會計學(xué)Chapter12.ppt

1、Reporting and InterpretingInvestments in Other Corporations,Chapter 12,McGraw-Hill/Irwin, 2009 The McGraw-Hill Companies, Inc.,Understanding the Business,A company may invest in the securities of another company to:,Earn a return on idle funds. (Passive investments),Control the other company. (Contr

2、ol),Influence the other companys policies and activities. (Significant Influnce),Passive Investments in Debt and Equity Securities,Two types: investments in debt and equity.,Passive investments are made to earn a high rate of return on funds that may be needed for future purposes.,Equity security in

3、vestments are presumed passive if the investing company owns less than 20% of the outstanding voting shares.,The investor is notinterested in controllingor influencing the othercompany.,Investments in debt securities are alwaysconsidered passive investments.,Investments made with the intent of exert

4、ing significant influence over another corporation.,SignificantInfluence 20% - 50%outstanding shares,Investments in Stock for Significant Influence,Investments made with the intent to exertcontrol over another corporation.,Control 50%outstanding shares,Investments in Stock for Control,Types of Inves

5、tments and Accounting Methods,The accounting method depends on the type of security and the levelof ownership (influence).,Passive Stock Investments: The Market Value Method,Date of acquisition,Investment is initially recorded at cost.,Future measurement date,Dividend is regarded as investment incom

6、e (revenue).,Investment carrying amount is adjusted to current market value.,Unrealized holding gains and losses are recorded.,Classifying Passive Stock Investments,NOTE: Realized gains and losses go on the Income Statement.,Securities Available for Sale (SAS) - acquisition,On January 5, 2008, Washi

7、ngton Post acquires 10,000 of the 100,000 outstanding shares of INews on the open market at a cost of $60 per share. Washington Post has no influence over INews, and does not plan to sell the shares in the near future.,Should the acquired shares be classified as Trading Securities or Securities Avai

8、lable for Sale?,Washington Post does not plan to actively trade the shares. Instead, they will be held to earn a return on invested funds that may be needed for future operations. The shares should be classified as Securities Available for Sale.,The investment may be a current asset or a noncurrent

9、asset, depending on managements intended holding period.,Securities Available for Sale (SAS) - acquisition,The journal entry to record the investment is . . .,Securities Available for Sale (SAS) dividend earned,On July 2, Washington Post receives a $10,000 dividend from INews. Prepare the journal en

10、try to record the dividend.,If market price increases: Dr: Allowance to value at market - SAS Cr: Unrealized gains - SAS If market price decreases: Dr: Unrealized losses - SAS Cr: Allowance to value at market - SAS Unrealized gain/loss is under SE on B/S Current periods market price compared to late

11、st adjustment price.,Securities Available for Sale (SAS) year-end valuation,By December 31, Washington Posts fiscal year-end, the market value of INews shares has dropped from $60 to $58 per share. How much has Washington Posts portfolio value changed?,The journal entry to recognize the change in ma

12、rket value is . . .,Securities Available for Sale (SAS) year-end valuation,The unrealized holding loss would be reported in the stockholders equity section of Washington Posts balance sheet.,Securities Available for Sale (SAS) year-end valuation,Now lets assume that the INews securities were held th

13、rough the year 2009. At the end of 2009, the stock had a $61 per share market value.,Securities Available for Sale (SAS) year-end valuation,Securities Available for Sale (SAS) year-end valuation,Securities Available for Sale (SAS) sale of stock,In 2010 Washington Post sold all of its SAS investment

14、in INews for $62.5 per share.,Trading Securities (TS) sale of stock,In 2010 Washington Post sold all of its TS investment in INews for $62.5 per share.,Comparing TS and SAS,NOTE: Realized gains and losses go on the Income Statement.,Investments For Significant Influence: Equity Method,Used when an i

15、nvestor can exertsignificant influence over an investee. It is presumed that the investmentwas made as a long-term investment. 20% - 50% outstanding shares,Date of acquisition,Investment is initially recorded at cost.,Future measurement date,Unrealized holding gains and losses are not recorded.,Inve

16、stment carrying amount is adjusted for dividends received, and a percentage share of the investees income.,Investments For Significant Influence: Equity Method,When Purchase Dr. Investment in associated companies (A) Cr. Cash (A) When investee reports income Dr. Investment in associated companies (A

17、) Cr. Equity in earnings of associated co. (R,SE) When investee reports loss Dr. Equity in loss of associated companies (R,SE) Cr. Investment in associated companies (A) When receive dividend Dr. Cash (A) Cr. Investment in associated companies (A),Investments For Significant Influence: Equity Method

18、,Investments For Significant Influence: Equity Method,On January 2, TeleCom, Inc. acquires a 30% interest in S at a cost of $2,000,000. Prepare the journal entry to record TeleComs investment.,TeleCom credits Equity in Investee Earnings (an income statement account) for its share of Ss earnings.,Inv

19、estments For Significant Influence: Equity Method,S net income for the year is $1,600,000. TeleComs 30% share is $480,000. Record TeleComs share of Ss income.,Dividends are not revenue under the equity method. They are treated as a reduction of the investment account.,Investments For Significant Inf

20、luence: Equity Method,On March 31 of the next year, S pays $200,000 in dividends, $60,000 (30%) of which goes to TeleCom. Record TeleComs receipt of the dividend.,Investments For Control - Consolidated Statement,Used when an investor can control over an investee. 50% outstanding shares,What Are Cons

21、olidated Statements?,The acquiring company is the parent. The company acquired is the subsidiary. Parent and subsidiaries are separate legal entities Consolidated statements combine two or more companies into a single set of statements.,Any transactions between the parent and subsidiary must be elim

22、inated when preparing consolidated financial statements.,Goodwill,Recording a Merger,Recording a Merger,Washington Post paid $100,000,000 in cash to purchase all the stock of INews. Washington Post merged INews operations into its own operations, and INews ceased to exist as a separate entity. The f

23、ollowing information is taken from INews balance sheet at the date of acquisition:,Should Washington Post record goodwill?,Recording a Merger,Washington Post determined that INews plant and equipment had a fair value of $35,000,000. The book value at the acquisition date was $30,000,000. The balance

24、 sheet amounts for other assets and current liabilities are fair values. Now lets determine goodwill.,The journal entry to record the acquisition of INews is . . .,Recording a Merger,Postmerger Balance Sheet,Postmerger Income Statement,Accounting for investments in securities depends on the degree o

25、f influence and control the investor has over the investee: Trading Securities (Market Method) Not significant (20% of Available-for-Sale Securities outstanding shares) (Market Method) Degree of Significant Investments in Affiliates Influence (20% and 50% of (Equity Method) outstanding shares) Control Consolidated F/S (50