BMGT 220, Chapter 12 Discussion Kristian Sooklal [email protected]

443-797-4588 (cell) | 410-575-4719 (text)

Plan for today

• Chapter 11 quiz Cash x (600) Treasury Stock 600/2000 * 110,000 = 33,000 Additional Paid in Capital 1,800 Cash = 34,800 Per share price = 34,800 /600 = 58 Total Dividends = Current Year Dividends on Preferred Stock + Owed Dividends On Preferred Stock + Dividends on Common Stock (current Year only) Decrease in retained earnings = % of dividend * shares outstanding * market price • • Cover Chapter 12 Practice Quiz See website for updates: – http://ksooklal.comuv.com/BMGT220/

Quiz Averages

• • • • • • • • • • Syllabus – 9.37

Chapter 1 – 7.85

Chapter 2 – 8.2

Chapter 3 – 7.35

Chapter 5 – 5.91

Chapter 6 – 5.85

Chapter 8 – 5.19

Chapter 9 – 10 Chapter 10 -- ?

Chapter 11 – 5.61

Accounting for Stock Investments

Ownership Percentages

0 --------------20% ------------ 50% -------------- 100% No significant influence usually exists Significant influence usually exists Control usually exists Investment valued using

Cost Method

Investment valued using

Equity Method

Investment valued on parent’s books using Cost Method or Equity Method (investment eliminated in

Consolidation

) The accounting depends on the extent of the

investor’s influence

over the operating and financial affairs of the issuing corporation.

Debt

Investments

Equity • • • Bonds Potential Entries: • Purchase • Earn Interest • • • Receive Interest Sell Change in Fair Value Classifications: • Trading • Available for Sale • Held to Maturity • • • • Stock Potential Entries: • Purchase • Paid Dividends • Sell • • Change in Net Income Change in Fair Value Valuation Methods: • Cost • Equity Consolidation Classifications: • Trading • Available for Sale

Stock Investments

• Definition: Investments in capital stock of a corporation Influence Value Method

0-20%

Not Significant

Cost 20-50%

Significant

Equity 50-100%

Control

Consolidation

Trading Available for-sale Held to Maturity

Debt Investments

• • Definition: Investments in government or corporate bonds Journal Entries: – Purchase – Earn/Receive Interest – – Sell Change in Market Price Classification Trading Frequent buying and selling Available for-sale Intend to sell sometime in future Held to Maturity Intend/able to hold to maturity

Classification of Investments - Summary

Debt Investments (Bonds) Held-to Maturity Trading Securities Available for Sale Securities Equity Investments (Stocks)

Classification of Investments - Summary

Debt Investments (Bonds) Equity Investments (Stocks) Trading Securities (<20%) Available for Sale Securities (<20%) Significant Influence (20 to 50%) - Equity Method Controlling Influence (>50%) – Consolidated Financial Statements