price times the number of shares. Feature For a traditional financial instrument, an investor generally must pay the full cost, while derivatives require little initial investment.In addition, the holder of a traditional security is exposed to all risks of ownership, while most derivatives are not exposed to all risks associated with ownership in the underlying.If one of these two conditions exist, the consolidation should occur. A variable-interest entity (VIE) is an entity that has one of the following characteristics: 1. Stockholders are assumed to have sufficient capital investment to support the entity’s operations. 17-8 In some cases, stockholders do not have the BRIEF EXERCISE 17-5 (a) Available-for-Sale Securities........................................If thinly capitalized, the entity is considered a VIE and is subject to the risk-and-reward model. Cash............................................................................. 9,900 (b) Cash ..................................................................................... Dividend Revenue................................................... 975 (c) Securities Fair Value Adjustment (AFS)................... [(300 X .50) – ,900] 450 9,900 975 450 BRIEF EXERCISE 17-6 (a) Trading Securities ...........................................................The cash flows received on the hedging instrument (derivative) will offset the cash flows received on the hedged item.Generally, the hedged item is a transaction that is planned some time in the future (an anticipated transaction). Derivatives used in cash flow hedges are accounted for at fair value on the balance sheet but gains or losses are recorded in equity as part of other comprehensive income. A hybrid security is a security that has characteristics of both debt and equity and often is a combination of traditional and derivative financial instruments. 17 17-2 ASSIGNMENT CHARACTERISTICS TABLE (Continued) Item Description Level of Difficulty Time (minutes) *P17-16 *P17-17 *P17-18 Fair value hedge interest rate swap. Available-for-sale: Debt securities not classified as held-to-maturity or trading securities. A debt security should be classified as held-to-maturity only if the company has both: (1) the positive intent and (2) the ability to hold those securities to maturity. Trading securities are reported at fair value, with unrealized holding gains and losses reported as part of net income. Moderate Moderate Moderate 30–40 25–35 25–35 Issues raised about investment securities. Trading: Debt securities bought and held primarily for sale in the near term to generate income on short-term price differences.

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