3- Investments

Question 1

Cost and Equity Methods

Answer 1

0-20% cost method

20%-50% equity method (One consolidation)

50%+ consolidation (control)

Question 2

Marketable Debt Securities

Answer 2

Trading securities- are reported at the fair values and unrealized gains and losses goes to net income. Under cash flow goes under operation activity or could be investing. management intend to buy and hold it to trade (Goes to income statement)

Held-to-Mature securities-are reported at the amortization cost. Under cash flow goes under investing activity. hold until maturity (Bonds only)

Available for Sale- are reported at the fair value and goes to OCI. Under cash flow goes under investing activity. Goes to other comprehensive income because it consider as an investing activity
AFS securities are classified as current or noncurrent, depending on the intent of the corporation. AFS securities are carried at fair value, with unrealized gains and losses reported in other comprehensive income. Available-for-sale securities are not accounted for using the equity method.

Question 3

Multi Step Income Statement

Answer 3

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Operating income
Non-operating income
Taxes
Income continued operation
Discontinued Operation
Extraordinary 
Net income
Other Comprehensive Income
Total Comprehensive Income

Question 4

Goodwill impairment

Answer 4

Impairment loss = Goodwill implied fair value - Goodwill book value

Question 5

Equity Method Journal Entries

Answer 5

1- BUY: 
(DR) Investments
      (CR) Cash 
2- Investee Earns Money 
(DR) Investment
      (CR) Equity in Earnings 
3-Pay a dividend 
(DR) Cash 
    (CR) Investment 
4-Amortize/depreciation/impairment
(DR) Equity in earnings 
     (CR) Investment

Question 6

Cost Method

Answer 6

1- BUY: 
(DR) Investments
      (CR) Cash 
2- Investee Earns Money
No Journal Entry 
3- Pay a dividend
(DR) Cash 
     (CR) Dividend Income
4- Amortize/depreciation/Impairment
No Journal Entry