Chapter 10

Chapter 10 - Chapter 10- long term investments and...

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Chapter 10- long term investments and international operations Stock investments In this chapter: long term investments. Owns stock=investor, corporation that issued stock=investee Stock prices : information. During previous 52 weeks—high and low, annual cash dividend per share= div, volume= previous day shares sold, close=price at end of the day, net change= change in closing price since previous day Reporting investments on the balance sheet: short term - aka marketable securities, current assets listed on b/s must be liquid, use/pay within one year, long term - category of noncurrent assets, include stocks and bonds that investors expect to hold for longer than a year *assets are listed in order of liquidity Accounting methods for long-term investments based on level of ownership - 20- casual, little influence 20-50- significantly influence, over 50- influence/control Available for sale investments- stock investments other than trading securities, current or long term Accounting for available for sale investments - at MV, on b/s at current market value Purchase: Long term investment dividend: cash Cash dividend revenue Recipient of stock dividend is different from receipt of cash dividend, stock- no dividend revenue, memorandum entry instead to denote new number of shares What value of an investment is most relevant? MV- amount you can buy or sell an investment for, AFS adjusted to current MV on b/s. Adjusting to market- allowance to adjust investment to market Unrealized gain on investment Allowance to adjust investment to market is a companion account for long term investment, if market value declines, credit allowance, then subtract instead of adding Unrealized gain on investment- if declines, debit unrealized loss, result from changes in MV, two places in financial statements: other comprehensive income- on i/s below NI, accumulated other comprehensive income- below retained earnings on b/s Selling an available for sale investment- usually results in realized gain or loss, measure difference between amount received from sale and cost of investment. Sold- cash Loss on sale of investment Long term investment When should we sell an investment? Companies control when they sell investments, bad year? Sell, record gain and boost income, the cost principle allows this to manage earnings (current MV, not pure MV Equity method investments - account for if investors own 20-50% of investee’s stock Buying a large stake in another company - may significantly influence, affect dividend policy product lines, etc. investee co’s = affiliates Accounting for equity methods - recorded initially at cost. Debit long term inv, credit cash Investors percentage of investee income- investor gets percentage of ownership in investee net income. To record investment revenue:
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Chapter 10 - Chapter 10- long term investments and...

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