long term investments 12-08

long term investments 12-08 - REPORTING AND INTERPRETING...

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REPORTING AND INTERPRETING INVESTMENTS IN OTHER CORPORATIONS
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Types of Investments Investments in debt securities are always considered passive investments. Passive investments are made to earn a high rate of return on funds that may be needed for future purposes.
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Types of Investments Equity security investments are presumed passive if the investing company owns less than 20% of the outstanding voting shares. Investor is not interested in controlling or influencing other company. Passive investments are made to earn a high rate of return on funds that may be needed for future purposes.
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Investments made with the intent of exerting significant influence over another corporation. The ability of the investing company to have an important impact on the operating and financial policies of another company. Significant Influence 20% - 50% outstanding shares Types of Investments
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Investments made with the intent to exert control over another corporation. >50% outstanding shares Control The investing company has the ability to determine the operating and financial policies of another corporation. Types of Investments
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Market Value Method Level of Influence Accounting Method Significant influence, Equity method but no control Control Consolidated statement method Level of Influence Accounting Method No influence or control Market value method Significant influence, Equity method but no control Control Consolidated statement method Used when less than 20% less than 20% of the outstanding voting stock is held.
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Market Value Method Date of acquisition Investment is initially recorded at cost.
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This note was uploaded on 07/15/2011 for the course ACC 360 taught by Professor Marshallhunt during the Spring '09 term at University of Michigan-Dearborn.

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long term investments 12-08 - REPORTING AND INTERPRETING...

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