investment accounting of...2256.009 – accounting example: •trade ticket information cusip...

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



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



11/30/2018

12/31/2018

Record in January


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$


2/28/2019

2/24/2019

Record in March and April



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


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$


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

Thank you!

Questions?

Emily Upshaw, CPA

[email protected]

mailto:[email protected]

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

investment accounting of...2256.009 – accounting example: •trade ticket information cusip...

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