470 Chapter 5 Outline

470 Chapter 5 Outline - Analysing Investing Activities:...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Analysing Investing Activities: Incorporating Investments I. Investment Securities a. Composition i. Investment (marketable securities) 1. Debt Securities a. Government or corporate debt obligations 2. Equity Securities a. Corporate stock that is readily marketable II. Accounting for Investment Securities a. SFAS 115 i. FASB led to the departure from traditional lower-of-cost- or-market principle ii. Investment Securities must be reported on the balance sheet at cost or fair market value iii. Accounting is determined by classification III. Accounting for Debt Securities a. Held-to-maturity i. Securities acquired with both the intent and ability to hold to maturity 1. Balance Sheet – a. Amortized cost 2. Unrealized Gains/Losses –
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
a. Not recognized in either net income or comprehensive income b. Trading i. Securities acquired mainly for short-term or trading gains (usually less than 3 months) 1. Balance Sheet – a. Fair Value 2. Unrealized Gains/Losses a. Recognized in net income c. Available for Sale i. Securities neither held for trading nor held-to- maturity 1. Balance Sheet- a. Fair Value 2. Unrealized Gains/Losses a. Not recognized in net income, but recognized in comprehensive income IV. Accounting for Transfers between Security Classes*** V. Classification and Accounting for Equity Securities ***
Background image of page 2
VI.Analyzing Investment Securities a. Two main Objectives*** i. Separate operating performance form investing (and financing) performance 1. Remove all gains and losses relating to investing activities 2. Separate operating and non-operating assets when determining RNOA ii. To analyze accounting distortions from securities*** 1. Opportunities for gains trading 2. Liabilities recognized at cost 3. Inconsistent definition of equity securities 4. Classification based on intent a. Trading Vs holding VII. Equity Method Accounting a. Required for inter-corporate investments in which the investor company can exert significant influence over (no control) the investee i. Generally used for investments representing 20 to 50 % of voting stock
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
ii. Difference between consolidation and equity method accounting is the level of detail reported*** b. Equity Method Accounting i. Investment account 1. Starts at acquisition cost 2. Increased by % share of investee earnings 3. Decreased by dividends ii. Income 1. Investor reports % share of investee company earnings as equity earnings in Income Statement 2. Dividends are reported as a reduction of the investment account, not as income PROBLEM ON THE TEST**** LOOK AT SLIDE 5-10 VIII. Equity Method Accounting Cont. a.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/04/2011 for the course FINA 470 taught by Professor Austin during the Spring '11 term at South Carolina.

Page1 / 10

470 Chapter 5 Outline - Analysing Investing Activities:...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online