1.Marketable securities,35,Consolidated financialstatements2210.Task-based simulations59. 46Combined financialstatements/pushdown accounting54FINANCIAL3Marketable Securities and Business Combinations9.Variableinterestentities(VIEs)557.Intercompany transactions.11.Appendix 1: Illustrative consolidated financialstatements6313.Class questions672.Business combinations/consolidations1012.Appendix2:IFR5V5.u.s.GAAP653.Costmethod(external reporting)124.Equitymethodand jointventures(external reporting)148.6.Acquisitionmethod(external reporting)23Financial 3Becker Professional EducationICPAEXcltnReviewNOTESF3-22010 OeVry/Becker Educational Development Corp.Allrights reserved.Becker Professional EducationICPAExam ReviewFinancial 3MARKETABLESECURITIESalOl-I.INVESTMENTSINMARKETABLE DEBT AND EQUITY SECURITIESA.DefinitionofEquity SecuritiesEquity securities are defined as securities that representanownership interestinan enterprise or the right to acquire or dispose ofanownership interest inanenterprise at fixed or determinable prices.1.Equity securities may be representedby:a.Ownership shares (common, preferred, and other forms of capital stock),b.Rights to acquire ownership shares (stock warrants, rights, and call options), andc.Rights to disposeofownership shares (put options).2.Equity securities donotinclude:a.Preferred stock redeemable at the option of the investor or stock that must be redeemed by the issuer,b.Treasury stock (the companys own stock repurchased and held), andc.Convertible bonds. B.ClassificationSecurities should be classified into one of three categories, based on the intentofthe company.1.Trading SecuritiesTrading securities are those securities (both debt and equity) that are bought and heid principally for the purpose of selling theminthe near term. Trading securities generally refiect active and frequent buying and selling with the objective of generating profitsonshort-term differencesinprice. Securities classified as trading securities are generaliy reported as current assets, although they can be reported as noncurrent, if appropriate.I-I2.3.Available-far-Sale SecuritiesAvailable-for-sale securities are those securities (both debt and equity) not meeting the definitions of the other two classifications (trading or held-to-maturity). Securities classified as available-for-sale securities are reported as either current assets or noncurrent assets, depending on the intent of the corporation. If the security represents cash available for current operations, it is appropriate to report the security as a current asset.Held-to-Maturity Securities(debt securities only)I_IInvestmentsindebt securities are classified as held-to-maturity securities-. only if the corporation has the positive intent and ability to hold these securities to maturity. If the intentisto hold the security foranindefinite period of time, but not necessariiy to maturity, then the security wouldbeclassified as available-for-sale. If a security can be paid or otherwise settledina manner that the holder may not recover sUbstantially allofits investment, the held-to-maturity classification may not be used. Securities ciassified as held-to-maturity are reported as current or noncurrent assets, basedontheir time to maturity.2010 DeVrv/8ecker Educational DevelopmentCorp_All rights reserved.F3-3Financial 3BeckerProfessionalEducationICPAExarnR0view-_._-_.-.-.-usGAAPvsIFRSUnderIFRS,marketable security investments are classifiedasfollows:Financial assetsatfair valuethroughprofitorlossAvailable-far-saleHeld-to-maturityA financial assetatfairvalue throughprofitorlossisa financial assetthatmeets eitherofthe following conditions:1.Itisclassifiedasheldfortrading (equivalenttotrading securitiesunderU.S.GAAP) 2.The assetisdesignatedasan investmentatfair value throughprofitorloss using the fair value option. The fair valueoptionisdiscussedinlectureF7.II.VALUATIONA.Trading and Available-for-Sale SecuritiesTrading and available-far-sale securities must be reported at fair value. Fair valueisthe market priceofthe security or what a willing buyer and seller would pay and acceptto exchange the security. Changesinthe fair valueoftrading and available-far-sale securities resultinunrealized holdings gains or losses. The reportingofthese gains or lossesinthe financial statements dependsonthe classificationofthe securities. Note that although two general ledger accounts are normally maintained (i.e., one for the original costofthe security and the other for the valuation account), the presentationonthe balance sheetisonenet amount.1.Unrealized Gains and Losses -Trading SecuritiesUnreaiized holding gains and lossesontrading securities are includedinearnings. Therefore, the unrealized lossontrading securitiesisshowninthe income statement.Journal entrytorecord loss on the Income Statement:miJUnrealized loss