Mizzou ACCTCY 2037 - Chapter 22 Outlines (11 pages)

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Chapter 22 Outlines



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Chapter 22 Outlines

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Pages:
11
School:
University of Missouri
Course:
Acctcy 2037 - Accounting II

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Chapter 22 Investments in Stocks and Bonds of Other Companies Classifications of Investments Common stock is the ownership unit of a corporation o that common stockholders are the owners of a corporation o have the right to vote on corporate policies and the right to share in the corporation s net income by receiving dividends bonds are a type of note in which a company agrees to pay the holder the face value on the maturity date and to pay interest on the face value periodically at a specified rate o Bondholders are creditors of a company o Cannot vote o share in the company s income by receiving interest A company investor may choose to invest in the common stock of another company called the investee How the investor company accounts for its investments in stock depends on its influence over the investee Influence is defined by the percentage ownership the investor company has percentage ownership relates to the number of votes the investor company has If an investor company has no significant influence over the investee less than 20 ownership it has an investment in available for sale stock o The investor company typically makes this investment to receive dividends and participate in an increase in the market value of stock o The company reports this investment on its balance sheet using the market value method If the investor company has significant influence over the investee between 20 and 50 ownership it has an equity investment o It has larger ownership equity interest in the investee and that larger interest provides it with significant influence o The investor company reports this investment using the equity method If the investor company has control over the investee more than 50 ownership the investee is no longer a separate economic entity from the investor company so the investor company prepares consolidated financial statements A company may choose to invest in another company s bonds o How a company reports its investments in bonds depend on how



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