Investments

Chapter 12

Learning Objectives Investments

1. Demonstrate how to identify and account for investments classified for reporting purposes as held-to-maturity, trading and available-for-sale. 2. Explain what constitutes significant influence by the investor over the operating and financial policies of the investee. 3. Demonstrate how to identify and account for investments accounted for under the equity method. 4. Explain the adjustments made in the equity method when the fair value of the net assets underlying the investment exceeds their book value. 5. Explain how electing the fair value option affects accounting for investments. 6. Analyze the impact of investments on the financial statements.

Investments
Investment strategies Liquidity cushion Cyclical cash needs Earn income Exercise influence Control

Determine Purpose Purchase Securities

Types of Securities Debt - Bonds & Notes Equity - Common & Preferred Stock Accounting for Investments Degree of Influence No significant influence Significant influence Control Ownership Level < 20% 20-50% > 50% Accounting Method Cost or Market* HTM,TS, AFS Equity Method Consolidation

Classify Investments
Recognize Earnings & Cash Flows Monitor Changes in Value Sell Securities Disclose in F/S
3

*Cost For non-marketable equity securities *Market For publicly traded securities

Investments
Marketable Securities
Class: HTM Initially Balance recorded: Sheet: Cost Amortized cost Income Statement: Statement of Cash Flows: Interest earned +/- Buy/sell = realized G/L Investing Activities; Interest = OA Interest & dividends earned +/- realized G/L Interest & dividends earned +/- realized G/L +/- unrealized G/L Buy/sell = Investing Activities; Interest & dividends = OA Buy/sell = Operating Activities; Interest & dividends = OA Realized G/L: Selling price minus amortized cost Selling price minus (amortized) cost Selling price minus fair value at most recent Balance Sheet date

AFS

Cost

Fair value; unrealized G/L = AOCI Fair value

TS

Cost

Investments
Equity Method Applies when investor company exercises significant influence (20%-50% ownership). Investment is initially recorded at cost and then adjusted as follows: Beginning investment Share of investees net income (loss)* Dividend received from investee Ending investment * Adjusted for additional depreciation or amortization due to excess of fair value of investment over the underlying book value at acquisition.

+/+/=

Changes in market value of publicly-traded shares are NOT recognized, unless permanently impaired. Do not record unrealized gains/losses.

Investments
Fair Value Option companies are allowed to use the fair value option for HTM, AFS and equity method investments. Marketable Securities When an HTM and AFS security is purchased, the company makes an irrevocable decision about whether to elect the fair value option. The company can elect the fair value option for some securities and not for identical others. The company must explain the partial election in the notes. The Fair Value Option requires that the selected HTM & AFS securities be classified as trading securities and disclosed as trading securities on the financial statements. Unrealized gains and losses are included in income. Equity-Method Investments The company makes an irrevocable decision about whether to elect the fair value option. The company can elect the fair value option for some investments and not for others. The company carries the investment at fair value in the Balance Sheet and includes unrealized gains and losses in income. Investments are NOT reclassified as trading securities, but are shown on their own line in the Balance Sheet or are combined with equity method investments with the amount at fair value shown parenthetically.
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Investments - Entries
HTM Securities Discount Bonds
On January 1, 2009, Matrix, Inc. purchased as an investment $1,000,000, of 10%, 10-year bonds, interest paid semi-annually. The market rate for similar bonds is 12%. Lets look at calculation of the present value of the bond issue. Effective Interest Method Face Value: $ 1,000,000 Year Cash Investment Discount Unamortized Carrying Amount Bond Valuation
N 20 I/Y 6.00 (885,301) PV PMT 50,000 FV 1,000,000
1-Jan-09 30-Jun-09 $ 31-Dec-09 30-Jun-10 31-Dec-10 30-Jun-11 50,000 $ 50,000 50,000 50,000 50,000 53,118 $ 53,305 53,503 53,714 53,936 3,118 3,305 3,503 3,714 3,936 Received 5.00% Revenue 6.00% Amortized Discount of Bonds $ 114,699 $ 111,581 108,276 104,773 101,059 97,122 885,301 888,419 891,724 895,227 898,941 902,878

Amortization Schedule Effective Interest Method Cash received = Coupon x Face Value Investment revenue = Carrying Value x Effective Interest Rate Entry to record bond purchase. Discount on bonds investment is a valuation account. Initial carrying value is $885,301. Interest Received, amortization of discount, & recognition of revenue after six months.

1/1/09

Investment in HTM securities Discount on bond investment Cash

1,000,000 114,699 885,301 50,000 3,118 53,118 50,000 3,305 53,305

Cash 6/30/09 Discount on bonds investment Investment revenue Cash 12/31/09 Discount on bonds investment Investment revenue

Interest Received, amortization of discount, & recognition of revenue after six months.

On December 31, 2009, the bonds are sold for $900,000. Hypothetical Transaction!

Cash Discount on bonds Investment 12/31/09 Investment in HTM securities Gain on sale of investments

900,000 108,276 1,000,000 8,276

Investments - Entries
HTM Securities Premium Bonds
On January 1, 2009, PUC Corp purchased as an investment $100,000, of 13%, 3-year bonds, interest paid semiannually. The market rate for similar bonds is 12%. Lets look at calculation of the present value of the bond issue. Bond Valuation
N 6 I/Y 6.00 (102,459) PV PMT 6,500 FV 100,000
Year Effective Interest Method Cash Investment Received Revenue 6.50% 6.00% 6,500 $ 6,500 6,500 6,500 6,500 6,500 6,148 $ 6,126 6,104 6,080 6,055 6,028 Premium Amortized Face Value: $ 100,000 Unamortized Carrying Amount Premium of Bonds $ 352 374 396 420 445 472 2,459 $ 2,106 1,733 1,337 917 472 (0) 102,459 102,106 101,733 101,337 100,917 100,472 100,000

Amortization Schedule Effective Interest Method Cash received = Coupon x Face Value Investment revenue = Carrying Value x Effective Interest Rate

1-Jan-09 30-Jun-09 $ 31-Dec-09 30-Jun-10 31-Dec-10 30-Jun-11 31-Dec-11

Entry to record bond purchase. Could have debited Premium on bonds investment which would be a valuation account.

1/1/09

Investment in HTM securities Cash

or

102,459 102,459
100,000 2,459 102,459 6,500 352 6,148 6,500 374 6,126

1/1/09

Investment in HTM securities Premium on bond investments Cash Cash Investment in HTM securities (Premium) Investment revenue

Interest Received, amortization of premium, & recognition of revenue after six months. Interest Received, amortization of premium, & recognition of revenue after six months.

6/30/09

Cash 12/31/09 Investment in HTM securities (Premium) Investment revenue

Investments - Entries
HTM Securities - Bonds
P12-1: Fuzzy Monkey Technologies, Inc. purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2009. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31.

Investment on January 1. Interest on June 30. Interest on December 31.

The amount of interest revenue is based on the effective interest rate (yield) at the time of acquisition. Any premium or discount is amortized over the remaining life of the bond.

1/1/09

Investment in HTM securities Discount on bond investment Cash

80,000,000 14,000,000 66,000,000 3,200,000 100,000 3,300,000 3,200,000 105,000 3,305,000

Cash 6/30/09 Discount on bond investment Investment revenue Cash 12/31/09 Discount on bond investment Investment revenue

Construction Forms Corporation Balance Sheet (Partial) 31-Dec-09 Investment in HTM securities Less: discount on bond investments 80,000,000 13,790,000

Disclosure on Balance Sheet

66,210,000

Impact on Statement Of Cash Flows

SOCF Section Operating Activities Investing Activities Financing Activities

Amount $ 6,400,000 $ 66,000,000 $ -

Inflow/Outflow Inflow Outflow None

Investments - Entries
Trading Securities - Bonds
P12-2: Fuzzy Monkey Technologies, Inc. purchased as a short-term investment $80 million of 8% bonds, dated January 1, on January 1, 2009. Management intends to include the investment in a short-term, active trading portfolio. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2009, was $70 million.

Investment on January 1. Interest on June 30. Interest on December 31. Revaluation on December 31.

1/1/09

Investment in Trading securities Discount on bond investment Cash

80,000,000 14,000,000 66,000,000 3,200,000 100,000 3,300,000 3,200,000 105,000 3,305,000

Cash 6/30/09 Discount on bond investment Investment revenue Cash 12/31/09 Discount on bond investment Investment revenue

12/31/09

Fair value adjustment - TS Net unrealized holding gains and losses - IS

3,795,000 3,795,000

Disclosure on Balance Sheet

Because these are trading securities, the unrealized holding gain of $3.79 would be recognized in Fuzzy Monkeys 2009 income statement.

Construction Forms Corporation Balance Sheet (Partial) 31-Dec-09 Investment in Trading securities Add: Fair value adjustment Less: discount on bond investments

80,000,000 3,795,000 13,795,000

70,000,000

Impact on Statement Of Cash Flows

SOCF Section Operating Activities Investing Activities Financing Activities

Amount $ 6,400,000 $ 66,000,000 $ -

Inflow/Outflow Inflow Outflow None

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Investments - Entries
Available-For-Sale Securities - Bonds
P12-3: Fuzzy Monkey Technologies, Inc. purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2009. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2009, was $70 million.

Investment on January 1.
Interest on June 30. Interest on December 31. Revaluation on December 31.
$70,000,000 - $66,205,000 = $3,795,000

1/1/09

Investment in AFS securities Discount on bond investment Cash

80,000,000 14,000,000 66,000,000 3,200,000 100,000 3,300,000 3,200,000 105,000 3,305,000

Cash 6/30/09 Discount on bond investment Investment revenue Cash 12/31/09 Discount on bond investment Investment revenue

12/31/09

Fair value adjustment - AFS Net unrealized holding gains and losses - OCI

3,795,000 3,795,000

Disclosure on Balance Sheet

Because these are available-for-sale securities, the unrealized holding gain of $3.79 would be recognized in Fuzzy Monkeys 2009 other comprehensive income, and serve to increase the accumulated other comprehensive income shown in shareholders equity.

Construction Forms Corporation Balance Sheet (Partial) 31-Dec-09 Investment in AFS securities Add: Fair value adjustment Less: discount on bond investments

80,000,000 3,795,000 13,795,000

70,000,000

Impact on Statement Of Cash Flows

SOCF Section Operating Activities Investing Activities Financing Activities

Amount $ 6,400,000 $ 66,000,000 $ -

Inflow/Outflow Inflow Outflow None

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Investments - Entries
Fair Value Option - Bonds
P12-4: Fuzzy Monkey Technologies, Inc. purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2009. Management intends to have the investment available for sale when circumstances warrant. When the company purchased the bonds, management elected to account for them under the fair value option. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2009, was $70 million.

Because Fuzzy Monkey elected the fair value option, these investments will be reclassified from AFS to trading securities and accounted for under that approach. See Problem 12-2 for entries! For investments in trading securities, changes in market values, and thus market returns, provide an indication of managements success in deciding when to acquire the investment, when to sell it, whether to invest in fixed-rate or variable-rate securities, and whether to invest in long-term or shortterm securities. Because these are trading securities, the unrealized holding gain of $3.79 would be recognized in Fuzzy Monkeys 2009 income statement. The answers would not differ if the investment qualified for treatment as a held-to-maturity investment, because Fuzzy Monkeys choice of the fair value option still requires reclassification of the investment as trading securities.

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Investments Bonds Acquired Between Interest Dates

On April 3, 2009, PUC Corp. purchased bonds with a 13% coupon that had been issued on December 31, 2008. The bonds have a face value of $200,000. The cost of the bonds was $204,570. The bonds mature on December 31, 2011 (33 months after the purchase date or 5.5 payment periods). Interest is paid semiannually.

Using Premium Valuation Account Purchase

N 5.5 I/Y 6.00 (204,570) PV PMT 13,000 FV 200,000

Date 4/3/09

Account Titles/Explanations Investment in HTM securities Premium on bond investments Investment revenue Cash
IR: $200,000 X 13% X 1/4

Debit 200,000 4,570 6,500

Credit

211,070 13,000 363 12,637 13,000 748 12,252

June 30, entry

($204,570 *.12*1/4)+$6,500=$12,637

Cash 6/30/09 Premiums on bond investments Investment revenue Cash Premiums on bond investments Investment revenue

December 31, entry

($204,570 - $363) *.12*1/2=$12,252
12/31/09

No Valuation Account Purchase

Date 4/3/09

Account Titles/Explanations Investment in HTM securities Investment revenue Cash

Debit 204,570 6,500

Credit

211,070 13,000 363 12,637 13,000 748 12,252

June 30, entry December 31, entry

Cash 6/30/09 Investment in HTM securities Investment revenue Cash 12/31/09 Investment in HTM securities Investment revenue

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Investments - Entries
Trading Securities - Stocks
BE12-2: S& L Financial buys and sells securities expecting to earn profits on short-term differences in price. On December 27, 2009, S& L purchased Coca-Cola common shares for $875,000 and sold the shares on January 3, 2010, for $880,000. At December 31, the shares had a fair value of $873,000. What pretax amounts did S& L include in its 2009 and 2010 earnings as a result of this investment?

Investment on December 27.

Revaluation on December 31.

12/27/09

Investment in Trading securities Cash Net unrealized gains or losses - IS Fair value adjustment - TS

875,000 875,000 2,000 2,000

12/31/09

Sale on January 3.

1/3/10

Cash Investment in Trading securities Gain on sale of investments

880,000 875,000 5,000

Unlike for securities available-for-sale, unrealized holding gains and losses for trading securities are included in earnings. S&L reports its $2,000 holding loss in 2009 earnings. When the fair value rises by $7,000 in 2010, that amount is reported in 2010 earnings ($5000 as a realized gain, and $2000 as the reversal of the unrealized loss that was recognized in 2009). Assuming no other trading securities, the 2010 adjusting entry to remove the fair value adjustment associated with the sold securities would be:

Revaluation on December 31.

12/31/10

Fair value adjustment - TS Net unrealized holding gains and losses - IS

2,000 2,000

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Investments - Entries
Available-For-Sale Securities - Stocks
BE12-3: S& L Financial buys and sells securities which it classifies as available-for-sale. On December 27, 2009, S& L purchased Coca-Cola common shares for $875,000 and sold the shares on January 3, 2010, for $880,000. At December 31, the shares had a fair value of $873,000. What pretax amounts did S& L include in its 2009 and 2010 earnings as a result of this investment?

Investment on December 27.

Revaluation on December 31.

12/27/09

Investment in AFS securities Cash Net unrealized gains or losses - OCI Fair value adjustment - AFS

875,000 875,000 2,000 2,000

12/31/09

Sale on January 3.

1/3/10

Cash Investment in AFS securities Gain on sale of investments

880,000 875,000 5,000

Unlike for trading securities, unrealized holding gains and losses for securities available-for-sale are not included in earnings. S&L reports its $2,000 holding loss in 2009 as Other comprehensive income in the statement of comprehensive income. When the fair value rises to $880,000 in 2010, the amount is reported in 2010 earnings is the $5,000 gain realized by the sale of the securities. Assuming no other trading securities, the 2010 adjusting entry to remove the fair value adjustment associated with the sold securities would be:

Revaluation on December 31.

12/31/10

Fair value adjustment - AFS Net unrealized holding gains and losses - OCI

2,000 2,000

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Investments - Entries
Fair Value Option - Stocks
BE12-6: S& L Financial buys and sells securities that it typically classifies as available-for-sale. On December 27, 2009, S& L purchased Coca-Cola common shares for $875,000 and sold the shares on January 3, 2010, for $880,000. At December 31, the shares had a fair value of $873,000. When it purchased the Coca-Cola shares, S& L Financial decided to elect the fair value option for this investment. What pretax amounts did S& L include in its 2009 and 2010 earnings as a result of this investment?

Investment on December 27.

Revaluation on December 31.

12/27/09

Investment in Trading securities Cash Net unrealized gains or losses - IS Fair value adjustment - TS

875,000 875,000 2,000 2,000

12/31/09

Sale on January 3.

1/3/10

Cash Investment in Trading securities Gain on sale of investments

880,000 875,000 5,000

Because S&L elected the fair value option, it would classify this investment as a trading security and account for it in that fashion. Therefore, S&L reports its $2,000 holding loss in 2009 earnings. When the fair value rises by $7,000 in 2010, that amount is reported in 2010 earnings ($5000 as a realized gain, and $2000 as the reversal of the unrealized loss that was recognized in 2009). Assuming no other trading securities, the 2010 adjusting entry to remove the fair value adjustment associated with the sold securities would be:

Revaluation on December 31.

12/31/10

Fair value adjustment - TS Net unrealized holding gains and losses - IS

2,000 2,000

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Investments Transfer Between Categories

Marketable Securities
Transfers between Trading and Available-for-Sale Security transferred at fair value. Unrealized gain or loss at date of transfer increases or decreases stockholders equity. Unrealized gain or loss at date of transfer is recognized in income. Transfer from Held-to-Maturity to Available-for-Sale Security transferred at fair value. Separate component of stockholders equity (OCI) is increased or decreased by the unrealized gain or loss at date of transfer . NO impact of transfer on net income. Transfer from Available-for-Sale to Held-to-Maturity Security transferred at fair value. Unrealized gain or loss at date of transfer carried as a separate component of stockholders equity (OCI) is amortized over the remaining life of the security. NO impact of transfer on net income.

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Other Than Temporary Impairments - OTTI

Impairments of debt and equity securities are : losses in value that are determined to be other than temporary, based on a fair value test, and are charged to income.
Must record a realized loss on the Income Statement by writing down the investment.

After OTTI impairment is recorded, the normal treatment of unrealized gains or losses is resumed, that is, changes in fair value are reported in OCI for AFS investments and not recognized for HTM investments.
PUC Corporation has municipal bonds classified as available-for-sale at December 31, 2008. These bonds have a par value of $1,000,000, an amortized cost of $1,000,000, and a fair value of $940,000. The unrealized loss of $60,000 that was recognized as other comprehensive income and as a separate component of stockholders' equity was determined to be other than temporary on March 31. That is, the company believes that impairment accounting is now appropriate for these bonds.
03/31/09 Fair value adjustment - AFS Loss on impairment ($1,000,000 - $940,000) Investment in AFS securities Net unrealized holding gains or losses - OCI 60,000 60,000 60,000 60,000

Write down

At December 31, 2009, the fair value of the bonds is $960,000. Prepare the journal entry to record this information.
12/31/09 Fair value adjustment - AFS Net unrealized holding gains or losses - OCI $960,000 - $940,000 20,000 20,000

The new carrying value is $960,000. 18

Investments - Entries
Equity Method
E12-12: As a long-term investment, Painters Equipment Company purchased 20% of AMC Supplies, Inc. s 400,000 shares for $480,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of AMCs net assets were equal. During the year, AMC earned net income of $250,000 and distributed cash dividends of 25 cents per share. At year-end, the fair value of the shares is $505,000.

Available-For-Sale Securities - Stocks

Investment Dividend Revaluation
Investment in AFS securities Cash Cash Investment revenue Fair value adjustment - AFS Net unrealized holding gains and losses - OCI 480,000 480,000 20,000 20,000 25,000 25,000

* No entry is made for the net income.

Equity Method
Investment Dividend Net Income
Investment in AMC shares Cash Cash Investment in AMC shares Investment in AMC shares Investment revenue 480,000 480,000 20,000 20,000 50,000 50,000

Dividends are a return of capital dividends lower the investment balance. * No adjusting entry is made to revalue the stock under the equity method.
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Equity Method

Investments - Entries

E12-16: Fizer Pharmaceutical paid $68 million on January 2, 2009, for 4 million shares of Carne Cosmetics common stock. The investment represents a 25% interest in the net assets of Carne and gave Fizer the ability to exercise significant influence over Carnes operations. Fizer received dividends of $ 1per share on December 21, 2009, and Carne reported net income of $40 million for the year ended December 31, 2009. The fair value of Carnes common stock at December 31, 2009, was $18.50 per share. The book value of Carnes net assets was $192 million. The fair value of Carnes depreciable assets exceeded their book value by $ 32 million. These assets had an average remaining useful life of eight years. The remainder of the excess of the cost of the investment over the book value of net assets purchased was attributable to goodwill.

Investment

1/2/09

Investment in Carne Cosmetics shares Cash Cash Investment in Carne Cosmetics shares Investment in Carne Cosmetics shares Investment revenue Investment revenue Investment in Carne Cosmetics shares

68,000,000 68,000,000 4,000,000 4,000,000 10,000,000 10,000,000 1,000,000 1,000,000

Dividend
Net Income

12/21/09 12/31/09

Depreciation adjustment

12/31/09

* No adjusting entry is made to revalue the stock under the equity method.
Cost:

Fair Value:
Book Value:

$68,000,000 $224,000,000 X 25% = $56,000,000 $192,000,000 X 25% = $48,000,000 $8,000,000

$12,000,000 Goodwill $8,000,000

Undervaluation of assets
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Depreciation adjustment:

8 years = $1,000,000

Investments - Entries
Equity Method Fair Value Option
E12-21: As a long-term investment at the beginning of the fiscal year, Florists International purchased 30% of Nursery Supplies, Inc. s 8 million shares for $56 million. The fair value and book value of the shares were the same at that time. The company realizes that this investment typically would be accounted for under the equity method, but instead chooses the fair value option. During the year, Nursery Supplies earned net income of $40 million and distributed cash dividends of $1.25 per share. At the end of the year, the fair value of the shares is $52 million.

Required 1:
Electing the fair value option for significant-influence investments requires use of the same basic accounting approach that is used for trading securities. However, the investments will still be classified as significant-influence investments and shown either on the same line of the balance sheet as equity-method investments (but with the amount at fair value indicated parenthetically) or on a separate line of the balance sheet.

Required 2:
Investment Dividend
Investment in Nursery Supplies shares Cash Cash Investment revenue 56,000,000 56,000,000 3,000,000 3,000,000

Revaluation

Net unrealized holding gains and losses - IS Fair value adjustment - TS

4,000,000 4,000,000

* No entry is made for the net income.

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Investments Transfer Between Methods

Equity Method Transfers from the Equity Method to Another Method: Any difference between the carrying value and fair value is recorded in a valuation account and is recognized as an unrealized holding gain or loss. After the transfer the security is treated as a Trading Security or Available-For-Sale security, depending on management intent. Transfers from Another Method to the Equity Method : The original cost, unrealized holding gains or losses, and valuation account are closed. A retroactive change is recorded to recognize the investors share of the investees earnings since the original investment.

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Financial Statement Impact

Purchase - HTM & AFS Investments Balance Sheet Assets = Liabilities + CA Inv. = CL LTL + NC NC

Income Statement Equity CC RE NC NC Rev. COGS NC NC GP NC SGA NC EBIT NC Other NC NI NC CFO NC

SOCF CFI CFF NC

Marketable Securities

Purchase - Trading Investments Assets = Liabilities CA Inv. = CL LTL NC NC NC

+ +

Equity CC RE NC NC

Rev. COGS NC NC

GP NC

SGA NC

EBIT NC

Other NC

NI NC

CFO

CFI NC

CFF NC

Revenue Recognition - Interest or Dividends Assets = Liabilities + Equity CA Inv. = CL LTL + CC RE NC NC NC NC NC

Rev. COGS NC NC

GP NC

SGA NC

EBIT NC

IR

NI

CFO

CFI NC

CFF NC

Investment Revenue Market Value Adjustments (Increase in Value) - Trading Securities Assets = Liabilities + Equity CA Inv. = CL LTL + CC RE Rev. COGS GP NC NC NC NC NC NC NC

SGA NC

EBIT NC

Other

NI

CFO NC

CFI NC

CFF NC

Unrealized Gain (Loss) Market Value Adjustments (Increase in Value) - AFS Securities Assets = Liabilities + Equity CA Inv. = CL LTL + CC OCI Rev. COGS NC NC NC NC NC NC

GP NC

SGA NC

EBIT NC

Other NC

NI NC

CFO NC

CFI NC

CFF NC

Sale (Gain) - HTM & AFS Investments Assets = Liabilities + CA Inv. = CL LTL + NC NC

Equity CC RE NC

Rev. COGS NC NC

GP NC

SGA NC

EBIT NC

Other

NI

CFO NC

CFI

CFF NC

Realized Gain (Loss) Sale (Gain) - Trading Investments Assets = Liabilities + CA Inv. = CL LTL + NC NC NC Equity CC RE NC

Rev. COGS NC NC

GP NC

SGA NC

EBIT NC

Other

NI

CFO

CFI NC

CFF NC

Realized Gain (Loss)

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Investments - Financial Statement Impact

Equity Method
Equity Method Investment Balance Sheet Assets = Liabilities CA Inv. = CL LTL NC NC Income Statement + + Equity CC RE NC NC Rev. COGS GP NC NC NC SGA NC EBIT Other NC NC NI NC CFO NC SOCF CFI CFF NC

Revenue Recognition - Share of Net Income Assets = Liabilities + Equity CA Inv. = CL LTL + CC RE NC Dividend Receipt Assets = CA Inv. = NC NC NC

Rev. COGS GP NC NC NC

SGA NC

EBIT Other NC

NI

CFO NC

CFI NC

CFF NC

Investment Revenue Liabilities CL LTL NC NC + + Equity CC RE NC NC

Rev. COGS GP NC NC NC

SGA NC

EBIT Other NC NC

NI NC

CFO

CFI NC

CFF NC

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