15-1 The McGraw-Hill Companies, Inc., 2008Chapter 13Investments15-2 The McGraw-Hill Companies, Inc., 2010Conceptual Learning ObjectivesC1: Distinguish between debt and equity securities and between short-term and long-term investments C2: Identify and describe the different classes of investments in securities C3: Describe how to report equity securities with controlling influence15-3 The McGraw-Hill Companies, Inc., 2010P1: Account for trading securities(交易性金 融资产） P2: Account for held-to-maturity (HTM) securities（持有至到期日金融资产） P3: Account for available-for-sale (AFS) securities（可供出售金融资产） P4: Account for equity securities with significant influence（重大影响）Procedural Learning Objectives15-4 The McGraw-Hill Companies, Inc., 2010Basics of Investments1.Companies transfer excess cash into investments to produce higher income.2.Some companies (e.g. mutual funds etc.) are set up to produce income from investments.3.Companies make investments for strategic reasons (control).Motivation for InvestmentsC115-5 The McGraw-Hill Companies, Inc., 2010Basics of InvestmentsCash Equivalents, Short-Term versus Long-Term InvestmentsCash equivalents:short-term, highly liquid investments:(1)Readily convertible to a known cash amount(2)Sufficiently close to due date (within 3 months)C115-6 The McGraw-Hill Companies, Inc., 2010Basics of InvestmentsCash Equivalents, Short-Term versus Long-Term InvestmentsShort-term investments:are securities that management intends to convert to cash with one year or the operating cycle, whichever is longer. are readily convertible to cash.C115-7 The McGraw-Hill Companies, Inc., 2010Basics of InvestmentsCash Equivalents, Short-Term versus Long-Term InvestmentsShort-term investments:are securities that management intends to convert to cash with one year or the operating cycle, whichever is longer. are readily convertible to cash.Long-term investments:are not readily convertible to cash. are not intended to be converted to cash.are reported in the noncurrent section of the balance sheet, often in its own category (Long-Term Investments).C115-8 The McGraw-Hill Companies, Inc., 2010Basics of InvestmentsDebt securities versus Equity securitiesDebt securities investments in notes, bonds, etcEquity securities investments in stocks, etcC115-9 The McGraw-Hill Companies, Inc., 2010Classes of and Reporting for InvestmentsHeld-To- MaturityAvailable- For-SaleSignificant InfluenceControlling InfluenceConsolidateEquity MethodMarket Value MethodTradingAmortized CostClass of InvestmentReportingC215-10 The McGraw-Hill Companies, Inc., 2010Basics of Accounting for InvestmentsAccounting Basics for Debt Securities Debt securities are recorded at cost when purchased. Interest revenue for investments in debt securities is recorded when earned.On January 1, 2008, Matrix, Inc. paid Debt Inc. $1,000,000 for the bonds at par. The two-year Debt Inc. bonds have a stated rate of 6% annually. Interest is paid semi-annually on June 30 and December 31.C215-11 The McGraw-Hill Companies, Inc., 2010Basics of Accounting for InvestmentsAccounting Basics for Debt SecuritiesHeld-to-maturity (HTM) debt securities are recorded at cost when purchased. Interest revenue for investments in debt securities is recorded when earned.C215-12 The McGraw-Hill Companies, Inc., 2010Basics of Accounting for InvestmentsAccounting Basics for Debt SecuritiesDebt securities are recorded at cost when purchased. Interest revenue for investments in debt securities is recorded when earned.The same entry would be made on December 31, 2008.C215-13 The McGraw-Hill Companies, Inc., 2010Basics of Accounting for InvestmentsAccounting Basics for Debt SecuritiesOn January 1, 2010, the bonds mature and Matrix would make the following entry:C215-14 The McGraw-Hill Companies, Inc., 2010Matrix Inc. Example: ContnOn September 1, 2008, Matrix, Inc. paid Debt Inc. $1,000,000 for the bonds at par. The two-year Debt Inc. bonds have a stated rate of 6% annually. Interest is paid semi- annually on August 31 and February 28.15-15 The McGraw-Hill Companies, Inc., 2010Page 326nThe cost of a debt securities can be either higher or lower than its maturity value. nWhen the investment is long term, the difference between cost and maturity value is amortized over the remaining life of the security. 15-16 The McGraw-Hill Companies, Inc., 2010*Matrix Inc. Example: Try!nOn September 1, 2008, Matrix, Inc. paid Debt Inc. $1,200,000 for the bonds with a $1,000,000. The two-year Debt Inc. bonds have a stated rate of 6% annually. Interest is paid semi-annually on August 31 and February 28.15-17 The McGraw-Hill Companies, Inc., 2010Accounting Basics for Equity Securities (Non-influential)Equity securities are recorded at cost when acquired, including commissions or brokerage fees paid. Any cash dividends received are credited to Dividend Revenue and reported in the income statement. When the securities are sold, sale