Accounting Chapter 12
Terms
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Held-to-maturity Investments
- investments in bonds that management has the intent and ability to hold until maturity
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Amortized Cost Method
- reports investments in debt securities held to maturity at cost minus any premium or discount
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Market Value Method
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reports securities at their current market value
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Unrealized Holding Gains and Losses
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amounts associated with price changes of securities that are currently held
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Trading Securities
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all investments in stocks or bonds held primarily for the purpose of active trading (buying and selling) in the near future (classified as short term)
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Securities Available for Sale
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all passive investments other than trading securities (classified as short or long term)
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Equity Method
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used when an investor can exert significant influence over an investee; the method permits recording the investor's share of the investee's income
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Investments in Associated or affiliated Companies
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investments in stock held for the purpose of influencing the operating and financing strategies of the entity for the long term
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Parent Company
- the entity that gains control over another company
- Subsidiary Company
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the entity that is acquired by the parent
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Consolidated Financial Statements
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combine the operations of two or more companies into a single set of statements
- Merger
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occurs when one company purcheses all of the net assets of another and the target company goes out of existence
- Goodwill (cost in excess of net assets acquired)
- the excess of the purchase price of a business over the fair market value of the business's assets and liabilities
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Purchase Method
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records assets and liabilities acquired in a merger or acquisition at their fair market value
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Return on Assets (RDA) =
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Return on Assets (RDA) = Net Income / Average Total Assets*
*(Beginning Total Assets + Ending Total Assets / 2)
Measures how much the company earned on every dollar of assets during the period. A high or rising ratio suggests that the