investment accounting of...2256.009 – accounting example: •trade ticket information cusip...
TRANSCRIPT
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”
• October 2019
• ECR = 0.75%
• MMA = 2.10%
• LGIP = 1.90%
• August 2020
• ECR = 0.50%
• MMA = 0.45%
• LGIP = 0.16%
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 3133EJXU8Issue Date 8/24/2018Maturity Date 8/24/2020Trade Date 8/28/2018Settlement Date 8/29/2018Par Value $10,000,000Purchase Price $99.9395Coupon 2.68%Coupon Frequency Semi-AnnualYield 2.711368%Day Count 30/360
FFCB 2.68 08/24/20 Corp
Purchased at a Discount
• Purchase Price – purchase accrued interest
• Accretion – straight line
÷
+Principal 9,993,950$ <Principal amount purchasedAccrued Interest (purchased) 3,722$ <Accrued interest purchased from sellerTotal 9,997,672$ <Total cash paid for investment
Amount of Discount 6,050$ <Par value less the principal purchasedNumber of Days to Maturity 726 <Based on 365-day yearDaily Accretion 8.33$
Record in August
To record purchase:FFCB Investment 9,993,950$ Accrued Interest - Receivable 3,722$ Cash 9,997,672$
Month end to record interest:Accrued Interest - Receivable 1,489$ Interest Income 1,489$ Month end to record accretion:FFCB Investment 17$ Interest Income 17$
8/29/2018
8/31/2018$10,000,000 x (2/360) days x 2.68%
$8.33 x 2 days
Day Count Convention example
• [(Y2 – Y1)*360] + [(M2-M1)*30] + (D2-D1)
• Example: 8/31/2020 to 9/30/2020
• Just be consistent!
= [(2020-2020)*360] + [(9-8)*30] + (30-31)
= [ 0 ] + [ 30 ] + ( -1 )
= 29
Record in September and October
Month end to record interest:Accrued Interest - Receivable 21,589$ Interest Income 21,589$ Month end to record accretion:FFCB Investment 250$ Interest Income 250$
Month end to record interest:Accrued Interest - Receivable 23,078$ Interest Income 23,078$ Month end to record accretion:FFCB Investment 258$ Interest Income 258$
9/30/2018
10/31/2018
Equations to get here - interest
September:
$10,000,000 par value
X 2.68% coupon
X (29/360) days
$21,588.89
October:
$10,000,000 par value
X 2.68% coupon
X (31/360) days
$23,077.78
Equations to get here - accretion
September:
$8.33 daily accretion
X 30 days
$250.00
October:
$8.33 daily accretion
X 31 days
$258.33
Record in November and December
Month end to record interest:Accrued Interest - Receivable 21,589$ Interest Income 21,589$ Month end to record accretion:FFCB Investment 250$ Interest Income 250$
Month end to record interest:Accrued Interest - Receivable 23,078$ Interest Income 23,078$ Month end to record accretion:FFCB Investment 258$ Interest Income 258$
11/30/2018
12/31/2018
Record in January
Month end to record interest:Accrued Interest - Receivable 22,333$ Interest Income 22,333$ Month end to record accretion:FFCB Investment 258$ Interest Income 258$
1/31/2019
Revisiting Day Count: 1/31/2019 to 2/28/2019
= [(2020-2020)*360] + [(2-1)*30] + (28-31)
= 0 + 30 – 3
= 27 days
Record in February (coupon occurs)
To record interest earned:Accrued Interest - Receivable 17,122$ Interest Income 17,122$ To record interest received:Cash 134,000$ Accrued Interest - Receivable 134,000$
Month end to record interest:Accrued Interest - Receivable 2,978$ Interest Income 2,978$ Month end to record accretion:FFCB Investment 233$ Interest Income 233$
2/28/2019
2/24/2019
Record in March and April
Month end to record interest:Accrued Interest - Receivable 24,567$ Interest Income 24,567$ Month end to record accretion:FFCB Investment 258$ Interest Income 258$
Month end to record interest:Accrued Interest - Receivable 21,589$ Interest Income 21,589$ Month end to record accretion:FFCB Investment 250$ Interest Income 250$
3/31/2019
4/30/2019
Pattern continues…
• Remember the coupons!
• August 24, 2019
• February 24, 2020
• Final maturity August 24, 2020
Record in August (maturity occurs)
To record interest earned:Accrued Interest - Receivable 17,122$ Interest Income 17,122$ To record interest received:Cash 134,000$ Accrued Interest - Receivable 134,000$ To record final accretion:FFCB Investment 200$ Interest Income 200$ To record at maturity:Cash 10,000,000$ FFCB Investment 10,000,000$
8/24/2020
Documentation
• Custodial/Safekeeping Agreement
• Trade Ticket
• Wire Instructions
• Reports from Custodian/Safekeeping Agent
2256.009 – Accounting Example:
• Trade Ticket Information
CUSIP 088281RH5Last Coupon Date 12/15/2019Maturity Date 6/15/2021Trade Date 4/3/2020Settlement Date 4/7/2020Par Value $2,930,000Purchase Price $104.5920Coupon 5.00%Coupon Frequency Semi-AnnualYield 1.10%Day Count 30/360
BEX 5 06/15/21 Muni
Purchased at a Premium
• Purchase Price – purchase accrued interest
• Amortization – straight line
÷
+Principal 3,064,546$ <Principal amount purchasedAccrued Interest (purchased) 45,578$ <Accrued interest purchased from sellerTotal 3,110,123$ <Total cash paid for investment
Amount of Premium 134,546$ <Principal purchased less the par valueNumber of Days to Maturity 434 <Based on 365-day yearDaily Amortization 310.01$
Record in April
To record purchase:Municipal Bond - Par 2,930,000$ Municipal Bond - Premium 134,546$ Accrued Interest - Receivable 45,578$ Cash 3,110,123$
Month end to record interest:Accrued Interest - Receivable 9,360$ Interest Income 9,360$ Month end to record amortization:Interest Expense 7,130$ Municipal Bond - Premium 7,130$
4/7/2020
4/30/2020$2,930,000 x (23/360) days x 5%
$310.01 x 23 days
Record in May
Month end to record interest:Accrued Interest - Receivable 12,615$ Interest Income 12,615$ Month end to record amortization:Interest Expense 9,610$ Municipal Bond - Premium 9,610$
5/31/2020
Record in June (coupon occurs)
To record interest earned:Accrued Interest - Receivable 5,697$ Interest Income 5,697$ To record interest received:Cash 73,250$ Accrued Interest - Receivable 73,250$
Month end to record interest:Accrued Interest - Receivable 6,104$ Interest Income 6,104$ Month end to record amortization:Interest Expense 9,300$ Municipal Bond - Premium 9,300$
6/15/2020
6/30/2020
Pattern continues…
• Remember the coupons!
• December 15, 2020
• Final maturity June 15, 2021
Record in June (maturity occurs)
To record interest earned:Accrued Interest - Receivable 5,697$ Interest Income 5,697$ To record interest received:Cash 73,250$ Accrued Interest - Receivable 73,250$ To record final amoritzation:Interest Expense 4,650$ Municipal Bond - Premium 4,650$ To record at maturity:Cash 2,930,000$ Municipal Bond - Par 2,930,000$
6/15/2021
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 679$ Interest Income 679$
8/1/2020
8/31/2020Assuming 0.16% rate
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