[msd87]

Can’t wrap my head around the different methods to value debt and equity securities. Gleim is confusing me again with the layout of the study notes. See outline below, let me know if I am structuring these correctly, I know the general rules and guidlines for each, but can’t understand the difference alternatives.

Fair Value Option – Used if elected from beginning of investment

Equity Methd – Used if FVO is not elected (see 3 methods below)

1. Held to Maturity

2. Trading Securities

3. Available for Sale

In addition to that quandry, what is the the difference, if any, in FVO vs fair value measurement?

[lleon]

Fair value measurement = process of figuring out the fair value, and recording it on your financial statements.

Fair value option = You have a CHOICE of adopting the above treatment for securities.

If you don't CHOOSE to use fair value measurement, you have to use the method where you categorize into held-to-maturity etc etc.

Fair value option just means your choosing to use fair value measurement. It's elective/optional. I feel like you're over-thinking this, so hopefully this helps and gets you back on track!

Licensed in Arizona

[lleon]

Fair value measurement = process of figuring out the fair value, and recording it on your financial statements.

Fair value option = You have a CHOICE of adopting the above treatment for securities.

If you don't CHOOSE to use fair value measurement, you have to use the method where you categorize into held-to-maturity etc etc.

Fair value option just means your choosing to use fair value measurement. It's elective/optional. I feel like you're over-thinking this, so hopefully this helps and gets you back on track!

Licensed in Arizona

[Study Monk]

That was one of my strongest subjects and your even confusing me. I am not sure what you mean that you understand the general rules but not the alternatives….not sure what you are having trouble with. When you recognize gains? How you value them at year end?

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[Study Monk]

That was one of my strongest subjects and your even confusing me. I am not sure what you mean that you understand the general rules but not the alternatives….not sure what you are having trouble with. When you recognize gains? How you value them at year end?

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[tough_kitty]

I couldn't understand the question either….

FAR: 81 (May 2013)
BEC: 81 (July 2013)
REG: 83 (August 2013)
AUD: 82 (November 2013)
California CPA since 1/30/14

[tough_kitty]

I couldn't understand the question either….

FAR: 81 (May 2013)
BEC: 81 (July 2013)
REG: 83 (August 2013)
AUD: 82 (November 2013)
California CPA since 1/30/14

[msd87]

I guess that is just how confused I am with it. See my attempt at rewording below…

When valuing interests in financial investments (securities, bonds, etc.), what are all the applicable methods to choose from?

Are 1. Held to Maturity 2. Trading 3. Avail for Sales treatments different options under the equity method or is the equity method seperate from these options?

[msd87]

I guess that is just how confused I am with it. See my attempt at rewording below…

When valuing interests in financial investments (securities, bonds, etc.), what are all the applicable methods to choose from?

Are 1. Held to Maturity 2. Trading 3. Avail for Sales treatments different options under the equity method or is the equity method seperate from these options?

[Anonymous]

The method you use is based on what percentage of the stock you own. If you own less than 20% of the total shares available, you use the cost method (held to maturity, trading, or available for sale). If you own between 20% and 50%, you use the equity method. If you own more than 50%, you consolidate the financial statements. These are general rules, but you could use the equity method under 20% ownership if you have some other form of significant influence over the company you've invested in.

Under the cost method, held to maturity is used for bonds that you plan to…hold to maturity. Trading is used for either stocks or bonds that are going to be sold in the near-term (1 year is a good rule of thumb). Available for sale is used for any cost method securities that don't fit into the other 2 categories.

Hope this helps!

[Anonymous]

The method you use is based on what percentage of the stock you own. If you own less than 20% of the total shares available, you use the cost method (held to maturity, trading, or available for sale). If you own between 20% and 50%, you use the equity method. If you own more than 50%, you consolidate the financial statements. These are general rules, but you could use the equity method under 20% ownership if you have some other form of significant influence over the company you've invested in.

Under the cost method, held to maturity is used for bonds that you plan to…hold to maturity. Trading is used for either stocks or bonds that are going to be sold in the near-term (1 year is a good rule of thumb). Available for sale is used for any cost method securities that don't fit into the other 2 categories.

Hope this helps!

[msd87]

Thanks apwatson88. So my confusion was in the fact that the cost method is also an alternative. So to summarize below, there are three options

Equity Method

FVO method (if elected)

Cost Method (encumbers the HTM, Trading, & Avail for sale methods)

For some reason, the way it is in the GLEIM study material it looked like you either went with equity, or FVO, and the the 3 seperate methods mentioned above were ways to handle under the equity method.. I have spent 2-3 days wrestling with these, thank you for the info, is easier to have it explained from a person!

[msd87]

Thanks apwatson88. So my confusion was in the fact that the cost method is also an alternative. So to summarize below, there are three options

Equity Method

FVO method (if elected)

Cost Method (encumbers the HTM, Trading, & Avail for sale methods)

For some reason, the way it is in the GLEIM study material it looked like you either went with equity, or FVO, and the the 3 seperate methods mentioned above were ways to handle under the equity method.. I have spent 2-3 days wrestling with these, thank you for the info, is easier to have it explained from a person!

[Author]

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