多媒体课件-中级财务会计II-李柳漾-第一周.pptx

Chapter 7 Investments Liuyang Li Intermediate Financial Accounting II How would a company invest in others? Li, Liuyang 2016-2017-2 Chapter Outline Introduction - Week 1 Investor Lacks Significant Influence - Week 1-2 Investor Has Significant Influence - Equity Method Week 3 Impairment of Investments - Week 4 Li, Liuyang 2016-2017-2 Classification 1.The investor lacks significant influence over the investee: Equity ownership 50% Li, Liuyang 2016-2017-2 How would we treat the three kinds of investments? Li, Liuyang 2016-2017-2 Investor Lacks Significant Influence Typically, the investor owns less than 20% of other companies stock: 1.Held-to-Maturity (HTM) Securities 2.Trading Securities (TS) 3.Securities Available-For-Sale (AFS) Li, Liuyang 2016-2017-2 Investor Controls the Investee Equity Method Typically, the investor owns between 20% and 50% of the voting stock of the investee. Investor Has Significant Influence Consolidation Typically, the investor owns more than 50% of the investee. Li, Liuyang 2016-2017-2 #1: Securities to be Held-to- Maturity (HTM) What? Investments in debt securities for which the investor has the “positive intent and ability” to hold to maturity. Hold to Maturity Investor will not sell the investment before maturity date. Debt Securities HTM securities only refer to bonds. Why? Because stock do not have maturity date. Li, Liuyang 2016-2017-2 #2: Trading Securities (TS) What? Trading securities are actively managed in a trading account for the purpose of profiting from short-term price changes. Actively Managed Frequently buy and sell securities. Purpose to Hold Expect to earn profits on short-term differences in price. Trading securities can either be bonds or stocks. Li, Liuyang 2016-2017-2 #3: Available for Sale (AFS) Securities What? When a company acquires an investment, not for an active trading account or to be held to maturity, the company classifies its investment as AFS securities. AFS securities can either be bonds or stocks. Li, Liuyang 2016-2017-2 Report for the Investment HTMTSAFS Report at Amortized Cost Report at Fair ValueReport at Fair Value Or choose fair value, same as trading securities Unrealized Gains and Losses included in net income Unrealized Gains and Losses excluded from net income but include in Other Comprehensive Income (OCI) Li, Liuyang 2016-2017-2 Four Events in Investment 1. Purchasing the investment 3. Holding period fair value changes 2. Recognizing investment revenue 4. Selling the investment Four Events in Investment Li, Liuyang 2016-2017-2 HTM Bond Case Study 1 Purchased Masterwear Industries 12%, 3-year (from July 1, 2011 to June 30, 2014) bonds for $700,000. The face amount was $700,000. Interest is payable semiannually on June 30 and December 31. The market rate is 12%. (Suppose its a HTM). Consider the four events occurring during the holding period and make the journal entries. Li, Liuyang 2016-2017-2 Case Study 1 Purchasing the investment (July 1, 2011) Dr. Investment in bonds700,000 Cr. Cash700,000 Recognizing investment revenue On Dec 31, 2011: Dr. Cash42,000 Cr. Investment revenue42,000 On June 30, 2012: Dr. Cash42,000 Cr. Investment revenue42,000 Li, Liuyang 2016-2017-2 Case Study 1 Recognizing “unrealized gains and losses” No entry Selling the investment (at maturity date) On June 30, 2014: Dr. Cash42,000 Cr. Investment revenue42,000 Dr. Cash700,000 Cr. Investment in bond700,000 Li, Liuyang 2016-2017-2 HTM Bond Case Study 2 Purchased Masterwear Industries 12%, 3-year (from July 1, 2011 to June 30, 2014) bonds for $666,633. The face amount was $700,000. Interest is payable semiannually on June 30 and December 31. The market rate is 14%. (Suppose its a HTM) Consider the four events occurring during the holding period and make the journal entries. Li, Liuyang 2016-2017-2 Case Study 2 Purchasing the investment (July 1, 2011) Dr. Investment in bonds700,000 Cr. Cash666,633 Discount on bond investment 33,367 Recognizing investment revenue On Dec 31, 2011: Dr. Cash42,000 Discount on bond investment 4,664 Cr. Investment revenue46,664 On June 30, 2012: Dr. Cash42,000 Discount on bond investment 4,991 Cr. Investment revenue46,991 Li, Liuyang 2016-2017-2 Case Study 2 On June 30, 2012: Dr. Cash42,000 Discount on bond investment 5,340 Cr. Investment revenue47,340 Recognizing “unrealized gains and losses” No entry Selling the investment On June 30, 2014: (On the maturity date) Dr. Cash42,000 Discount on bond investment 6,544 Cr. Investment revenue48,544 Dr. Cash700,000 Cr. Investment in bond700,000 Li, Liuyang 2016-2017-2 Case Study 2 If we sell those bonds for $725,000 on January 15, 2012. On Jan. 15, 2012: (Not on the maturity date) Dr. Cash725,000 Discount on bond investment 28,703 Cr. Investment in bonds700,000 Gain on sale of investments 53,703 Li, Liuyang 2016-2017-2 HTM Bond Case Study 3 Purchased Masterwear Industries 12%, 3-year (from July 1, 2011 to June 30, 2014) bonds for $735,533. The face amount was $700,000. Interest is payable semiannually on June 30 and December 31. The market rate is 10%. (Suppose its a HTM) Consider the four events occurring during the holding period and make the journal entries. Li, Liuyang 2016-2017-2 Case Study 3 Purchasing the investment (July 1, 2011) Dr. Investment in bonds700,000 Premium on bond investment 35,533 Cr. Cash735,533 Recognizing investment revenue On Dec 31, 2011: Dr. Cash42,000 Cr. Investment revenue36,777 Premium on bond investment5,223 On June 30, 2012: Dr. Cash42,000 Cr. Investment revenue36,516 Premium on bond investment5,484 Li, Liuyang 2016-2017-2 Case Study 3 On June 30, 2012: Dr. Cash42,000 Cr. Investment revenue36,241 Premium on bond investment5,759 Recognizing “unrealized gains and losses” No entry Selling the investment On June 30, 2014:(On the maturity date) Dr. Cash42,000 Cr. Investment revenue35,329 Premium on bond investment6,671 Dr. Cash700,000 Cr. Investment in bond700,000 Li, Liuyang 2016-2017-2 Conclusion Four Events 1.Purchasing the investment: If we purchase bonds (three conditions) Bonds are issued at face value: price = face amount Dr. Investment in bonds Cr. Cash Bonds are issued at a discount: price face amount Dr. Investment in bonds Premium on bond investment Cr. Cash Li, Liuyang 2016-2017-2 Conclusion Four Events 2.Recognizing investment revenue: Three Conditions Issued at face value: stated rate = market rate Dr. Cash Cr. Investment revenue Issued at a discount: stated rate market rate Dr. Cash (stated rate face amount) Cr. Investment revenue (market rate amortized cost) Premium on bond investment Li, Liuyang 2016-2017-2 Conclusion Four Events 3.Holding the investment during periods in which the investments fair value changes (Recognizing “unrealized holding gains and losses”) For HTM securities, we do not recognize any “unrealized holding gains and losses”. No entry. Li, Liuyang 2016-2017-2