07 Appendix_D_Handout

07 Appendix_D_Handout - Appendix D Reporting and Analyzing...

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Appendix D – Reporting and Analyzing Investments (D1-D14) I. Reasons for Investing a. Earn greater return on excess cash than letting it sit unutilized b. Generate earnings from investment income c. Strategic reasons i. A company may purchase a noncontrolling interest in another company in a related industry in which it wishes to establish a presence ii. A company can exercise some influence over one of its customers or suppliers by purchasing a significant, but not controlling interest in another company iii. A corporation may choose to purchase a controlling interest in another company in order to enter a new industry without incurring the costs and risks associated with starting from scratch II. Debt Investments a. Government and corporation bonds b. Acquisition i. Cost principle applies ii. Cost includes purchase price plus brokerage fees or commissions iii. Journal entry Dr. Debt Investments Cr. Cash c. Bond Interest i. Journal entry to record receipt of interest Dr. Cash Cr. Interest Revenue ii. Journal entry to record accrual of interest Dr. Interest Receivable Cr. Interest Revenue iii. Journal entry to record receipt of accrued interest Dr. Cash Cr. Interest Receivable d. Sale of Bonds i. Gains or losses are reported under “Other revenues and gains” or “Other expenses and losses”, respectively, on the income statement ii. Journal entry if sold for less than acquired for Dr. Cash Dr. Loss on Sale of Debt Investments Cr. Debt Investments iii. Journal entry if sold for more than acquired for Dr. Cash Cr. Debt Investments Cr. Gain on Sale of Debt Investments
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III. Stock Investments a. Investments in the capital stock of corporations b. Accounting for these investments depends on the percentage ownership in the company being invested in i. Holdings of less than 20% 1. Number of shares owned < 20% of outstanding shares of the company
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This note was uploaded on 10/09/2011 for the course ACCOUNTING 100 taught by Professor 1 during the Spring '11 term at Wisconsin.

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07 Appendix_D_Handout - Appendix D Reporting and Analyzing...

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