These debt securities and equity securities are termed Investments , or Temporary Investments , and are reported in the Current Assets section of the balance sheet.. Long-term[r]
(1)Investments
(2)Accounting for Investment Securities Bonds and notes (Debt securities) Bonds and notes (Debt securities) Common and preferred stock (Equity (Equity securities) securities) Common and preferred stock (Equity (Equity securities) securities)
Investments can be accounted for in a variety of ways, depending on the nature
(3)Investing
These debt securities and equity securities are termed Investments, or Temporary Investments, and are reported in the Current Assets section of the balance sheet
Long-term investments often involve the
purchase of a significant portion of the stock of another company and are reported in
(4)Learning Objectives
Demonstrate how to identify and account for investments classified for reporting purposes
(5)(6)Learning Objectives
Demonstrate how to identify and account for investments classified for reporting purposes
(7)Trading Securities
Adjustments to fair
Adjustments to fair
value are recorded
value are recorded
as:
as:
1.
1. a direct adjustment to a direct adjustment to
the investment
the investment
account, and
account, and 2.
2. a Unrealized holding a Unrealized holding
gain/loss on the
gain/loss on the
Income Statement Income Statement
Adjustments to fair
Adjustments to fair
value are recorded
value are recorded
as:
as:
1.
1. a direct adjustment to a direct adjustment to the investment
the investment account, and account, and 2.
2. a Unrealized holding a Unrealized holding gain/loss on the
(8)Trading Securities
Matrix, Inc purchased the addition securities classified
Matrix, Inc purchased the addition securities classified
as Trading Securities (TS) in 2006 The fair value
as Trading Securities (TS) in 2006 The fair value
amounts were determined on December 31, 2006
amounts were determined on December 31, 2006
Prepare the journal entries for Matrix, Inc to adjust
Prepare the journal entries for Matrix, Inc to adjust
the securities to fair value at 12/31/06
the securities to fair value at 12/31/06
Matrix, Inc purchased the addition securities classified Matrix, Inc purchased the addition securities classified
as Trading Securities (TS) in 2006 The fair value as Trading Securities (TS) in 2006 The fair value amounts were determined on December 31, 2006 amounts were determined on December 31, 2006 Prepare the journal entries for Matrix, Inc to adjust Prepare the journal entries for Matrix, Inc to adjust
(9)Trading Securities
The Net Unrealized Holding Loss is reported on the Income Statement.
(10)Trading Securities
Unrealized holding gains and losses from
trading securities
are reported on the
(11)Learning Objectives
Demonstrate how to identify and account for investments classified for reporting purposes
(12)Securities Available-for-Sale
Adjustments to fair value
Adjustments to fair value
are recorded as:
are recorded as:
1.
1. a direct adjustment to the a direct adjustment to the
investment account, and
investment account, and 2.
2. an allowance account in an allowance account in
the equity section of the
the equity section of the
balance sheet called
balance sheet called
“
“Unrealized Holding Unrealized Holding Gains/Losses
Gains/Losses”.”.
Adjustments to fair value
Adjustments to fair value
are recorded as:
are recorded as:
1.
1. a direct adjustment to the a direct adjustment to the investment account, and investment account, and 2.
2. an allowance account in an allowance account in the equity section of the
the equity section of the
balance sheet called
balance sheet called
“
“Unrealized Holding Unrealized Holding Gains/Losses
(13)Securities Available for Sale Example
Matrix, Inc purchased the securities listed below in
Matrix, Inc purchased the securities listed below in
2006 They are classified as Securities Available
2006 They are classified as Securities Available
for Sale (SAS) The fair value of the securities
for Sale (SAS) The fair value of the securities
were determined on December 31, 2006 Prepare
were determined on December 31, 2006 Prepare
the journal entries for Matrix, Inc to adjust the
the journal entries for Matrix, Inc to adjust the
securities to fair value at December 31, 2006
securities to fair value at December 31, 2006 Matrix, Inc purchased the securities listed below in
Matrix, Inc purchased the securities listed below in
2006 They are classified as Securities Available
2006 They are classified as Securities Available
for Sale (SAS) The fair value of the securities
for Sale (SAS) The fair value of the securities
were determined on December 31, 2006 Prepare
were determined on December 31, 2006 Prepare
the journal entries for Matrix, Inc to adjust the
the journal entries for Matrix, Inc to adjust the
securities to fair value at December 31, 2006
(14)Securities Available for Sale Example
This net unrealized holding gain is reported in the equity section of the
balance sheet.
This net unrealized holding gain is reported in the equity section of the
(15)Securities Available for Sale
Accumulated other comprehensive income from securities available-for-sale
(16)Learning Objectives
Demonstrate how to identify and account for investments classified for reporting purposes
(17)Held To Maturity Securities Example
Matrix, Inc purchased the securities listed below in
Matrix, Inc purchased the securities listed below in
2006 They are classified as Held to Maturity
2006 They are classified as Held to Maturity
Securities (HTM) The fair value of the securities
Securities (HTM) The fair value of the securities
were determined on December 31, 2006 Prepare
were determined on December 31, 2006 Prepare
the journal entries for Matrix, Inc to adjust the
the journal entries for Matrix, Inc to adjust the
securities to fair value at December 31, 2006
securities to fair value at December 31, 2006 Matrix, Inc purchased the securities listed below in
Matrix, Inc purchased the securities listed below in
2006 They are classified as Held to Maturity
2006 They are classified as Held to Maturity
Securities (HTM) The fair value of the securities
Securities (HTM) The fair value of the securities
were determined on December 31, 2006 Prepare
were determined on December 31, 2006 Prepare
the journal entries for Matrix, Inc to adjust the
the journal entries for Matrix, Inc to adjust the
securities to fair value at December 31, 2006
(18)Held To Maturity Securities
Never adjustment to fair
Never adjustment to fair
value
value
Never adjustment to fair
Never adjustment to fair
value
(19)Learning Objectives
(20)Purchase of Bonds
Homer Company purchases $18,000 of U.S Treasury bonds direct from a Federal Reserve Bank at their par value on
March 17, 2012, plus accrued interest for 45 days The bonds have an interest rate of 6%, payable on July 31 and January 31, 2012
(21)Interest Revenue
On July 31, Homer Company receives a semiannual interest payment of $540 ($18,000 ì 6% ì 1ẵ) The $540 interest includes $135 of accrued interest that Homer Company purchased with the bonds on March 17
(22)Interest Revenue
Homer Company’s accounting period ends on December 31 Thus, an adjusting entry must be made to accrue
interest for five months The following adjusting entry records the accrued interest:
(23)Interest Revenue
Homer Company receives interest of $540 on January 31, 2013 Notice that Interest Receivable is credited for $450 to reflect that this amount is a receivable from
(24)Purchase of Stock
(25)Receipt of Dividends
On July 31, Bart Company receives a dividend of $0.40 per share from Lisa Company
Dividend Revenue is reported as part of Other Income
(26)The gain is reported as part of Other income on Bart Company’s income statement.
Sale of Stock
(27)Learning Objectives
Explain what constitutes significant influence by the investor over the operating and financial
(28)(29)Reporting Categories for Investments
The equity method is used for investments in
equity securities
resulting in significant influence (20%-50%) The equity method is used for investments in
equity securities
resulting in significant influence (20%-50%)
The cost method is used for investments in equity
securities when
significant influence is not present.
The cost method is used for investments in equity
securities when
significant influence is
not present.
When an investment results
When an investment results
in the
in the controlcontrol of the investee of the investee (generally
(generally > 50> 50%), the %), the subsidiary is
subsidiary is consolidatedconsolidated with the parent company.
with the parent company
When an investment results When an investment results in the
in the controlcontrol of the investee of the investee (generally
(generally > 50> 50%), the %), the subsidiary is
(30)Learning Objectives
(31)Equity Method
1. The investment account is increased increased
by:
Original investment cost.
Proportionate share of investee's
earnings.
2. The investment account is
decreased
decreased by:
Dividends received.
1. The investment account is increased increased
by:
Original investment cost.
Proportionate share of investee's
earnings.
2. The investment account is
decreased
decreased by:
(32)Equity Method
On January 1, 2006, Matrix, Inc acquired 45% of the equity securities of Apex, Inc for
$1,350,000 On the acquisition date, Apex’s net assets had a fair value of $3,000,000 During
2006, Apex cash paid dividends of $150,000 and reported net income of $1,750,000 What amount will Matrix, Inc report on the
balance sheet as Investment in Apex, Inc.? On January 1, 2006, Matrix, Inc acquired 45% of
the equity securities of Apex, Inc for
$1,350,000 On the acquisition date, Apex’s net assets had a fair value of $3,000,000 During
2006, Apex cash paid dividends of $150,000 and reported net income of $1,750,000
(33)(34)(35)Equity Method
Investment in Apex, Inc.
Investment 1,350,000 67,500 45% Dividends 45% Earnings 787,500
Reported amount 2,070,000
If the subsidiary had a loss, the investment account would have
(36)End of Chapter 15
Homework
Read the textbook
Do all examples in text book