11.03 Investments in Equity Securities

Question 1

What is an investment in equity securities?

Answer 1

Equity investments (or other ownership interests) in corporations, partnerships, joint ventures, and limited liability companies. Ownership rights may be rewarded with dividends, but dividends are not required to be paid to the owners.

Question 2

What level of influence does an investor have if the investment in the equity security is nominal (less than 20% ownership)?

Answer 2

The investor cannot exercise influence over the investee.

Question 3

What level of influence does an investor have if the investment in the equity security is significant (20% to 50% ownership)?

Answer 3

The investor can exercise influence over the investee.

Question 4

What level of influence does an investor have if the investment in the equity security is more than 50% ownership?

Answer 4

The investor has control of the investee.

Question 5

What is the valuation basis for a less than 20% ownership investment in an equity security?

Answer 5

FV, if FV is readily determinable. If there is no readily determinable FV, cost less impairment.

Question 6

What is the valuation basis for a 20%-50% ownership investment in an equity security?

Answer 6

Equity method, unless FV option is selected.

Question 7

What is the valuation basis for a more than 50% ownership investment in an equity security?

Answer 7

Equity method.

Question 8

What is the balance sheet presentation for a less than 20% ownership investment in an equity security?

Answer 8

Investment, current or noncurrent, depending on intent to hold.

Question 9

What is the balance sheet presentation for a 20%-50% ownership investment in an equity security?

Answer 9

Investment, typically noncurrent.

Question 10

What is the balance sheet presentation for a more than 50% ownership investment in an equity security?

Answer 10

Consolidated financial statements.