Ch.14 Investments in Debt and Equity Securities · Ch.14 Investments in Debt and Equity Securities . 14-2 1. Understand various companies investments ... commissions and other costs

14-1

1. Understand various companies investments

2. Purchase of debt and equity securities

3. Revenue from investment securities

4. Change in fair value of investment securities

5. Sale of investment securities

6. Transfer of investment securities

7. Purchases, sales, and changes in fair value of investment securities in the statement of cash flows

8. Disclosure of investments in securities

9. Impairment of a loan receivable

Ch.14 Investments in Debt and Equity

Securities

14-2

1. Understand various companies investments

• Safety cushion

• Cyclical cash needs

• Investment for a

return

• Investment for

influence

• Purchase for control

Microsoft must always have a large enough liquid investment balance to operate for one year without any revenue.

Bill Gate’s Rule

http://hitecnews.files.wordpress.com/2008/06/tio-bill-gates.jpg

14-3

Cyclist Cash Needs

• Some companies operate in seasonal business

environments that need cyclical inventory

buildups requiring large amounts of cash,

followed by lots of sales and cash collections.

Examples include:

Toy stores

Firework

retailers

Halloween

retailers

14-4

Investment for a Return

Another reason that companies (like Berkshire

Hathaway, Inc.) invest in stocks and bonds of

other companies is simply to earn money.

14-5

Investment for Influence

In general, companies can invest in other companies for

many reasons other than to earn a return. Some reasons

are:

• to ensure a supply of raw materials (e.g., Coca-Cola)

• to influence the board of directors

• to diversify product offerings

14-6

Purchase for Control

• When a company purchases enough of

another company to be able to control

operating, investing, and financing decisions,

different accounting treatment is required for

that acquisition.

• For accounting purposes, a parent company

is required to report the results of all of its

subsidiaries of which it owns more than 50%

as if the parent and subsidiaries are one

company.

14-7

Classification of Investment Securities

• Debt securities are financial instruments

issued by a company that typically have the

following characteristics:

a maturity value representing the amount to

be repaid to the debt holder at maturity,

an interest rate that specifies the periodic

interest payments, and

a maturity date indicating when the debt

obligation will be redeemed.

(continued)

14-8

• Equity securities represent ownership in a

company.

These shares of stock typically carry with

them the right to collect dividends and to

vote on corporate matters.

They are an attractive investment because

of the potential for significant increases in

the price of the security.


(continued)

14-9

• Held-to-maturity securities are debt

securities purchased by a company with the

intent and ability to hold those securities until

they mature.

This category includes only debt securities

because equity securities typically do not

mature.

The company must have the intention of

holding the security until it matures.

(continued)

Classification of Debt and Equity Securities

14-10 14-10 (continued)

14-11

• Available-for-sale securities are equity securities

that are not considered trading securities and are not

accounted for using the equity method.

• Most of the typical company’s investment securities

are classified as available for sale.

(continued)


• Trading securities are debt and equity securities

purchased with the intent of selling them in the near

future.

• Trading involves frequent buying and selling of

securities, generally for the purpose of “generating

profits on short-term differences in price.”

14-12

• Equity method securities are equity securities

purchased with the intent of being able to control or

significantly influence the operations of the investee.

• A large block of stock (presumed to be at least 20% of

the outstanding stock unless there exists evidence to

the contrary) must be owned to be classified as an

equity method security.


14-13

The Fair Value Option

• Under the fair value option, a company has

the option to report, at each balance sheet

date, any or all of its financial assets and

liabilities at their fair values on the balance

sheet date.

• The election of the fair value option for an

investment security “trumps” the classification

of the security as trading, available for sale,

held to maturity, and equity method.

14-14


According to IFRS

• The classification of investment securities

under IFRS 9 is very similar to the

classification categories under U.S. GAAP.

• The fair value option for financial assets also

exists in IFRS under the provisions of

IFRS 9.

• In May 2010, the IASB released an exposure

draft proposing extension of the fair value

option to financial liabilities.

14-15

2. Account for the purchase of debt and

equity securities

• On May 1, $100,000 in U.S. Treasury notes

are purchased at 104¼, including brokerage

fees.

• Interest is 9%, payable semiannually on

January 1 and July 1 (accrued interest of

$3,000 would be added to the purchase

price).

(continued)

14-16

Purchase of Debt Securities

• The debt securities are classified by the

purchaser as trading securities because

management will sell the securities if a change

in the price will result in a profit.

• The entries to record the transactions related

to this purchase using the asset approach,

then the revenue approach are shown in the

following slides.

(continued)

14-17

Asset Approach Asset Approach

May 1 Investment in Trading

Securities 104,250

Interest Receivable 3,000

Cash 107,250

July 1 Cash 4,500


Interest Revenue 1,500

Purchase of Debt Securities

May 1 Investment in Trading

Securities 104,250


Cash 107,250

July 1 Cash 4,500


Revenue Approach Revenue Approach

14-18

Purchase of Equity Securities

• Gondor Enterprises purchased 300 shares of

Boromir Co. stock at $75 per share plus

brokerage fees of $80 (as trading securities)

and 500 shares of Faramir Inc. stock at $50 per

share plus brokerage fees of $30 (as available-

for-sale securities).

• The journal entry to record the purchase is

shown on Slide 14-19.

(continued)

14-19

Purchase of Equity Securities

Investment in Trading Securities—

Boromir Co. 22,500*

Investment in Available-for-Sale

Securities—Faramir Inc. 25,000*

Cash 47,500

*For securities accounted for using the fair value option,

brokerage fees and other upfront costs are expensed

when incurred.

Computations:

$300 x $75 = $22,500

$500 x $50 = $25,000

14-20

3. Account for the recognition of revenue

from investment securities

• Assume that on January 1, 2010, Silmaril

Technologies purchased 5-year, 10% bonds

with a face value of $100,000 and interest

payable semiannually on January 1 and July

1. The market rate on similar bonds is 8%.

• The first step is to calculate the market price of

the bonds.

(continued)

14-21

Present value of principal:

FV = $100,000; N = 10; I = 4% $ 67,556

Present value of interest payments:

PMT = $5,000; N = 10; I = 4% 40,554

Total present value of the bonds $108,110

Recognition of Revenue from Debt Securities

When interest is received: Cash 5,000


Investment in Trading Securities 108,110

Cash 108,110

When trading securities are purchased:

Interest Revenue for Debt Securities

Classified as Trading

14-22


Classified as Held to Maturity

(continued)

The initial purchase:

Investment in Held-to-Maturity

Securities 108,110

Cash 108,110

To determine the amount of premium to

amortize each period, Silmaril would prepare an

amortization table based on the effective-

interest method of amortization. This table is

shown in Slide 14-23

14-23 14-23 (continued)

14-24

When the first interest payment is received:

Cash 5,000


Investment in Held-to-Maturity Securities 676

(continued)



14-25

When the second interest payment is received:



Cash 5,000


Investment in Held-to-Maturity Securities 703

14-26

Recognition of Revenue from Equity Securities

• In those instances where the level of

ownership in the investee is such that the

investor is able to control or significantly

influence decisions made by the investee, the

use of the equity method is appropriate.

• The ability of the investor to exercise

significant influence over decisions as

dividend distribution and operational and

financial administration may be indicated in

several ways, as listed in Slide 14-27.

(continued)

14-27

Significant influence may be indicated by decisions affecting:

• Representation on the investee’s board of directors

• Participation in the policy-making process

• Material Intercompany transactions

• Interchange of management personnel

• Technical dependency of investee on investor

• Percentage of outstanding voting stock owned

Recognition of Revenue from Equity Securities

14-28

Determining the Appropriate Accounting Method

0% 20% 50% 100%

No

significant

influence

Significant

influence Control

Ownership Percentage Equity method

Equity method and

consolidation

procedures

Account for as

trading or

available-for-sale

14-29

Revenue for Equity Securities Classified as

Trading and Available for Sale

When an investment in another company’s stock

does not involve either a controlling interest or

significant influence, it is classified as either

trading or available for sale. Assume that

Gondor Enterprises receives the following

dividends from its investees:

(continued)

14-30

The journal entry to record receipt of the

dividends would be:

Cash 2,475

Dividend Revenue 2,475

[(300 × $2.00) + (500 × $3.75) = $2,475]

Revenue for Equity Securities Classified as

Trading and Available for Sale

14-31

Revenue for Securities Classified As

Equity Method Securities

• Under the equity method, the investment is

initially recorded at cost.

• The investment account is periodically adjusted

to reflect changes in the underlying net assets of

the investee.

Increased to reflect a proportinate share of the

earnings of the investee or decreased to show

any losses reported.

Preferred dividends declared reduce the

investment account; dividends received also

reduce the investment account.

(continued)

14-32



BioTech Inc. purchased 40% of the outstanding

stock of Medco Enterprises on January 1 of the

current year by paying $200,000. During the year,

Medco reported net income of $50,000 and paid

dividends of $10,000.

(continued)

Investment in Medco Enterprise Stock:

Investment in Medco Enterprise Stock 200,000

Cash 200,000

To record the purchase of 40% of

Medco stock.

14-33

Recognize a percentage of net income:

Investment in Medco Enterprise Stock 20,000

Income from Investment in Medco

Enterprises Stock ($50,000 × 0.40) 20,000

To record the recognition of revenue

from investment in Medco.

Record receiving a dividend:

Cash ($10,000 × 0.40) 4,000

Investment in Medco Enterprises Stock 4,000

To record the receipt of dividend on

Medco stock.



14-34

Comparing the Provisions of FASBS ASC

Topics 320 and 323

• To contrast and illustrate the accounting

entries under various methods, assume that

Powell Corporation purchased 5,000 shares

of San Juan Company common stock on

January 2 at $20 per share, including

commissions and other costs.

• San Juan has a total of 25,000 shares

outstanding. Compare the two methods in

Exhibit 14-10 on Slide 14-35.

(continued)

14-35

14-36

Equity Method: Purchase for More than Book

Value

• On January 2, 2013, the net assets of Stewart

Inc. was $500,000 at the time Phillips

Manufacturing Co. purchased 40% of the

common shares for $250,000.

• Based on the ownership interest, the market

value of the net assets of Stewart Inc. would be

$625,000 ($250,000/0.40), which is $125,000

more than the book value. Only $50,000 of this

is attributed to depreciable assets. The

remaining $75,000 is attributed to a special

operating license. (continued)

14-37

• The average remaining life of the depreciable

assets is 10 years and the license is to be

amortized over 20 years. Phillips Manufacturing

Co. would adjust its share of Stewart Inc.’s net

income as follows:

(continued)

Additional depreciation ($50,000 × 0.40)/10 $2,000

License amortization ($75,000 × 0.40)/20 1,500

$3,500

Equity Method: Purchase for More

than Book Value

14-38

Each year for the first 10 years, Phillips would

make the following entry in addition to entries

made to recognize its share of Stewart Inc.’s

income and dividends.

(continued)

Income from Investments in Stewart Inc.

Stock 3,500

Investment in Stewart Inc. Stock 3,500

To adjust share of income on Stewart

Inc. common stock for proportionate

depreciation on excess of market value

of depreciable property, $2,000, and for

amortization of the unrecorded license,

$1,500.


than Book Value

14-39

• After the 10th year, the adjustment would be for

$1,500 until the license amount is fully

amortized.

• Stewart Inc. declared and paid dividends of

$70,000 during 2013 and reported net income

of $150,000 for the year. The investment would

be shown on Phillip’s balance sheet at

$278,500, computed as shown on Slide 14-40.


than Book Value

(continued)

14-40


than Book Value

The adjustments for additional depreciation

and intangible asset amortization are needed

ONLY when the purchase price is greater than

the underlying book value at the date of

acquisition.

14-41

Equity Method: Joint Venture

• A joint venture is a form of off-balance-sheet

financing.

• Joint ventures are accounted for using the

equity method.

• Even if the joint venture does not have a

50%–50% ownership structure, the minority

interest will still account for the joint venture

using the equity method.

(continued)

14-42

Equity Method: Joint Venture

Owner A Company and Owner B Company each

own 50% of Ryan Julius Company, which does

research and marketing for the products of both

Owner A and Owner B. Ryan Julius has assets

of $10,000 and liabilities of $9,000.

Investment in Ryan Julius [($10,000 – $9,000)

x 0.50] $500

Owner A Balance Sheet

Investment in Ryan Julius [($10,000 – $9,000)

x 0.50] $500

Owner B Balance Sheet

14-43

Equity Method Accounting According to IFRS

• Equity method accounting under IFRS is the

same, in all important aspects, as under U.S.

GAAP.

• The relevant standard is IAS 28.

• Under IFRS, the term “associate” is used for

what is called an “equity method investee”

under U.S. GAAP.

14-44

Eastwood Incorporated purchased five different securities

on March 23, 2011. Their fair value is shown as of

December 31, 2013.

Temporary Changes in the Fair Value of

Securities

4. Account for the change in fair value of

investment securities

14-45

Initial Purchase Entry—2013 Initial Purchase Entry—2013


Investment in Available-for-Sale Securities 17,000


Securities 20,000

Cash 48,000

(continued)

Accounting for Temporary Changes in the

Fair Value of Securities

14-46

At the end of 2013, the value of the trading

securities decreased from $11,000 cost to

$10,500 fair value. As a result, the following

entry would be made:

December 31, 2013:

Unrealized Loss on Trading Securities 500

Market Adjustment—Trading Securities 500

Trading Securities

14-47

Market Adjustment—Available-for-Sale

Securities 600

Unrealized Increase/Decrease in Value

of Available-for-Sale Securities 600

At the end of 2013, the available-for-sale

portfolio had increased from $17,000 to $17,600.

This increase in fair value of the securities above

their cost would be recorded as follows:

Available-for-Sale Securities

14-48 14-48

14-49 (continued)

Trading Securities—2014 Trading Securities—2014

By the end of 2014, trading securities have

increased in value from $10,500 to $11,300.

Accounting for the Change in Value of

Securities

14-50

The adjusting entry is as follows:

Market Adjustment—Trading Securities 800

Unrealized Gain on Trading Securities 800

(continued)


Securities

The account, “Market Adjustment—Trading

Securities” should have a debit balance of

$300. The “Before Adjustment Balance” is a 500

credit; a carry over from 2013. The adjusting

entry is as follows:

14-51

The balance in Market Adjustment—Trading

Securities would be added to Investment in

Trading Securities and reported on the balance

sheet.

(continued)


Securities

The $800 unrealized gain would be included in

the computation of net income for 2014.

14-52

Available-for-Sale Securities—2014 Available-for-Sale Securities—2014

(continued)

At the end of 2014, the fair value of the

available-for-sale securities has decreased from

$17,600 to $17,200.


Securities

14-53 (continued)

The adjusting entry is as follows:

Unrealized Increase/Decrease in Value of Available-

for-Sale Securities ($17,600 ─ $17,200) 400

Market Adjustment—Available-for-Sale

Securities 400


Securities

The market adjustment account should have a

$200 debit balance.

14-54 14-54

14-55

Accounting for “Other-Than-Temporary”

Declines in the Fair Value of Securities

If a decline in the fair value of an individual

security is judged to be other than temporary,

regardless of whether the security is debt or

equity and regardless of whether it is being

accounted for as a trading, available-for-sale,

held-to-maturity, or equity security, the cost basis

of that security should be reduced by crediting the

investment account.

(continued)

14-56

Accounting for “Other-Than-Temporary”

Declines in the Fair Value of Securities

In Staff Accounting Bulletin No. 59, the SEC

staff suggest that one consider the following in

determining whether a decline in fair value is

other than temporary:

• How long has the fair value of the security been

below its original cost?

• What is the current financial condition of the

investee and its industry?

• Will the investor’s plans involve holding the

security long enough for it to recover its value?

14-57

5. Account for the sale of investment

securities

• A realized gain or loss occurs when an arm’s-

length transaction has occurred and a security

has actually been sold. The gain or loss is

recognized on the income statement.

• An unrealized gain or loss arises when the fair

value of the security changes, yet the security

is still held by the investor. Unrealized gains or

losses may or may not be recognized,

depending upon the security’s classification or

whether the company has elected the fair

value option. (continued)

14-58

Sale of Securities

For Silmaril Technologies (sides 14-20 to 14-

25), assume that the debt securities are sold on

April 1, 2014, for $103,000, which includes

accrued interest of $2,500. The carrying value of

the debt security on January 1, 2014, is

$105,240. Interest revenue of $2,105 (105,240 x

0.08 x 3/12) would be recorded, and a receivable

relating to interest of $2,500 would be

established.

(continued)

14-59

To record accrued revenue and amortize premium:



Securities 395


Entry to record sale:

Cash 103,000

Realized Loss on Sale of Securities 4,345



Securities 104,845

Sale of Securities

14-60

Impact of Sale of Securities on Unrealized

Gains and Losses

At the beginning of Year 1, Levi Company

purchased a portfolio of trading securities for

$10. At the end of Year 1, the securities had a

value of $12. At the end of Year 2, the same

securities are sold for $9.

Unrealized Loss—

Trading 2

Market Adjustment—

Trading 2

(continued)

14-61

When the securities are sold at the end of Year

2 for $9, the entry will reflect only a $1 loss.

Year 2

Cash 9

Realized Loss—Trading 1

Investment Securities—Trading 10

Impact of Sale of Securities on Unrealized

Gains and Losses

Realized loss is the

difference between the

selling price and the original

cost of the securities.

14-62

Derecognition

According to FASB ASC Topic 860, a transfer of

a financial asset is accounted for as a sale

(resulting in derecognition—transferring

assets and corresponding liabilities from the

balance sheet) when the transfers satisfy each

of the following three conditions listed on the

following slides.

(continued)

14-63

1. Legal control: The transferor has given up legal

claim to the assets, meaning that even if it

declares bankruptcy its creditors cannot go after

the transferred assets.

2. Actual control: The transferor cannot prevent

the transferee from using the transferred assets

however desired, such as selling them or

pledging them as collateral for a loan.

3. Effective control: The transferor does not have

the right to force the transferee to return the

assets, such as with a repurchase agreement.

(continued)

Derecognition

14-64 14-64

6. Record the transfer of investment securities

between categories

14-65

Transferring Debt and Equity Securities

Between Categories

The Eastwood Inc. example used earlier will serve

to demonstrate transferring securities between

categories. As of December 31, 2014, Eastwood

Inc. had the following securities:

(continued)

14-66

During 2015, Eastwood Inc. elects to reclassify

certain of its securities. The category being

transferred from, and to, along with the fair value for

each security on the date of the transfer, is as

follows:

Transferring Debt and Equity Securities

Between Categories

14-67

From the Trading Security Category

Eastwood Inc. elects to reclassify security 2 from

a trading security to an available-for-sale security.


Securities 3,800

Market Adjustment—Trading

Securities 600

Unrealized Gain on Transfer of

Securities 200


14-68


an available-for-sale security to a trading security.


Market Adjustment—Available-for-

Sale Securities 1,300

Unrealized Loss on Transfer of

Securities 1,700

Unrealized Increase/Decrease in

Value of Available-for-Sale Securities 1,300


Securities 12,000

Into the Trading Security Category

14-69

From the Held-to-Maturity to the Available-

for-Sale Category

Eastwood Inc. has elected to reclassify security 5

from a security being held until maturity to one

that is available to be sold. The security’s fair

value on the date of transfer is $20,400.


Securities 20,400

Unrealized Increase/Decrease in

Value of Available-for-Sale

Securities 400


Securities 20,000

14-70


one that is available to be sold to a security that

will be held until maturity. The fair value on the

date of the transfer is $5,900.


Securities 5,900

Unrealized Increase/Decrease in Value

of Available-for-Sale Securities 600


Securities 5,000

Market Adjustments—Available-for-

Sale Securities 1,500

From the Available-for-Sale to the Held-to-

Maturity Category

14-71

Cash Flows from Gains and Losses on


Caesh Company came into existence with a $1,000

investment by owners on January 1, 2013, and

entered into the following transactions during 2013.

(continued)

Cash sales $ 1,700

Cash expenses (1,400)

Purchase of investment securities (600)

Sale of investment securities (costing $200) 170

7. Properly report purchases, sales, and

changes in fair value of investment

securities in the statement of cash flows

14-72

The investment securities are classified as

available for sale. The market value of the

remaining securities was $500 on December 31,

2013. Caesh Company’s net income for 2013 can

be computed as follows:

(continued)

Sales $1,700

Expenses (1,400)

Operating income 300

Realized loss on sale of investment securities

($200 – $170) (30)

Net income $270



14-73

The statement of cash flows for Caesh

Company for 2013 can be prepared as follows:



14-74

If the investment securities purchased by Caesh

Company are classified as trading securities and are

deemed to have been acquired for operating

purposes, the unrealized gain appears in the

Operating Activities section.

Cash Flows from Gains and Losses

on Trading Securities

Net income is $370

instead of $270 because

the $100 unrealized

increase in the fair value

of the portfolio is

reported as an

unrealized gain on the

income statement.

14-75

Equity Method Securities and

Operating Cash Flows

• When a company owns equity method securities,

an adjustment to operating cash flow must be

made to reflect the fact that the cash received from

the securities in the form of dividends is not equal

to the income from the securities included in the

computation of net income.

• Daltone Company owns 30% of the outstanding

shares of Chase Company. Chase Company’s net

income for the year was $100,000, and cash

dividends were $40,000.

(continued)

14-76

Equity Method Securities and

Operating Cash Flows

• Daltone would include $30,000 ($100,000 x 0.30)

in its income statement as income from the

investment.

• Daltone received $12,000 ($40,000 x 0.30) in cash

dividends from its investment in Chase. Daltone

would report a subtraction in the Operating

Activities section for the $18,000 ($30,000 –

$12,000) difference between the income reported

and the cash dividends received.

14-77 (continued)

14-77

8. Explain the proper classification and

disclosure of investments in securities

14-78 14-78 (continued)

14-79 14-79 (continued)

14-80 14-80 (concluded)

14-81 14-81

14-82

Required Additional Disclosures

1. Trading securities

The change in net unrealized holding gain

or loss that is included in the income

statement.

2. Available-for-sale securities

Aggregate fair value, gross unrealized

holding gains and gross unrealized holding

losses, and amortized cost basis by major

security type.

(continued)

14-83

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.

The change in net unrealized holding gain

or loss on available-for-sale securities that

has been included in stockholder’s equity

during the period.

(continued)


14-84

3. Held-to-maturity securities:

Aggregate fair value, gross unrealized

holding gains and gross unrealized holding

losses, and amortized cost basis by major

security type.


4. Transfer of securities between categories:

Gross gains and losses included in

earnings from transfer of securities from

available-for-sale into the trading

category.

(continued)

14-85

For securities transferred from held-to-

maturity, the company should disclose the

amortized cost amount transferred, the

related realized or unrealized gain or loss,

and the reason for transferring the

security.


14-86 14-86 (continued)

14-87 14-87 (continued)

14-88 14-88 (continued)

14-89 14-89 (concluded)

14-90

Measurement of Impairment

• A creditor shall measure for impairment for loans with

no market value at the present value of expected

future cash flows discounted at the loan’s effective

interest rate.

• The impairment is recorded by creating a valuation

allowance account and charging the estimated loss

to bad debt expense.

• If a loan agreement is restructured in a troubled debt

restructuring, the interest rate to be used to discount

the new modified contract terms is based on the

original contract rate.

9. Account for the impairment of a loan

receivable

14-91

Example of Accounting for

Loan Impairment

• Malone Enterprises reports a loan receivable from

Stockton Co. in the amount of $500,000. The

initial loan’s repayment terms include a 10%

interest rate plus annual principal payments of

$100,000 on January 1 of each year.

• The loan was made on January 1, 2011. Stockton

made the $50,000 interest payment in 2011 but

did not make the $100,000 principal payment nor

the $50,000 interest payment in 2012.

(continued)

14-92

• Analysis of Stockton’s financial condition

indicates the principal and interest currently due

can probably be collected, but it is probable that

no further interest can be collected. The probable

amount and timing of the collections is

determined as follows:


Loan Impairment

(continued)

14-93

The present value at December 31, 2012, of the

expected future cash flows discounted at 10% for the

Stockton receivable is $455,860.


Loan Impairment

(continued)

14-94

The impairment loss to be reported for 2012 is

$94,140, or the $550,000 carrying value less the

present value ($455,860).


Loan Impairment

2012

Dec. 31 Bad Debt Expense 94,140

Allowance for Loan

Impairment 94,140

The journal entry to record impairment is as follows:

(continued)

14-95 (continued)

Example of Accounting for Loan Impairment

If Stockton makes the payments as projected, the

following amortization schedule provides

information for the necessary entries.

14-96


2013

Dec. 31 Cash 175,000

Loan Receivable 175,000

Allowance for Loan

Impairment 45,586


The entries on December 31, 2013, to record

the receipt of the 2013 loan payment and to

recognize interest revenue for the year are as

follows:

Alternatively, a company may show all changes in

present value as an adjustment to Bad Debt Expense.

(continued)

14-97


The T-accounts for the loan receivable and

allowance accounts for 2012 and 2013 are as

follows:

Documents

Ch.14 Investments in Debt and Equity Securities · Ch.14 Investments in Debt and Equity Securities . 14-2 1. Understand various companies investments ... commissions and other costs