Investments and International Operations pptx

Investments and International Operations Chapter 16 Stock Price Information for McDonald’s Corporation: 52 weeks High Low Stock Symbol Dividend Volume 100s Close 49 56 29 81 MCD .20 2067670 29 88 The financial community quotes stock prices in dollars and cents. Stock Prices Trading investments are investments to be sold in the very near future with the intent of generating profits on price changes. Available-for-sale investments are investments other than trading securities in which the investor cannot exercise significant influence over the investee. Trading and Available-For-Sale Investments Objective 1 Account for Trading Investments. Accounting for Trading Investments Example • Assume that on October 23, Des Moines, Inc., had purchased 600 shares of Bowie Corp. stock for $30,000. • Des Moines' management team hopes to sell this stock within three months. • What is the entry? Accounting for Trading Investments Example Bowie pays a cash dividend of $1.40 per share on November 14. October 23 Short-Term Investment 30,000 Cash 30,000 Purchased investment Accounting for Trading Investments Example November 14 Cash 840 Dividend Revenue 840 Received cash dividend What is Des Moines’ entry to receive this cash dividend? Reporting Trading Investments • Trading investments are reported on the balance sheet at current market value. • Assume that Bowie’s stock has decreased in value. • On December 31, Des Moines' investment in Bowie is worth $25,000 ($5,000 less than the purchase price). Reporting Trading Investments December 31 Loss on Trading Investment 5,000 Short-term Investment 5,000 Adjusted trading investment to market value What is the adjusting entry that Des Moines would make at year end? Reporting Trading Investments Balance Sheet (partial): ASSETS Current assets: Short-term investments, at market value $25,000 Income Statement (partial): Other gains and losses: Gain (loss) on trading investment $(5,000) [...]... Account for Available-forsale Investments Available-for-Sale Investments …are stock investments other than trading securities • The market value method is used to account for these investments • Assume that the market value of Bowie’s investment in Gomez’s common stock is $37,400 on December 31, 2005 • Bowie paid $36,000 for the stock on May 1 Reporting Available-for-Sale Investments What is the adjusting... Method Objective 5 Account for Longterm Investments in Bonds Long-Term Investments in Bonds Example • Suppose that Bryan Insurance purchases $10,000 of College Station’s 6% bonds at a price of $9,520 on April 1, 2002 • Interest dates are April 1 and October 1 • Bryan intends to hold the bonds as longterm investments until their maturity date of April 1, 2006 Long-Term Investments in Bonds Example What... 31, 2005 Allowance to Adjust Investment to Market Unrealized Gain on Available-for-Sale Investment Adjusted investment to market value 1,400 1,400 Reporting Available-for-Sale Investments ASSETS Long-term available-for-sale investments at market value $37,400 STOCKHOLDERS’ EQUITY Common stock……… Retained earnings…… Unrealized gain on available-for-sale investment $ 1,400 Selling an Available-for-Sale...Reporting Trading Investments • When a company sells a trading investment, the gain or loss on the sale is the difference between the sale proceeds and the last carrying amount of the investment • Suppose Des Moines sells the Bowie stock for $23,000 on January 10 • How would Des Moines record the sale? Reporting Trading Investments January 10 Cash Loss on Sale of Investment... Available-for-Sale Investment January 15, 2003 Cash 38,000 Gain on Sale of Investment Long-Term Available-for-Sale Investment (cost) Sold investment 2,000 36,000 Objective 3 Use the Equity Method for Investments Equity Method • Where the investor can exert significant influence over the investee, the equity method of accounting is used • Accountants believe that some measure of the investee’s success... 1, 2006 Long-Term Investments in Bonds Example What are the journal entries for April 1 and October 1, 2002? April 1 Long-Term Investment in Bonds 9,520 Cash Purchased bond investment 9,520 Long-Term Investments in Bonds Example October 1 Cash ($10,000 × 06 × 6/12) Interest Revenue Received semiannual interest 300 300 . cents. Stock Prices Trading investments are investments to be sold in the very near future with the intent of generating profits on price changes. Available-for-sale investments are investments other than. influence over the investee. Trading and Available-For-Sale Investments Objective 1 Account for Trading Investments. Accounting for Trading Investments Example • Assume that on October 23, Des. Available-for- sale Investments. Available-for-Sale Investments …are stock investments other than trading securities. • The market value method is used to account for these investments. • Assume that the market