The contents of this chapter include all of the following: Describe the accounting for the fair value option, discuss the accounting for impairments of debt and equity investments, explain why companies report reclassification adjustments, describe the accounting for transfer of investment securities between categories. | Investments PART II: Corporate Accounting Concepts and Issues Lecture 19 Describe the accounting for the fair value option. Discuss the accounting for impairments of debt and equity investments. Explain why companies report reclassification adjustments. Describe the accounting for transfer of investment securities between categories. Learning Objectives Other Reporting Issues Fair value option Impairment of value Reclassification adjustments Transfers between categories Fair value controversy Summary Investments Fair Value Option Companies have the option to report most financial instruments at fair value, with all gains and losses related to changes in fair value reported in the income statement. Applied on an instrument-by-instrument basis. Fair value option is generally available only at the time a company first purchases the financial asset or incurs a financial liability. Company must measure this instrument at fair value until the company no longer has ownership. LO 1 Describe . | Investments PART II: Corporate Accounting Concepts and Issues Lecture 19 Describe the accounting for the fair value option. Discuss the accounting for impairments of debt and equity investments. Explain why companies report reclassification adjustments. Describe the accounting for transfer of investment securities between categories. Learning Objectives Other Reporting Issues Fair value option Impairment of value Reclassification adjustments Transfers between categories Fair value controversy Summary Investments Fair Value Option Companies have the option to report most financial instruments at fair value, with all gains and losses related to changes in fair value reported in the income statement. Applied on an instrument-by-instrument basis. Fair value option is generally available only at the time a company first purchases the financial asset or incurs a financial liability. Company must measure this instrument at fair value until the company no longer has ownership. LO 1 Describe the accounting for the fair value option. Fair Value Option Illustration: Hardy Company purchases stock in Fielder Company during 2012 that it classifies as available-for-sale. At December 31, 2012, the cost of this security is $100,000; its fair value at December 31, 2012, is $125,000. If Hardy chooses the fair value option to account for the Fielder Company stock, it makes the following entry at December 31, 2012. LO 1 Describe the accounting for the fair value option. Available-for-Sale Securities Equity Investments 25,000 Unrealized Holding Gain or Loss—Income 25,000 Fair Value Option Illustration: Durham Company holds a 28 percent stake in Suppan Inc. Durham purchased the investment in 2010 for $930,000. At December 31, 2010, the fair value of the investment is $900,000. Durham elects to report the investment in Suppan using the fair value option. The entry to record this investment is as follows. LO 1 Describe the accounting for the fair value option. Equity Method Unrealized .
