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Lecture Financial reporting and analysis (6/e) - Chapter 16: Intercorporate equity investments

Chapter 16 - Intercorporate equity investments. After studying this chapter you will be able to understand: How and why an investor’s percentage ownership share determines the accounting treatment for equity investments? How fair value accounting is applied to securities held in trading and available-for-sale portfolios and how impairments are recorded? How to apply the equity method and the fair value option? | Intercorporate Equity Investments Revsine/Collins/Johnson/Mittelstaedt/Soffer: Chapter 16 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education Learning objectives How and why an investor’s percentage ownership share determines the accounting treatment for equity investments. How fair value accounting is applied to securities held in trading and available-for-sale portfolios and how impairments are recorded. How to apply the equity method and the fair value option. What consolidated financial statements are, how they are prepared under the acquisition and purchase methods, and how noncontrolling interests are measured and reported. What goodwill is and when it is shown on financial statements. 16- Learning objectives: Concluded What variable interest entities (VIEs) are and when they must be consolidated. How operations reported in foreign currencies affect the preparation of financial statements in U.S. dollars. The major differences between IFRS and U.S. GAAP related to accounting for financial assets, consolidations, special purpose entities (SPEs) or VIEs , and joint ventures. How business combinations were previously accounted for under the pooling of interests method. 16- Overview Figure 16.1 Financial reporting alternatives for intercorporate equity investments 16- Minority passive investments: Trading securities The entry to record the shares purchased on 1/1/2014: The entry to record dividends declared: 16- Minority passive investment: Trading securities—fair value accounting Step 1: The total market value of all trading securities is compared to the total cost of the securities. Any difference becomes the target balance for the Fair value adjustment account. Step 2: Increase or decrease the Fair value adjustment account so that it equals the target balance. 16- Minority passive investment: Trading securities—fair value accounting 2014 . | Intercorporate Equity Investments Revsine/Collins/Johnson/Mittelstaedt/Soffer: Chapter 16 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education Learning objectives How and why an investor’s percentage ownership share determines the accounting treatment for equity investments. How fair value accounting is applied to securities held in trading and available-for-sale portfolios and how impairments are recorded. How to apply the equity method and the fair value option. What consolidated financial statements are, how they are prepared under the acquisition and purchase methods, and how noncontrolling interests are measured and reported. What goodwill is and when it is shown on financial statements. 16- Learning objectives: Concluded What variable interest entities (VIEs) are and when they must be consolidated. How operations reported in foreign currencies affect the preparation of .