Accounting Question

Scenario

You are the accounting advisor for a midsize manufacturing company. The company has reached the point where all financing needs are covered and there is excess capital to invest. You are considering potential investment options. Options include passive investments (e.g., bonds, and gaining less than 20% influence in another company) or active investments (e.g., gaining significant influence in another company, acquiring another company, and possible international investments including corporate acquisitions). The CEO has requested an explanation of the options and their relative advantages and disadvantages.

Directions

Write an email to the CEO explaining the various investment options and strategies, as described above.

Specifically, you must address the following rubric criteria:

1. Identify the implications of the various active and passive investment options.
2. Describe the reasons for gaining significant influence in another company.
3. Explain the strategies for potential investments.
4. Describe the accounting effects of consolidating the accounts of a subsidiary.
5. Summarize the potential consequences if an acquisition does not go as planned.