Gisco Systems, Inc., the leading Internet protocolbased networking equipment compary, has significant holdings of investment securities. Use the financial statement information provided to analyze Cisco's holdings and answer the following questions and complete the following requirements: 1. What types of investments are in the firm's portfolio in fiscal 2019 and 2018 ? What percentage of total assets do its irvestments compose? Comment on changes in the composition and percentage of investments to total assets from year to year. Use fair value. 2. Which irvestment securities did Cisco report at fair value in fiscal 2019 and 2018 ? What is the difference between fair value and cost? 3. Determine the effect of changes in fair value on net income and other comprehensive income in fiscal 2019,2018, and 2017. If unrealized gains and losses on available-for-sale securities were reported in net income rather than other comprehensive income, what would be the effect on net income in fiscal 2019, 2018, and 2017? 4. For its investment securities, detemine the types and amount of investments in each level in the hierarchy in fiscal 2019. Selected Excerpts of Cisco Systems, Inc. Financial Statements and Annual Report Note 2: Summary of Significant Accounting Policies [Excerpt] (b) Available-for-Sale Debt Investments. We classify our investments in both fixed income securities as available-for-sale irvestments. Our available-for-sale debt investments primarily consist of U.S. government, U.S. government agency, and U.S. agency mortgage-backed securities. These available-for-sale debt investments are primarily held in the custody of a major financial institution. A specific identification method is used to determine the cost basis of available-for-sale debt irvestments sold. These investments are recorded in the Consolidated Balance Sheets at fair value. Unrealized gains and losses on these investments, to the extent the irvestments are unhedged, are included as a separate component of accumulated other comprehensive income (AOCl), net of tax. We classify our investments as current based on the nature of the investmer 3 and their availability for use in current operations. (i) Fair Value. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, we consider the principal or most advantageous market in which we would transact, and we also consider assumptions that market participants would use when pricing the asset or liability. The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows: Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. We use inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to detemine the ultimate fair value of assets or liabilities. Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The fair values are determined based on model-based techniques such as discounted cash flow models using inputs that we could not corroborate with market data. Note 9. Available-for-Sale Debt Investments and Equity Investments Note 9. Available-for-Sale Debt Investments and Equity Investments (a) Summary of Available-for-Sale Debt Investments The following tables summarize the Company's available-for-sale debt investments (in milions): The following table presents the gross realized gains and gross realized losses related to the Company's available-for-sale investments (in millions): Source: Financial Statements from Cisco Corporation's 2019 Annual Report. https://www.cisco.com/c/dam/en_us/about/annual-report/cisco-annual-report-2019.pdf. Gisco Systems, Inc., the leading Internet protocolbased networking equipment compary, has significant holdings of investment securities. Use the financial statement information provided to analyze Cisco's holdings and answer the following questions and complete the following requirements: 1. What types of investments are in the firm's portfolio in fiscal 2019 and 2018 ? What percentage of total assets do its irvestments compose? Comment on changes in the composition and percentage of investments to total assets from year to year. Use fair value. 2. Which irvestment securities did Cisco report at fair value in fiscal 2019 and 2018 ? What is the difference between fair value and cost? 3. Determine the effect of changes in fair value on net income and other comprehensive income in fiscal 2019,2018, and 2017. If unrealized gains and losses on available-for-sale securities were reported in net income rather than other comprehensive income, what would be the effect on net income in fiscal 2019, 2018, and 2017? 4. For its investment securities, detemine the types and amount of investments in each level in the hierarchy in fiscal 2019. Selected Excerpts of Cisco Systems, Inc. Financial Statements and Annual Report Note 2: Summary of Significant Accounting Policies [Excerpt] (b) Available-for-Sale Debt Investments. We classify our investments in both fixed income securities as available-for-sale irvestments. Our available-for-sale debt investments primarily consist of U.S. government, U.S. government agency, and U.S. agency mortgage-backed securities. These available-for-sale debt investments are primarily held in the custody of a major financial institution. A specific identification method is used to determine the cost basis of available-for-sale debt irvestments sold. These investments are recorded in the Consolidated Balance Sheets at fair value. Unrealized gains and losses on these investments, to the extent the irvestments are unhedged, are included as a separate component of accumulated other comprehensive income (AOCl), net of tax. We classify our investments as current based on the nature of the investmer 3 and their availability for use in current operations. (i) Fair Value. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, we consider the principal or most advantageous market in which we would transact, and we also consider assumptions that market participants would use when pricing the asset or liability. The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows: Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. We use inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to detemine the ultimate fair value of assets or liabilities. Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The fair values are determined based on model-based techniques such as discounted cash flow models using inputs that we could not corroborate with market data. Note 9. Available-for-Sale Debt Investments and Equity Investments Note 9. Available-for-Sale Debt Investments and Equity Investments (a) Summary of Available-for-Sale Debt Investments The following tables summarize the Company's available-for-sale debt investments (in milions): The following table presents the gross realized gains and gross realized losses related to the Company's available-for-sale investments (in millions): Source: Financial Statements from Cisco Corporation's 2019 Annual Report. https://www.cisco.com/c/dam/en_us/about/annual-report/cisco-annual-report-2019.pdf