Slayer CPA
SectionsBlogLog In
Financial Accounting and Reporting/Blueprint/2.E

Investments

Area 2: Select Balance Sheet Accounts (30-40%)

Your Progress

0 of 59 questions attempted

Topics

  • Financial assets at fair value
  • Financial assets at amortized cost
  • Equity method investments

Lessons

  • InvestmentsFree

Study Frameworks

Investment Classification and Measurement

Investments in Financial Assets
Fair Value through Net Income (Default)
Trading debt securities
Equity securities (no significant influence)
Unrealized gains/losses → income statement
Fair Value through OCI (FV-OCI)
Available-for-sale debt securities
Equity securities with FV-OCI election (no recycling)
Unrealized gains/losses → OCI; reclassify to income on sale (debt only)
Amortized Cost
Held-to-maturity debt securities
Intent and ability to hold to maturity
Impairment via CECL model (ASC 326)
Equity Method (20-50% ownership)
Initial: record at cost
Adjust for share of investee income/loss
Reduce for dividends received
Test for impairment (OTTI — other than temporary)

Investment Classification: How to Account for a Financial Asset

Does the investor have significant influence (typically 20-50% ownership) over the investee?
Yes
Equity method — record at cost, adjust for share of income/loss, reduce for dividends
No
Is it a debt security?
Yes
Does the entity have the intent and ability to hold to maturity?
Yes
Held-to-maturity — amortized cost. Impairment via CECL (ASC 326)
No
Is the entity actively trading the security for short-term profit?
Yes
Trading — fair value through net income. Unrealized gains/losses in earnings
No
Available-for-sale — fair value through OCI. Reclassify to income on sale; impairment via CECL
No
Is it an equity security with a readily determinable fair value (or no practicability exception)?
Yes
Has the entity made an irrevocable FV-OCI election (equity without readily determinable FV)?
Yes
FV-OCI (no recycling) — unrealized changes in OCI, dividends in income
No
Fair value through net income (default for equity). All changes in earnings
No
Measurement alternative — cost minus impairment ± observable price changes (ASC 321)

Impairment Testing — Indefinite-Lived Intangible Assets

Is a qualitative assessment performed first? (optional)
Yes
Is it more likely than not (>50%) that fair value is less than carrying amount?
Yes
Does fair value < carrying amount in quantitative test?
Yes
Recognize impairment loss = Carrying Amount − Fair Value
No
No impairment
No
No impairment — stop here
No
Does fair value < carrying amount?
Yes
Recognize impairment loss = Carrying Amount − Fair Value
No
No impairment

Software Cost Capitalization

Is the software for internal use or for external sale/licensing?
Yes
Has the application development stage begun (internal-use, ASC 350-40)?
Yes
Capitalize development costs until post-implementation stage
No
Expense as incurred (preliminary project stage)
No
Has technological feasibility been established (external, ASC 985)?
Yes
Capitalize until available for general release; amortize at greater of revenue ratio or straight-line
No
Expense as incurred (R&D phase)

Equity Method Investment Carrying Amount

Cost + Share of Investee Income − Dividends Received − Impairment

Adjust the investment account each period for the investor's proportionate share of investee net income (increase) and dividends received (decrease). Test for OTTI if indicators present

Bond Investment Premium/Discount Amortization (Effective Interest)

Interest Revenue = Carrying Amount × Market Rate at Purchase

Cash received = Face × Stated Rate. Difference between interest revenue and cash received amortizes the premium or discount. Applies to HTM and AFS debt securities

Investment Categories — Measurement and Income Recognition

CategoryMeasurementUnrealized Gains/LossesImpairment Model
Trading (debt)Fair valueNet incomeCECL (ASC 326)
Available-for-sale (debt)Fair valueOCI (reclassify on sale)CECL (ASC 326)
Held-to-maturity (debt)Amortized costNot recognizedCECL (ASC 326)
Equity (default)Fair valueNet incomeN/A (FV measurement)
Equity (FV-OCI election)Fair valueOCI (no recycling)N/A (FV measurement)
Equity (measurement alt.)Cost − impairment ± observable changesAdjust for observable price changesQualitative, then quantitative if indicated
Equity method (20-50%)Cost + share of income − dividendsNot applicableOTTI assessment
THATTrading, HTM, AFS, Twenty-percent (equity method)

The four main investment classifications for financial assets. Trading and AFS are at fair value (through income or OCI respectively). HTM is at amortized cost. Twenty-percent (20-50%) triggers the equity method. Classification drives measurement, income recognition, and impairment treatment.

Practice These Topics(59 questions)