STI Project Description
• Track a portfolio of roughly five stocks and
three bonds throughout the fall
• Report on performance for September,
October, and November (possibly)
• Design a spreadsheet to track your
performance and feed the monthly financial
statements
Project Objectives
• Learn about stocks and bonds
• Learn the accounting and reporting for
short-term investments
• Learn how to do on-line or library research
of securities
• Evaluate the performance of your
investment
On-line Research
• Stock quotes are easy
• Bond quotes are a bit more challenging
– Using Yahoo Finance, Go to stock quotes
– Click on Symbol Lookup
– Enter the ticker symbol and the integer portion
of the interest rate of your bond (CAT9 for
Caterpillar 9.5% bonds)
STI--Some Accounting Tips
• See p. 132 for (sparse) coverage of STI
• Bonds are described on pps. 225-230
– Bonds are explained from the viewpoint of the
borrower, not the INVESTOR. The
explanations are still useful.
• Stocks are described on pps. 257-260 (most
of you are probably familiar with stocks)
• See the remainder of the PP slides.
Note:
• I do not expect you to understand
completely the remaining slides from your
first reading. However, after my
explanations in class you should be in good
shape.
Marketable Securities
Statement of Financial Accounting
Standard (SFAS) No. 107
Requires disclosure of actual (or
estimates of) year-end market value
pertaining to financial instruments (FI)
Mark-to-Market Certain Debt
Investments and Equity Securities
Hold-to-Maturity
Trading Securities
Available-for-Sale Securities
Mark-to-Market Certain Debt
Investments and Equity Securities
Security
Debt
Management
Intent at
Purchase
Hold-tomaturity
security
Balance Sheet
Classification
Income Statement Effects
*Interest income, including
Current asset
amortization of premium or
or noncurrent Amortized cost discount
asset
*Realized gains/losses =
proceeds–unamortized cost
Trading
security
Current asset
(actively trade
in near term)
Debt or equity
Balance Sheet
Valuation
*Dividend income or
interest income, including
amortization of premium or
Fair value with
discount
contra asset
*Realized
valuation
gains/losses=proceedsallowance
latest balance sheet fair
value
*Unrealized
gains/losses
Mark-to-Market Certain Debt
Investments
and
Equity
Securities
Management
Security
Intent at
Purchase
Trading
security
Debt or equity
(actively trade
in near term)
Balance Sheet
Classification
Current asset
Available-fordale security
(securities not Current asset
fitting into
or noncurrent
either of
asset
above
categories)
Balance Sheet
Valuation
Income Statement Effects
*Dividend income or
interest income, including
Fair value with amortization of premium or
contra asset discount
valuation
*Realized gains/losses=
allowance
proceeds–latest balance
sheet fair value
*Unrealized gains/losses
Fair value with
contra asset
valuation
allowance and
owners' equity
is adjusted for
unrealized
gains/lossses
*Dividend income or
interest income, including
amortization of premium or
discount
*Realized
gains/losses=proceedslatest balance sheet fair
value + or - owners' equity
Trading Security Example
Prepare the necessary journal entry for Cars
Ltd. to adjust the trading securities to fair
market value at December 31, 19X4.
Trading
Security
Gloves, Inc.
SportsWear
No. of
Unit
Shares Cost
1,000
$6
1,500
12
Total
Cost
$6,000
18,000
Fair
Value
$ 6,500
16,000
Trading Security Example
Trading
Security
Gloves, Inc.
SportsWear
No. of
Unit
Shares Cost
1,000
$6
1,500
12
Net Unrealized Holding Loss
Total
Cost
$6,000
18,000
Fair
Value
$ 6,500
16,000
Gain or
(Loss)
$
500
(2,000)
$ (1,500)
Trading Security Example
GENERAL JOURNAL
Date
Description
Dec. 31 Valuation Allowance: Gloves, Inc.
Unrealized Loss
Valuation Allowance: SportsWear
The unrealized loss account will
appear on the income statement.
Page 34
Post.
Ref.
Debit
Credit
500
1,500
2,000
Trading Security Example
• During 19X5, the investment in SportsWear
is sold for $15,000. Prepare the journal
entry to record the sale.
GENERAL JOURNAL
Date
19X5
Description
Cash
Valuation Allowance: SportsWear
Realized Loss
Marketable Securities: SportsWear
Page 35
Post.
Ref.
Debit
Credit
15,000
2,000
1,000
18,000
Mark-to-Market Certain Debt
Investments
and
Equity
Securities
Management
Security
Intent at
Purchase
Balance Sheet
Classification
Balance Sheet
Valuation
Fair value with
Available-forcontra asset
sale security
valuation
(securities not Current asset
allowance and
Debt or equity
fitting into
or noncurrent
owners' equity
either of
asset
is adjusted for
above
unrealized
categories)
gains/losses
Income Statement Effects
*Dividend income or
interest income, including
amortization of premium or
discount
*Realized gains/losses=
proceeds–latest balance
sheet fair value + or –
owners' equity accum.
unrealized g/l
Available-for-Sale Security
Example
Prepare the necessary journal entry for Cars
Ltd. to adjust the available-for-sale securities
to fair market value at December 31, 19X4.
Available-for-Sale No. of
Unit
Security
Shares Cost
Gloves, Inc.
1,000
$6
SportsWear
1,500
12
Net Unrealized Holding Loss
Total
Cost
$6,000
18,000
Fair
Value
$ 6,500
16,000
Gain or
(Loss)
$
500
(2,000)
$ (1,500)
Available-for-Sale Security
Example
GENERAL JOURNAL
Date
Description
Page 34
Post.
Ref.
Debit
Dec. 31 Valuation Allowance: Gloves, Inc.
Accumulated Unrealized Loss
Valuation Allowance: SportsWear
The unrealized loss account will appear in
the equity section of the balance sheet.
Credit
500
1,500
2,000
Available-for-Sale Security
Example
• During 19X5, the investment in SportsWear
is sold for $15,000. Prepare the journal
entry to record the sale.
GENERAL JOURNAL
Date
19X5
Description
Cash
Valuation Allowance: SportsWear
Realized Loss
Unrealized Loss
Marketable Securities: SportsWear
Page 35
Post.
Ref.
Debit
Credit
15,000
2,000
3,000
2,000
18,000
Reclassification of Securities
Reclassify to:
Hold-to-Maturity
Trading
Available-for-Sale
Reclassify from:
Hold-to-Maturity
Trading
Available-for-Sale
A
D
B
B
C
A
Accounting for gains/losses at reclassification date:
A=Record in income statement only the unrealized gains/losses
arising from last valuation date.
B=Record in income statement any net unrealized gains/losses to
date not reflected in prior income statements.
C=Record in owners’ equity any net unrealized gains/losses to date
not reflected in prior income statements.
D=The unrealized gains/losses already accumulated in a separate
owners’ equity account is not reclassified but is amortized over
the remaining life of the security.