CHAPTER Accounting for Intercorporate Investments Gate onsets norovancs ‘Scag eveyy comes tn 1082, ATT Corporation (Ma Ba, the Soe previo eal and lng-dstance phone serve i te US, was declared {0 be © monopey and wis forced to cee and Drak uP RS local pone service operons into sven regions com ‘are krone the “Baby Bots” In volun, ATRT rcsived the ght to ent the computer buses. Ouing the oar Two decade, the market mehodcaly reconbled the Baby Bels nto tree suring companica ATAT (ermod by the meyer of Southwest tn Bot, elo, Aneto, and Peli Tele), Yorzon formed by the meer of Nynex ahd Bal Atane), and west (gal USWet Pir tothe merger of ATBT an BalSouth In 2005, these to com paras fomed a jt verte known a Cingular Wises. Cru, today known as TET Meblty LLG snow the sbeond ages wiles prove nth US. wah ove 120 mito spor a rey ‘hues in excess of 74 bien. Prior ta thal merge ATT and BotSouh managed the Cingdar Wiles joint venture equal ‘huing voting hs end represoratives cn Cingular’ Beard of deters. Eac of thse compares coud exe signeat Intueee” ove the operations of Ging, bit could net “cota” the jit vere. As 8 eeu beth ATT and BatSouh {coated forthe respeve vestments In Cigar ushg the equity mead of secount. Provo tek merger and unde the eqaly metod of accountng, ATT end BoSout record the ivestmensin Gnguer ‘on ther respective balance sheets aban satel ATA, or xara refered to this eset as vesments in and Advancss 10 ‘Ghar Wiles” with # repored caning amaunt of over S31 bile, representing over 20% of ATAT toll asa. Me uty inesent portion ofie asst was equa o one-hal of Cinuars Stockhake Equly, he prcentsge owned By [ATs the edvenae pron ropresents loans that ATAT made to the Gagulr jot verte). And, a Cngus's Stacia ‘uty iereasad or creased oc the vesimen account on ATA baance shee. Thats the nature othe ety methos tf aocuntng for reresrpra veeimens. The bas a ls et each compan reprises an asst the perestage of the ‘Stoclde Eauty ofthe boshess half our, nt fa val, a the ese with passive estan, which you Warnes “Ts chapter usttes te equity method of sccountng fe ntercorpera nvstment.Athough # valuable top nts ‘own i understanding te eauly method of accouning ls tia Yo an understanding of th consolation process that ‘ompies the eat fe chapters of tstext. To ge youa sneak peak th consolation process basicaly replaces this invest ‘Pert accounts the sae and abies of the Bulnes representa by thet investment (we make sr changes tthe [Towne statenent. rat lee of eprting the ely ofthe Duis, we reports assets ar Habis We lel you ow tis is done h Chaber 2 For now, just concenvat on ering the eqaty method of accounting reoughy. The more time you spend on th chap, he eal yu wil find the consoldation process ta otowsI Nolivzinvouo norte re | gereem, HaLdvHO ceeomrie oe oan ‘coring kr achat ee fern ony etn ‘ead dors oat | Chica ath ay tion Companies can investi ther companies ju ke you can, and they purchase these vestments fora ‘sey of weasons. Sometimes companies purchase an investment on alenave to ldng xe as and they ear eu on this aut invest inthe form of dvidends and spelen ae ale ofthe invesment. Or. hey may invest for stage reson, sch ast soy Telatons th pple ort gain erry into a ew market. These investments ae ypc acer oot ae represent significant percentage ownership inthe ober company. ‘The sceouning for investments inthe ving share of eer companies (he. equity inves ‘mens depends onthe degre to which the company making the investment Ge Insc) one 288 the openting seis of he company in which tis ivesig (ie nee. Te sppsehoe for equiy Investment re sated in Exo ‘Tires Aporaches io the Accouting for Eauty Invosnents under GAAPInsignificant influence (ir yale method)—the investment account i reported on the bal ‘ance sheet ats cuenta value at ach staement date. Dividends received sre recogiaed 1 income, and inereass in the fae value ofthe investment ar epoted in caren income or other comprehensive incom: (OCI) depending on whether the investments accounted for as arading security or an available for-sale security! This metho i required if the investment is passive in eaure (Le, the investor cannot exert significant influence over ot conto the investeeconpany)? Significant influence equity method)—he investment accounts nat reported at fr valve, ‘uta an amount thats equal othe proportion ofthe stockholders equity ofthe invest company that the investor owns (and ypcall also nclades Ir value adjustments which ‘wedlscuts ltr the chapter. Control consoidation)—afe the investor company is dead to “cor” the invest, the financial satemeris ofthe two companies most be consolidated tat ie combined (we discuss the consolidation proces bepaning in Copter?) “The degree of influence or con that he investor copay can exer over he invesee company’s ‘operating actives determines he meted tha the avestor me use io account for is equty Inve ‘ment Imemediatesecountng textbooks typialy incde a diction ofthe fl value method of counting fr pave investments ands bt inten othe equity med and tothe console in process. ur fcus inthis chpter sn investment valving significant infence andthe eqaty meio ofceouning fr these ivesment In Caper 2, ne begin our dicsion ofthe consolation proces eltngoivesments in which the investor as contol over theives, ‘ur experience suggest tat you willbe mach beter reared olathe consolidation process it you ist understand wel the scouting for avstment using te exuity method. Consolation fe Just an expanded frm of he egy metho. So, if you inves the tne now to hooey understand ‘he equity method of aceouring, you wil id the consolidation proces mich ease olen ‘et us now tum a dicusion ofthe ways in which one company edn aire anther REVIEW OF ASSET ACQUISITION ACCOUNTING In previous courses, you have lame tht the accounting for he purchase of single set requis yoo ist determine th amount pid fr the asst and, then 10 sign tht amount fo the acquired ‘see, When a company acquires more than one ase in sng tasion, however, he appropt- tte accountng is determined by whether the group of sets qualifies a. sinesr In ton, the quired group of asst alo inc der any Ulett are ssued inthe acquisition (Le, it applies toallot devel aes," wr useu sin Ibe, cine) 726 he ASB niet ep adn an rae fe eso nae ineity ss nea stung ni hee pee lyse ate ny ar ae ined astra cits eee {ayes eng eset 8 snd nesedy PSB SCS), tn ose coe cers pokes oe) ‘ett i ns a ee Freda ene cone "Swing PA ASCHS. 018d cone te open ndeetnneyeme cin ‘peter comet shane aan Ge ee oon | Cong ee een met eee ‘Sey ag rch, Wet rpm Se cope len ia {Cet ery emporio St be te es ow) Ft ‘sin Demir More Os Sc sal a aed ovo orl ese ‘eet tan era a ea i en, Ne Sed te lay snes a pre i yin Soon eye eed ‘Strict FASB ASC er iy ct ee tus: init lar anda eng Srila pop pga meet aa ero abst "altaya ope Asc sos rs cn ed pee ASB ‘Setwstess cams somone seein Lot isewy oe owe tara ‘Sexutng a \ Larrng nner ‘eons s mee