Video: Financial investments at fair value and amortized cost - Practice Questions

In this lesson, dive into the world of financial investments, focusing specifically on how to classify investments at fair value and amortized cost. Nick Palazzolo, CPA, provides a valuable chart that distills the classifications and treatments for various marketable securities, including trading, available-for-sale, and held-to-maturity. Engage with practical questions that elucidate how to record unrealized gains or losses and the impact on other comprehensive income. Additionally, Nick navigates the nuances of transferring securities between categories and the consequent accounting implications, ensuring a solid grasp of these concepts for practical application and exam success. Witness how a clear understanding of these investment categories can score easy points and boost confidence for what's ahead.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Well, hello to all you fine ladies and gents studying for FAR. Today we've got questions on financial investments at fair value and amortized cost. And why do we say fair value and amortized cost? Well, that's because that is how our investments are going to be recorded at and treated. This is more for just small securities, right? We're not talking about consolidations or equity yet. Let's jump into some questions. Long Company invested in marketable securities. At year end, fair value changes in this investment were included in Long's other comprehensive income. How would Long classify this investment? The best way to approach these questions, and there will be plenty of free points on the test if you memorize this one chart here. So these are the classifications of different investments, marketable securities, and how do we classify them? Well, we've got three components I want you to understand as well as it's for these three types, trading available for sale and held to maturity. The valuation, meaning how do you report it? How do you treat the unrealized gain or loss? And then where do you report the cash flow from these securities? Specifically for here, we want to know the fair value changes, which fair value changes, what is another name for that? Well, that would be unrealized gain or loss because if a stock is $1,000 and then it's fair value goes to $1,100, you have $100 of unrealized gain. So that's what this really is asking. And it says that those were included in other comprehensive income. So first off, equity securities, that's too broad. Then we have the three that you see here. And you see right here, the only one that reports its unrealized gain or loss, the fair value changes in

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Investments & Long-term Debt

Module: 3 Concepts, 34 Videos

Financial Investments at Fair Value and Amortized Cost Overview and Objectives

1:31

Investment Categories

2:23

Equity Investment Categories

2:31

Debt Investment Categories