Accounting 2 – ACCT 122 – Program #210 – Investments (Conclusion)

Here we are, we're online now. We're having a conversation here. You caught us mid-conversation, that's okay. Hey, this is the last lecture before the exam,
isn't it? Right? You guys ready for the exam on Chapter 12,
13 and 15, right? Pardon me? >>The what? >>The what? Exam. I gave everybody a test review sheet last
time I believe, right? Hey, one thing I wanted to point out, I think
I told you a few things about test last time but I didn't talk about multiple choice. Do you guys — some people hate multiple choice.

Do you guys like multiple choice or hate multiple
choice? >>Love-hate. >>Some people don't like multiple choice because
they, well they say, I would prefer problems. Well, try to treat multiple choice as problems
when you can. What do I mean by that? For example, if it says: The interest amount
accrued, you know, on this sort of investment would be –I mean, don't even look at the

Just act like you have to compute it, write
out your answer and then see if there's options that match your answer. Does that make sense? Or even if they ask you about a term, if they
say, the preemptive right of a stockholder is –before you even look at the options that
they give you for the multiple choice, ask yourself, okay, what do I know about the preemptive
right of a stockholder? Remember the preemptive right of a stockholder? That's the right, if the company issues more
shares for you to buy, the percentage that you currently own of those new shares so you
could maintain your percentage of ownership? And, you know, think through it and then say,
okay, now that I've kind of talked through it in my mind, let's look at those options
and see if one of those fits it.

Okay? The other thing is that if it ever asks you
for a journal entry, like have you ever seen those questions that say, the journal entry
to record purchasing a short term investment for $500 would include… And you know how the options are like, a credit
to this for that, or a debit to cash for this –you've seen those? Don't even look at the options, just make
the whole journal entry. And then once you've made your journal entry
and you're happy with it, look to see which option or options match up with what the journal
entry you did. Too many people try to shortcut it and they
go, I don't want to write down the journal entry, let me just look at it over here and
I can just think through it in my brain. Not a good way to do it. Okay, write out the whole journal entry and
then look for the options, all right? But the test will be, well you all know. The test is next time we meet. And you folks at home, you know the last day
that you have to take that test by.

Make sure you look at the Testing Center hours. Make sure you don't wait until the last minute
and then send me an e-mail about, oh I can't get in, my child was sick. If you wait till the last day and there's
no margin left, that's going to be too bad, okay? You get 15 points extra deducted for every
day late beyond that due date, for you online folks. Okay? So leave yourself some margin, don't take
it on that final day if you don't have to. Okay, cool. Let's go through the homework. I believe I assigned a couple of handouts;
is that correct? Okay, let's go through those. Okay, let's do Oatman Company first, all right? Let's do Oatman Company first, all right? On March 12, 2014, Oatman Company purchased
250 common shares of International Bakery, Inc as a long-term investment.

The purchase price was $37 per share and the
broker's fee was $125. On January 31 of 2015, Oatman Company received
a total of 187.50 in dividends. On November 27, 2015, Oatman Company sold
150 of the shares for $28.75 per share with a brokerage fee of $60. Make journal entries on the following day. Okay, so on 3/12/14, what do we do? We debit long-term investments for how much? >>9375. >>9375. And what do we credit for 9375? >>Cash. >>Cash, okay? Not too tough there, okay? Now on January 31 of '15, we received some
dividends, correct? We received some dividends, okay. So we debit cash for how much? 187.50. And what do we credit for 187.50? >>Dividend revenue. >>Dividend revenue. Very good, okay. All right, now, on 11/27/15 what happens? We sold 150 of the shares for $28.75 per share
and there's a brokerage fee of $60.

Okay, before we make that entry we need to
figure out what the true cost per share was up here, right? So we spent a total of 9375 for how many shares? For 250, okay. If I do that in my head I get about, oh, $37.50;
is that right? Okay. So our cost per share is $37.50 per share;
is that correct? Okay, let's go down here with that knowledge
and build our journal entry, okay. Well, our cost was $37.50, but we sold 150
shares for how much? $28.75, okay? So, we debit cash but we don't debit for 150
times $28.75 because we have a $60 brokerage fee, right? First of all, let's just say, what's the number
that goes here? Did you guys get it? >>4252.50. >>Yes. It's 4252.50, okay? How did we get that? Well that is 150 times 28.75 per share, minus
the $60 brokerage fee. Is that how you got it, Henry? >>Yes. >>Okay, 150 times $28.75 minus that brokerage
fee we had to pay of 60. Okay? So we didn't really pay it, they just withheld
$60 from the cash we were going to get. Cool? Okay, so that's how we debit cash. Now we have to credit long-term investments.

Well, what do we credit it for? We credit it for 150 shares that we sold times
this cost of $37.50. And that is, I think that's 5625; is that
correct? Is that right? >>Yup. >>Okay. Now this is our journal entry. So far it does not balance, does it? Okay, so we need help on the debit side. So since it needs help on the debit side,
we are going to be effecting a loss on sale account, right? A loss is like an expense account, it has
a debit balance. It's deducted at arriving at net income, correct? So what do we have to debit it for to make
this journal entry balance? >>$1,372.50. >>$1,372.50 very good. So that's our journal entry. The other way that we know that we have a
loss is, our cost of the shares –oops, you can't see that.

This is how we got that number. Our cost of the shares was $37.50 per share
and we sold it for less than that, $28.75. You with me? Okay. Any questions on that? Anybody? All righty, let's go to the next one which
was Clemon Company, kind of a similar one. On January 2 of '14, Clemon Company purchased
–zoom in a little bit. Clemon Company purchased 600 common shares
of Garmin, Inc as a long-term investment. The purchase price was $63 per share and the
broker's fee was $150. On December 31, 2014, Clemon Co received $2
per share in dividends, and on December 31, 2015, Clemon Co received $2.25 cents per share
in dividends. On July 24, 2016, Clemon Company sold 150
shares, 150 of the shares for $72.50 with a brokerage fee of $100 to make the journal

Okay, now first of all, let me remind you
guys, we're talking about stock, you know, stock being purchased and stuff like that. The first thing you want to make sure you
do on the test is make sure you are in Chapter 15 gear and not Chapter 13 gear, all right? Here's the way my brain would go through this,
I would say, okay, who are we in this example? Are we Garmin? No, we are Clemon. And are we purchasing stock or are we issuing
stock? We're purchasing stock, this is a Chapter
15 long-term investment question, okay? And you'll see on the test I actually –I
took all the Chapter 15 multiple choices and put them together to help you kind of shift
into that gear, okay? Okay, on January 2 of '14 we debit long-term
investments. And, you know, sometimes you'll put in parenthesis,
you know, who it was with. You don't have to. For 37,950 and we credit cash for 37,950;
is that correct? Okay, now I know we're going to eventually
probably need the cost per share on this.

How did we get that 37,950? We took 600 times 63 plus 150; is that correct? Okay. Okay, so we paid 37,950 for how many shares? >>600. >>600. So the cost per share is $63.25; is that correct? Okay, we'll come back to that later but that's
our journal entry. On 12-31 of '14, we get some dividends, right? >>Oh yeah. >>How much? Well we get $2 per share, correct? So what's 2 times the 600 shares we purchased? We debit cash. We credit dividend revenue. You with me? Okay, on 12/31/15, we get some more dividends,
don't we? This time it's $2.25 per share, well how many
shares do we have? 600.

What's $2.25 times 600? It is…is it 1,350? >>Yeah. >>So once again we debit cash. We credit dividend revenue, cool? Okay, what happens on July 24 of '16? We sell 150 of the shares, right? We sell 150 shares, what price do we sell
it at? >>$72.50. >>$72.50 but then we also have to pay out
$100 for the brokerage fee, right? So that equals, 150 times $72.50 minus 100. Help me out here, I think that equals 10,775,
can anybody back that up? Okay.

So we debit cash and, of course –okay, we
debit cash for the 10,775, okay. Now we have to credit long-term investments,
this is Garmin. What do we credit it for? We need to reduce it because we no longer
have some of these investments, we sold them. So we sold 150 shares but we take the 150
shares times the $62.25 cost, correct? And that equals, did you get 9487.50? >>Yup. >>Okay. Well this is the journal entry we're trying
to make and balance but that doesn't, that doesn't balance, does it? Which side needs help? The credit side.

So since it's a credit side, it's going to
be a gain. Gains are like revenues. They have credit balances, they're on the
income statement, they're added in arriving at net income, okay? We also know it's a gain because our cost
was 63.25 but we sold them for more than that, 72.50. So we credit gain on sale, you can say on
sale of long-term investment or just gain on sale, whatever. And what do we have to do that for to make
it balance? 1287.50. So that's our journal entry, isn't it? Cool? All right. Okay, any questions on that folks? Let's go through 15.8 real quick, okay? Let me put that up on the screen, you can
show that while I'm talking. Okay. Okay, this is 15.8. I like this one because it kind of makes your
brain shift back and forth between the equity securities and the debt securities, doesn't
it? That we might have in our portfolio, okay? You know what a portfolio is? A portfolio is like all of the investments
together, okay.

Okay, let's take a look. All right, prepare journal entries to record
the following transactions involving both the short-term and long-term investments of
Cancun Corp., all of which occurred during calendar year 2013. Use the account short-term investments for
any transactions that you determine are short-term. Okay? All right, let's take a look. On February 15, we paid $160,000 cash. We paid $160,000 cash to purchase American
General's 90-day short-term notes at par which are dated February 15 and pay 10% interest. And it says these are classified as held-to-maturity. We're going to talk about those classifications
here in a little bit, okay? All right. So this might be a good time when you want
to put AG in parenthesis, right? Since we're having a lot of different investments
in this one problem. But we debit short-term investments and credit
cash for 160,000, correct? Next one, March 22 we bought 700 shares of
Fran industry's common stock at $51 cash per share plus a $150 brokerage fee. And this is classified as a long-term available
for sale securities. Okay, you don't have to put that AFS, that
stands for available for sale. But the amount of cash outlay here is 700
times $51, plus, we had to also pay $150 for the brokerage fee.

So we credit cash for 35,850. We debit long-term investments for the same. By the way, our cost, it's not a real clean
number, is it? Did anybody calculate that out? If you take 35,850 divided by 700 shares,
you get about 51.21 but that's rounded. We'll come back to that later. All right, what happens on May 15, C. Received
a check from American General in payment of the principal and 90 days interest of the
notes purchased in transaction A. So we get our principal of 160,000 back, correct? But we also get our interest revenue. How much interest revenue do we get? Well, we take the principal amount of 160,000
times the 10% annual rate, times 90 divided by 360 since it's a 90-day note. Okay? If you did it divided by 365, you maybe got
a slightly different number by different, a couple dollars differently and that's fine.

They usually use 360 just so it's cleaner
math. Okay, D, on July 30, paid 100,000 cash to
purchase MP3 electronics, 8% notes at par dated July 30, 2013 and maturing on January
30, 2014 classified as a trading security. Well, we debit short-term investments for
100,000, credit cash for 100,000. You with me? Okay. Let's go to E. On September 1, we received
a dollar per share cash dividend on the Fran industry's common stock purchased in transaction
B. Well we had 700 shares, right? We got a dollar per share so we got a total
of $700 in cash for dividend revenue. Okay. Cool? All right, F. On October 8, we sold 350 shares
of Fran Industry's common stock for $64 cash per share less $125 brokerage fee. Okay, let's build that journal entry. Well how much cash did we receive? We received 22,275, do you know how we got
that? Let me zoom in a little bit. That 22,275 is 350 times 64, and then we subtracted
125 from it, correct? Okay, so we debit 22, we debt cash for 22,275.

Now we need to credit long-term investments,
don't we? What do we credit it for? Well, what you could do is you could say we
sold 350 of those 700 shares and our cost was about 51.21 and you could credit it for
that much, right? But it will be a little bit off because of
the rounding issue. These aren't very –this is not a clean number,
this is a long number, isn't it? Okay. So what they did in this example was they
said, well look, we bought 700 shares for a total of 35,850. And we sold 350 of those shares. We sold half of them, right? So what they did is they just took 35,850
times that one half and they got 17,925. Now, if you did it by taking 350 times the
cost and yours is a little different, that's okay, I don't care, okay? And on the test I'll just, I'm not going to
give you messy numbers, okay? You with me? Does that journal entry balance? No.

So we have to credit 43.50 to gain on sale
of long-term investments, don't we? You with me? Cool. G, on October 30 we received a check from
MP3 Electronics for 3 months interest on the notes purchased in transaction D. Now we're
not cashing them in here, are we? We're just getting some interest revenue of
2,000, right? How did we calculate 2,000? We took the 100,000 principal times the 8%
annual interest rate, times, you could say 90 divided by 360 or 3 divided by 12, it's
the same thing. But you get $2,000, make sense? Cool? Okay. Any questions on the homework? It wasn't too bad, was it? Hope you all are doing your homework. You folks online as well. If you don't ever do your homework and you've
just kind of watched me do it, test may not go so well, okay? There's a big difference between watching
me do this stuff versus doing it yourself and being able to produce the answer.

As I say many times, the best way to know
if you are ready for a test is can you get a blank piece of paper out, not look at your
answers and can you do the homework? Correct? All right. I do have a practice test out there as well,
have you guys seen that? A separate file with the answers, has anybody
seen it? I know you have, Henry. Okay. Okay, before we go on and talk about something
else, I want to talk about these classifications that they discuss in this class sometimes.

Now I don't want to get real hung up on this
but I at least want to touch on it, okay? Let's see if I can get it out of that glare. Okay. Okay, first of all, let's talk about trading
securities, held-to-maturity, and available-for-sale, okay? First of all, let's talk about held-to-maturity. Held-to-maturity securities, these are debt
securities that you hold until they mature. That's why it says held-to-maturity. Okay, only debt securities can be classified
as held-to-maturity. Okay, now there's also these categories called
trading and available-for-sale that we had been talking about, okay? Trading and available-for-sale, okay? Trading securities, there are frequent purchases
in sales of trading security. They are trading all the time, you can think
about it.

Okay? Available-for-sale, those are not as actively
traded. Okay, now granted there are some gray area
here as far as, well, is it a trading security or an available-for-sale? And I really, at this point in your education,
don't care that you be able to differentiate between those. But what I want you to know is this, first
of all, debt and equity can be classified as trading and available-for-sale but let's
just talk about equity. If it is equity, and you own less than 20%
of the company which is the vast majority of your investments you're going to hold is
you don't own more than 20% of the company. Okay, you probably don't even own 1%, right? I mean, that would be a lot of stock that
you'd have to purchase. But if you own less than 20% of either trading
or available-for-sale, your account for these investments in the manner that I taught you
and I'm going to tell you here in the next slide or two, okay? You with me? Okay.

I don't want to get real hung up on this though
because I think I said in the lecture that the majority of our lecture, I mean, 99% of
our lecture we are assuming that we own less than 20%, okay? Now looking back at this last time, it says
for less than 20% for trading and available-for-sale we use this concept called fair value. This concept called fair value and that's
what we're going to talk about today so let me switch it over to the document camera. This is something unique about accounting
for investments. Non-influential investments, in other words,
you own less than 20%. Non-influential investments are typically
valued and adjusted to fair value or market value at year end. This is unique and would seem to be to be
a violation of the Cost Principle, okay? I want to think through that a little bit,
you can come off that. Do you remember the Cost Principle? Does anybody remember it on Accounting 1? Does anybody remember the Cost Principle? >>Something about it has to be exactly what
you paid for? >>Yes, good.

>>You have to state the amount for what you
paid for. >>Yes. You guys must had good Accounting 1 teachers. >>Decent. >>Oh, it was me, wasn't it? Okay, that's right. The Cost Principle states that you purchase
assets at your cost, right? Like let's say you purchased a used truck
and you purchased it for $12,000. After you've purchased it for $12,000, you
write the check for it, you get it appraised and it's appraised at 18,000, boy you've got
a great deal. Well that's all good and fine but what do
you record the truck on your books at? $12,000, not the market value of what your friend think
it's worth, right? Remember that? And that truck stays on there as $12,000,
doesn't it? We record things at the cost. If you look at your check that you wrote,
it's for 12,000, the truck goes on the books at 12,000, you with me? Okay. Now, let's say you purchased a –it turns
out it was a rare truck and it really is popular and they're not making them anymore, and actually,
unlike most vehicles, it actually –can you believe it –appreciates in value, which never
happens with vehicles.

Okay? And let's say it appreciate so it's worth
a lot more in market value than that, and everybody can agree. Do we adjust that cost to the truck on our
books to that market value? No, we do not. We do not. The truck is recorded at the cost. And it stays at the cost, doesn't it? In this case, 12 grand. Now, somebody might say, well don't you depreciate
it? Yeah, we depreciate it but remember, depreciation
is not our attempts to adjust to market value, it's simply spreading out the expense over
a reasonable amount of time.

Okay? You with me? However, for investments, we do, let's say
our year end is 1231, we do adjust our investments, these assets on our books. We do adjust those to fair value or market
value. And that's what this slide is saying. that seems to be a violation of the Cost Principle,
doesn't it? You see the difference? We do adjust it. Why do you think we do it for investments
but not for, for example, the truck? Why do you think we make this exception for
investments? Anybody? >>That's the same way across the entire board
that market value's going to be the same for everything.

Like, you could say your truck's worth 18,000
and someone else could say it's worth 10,000 and someone else could say it's worth 13 but
the market value is, like, a set number across the entire board. >>Okay. I think you're exactly right. I'm going to clarify a little bit. Just like Jeremiah said, a truck that is used,
if the four of us got together and tried to come up with a market value and we all wrote
it on a slip of paper, what's the chances that we're all going to be the same? It's not going to be the same, correct? However, if my company owns 100 shares of
Pepsi Co.

Stock, and we want to know what its value
was at 12/31/14, where are we going to go to find the market value of a Pepsi Co share
of stock at 12-31 of '14? >>Market. >>We're going to go to the financial listings,
right? And by golly if it's says it's worth $36 a
share, then we're all going to agree it's worth 36 per share on December 31, right? Does that make sense? So that's why investments are a little different
because you've got these supply and these demand curves working and you can look at
something like the Wall Street Journal or the Business Listings and you can say, well,
this is what, on that date it says this investment was worth per share. Does that make sense? And so it's a better representation of what
the asset really is, okay? You with me? Now worst case scenarios, let's say you bought
a bunch of stock at $50 per share.

Let's say you bought 100 shares of $50 per
share stock. Well, you'd have what? A $5,000 asset? Correct? 100 per share. Let's say it declined down to $3 per share. Well, if you listed the cost there, that would
not be a good thing, right? Everybody knows it's not worth that. Okay. So you adjust to fair value. You adjust to market value. And if it goes up, you do the same thing. You with me? So we're going to talk about that. We're going to talk about that a little bit. Let's say Matrix, we're Matrix. Let's say our portfolio of trading securities
had a total cost of 73,000 and a total market value of 74,550 on December 31, 2015 which
was the first year the securities were held. Okay, there's a 1,550 difference there, isn't
there? Okay. And has it appreciated in value or has it
declined in value compared to our cost? >>It's appreciated. >>It's appreciated in value, correct? So what do we do with that 1,550 appreciation? Well, we make this journal entry. We credit what is called an unrealized gain.

Do you remember when we talked about a realized
gain? A realized gain is realized and confirmed
by an actual sale. An unrealized gain and this will go along
with unrealized loss too. An unrealized gain is not yet realized. We're not selling the securities here, folks. There's no cash coming in, we're not selling
the securities, we're not getting rid of some securities here. It's an unrealized gain because it's not being
confirmed by an actual sale. This is simply an AJE you make to adjust it
to fair value. Are you with me? But it is a gain so we credit unrealized gain
and you debit what is called fair market, or fair value adjustment. You with me? Now the question is is, all right, well that's
the journal entry, what financial statements do these accounts appear on? You with me? Well the fair value adjustment, and we had
an appreciation in value this time, would look like this. We would show the cost right here, let me
get my pointer.

We would show the cost of 73,000, but since
we have an unrealized gain we actually add that 1,550, and then we get our long-term
investment at market, okay? Now if there was an unrealized loss we would
subtract it. Does that make sense? But then the net effect on this balance sheet
is we are recording this investment at market, cool? Well, what about this other part of the journal
entry? The unrealized gain. Where is that recorded? Well, it's reported on the income statement
if the investment is considered a trading security with frequent purchases in sales. Remember when we talked about those categorizations? So it's reported on the income statement.

The unrealized gain is recorded on the income
statement as an addition if it's a trading security. However, if that is classified as an available-for-sale
security which are not actively traded, we actually do not put it on the income statement,
we put it on the equity section of the balance sheet. Are you with me? Now, I don't want to get too hung up in where
do you put that unrealized gain. And to be honest with you, there's a lot of
discussion going on right now about some of those rules. And the main reason that the discussion is
being had is because some international, some other countries other than the United States
do it a little differently.

And so they're actually, as we speak, there
are people having discussions about if this is going to change. Are you with me? So I'm really not going to get too hung up
between whether you classified that unrealized gain on the income statement or in the equity
section of the balance sheet, okay? Because that's a fluid topic right now. But what I want to do is, let's look at Exercise
15.7 together.

Exercise 15.7, go ahead and take a look at
that. (Papers rustling) who's yawning? I hear somebody yawning, is that you? Have another cookie. Did everybody get a cookie? My cell phone rang so I had to bring cookies
for the whole class. Has anybody else's cell phone rang? Luke's, yours did, didn't it? And you brought cookies. You're a good man. All right, let's take a look at Exercise 15.7. We're going to do it real quick as a class
and I'm going to have you do one real quick. Okay. All right. On December 31, 2013, Reggit Company held
the following short-term investments in its portfolio of available-for-sale securities.

Reggit had no short-term investments in its
prior accounting periods; prepare the December 31 adjusting journal entries to record these
investments at fair value. Okay, first of all, you don't adjust each
security to fair value. You adjust the whole portfolio as a whole
to fair value, does that make sense? So what you do in this situation is pretty
simple. You take these securities. You add up the costs to get a total cost of
246,700. You add up the fair values to get a total
fair value 237,600. And has it appreciated or declined in value? >>Declined. >>It's declined, hasn't it? So we have an unrealized loss in this case. An unrealized loss. And we would credit fair value adjustment
and this fair value adjustment would be subtracted from your cost on your balance sheet, okay? I don't really care that we had the big discussion
about where this goes but it does go on equity since it's available-for-sale. Yes, Jeremiah? >>Is it a fair value adjustment instead of
a debit balance account then? >>Well it can be either. >>So it doesn't have, like, a normal balance.

>>It doesn't have a normal one. It's a good question because sometimes we
debit it if there's an unrealized gain, sometimes we credit it if there's an unrealized loss. It's either added to the asset or subtracted
from the asset. >>What kind of account does that make it? >>Well, I guess you could think of it as this,
when it has a debit balance it's like an adjunct asset. When it has a credit balance and it's subtracted,
it's like a contra asset. Does that make sense? >>Okay. >>But it's kind of like; the nearest thing
I can think of is do you remember the cash over and short account? Remember how if it had a debit balance, it
was an expense and if it had a credit balance it was a revenue? So if you say, well, what type of account
is a cash over and short account? Well, I can't tell you it's a revenue or an
expense, it depends on what the balance is.

It's a great question though. And the fact that you asked that question
means that you're a good accountant because you should always ask, what kind of account
is it? Where does it go in the financial statements? Okay. Good question. But it depends on what its ending balance
is, cool? >>Okay. >>So that is our journal entry. Let's take a few minutes, and it won't take
you long, but let's go ahead and do Exercise 15.9 in your books. Exercise 15.9. I'll go ahead and put that up on the screen,
okay? This one right here. Exercise 15.9. Okay. And they can play that wonderful music that
you love so much. (Music) okay, I won't read this to you since
you've just read it yourself, but what you do is you simply add up the total cost of
this portfolio. You add up the fair value which you'd get
from Wall Street Journal or whatever and has there been an appreciation or a decline? >>Decline.

>>Another decline. The fair value is less than the cost. So once again, we debit unrealized, unrealized
not realized, it's unrealized because it's not being confirmed by a sale. An unrealized loss for 850 and we credit a
fair value adjustment for 850. Does that make sense? Okay. Make sure you are shifted into the Chapter
15 mode. Now what all of this is buying bonds and stocks
of other companies, right? That we hold as assets for the reasons that
we had those, we talked about in the first slide, motivations for holding investments. Make sure on your test when we're purchasing
treasury stock, that's when we purchased our own stock.

Is that a Chapter 15 subject? No. Remember how I said treasury stock is not
an asset? Treasury stock is a Chapter 13 subject. Okay, I know I have a Chapter 13 treasury
stock problem on the test so I don't want you to be shifted into Chapter 15 on that,
cool? Okay. A couple more things then we'll call it a
day. First of all, we'll go over –Chapter 14 is
the next Chapter that we're going to cover.

You folks at home, remember to look at your
online assignment for Chapter 15, okay? Chapter 15 –or I should. Let me be a little more specific here. Your connect assignment for Chapter 15, look
at the due date and when that is due. You folks, look at your due date as well. Before I forget, in your slides you might
have this appendix 15A about investments and international operations; you're not responsible
for that at all right now. And I haven't had any homework over that. But just to answer any questions, go ahead
and keep that because we might come back to that later, okay? You with me? But the last thing I want to touch on is this;
this is all a very complicated subject as far as dealing with investments, okay? And we talked about the majority of the cases,
you own less than 20% ownership, okay? Well I do at least want to bring/mention,
as we close, what happens if you own more than 20% –what do you do –of stock.

Okay, you own 20% or more of the stock. Well, if you own 20 do 50% of the company
as an owner in equity, you will learn eventually in your accounting career about what is called
the equity method. I don't really cover it in this class; it's
more of an advanced topic. But the equity method is a slightly different
way of accounting for your investments because you have that 20 to 50% ownership. What you actually end up doing is increasing
your asset for your percent share of their income, things like that. Okay. And if you own more than 50%, if you own more
than 50% of the company stock, you are in control. You are going to win every election that that
company ever has at the board of director meeting, are you right? Because you own more than 50% of the shares. Well in that case, what you do is you have
controlling influence and you will do a consolidation. You will actually bring that entity into your
fold and you will show the results in your company financial statements.

Okay. And doing a consolidation is a very advanced
topic, as a matter of fact, it was covered in one of my final accounting classes in my
bachelor's degree called Advanced Accounting. But you will do a consolidation if you own
more than 15% or more than 50%. Okay? So I'm just kind of bringing those up, something
to look forward to if you get your accounting degree. But like I said, in these examples, we are
over here. All right? Any other questions, folks? Do well on your test. We will start Chapter 14 after. And good luck and we'll see you soon..

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