Chapter 10 Financial Accounting Flashcards
Investor
Entity that owns stock of a corporation
Investee
Corporation that issued the stock
Shorts Term Investments
Must be liquid
Long Term Investments
Expected to be held longer than one year
What are 2 characteristics of Available for Sale Investments?
Initially recorded at cost
Reported at market value on the balance sheet
In terms of valuing investments, what happens when you increase in market value?
Unrealized Gain
In terms of valuing investments, what happens when you decrease in market value?
Unrealized Loss
What is the companion account to Long Term Investments?
Allowance to Adjust Investment to Market
Debit Balance =
Cost is greater then market
Credit Balance =
Market is less than cost
What does AFS stand for?
Available for Sale
What does not impact net income?
Unrealized gains or losses on available for sales investments
What accounting method to do use when the investor owns up to 20%?
Available for Sale
What accounting method to do use when the investor owns 20%-50%?
Equity Method
What accounting method to do use when the investor more than 50%?
Consolidation
What are 4 characteristics of the Equity Method?
Investor has significant influence over the investee
-Investment is recorded at cost
Investment is increased by investee earnings
Investment is decreased by investee dividends
What are the 2 debits to the Long Term Investment Account?
Original Cost
Share of Net Income
What is 1 credit on the Long Term Investment account?
Share of Dividends
In terms of consolidated subsidiaries, an investor is called?
Parent company
In terms of consolidated subsidiaries, an investee is called?
A subsidiary
Financial statements of a parent and its subsidiaries are…
Consolidated as if they were one company
What are 2 characteristics of Minority Interest?
Recorded in consolidation process and be included in liabilities
- Occurs when parent owns less than 100% of subsidiary
What does sub stand for?
Subsidiary
What are 2 characteristics of Long Term Bond Investments?
Called held to maturity investments
Reported at amortized cost
Held to Maturity Investments
Fixed and set maturity rate
What does Consolidation in Foreign Subsidiaries result in?
Results in foreign currency translation adjustment
