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Lecture Financial accounting (8/e): Appendix E - Robert Libby, Patricia A. Libby, Daniel G. Short

Appendix E: Reporting and interpreting investments in other corporations. This chapter includes contents: Passive investments in debt and equity securities, investments in stock for significant influence, investments in stock for control, types of investments and accounting methods, debt held to maturity: amortized cost method,. | Appendix E Reporting and Interpreting Investments in other corporations McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Appendix E: Reporting and Interpreting Investments in Other Corporations Passive Investments in Debt and Equity Securities Investments in debt securities are always considered passive investments. Passive investments are made to earn a high rate of return on funds that may be needed for future purposes. Equity security investments are presumed passive if the investing company owns less than 20% of the outstanding voting shares. The investor is not interested in controlling or influencing the other company. E-2 Passive investments are made to earn a high rate of return on funds that may be needed for future purposes. Passive investments typically involve smaller sums of money than do the other types of investments that we will cover. Investments in debt securities are always considered passive investments. In the absence of other information, investments in equity securities are presumed passive if the investing company owns less than 20 percent of the outstanding voting shares of the other company. In these instances, it is presumed that the investing company is not interested in controlling or influencing the other company Investments made with the intent of exerting significant influence over another corporation. The ability of the investing company to have an important impact on the operating and financial policies of another company. Significant Influence 20% - 50% outstanding shares Investments in Stock for Significant Influence E-3 Significant influence is presumed to occur when the investment ownership percentage reaches 20 percent. At that level of ownership, the investing company has the ability to have an important impact on the operating and financial policies of another company. Investments made with the intent to exert control over another corporation. Control >50% outstanding shares The . | Appendix E Reporting and Interpreting Investments in other corporations McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Appendix E: Reporting and Interpreting Investments in Other Corporations Passive Investments in Debt and Equity Securities Investments in debt securities are always considered passive investments. Passive investments are made to earn a high rate of return on funds that may be needed for future purposes. Equity security investments are presumed passive if the investing company owns less than 20% of the outstanding voting shares. The investor is not interested in controlling or influencing the other company. E-2 Passive investments are made to earn a high rate of return on funds that may be needed for future purposes. Passive investments typically involve smaller sums of money than do the other types of investments that we will cover. Investments in debt securities are always considered passive investments. In the absence of .