470 Chapter 5 Outline

470 Chapter 5 Outline - Analysing Investing Activities...

Info icon This 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 –
Image of page 1

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

View Full Document Right 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 ***
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
Image of page 3

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

View Full Document Right 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.
Image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern