WEEK 7: INVESTMENTS
In reviewing the Becker Built In materials, the lecture, and your eBook reading for this week, it is plain to see that the accounting for investment securities by the extent of significant influence exercised by the investor company over the investee company. How do you determine the extent of significant influence of investor company over the investee company? When do you use the equity method and how the investments are accounted for under the equity method? Discuss with suitable examples.
WEEK 7: UNION PLANTERS CASE
Discuss the financial statement analysis case on page 964 (Union Planters). Please read the instructions for questions (a), (b), (c), and (d) and present your answers here.
(A) Why do you suppose Union Planters purchases investments, rather than simply making loans? Why does it purchase investments that vary in nature both in terms of their maturities and in type (debt versus stock)?
(B) How must Union Planters account for its investments in each of the two categories?
(C) In what ways does classifying investments into two different categories assist investors in evaluating the profitability of a company like Union Planters?
(D) Suppose that the management of Union Planters was not happy with its net income for the year. What step could it have taken with its investment portfolio that would have definitely increased reported profit? How much could it have increased reported profit? Why do you suppose it chose not to do this?
Recording at historical cost worked for a long time so some are critical to see us move away from this in any area. Do you think there will be a day when we start measuring long term fixed assets at fair value? Why or why not? Class?