Chapter5 - 5 CHAPTER Analyzing Investing Activities:...

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Unformatted text preview: 5 CHAPTER Analyzing Investing Activities: Intercorporate Investments Investment securities (also called marketable securities ) are of two types: Debt Securities Government or corporate debt obligations Equity Securities Corporate stock that is readily marketable. Investment Securities Composition Held-to-Maturity Controlling Interest (above 50% holding) Classification Investment Securities Investment Securities Debt Securities Equity Securities Available-for-Sale Trading Significant Influence (between 20% and 50% holding) No Influence (below 20% holding) - Trading- Available-for-Sale Investment Securities Accounting for Debt Securities Accounting Balance Sheet Income Statement Category Description Unrealized Gains/Losses Other Held-to-Maturity Securities acquired with both the intent and ability to hold to maturity Amortized Cost Not recognized in either net income or comprehensive income Recognize realized gains/losses and interest income in net income Trading Securities acquired mainly for short- term or trading gains (usually less than three months) Fair Value Recognize in net income Recognize realized gains/losses and interest income in net income Available-for-Sale Securities neither held for trading nor held-to-maturity Fair Value Not recognized in net income, but recognized in comprehensive income Recognize realized gains/losses and interest income in net income Investment Securities Accounting for Transfers between Security Classes Transfer Accounting Effect on Asset Value in Balance Sheet Effect on Income Statement From To Held-to-Maturity Available-for-Sale Asset reported at fair value instead of (amortized) cost Unrealized gain or loss on date of transfer included in comprehensive income Trading Available-for-Sale No effect Unrealized gain or loss on date of transfer included in net income Available-for-Sale Trading No effect Unrealized gain or loss on date of transfer included in net income Available-for-Sale Held-to-Maturity No effect at transfer; however, asset reported at (amortized) cost instead of fair value at future dates Unrealized gain or loss on date of transfer included in comprehensive income Investment Securities Classification and Accounting for Equity Securities Category No Influence Significant Influence Controlling Interest Available-for-Sale Trading Ownership Less than 20% Less than 20% Between 20% and 50% About 50% Purpose Long- or intermediate-term investment Short-term investment or trading Degree of business control Full business control Valuation Basis Fair value Fair value Equity method Consolidation Balance Sheet Asset Value Fair value Fair value Acquisition cost adjusted for proportionate share of...
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This note was uploaded on 08/06/2010 for the course FI575 FI575 taught by Professor Srinivasan during the Spring '08 term at Keller Graduate School of Management.

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Chapter5 - 5 CHAPTER Analyzing Investing Activities:...

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