Investments
Chapter Number Chapter 13
📖 Table of Contents
Outline
13.1 Debt Investments
Recording Acquisition of Bonds
Recording Bond Interest
Recording Sale of Bonds
13.2 Share Investments
Holdings of Less than 20%
Recording Acquisition of Shares
Recording Dividends
Recording Sale of Shares
Holdings Between 20% and 50%
Recording Acquisition of Shares
Recording Revenue and Dividends
Holdings of More than 50%
13.3 Valuing and Reporting Investments
Categories of Securities
Debt Investments
Share Investments
Trading Securities
Non-Trading Securities
Statement of Financial Position Presentation
Short-Term Investments
Long-Term Investments
Presentation of Realized and Unrealized Gain or Loss
Classified Statement of Financial Position
13.4 Preparing Consolidated Financial Statements
Use of a Worksheet—Cost Equal to Book Value
Use of a Worksheet—Cost Above Book Value
Content of a Consolidated Statement of Financial Position
13.1 Debt Investments
Investments 1
, Why companies invest
Debt investments are investments in government and company bonds.
In accounting for debt investments, companies make entries to record:
1. the acquisition
2. the interest revenue
3. the sale
Recording Acquisition of Bonds
⚠️ At acquisition, investments are recorded at cost
Assume, for example, that Kuhl NV acquires 50 Doan SA 8%, 10-year, €1,000 bonds on January 1, 2020, at a
cost of €50,000
Recording Bond Interest
The Doan SA bonds pay interest of €4,000 annually on January 1 (€50,000 × 8%). If Kuhl NV’s fiscal year ends on
December 31, it accrues the interest of €4,000 earned since January 1
🧾 Kuhl reports Interest Receivable as a current asset in the statement of financial position.
Reports Interest Revenue under “Other income and expense” in the income statement.
Investments 2
, Kuhl reports receipt of the interest on January 1 as follows.
A credit to Interest Revenue at this time is incorrect because the company earned and accrued interest revenue in
the preceding accounting period.
Recording Sale of Bonds
When Kuhl NV sells the bonds, it credits the investment account for the cost of the bonds. Kuhl records as a gain
or loss any difference between the net proceeds from the sale (sales price less brokerage fees) and the cost of the
bonds.
Assume, for example, that Kuhl receives net proceeds of €54,000 on the sale of the Doan SA bonds on January 1,
2021, after receiving the interest due. Since the securities cost €50,000, the company realizes a gain of €4,000.
🧾 Kuhl reports any gains or losses on the sale of debt investments under “Other income and expense”
in the income statement.
13.2 Share Investments
Share investments are investments in the shares of other companies.
When a company holds shares (and/or debt) of several different companies, the group of securities is identified as
an investment portfolio.
Accounting guidelines for share investments
Among the questions that are considered in determining an investor’s influence are these:
Investments 3
Chapter Number Chapter 13
📖 Table of Contents
Outline
13.1 Debt Investments
Recording Acquisition of Bonds
Recording Bond Interest
Recording Sale of Bonds
13.2 Share Investments
Holdings of Less than 20%
Recording Acquisition of Shares
Recording Dividends
Recording Sale of Shares
Holdings Between 20% and 50%
Recording Acquisition of Shares
Recording Revenue and Dividends
Holdings of More than 50%
13.3 Valuing and Reporting Investments
Categories of Securities
Debt Investments
Share Investments
Trading Securities
Non-Trading Securities
Statement of Financial Position Presentation
Short-Term Investments
Long-Term Investments
Presentation of Realized and Unrealized Gain or Loss
Classified Statement of Financial Position
13.4 Preparing Consolidated Financial Statements
Use of a Worksheet—Cost Equal to Book Value
Use of a Worksheet—Cost Above Book Value
Content of a Consolidated Statement of Financial Position
13.1 Debt Investments
Investments 1
, Why companies invest
Debt investments are investments in government and company bonds.
In accounting for debt investments, companies make entries to record:
1. the acquisition
2. the interest revenue
3. the sale
Recording Acquisition of Bonds
⚠️ At acquisition, investments are recorded at cost
Assume, for example, that Kuhl NV acquires 50 Doan SA 8%, 10-year, €1,000 bonds on January 1, 2020, at a
cost of €50,000
Recording Bond Interest
The Doan SA bonds pay interest of €4,000 annually on January 1 (€50,000 × 8%). If Kuhl NV’s fiscal year ends on
December 31, it accrues the interest of €4,000 earned since January 1
🧾 Kuhl reports Interest Receivable as a current asset in the statement of financial position.
Reports Interest Revenue under “Other income and expense” in the income statement.
Investments 2
, Kuhl reports receipt of the interest on January 1 as follows.
A credit to Interest Revenue at this time is incorrect because the company earned and accrued interest revenue in
the preceding accounting period.
Recording Sale of Bonds
When Kuhl NV sells the bonds, it credits the investment account for the cost of the bonds. Kuhl records as a gain
or loss any difference between the net proceeds from the sale (sales price less brokerage fees) and the cost of the
bonds.
Assume, for example, that Kuhl receives net proceeds of €54,000 on the sale of the Doan SA bonds on January 1,
2021, after receiving the interest due. Since the securities cost €50,000, the company realizes a gain of €4,000.
🧾 Kuhl reports any gains or losses on the sale of debt investments under “Other income and expense”
in the income statement.
13.2 Share Investments
Share investments are investments in the shares of other companies.
When a company holds shares (and/or debt) of several different companies, the group of securities is identified as
an investment portfolio.
Accounting guidelines for share investments
Among the questions that are considered in determining an investor’s influence are these:
Investments 3
