01 Investment Intro

Question 1

Identify the three possible levels of influence over an investee for accounting purposes.

Answer 1

1 Not significant;
2 Significant influence but not control; and
3 Control.

Question 2

List the 3 investor’s considerations in selecting the correct accounting for an investment.

Answer 2

1 The nature of the investment;
2 The extent of the investment;
3 Management’s intent.

Question 3

What is the required accounting treatment when an investor has control of an investee?

Answer 3

Treat as a subsidiary and consolidate investee with investor (consolidated statements).

Question 4

What is the basis for general guidelines for determining the level of influence over an investee?

Answer 4

The nature and extent of ownership.

Question 5

Define “debt securities.”

Answer 5

Securities representing the right of the Creditor to receive from the Debtor a principal amount at a specified future date and to receive interest as payment for providing use of funds.

Question 6

Define “equity securities.”

Answer 6

Securities representing ownership or right to acquire ownership interest.

Question 7

List the 4 guidelines for determining no significant influence in an Investment :

Answer 7

1 in Debt securities;
2 in Non-voting stock;
3 Temporary in nature;
4 Less than 20% ownership of voting stock.