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1、Chapter12-InvestmentsCHAPTER12INVESTMENTSQUESTIONSFORREVIEWOFKEYTOPICSQuestion12-1Investmentsecuritiesareclassifiedas“held-to-maturity,”“trading,”or“available-for-sale”securities.Question12-2Increasesanddecreasesinthemarketvaluebetweenthetimeadebtsecurityisacquiredandthedayitmaturestoaprearra
2、ngedmaturityvalueareignoredforasecurityclassifiedas“held-to-maturity.”Thesechangesaren’timportantifsalebeforematurityisn’tanalternative,whichisthecaseifaninvestorhasthe“positiveintentandability”toholdthesecuritytomaturity.Question12-3GAAPdistinguishesbetweenthreelevelsofinputstofairvaluedeter
3、mination,withlevel1beingreadilyobservablefairvalues(forexample,fromasecuritiesexchange),level2inputsareotherobservableamounts(forexample,quotedvaluesforsimilaritems,orimportantinputslikeinterestrates),andlevel3inputsareunobservable,likethecompany’sownassumptions.GAAPrequiresdisclosureoftheamo
4、untoffairvaluesbasedoneachofthesethreeclassesofinputs.Question12-4Forinvestmentstobeheldforanunspecifiedperiodoftime,fairvalueinformationismorerelevantthanforinvestmentstobeheldtomaturity.Changesinfairvaluesarelessrelevantiftheinvestmentistobeheldtomaturitybecausesaleatthatfairvalueisnotanopt
5、ion.Theinvestorreceivesthesamecontractedinterestpaymentsfortheperiodheldtomaturityandthestatedprincipalatmaturity,regardlessofmovementsinmarketvalues.However,whentheinvestmentisofunspecifiedlength,changesinfairvaluesindicatemanagement’ssuccessindecidingwhentoacquiretheinvestmentandwhentoselli
6、t,aswellastheproprietyofinvestinginfixed-rateorvariable-ratesecuritiesandlong-termorshort-termsecurities.Question12-5Thewayunrealizedholdinggainsandlossesarereportedinthefinancialstatementsdependsonwhethertheinvestmentsareclassifiedas“securitiesavailable-for-sale”oras“tradingsecurities.”Secur
7、itiesavailable-for-salearereportedatfairvalue,andresultingholdinggainsandlossesarenotincludedinthedeterminationofincomefortheperiod.Rather,theyarereportedasaseparatecomponentofshareholders’equity,aspartofothercomprehensiveincome(OCI).(Availab
