ACCT 1105
Lesson 3 - Chapter 15
Investments and International Operations
Lesson Competencies
- Explain the reasons companies make investments
- transfer excess cash into investments to
produce higher income
- to produce income from investments
- for strategic business reasons
- Distinguish between short-term and long-term
investments
- Short-term investments (temporary
investments or marketable securities) are investments which are readily
convertible to cash and which management intends to convert to cash
within one year
- Long-term investments are
investments which are not readily convertible or which management
intends to hold for longer than one year
- Identify how various investments are reported on the
financial statements
- Distinguish between debt and equity securities
- Debt - involve a creditor
relationship in which the investor will be repaid for the investment
- Equity - involve an ownership
relationship through the purchase of stock
- Describe the five classes of securities
- Identify the three factors that affect a security’s
class
- security type (debt or equity)
- company's intent to hold the security
(short- or long-term)
- the company's ownership interest (for
equity securities)
- Determine the cost of an investment
- The cost of an investment includes the
negotiated purchase price plus any applicable fees.
- Prepare journal entries for the following
- Investment acquisition
E15-1, E15-4
- Receipt of interest or dividends
E15-1,
E15-4
- Disposition of investment
E15-1,
E15-4
- Market Adjustments
E15-2, E15-3, E15-5
- Calculate and report market adjustments for unrealized gains
and losses
- Market adjustments are prepared for trading
and available-for-sale securities
- Market adjustments are typically prepared
with aggregate (total) data
- Unrealized gains (losses) are calculated as
the difference between the cost of investments and the market value of
the investments as of the date of the adjustment (generally the end of
the accounting period)
- See Handout for reporting guidelines
- Calculate and report realized gains and losses upon
disposition of securities
- Realized gains (losses) are calculated as
the difference between the aquisition cost of an investment and the net
proceeds received upon investment disposition
- See Handout for reporting guidelines
- Describe and demonstrate the equity method of
accounting for investments in equity securities
- Define the following terms
- Cash equivalents
- Portfolio
- Parent
- Subsidiary
- Consolidated financial statements
Assignments