im_ch11.docVIP

CHAPTER 11 MARKETABLE SECURITIES AND INVESTMENTS I. Learning Objectives A. Understand why firms acquire securities of other firms and how the purpose of the investment governs the method of accounting for that investment. B. Develop skills to apply the market value method to minority, passive investments. C. Develop skills to apply the equity method to minority, active investments, contrasting its financial statement effects with the market value method. D. Understand the concepts underlying consolidated financial statements for majority, active investments, contrasting the financial statement effects of consolidation with the equity method. E. Develop the necessary skills to prepare consolidated financial statements (Appendix 11.1). F. Develop an understanding of the financial statement effects of using the purchase method to account for a corporate acquisition (Appendix 11.2). II. Organization of Class Sessions We generally find that students are gasping for breath by the time we reach this chapter. As a minimum, we want students to grasp the differences in the financial statements effects of the market value, equity, and consolidation methods and the conditions when each method is appropriate. Coverage of these topics takes at least two hours of class time. When we can devote three hours of class time to this chapter, we add the preparation of consolidated statements (Appendix 11.1). When we can devote four hours of class time, we add the purchase methods of accounting for a corporate acquisition (Appendix 11.2). III. Lecture Outline A. Understand why firms acquire securities of other firms and how the purpose of the investment governs the method of accounting for that investment. See B. below. We place Figure 11.1 from the text on an overhead transparency. We then ask students to indicate the business purpose for each of the three categories of intercorporate investments. Firms generally make minority, passive investments for their interest, dividen