a Have to much cash on hand don t want to put it in a low interest INVESTING 1 Why do corporations invest savings account b Generate income interest c Strategic goalss 2 Two accounts a What type of investments have been acquired i Debt securities buying bonds of another company some sort of loan that we make and we get paid back with interest ii Equity Securities Buying the stock of another company b What is the percentage of ownership that we have obtained when acquiring equity security investments i Do we own more or less than 20 of the company s outstanding stock 3 INVESTMENTS WHERE WE OWN LESS THAN 20 OF THE COMPANY s OUTSTANDING STOCK Debt securities and equity securities a 4 Accountable events related to these investments i Record the investment when we acquire it ASSET ii Record any dividends that we received DIVIDEN REVENNUE iii At end of the year must make an adjusting entry for any change in the market value of the investment 1 Change the valuation of the asset on the balance sheet from its cost to its current market value 2 Mark to market Adjustment What we paid to the end of the year value a An exception to the HISTORICAL COST CONCEPT Assets always shown on the asset sheet as their cost iv When the investments are sold we have to record any cash from the sale and record any gain or loss from the sale 1 Realized Gain or Loss Compare the selling price of the investment to the amount at which the investments are being reported on the balance sheet a Compare selling price of the investment to the previous end of year market value for the investment b Two different types of gains and losses Report on income statement i REALIZED GAINS AND LSOSES Only come from the sale of ii UNREALIZED GAIN OR LOSS represents the change of value investments of the investment 1 Reported in the mark to market adjustment c What situation would a company not record cash received from dividends as an operating cash flow i If the company prepares the financial statements following IFRS it can be classified as either operating or investing cash flow 4 INVESTMENTS IN EQUITY SECURITES WHER EYOU OWN 20 OR MORE OF THE COMPANY s OUTSTANDING STOCK a 4 Accountable events related to these investments i When acquired record it at its costs ASSET ii Any dividends received record them as a DECREASE to the investments account iii Record share of the other company s net income as an increase to the investments account INVESTMENTS REVENUE 1 Other company s net income x share of ownership iv When investments are sold record cash received from the sale and any gain or loss realized from the sale 1 Compare the selling price of the investments to the balance in the investment account at the time of the sale b Known as the Equity Method Inc investment account for our share of their net income and decrease investment account for received dividends c There is no mark to market adjustments
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