Question

NEED ASAP IN 10 MINS!!! SHOW CALCULATIONS

You just got hired as a staff accountant at a reputational company. One of your job duties is to prepare memos to help with decision-making, especially when it involves different accounting choices a company could have made. Recently the company is contemplating purchasing bonds as an investment, due to the downturn of stock market. The company does NOT want to hold them until maturity date; it is unsure how long it will hold these bonds. Your supervisor notices that FASB allows two other categories, ie, available-for-sale (AFS) versus trading securities (TS), to classify these bonds investment in. However, their accounting procedure and impact on financial statement seem to share some similarities and differences Your supervisor assigns you to explore about this further. In your memo analyze the similarities and differences between AFS and TS in the following aspects: 1. Accounting procedures during the year and at year-end 2. Financial statement presentation 3. Impact on the company's key ratio such as a. return on equity (net income total stockholder' equity) b. return on assets (net income total assets) 3 (12pt) TT Τ Τ Τ Arial

Answer 1

Answer:

Similarities and Differences between AFS and TS in differnet aspect are as follows:

S.No.	Aspects	Basis	Available for Sales (AFS)	Trading Securities (TS)
1	Accounting procedure during the year and at year end	Similarities	AFS securities are recorded in the books at their original cost	Trading Securities are also recorded in the books at their Original Cost
Differences	At year end if fair value of AFS security increases or decreases, amount of investment will be changed to fairly reflect the change that occurs in its fair value, it should also be recorded in other compreshensive income (OCI) as unrealized gain/ losses under Shareholders equity and no amount recorded in the income/loss during that period.	At year end if fair value of Trading Security increases or decreases, amount of investment will be changed to fairly reflect the change that occurs in its fair value along with any profit/ loss recognized as income or expense in the income statement itself.
2	Financial statement presentation	Similarities	AFS securities are reported in financial statement at its fair market value	Also trading securities are reported in financial statement at its fair market value
Differences	Any increase or decrease in investment amount in comparision between fair market value and original cost or last reporting value to be recorded in other comprehensive income as unrealized gain/losses under shareholders equity heading	Any increase or decrease in investment amount in comparision between fair market value and original cost or last reporting value to be recorded as income/expense in the income statement of that particualr period
3	Impact on Companys key ratio
a. Return on equity (net income/ total Shareholders equity)	Similarities	Shareholders equity amount includes any change in investment amount recorded as AFS under heading unrealzed gain/ losses	Shareholders equity amount includes any change in investment amount recorded in the income statement of that period
Differences	Net income does not include any change in investment amount of AFS	Net income includes changes in investment amount of TS
b. Return on assets (net income/ total assets)	Similarities	AFS securities- Investment amount to be recorded at its fair market value.	Trading Securities- Investment amount to be recorded at its fair maket value
Differences	Net income does not include any change in investment amount of AFS	Net income includes changes in investment amount of TS