Investment

Ch.12
Spiceland 7th ed.

Reporting Investments

Investor Lacks Significant Influence

Held-to-maturity Investment
Investa, Inc. buys and sells both debt and equity securities of other companies as
investments. Uniteds fiscal year-end is December 31. The following events during
2013 and 2014 pertain to the investment portfolio.

Purchase Investments Purchased Halt Monsters 12%, 3-year bonds for $666,633 to
July 1, 2013
yield an effective interest rate of 14%.(HTM)

Held-to-maturity Investment

Investa, Inc. buys and sells both debt and equity securities of other companies as
investments. Uniteds fiscal year-end is December 31. The following events during
2013 and 2014 pertain to the investment portfolio.

Purchase Investments Purchased Halt Monsters 12%, 3-year bonds for $666,633 to
July 1, 2013
yield an effective interest rate of 14%.(HTM)

Receive Investment
Received a semi-annual cash interest payment of $42,000
Revenue
from Halt Monster.
December 31, 2013

Held-to-maturity
Investment
Investa, Inc. buys and sells both debt and equity securities of other companies as
investments. Uniteds fiscal year-end is December 31. The following events during
2013 and 2014 pertain to the investment portfolio.

Purchase Investments Purchased Halt Monsters 12%, 3-year bonds for $666,633 to
July 1, 2013
yield an effective interest rate of 14%.(HTM)
Adjust Investments
Valued the Halt Monsters bonds at $714,943.
to Fair Value December
31, 2013

T.S. Investment

Investa, Inc. buys and sells both debt and equity securities of other companies as
investments. Uniteds fiscal year-end is December 31. The following events during
2013 and 2014 pertain to the investment portfolio.

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

July 1, 2013

T.S. Investment
Investa, Inc. buys and sells both debt and equity securities of other companies as
investments. Uniteds fiscal year-end is December 31. The following events during
2013 and 2014 pertain to the investment portfolio.

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

July 1, 2013

Receive Investment
Revenue
December 31, 2013

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

T.S. Investment

Investa, Inc. buys and sells both debt and equity securities of other companies as
investments. Uniteds fiscal year-end is December 31. The following events during
2013 and 2014 pertain to the investment portfolio.

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

July 1, 2013

Adjust Investments
Valued the Tech Soft stock at $1,450,000.
to Fair Value December
31, 2013

Available-for-Sale Investment
Investa, Inc. buys and sells both debt and equity securities of other companies as
investments. Uniteds fiscal year-end is December 31. The following events during
2013 and 2014 pertain to the investment portfolio.

Purchase Investments Purchased $1,000,000 of Apple-4-Souls common stock. (AFS)

July 1, 2013

Available-for-Sale Investment
Investa, Inc. buys and sells both debt and equity securities of other companies as
investments. Uniteds fiscal year-end is December 31. The following events during
2013 and 2014 pertain to the investment portfolio.

Purchase Investments Purchased $1,000,000 of Apple-4-Souls common stock. (AFS)

July 1, 2013

Adjust Investments
Valued the Apple-4-Souls stock at $990,000.
to Fair Value December
31, 2013

F/S Reporting
2013
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
_______________________________
_______________________________

2014

Investor Has Significant Influence

Investor Has Significant Influence

It is presumed as follows:

Extent of Investor Influence

Significant influence
(usually 20% - 50% equity
ownership)

Reporting Method

Has control
(usually > 50% equity ownership)

Consolidation

Equity method

Exceptions
1.the investee challenges the investors ability to exercise significant influence
through 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 to
apply the equity method.
4.the investor tries and fails to obtain representation on the board of directors
of the investee.

Held-to-maturity Investment

Investa, Inc. buys and sells both debt and equity securities of other companies as
investments. Uniteds fiscal year-end is December 31. The following events during
2013 and 2014 pertain to the investment portfolio.

Purchase Investments Purchased Halt Monsters 12%, 3-year bonds for $666,633 to
July 1, 2013
yield an effective interest rate of 14%.(HTM)

Sell Investments
January 15, 2014

Sold Halt Monsters bonds (AFS)for $725,000.

T.S. Investment

Investa, Inc. buys and sells both debt and equity securities of other companies as
investments. Uniteds fiscal year-end is December 31. The following events during
2013 and 2014 pertain to the investment portfolio.

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

July 1, 2013

Sell Investments
January 15, 2014

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

Available-for-Sale Investment
Investa, Inc. buys and sells both debt and equity securities of other companies as
investments. Uniteds fiscal year-end is December 31. The following events during
2013 and 2014 pertain to the investment portfolio.

Purchase Investments Purchased $1,000,000 of Apple-4-Souls common stock. (AFS)

July 1, 2013

Sell Investments
Sold Apple-4-Soul stock at $985,000.
January 15, 2014

The Equity Method-A Single Entity Concept

1.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 income
received as cash dividends.
2.Initially, the investment is recorded at cost. The carrying amount
of this investment subsequently is:
a) Increased by the investors percentage share of the
investees net income (or decreased by its share of a loss).
b) Decreased by dividends paid.

Investor Has Significant Influence

Transfers between Reporting Categories

Transfers between Reporting Categories

Reclassify
Investments
December 31, 2013

Valued the Halt Monsters bonds at $714,943.

Valued the Tech Soft stock at $1,450,000.
Valued the Apple-4-Souls stock at $990,000.

Reclassified Halt Monsters bonds to AFS,

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

Transfers between Reporting Categories

Reclassify
Investments
December 31, 2013

Valued the Halt Monsters bonds at $714,943.

Valued the Tech Soft stock at $1,450,000.
Valued the Apple-4-Souls stock at $990,000.

Sell Investments
January 15, 2014

Sold Halt Monsters bonds (AFS)for $725,000.

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

Impairment of Securities (OTTI: Other-ThanTemporary Impairments)

Applicable only to HTM of debt securities and AFS of

equity securities

If( FV < amortized cost & OTT), this OTT Impairment

Loss in Earnings
Equity Security Investments-investors ability and intent
to keep this investment until FV> investments cost ->

temporary

Debt Security Investments impairment loss=

Max (credit losses, intended losses from sale)
credit loss = Amortized cost PV of expected cash flows
OTTI in income statements.