Kế toán, kiểm toán - Chapter 15: Investments and international operations

Chapter 15INVESTMENTS AND INTERNATIONAL OPERATIONSBASICS OF INVESTMENTSCompanies transfer excess cash into investments to produce higher income.Some companies are set up to produce income from investments.Companies make investments for strategic reasons.Motivation for InvestmentsC1SHORT-TERM INVESTMENTSC1Short-term investments are securities that:Management intends to convert to cash within one year or the operating cycle, whichever is longer.Are readily convertible to cash.Short-term investments do not include cash equivalents. Cash equivalents are investments that are both readily converted to known amounts of cash and mature within three months. LONG-TERM INVESTMENTSLong-term investments:are not readily convertible to cash. are not intended to be converted to cash in the short term.are reported in the noncurrent section of the balance sheet, often in its own category.C1DEBT SECURITIES VERSUS EQUITY SECURITIESDebt SecuritiesReflect a creditor relationship Examples: Investments in notes, bonds, and CDsMay be issued by governments, companies, or individualsC1Equity SecuritiesReflect an owner relationship Examples: Investments in shares of stockIssued by companiesCLASSIFICATION AND REPORTINGC1Accounting for Investments depends on three factors:Security type: debt or equity Intent to hold the security short or long termPercentage ownership in another company’s equity securitiesTRADING SECURITIESDebt and equity securitiesActively managed and traded for profitFrequent purchases and sales expectedReported at fair valueUnrealized gain or loss reported in the income statementP1HELD-TO-MATURITY SECURITIESDebt securitiesIntent and ability to hold until maturityReported asCurrent assets if their maturity dates are within one year or the operating cycle, whichever is longer.Noncurrent investments if their maturity dates are longer than one year or the normal operating cycle, whichever is longer.The portfolio of HTM securities is reported at amortized cost. There is no fair value adjustment to the portfolio.P2AVAILABLE-FOR-SALE SECURITIESDebt and equity securities not classified as trading or held-to-maturity Not actively managed Report as Short-term investments if the intent is to sell the securities within one year or the normal operating cycle, whichever is longer. Long-term investments if securities do not meet short-term investment criteria.Valued at fair valueUnrealized gains or loss reported in the equity section of the balance sheet as part of comprehensive incomeP3Significant influence is generally assumed with 20% to 50% ownership.0%20%50%100%Cost or Market Value MethodEquity MethodConsolidated Financial StatementsP4Investor Ownership of Investee Shares OutstandingACCOUNTING FOR INFLUENTIAL INVESTMENTSOriginal investment is recorded at cost.The investment account is increased by a proportionate share of investee’s earnings.The investment account is decreased by dividends received.P4INVESTMENTS IN EQUITY SECURITIES WITH SIGNIFICANT INFLUENCE On January 1, 2010, Micron Co. records the purchase of 3,000 shares (30%) of Star Co. common stock at a total cost of $70,650 cash. P4INVESTMENTS IN EQUITY SECURITIES WITH SIGNIFICANT INFLUENCE For 2010, Star reports net income of $20,000, and pays total cash dividends of $10,000 on January 9, 2011.P4$10,000 × 30% = $3,000$20,000 × 30% = $6,000INVESTMENTS IN EQUITY SECURITIES WITH SIGNIFICANT INFLUENCERequired when investor’s ownership exceeds 50% of investee.Equity Method is used.Consolidated financial statements show the financial position, results of operations, and cash flows of all entities under the parent’s control.C2INVESTMENTS IN SECURITIES WITH CONTROLLING INFLUENCEACCOUNTING SUMMARY FOR INVESTMENTS IN SECURITIESC1COMPREHENSIVE INCOMEC1Comprehensive Income: all changes in equity during a period except those from owners’ investments and dividends. Examples of items not included in Net Income but which are part of Comprehensive Income include:Unrealized gains and losses on available-for-sale securitiesForeign currency adjustmentsPension adjustments COMPONENTS OF RETURN ON TOTAL ASSETSReturn ontotal assets=Profitmargin×Total assetturnoverNet incomeAverage total assets=×Net incomeNet salesNet salesAverage total assetsA1END OF CHAPTER 15