Reporting & Interpreting Investments in Other Corporations

Reporting and Interpreting
Appendix A Investments in Other

Corporations
Financial Accounting
10e
Libby • Libby •Hodge
Learning Objectives
After studying this chapter, you should be able to:
A-1 Analyze and report investments in debt securities using the amortized
cost and fair value methods.
A-2 Analyze and report passive investments in equity securities using the
fair value method.
A-3 Analyze and report investments involving significant influence using
the equity method.
A-4 Analyze and report investments in controlling interests.
Copyright ©2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. A-2
Understanding the Business
The Management Intention
AA company
company may
may invest
invest in
in the
the securities
securities of
of
another
another company
company in in order
order to:
to:
Earn
Earn aa return
return on
on idle
idle Influence
Influence the
the other
other Control
Control the
the other
other
cash
cash (a
(a passive
passive company’s
company’s policies
policies company’s
company’s
investment)
investment) and
and activities
activities future
future
Investments in Debt Investment in Equity

or Equity Securities Securities
Types of Investment in Securities
Investment in Debt Securities Investment in Equity Securities
1)
1) Investments
Investments in
in debt
debt 1) Investments in Equity
securities
securities to
to be
be Held
Held Securities < 20% to earn
to
to Maturity
Maturity a return on idle cash
(Passive investment)
2) investments in Equity
2)
2) Investments
Investments inin debt
debt Securities involving
securities
securities not
not held
held significant influence
to
to maturity
maturity :: (20%-50%)
A)
A) trading
trading
B)
B) Available
Available For
For Sale
Sale 3)Investment in Equity
Passive Investment Securities for Control
(>50%)
Accounting methods for Investment
Investment in Debt Securities Investment in Equity Securities
1) Passive equity
1)
1) Investments
Investments in in debt
debt investments
securities
securities to
to be
be held
held  Fair value method
to
to maturity
maturity

 Amortized
Amortized Cost
Cost 2) Equity investments
method)
method) involving significant
influence
2)
2) Investments
Investments inin debt
debt  the equity method
securities
securities not
not held
held to
to
maturity
maturity (Trading
(Trading and
and
AFS) 3) Equity investment for
AFS)
Control

 Fair
Fair Value
Value method
method  Acquisition & Merger
 Consolidated statements
Summary of Measuring and Reporting Methods
for Investments in Securities
Learning Objective A-1
A-1 Analyze and report investments in debt securities
Investment in Debt Securities:
1) Purchase Debt Securities (HTM, Trading, AFS)
A debt security (typically, a bond or note) may be acquired at par, at a
discount, or at a premium)..The total cost of the investment, including
all incidental acquisition costs such as transfer fees and broker
commissions, is debited to the Investments account.
On
OnJan
Jan 1,
1,2017,
2017, The
The Walt
WaltDisney
DisneyCompany
Company purchased
purchasedaabonds
bonds
with
with par
par value
valueofof$150,000,
$150,000,66percent
percent bonds
bondsthat
thatmature
matureon
on
December
December 31,31, 2022
2022andand Interest
Interestisispaid
paidon
onJune
June 30
30&&
December
December 31 31at
at
a)
a) $$ 150,000
150,000(= (= par
parvalue)
value)
b)
b) $$ 160,000
160,000
a). Dr: Investments $150,000

Cr: Cash $150,000
b). Dr: Investments $160,000
Cr: Cash $160,000
Copyright ©2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
A-8
2.A) Recording Bond Interest ( Trading, AFS) :
Purchased at Par or other than Par
On
OnJan
Jan1,
1,2017,
2017, The
The Walt
Walt Disney
DisneyCompany
Company purchased
purchasedaabonds
bonds
at
atpar
parvalue
valueof
of $150,000,
$150,000,66 percent
percentbonds
bondsthat
thatmature
matureon
on
December
December31,31,2022
2022and
and Interest
Interest isispaid
paid on
on June
June 30
30 &&
December
December31 31at
at$150,000.
$150,000.
On
OnJune
June30
30 and
and December
December 31,
31, WDC
WDCreceived
receivedinterest
interestrevenue
revenue
of
of$4,500
$4,500 ($150,000
($150,000 ××0.06
0.06 ××½½year).
year).
Other Expense and Income in St of Profit & Loss
A-9
2.B) Recording Bond Interest ( HTM):
Purchased at Par value.
On
OnJanuary
January 1,
1,2017,
2017, The
The Walt
Walt Disney
DisneyCompany
Company purchased
purchased
bonds
bondswith
with aapar
parvalue
valueof
of$150,000,
$150,000,66 percent
percent bonds
bonds that
that
mature
mature on
on December
December31, 31, 2022
2022 and
and Interest
Interestisispaid
paidon
onJune
June 30
30
&&December
December31 31 at
at$160,000.
$160,000.
On
OnJune
June30
30 and
and December
December 31,
31, WDC
WDCreceived
receivedinterest
interestrevenue
revenue
of
of$4,500
$4,500 ($150,000
($150,000 ××0.06
0.06 ××½½year).
year).
Other Expense and Income in St of Profit & Loss
A-10
2.C) Recording Interest: HTM Bonds
Purchased at Other Than Par Value—Amortized Cost
Method
On October 1, 2018, The Walt Disney Company paid $92,278 cash for an 8
percent, 5-year $100,000 bond that paid interest semiannually (on March 31
and September 30). Each semiannual payment is $4,000 ($100,000 × 0.08 ×
½ year). The bond’s yield was 10 percent. The $92,278 represents the
present value of the bond on the purchase date. The journal entry to record
the purchase of the bonds is:
The journal entry to record the receipt of interest

on March 31, 2019 is:
3) Measuring and Reporting Debt Investments
At
At the
the end
end of
of each
each fiscal
fiscal year,
year, measuring
measuring and
and
reporting
reporting investments
investments inin debt
debt securities
securities depend
depend on
on
management’s
management’s purpose.
purpose.
•• Held
Held to
to their
their maturity
maturity dates
dates :: classified
classified as
as either
either
current
current or
or noncurrent
noncurrent investments
investments depending
depending on on
the
the maturity
maturity date
date
•• Traded
Traded actively:
actively: classified
classified asas current
current assets,
assets,
•• Available
Available for
for Sale
Sale :: classified
classified as
as current
current or
or
noncurrent
noncurrent investments
investments based
based on
on management’s
management’s
intent
intent
A-12
Painless Company
Statement of Financial Position
For the Year Ended December 31, 2019

ASSETS LIABILITIES
Current Assets Current Liabilities
Cash $100.000 Accounts Payable $90.000

Trading Securities $60.000 Interest Payable $15.000
Accounts Receivable $85.000 Taxes Payable $10.000
Inventories $175.000 Current Portion of Note $35.000

$150.000
Prepaid Insurance $25.000 Long-term Liabilities
$445.000
Note Payable $180.000
Long-term Investments Mortage Liabilities $80.000 $260.000
Available for Sale Securities $70.000 Total Liabilities
$410.000
Held to Maturity Securities $10.000
$80.000
STOCKHOLDERS 'EQUITY
Property, Plant & Equipment Capital Stock $170.000

Land $35.000 Retained Earnings $90.000
Accumulated Other
Building & Equipment $10.000
$190.000 Comprehensive Income
Less: Accumulated
Total Stockholders' Equity
Depreciation $(70.000) $155.000 $270.000
Total Liabilities &
Total Assets $680.000 Stockholders' Equity $680.000
A-13
3.A) Measuring Held To Maturity
When management has the intent and ability to hold debt
securities (bonds or notes) until their maturity date, they are
considered held-to-maturity investments.
These investments are reported at cost
adjusted for the amortization of any discount
or premium (amortized cost method).
No fair value adjusting entry is necessary at
the end of the fiscal period.
When the bonds in the illustration mature on September 30, 2022, the
journal entry to record receipt of the principal payment would be
3.B. Measurement & reporting Trading Debt Securities
Trading securities.
• Reported as current assets on fair value
• The difference of book value & fair value is is
reported on the St. of Profit & Loss as an
unrealized gain or loss.
Investment
Investment in
in Debt
Debt Securities:
Securities:
The Walt Disney Company decides to actively trade its $150,000 investment
in debt securities provided in the prior example.
Assume that
(1) Disney has no prior trading securities,
(2) the investment is sold on December 31, 2019 (end of the next fiscal year),
for $165,000.
First, compute the adjustment that is needed as demonstrated in the

following table:
Reported at Fair Value
At the end of fiscal year 2018 The unrealized loss of $10,000 is reported on
the Statement of profit & Loss. The adjusting entry to record the trading
securities at fair value is :
In Fiscal Year 2018:
1) Investment reported in Current Assets at $ 140,000

2) Unrealized Loss of $10,000 reported in Statement of Profit and
Loss
3.B. Sale of Trading Debt Securities
When the securities are traded (sold) on December 31, 2019, there are two
journal entries:
(1) the trading securities first are adjusted to fair value of $165,000
(2) then the sale is recorded
A= Assets
R= Revenue in Profit & Loss Statement
SE= Stockholders’ Equity
3.C. Measurement & Reporting AFS Debt Securities
If investments in debt securities are not held to maturity or traded actively,

then, by default, the investments are considered available-for-sale
securities.
• reported at fair value and may be classified as current or noncurrent
assets.
• The adjusting journal entry for the unrealized holding gain or loss is not
reported on the income statement, unlike the treatment for trading
securities.
• Any unrealized gain or loss is recorded as a component of Other
Comprehensive Income on the Statement of Profit & Loss &
Other Comprehensive Income
To illustrate the year-end valuation and then subsequent sale of available-for-
sale debt securities, assume that The Walt Disney Company purchased its
$150,000 in bonds at par and intends to hold the securities for a couple of
years. Assume that
(1) Disney has no additional investment in available-for-sale securities;
(2 the investment is sold on September 30, 2019 (end of the next fiscal year),
for $165,000.
First, compute the adjustment that is needed as demonstrated in the

following table:
December 31, 2018, he adjusting entry to record the available-

for-sale securities at fair value is
Dr : Unrealized Loss (OCI) $10,000

Cr : Investments $10,000
In Fiscal Year 2018:

1) Investment reported in Current Assets/Non Current Assets at
$ 140,000
2) Unrealized Loss of $10,000 reported in Statement of Profit

and Loss and Other Comprehensive Income  Accumulated
Other Comprehensive Income in Shareholders’ Equity
A-22
Painless Company
Statement of Financial Position
For the Year Ended December 31, 2019

ASSETS LIABILITIES
Current Assets Current Liabilities
Cash $100.000 Accounts Payable $90.000
Trading Securities $60.000 Interest Payable $15.000
Accounts Receivable $85.000 Taxes Payable $10.000
Inventories $175.000 Current Portion of Note $35.000 $150.000

Prepaid Insurance $25.000 $445.000 Long-term Liabilities
Note Payable $180.000

Long-term Investments Mortage Liabilities $80.000 $260.000

Available for Sale Securities $70.000 Total Liabilities $410.000
Held to Maturity Securities $10.000 $80.000
STOCKHOLDERS 'EQUITY

Property, Plant & Equipment Capital Stock $170.000
Land $35.000 Retained Earnings $90.000

Accumulated Other Comprehensive
Building & Equipment $10.000
$190.000 Income
Less: Accumulated
Total Stockholders' Equity
Depreciation $(70.000) $155.000 $270.000
Total Assets $680.000 Total Liabilities & Stockholders' Equity $680.000
A-23
3.C. Sale of AFS Debt Securities
When the securities are traded (sold) on December 31, 2019, there are
three journal entries. Here are the first two entries:
(1) The investment account is first adjusted to fair value of $165,000.
Dr : Investments (A) $ 25,000

Cr: Unrealized Gain (OCI) $25,000
(2) The total net unrealized gain or loss accumulated in Other

Comprehensive Income for the securities that are sold is reclassified as a
realized gain or loss to be reported on the income statement. It is equal to
the net adjustments over the holding period in Other Comprehensive
Income ($(10,000) + $25,000).
Dr : Unrealized Gain (OCI) $ 25,000

Cr: Gain on Sale of Investments (PL) $25,000
3.C. Sale of AFS Debt Securities
When the securities are traded (sold) on September 30, 2019, there are three
journal entries. Here is the third entry:
(3) Finally, the sale is recorded with the investments account decreased by
its book value (equal to fair value after the adjustment in the first entry) and
cash received of $165,000.
Dr : Cash (A) $ 25,000

Cr: Investment (A)
$25,000
GROUP EXERCISES
A-26
A-2 Analyze and report passive investments in equity securities using the
fair value method.
Investment in Equity
1. Passive Investment in Equity Securities (<20%)
2. Equity Investment for significant Influence (20%-50%)
3. Equity Investment for control (>50%)
A-28
1) Passive Investment in Equity Securities
 When a company purchases and owns less than 20

percent of the outstanding voting stock of
another company, the investment in these equity
securities is usually considered passive.
 passive investments in equity securities, whether

current or noncurrent, are reported at fair value
with any year-end adjustments for unrealized
gains or losses included in net income (similar to
the accounting for debt securities actively traded).
Passive Investment in Equity Securities
1.A. Purchased
To illustrate accounting for investment in equity securities,

assume that on December 31, 2017, The Walt Disney
Company purchased 10 percent of the voting common stock of
Green Light Pictures for $15 per share. Green Light has
100,000 shares of stock outstanding. In addition, the studio
pays a dividend of $0.50 per share each year at the end of
September, its fiscal year end.
December 31, 2017 :
Dr : Investments $150,000
Cr : Cash $150,000
1.B. Earning Dividend Revenue
Green Light pays a dividend of $0.50 per share each year at the
end of September. The following journal entry records the receipt
of dividends of $5,000 (10,000 shares × $0.50 per share):
Dr : Cash (A) $150,000

Cr : Dividend Income (PL) $150,000
1.C. Reporting at Financial Statement :
Applying Fair Value Method
Assume that
(1) Disney has no other investments in equity securities;
(2) Disney sold the stock portfolio on March 31, 2020, for $19 per share
($190,000) (before Green Light declared any dividends).
Compute the adjustment needed as demonstrated in this table:
1.C. Reporting at Financial Statement : Applying Fair Value Method
The adjustment needed to adjust Disney’s investment in Green Light’s

stock to fair value is demonstrated in this table:
1) The adjusting entry to record the investments in equity securities at

fair value at the end of Fiscal Year 2018 is:
Dr : Unrealized Loss (PL) $30,0000
Cr : Investment (A) $30,000
2) The adjusting entry to record the investments in equity securities at fair

value at the end of Fiscal Year 2019 is:

Cr: Unrealized Gain (PL) $45,000
1.D. Sale of Investment in Equity Securities
There are two entries that need to be recorded for the sale of investments in
equity securities in Dec 31, 2020:
(1) Adjust to fair value:

Cr: Unrealized Gain (PL) $25,000
(2) Record the sale of the equity securities:

Dr : Cash (A) $ 45,000
Cr: Investments (A) $45,000
The following summarizes the effects on financial statements across years for
equity securities investments:
2. Investments for Significant Influence: Equity Method
(1 of 2)
An investor may want to exert influence (presumed by owning 20 to 50

percent of the outstanding voting stock) without becoming the
controlling shareholder (presumed when owning more than 50 percent
of the voting stock).
Examples follow:
• A retailer may want to influence a manufacturer to be sure that it can
obtain certain products designed to its specifications.
• A manufacturer may want to influence a computer consulting firm to
ensure that it can incorporate the consulting firm’s cutting-edge
technology in its manufacturing processes.
• A manufacturer may recognize that a parts supplier lacks experienced
management and could prosper with additional managerial support.
A-36
Investments in Stock for Significant Influence
Investments are made with the intent of exerting

significant influence over another corporation.
2)
2)Presumed
Presumedififthe
theinvesting
investing
1).
1).The
Theability
abilityof
ofthe
theinvesting
investing company
companyowns
ownsfrom
from2020to
to50
50
company
companyto tohave
haveananimportant
important percent
percentof
ofthe
theoutstanding
outstanding
impact
impactononthe
theoperating,
operating, voting
votingshares
shares
investing
investingand
andfinancial
financialpolicies
policies
of
ofanother
anothercompany.
company.
3)
3)Other
Otherfactors
factorsmay
mayindicate
indicate
significant
significantinfluence
influencesuch
suchas
as
Purpose
Purposeof ofinvestments
investments
in membership
membershipon onboard
boardofof
instock
stockforforsignificant
significant directors,
influence
influence==To Totake
take directors,etc.
etc.
an
anactive
activerole
roleas
asan
an
investor
investor
A-37
Investments for Significant Influence: Equity Method
2.A. Purchase of Stock
In
Inearly
early2018,
2018,Disney
Disneypurchased
purchasedaa4040percent
percentinterest
interestinin
Green
GreenLight
LightPictures
Picturesfor
for$400,000
$400,000inincash
cash(40,000
(40,000shares
sharesof of
the
the100,000
100,000outstanding
outstandingvoting
votingcommon
commonstock).
stock).
• Disney was presumed to have significant influence over the affiliate.

• Therefore, Disney must use the equity method to account for this
investment.
• The purchase of the asset would be recorded at cost.
2.B. Earnings of Affiliates
During
Duringthe
thefiscal
fiscalyear
yearending
endinginin2018,
2018,Green
GreenLight
LightPictures
Pictures
reported
reportedaanet
netincome
incomeofof$500,000
$500,000for forthe
theyear.
year.The
TheWalt
Walt
Disney
DisneyCompany’s
Company’spercentage
percentageshare
shareof ofGreen
GreenLight’s
Light’sincome
incomeisis
$200,000
$200,000(40%
(40%××$500,000)
$500,000)and
andisisrecorded
recordedasasfollows.
follows.
Dr : Investments $ 200,000
Cr: Income from Investments
$200,000
• The investor company bases its investment income on the affiliates’

earnings rather than the dividends affiliates declare.
• If the affiliates report a net loss for the period, the investor records a
loss by decreasing the investment account and recording Equity in
Investee Losses.
2.C. Dividends Declared
During
Duringthe
thefiscal
fiscalyear
yearending
endingin in2018,
2018,Green
GreenLight
Lightdeclared
declared
aacash
cashdividend
dividendofof$0.50
$0.50per
pershare
sharetotostockholders.
stockholders.Disney
Disney
will
willreceive
receive$20,000
$20,000($0.50
($0.50××40,000
40,000shares)
shares)from
fromGreen
Green
Light
Lightin
inthe
thefuture.
future.
Dr : Cash $20,000
Cr : Investments $20,000
• Any dividends declared by the affiliate should not be recorded as

investment income. Instead, dividends declared by the affiliate reduce
the investment account.
Summary
InInsummary,
summary,the
theeffects
effectsfor
forthe
thefiscal
fiscalyear
yearending
endingSeptember
September30,
30,
2018,
2018,are
arereflected
reflectedininthe
thefollowing
followingT-accounts:
T-accounts:
Reporting Investments under the Equity Method
Reported on the balance sheet as a long-term asset,

originally at cost. However, subsequent to the investment
purchase, the investment account does not reflect either
cost or fair value.
Account is increased by the cost of shares that were purchased and

the proportional share of the affiliates’ net income.
Account is reduced by the proportional amount of dividends declared

from affiliate companies, the proportional share of affiliates’ net
losses, and the cost of any shares that were sold.
Do not adjust the If sold, any

investment account to gain or loss is reported
reflect changes in fair in the Profit & Loss
value. statement.
A-3 Analyze and report investments involving significant influence using

the equity method.
Controlling Interests: Mergers and Acquisitions
The following are some of the reasons for
acquiring control of another corporation:
Horizontal
Horizontal
growth
growth
Vertical
Verticalintegration
integration
Synergy
Synergy
Investments in Stock for Control
Investments are made with the intent to exert

control over another corporation.
Presumed
Presumedwhenwhenthe
theinvesting
investing
The
Theinvesting
investingcompany
companyhas hasthe
the company
companyowns
ownsmore
morethan
than5050
ability
abilityto
todetermine
determinethethe percent
percentof
ofthe
theoutstanding
outstanding
operating
operatingand
andfinancial
financialpolicies
policies stock
stockof
ofthe
thecompany
company
of
ofanother
anothercorporation.
corporation.
Purpose
Purposeof ofinvestments
investments
in
instock
stockfor
forcontrol
control==To
To
achieve
achievevertical
verticalintegration,
integration,
horizontal
horizontalgrowth,
growth,oror
operational
operationalsynergy
synergy
Recording a Merger (1 of 3)
Merger is when one company purchases all of the assets and

liabilities of another and the acquired company goes out of
existence as a separate corporation
The acquisition method.

It requires that the purchased assets and liabilities be recorded
by the purchaser at their fair value on the date of the merger.
Purchase Price Allocation
The acquiring company must go through a two-step process,
often called purchase price allocation, to determine how to
record the acquisition.
Step 1: Estimate the fair value of the acquired company’s

tangible assets, identifiable intangible assets, and
liabilities. This includes all assets and liabilities, regardless
of whether and at what amount they were recorded on the
books of the acquired company.
Step 2: Compute goodwill, the excess of the total

purchase price over the fair value of the assets minus
the liabilities listed in Step 1.
The Walt Disney Company acquires all of the assets and liabilities of Green
Light Pictures for $1,000,000 cash. Green Light owned two assets and one
liability with fair values of $950,000 and $100,000, respectively.
The two-step purchase price allocation is shown below:
Step 1: Estimate the fair value of the acquired company’s tangible assets,
identifiable intangible assets, and liabilities.
Step 2: Compute goodwill as follows:
Note: The book values on the acquired company’s balance sheet are
irrelevant unless they represent fair value.
Disney would account for the merger by recording the assets and liabilities
listed above and reducing cash for the amount paid as follows:
Goodwill is reported only if it is acquired in a merger or acquisition

transaction.
After a merger, the purchasing company will treat the acquired assets
and liabilities in the same manner as if they were acquired individually.
Disney Buys Fox
FINANCIAL ANALYSIS
In December 2017, The Walt Disney Company (the

world’s largest media conglomerate) announced a major
acquisition of 21st Century Fox’s assets (the world’s
$$$
third largest media conglomerate behind Comcast).
Disney is expected to purchase most of Fox’s assets,
worth approximately $66.1 billion, and assume $13.7
billion of Fox’s debt for $71.3 billion in stock and cash,
with the transaction to be finalized near the end of
2018.
The Disney-Fox deal is expected to provide cost-saving synergies of at

least $2 billion.
Reporting for the Combined Companies
Consolidated Financial Statements
• When a company acquires another, and both companies

continue their separate legal existence, consolidated financial
statements must be presented.
• The parent company is the company that gains control over
the other company.
• The subsidiary company is the company that the parent
acquires.
• When the parent buys 100 percent of the subsidiary, the
resulting consolidated financial statements look the same
as they would if the companies were combined into one in
a simple merger as discussed earlier.
GROUP EXERCISES
A-52

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Reporting and Interpreting

Appendix A Investments in Other

After studying this chapter, you should be able to:

Investments in Debt Investment in Equity

Investment in Debt Securities Investment in Equity Securities

Investment in Debt Securities Investment in Equity Securities

A-1 Analyze and report investments in debt securities

a). Dr: Investments $150,000

Other Expense and Income in St of Profit & Loss

Other Expense and Income in St of Profit & Loss

The journal entry to record the receipt of interest

Inventories $175.000 Current Portion of Note $35.000

First, compute the adjustment that is needed as demonstrated in the

Reported at Fair Value

In Fiscal Year 2018:

1) Investment reported in Current Assets at $ 140,000

(2) then the sale is recorded

If investments in debt securities are not held to maturity or traded actively,

First, compute the adjustment that is needed as demonstrated in the

December 31, 2018, he adjusting entry to record the available-

Dr : Unrealized Loss (OCI) $10,000

In Fiscal Year 2018:

2) Unrealized Loss of $10,000 reported in Statement of Profit

Cash $100.000 Accounts Payable $90.000

Trading Securities $60.000 Interest Payable $15.000

Accounts Receivable $85.000 Taxes Payable $10.000

Inventories $175.000 Current Portion of Note $35.000 $150.000

Note Payable $180.000

Long-term Investments Mortage Liabilities $80.000 $260.000

Property, Plant & Equipment Capital Stock $170.000

Land $35.000 Retained Earnings $90.000

Total Assets $680.000 Total Liabilities & Stockholders' Equity $680.000

Dr : Investments (A) $ 25,000

(2) The total net unrealized gain or loss accumulated in Other

Dr : Unrealized Gain (OCI) $ 25,000

Dr : Cash (A) $ 25,000

 When a company purchases and owns less than 20

 passive investments in equity securities, whether

To illustrate accounting for investment in equity securities,

December 31, 2017 :

Dr : Cash (A) $150,000

The adjustment needed to adjust Disney’s investment in Green Light’s

1) The adjusting entry to record the investments in equity securities at

2) The adjusting entry to record the investments in equity securities at fair

Dr : Investments (A) $ 45,000

(1) Adjust to fair value:

(2) Record the sale of the equity securities:

An investor may want to exert influence (presumed by owning 20 to 50

Investments are made with the intent of exerting

• Disney was presumed to have significant influence over the affiliate.

• The investor company bases its investment income on the affiliates’

• Any dividends declared by the affiliate should not be recorded as

Reported on the balance sheet as a long-term asset,

Account is increased by the cost of shares that were purchased and

Account is reduced by the proportional amount of dividends declared

Do not adjust the If sold, any

A-3 Analyze and report investments involving significant influence using

Investments are made with the intent to exert

Merger is when one company purchases all of the assets and

The acquisition method.