Investments and Fair Value Accounting. Chapter 15. Learning Objectives. Describe why companies invest in debt and equity securities. Describe and illustrate the accounting for debt investments. Describe and illustrate the accounting for equity investments.
Describe why companies invest in debt and equity securities.
Describe and illustrate the accounting for debt investments.
Proceeds from sale ($18,000 × 98%) $17,640
Less book value (cost) of the bonds 18,000
Loss on sale of bonds $ (360)
Describe and illustrate the accounting for equity investments.
The gain is reported as part of Other income on Bart Company’s income statement.
Simpson Inc. purchased a 40% interest in Flanders Corporation’s common stock on January 2, 2014 for $350,000.
For the year ended December 31, 2014, Flanders Corporation reported net income of $105,000.
Income of Flanders Corporation may be reported separately or as part of Other Income on Simpson Inc.’s income statement.
During the year, Flanders declared and paid cash dividends of $45,000.
On January 1, 2015, Simpson Inc. sold Flanders Corporation’s stock for $400,000, a gain of $26,000, calculated as follows:
Describe and illustrate valuing and reporting investments in the financial statements.
Added to current assets
Added to stockholders’ equity
Describe fair value accounting and its implications for the future.
Describe and illustrate the computation of dividend yield.