孩只k学 博学而笃志切向而近思 Chapter 2 Stock Investments -Investor Accounting and Reporting
Chapter 2: Stock Investments – Investor Accounting and Reporting
Stock Investments: Obiectives 1. Apply the fair value/cost and equity methods of accounting for stock investments 2. Apply the equity method to purchase price allocations 3. Learn how to test goodwill for impairment. 2-2
2-2 Stock Investments: Objectives 1. Apply the fair value/cost and equity methods of accounting for stock investments. 2. Apply the equity method to purchase price allocations. 3. Learn how to test goodwill for impairment
Stock Investments-Investor Accounting and reporting 1. Levels of influence or control 2-3
2-3 1: Levels of Influence or Control Stock Investments – Investor Accounting and Reporting
Accounting for the Investment Degree of influence Accounting Lack of significant Financial assets Influence cost method Significant influence Equity method associates(联营) joint control &joints ventures (合营) FASB: Equity method| Subsidiary(子公 IASB: Cost method or司) Control Equity method (after January 2016) CASC: Cost method
2-4 Accounting for the Investment Degree of influence Accounting Lack of significant influence Financial assets / cost method Significant influence / joint control Equity method Associates(联营) &Joints ventures （合营） Control FASB: Equity Method IASB: Cost method or Equity Method (after 1 January 2016) CASC: Cost method Subsidiary（子公 司）
Significant Influence o 20% to 50% voting stock ownership is a presumption of significant influence Use the equity method Don,'t use equity method if there is a lack of significant influence Opposition by investee 2. Surrender of significant shareholder rights 3. Concentration of majority ownership, 4. Lack of information for equity method and 5. Failure to obtain board representation
2-5 Significant Influence 20% to 50% voting stock ownership is a presumption of significant influence. Use the equity method. Don't use equity method if there is a lack of significant influence 1. Opposition by investee, 2. Surrender of significant shareholder rights, 3. Concentration of majority ownership, 4. Lack of information for equity method, and 5. Failure to obtain board representation
Control o More than 50 voting stock ownership is presumptive evidence of control. Prepare consolidated financial statements 2-6
2-6 Control More than 50% voting stock ownership is presumptive evidence of control. Prepare consolidated financial statements
Stock Investments-Investor Accounting and reporting 2: Fair value/cost method
2-7 2: Fair Value/Cost Method Stock Investments – Investor Accounting and Reporting
Fair Value /Cost Methods(P30) o July 1, Pilzer buys 2, 000 shares of Sud for $100,000 ●S:NI:$50,000,Div:$20.000 Inⅴ estment in Sud 100.000 Cash 100.000 o NoV. 1. Pilzner receives $4000 in dividends from Sud Cash 4.000 Dividend income 4.000 2-8
2-8 Fair Value /Cost Methods（P30） July 1, Pilzner buys 2,000 shares of Sud for $100,000. S: NI:$50,000, Div: $20,000 Nov. 1, Pilzner receives $4,000 in dividends from Sud. Investment in Sud 100,000 Cash 100,000 Cash 4,000 Dividend income 4,000
fair value method. at Year-end o Assume that the stock is either nonmarketable or has a market price $50 per share so that no revaluing is needed o entry. o Assume fair value of increases to s120,000 Allowance to adjust available-for-sale 20.000 securities to market value(+A) Other comprehensive income Unrealized gain on available-for- 20.000 sale securities(+SE)
Assume that the stock is either nonmarketable or has a market price $50 per share so that no revaluing is needed. No entry. Assume fair value of increases to $120,000 Fair Value Method, at Year-end Allowance to adjust available-for-sale securities to market value (+A) 20,000 Other comprehensive income - Unrealized gain on available-forsale securities (+SE) 20,000
Stock Investments- Investor Accounting and Reportin 3: Equity Method
2-10 3: Equity Method Stock Investments – Investor Accounting and Reporting