136b_chapter17

136b_chapter17 - CHAPTER 17 Learning Objectives 1....

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1 Bob Anderson, UCSB X-1 CHAPTER 17 Bob Anderson, UCSB 17-2 1. Understand the difference between “FAS 115”, “equity” and “consolidated” investments. 2. Understand how to account for each of the above three types of investments. 3. Understand accounting for equity securities under SFAS No. 115. 1. Held to maturity 2. Available for sale 3. Trading Learning Objectives Bob Anderson, UCSB 17-3 3 Types of Investments- Overview When one entity invests in another, the way we account for that investment is principally based on the level of control gained by making the investment: FAS 115- NOT Significant influence. EQUITY- Significant influence or shared control, but NOT controlled CONSOLIDATED- CONTROLLED Bob Anderson, UCSB 17-4 FAS 115 METHOD- HOW TO ACCOUNT Put on the balance sheet at historical cost. If you receive cash back (dividend) report as income when received. If you make additional investments, treat as an increase in the investment. BUT on a more complicated note, deal with changes in value… You have seen it before in 136A- we account for the cost method investments in debt and equity securities using FAS 115. The accounting depends on what type of cost investment it is (one of the following): HELD TO MATURITY AVAILABLE FOR SALE TRADING
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2 Bob Anderson, UCSB 17-5 FAS 115 DISTINCTION: Held to Maturity: Entity has the intent and the ability to hold until it’s maturity. Trading: Entity regularly buys and sells with intent to sell in the near-term for income on price fluctuations Available For Sale: Entity not invested as a “Trader” and there is either no maturity, or is not expected to hold to maturity. In other words- if not a Held to Maturity or Trading, then Available For Sale Bob Anderson, UCSB 17-6 SFAS 115- How to: When a Company holds: ± an equity interest with a readily available market value and it is not consolidated or an equity investment or ± any debt security IT IS ACCOUNTED FOR UNDER FAS 115*: ± Held to maturity ± Current or long-term, depending on maturity; ± Reported at cost. ± Company must have intent and ability to hold until maturity to classify as “held to maturity” ± Trading ± Always current; ± Reported at fair value with gains and losses flowing through the income statement.
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136b_chapter17 - CHAPTER 17 Learning Objectives 1....

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