spice land ch 12 investment

8/9/2019 Spice Land Ch 12 Investment

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InvestmentCh.12

Spiceland 7th ed.


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Reporting Investments


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Investor Lacks Significant Influence


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Held-to-maturity InvestmentInvesta, Inc. buys and sells both debt and equity securities of other companies as

investments. United’s fiscal year-end is December 31. The following events during2013 and 2014 pertain to the investment portfolio.

Purchase Investments

July 1, 2013

Purchased Halt Monster’s 12%, 3-year bonds for $666,633 to

yield an effective interest rate of 14%.(HTM)


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Held-to-maturity Investment

Investa, Inc. buys and sells both debt and equity securities of other companies as

investments. United’s fiscal year-end is December 31. The following events during

2013 and 2014 pertain to the investment portfolio.


July 1, 2013



Receive Investment

RevenueDecember 31, 2013

Received a semi-annual cash interest payment of $42,000

from Halt Monster.


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Held-to-maturity Investment

Investa, Inc. buys and sells both debt and equity securities of other companies as




July 1, 2013



Adjust Investments

to Fair Value December

31, 2013

Valued the Halt Monster’s bonds at $714,943.


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T.S. InvestmentInvesta, Inc. buys and sells both debt and equity securities of other companies as




July 1, 2013

Purchased $1,500,000 of Tech Soft, Inc. common stock.(TS)


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July 1, 2013


Receive Investment

Revenue

December 31, 2013

Received a cash dividend of $75,000 from Tech Soft.


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July 1, 2013


Adjust Investments

to Fair Value December31, 2013

Valued the Tech Soft stock at $1,450,000.


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Available-for-Sale InvestmentInvesta, Inc. buys and sells both debt and equity securities of other companies as




July 1, 2013

Purchased $1,000,000 of Apple-4-Soul’s common stock. (AFS)


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July 1, 2013


Adjust Investments

to Fair Value December

31, 2013

Valued the Apple-4-Soul’s stock at $990,000.


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F/S Reporting 2013 2014

Comprehensive Income Statement:

Other income (expense):

Interest and dividend income Realized and unrealized gains

and losses on investments

Net income

Other Comprehensive Income

Balance Sheet

Assets:

Trading securities(CA)

Available for Sale (NCA)

HTM

Statement of Cash Flows (direct method)

Operating Activities:

_________________________

_________________________

_________________________

Investing Activities

_______________________________

_______________________________

Financing Activities

_______________________________

_______________________________

I H S fi Ifl


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Investor Has Significant Influence


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Extent of Investor Inuence Reporting Method

Signicant inuence(usually 20% !0% e"uityo#nership$

E"uity ethod

Has control(usually > 50% equity ownership)

Consolidation

It is presumed as follows:

Exceptions1.the investee challenges the investor’s ability to exercise significant influencethrough litigation or other methods.

2.the investor surrenders significant shareholder rights in a signed agreement.

3.the investor is unable to acquire sufficient information about the investee toapply the equity method.

4.the investor tries and fails to obtain representation on the board of directors

of the investee.


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Held-to-maturity InvestmentInvesta, Inc. buys and sells both debt and equity securities of other companies as




July 1, 2013



Sell InvestmentsJanuary 15, 2014

Sold Halt Monster’s bonds (AFS)for $725,000.


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July 1, 2013


Sell Investments

January 15, 2014

Sold Tech Soft (AFS) for $1,446,000.


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July 1, 2013


Sell Investments

January 15, 2014

Sold Apple-4-Soul stock at $985,000.


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TheEquity Method-A Single Entity Concept1.The investor recognizes investment income equal to its

percentage share (based on stock ownership) of the net income

earned by the investee rather than the portion of that net incomereceived as cash dividends.

2.nitially! the investment is recorded at cost. The carrying amount

of this investment subsequently is"

a) ncreased by the investor#s percentage share of theinvestee#s net income (or decreased by its share of a loss).

b) $ecreased by dividends paid.


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Transfers between Reporting Categories

f b


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Transfers between Reporting CategoriesReclassify

Investments

December 31, 2013




Reclassified Halt Monster’s bonds to AFS,

Apple-4-Soul to TS, and Tech Soft to AFS.


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Transfers between Reporting CategoriesReclassify

Investments

December 31, 2013




Sell Investments

January 15, 2014

Sold Halt Monster’s bonds (AFS)for $725,000.

Sold Tech Soft (AFS) for $1,446,000.Sold Apple-4-Soul (TS)stock at $985,000.


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Impairment of Securities (OTTI: Other-Than-Temporary Impairments)

% Applicable only toHTM of debt securitiesandAFS of

equity securities

% If(FV < amortized cost & OTT), thisOTT ImpairmentLoss inEarnings

% Equity Security Investments-investor’s ability and intentto keep this investment untilFV> investment’s cost->

temporary

% Debt Security Investments impairment loss=Max (credit losses, intended losses from sale)credit loss= Amortized cost– PV of expected cash flows

% OTTIinincomestatements

spice land ch 12 investment

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