CPA FAR Marketable Securities and Investments — Flashcards

CPA FAR marketable securities and investments are classified by management intent into Trading (fair value, earnings), Available-for-Sale (AFS) (fair value, OCI), or Held-to-Maturity (HTM) (amortized cost). 
Equity investments often use the fair value method or equity method (20-50% ownership), with unrealized gains/losses for equity securities usually affecting earnings. 

Marketable Debt & Equity Securities (ASC 320 & 321)
Investments are measured at fair value on the balance sheet, with changes in value reported differently based on classification: 

Trading Securities: Bought for near-term sale. Unrealized gains/losses reported in net income (earnings).
Available-for-Sale (AFS): Not trading or HTM. Unrealized gains/losses reported in Other Comprehensive Income (OCI) (net of tax).
Held-to-Maturity (HTM): Debt securities only; company has positive intent/ability to hold until maturity. Reported at amortized cost, not fair value. 

Investment Valuation & Income Effects
Unrealized Gains/Losses: Recognized in income for Trading; in OCI for AFS.
Sale of Securities: Realized gains/losses go to income statement, regardless of classification.
Reclassifications: Generally recorded at fair value, with treatment varying based on the direction of transfer. 

Equity Method Investments (ASC 323)
Used for significant influence, typically 20-50% ownership. 

Accounting: Recorded at cost, increased by investor's share of investee earnings, decreased by dividends received.
Income Recognition: Investor records proportionate share of investee net income/loss as "Income from Investment". 

Key FAR Exam Distinctions
Equity Securities: Generally measured at fair value through earnings, regardless of intent, unless they qualify for the equity method or a special exception.
Impairment: Permanent declines in AFS or HTM securities are recognized in earnings.
Cash Flow: Trading securities are often operating activities; AFS/HTM are investing activities.
Memory Aid: Trading = IDEA (Income statement - Dividend/Equity/All-other), AFS = PUFE (OCI - Pension/Unrealized-AFS/Foreign-currency/Effective-portion).