1) Types equity investments
Non strategic vs. Strategic investments
Significant
0 - 20% influence Control*
20-50% 50-100%
* If you have control investee company is called subsidiary and the investor company is called the parent
2) Method of accounting vs. method of reporting
Method of accounting - journal entries
Note slide 50
Intially Transaction Investee's G/L on sale of
Method of Ac Recorded at Cost Dividends Investee's NI Revaluations inv
G/L on
FVTPL revaluations to
(default) Cost Expensed Income No JE NI to NI
G/L on skip NI and
Capitalized (to revaluations to close directly
FVOCI (elect) Cost Invest ac) Income No JE OCI to RE
Capitalized
(unless you No unless
have control - permanent
Cost * Cost expensed) Income No JE decline to NI
Dr. Inv (B/s) Cr.
Investment
Inc. + adj
Capitalized Amort Acq
(unless you Differential + No unless
have control - Cr. To Inv (B/S) any adje for permanent
Equity Cost expensed) not Income consolidation decline to NI
Method of reporting (for when you have control) - how you report on your statements
Cost
Equity
Consolidated statements (control)
3) Consolidation meaning?
=consoidated
P's FS +S's FS +AJE FS
do not effect
the P or the S's
Method of FS workbook
Acing entries
Cost Consolidation
Equity
FVOCI
FVPL
Compreh I/S B/S
NI closes RE
+OCI closes AOCI
CI
* Most commonly used method
Problem 1-3
On January 1, 2013, Photo Investments Inc. acquired 20,000 shares of the 100,000 outstanding common shares of Snapshot
10,000 of those shares for proceeds of $240,000. Following are the annual income, annual dividends and year-end share pri
During the first half of 2014, Snapshot Company earned income of $160,000 and paid a dividend of $80,000. During the sec
patent infringement suit brought by a competitor. The loss in value of the shares in the second half of 2014 was considered
Required:
Provide all the journal entries of Photo Investments Inc. for the years 2013 and 2014 with respect to its investment in Snaps
situations:
(a) Photo accounts for the investment at fair value through profit and loss;
(b) Photo accounts for the investment at fair value through other comprehensive income (Realized gains and losses are tra
(c) Photo accounts for the acquisition investment as a significant influence investment throughout the entire period. (Assu
plant assets with a fair value $100,000 greater than their carrying value and a remaining economic life on that date of 5 yea
(d) Photo accounts for the investment using the cost method.
*****
g common shares of Snapshot Company Ltd. at a cost of $20 per share plus 2% brokerage charges. On June 30, 2014, Photo sold
idends and year-end share prices for Snapshot Company Ltd. for the years 2013 and 2014:
end of $80,000. During the second half of that year, the company had a loss of $760,000 as a result of an unsuccessful defense of a
d half of 2014 was considered to be other than temporary.
pect to its investment in Snapshot Company Ltd. and the resulting investment income under each of the following independent
alized gains and losses are transferred to retained earnings on the date of sale);
ghout the entire period. (Assume that on the date the shares were acquired, the acquisition differential was allocated to some
omic life on that date of 5 years and that there are no intercompany transactions, other than dividends);
0, 2014, Photo sold
uccessful defense of a
wing independent
allocated to some
Date Account Dr. Cr.
(a) FVTPL Investment (B/S)
01/01/2013 Investment 400,000 400000
Cash 400,000 40000
440000
01/01/2013 Brokerage fees 8,000
Cash 8,000 /10,000 shares 220000
12/31/2013 Investee NI - no JE 100000
12/31/2013 Cash 32,000
Dividend/ Investment Inc 32,000
12/31/2013 Investment 40,000
Investment revaluation gain (NI) 40,000
06/30/2014 Investee NI - no JE
06/30/2014 Cash 16,000
Dividend/ Investment Inc 16,000
06/30/2014 Cash 240,000
Investment 220,000
Gain on sale of shares 20,000
12/31/2014 Investee NL - no JE
12/31/2014 Investment revaluation loss (NI) 120,000
Investment 120,000
Investment (B/S)
220000 /10,000 shares
120000
Date Account Dr. Cr.
(b) FVTOCI Investment (B/S)
01/01/2013 Investment 408,000 408000
Cash 408,000 32000
(brokerage charges are capitalized) $22/ share * 20,000 shares 440000
40000
12/31/2013 Investee NI - no JE $24/ share * 20,000 shares 480000
12/31/2013 Cash 32,000 240000
Dividend/ Investment Inc 32,000
100000
12/31/2013 Investment 32,000
Investment revaluation gain (OCI) 32,000 OCI/ AOCI
06/30/2014 Investee NI - no JE
06/30/2014 Cash 16,000 36,000
Dividend/ Investment Inc 16,000
06/30/2014 Investment 40,000
Investment revaluation gain (OCI) 40,000
06/30/2014 Cash 240,000
Investment 240,000
(no gain or loss on sale to NI)
06/30/2014 AOCI 36,000 (Cost of investment being sold $204k. SP is $24
RE 36,000
(Trf of realized gain on sale directly to RE)
12/31/2014 Investee NL - no JE
12/31/2014 Investment revaluation loss (OCI) 140,000
Investment 140,000
12/31/2014 Investee NL - no JE
Investment (B/S)
240000
140000
32,000
40,000
72,000
being sold $204k. SP is $240k so realized gain = $36k)
Date Account Dr. Cr.
(c) Equity method Investment (B/S)
01/01/2013 Investment 408,000 408000
Cash 408,000 40000
(brokerage charges are capitalized unless we have control) 12/31/2013 412000
32000
12/31/2013 Investment 40,000 06/30/2014 426000
Investment Inc. 40,000
(record Investee's NI) 213000
12/31/2013 Investment Inc. 4,000
Investment 4,000
(amort of AD $100k/5*20%) $10/share * 10,000 shares given 100000
12/31/2013 Cash 32,000
Investment 32,000
12/31/2013 No revaluation
06/30/2014 Investment 32,000
Investment Inc. 32,000
(record Investee's NI)
06/30/2014 Investment Inc. 2,000
Investment 2,000
(amort of AD $100k/5*20%* 1/2 yr)
06/30/2014 Cash 16,000
Investment 16,000
06/30/2014 No revaluation
06/30/2014 Cash 240,000
Investments 213,000
Gain on sales of investment 27,000
12/30/2014 Investment loss 76,000
Investment 76,000
(record Investee's NI)
12/30/2014 Investment Inc. 1,000
Investment 1,000
(amort of AD $100k/5*10%*6/12)
12/30/2014 Investment loss 36,000
Investment 36,000
Investment (B/S)
-32000
-4000
-16000
-2000
-213000
-76000
-1000
-36000 calculated
Date Account Dr. Cr.
(d) Cost method Investment (B/S)
01/01/2013 Investment 408,000 408000
Cash 408,000
(brokerage charges are capitalized unless control) 204000
12/31/2013 No JE for Investee NI + Adj amort AD $10/share * 10,000 shares given 100000
12/31/2013 Cash 32,000
Dividend/ Investment Inc. 32,000
(to record dividend income)
12/31/2013 No revaluation unless permanent decline
06/30/2014 No JE for Investee NI + Adj amort AD
06/30/2014 Cash 16,000
Dividend/ Investment Inc. 16,000
(to record dividend income)
06/30/2014 No revaluation
06/30/2014 Cash 240,000
Investment 204,000
Gain on sales of investment 36,000
12/31/2014 No JE for Investee NL + Adj amort AD
12/31/2014 Investment loss 104,000
Investment 104,000
Investment (B/S)
-204000
-104000 Calculated
