英文台湾中兴大学金融系王之彦老师的财务报表分析chap005汇.pptVIP

Analyzing Investing Activities: Special Topics Equity method accounting—reports the parent’s investment in the subsidiary, and the?parent’s share of the subsidiary’s results, as line items in the parent’s financial statements (referred to as one-line consolidation) ? Note: Generally used for investments representing 20 to 50 percent of the voting stock of a company’s equity securities--main difference between consolidation and equity method accounting rests in the level of detail reported in financial statements Equity Method Mechanics Assume that Global Corp. acquires for cash a 25% interest in Synergy, Inc. for $500,000, representing one-fourth of Synergy’s stockholders’ equity as of the acquisition date. Acquisition entry: Investment 500,000 Cash 500,000 Synergy, Inc. Current assets 700,000 PPE 5,600,000 Total assets 6,300,000 Current liabilities 300,000 Long-term debt 4,000,000 Stockholders’ Equity 2,000,000 Total liabs and equity 6,300,000 Equity Method Mechanics Subsequent to the acquisition date, Synergy reports net income of $100,000 and pays dividends of $20,000. Global records its proportionate share of Synergy’s earnings and the receipt of dividends as follows: Investment 25,000 Equity earnings 25,000 (to record proportionate share of investee company earnings) Cash 5,000 Investment 5,000 (to record receipt of dividends) Investment balance = % Share of Investee Equity The investment account represents the proportionate share of the stockholders’ equity of the investee company. Substantial assets and liabilities may, therefore, not be recorded on balance sheet unless the investee is consolidated. This can have important implications for the analysis of the investor company. Investment earnings (the proportionate share of the earnings of the investee company) should be distinguished from core operating earnings in the analysis of the earnings of the investor company. Inve