《会计学原理》原版教辅chap15im

CHAPTER15 INVESTMENTSANDINTERNATIONALOPERATIONS

RelatedAssignmentMaterials

StudentLearningObjectives

Conceptualobjectives:

C1.Distinguishbetweendebtandequitysecuritiesandbetweenlong-terminvestmentsandshort-terminvestments.

C2.Identifyanddescribethedifferentclassesofinvestmentsinsecurities.

C3.Describehowtoreportequitysecuritieswithcontrollinginfluence.

C4.Explainforeignexchangeratesbetweencurrencies.

Analyticalobjectives:

A1.Computeandanalyzethecomponentsofreturnontotalassets.

Proceduralobjectives:

P1.Accountfortradingsecurities.

P2.Accountforheld-to-maturitysecurities.

P3.Accountforavailable-for-salesecurities.

P4.Accountforsecuritieswith

significantinfluence.

P5A.Recordtransactionslistedinaforeigncurrency.

Questions

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BeyondtheNumbers

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*Seeadditionalinformationonnextpagethatpertainstothesequickstudies,exercisesandproblems.

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Instructor’sResourceManual,Chapter15241

AdditionalInformationonRelatedAssignmentMaterial

CorrespondingproblemsinsetB(intext)andsetC(onbook’swebsite),alsorelatetolearningobjectivesidentifiedingridonpreviouspage.TheSerialProblemforSuccessSystemscontinuesinthischapter.Problem15-1A,15-3AcanbecompletedwithPeachtreeorCarolYatchGeneralLedgerSoftware.

HomeworkManager(Availableontheinstructor’scourse-specificwebsite)repeatsallnumericalQuickStudies,allExercisesandProblemsSetA.HomeworkManagerprovidesnewnumberseachtimetheQuickStudy,ExerciseorProblemisworked.Itallowsinstructorstomonitor,promote,andassessstudentlearning.Itcanbeusedinpractice,homework,orexammode.

SynopsisofChapterRevisions

TOKYOPOPNEWopenerwithnewentrepreneurialassignment

Streamlinedandenhancedexplanationofinvestments

Newillustrationonpurchaseslistedinaforeigncurrency

NewreturnonassetsanalysisofGap,Inc

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242FundamentalAccountingPrinciples,18/e

Notes

ChapterOutline

I.BasicsofInvestments

A.MotivationforInvestments—threereasons:

1.Companiestransferexcesscashtoinvestmentstoproducehigherincome.

2.Someentities,suchasmutualfundsandpensionfunds,aresetuptoproduceincomefrominvestments.

3.Strategicreasons.

B.Short-TermversusLong-TermInvestments

1.Cashequivalentsareinvestmentsthatarebothreadilyconvertedtoknownamountsofcashandmaturewithinthreemonths.

2.Short-terminvestments(temporaryinvestmentsormarketablesecurities)—currentassetsthatmustmeetthesetworequirements:

a.Intendedtobeconvertedintocashwithinoneyearorthecurrentoperatingcycle,whicheverislonger.

b.Readilyconvertibletocash.

3.Long-terminvestments—notreadilyconvertibletocashandnotintendedtobeconvertedtocashinshort-term.

4.Investmentsinsecuritiescanincludebothdebtandequitysecurities.

a.Debtsecuritiesreflectacreditorrelationship.

b.Equitysecuritiesreflectanownerrelationship.

C.ClassesofandReportingforInvestments—accountingforinvestmentsdependsonthreefactors:

1.Securitytype—eitherdebtorequity.

2.Holdingintention—eithershorttermorlongterm.

3.Percentageofownership.

Classificationsofinvestmentsandreportingapproach:

1.Tradingsecurities(alwaysshort-term)—reportedatmarketvalue.

2.Held-to-maturity(debtsecurities)—reportedatamortizedcost(subjectforadvancedcourses).

3.Available-for-sale(debtandnon-influentialequitysecurities)—reportedatmarketvalue.

4.Significantinfluence(equitysecurities)—reportedunderequitymethod.

5.Controllinginfluence(equitysecurities)—reportedinconsolidatedstatements.

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Instructor’sResourceManual,Chapter15243

Notes

ChapterOutline

D.BasicsofAccountingforInvestments

1.DebtSecurities

a.Acquisitionisrecordedatcost(includinganyfees).

b.Interestrevenuerecordedwhenearned.

c.Whenthecostisgreaterthanmaturityvalue,thedifferenceisamortizedoverremaininglifeofsecurity.

2.EquitySecurities.

a.Acquisitionisrecordedatcost(includinganyfees).

b.Dividendsreceivedarerecordedasrevenueandreportedonincomestatement.

c.Atsale,proceedsarecomparedtocostandanygainorlossisrecorded.

II.AccountingforNoninfluentialInvestments—mostmustbereportedatmarketvalue.Exactreportingdependsonclassification.Theaccountingforeachclassisasfollows:

A.Trading(debtandequity)—intendedtobeactivelymanagedandtradedforprofit.

1.Entireportfolioisreportedatmarketvalue.

2.Marketadjustmentfromcostresultsinunrealizedgain(orloss)whichisreportedontheincomestatement.

3.Uponsalesofindividualsecurities,thedifferencebetweentheircostandnetproceedsisrecognizedasgainorloss.Subsequentmarketadjustmentswillexcludethesoldsecurities.

B.Held-to-MaturitySecurities(HTM)—Debtsecuritiesacompanyintendsandisabletoholduntilmaturity.

1.Classifyaslong-terminvestmentwhenmaturitydateextendsbeyondoneyearortheoperatingcycle,whicheverislonger.

2.Recordinterestrevenuewhenearned.

3.Amortizethedifferencebetweencostandmaturityvalueovertheremaininglifeofthesecurity.(Discussedinadvancecourse.)

4.Marketadjustmentsnotrequired.

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244FundamentalAccountingPrinciples,18/e

Notes

ChapterOutline

C.Available-for-SaleSecurities(AFS)—debtandequitysecuritiesthatarenotintendedtobeheldtomaturity.Intenttoselltheminfuture.

1.Longvs.short-termclassificationdependsonwhentheyareintendedtobesold.

2.Entireportfolioisreportedatmarketvalue.

3.Unrealizedgainsorlossesarenotreportedonincomestatement.Itisreportedinequitysectionofthebalancesheetandispartofcomprehensiveincome.(discussedlater)

III.AccountingforInfluentialInvestments

A.EquitySecuritieswithSignificantInfluence.—Impliesinvestorcanexertsignificantinfluenceovertheinvestee.

1.Aninvestorwhoownsmorethan20%(butnotmorethan50%)ispresumedtohaveasignificantinfluenceovertheinvestee.

2.Equitymethodisused.Underthismethodtheinvestor

a.recordsitsshareoftheinvestee’searningsasincreasetoitsinvestmentandonitsincomestatement.

b.reducesinvestmentbyshareoflossesandalsoreportsthemontheincomestatement.

c.doesnotrecordcashdividendsreceivedasincome(shareofinvestee’sincomealreadyreported)butinsteadthatdividendisviewedasaconversionofassets(cashincreasedandinvestmentaccountdecreased).

d.recordsandreportsgainorlosswheninvestmentissold.Gainorlossiscomputedbycomparingproceedsfromsaletobookvalueoftheinvestmentonthedateofsale.

B.EquitySecuritieswithControllingInfluence—Investorisabletoexertacontrollinginfluenceovertheinvestee(generallyownsmorethan50%ofacompany'svotingstock).

1.Theequitymethodwithconsolidation(subjectforadvancedcourse)isused.

2.Thecontrollinginvestoriscalledtheparentcompanyandtheinvesteecompanyiscalledthesubsidiary.

3.Investoralsoreportsconsolidatedfinancialstatements(subjectforadvancedcourse)tothepublicwhenowningsuchsecurities.

C.SummaryforInvestmentsinSecuritiesSeeExhibit15.8(textp.594).

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Notes

ChapterOutline

D.ComprehensiveIncome—referstoallchangesinequityforaperiodexceptthoseduetoinvestmentsanddistributionstoowners.Includes:

1.Revenues,gainsandexpensesandlossesreportedintheincomestatement.

2.Thegainsandlossesthatbypassnetincomebutaffectequity.Ex.Unrealizedgainsandlossesonavailable-for-salesecurities.

IV.DecisionAnalysis—ComponentsofReturnonTotalAssets

A.Assessesfinancialperformanceandcanbeseparatedintotwocomponents:

1.Profitmargin(netincomedividedbynetsales)reflectsthepercentageofnetincomeineachdollarofnetsales.

2.Totalassetturnover(netsalesdividedbyaveragetotalassets)reflectsacompany'sabilitytoproducenetsalesfromtotalassets

B.Calculatedas:

NetIncomeNetIncomeNetSales

AveragetotalassetsNetSalesAveragetotalassets

=x

V.InvestmentsinInternationalOperations—Appendix15A

A.ExchangeRatesBetweenCurrencies

1.Priceofonecurrencystatedintermsofanothercurrencyiscalledaforeignexchangerate.

2.Theseratesfluctuateduetochangingeconomicandpoliticalconditions(includethesupplyanddemandforcurrenciesandexpectationsaboutfutureevents).

B.SalesandPurchasesListedinaForeignCurrency

1.Companiesmakingcashsales(orpurchases)forwhichtheyreceive(orpay)foreigncurrencymusttranslatethetransactionamountsintodomesticcurrency.Thetransactionisrecordedusingexchangeratesonthedateoftheevent.

2.Priortostatements,and/oratpointofcollection/payment,adjustmentstoreceivables/payablesresultingfromchangeinexchangeratesmustberecorded.TheseadjustmentsresultinForeignExchangeGains/Losses.

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AlternateDemonstrationProblem

Chapter15

2007

Jan

May

Dec

2008

OctDec

2009

1InvestorCorporationpurchased8,000shares(20%)ofInvesteeCompany’soutstandingstockatacostof$150,000.

31InvesteeCompanydeclaredandpaidacashdividendof$1.50pershare.

31InvesteeCompanyannouncedthatitsnetincomefortheyearwas$100,000.

1InvesteeCompanydeclaredandpaidacashdividendof$1.00pershare.

31InvesteeCompanyannouncedthatitsnetincomefortheyearwas$80,000.

Jan1InvestorCorporationsoldallofitssharesofInvesteeCompany

for$178,000cash.

Required:

1.PreparejournalentriesonInvestorCorporation’sbooksusingtheequitymethod,whichassumesthatInvestorhassignificantinfluenceoverInvesteeCompany.

2.PreparejournalentriesonInvestorCorporation’sbooksusingthecostmethod,whichassumesthateventhoughInvestorowns20%ofInvestee’sstock,InvestordoesnothavesignificantinfluenceoverInvestee(forexample,anothercorporationowns70%ofInvesteeCompany’sstock).

©TheMcGraw-HillCompanies,Inc,2007

Instructor’sResourceManual,Chapter15247

Solution:AlternateDemonstrationProblem

Chapter15

Part1

2007

Jan

May

Dec

2008

Oct

Dec

2009

Jan

1Long-TermInvestment--InvesteeStock..

Cash

31Cash

Long-TermInvestment--InvesteeStock

31Long-TermInvestment--InvesteeStock..EarningsfromLong-TermInvestment

1