ORIE 3150 class notes October 26 2010

ORIE 3150 class notes October 26 2010 - ORIE 3150 Stock in...

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ORIE 3150 Stock in Other Corporations October 26, 2010 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. Percentage of Outstanding Stock Owned Method Used < 20% Market Value 20% to 50% Equity > 50% Consolidated 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
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