Chapter 17, Problem 1UJ

To determine

Debt securities: Debt security is a financial instrument which is issued by the organization and is sold to the investors. Bonds, commercial papers, debentures and government securities are known as debt securities.

Trading securities: Debt securities which are held with the intention to sell in the short term for profit are trading securities.

Unrealized holding gains and losses: An unrealized gain is a profit recorded on paper results from the investment. It occurs when shares prices increase after investor purchases it, but an individual has to sell it, till the time it is not sold the amount of increase in share price is recorded as an unrealized gain.

An unrealized loss is a loss recorded on paper results from the investment. It occurs when shares prices decrease after investor purchases it, but an individual has to sell it, till the time it is not sold the amount of decrease in share price is recorded as an unrealized loss.

Available-for-sale securities: A debt or equity securities which are purchased with the intention of selling it before its maturity, or selling prior to the longest time period in case if security is without its maturity are known as available-for-sale securities.

Fair value: Fair value is a selling price which is agreed by the buyer and seller, and is also the estimate of the potential market price of good, service or asset.

GAAP: GAAP is “Generally Accepted Accounting Principles.” It is standard guidelines which are commonly used for financial reporting. These guidelines are maintained by the AICPA (American Institute of Certified Public Accountants).

Derivatives: Derivative is a product whose value is derived from underlying assets called base. Basically it is a contract between the two or more parties based on assets.

Cash flow hedge: Cash flow hedge is the process of reducing or eliminating the risk of changes in cash flow of financial assets or a liability due to the changes in specific risk which arises due to interest rate risk on a floating rate debt instrument.

Interest rate swap contract: It is an agreement between the two parties who are in contract, where one party chooses to pay a variable rate or a fixed rate agreed in advance for a predetermined period of time. Vice-verse same is applicable for the other party in the contract.

Hedge: Hedge is an investment to reduce the risk arising out of the changes in the price movements of the assets.

Fair value hedge: Fair value hedge eliminates the risk of changes in fair value of assets or a liability already recognized or an unrecognized firm’s commitment which could affect the gain or loss.

(a) To determine: To determine the investments P Company reported in 2014 and the accounting for its investments in financial statements.

Given Information: All the information related to P Company is provided in the question document.

To determine

(b) To determine: To determine the valuation and fair value of P’s investments.

Given Information: All the information related to P Company is provided in the question document.

To determine

(c) To determine: To determine the use of derivative financial instruments by P Company.

Given Information: All the information related to P Company is provided in the question document.