E. Upshaw Investment Accounting Prese… · Purchased at a Discount •Purchase Price – purchase...
35
Investment Accounting Presented by Emily Upshaw, CPA Actively Investing and Properly Documenting
Transcript of E. Upshaw Investment Accounting Prese… · Purchased at a Discount •Purchase Price – purchase...
Investment Accounting
Presented by Emily Upshaw, CPA
Actively Investing and Properly Documenting
Objectives
• Discuss Actively Investing
• Review Basic PFIA Investments
• Review Accounting for Basic Investments
Actively Investing
• Invest Methodically
• Keep it “Simple”
• Keep it “Rolling”
• Monitor Collateral
Optimize “Cash”
• December 2010
• ECR = 1.35%
• MMA = 0.41%
• LGIP = 0.20%
• May 2019
• ECR = 0.75%
• MMA = 2.50%
• LGIP = 2.40%
Cash Flows
• Quick, High Level
• Tax Revenue, Debt Payment, Payroll
• Detailed, In-Depth
• Monthly, Weekly
Cash Flow Investment PlanCash equivalents after proposed maturities approx $45 million
Strategic Choices for Investment Plan
• Market Outlook
• Essential vs. Nonessential Funds
• Investment Type
• Rates
2256.009 – Obligations of, or Guaranteed by Governmental Entities.
• Essentially:
• Government/Agency Issued Debt
• Municipal Bonds
• FDIC Insured Deposits
• Common Examples
2256.009 – Accounting Example:
• Trade Ticket Information
CUSIP 3135G0R39Maturity Date 10/24/2019Trade Date 1/9/2019Settlement Date 1/10/2019Par Value $5,000,000Purchase Price $98.7509Coupon 1.00%Coupon Frequency Semi‐AnnualYield 2.609003%Day Count 30/360
FNMA 1 10/24/19 Corp
Purchased at a Discount
• Purchase Price – purchase accrued interest
• Accretion – straight line
÷
+Principal 4,937,545$ <Principal amount purchasedAccrued Interest (purchased) 10,556$ <Accrued interest purchased from sellerTotal 4,948,101$ <Total cash paid for investment
Amount of Discount 62,455$ <Par value less the principal purchasedNumber of Days to Maturity 287 <Based on 365‐day yearDaily Accretion 218$
Record in January
To record purchase:FNMA Investment 4,937,545$ Accrued Interest ‐ Receivable 10,556$ Cash 4,948,101$
Month end to record interest:Accrued Interest ‐ Receivable 2,917$ Interest Income 2,917$ Month end to record accretion:FNMA Investment 4,570$ Interest Income 4,570$
1/10/2019
1/31/2019
Record in February and MarchMonth end to record interest:Accrued Interest ‐ Receivable 3,750$ Interest Income 3,750$ Month end to record accretion:FNMA Investment 6,093$ Interest Income 6,093$
Month end to record interest:Accrued Interest ‐ Receivable 4,583$ Interest Income 4,583$ Month end to record accretion:FNMA Investment 6,746$ Interest Income 6,746$
2/28/2019
3/31/2019
Record in April (coupon occurs)
To record interest earned:Accrued Interest ‐ Receivable 3,194$ Interest Income 3,194$ To record interest received:Cash 25,000$ Accrued Interest ‐ Receivable 25,000$
Month end to record accretion:FNMA Investment 6,528$ Interest Income 6,528$ Month end to record interest:Accrued Interest ‐ Receivable 833$ Interest Income 833$
4/30/2019
4/24/2019
Record in May-September
To record interest earned:Accrued Interest ‐ Receivable 4,167$ Interest Income 4,167$ Month end to record accretion:FNMA Investment 6,746$ Interest Income 6,746$
To record interest earned:Accrued Interest ‐ Receivable 4,167$ Interest Income 4,167$ Month end to record accretion:FNMA Investment 6,528$ Interest Income 6,528$
31‐day month
30‐day month
Record in October (maturity occurs)
To record interest earned:Accrued Interest ‐ Receivable 3,333$ Interest Income 3,333$ To record interest received:Cash 25,000$ Accrued Interest ‐ Receivable 25,000$ To record final accretion:FNMA Investment 5,223$ Interest Income 5,223$ To record at maturity:Cash 5,000,000$ FNMA Investment 5,000,000$
10/24/2019
Documentation
• Custodial/Safekeeping Agreement
• Trade Ticket
• Wire Instructions
• Reports from Custodian/Safekeeping Agent
2256.010 – Certificates of Deposit and Share Certificates.
• Essentially:
• Direct Placed CDs
• CD Spread Program
• Brokered CDs
2256.010 – Accounting Example
Record Purchase in May
To record purchase:CD Investment 5,167,402$ Cash 5,167,402$
5/1/2019
Months 1 and 2 for Interest Accrued
To record interest:Accrued Interest ‐ Receivable 11,630$ Interest Income 11,630$
6/1/2019
To record interest:Accrued Interest ‐ Receivable 11,255$ Interest Income 11,255$
7/1/2019
Month 3 for Quarterly Interest Received
• Remember to compound quarterly!
To record interest:Accrued Interest ‐ Receivable 11,630$ Interest Income 11,630$ To record interest received:CD Investment 34,515$ Accrued Interest ‐ Receivable 34,515$
8/1/2019
Continue Pattern Until Maturity Month 18
To record interest:Accrued Interest ‐ Receivable 12,021$ Interest Income 12,021$ To record interest received:CD Investment 35,676$ Accrued Interest ‐ Receivable 35,676$ To record maturity:Cash $5,376,820 CD Investment 5,376,820$
11/1/2020
Documentation – Direct Placed CD
• Depository Agreement
• FIRREA Resolution (Securities > FDIC)
• Collateral
• CD Receipt
• Account Statements
Documentation
• Brokered CD
• Similar to Security
• CD Spread Program
• Program Agreement – Bank Exclusion List
2256.014 – Mutual Funds.
• Money Market Mutual Funds
• Easy peasy – record interest earned each month
• Amortized cost
• Same, easy peasy
2256.016 – Investment Pools.
Record Deposit and Interest Received
To record purchase:Sweep/LGIP Account 5,000,000$ Cash 5,000,000$
To record interest:Sweep/LGIP Account 9,863$ Interest Income 9,863$
6/1/2019
6/30/2019
2256.011 – Repurchase Agreements.
• Dealer sells securities to the County and buys
them back at an agreed upon price, or
• County buys securities from Dealer and sells them
back at an agreed upon price (Reverse Repo)
• Collateralized
2256.0115 – Securities Lending Program.
• Securities from a County’s portfolio are loaned to
an investor in exchange for collateral, fees and
eventual return of the securities
• For LARGE entities
2256.012 – Banker’s Acceptance.
• Short-term debt issued by a company,
guaranteed by a bank
• Specified amount due at specified date
• Secondary market
2256.013 – Commercial Paper.
• Short-term debt issued by a company
• Unsecured
• Should be highly rated
2256.015 – Guaranteed Investment Contracts.
• Guaranteed rate of return in exchange for deposit
for a certain period of time
• Authorized for bond proceeds
• Cannot exceed 5 years
