16 - Presentation Deck - ACC 212: PRINCIPLES OF ACCOUNTING...

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ACC 212: PRINCIPLES OF ACCOUNTING CHAPTER 16: INVESTMENTS PRESENTATION DECK Prepared by: Jill Mitchell, Assistant Professor, NOVA Reference: Weygandt, Jerry, Kieso, and Kimmel. Accounting Principles Unless noted, illustrations are from the referenced text.
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Chapter 16-2 1. Why Corporations Invest 1.1 Know the three primary reasons why corporations invest 2. Accounting for Debt Investments 3. Accounting for Stock Investments 4. Valuing and Reporting Investments 4.1 Know the three categories of debt and equity securities 4.2 Be able to indicate how these securities are reported in the financial statements 16: Investments 2.1 Prepare the JE’s for the acquisition of bond investments, bond interest and sale of bonds 3.1 Explain the accounting for stock investments: the relationship between ownership percentage and its influence on investee and the accounting guidelines used 3.2 Prepare the JE’s for acquisition and sale of stock investments under the cost method 3.3 Know how to account for dividends under cost method
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Chapter 16-3 Corporations generally invest in debt or stock securities for one of three reasons. 1.1 Know the three primary reasons corporations invest Why Corporations Invest REASON TYPICAL INVESTMENT 1) To house excess cash until needed Low risk, high liquidity, short-term securities, such as government issued securities. 2) To generate earnings from investment income Debt securities (banks and other financial institutions); and stock securities (mutual funds and pension funds) 3) To meet strategic goals Stocks of companies in a related industry or in an unrelated industry that the company wishes to enter
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Chapter 16-4 2.1 Prepare the JE’s for the acquisition of bond investments, bond interest and sale of bonds Recording Acquisition of Bonds Cost includes all expenditures necessary to acquire these investments, such as the price paid plus brokerage fees (commissions), if any. Recording Bond Interest Calculate and record interest revenue based upon the carrying value of the bond times the interest rate times the portion of the year the bond is outstanding. Accounting for Debt Instruments Sale of Bonds Credit the investment account for the cost of the bonds and record as a gain or loss any difference between the net proceeds from the sale (sales price less brokerage fees) and the cost of the bonds.
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Chapter 16-5 Exercise: Taylor Corporation had the following transactions pertaining to debt investments. Jan. 1 Purchased 60, 8%, $1,000 Harrison Co. bonds for $60,000 cash plus brokerage fees of $900. Interest is payable semiannually on July 1 and January 1. July 1 Received semiannual interest on Harrison Co. bonds. July 1
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This note was uploaded on 02/28/2011 for the course ACC 212 taught by Professor Mitchell during the Spring '11 term at Northern Virginia Community College.

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16 - Presentation Deck - ACC 212: PRINCIPLES OF ACCOUNTING...

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