5-1
Analyzing Investing Activities:
Intercorporate Investments
05
CHAPTER
5-2
Investment Securities
Composition
5-3
Investment Securities
Accounting for Debt Securities
5-4
Investment Securities
Accounting for Transfers between Security Classes
5-5
Investment Securities
Classification and Accounting for Equity Securities
5-6
Equity Method Accounting
• Required for intercorporate investments in which
the investor company can exert significant
influence over, but does not control, the investee.
– Reports the parent’s investment in the subsidiary, and
the parent’s share of the subsidiary’s results, as line
items in the parent’s financial statements (one-line
consolidation)
Note: Generally used for investments representing
20 to 50 percent of the voting stock of a company’s
equity securities--main difference between
consolidation and equity method accounting rests in
the level of detail reported in financial statements
5-7
Equity Method Accounting
Equity Method Accounting
• Investment account:
– Initially recorded at acquisition cost
– Increased by % share of investee earnings
– Decreased by dividends received
• Income:
– Investor reports % share of investee company earnings
as “equity earnings” in its income statement
– Dividends are reported as a reduction of the investment
account, not as income
5-8
Equity Method Accounting
Equity Method Mechanics
• Assume that Global Corp. Synergy, Inc.
acquires for cash a 25% interest
in Synergy, Inc. for $500,000, Current assets 700,000
representing one-fourth of
Synergy’s stockholders’ equity PP&E 5,600,000
as of the acquisition date. Total assets 6,300,000
• Acquisition entry: Current liabilities 300,000
Long-term debt 4,000,000
Investment 500,000 Stockholders’ Equity 2,000,000
Cash 500,000 Total liabs and equity 6,300,000
5-9
Equity Method Accounting
Equity Method Mechanics
• Subsequent to the Investment 25,000
acquisition date, Synergy Equity earnings 25,000
reports net income of (to record proportionate share of
$100,000 and pays investee company earnings)
dividends of $20,000.
Global records its
Cash 5,000
proportionate share of
Synergy’s earnings and Investment 5,000
the receipt of dividends (to record receipt of dividends)
as follows:
5-10
Post-test
1. Carilah perusahaan yang mempunyai
investasi antar perusahaan.
2. Minimal satu contoh untuk satu
klasifikasi. Boleh di perusahaan yang
sama, namun tidak boleh perusahaan
yang sama dengan kelompok yang lain.
3. Buatlah analisis singkat terkait investasi
antar perusahaan.
