Term
| Common Stock of another company - Accounting Methods |
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Definition
0-20% Cost method (Private company) or marketable securities (Public Company)
20 - 50% Equity method
50%+ Consolidation |
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Term
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Definition
***The investor has significant influence over the operating and financial policies over investee.***
+ 20% (But not if another shareholder or small voting block owns a majority and exercises total control)
+significant intercompany transactions or tech dependency
+officers of one company also over another or board members
+investor intends to acquire enough stock to get to 20% |
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Term
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Definition
+The investment is originally recorded at Cost
+As the investee earns money, this is recorded as an increase on the investor's books based on the % the investor owns.
+DIV received are considered a reduction of the investment account and do NOT show up on the income statement
+Any difference paid b/t the purchase price paid for the investee and the book value of the investee's net assets must be accounted for |
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Term
| Any difference paid b/t the purchase price and bv of investee |
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Definition
mark up to FMV
PP&E - depreciated
Inventory - written off when sold
Land
Goodwill - Impairment loss |
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Term
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Definition
No significant influence exists.
+ Use Market value if available
+ Use Cost method if not
+The original investment is recorded at cost
+Dividends are recorded as dividend income
+Liquidating Dividend reduces investment
+No difference b/t BV and purchase price is recorded. |
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Term
| Cost Method - Stock Dividends |
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Definition
| If an investee declares a stock dividend or issues stock rights, no income is reported. |
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Term
| Cost Method - Life Insurance |
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Definition
| If the life insurance on an officer builds up cash surrender value - the portion of the premium that increases the cash value is accumulated as an asset on the balance sheet, the rest is life insurance expense. If the officer dies, the proceeds from the policy are recognized as income only to the extent they exceed the cash value. |
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Term
| What method used when changes in ownership percentages? |
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Definition
Equity to Cost - No more significant influence - change statements prospectively
Cost to Equity - change statements retrospectively - apply the equity method but only for the % you previously owned (e.g. 10%) this requires a prior period adjustment to reported income. |
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