1. · 1 CORPORATE FINANCIAL REPORTING 12 – Financial Reporting of Investments Long-Lived Assets

2. Financial Reporting of Investments 2 I NVESTMENT I N T HE S TOCK O F A NOTHER C OMPANY Reporting investments is a continuum based on some measure of influence over the investee: We can own: 1 share 100% of shares

3. Financial Reporting of Investments 3 I NVESTMENT I N T HE S TOCK O F A NOTHER C OMPANY Reporting investments is a continuum based on some measure of influence over the investee: We can own: 1 share 50% 100% of shares passive investor active investor

4. Financial Reporting of Investments 4 I NVESTMENT I N T HE S TOCK O F A NOTHER C OMPANY Reporting investments is a continuum based on some measure of influence over the investee: We can own: 1 share 50% 100% of shares passive investor active investor market equity consolidated value method financial statements

5. Financial Reporting of Investments 5 I NVESTMENT I N T HE S TOCK O F A NOTHER C OMPANY Marketable security or Trading security or 1 shareSecurity available for sale The difference is where the passive “unrealized” gains or losses investor will appear market value

6. Financial Reporting of Investments 6 Reporting Trading Securities vs. Securities Available for Sale International rules differ slightly, but in general: Trading Securities are meant to be held for short periods of time and are part of a company’s “operating activity.” Securities Available for Sale are not part of a company’s “operating activity” rather they are investments made as a short or long term investment to generate financing (not operating) profits. Held to maturity securities - later

7. Financial Reporting of Investments 7 Reporting Trading Securities vs. Securities Available for Sale A brief aside - a visit to the “hidden” income statement - Other Comprehensive Income and a bizarre new account.

8. R EPORTING “ P ASSIVE” I NVESTMENTS (our company prepares quarterly f/s) In Feb. 2011, our company buys shares of X Company common stock for $10,000 (includes broker charges). On Mar. 31, 2011, our X stock has a fair value of $9,000. On June 30, 2011, our X stock has a fair value of $12,000. In July, 2011, our company buys shares of Y company for $14,000. On Sep. 30, 2011, our X stock is worth $12,200; Y is worth $13,300. In Oct. 2011, we sell our X stock for $12,700, On Dec. 31, 2011, our Y stock is worth $13,000 Two scenarios – once treating the stock as a trading security and then treating it as a security available for sale. 8 Investments

9. R EPORTING “ P ASSIVE” I NVESTMENTS (our company prepares quarterly f/s) In Feb. 2011, our company buys shares of X Company common stock for $10,000 (includes broker charges). On Mar. 31, 2011, our X stock has a fair value of $9,000. On June 30, 2011, our X stock has a fair value of $12,000. In July, 2011, our company buys shares of Y company for $14,000. On Sep. 30, 2011, our X stock is worth $12,200; Y is worth $13,300. In Oct. 2011, we sell our X stock for $12,700, On Dec. 31, 2011, our Y stock is worth $13,000 Scenario A: IF TRADING SECURITY (unrealized gains and losses on the income statement). The tax rate is 40%. 9 Investments

10. R EPORTING “ P ASSIVE” I NVESTMENTS (our company prepares quarterly f/s) In Feb. 2011, our company buys shares of X Company common stock for $10,000 (includes broker charges). On Mar. 31, 2011, our X stock has a fair value of $9,000. On June 30, 2011, our X stock has a fair value of $12,000. In July, 2011, our company buys shares of Y company for $14,000. On Sep. 30, 2011, our X stock is worth $12,200; Y is worth $13,300. In Oct. 2011, we sell our X stock for $12,700, On Dec. 31, 2011, our Y stock is worth $13,000 Scenario B: IF SEC. AVAIL. FOR SALE (unrealized gains and losses in Other Comprehensive Income). The tax rate is 40%. 10 Investments

11. Financial Reporting of Investments 11 Reporting Trading Securities vs. Securities Available for Sale IF YOU HAD A CHOICE, WHICH WOULD YOU CHOOSE AS A CEO OF A COMPANY? WHY?

12. Financial Reporting of Investments 12 Reporting Trading Securities vs. Securities Available for Sale QUESTIONS?