Oct 21 - ORIE 3150 October 21, 2008 A. Corporations often...

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ORIE 3150 October 21, 2008 A. Corporations often purchase shares of stock in other corporations. This is done for simple price appreciation, or for a more strategic reason. B. The measuring and reporting of investments in the capital stock of another company are determined by the percent of shares owned in relation to the total number of shares outstanding. C. If the ownership level of voting shares is less than 20% or if the ownership is of nonvoting stock, the market value method must be used. Under this method, the investment amount for common stock reported by the investor is based on the current market value of the stock. D. Investments in equity securities accounted for under the market value method are reported on the balance sheet in either the a) trading securities portfolio or the b) available-for-sale portfolio. E. Unrealized gains and losses on securities in the trading portfolio are reported on the income statement. F. Unrealized gains and losses on securities in the available-for-sale portfolio are reported as a component of stockholders' equity. G. If the ownership between 20% & 50%, the equity method should be used. Under this method, the investment is recorded at cost by the investor at the date of acquisition. Each period thereafter, the investment account is increased (or decreased) by the proportionate interest in the income (or loss) reported by the investee corporation and decreased by the proportionate share of the dividends declared by the investee corporation. Each period the investor recognizes as revenue its proportionate share of the
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This note was uploaded on 04/05/2009 for the course ORIE 350 taught by Professor Callister during the Summer '08 term at Cornell University (Engineering School).

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Oct 21 - ORIE 3150 October 21, 2008 A. Corporations often...

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