(精品)Beams10e_Ch02.ppt

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1、Chapter 2:Stock Investments Investor Accounting and Reportingby Jeanne M.David,Ph.D.,Univ.of Detroit Mercyto accompanyAdvanced Accounting,10th editionby Floyd A.Beams,Robin P.Clement,Joseph H.Anthony,and Suzanne Lowensohn Pearson Education,Inc.publishing as Prentice Hall2-Stock Investments:Objective

2、s1.Recognize investors varying levels of influence or control,based on the level of stock ownership.2.Anticipate how accounting adjusts to reflect the economics underlying varying levels of investor influence.3.Apply the fair value/cost and equity methods of accounting for stock investments.4.Identi

3、fy factors beyond stock ownership that affect an investors ability to exert influence or control.Pearson Education,Inc.publishing as Prentice Hall2-Objectives(continued)5.Apply the equity method to purchase price allocations.6.Learn how to test goodwill for impairment.Pearson Education,Inc.publishin

4、g as Prentice Hall2-1:Levels of Influence or ControlStock Investments Investor Accounting and Reporting Pearson Education,Inc.publishing as Prentice Hall2-Levels of Influence 50%presumes control consolidated financial statementsFair value(cost)methodEquity methodConsolidated financial statements Pea

5、rson Education,Inc.publishing as Prentice Hall2-2:Accounting Reflects EconomicsStock Investments Investor Accounting and Reporting Pearson Education,Inc.publishing as Prentice Hall2-Accounting for the InvestmentDegree of influenceInvestments carrying valueInvestment incomeLack of significant influen

6、ceFair value(cost,if nonmarketable)Dividends declaredSignificant influenceOriginal cost adjusted to reflect periodic earnings and dividends,e.g.,a proportionate share of investees net assetsProportionate share of investees periodic earnings*If income were measured as dividends declared,by influencin

7、g or controlling dividend decisions,the investor could manipulate its own investment income.2-73a:Fair Value/Cost MethodStock Investments Investor Accounting and Reporting2-8Fair Value(Cost)MethodFASB Statement No.115At acquisition:Pilzner buys 2,000 shares of Sud for$100,000.Pilzner receives$4,000

8、in dividends from Sud.Investment in Sud100,000 Cash 100,000Cash4,000 Dividend income 4,0002-9Fair Value Method,at Year-endReduce dividend income recognized,if neededAdjust investment to fair valueAllowance to adjust available-for-sale securities to fair value21,000 Other comprehensive income 21,000I

9、f fair value of increases to$120,000 and the Investment in Sud account balance is$99,000.Dividend income1,000 Investment in Sud 1,000If Pilzner determines that cumulative dividends exceed its cumulative share of income by$1,000.2-103b:Equity MethodStock Investments Investor Accounting and Reporting2

10、-11Equity MethodAPB Opinion No.18At acquisition:Pilzner buys 2,000 shares of Sud for$100,000.Pilzner receives$4,000 in dividends from Sud.Investment in Sud100,000 Cash 100,000Cash4,000 Investment in Sud 4,0002-12Equity Method,at Year-endPilzner determines that its share of Suds income is$5,000.The e

11、nding balance in the Investment in Sud is:$100,000 cost-$4,000 dividends+$5,000 income=$101,000.Investment in Sud5,000 Income from Sud 5,0002-134:Ability to Influence or ControlStock Investments Investor Accounting and Reporting2-14Significant Influence20%to 50%voting stock ownership is a presumptio

12、n of significant influence.Use the equity method.Dont use equity method if there is a lack of significant influence1.Opposition by investee,2.Surrender of significant shareholder rights,3.Concentration of majority ownership,4.Lack of information for equity method,and5.Failure to obtain board represe

13、ntation.2-15ControlMore than 50%voting stock ownership is presumptive evidence of control.Prepare consolidated financial statements.Dont consolidate if control is temporary or if the parent lacks control1.Legal reorganization or bankruptcy2.Severe foreign restrictions.2-165:Applying the Equity Metho

14、dStock Investments Investor Accounting and Reporting2-172-182-19Acquisition Cost FV net assetsFV net assets BV net assetsPayne acquires 30%of Sloan for$5,000.Sloans identifiable net assets(assets less liabilities)are:Fair value:A L=$18,800-$2,800=$16,000.Book value:A L=E=$15,000-$3,000=$12,000The$4,

15、000 difference($16,000-$12,000)is due to:$1,000 undervalued inventories sold this year,$200 overvalued other current assets used this year,$3,000 undervalued equipment with a life of 20 years,and$200 overvalued notes payable due in 5 years.$5,000 30%(16,000)30%(12,000)$5,000$4,800$3,6002-20Acquisiti

16、on of Sloan StockAt acquisition,Payne pays$2,000 cash and issues common stock with a fair value of$3,000 and par value of$2,000.Payne also pays$50 to register the securities and$100 in consulting fees.Investment in Sloan5,000 Cash 2,000Common stock,at par2,000Additional paid in capital1,000Additiona

17、l paid in capital50Investment expense100Cash1502-21Cost/Book Value AssignmentCost of acquisition$5,000Less 30%book value=30%(12,000)3,600Excess of cost over book value$1,400Assigned to:Amount AmortizationInventories 30%(+1,000)$300 1st yearOther curr.assets 30%(-200)(60)1st yearEquipment 30%(+3,000)

18、900 20 yearsNote payable 30%(+200)60 5 yearsGoodwill(to balance)200 NoneTotal$1,4002-22Dividends and IncomePayne receives$300 dividends from Sloan.Sloan reports net income of$900.Payne will recognize its share(30%)of Sloans income,but will adjust it for amortization of the differences between book a

19、nd fair values.Cash300 Investment in Sloan 3002-23Amortization and Investment IncomeCost/book value differences:Initial amount1st year amort.Unamortized excess at year-endInventories$300($300)$0Other curr.Assets(60)600Equipment900(45)855Note payable60(12)48Goodwill2000200Total$1,400($297)$1,103Inves

20、tment income is 30%of Sloans net income amortization30%($3,000)$297=$603.2-24Year-end Entry&BalanceRecord the investment incomeThe ending balance in the investment account is:5,000 300+603=5,303.Cost dividends+investment incomeInvestment in Sloan603 Income from Sloan 6032-25More on Cost/Book Value A

21、ssignmentOn acquisition date,compare:Cost of acquisition,Book value of net assets,andFair value of identifiable net assetsCost of the investment includes cash paid,fair value of securities issued,and debt assumed.The book value of the investees net assets=assets liabilities,or=stockholders equity2-2

22、6Fair Values Used in AssignmentIdentifiable net assets include all the investees assets and liabilities,whether recorded or notFair value of research in progressFair value of contingent liabilitiesFair value of unrecorded patentsException:use book value for pensions and deferred taxes.If cost fair v

23、alue,goodwill exists.If cost fair value,a bargain purchase exists.2-27Bargain PurchaseWhen the acquisition cost is less than the fair value of the identifiable net assets,a gain is recognized on the acquisition.The investment is recorded at the fair value of the identifiable net assetsInvestment in

24、ABCxxx Cash,CS,APIC xxxGain on bargain purchasexxx2-28Interim Acquisitions2-29Interim AcquisitionsBook value of net assets=BV equity.If equity is given as beginning of year,add current earnings and deduct dividends to date.Amortization for first,partial,year:Take full amortization for inventory and

25、other current assets disposed of by year-end.Take partial years amortization for equipment,buildings,and debt to be written off over multiple years.Record dividends if after the acquisition date.2-30Acquisition in StagesAlso called a step-by-step acquisition.Fair value(cost)method equity method Retr

26、oactive adjustmentInvestees growth in retained earnings isExcess of income over dividends declaredInvestment account desired balance using equity method=original cost+share of growth in retained earnings amortization,if anyInvestment in XYZxxx Retained earnings xxx2-31Sale of Equity InvestmentSale o

27、f investment that results in a lack of significant influence over the investeeEquity method fair value(cost)methodProspective treatmentFor the saleReduce the investment account for a proportionate share of the stock soldRecord a gain or loss on the saleApply the fair value(cost)method to remaining i

28、nvestment2-32Cashxxx Investment in XYZ Gain of stock sold Xxxxxx2-33Stock Purchased from InvesteeIf stock is purchased from old shareholders,the percentage ownership is based on the shares outstanding and the investees equity is not changed.If acquired directly from the investee:Percentage acquired=

29、shares acquired/(shares acquired+previously outstanding shares)Investees new stockholders equity=Previous equity+value received for new shares2-34Investee with Preferred StockThe equity method applies to investments in common stock and some adjustments in applying the equity method are necessary whe

30、n an investee has preferred as well as common stock outstanding.2-35Investee with Preferred StockCompare cost of acquisition to the book value of the common stock.=Total equity book value of preferred stock*BV of PS=call value+dividends in arrearsDividends received will be a portion of the dividends

31、 to common shareholders=total dividends current PS dividendsInvestment income is based on income available to common shareholders=investee net income PS dividends*Pref.Div.=current dividend if cumulative,or dividends declared if noncumulative.2-36Special Reporting IssuesIf material,the investor cont

32、inues separate reporting of extraordinary items and/or discontinued operations of the investeeIncome from Investee is based on income before discontinued operations or extraordinary itemsOptionally,the investor may report its equity investments at fair market value,FASB Statement Nos.159 and 1572-37

33、DisclosuresFor significant equity investeesName,percent ownershipAccounting policyDifference between investment carrying value and underlying equity in net assetsAggregate market valueSummarized asset,liability,operationsRelated party disclosures FASB Statement No.572-386:Impairment of GoodwillStock

34、 Investments Investor Accounting and Reporting2-39Impairment of GoodwillTest annually,and if significant events occur(e.g.,adverse legal factors or loss of key personnel)FASB Statement No.142:Two step process1.If the fair value of the whole reporting unit the carrying value of the reporting unit inc

35、luding its goodwill,there might be impairment.If no implied impairment,step 2 is not needed.Use quoted market prices of reporting unit,or valuation techniques applied to similar groups of assets and liabilities.2.If the implied fair value of the goodwill the carrying value of the goodwill,record an impairment loss for the difference.2-40Impairment of Equity InvestmentsGoodwill implied in equity investments is not tested for impairment.The investment itself is tested for impairment.APB Opinion No.182-412-42