1、Chapter 7 InvestmentsLiuyang LiIntermediate Financial Accounting IIHow would a company invest in others?Li, Liuyang 2016-2017-2Chapter OutlineIntroduction - Week 1Investor Lacks Significant Influence - Week 1-2Investor Has Significant Influence - Equity Method Week 3Impairment of Investments - Week
2、4 Li, Liuyang 2016-2017-2Classification 1. The investor lacks significant influence over the investee: Equity ownership 50%Li, Liuyang 2016-2017-2How would we treat the three kinds of investments?Li, Liuyang 2016-2017-2Investor Lacks Significant InfluenceTypically, the investor owns less than 20% of
3、 other companies stock: 1. Held-to-Maturity (HTM) Securities2. Trading Securities (TS)3. Securities Available-For-Sale (AFS)Li, Liuyang 2016-2017-2Investor Controls the InvesteeEquity Method Typically, the investor owns between 20% and 50% of the voting stock of the investee.Investor Has Significant
4、 InfluenceConsolidation Typically, the investor owns more than 50% of the investee.Li, Liuyang 2016-2017-2#1: Securities to be Held-to-Maturity (HTM)What? Investments in debt securities for which the investor has the “positive intent and ability” to hold to maturity. Hold to Maturity Investor will n
5、ot sell the investment before maturity date.Debt Securities HTM securities only refer to bonds.Why? Because stock do not have maturity date.Li, Liuyang 2016-2017-2#2: Trading Securities (TS)What? Trading securities are actively managed in a trading account for the purpose of profiting from short-ter
6、m price changes.Actively Managed Frequently buy and sell securities.Purpose to Hold Expect to earn profits on short-term differences in price.Trading securities can either be bonds or stocks.Li, Liuyang 2016-2017-2#3: Available for Sale (AFS) SecuritiesWhat? When a company acquires an investment, not for an active trading account or to be held to maturity, the company classifies its investment as AFS securities.AFS securities can either be bonds or stocks.Li, Liuyang 2016-2017-2
