Finance Chapter 12 - Financial Investments

Purchases of debt and equity securities of other companies, used for short-term cash investment, strategic alliances, or market expansion

A three-level classification of the value of an investment, used in accounting, based on the reliability of the valuation technique.

Debt securities bought and held primarily for short-term profit; accounted for at fair value on the income statement.

Debt securities not intended for immediate resale, reported at fair value with changes recorded in other comprehensive income

Investments in equity securities with less than 20% ownership, where the investor can't control the investee company.

Ownership between 20% and 50% (or equivalent influence), allowing the investor to influence but not control the investee company.

Ownership of 50% or more, or similar control via legal agreements. This gives the investor overall control.

Accounting method used for investments with significant influence; investor records its share of the investee's income or loss in its own income statement.

Accounting treatment for passive investments in equity securities; the investment is reported at fair value with unrealized gains and losses recognized in the net income.

The company that is the subject of the investment by another company.

The amount an independent buyer would pay for an asset.

Fair value calculation using quoted prices of actively traded assets.

Fair value calculation when there's no active market for the asset, based on models.

Fair value determined from quoted prices of identical assets/liabilities in an active market.

Passive investments are recorded at cost on the purchase date.

Gain or loss on investment sale is calculated as Proceeds from sale less the Book value of the investment.

A method for accounting for debt securities where the investor intends to hold the bonds until maturity. Value changes aren't recorded in the income statement, value is only recorded at cost on the balance sheet.

Debt securities held for investment income and potentially capital gains. Management may sell when advantageous or if needed.

Income earned from interest paid on debt securities.

An asset, typically a debt security. Recorded at cost.

A financial instrument, typically debt, where a borrower issues a bond to a lender, promising to repay a certain amount of money at a specific time with interest payments.

Debentures are recorded on the balance sheet at current market value when there is no intention to hold them to maturity. Reporting at fair market value is required.

An adjustment made to the value of an investment in a company based on changes in its market value.

Investments whose unrealized gains or losses are reported in accumulated other comprehensive income (AOCI).

A loss in value of an investment that has not yet been realized through a sale.

The account tracking the cost and value of an investment.

A component of equity that encompasses unrealized gains and losses on available-for-sale securities, that are not yet realized.

A process of combining the financial statements of a parent company and its subsidiaries to reflect the economic performance of the entire group as a single entity.

Changes made during consolidation to remove duplicate entries and ensure a unified picture of the group's financial position, eliminating intercompany transactions.

Capital contributed by shareholders to the company, representing the funds invested by the owners.

Accumulated profits that have not been distributed to shareholders, representing the company's accumulated earnings over time.

The net income earned by the company in which an investor has an investment. The investor records its share of the investee's income on its own financial statements under the equity method.

A distribution of profits paid by the company in which an investor has an investment. The investor records its share of the dividends received as a reduction in the investment account.

Financial transactions that occur between two companies that are under common control. These transactions are eliminated when preparing consolidated financial statements.

In accounting, control refers to the ability to direct the financial and operating policies of a company. This is typically achieved by owning a majority of the voting shares.

When a company acquires another company by exchanging its own shares for all the shares of the target company, the acquisition is recorded at the book value of the target company's assets.

When preparing consolidated financial statements, transactions between the parent and subsidiary company are eliminated to avoid double counting and provide an accurate picture of the combined entity.