Upload
openaccounting
View
213
Download
0
Embed Size (px)
Citation preview
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
1/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
1
Long-Term Investmentsand International
Operations
Chapter 10
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
2/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
2
Trading and Available-For-Sale
InvestmentsTrading - to be sold in the very near
future with the intent of generating
profits on the saleAvailable-for-sale - stock
investments other than tradingsecurities
Short term
Long term
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
3/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
3
Learning Objective 1
Account for available-for-saleinvestments
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
4/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
4
Available-for-Sale Investments
Market value method
Record initial investment at cost
Report on the balance sheet attheir current market value
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
5/45
Accounting for
Available-for-Sale InvestmentsOn February 23, GE purchases 1,000
shares of Hewlett-Packard common
stock for $35,750. GE intends to holdthis stock for longer than one year.
General Journal
Date Accounts and Explanations PR Debit Credit
Feb 23 Long-term Investment(1,000 x $35.75) 35,750
Cash 35,750
Purchased investment
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
6/45
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
7/45
What Value of an Investment
Is Most Relevant?The market value of GEs
investment in Hewlett-Packard is
$36,400 on December 31.ene al Jou nal
ate ccounts and xplanations ebit edit
ec 31 llowance to djust Investment
To Ma ket ($36,400-$35,750) 650Un ealized ain on Investment 650
Adjusted investment to market
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
8/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8
What Value of an Investment
Is Most Relevant?
Long-Term Investment
Allowance to Adjust
Investment to Market
35,750 650
Investment carrying amount = Market value of $36,400
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
9/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
9
What Value of an Investment
Is Most Relevant?Unrealized Gain or Loss -
reported in two places in
financial statements:Other comprehensive income
Accumulated othercomprehensive income
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
10/45
What Value of an Investment
Is Most Relevant?Income statement:Revenues $10,000
Expenses, including income tax 6,000Net income $ 4,000Other comprehensive income:
Unrealized gain on investment $ 650
Less: Income tax (40%) ( 260) 390Comprehensive income $ 4,390
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
11/45
What Value of an Investment
Is Most Relevant?Balance sheet:
Assets:Total current assets $ XXXLong-term investments at market value 36,400
Property, plant, and equipment, net XXXStockholders equity:
Common stock $ 1,000Retained earnings 2,000
Accumulated other comprehensive income:Unrealized gain on investments $ 390
Total stockholders equity $ 3,3902006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
12/45
Selling an Available-
for-Sale InvestmentGE sells its investment in
Hewlett-Packard stock for
$34,000 during 20x9.
General Journal
Date Account and Explanat ons PR Debit redit
May 19 ash 34,000
Loss on Sale ofInvestment 1,750
Long-TermInvestment(cost) 35,750
Sold investment
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
13/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
13
Learning Objective 2
Use the equity method forinvestments.
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
14/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren14
Equity Method Investments
Used to account forinvestments in which investor
owns 20 to 50% of investeesstock
Record initial investment at cost
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
15/45
Equity Method Investments
Phillips Petroleum Companypays $400 million for 30% of the
common stock ofWhite RockNatural Gas Corporation.General Journal
Date Accounts and Explanations PR Debit redit
Jan 6 Long-TermInvestment 400
ash 400
To purchase equity-methodinvestment
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
16/45
Investors Percentage
of Investee IncomeWhite Rock Natural Gas
Corporation reports net income
of $250 million for the year.
General Journal
Date Accounts and Explanations PR Debit Credit
Dec 31 Long-TermInvestment 75
Equity-Method InvestmentRevenue 75
To record investment revenue($250 x 0.30)
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
17/45
Receiving Dividends
Under the Equity MethodWhite Rock declares and pays a
cash dividend of $100 million.
General Journal
Date Accounts and Explanations PR Debit Credit
Dec 31 Cash ($100 x 0.30) 30
Long-Term Investment 30
To record cash dividend receivedon equity-method investment
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
18/45
Investment Account
Long-Term Investment
Jan. 6 Purchases 400
Dec. 31 Net income 75Dec. 31 Balance 445
Dec. 31 Dividends 30
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
19/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren19
Financial Statements
Balance sheet (partial): millionsAssets
Total current assets $XXX
Long-term investments, at equity 445Property, plant, and equipment, net XXX
Income statement (partial): millionsIncome from operations $XXXOther revenue:
Equity-method investment revenue 75Net income $XXX
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
20/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren20
Learning Objective 3
Understand consolidatedfinancial statements.
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
21/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren21
Consolidated Subsidiaries
Parent Company
Subsidiary A
100%ownership
Subsidiary B
85%ownership
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
22/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren22
Consolidated Subsidiaries
Subsidiary
Financial
Statements
_____ _____ _____ _____
_____ _____
Consolidated
Financial
Statements _____ _____
_____ _____
_____ _____
Parent
Financial
Statements
_____ _____ _____ _____
_____ _____
_____ _____
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
23/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren23
Consolidation Accounting
Method of combining financialstatements of two or morecompanies that are controlled bythe same owners
Assets, liabilities, revenues, andexpenses of each subsidiary areadded to parent companysaccounts
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
24/45
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
25/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren25
Learning Objective 4
Account for long-terminvestments in bonds.
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
26/45
Long-Term Investments
in Bonds and NotesInvestor (Bondholder)
Investment in bonds
Interest revenue
Held-to-maturity investments are long-term
investments in bonds and notes.
Issuing CorporationBonds payable
Interest expense
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
27/45
Long-Term Investments
in Bonds and NotesAn investor purchases $10,000 of 6% CBSbonds at a price of 95.2 on April 1, 20X5.The investor intends to hold the bonds as a
long-term investment until their maturity.Interest dates are April 1 and October 1.
General Journal
Date Accounts and Explanations R Debit Credit
Apr1 Long-TermInvestment in Bonds 9,520
Cash 9,520
Purchased bond investment($10,000 x 0.925)
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
28/45
Long-Term Investments in
Bonds
General Journal
Date Accounts and Explanations PR Debit Credit
Oct 1 Cash 300
Interest Revenue 300
Received semiannual interest
($10,000 x .06 x6/12)
O 1 L g-T m I v m B 60
I v 60
To amortize bond investment[($10,000 - $9,520) / 48] x 6
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
The discount is amortized by the straight-line method.
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
29/45
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
30/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren30
Long-Term Investments
in Bonds and Notes
Long-Term Investment in Bonds
4/1 9,52010/1 6012/31 30
9,610
Long-Term Investment in BondsLong-Term Investment in Bonds
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
31/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren31
Learning Objective 5
Account for internationaloperations.
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
32/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren32
Foreign Currencies
and Exchange RatesForeign currencies exchange rate -
Measure of one currency against
anotherTranslation - Using an exchange
rate to convert the cost of an item
given in one currency to its cost ina second currency
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
33/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren33
Foreign Currencies
and Exchange RatesTwo main factors determine thesupply and demand for a
particular currency:1. Ratio of a countrys imports to
its exports
2. Rate of return available in thecountrys capital market
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
34/45
Managing Cash in
International TransactionsD. E. Shipp Belting sells goods to Artesde Mexico for a price of 1 million pesoson July 28. On that date, a peso wasworth $0.086.
General Journal
Date Accounts and Explanations PR Debit redit
Jul 28 Accounts Receivable Artes 86,000Sales Revenue 86,000
Sale on account(1,000,000 pesos x $0.086)
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
35/45
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
36/45
Managing Cash inInternational Transactions
Shipp Belting buys inventory from GesellschaftLtd., a Swiss company. They decide on a priceof 20,000 Swiss francs. On September 15,
Shipp receives the goods. The Swiss franc isquoted at $0.80.
General Journal
Date Accounts and Explanations R Debit Credit
Sep 15 Inventory 16,000Accounts ayable-Gesellschaft 16,000
Purchase on account(20,000Swiss francs x $0.80)
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
37/45
Managing Cash inInternational Transactions
When Shipp pays on September 29, theSwiss franc has decreased in value to$0.78
General Journal
Date Accounts and Explanations PR Debit Credit
Sep 29 Accounts Payable-Gessellschaft 16,000
Cash 15,600
Foreign-CurrencyTransactionGain 400
Payment on account(20,000Swiss francs x $0.78)
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
38/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren38
Managing Cash inInternational Transactions
Report the net amount of foreigncurrency transaction gains and losseson the income statement as OtherRevenues and Gains or OtherExpenses and Losses
Foreign-currency transaction loss $3,000Foreign-currency transaction gain ( 400)Foreign-currency transaction loss, net $2,600
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
39/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren39
Managing Cash inInternational Transactions
Hedging- to protect oneself fromlosing money in one transaction by
engaging in counterbalancingtransactions.
Losses on the receipt of one
currency may be offset by gains ofthe payment on another currency.
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
40/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren40
Consolidation of ForeignSubsidiaries
Subsidiarys statements mustbe brought into conformity with
American GAAPSubsidiary statements,
expressed in foreign currency,must be translated into dollars.
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
41/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren41
Consolidation of ForeignSubsidiaries
Foreign-currency translationadjustment- balancing amount
that brings the dollar amount ofthe total liabilities andstockholders equity of a foreign
subsidiary into agreement withthe dollar amount of its totalassets.
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
42/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren42
International AccountingStandards
International AccountingStandards Committee (IASC) -
primary organization working toachieve worldwide harmony ofaccounting standards is the
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
43/45
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren43
Learning Objective 6
Report investing transactions onthe statement of cash flows.
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
44/45
Using the Statement of CashFlows
Cash flows from investingactivities:Addition to property and equipment $(15)
Disposition ofPP&E 7
Loans to others (14)
Payments for other companies (12)All other investing activities (6)
Cash used forinvestingactivities $(40)
General Electric Statement of Cash FlowsYearEnded December 31, 2001
(In Millions)
2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
8/9/2019 Plain Background Power Point Slides Chapter 10 Longterm Investments International Operations 4108
45/45
2006 Prentice Hall Business Publishing Financial Accounting 6/e Harrison/Horngren45
End ofCh ter10