12-2 Understanding the Business A company may invest in the securities of another company to: Earn a return on idle funds. (Passive investments) Control the other company. Influence the other company’s policies and activities.
TYPE OF INVESTMENTS เงินลงทุนชั่วคราว เงินลงทุนระยะยาว ทั้งประเภทเงินลงทุนชั่วคราวและเงินลงทุน ระยะยาวแล้ว ยังแบ่งประเภทตาม วัตถุประสงค์การถือครองเป็น – เงินลงทุนในตราสารหนี้ (Debt Investment) – เงินลงทุนในตราสารทุน (Stock Investment)
Trading We’ll sell within ten days. Available-for- Sale We’ll hold the stock for a while to see how it performs. Held-to-Maturity We intend to hold these bonds until maturity. At fair value with changes reported in net income At fair value with changes reported in the stockholders’ equity section At amortized cost Fair value = expected cash realizable value of the securities sold in normal market conditions. VALUING AND REPORTING INVESTMENTS FAIR MARKET VALUE
Held to Maturities Entries required for acquisition, interest revenue, and sale. Kuhl Corporation acquires 50 Doan Inc. 8%, 10-year, $1,000 bonds on January 1, 20x6, for $54,000, including brokerage fees of $1,000. The entry to record the investment is: DateAccount Titles and ExplanationDebitCredit Jan. 1Debt Investments Cash (To record purchase of 50 Doan Inc. bonds) 54,000 ACCOUNTING FOR DEBT INVESTMENTS Cost principle applies Cost includes all expenditures to acquire investment.
The bonds pay $2,000 interest on July 1 and January 1 ($50,000 x 8% x ½). The July 1 entry is: It is necessary to accrue $2,000 interest earned since July 1 at year-end. The December 31 entry is: DateAccount Titles and ExplanationDebitCredit July 1Cash Interest Revenue (To record receipt of interest on Doan Inc. bonds) 2,000 DateAccount Titles and ExplanationDebitCredit Dec. 31Interest Receivable Interest Revenue (To accrue interest on Doan Inc. bonds) 2,000 RECORDING BOND INTEREST
DateAccount Titles and ExplanationDebitCredit Jan. 1Cash Interest Receivable (To record receipt of accrued interest) When the interest is received on January 1, the entry is: 2,000 RECORDING BOND INTEREST
On January 1, 20x7, Kuhl Corporation receives net proceeds of $58,000 on the sale of the Doan Inc. bonds. The entry to record the sale and recognize the gain is: DateAccount Titles and ExplanationDebitCredit Jan. 1Cash Debt Investments Gain on Sale of Debt Investments (To record sale of Doan Inc. bonds) 58,000 54,000 4,000 RECORDING SALE OF INVESTMENTS PROCEEDS – COST = GAIN or LOSS
INTEREST RATES AND BOND PRICES ด้าน ผู้ออกหุ้นกู้ ( บทที่ 10 หนี้ระยะ ยาว - หุ้นกู้ ) BOND CONTRACTUAL INTEREST RATE 10% Issued when: 8% 10% 12% Premium Face Value Discount Market Rates Bonds Sell at:
INTEREST RATES AND BOND PRICES ด้านผู้ซื้อหุ้นกู้ ( บทที่ 6 Investment ) BOND CONTRACTUAL INTEREST RATE 10% Issued when: 8% 10% 12% Premium Face Value Discount Market Rates Purchase at:
PURCHASE INVESTMENTS(BOND) On January 1, 20x1, Candlestick, Inc. purchase $100,000, 5-year, 10% bonds for $108,111 with interest payable on July 1 & January 1. The entry to record the issuance is: 108,111 Cash (record purchase of bonds at a premium) 108,111Debt Investment-Held to MaturitiesJan 1 CreditDebitAccountDate Market value of bonds = $108,111
PURCHASE INVESTMENTS(BOND) On January 1, 20x1, Candlestick, Inc. purchase $100,000, 5-year, 10% bonds for $ 92,639 with interest payable on July 1 & January 1. The entry to record the issuance is: 92,639 Cash (record purchase of bonds at discount) 92,639Debt Investment-Held to MaturitiesJan 1 CreditDebitAccountDate Market value of bonds = $92,639
Date เงินสดรับ ดอกเบี้ย ดอกเบี้ยรับ 12%÷2 ส่วนต่ำตัด บัญชี มูลค่าตาม บัญชี 92,639 July 1,20x1 5,0005,558.34558.3493,197.34 Jan 1, 20x2 5,0005,591.84591.8493,789.18 July 1,20x2 5,0005,627.35627.3594,416.53 Jan 1, 20x3 5,0005,664.99664.9995,081.52 Jan 1, 20x6 5,000100,000 การตัดส่วนต่ำมูลค่าหุ้นกู้
การบันทึกการรับดอกเบี้ยและการตัดบัญชีส่วน ต่ำมูลค่าหุ้นกู้ในสมุดรายวันทั่วไป ณ วันที่ผู้ ออกหุ้นกู้จ่ายดอกเบี้ย การตัดส่วนต่ำมูลค่าหุ้นกู้ DateAccountDebitCredit July 1 Cash5,000 Debt Investment-Held to Maturities 558.34 Interest Revenue5,558.34
Investor’s Ownership Presumed Interest in Investee’s Influence Accounting Common Stock on Investee Guidelines Less than 20% Insignificant Fair Value/Cost method Between 20% Significant Cost method and 50% More than 50% Controlling Cost method Consolidated financial statements Stock investments = capital stock of corporations. ACCOUNTING FOR STOCK INVESTMENTS
On July 1, 20x6, Sanchez Corporation acquires 1,000 shares (10%) of Beal Corporation common stock for $40 per share plus brokerage fees of $500. The entry for the purchase is: DateAccount Titles and ExplanationDebitCredit July 1Stock Investments Cash (To record purchase of 1,000 shares of Beal Corporation common stock) 40,500 RECORDING STOCK INVESTMENTS HOLDINGS < 20% RECORDING STOCK INVESTMENTS HOLDINGS < 20% COST METHOD Record investment at cost. Recognize revenue when cash dividends are received.
DateAccount Titles and ExplanationDebitCredit Dec. 31Cash (1,000 x $2) Dividend Revenue (To record receipt of a cash dividend) 2,000 RECORDING DIVIDENDS HOLDINGS < 20% RECORDING DIVIDENDS HOLDINGS < 20% On December 31, Sanchez Corporation receives a $2 per share cash dividend. Dividend revenue is reported on the income statement under “Other revenues and gains.”
On February 10, 20x7, Sanchez Corporation receives net proceeds of $39,500 on the sale of its Beal stock. The cost of the Beal stock was $40,500 on July 1, 20x6. The entry to record the sale and loss is: DateAccount Titles and ExplanationDebit Credit Feb. 10Cash Loss on Sale of Stock Investments Stock Investments (To record sale of Beal common stock) 39,500 1,000 40,500 RECORDING A SALE HOLDINGS < 20% RECORDING A SALE HOLDINGS < 20% PROCEEDS – COST = GAIN or LOSS
Held with the intention of selling them in a short period. Reported at fair value. Changes from cost are reported as unrealized gains or losses and included in NET INCOME. Pace Corporation holdings are illustrated below: Trading Securities, December 31, 2006 Investments Cost Fair Value Unrealized Gain (Loss) Yorkville Company bonds $ 50,000 $ 48,000 $ (2,000) Kodak Company stock 90,000 99,000 9,000 Total $ 140,000 $ 147,000 $ 7,000 TRADING SECURITIES
Trading securities are adjusted to market value at the balance sheet date. DateAccount Titles and ExplanationDebitCredit Dec. 31Market Adjustment — Trading Unrealized Gain— Income (To record unrealized gain on trading securities) 7,000 VALUATION AND REPORTING OF TRADING SECURITIES VALUATION AND REPORTING OF TRADING SECURITIES FAIR VALUE – COST = UNREALIZED GAIN (LOSS) Fair value on balance sheet Unrealized gain/loss on income statement
Held with the intention of selling them in the near future. Reported at fair value. Changes from cost are reported as a component of stockholders equity. Elbert Corporation holdings are illustrated below: Available-for-Sale Securities, December 31, 2006 Investments Cost Fair Value Unrealized Gain (Loss) Campbell Soup Corporation 8% bonds $ 93,537 $ 103,600 $ 10,063 Hersey Corporation stock 200,000 180,400 (19,600) Total $ 293,537 $ 284,000 $ ( 9,537) AVAILABLE FOR SALE SECURITIES
DateAccount Titles and ExplanationDebitCredit Dec. 31Unrealized Loss— Equity Market Adjustment — Available-for-Sale (To record unrealized loss on available-for-sale securities) 9,537 Available for sale securities are adjusted to market value at the balance sheet date. FAIR VALUE – COST = UNREALIZED GAIN (LOSS) Fair value on balance sheet Unrealized gain/loss in stockholders’ equity VALUATION AND REPORTING OF AVAILABLE FOR SALE SECURITIES VALUATION AND REPORTING OF AVAILABLE FOR SALE SECURITIES
1.Short-term investments are readily marketable, and 2.Intended to be converted into cash within the next year or operating cycle, whichever is longer. 3.Listed on balance sheet immediately below cash. 4.Reported at fair value. SHORT-TERM vs. LONG-TERM INVESTMENTS Long-term investments are reportedon the balance sheet immediately below current assets.
An unrealized gain or loss on available-for-sale securities is reported as a separate component of stockholders’ equity. The statement presentation of the unrealized loss is shown below. DAWSON INC. Partial Balance Sheet Stockholders’ equity Common stock$ 3,000,000 Retained earnings 1,500,000 Total paid-in capital and retained earnings 4,500,000 Less:Unrealized loss on available-for-sale securities ( 100,000) Total stockholders’ equity $ 4,400,000 UNREALIZED LOSS IN STOCKHOLDERS’ EQUITY UNREALIZED LOSS IN STOCKHOLDERS’ EQUITY
Pace Corporation classified balance sheet includes: 1 Short-term Investments, 2 Investments of less than 20%, 3 Investments of 20% - 50%. Total property, plant, and equipment 926,000 Intangible assets Goodwill (Note 1) 270,000 Total intangible assets 270,000 Total assets $ 1,710,000 CLASSIFIED BALANCE SHEET
Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 185,000 Bond interest payable 10,000 Federal income taxes payable 60,000 Total current liabilities 255,000 Long-term liabilities Bonds payable, 10%, due 2010 $ 300,000 Less: Discount on bonds 10,000 Total Long-term liabilities 290,000 Total liabilities 545,000 Stockholders’ equity Paid-in capital Common stock, $10 par value, 200,000 shares authorized, 80,000 issued and outstanding 800,000 Paid-in capital in excess of par value 100,000 Total paid-in capital 900,000 Retained earnings (Note 2) 255,000 Total paid-in capital and retained earnings 1,155,000 Add: Unrealized gain on availablefor-sale securities 10,000 Total stockholders’ equity 1,165,000 Total liabilities and stockholders’ equity $ 1,710,000 Note 1. Goodwill is amortized by the straight-line over 40 years. Note 2. Retained earnings of $100,000 is restricted for plant expansion. Pace Corporation balance sheet includes: 1.Unrealized gain available-for-sale securities CLASSIFIED BALANCE SHEET