(精品)08 Investing in securities会计英语课件 复旦大学出版社 叶建芳 孙红星1.ppt

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1、Investing in SecuritiesChapter 81Whos in control here?The Coca-Cola Company(Coke)owns 36 percent of the shares of Coca-Cola Enterprises(a U.S.bottling business);PepsiCo Inc.owns 46 percent of The Pepsi Bottling Group(PBG)and 43 percent of PepsiAmericas.These bottling businesses are very important to

2、 Coca-Cola and PepsiCo,because they are the primary distributors of Coke and Pepsi products.Indeed,it can be said that Coca-cola and PepsiCo control the bottling companies.21.Identify the three categories of debt securities 2.Understand the procedures for discount and premium amortization on bond in

3、vestments.3.Identify the categories of equity securities 4.Explain the equity method of accounting and compare it to the fair value method for equity securities.5.Describe the disclosure requirements for investments in debt and equity securities.Learning ObjectivesLearning Objectives3Investments in

4、Debt SecuritiesInvestments in Equity SecuritiesOther Reporting IssuesHeld-to-maturity securitiesAvailable-for-sale securitiesTrading securitiesHoldings of less than 20%Holdings between 20%and 50%Holdings of more than 50%Financial statement presentationInvestmentsInvestments4Different motivations for

5、 investing:To earn a high rate of return.To secure certain operating or financing arrangements with another company.InvestmentsInvestments5Companies account for investments based onthe type of security(debt or equity)and their intent with respect to the investment.InvestmentsInvestments6Debt securit

6、ies(creditor relationship):11.Investments in Debt SecuritiesInvestments in Debt SecuritiesU.S.government securitiesMunicipal securities Corporate bondsConvertible debtCommercial paperTypeHeld-to-maturityTradingAvailable-for-saleAccounting Category7Held-to-maturity:Debt securities that the company ha

7、s the positive intent and ability to hold to maturity.Trading:Debt securities bought and held primarily for sale in the near term to generate income on short-term price differences.Available-for-sale:Debt securities not classified as held-to-maturity or trading securitiesInvestments in Debt Securiti

8、esInvestments in Debt Securities8Investments in Debt SecuritiesInvestments in Debt SecuritiesAccounting for Debt Securities by Category922 a.Held-to-Maturity Securities a.Held-to-Maturity SecuritiesClassify a debt security as held-to-maturity only if it has both(1)the positive intent and(2)the abili

9、ty to hold securities to maturity.n Accounted for at amortized cost,not fair value.n Amortize premium or discount using the effective-interest method unless the straight-line methodyields a similar result.10 E-3 On January 1,2006,Hi and Lois Company purchased 12%bonds,having a maturity value of$300,

10、000,for$322,744.The bonds provide the bondholders with a 10%yield.They are dated January 1,2006,and mature January 1,2011,with interest receivable December 31 of each year.Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium.The bonds are classified in t

11、he held-to-maturity category.Instructions(a)Prepare the journal entry at the date of the bond purchase.a.Held-to-Maturity Securitiesa.Held-to-Maturity Securities11(a)Prepare the journal entry at the date of the bond purchase.Held-to-Maturity Securities 322,744Cash 322,744January 1,2006:12(b)Prepare

12、a bond amortization schedule.a.Held-to-Maturity Securitiesa.Held-to-Maturity Securities*roundingrounding*13(c)(d)Prepare the journal entry to record the interest received and the amortization for 2006&2007.Cash36,000Held-to-Maturity Securities 3,726December 31,2006:Interest Revenue 32,274Cash36,000H

13、eld-to-Maturity Securities 4,098December 31,2007:Interest Revenue 31,90214Companies report available-for-sale securities at fair value,with unrealized holding gains and losses reported as part of comprehensive income(equity).Any discount or premium is amortized.b.Available-for-Sale Securitiesb.Avail

14、able-for-Sale Securities15 E-4 Assume the same information as in E-3 except that the securities are classified as available-for-sale.The fair value of the bonds at December 31 for 2006 and 2007 is$320,500 and$309,000,respectively.Instructions(a)Prepare the journal entry at date of bond purchase.b.Av

15、ailable-for-Sale Securitiesb.Available-for-Sale Securities16(a)Prepare the journal entry at date of bond purchase.Available-for-Sale Securities 322,744Cash 322,744January 1,2006:b.Available-for-Sale Securitiesb.Available-for-Sale Securities17E-4(b)Prepare the journal entries to record the interest r

16、eceived and recognition of fair value for 2006.The fair value of the bonds at December 31 for 2006 is$320,500.Cash36,000Available-for-Sale Securities 3,726December 31,2006:Interest Revenue 32,274Securities Fair Value Adjustment 1,482Unrealized Holding Gain/Loss 1,482($320,500$319,018=$1,482)b.Availa

17、ble-for-Sale Securitiesb.Available-for-Sale Securities18E-4(c)Prepare the journal entry to record recognition of fair value for 2007.The fair value of the bonds at December 31 for 2007 is$309,000.Unrealized Holding Gain/Loss 7,402Securities Fair Value Adjustment 7,402b.Available-for-Sale Securitiesb

18、.Available-for-Sale Securities19b.Available-for-Sale Securitiesb.Available-for-Sale SecuritiesSale of Available-for-Sale SecuritiesIf company sells bonds before maturity date:Must make entry to remove the,Cost in Available-for-Sale Securities and Securities Fair Value Adjustment accounts.Any realize

19、d gain or loss on sale is reported in the“Other expenses and losses”section of the income statement.20c.Trading Securitiesc.Trading SecuritiesCompanies report trading securities at fair value,with unrealized holding gains and losses reported as part of net income.Any discount or premium is amortized

20、.21BE-4(Trading Securities)Pete Sampras Corporation purchased trading investment bonds for$40,000 at par.At December 31,Sampras received annual interest of$2,000,and the fair value of the bonds was$38,400.InstructionsPrepare the journal entries for(a)the purchase of the investment,(b)the interest re

21、ceived,and(c)the fair value adjustment.c.Trading Securitiesc.Trading Securities22BE-4 Prepare the journal entries for(a)the purchase of the investment,(b)the interest received,and(c)the fair value adjustment.(a)Trading securities40,000Cash 40,000(b)Cash2,000Interest revenue 2,000(c)Unrealized Holdin

22、g Loss-Income1,600 Securities Fair Value Adj.-Trading 1,600c.Trading Securitiesc.Trading Securities233.3.Investments in Equity SecuritiesInvestments in Equity SecuritiesRepresent ownership of capital stock.Cost includes:price of the security,plus brokers commissions and fees related to purchase.n Th

23、e degree to which one corporation(investor)acquires an interest in the common stock of another corporation(investee)generally determines the accounting treatment for the investment subsequent to acquisition.240-20%-50%-100%No significant influence usually existsSignificant influence usually existsCo

24、ntrol usually existsFair Value MethodEquity MethodInvestment valued on parents books using Cost Method or Equity Method(investment eliminated in Consolidation)Ownership PercentagesInvestments in Equity SecuritiesInvestments in Equity Securities25a.Holdings of Less Than 20%a.Holdings of Less Than 20%

25、Accounting Subsequent to AcquisitionMarket Price AvailableValue and report the investment using the fair value method.Market Price UnavailableValue and report the investment using the cost method.*Securities are reported at cost.Dividends are recognized when received and gains or losses only recogni

26、zed on sale of securities.26a.Holdings of Less Than 20%a.Holdings of Less Than 20%Accounting and Reporting Fair Value Method Because equity securities have no maturity date,companies cannot classify them as held-to-maturity.27Loxley Company has the following portfolio of securities at September 30,2

27、007,its last reporting date.a.a.ExampleExampleOn Oct.10,2007,the Fogelberg shares were sold at a price of$54 per share.In addition,3,000 shares of Los Tigres common stock were acquired at$59.50 per share on Nov.2,2007.The Dec.31,2007,fair values were:Petra$96,000,Los Tigres$132,000,and the Weisberg

28、common$193,000.28P-6 Prepare the journal entries to record the sale,purchase,and adjusting entries related to the trading securities in the last quarter of 2007.a.Holdings of Less Than 20%a.Holdings of Less Than 20%Portfolio at September 30,2007Securities Fair Value Adjustment-Securities Fair Value

29、Adjustment-credit credit($19,000)($19,000)29P-6 Prepare the journal entries to record the sale,purchase,and adjusting entries related to the trading securities in the last quarter of 2007.a.Holdings of Less Than 20%a.Holdings of Less Than 20%Cash (5,000 x$54)270,000Trading securities 225,000October

30、10,2007(Fogelberg):Gain on sale 45,000Trading securities (3,000 x$59.50)178,500Cash 178,500November 2,2007(Los Tigres):30P-6 Portfolio at December 31,2007a.Holdings of Less Than 20%a.Holdings of Less Than 20%Unrealized holding loss income 51,500Securities fair value adj.-Trading 51,500December 31,20

31、07:31P-6 How would the entries change if the securities were classified as available-for-sale?a.Holdings of Less Than 20%a.Holdings of Less Than 20%The entries would be the same except that the Unrealized Holding Gain or LossEquity account is used instead of Unrealized Holding Gain or LossIncome.The

32、 unrealized holding loss would be deducted from the stockholders equity section rather than charged to the income statement.32If the investor receives a cash dividend,it records the cash dividend as follows:Cash Dividend revenue 33 b.b.Holdings Between 20%and 50%Holdings Between 20%and 50%The equity

33、 method is appropriate for common stock investments in which the investor significantly influences the investee company.n Evidence of significant influence may be indicated byrepresentation in the board of directors,participation in policy makingmaterial intercompany transactionthe exchange of manag

34、ement personneltechnological dependencythe extent of ownership relative to the concentration of other shareholdings Opinions of APB No.18,197134b.Holdingsb.Holdings Between 20%and 50%Between 20%and 50%Equity MethodRecord the investment at cost and subsequently adjust the amount each period for the i

35、nvestors proportionate share of the earnings(losses)anddividends received by the investor.35E-17 (Equity Method)On January 1,2007,Pennington Corporation purchased 30%of the common shares of Edwards Company for$180,000.During the year,Edwards earned net income of$80,000 and paid dividends of$20,000.I

36、nstructionsPrepare the entries for Pennington to record the purchase and any additional entries related to this investment in Edwards Company in 2007.b.Holdings Between 20%and 50%b.Holdings Between 20%and 50%36 Investment in Stock 180,000Cash 180,000Cash6,000 Investment in Stock24,000b.Holdings Betw

37、een 20%and 50%b.Holdings Between 20%and 50%Investment in Stock 6,000($20,000 x 30%)Investment Revenue24,000($80,000 x 30%)37c.Holdings of More Than 50%c.Holdings of More Than 50%Controlling Interest-When one corporation acquires a voting interest of more than 50 percent in another corporationInvesto

38、r is referred to as the parent.Investee is referred to as the subsidiary.Investment in the subsidiary is reported on the parents books as a long-term investment.Parent generally prepares consolidated financial statements.384.4.Financial Statement PresentationFinancial Statement Presentation Report t

39、rading securities at aggregate fair value as current assets.Report held-to-maturity and available-for-sale securities as current or noncurrent.Aggregate fair value,gross unrealized holding gains,gross unrealized losses,amortized cost basis by type(debt and equity),andinformation about the maturity o

40、f debt securities.39Financial Statement PresentationFinancial Statement PresentationDisclosures Required under the Equity Method1.Name of each investee and percentage ownership.2.Accounting policies of the investor.3.Difference between amount in the investment account and amount of underlying equity

41、 in the net assets of the investee.4.The aggregate value of each identified investment based on quoted market price(if available).5.When material,present information concerning assets,liabilities,and results of operations of the investees.40ILLUSTRATION:Comparison of Fair Value Method and Equity Met

42、hodEntries by Maxi Company Fair value method Equity method On Jan.2,2007,Maxi Company acquired 48,000 shares(20%of Mini Com.Common stock)at a cost of$10 a share.For the year 2007,Mini com reported net income of$200,000;Maxi Coms share is 20%,or$40,000.Available-for-Sale-Securities 480,000 Cash 480,0

43、00 Investment in Mini stock 480,000 Cash 480,000 No entry Investment in Mini stock 40,000 Revenue from investment 40,000 41At December 31,2007,the 48,000 shares of Mini Com.Have a fair value of$12 a share,or the$576,000.On January 28,2008,Mini Company announced and paid a cash dividend of$100,000;Ma

44、xi Company received 20%，or$20,000.Securities Fair Value Adj.96,000(Available-for-Sale)Unrealized Holding Gain or Loss-Equity 96,000No entryCash 20,000 Dividend Revenue 20,000 Cash 20,000 Investment in Mini stock 20,00042For the year 2008,Mini com reported net loss of$50,000;Maxi Coms share is 20%,or$10,000.At December 31,2008,the 48,000 shares of Mini Com.have a fair value of$11 a share,or the$528,000.No entry Loss on Investment 10,000 Investment in Mini stock 10,000 Unrealized Holding Gain or Loss-Equity 48,000 Securities Fair Value Adj.48,000 (Available-for-Sale)No entry43