ch 5 solutions - Chapter 05 Analyzing Investing Activities...

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Unformatted text preview: Chapter 05 - Analyzing Investing Activities: Intercorporate Investments Chapter 5 Analyzing Investing Activities: Intercorporate Investments REVIEW Intercompany investments play an increasingly larger role in business activities. Companies pursue intercompany activities for several reasons including diversification, expansion, and competitive opportunities and returns. This chapter considers our analysis and interpretation of these intercompany activities as reflected in financial statements. We consider current reporting requirements from our analysis perspective--both for what they do and do not tell us. We describe how current disclosures are relevant for our analysis, and how we might usefully apply analytical adjustments to these disclosures to improve our analysis. We direct special attention to the unrecorded assets and liabilities in intercompany investments. 5-1 Chapter 05 - Analyzing Investing Activities: Intercorporate Investments OUTLINE o Passive investments Accounting for Investment Securities Disclosure of Investment Securities Analyzing Investment Securities • Investments with Significant Influence Equity Method Accounting Analysis Implications of Equity Investments • Business Combinations Accounting Mechanics of Business Combinations Analysis Implications of Business Combinations Comparison of Pooling versus Purchase Accounting for Business Combinations o Derivative Securities Defining a Derivative Classification and Accounting for Derivatives Disclosure of Derivatives Analysis of Derivatives • Appendix 5A: International Activities • Appendix 5B: Investment Return Analysis 5-2 Chapter 05 - Analyzing Investing Activities: Intercorporate Investments ANALYSIS OBJECTIVES • Analyze financial reporting for intercorporate investments. • Interpret consolidated financial statements. • Analyze implications of both the purchase and pooling methods of accounting for business combinations. • Interpret goodwill arising from business combinations. • Describe derivative securities and their implications for analysis. • Analyze foreign currency translation disclosures. • Analyze investment returns. 5-3 Chapter 05 - Analyzing Investing Activities: Intercorporate Investments QUESTIONS 1. Long-term investments are usually investments in assets such as debt instruments, equity securities, real estate, mineral deposits, or joint ventures acquired with longer-term goals. Such goals often include the acquisition of control or affiliation with other companies, investment in suppliers, securing sources of supply, etc. The valuation and presentation of noncurrent investments depends on the degree of influence that the investor company has over the investee company. With no influence, debt investments other than held-to-maturity bonds and equity investments are accounted for at market value. Once influence is established, equity investments are accounted for under the equity method or consolidated with the statements of the investor company.statements of the investor company....
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ch 5 solutions - Chapter 05 Analyzing Investing Activities...

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