BUSI 2160U Chapter Notes - Chapter 11: Consolidated Financial Statement, Equity Method, Financial Statement
Document Summary
Companies may be accumulating cash for future expansion or acquisitions and invest to earn a reasonable return on it in the meantime. These investments might provide opportunities to earn dividend, interest, and capital gains income for the investing company. Companies might purchase competing companies to reduce competition and expand their presence in a market. Investor corporation is a corporation that has an investment in another company. Investee corporation is a corporation that an investor corporation has invested in. For accounting purposes, there are three levels of influence: Control - an investor controls an investee and can make all its important decisions. An investee that is controlled is called a subsidiary of the investor, and the financial statements of the investor and investee are aggregated into a single set of consolidated financial statement. Significant influence - the investor doesn"t control an investee but can affect its important decisions. The investor corporation should use the equity method of accounting.
